Item 1. Financial Statements (Unaudited).
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars, except for share data)
|
July 4, 2020
|
|
September 28, 2019
|
|
Assets
|
|
|
|
|
Current assets
|
|
|
|
|
Cash and cash equivalents
|
$
|
12,538
|
|
|
$
|
70,959
|
|
|
Accounts receivable, net
|
13,694
|
|
|
10,537
|
|
|
Inventories
|
155,717
|
|
|
78,830
|
|
|
Other current assets
|
9,459
|
|
|
11,765
|
|
|
Total current assets
|
$
|
191,408
|
|
|
$
|
172,091
|
|
|
Property, plant and equipment, net
|
104,667
|
|
|
100,058
|
|
|
Goodwill
|
18,825
|
|
|
18,825
|
|
|
Intangible assets, net
|
52,404
|
|
|
54,720
|
|
|
Equity investment in affiliate
|
11,946
|
|
|
11,106
|
|
|
Deferred tax assets
|
3,882
|
|
|
3,600
|
|
|
Finance lease right-of-use assets
|
5,790
|
|
|
4,638
|
|
|
Other assets
|
1,133
|
|
|
375
|
|
|
Total assets
|
$
|
390,055
|
|
|
$
|
365,413
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
Current liabilities
|
|
|
|
|
Accounts payable
|
$
|
95,538
|
|
|
$
|
102,266
|
|
|
Warranty
|
8,123
|
|
|
9,161
|
|
|
Accrued expenses
|
15,638
|
|
|
28,697
|
|
|
Deferred warranty income
|
8,448
|
|
|
8,632
|
|
|
Finance lease obligations
|
1,032
|
|
|
716
|
|
|
Other current liabilities
|
13,425
|
|
|
10,310
|
|
|
Current portion of long-term debt
|
9,900
|
|
|
9,900
|
|
|
Total current liabilities
|
$
|
152,104
|
|
|
$
|
169,682
|
|
|
Long-term liabilities
|
|
|
|
|
Revolving credit facility
|
$
|
45,000
|
|
|
$
|
—
|
|
|
Long-term debt
|
166,467
|
|
|
173,226
|
|
|
Warranty
|
12,705
|
|
|
13,182
|
|
|
Deferred warranty income
|
13,597
|
|
|
15,413
|
|
|
Deferred tax liabilities
|
792
|
|
|
168
|
|
|
Finance lease obligations
|
4,870
|
|
|
3,921
|
|
|
Other liabilities
|
13,251
|
|
|
12,108
|
|
|
Pension
|
43,197
|
|
|
45,524
|
|
|
Total long-term liabilities
|
$
|
299,879
|
|
|
$
|
263,542
|
|
|
Guarantees, commitments and contingencies (Note 6)
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 shares issued at July 4, 2020 and September 28, 2019
|
$
|
—
|
|
|
$
|
—
|
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized, 27,048,404 and 26,476,336 shares outstanding at July 4, 2020 and September 28, 2019, respectively
|
3
|
|
|
3
|
|
|
Additional paid-in capital
|
88,930
|
|
|
84,271
|
|
|
Accumulated deficit
|
(45,405
|
)
|
|
(45,649
|
)
|
|
Accumulated other comprehensive loss
|
(55,174
|
)
|
|
(56,154
|
)
|
|
Treasury stock, at cost, 1,782,568 shares at July 4, 2020 and September 28, 2019
|
(50,282
|
)
|
|
(50,282
|
)
|
|
Total stockholders' deficit
|
$
|
(61,928
|
)
|
|
$
|
(67,811
|
)
|
|
Total liabilities and stockholders' deficit
|
$
|
390,055
|
|
|
$
|
365,413
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands of dollars except for share data)
|
July 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Net sales
|
$
|
189,181
|
|
|
$
|
308,774
|
|
|
$
|
597,810
|
|
|
$
|
675,342
|
|
|
Cost of goods sold
|
168,099
|
|
|
266,992
|
|
|
531,259
|
|
|
588,496
|
|
|
Gross profit
|
$
|
21,082
|
|
|
$
|
41,782
|
|
|
$
|
66,551
|
|
|
$
|
86,846
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
17,793
|
|
|
20,996
|
|
|
58,146
|
|
|
61,197
|
|
|
Operating profit
|
$
|
3,289
|
|
|
$
|
20,786
|
|
|
$
|
8,405
|
|
|
$
|
25,649
|
|
|
Interest expense
|
(2,406
|
)
|
|
(3,369
|
)
|
|
(9,961
|
)
|
|
(10,241
|
)
|
|
Interest income
|
27
|
|
|
—
|
|
|
27
|
|
|
9
|
|
|
Other income (expense), net
|
181
|
|
|
(410
|
)
|
|
555
|
|
|
(1,034
|
)
|
|
Income (loss) before income taxes
|
$
|
1,091
|
|
|
$
|
17,007
|
|
|
$
|
(974
|
)
|
|
$
|
14,383
|
|
|
Income tax (expense) benefit
|
(765
|
)
|
|
(3,248
|
)
|
|
378
|
|
|
(2,833
|
)
|
|
Equity in net income of non-consolidated affiliate
|
960
|
|
|
842
|
|
|
840
|
|
|
1,158
|
|
|
Net income
|
$
|
1,286
|
|
|
$
|
14,601
|
|
|
$
|
244
|
|
|
$
|
12,708
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
27,027,731
|
|
|
26,451,107
|
|
|
26,784,404
|
|
|
26,449,751
|
|
|
Diluted weighted average shares outstanding
|
27,080,015
|
|
|
26,720,110
|
|
|
26,980,480
|
|
|
26,788,306
|
|
|
Basic earnings per share
|
$
|
0.05
|
|
|
$
|
0.55
|
|
|
$
|
0.01
|
|
|
$
|
0.48
|
|
|
Diluted earnings per share
|
$
|
0.05
|
|
|
$
|
0.55
|
|
|
$
|
0.01
|
|
|
$
|
0.47
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Net income
|
$
|
1,286
|
|
|
$
|
14,601
|
|
|
$
|
244
|
|
|
$
|
12,708
|
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
Net change in defined benefit pension plan
|
327
|
|
|
524
|
|
|
980
|
|
|
1,572
|
|
|
Total other comprehensive income
|
$
|
327
|
|
|
$
|
524
|
|
|
$
|
980
|
|
|
$
|
1,572
|
|
|
Comprehensive income
|
$
|
1,613
|
|
|
$
|
15,125
|
|
|
$
|
1,224
|
|
|
$
|
14,280
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
June 29, 2019
|
|
Cash flows from operating activities
|
|
|
|
|
Net income
|
$
|
244
|
|
|
$
|
12,708
|
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
Depreciation and amortization
|
10,728
|
|
|
7,406
|
|
|
Non-cash interest expense
|
3,560
|
|
|
2,172
|
|
|
Share-based compensation
|
4,105
|
|
|
3,146
|
|
|
Equity in net income of non-consolidated affiliate
|
(840
|
)
|
|
(1,158
|
)
|
|
(Gain) loss on disposal of fixed assets
|
(100
|
)
|
|
50
|
|
|
Deferred taxes
|
32
|
|
|
500
|
|
|
Amortization of deferred actuarial pension losses
|
1,289
|
|
|
2,068
|
|
|
Foreign currency hedges
|
—
|
|
|
109
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(3,157
|
)
|
|
(16,162
|
)
|
|
Inventories
|
(76,887
|
)
|
|
(83,355
|
)
|
|
Other assets
|
2,480
|
|
|
(5,014
|
)
|
|
Accounts payable
|
(3,115
|
)
|
|
42,429
|
|
|
Accrued expenses, pension and other liabilities
|
(16,644
|
)
|
|
15,988
|
|
|
Total adjustments
|
$
|
(78,549
|
)
|
|
$
|
(31,821
|
)
|
|
Total cash used in operating activities
|
$
|
(78,305
|
)
|
|
$
|
(19,113
|
)
|
|
Cash flows from investing activities
|
|
|
|
|
Cash paid for fixed assets
|
$
|
(16,724
|
)
|
|
$
|
(30,154
|
)
|
|
Proceeds from sale of fixed assets
|
150
|
|
|
—
|
|
|
Total cash used in investing activities
|
$
|
(16,574
|
)
|
|
$
|
(30,154
|
)
|
|
Cash flows from financing activities
|
|
|
|
|
Borrowings under the revolving credit facility
|
$
|
45,000
|
|
|
$
|
25,000
|
|
|
Borrowings under the senior term loan
|
—
|
|
|
50,000
|
|
|
Repayments under the senior term loan
|
(7,425
|
)
|
|
(7,425
|
)
|
|
Principal payments on finance leases
|
(854
|
)
|
|
—
|
|
|
Cash paid for debt issuance costs
|
(935
|
)
|
|
—
|
|
|
Cash paid for employee taxes on vested restricted shares and stock option exercises
|
(3,568
|
)
|
|
(622
|
)
|
|
Proceeds from exercises of warrants
|
4,240
|
|
|
1,499
|
|
|
Tender offer repurchase of common stock and preferred stock
|
—
|
|
|
(50,370
|
)
|
|
Total cash provided by financing activities
|
$
|
36,458
|
|
|
$
|
18,082
|
|
|
Change in cash and cash equivalents
|
(58,421
|
)
|
|
(31,185
|
)
|
|
Cash and cash equivalents, beginning of period
|
70,959
|
|
|
60,260
|
|
|
Cash and cash equivalents, end of period
|
$
|
12,538
|
|
|
$
|
29,075
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
Interest paid, net of interest received
|
$
|
6,616
|
|
|
$
|
7,916
|
|
|
Income tax paid, net of tax refunds
|
(1,668
|
)
|
|
2,431
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
Changes in accounts payable for capital additions to property, plant and equipment
|
$
|
(3,613
|
)
|
|
$
|
(1,307
|
)
|
|
Cashless exercise of stock options
|
5,246
|
|
|
295
|
|
|
Right-of-use assets obtained in exchange for finance lease obligations
|
1,942
|
|
|
—
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations
|
—
|
|
|
8,040
|
|
|
Conversion of preferred stock into common stock
|
—
|
|
|
9,264
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 30, 2019
|
26,440,663
|
|
|
$
|
3
|
|
|
$
|
81,889
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
(37,379
|
)
|
|
$
|
(71,842
|
)
|
|
1,782,568
|
|
|
$
|
(50,261
|
)
|
|
$
|
(77,590
|
)
|
|
Warrant exercises
|
17,750
|
|
|
—
|
|
|
204
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
204
|
|
|
Stock option activity
|
2,043
|
|
|
—
|
|
|
(20
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
1,095
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,095
|
|
|
Tender offer share repurchases
|
—
|
|
|
—
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(21
|
)
|
|
—
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,601
|
|
|
—
|
|
|
—
|
|
|
14,601
|
|
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
524
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
524
|
|
|
Balance, June 29, 2019
|
26,460,456
|
|
|
$
|
3
|
|
|
$
|
83,189
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
(36,855
|
)
|
|
$
|
(57,241
|
)
|
|
1,782,568
|
|
|
$
|
(50,282
|
)
|
|
$
|
(61,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 29, 2018
|
27,259,262
|
|
|
$
|
3
|
|
|
$
|
70,023
|
|
|
93,000
|
|
|
$
|
9,300
|
|
|
$
|
(38,427
|
)
|
|
$
|
(69,235
|
)
|
|
—
|
|
|
$
|
—
|
|
|
$
|
(28,336
|
)
|
|
Adoption of new revenue recognition standard (ASC 606) adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(714
|
)
|
|
—
|
|
|
—
|
|
|
(714
|
)
|
|
Warrant exercises
|
130,385
|
|
|
—
|
|
|
1,499
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,499
|
|
|
Restricted stock activity
|
51,195
|
|
|
—
|
|
|
(596
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(596
|
)
|
|
Stock option activity
|
2,567
|
|
|
—
|
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
|
Share-based compensation expense
|
—
|
|
|
—
|
|
|
3,077
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,077
|
|
|
Tender offer share repurchases
|
(1,782,568
|
)
|
|
—
|
|
|
(52
|
)
|
|
(364
|
)
|
|
(36
|
)
|
|
—
|
|
|
—
|
|
|
1,782,568
|
|
|
(50,282
|
)
|
|
(50,370
|
)
|
|
Preferred stock conversion
|
799,615
|
|
|
—
|
|
|
9,264
|
|
|
(92,636
|
)
|
|
(9,264
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,708
|
|
|
—
|
|
|
—
|
|
|
12,708
|
|
|
Other comprehensive income, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,572
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,572
|
|
|
Balance, June 29, 2019
|
26,460,456
|
|
|
$
|
3
|
|
|
$
|
83,189
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
(36,855
|
)
|
|
$
|
(57,241
|
)
|
|
1,782,568
|
|
|
$
|
(50,282
|
)
|
|
$
|
(61,186
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
BLUE BIRD CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Business and Basis of Presentation
Nature of Business
Blue Bird Body Company, a wholly-owned subsidiary of Blue Bird Corporation, was incorporated in 1958 and has manufactured, assembled and sold school buses to a variety of municipal, federal and commercial customers since 1927. The majority of Blue Bird’s sales are made to an independent distributor network, which in turn sells buses to ultimate end users. We are headquartered in Macon, Georgia. References in these notes to financial statements to “Blue Bird”, the “Company,” “we,” “our,” or “us” refer to Blue Bird Corporation and its wholly-owned subsidiaries, unless the context specifically indicates otherwise.
COVID-19
During our third quarter of fiscal 2020, the novel coronavirus known as "COVID-19" continued to spread throughout the world, perpetuating a global pandemic. The pandemic materially impacted our third quarter of fiscal 2020 results causing 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. The continuing development and fluidity of the pandemic precludes any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity. A prolonged economic downturn resulting from the continuing pandemic would likely have a material adverse impact on our financial results.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Article 8 of Regulation S-X. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. In fiscal year 2020, there is a total of 53 weeks. The third quarters of fiscal 2020 and 2019 both included 13 weeks. The nine month periods in fiscal 2020 and 2019 included 40 and 39 weeks, respectively.
In the opinion of management, all adjustments considered necessary for a fair presentation of financial results have been made. Such adjustments consist of only those of a normal recurring nature. Operating results for any interim period are not necessarily indicative of the results that may be expected for the entire year. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
The Condensed Consolidated Balance Sheet data as of September 28, 2019 was derived from the Company’s audited financial statements but does not include all disclosures required by generally accepted accounting principles. For additional information, including the Company’s significant accounting policies, refer to the consolidated financial statements and related footnotes for the fiscal year ended September 28, 2019 as set forth in the Company's 2019 Form 10-K filed on December 12, 2019.
Use of Estimates and Assumptions
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions. At the date of the financial statements, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, and during the reporting period, these estimates and assumptions affect the reported amounts of revenues and expenses. For example, significant management judgments are required in determining excess, obsolete, or unsalable inventory, allowance for doubtful accounts, potential impairment of long-lived assets, goodwill and intangibles, the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies. Future events, 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 Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used.
2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards
The Company’s significant accounting policies are described in the Company’s 2019 Form 10-K, filed with the SEC on December 12, 2019. Our senior management has reviewed these significant accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies in the nine months ended July 4, 2020, except as follows (and as discussed in the Recently Adopted Accounting Standards section of this Note 2):
Amortization of Deferred Pension Losses
Historically, the Company has amortized deferred losses from our frozen defined benefit pension plan accounted for under ASC 715, Compensation - Retirement Benefits, over the expected remaining employment period of the participants who remained employed with the Company. ASC 715 states that if all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants shall be used to amortize the unrecognized net gain or loss instead of the average remaining service period of active plan participants. In the first quarter of 2020, the ratio of active (employed) to inactive participants in our plan declined to less than 10%, a figure we believe meets the definition of almost all participants as inactive. Accordingly, we have changed the amortization period from approximately seven years in 2019 to approximately 23 years in 2020. Future amortization periods (remaining life expectancy) will be determined based on the participant and actuarial data at that time.
Recently Adopted Accounting Standards
ASU 2018-02 – In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU provides guidance on a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the effect of the tax rate change resulting from the Tax Cuts and Jobs Act (H.R.1) (the "Tax Act"). The amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of information reported to financial statement users. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. We adopted this ASU, in the first quarter of fiscal 2020, and did not elect to reclassify the income tax effects of the Tax Act from AOCI to retained earnings. We use a specific identification approach to release the income tax effects in AOCI.
ASU 2019-12 – In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the process for calculating interim (intraperiod) income taxes and the accounting for deferred tax liabilities for foreign equity-method investments, among other simplifications. We have early adopted this standard effective the first quarter of fiscal 2020. The impacts of adopting this standard were not material to us.
Recently Issued Accounting Standards
ASU 2020-04 – On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR, which is currently expected to occur on December 31, 2021. The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued. An entity may elect to apply the amendments prospectively from March 12, 2020 through December 31, 2022. Our debt and derivative agreements currently reference LIBOR. Contract language is expected to be incorporated into these agreements to address the transition to an alternative reference rate. We are currently evaluating the impact this ASU may have on our consolidated financial statements.
3. Supplemental Financial Information
Inventories
The following table presents the components of inventories at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
September 28, 2019
|
|
Raw materials
|
$
|
108,041
|
|
|
$
|
60,033
|
|
|
Work in process
|
29,790
|
|
|
16,663
|
|
|
Finished goods
|
17,886
|
|
|
2,134
|
|
|
Total inventories
|
$
|
155,717
|
|
|
$
|
78,830
|
|
Product Warranties
The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Balance at beginning of period
|
$
|
21,398
|
|
|
$
|
21,520
|
|
|
$
|
22,343
|
|
|
$
|
22,646
|
|
|
Add current period accruals
|
1,947
|
|
|
3,358
|
|
|
6,076
|
|
|
7,196
|
|
|
Current period reductions of accrual
|
(2,517
|
)
|
|
(2,358
|
)
|
|
(7,591
|
)
|
|
(7,322
|
)
|
|
Balance at end of period
|
$
|
20,828
|
|
|
$
|
22,520
|
|
|
$
|
20,828
|
|
|
$
|
22,520
|
|
Extended Warranties
The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two to five years, for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Balance at beginning of period
|
$
|
22,948
|
|
|
$
|
22,901
|
|
|
$
|
24,045
|
|
|
$
|
23,191
|
|
|
Add current period deferred income
|
1,769
|
|
|
2,880
|
|
|
5,058
|
|
|
6,686
|
|
|
Current period recognition of income
|
(2,672
|
)
|
|
(2,196
|
)
|
|
(7,058
|
)
|
|
(6,292
|
)
|
|
Balance at end of period
|
$
|
22,045
|
|
|
$
|
23,585
|
|
|
$
|
22,045
|
|
|
$
|
23,585
|
|
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 $2.3 million of the outstanding contract liability during the remainder of fiscal 2020, $7.8 million in fiscal 2021, and the remaining balance thereafter.
Self-Insurance
The following table reflects our total accrued self-insurance liability, comprised of workers' compensation and health insurance related claims, at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
September 28, 2019
|
|
Current portion
|
$
|
2,732
|
|
|
$
|
2,933
|
|
|
Long-term portion
|
1,794
|
|
|
1,775
|
|
|
Total accrued self-insurance
|
$
|
4,526
|
|
|
$
|
4,708
|
|
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 $3.9 million and $6.0 million for the three months ended July 4, 2020 and June 29, 2019, respectively, and $11.5 million and $12.5 million for the nine months ended July 4, 2020 and June 29, 2019, respectively. The related cost of goods sold was $3.4 million and $5.3 million for the three months ended July 4, 2020 and June 29, 2019, respectively, and $10.0 million and $11.0 million for the nine months ended July 4, 2020 and June 29, 2019, respectively.
Pension Expense
Components of net periodic pension benefit cost were as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Interest cost
|
$
|
1,237
|
|
|
$
|
1,512
|
|
|
$
|
3,711
|
|
|
$
|
4,535
|
|
|
Expected return on plan assets
|
(1,846
|
)
|
|
(1,905
|
)
|
|
(5,538
|
)
|
|
(5,714
|
)
|
|
Amortization of prior loss
|
430
|
|
|
689
|
|
|
1,289
|
|
|
2,068
|
|
|
Net periodic benefit cost
|
$
|
(179
|
)
|
|
$
|
296
|
|
|
$
|
(538
|
)
|
|
$
|
889
|
|
|
Amortization of prior loss, recognized in other comprehensive income
|
430
|
|
|
689
|
|
|
1,289
|
|
|
2,068
|
|
|
Total recognized in net periodic pension benefit cost and other comprehensive income
|
$
|
(609
|
)
|
|
$
|
(393
|
)
|
|
$
|
(1,827
|
)
|
|
$
|
(1,179
|
)
|
Derivative Instruments
We are charged variable rates of interest on our indebtedness outstanding under the Amended Credit Agreement (defined below) which exposes us to fluctuations in interest rates. On October 24, 2018, the Company entered into a four-year interest rate collar with a $150.0 million notional value with an effective date of November 30, 2018. The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. The collar establishes a range where we will pay the counterparty if the three-month LIBOR rate falls below the established floor rate of 1.5%, and the counterparty will pay us if the three-month LIBOR rate exceeds the ceiling rate of 3.3%. The collar settles quarterly through the termination date of September 30, 2022. No payments or receipts are exchanged on the interest rate collar contracts unless interest rates rise above or fall below the contracted ceiling or floor rates. During the three-months ended July 4, 2020, the three-month LIBOR rate fell below the established floor, which required an immaterial payment to the counterparty.
Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting. At July 4, 2020, the fair value of the interest rate collar contract was $(4.2) million and is included in "other current liabilities" on the Condensed Consolidated Balance Sheets. The fair value of the interest rate collar is a Level 2 fair value measurement, based on quoted prices of similar items in active markets.
Equity Investment in Affiliate
The Company holds a 50% equity interest in Micro Bird Holdings, Inc. (“Micro Bird”), and accounts for Micro Bird under the equity method of accounting. The carrying amount of the equity method investment is adjusted for the Company’s proportionate share of net earnings and losses and any dividends received. At July 4, 2020 and September 28, 2019, the carrying value of the Company's investment was $11.9 million and $11.1 million, respectively.
In recognizing the Company’s 50% portion of Micro Bird net income, the Company recorded $0.8 million and $1.2 million in Equity in net income of non-consolidated affiliate for the nine months ended July 4, 2020 and June 29, 2019, respectively. Summarized unaudited financial information for these periods for Micro Bird is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
June 29, 2019
|
|
Revenues
|
$
|
58,883
|
|
|
$
|
86,364
|
|
|
Gross profit
|
7,318
|
|
|
9,961
|
|
|
Operating income
|
1,557
|
|
|
3,717
|
|
|
Net income
|
1,103
|
|
|
2,409
|
|
4. Debt
On May 7, 2020, the Company entered into a Second Amendment which amended the Credit Agreement, dated as of December 12, 2016 (the “Credit Agreement”, as amended by that certain First Amendment to Credit Agreement, dated as of September 13, 2018 (the “First Amendment”), and as further amended by the Second Amendment, the “Amended Credit Agreement”). The Second Amendment provided
for an aggregate lender commitment of $41.9 million of additional revolving commitments bringing the total revolving commitments to $141.9 million. The revolving commitments under the Amended Credit Agreement mature on September 13, 2023, which is the fifth anniversary of the effective date of the First Amendment. The interest rate pricing grid remained unchanged, but the LIBOR floor was amended from 0% to 0.75%. We incurred $0.9 million in fees related to the amendment. The fees were capitalized to other assets on the Consolidated Balance Sheets and are amortized on a straight-line basis to interest expense until maturity of the agreement.
Term debt consisted of the following at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
September 28, 2019
|
|
2023 term loan, net of deferred financing costs of $2,458 and $3,124, respectively
|
$
|
176,367
|
|
|
$
|
183,126
|
|
|
Less: current portion of long-term debt
|
9,900
|
|
|
9,900
|
|
|
Long-term debt, net of current portion
|
$
|
166,467
|
|
|
$
|
173,226
|
|
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 4, 2020 and September 28, 2019, $178.8 million and $186.3 million, respectively, were outstanding on the term loans.
At July 4, 2020 and September 28, 2019, the stated interest rates on the term loans were 2.8% and 4.4%, respectively. At July 4, 2020 and September 28, 2019, the weighted-average annual effective interest rates for the term loans were 4.1% and 5.0%, respectively, which includes amortization of the deferred financing costs.
At July 4, 2020, $45.0 million in borrowings were outstanding on the Revolving Credit Facility and $6.9 million of Letters of Credit were outstanding; therefore, the Company would have been able to borrow $90.0 million on the revolving line of credit.
Interest expense on all indebtedness was $2.4 million and $3.4 million for the three months ended July 4, 2020 and June 29, 2019, respectively, and $10.0 million and $10.3 million for the nine months ended July 4, 2020 and June 29, 2019, respectively.
The schedule of remaining principal payments through maturity for total debt is as follows:
|
|
|
|
|
|
|
|
|
(in thousands of dollars)
|
|
Year
|
|
Principal Payments
|
|
2020
|
|
$
|
2,475
|
|
|
2021
|
|
9,900
|
|
|
2022
|
|
14,850
|
|
|
2023
|
|
196,600
|
|
|
Total remaining principal payments
|
|
$
|
223,825
|
|
5. Income Taxes
Income tax provisions for interim periods are based on estimated annual income tax rates, adjusted to reflect the effects of any significant infrequent or unusual items which are required to be discretely recognized within the current interim period. The effective tax rates in the periods presented are largely based upon the forecast pre-tax earnings mix and allocation of certain expenses in various taxing jurisdictions where the Company conducts its business, primarily the United States. In periods where our operating income approximates or is equal to break-even, the effective tax rates for quarter-to-date and full-year periods may not be meaningful due to discrete period items.
On March 27, 2020 the President of the United States signed the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") into law. While the CARES Act has broad income tax implications for many companies, it did not have a material impact on our reported income tax accounts.
Three Months
The effective tax rate for the three-month period ended July 4, 2020 was 70.1%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to discrete period tax expense from prior year tax return adjustments and normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments.
The effective tax rate for the three-month period ended June 29, 2019 was 19.1%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate benefit items, such as federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.
Nine Months
The effective tax rate for the nine-month period ended July 4, 2020 was 38.8% and differed from the statutory federal tax rate of 21%. The difference is mainly due to a net discrete period tax benefit 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.
The effective tax rate for the nine-month period ended June 29, 2019 was 19.7% and differed from the statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate benefit items, primarily federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.
6. Guarantees, Commitments and Contingencies
Litigation
At July 4, 2020, the Company had a number of product liability and other cases pending. Management believes that, considering the Company’s insurance coverage and its intention to vigorously defend its positions, the ultimate resolution of these matters will not have a material adverse effect on the Company’s financial statements.
Environmental
The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is currently not involved in any material environmental proceedings and therefore management believes that the resolution of pending environmental matters will not have a material adverse effect on the Company’s financial statements.
Guarantees
In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers. At July 4, 2020, we had a $3.0 million guarantee outstanding which relates to a guarantee of indebtedness for a term loan with remaining maturity up to 2.5 years. The $3.0 million represents the estimated maximum amount we would be required to pay upon default of all guaranteed indebtedness, and we believe the likelihood of required performance to be remote. At July 4, 2020, $0.3 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantee.
Lease Commitments
We have operating and finance leases for office and/or warehouse space and for equipment. Our leases have remaining terms of 4.4 to 7.4 years.
7. Segment Information
We manage our business in two operating segments: (i) the Bus segment, which includes the manufacturing and assembly of buses to be sold to a variety of customers across the United States, Canada and in international markets; and (ii) the Parts segment, which consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network. The tables below present segment net sales and gross profit for the periods presented:
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Bus (1)
|
$
|
180,592
|
|
|
$
|
292,166
|
|
|
$
|
554,061
|
|
|
$
|
626,441
|
|
|
Parts (1)
|
8,589
|
|
|
16,608
|
|
|
43,749
|
|
|
48,901
|
|
|
Segment net sales
|
$
|
189,181
|
|
|
$
|
308,774
|
|
|
$
|
597,810
|
|
|
$
|
675,342
|
|
(1) Parts segment revenue includes $0.8 million and $1.0 million for the three months ended July 4, 2020 and June 29, 2019, respectively, and $3.2 million and $2.5 million for the nine months ended July 4, 2020 and June 29, 2019, respectively, related to inter-segment sales of parts that was eliminated by the Bus segment upon consolidation.
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
July 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Bus
|
$
|
18,079
|
|
|
$
|
35,996
|
|
|
$
|
50,884
|
|
|
$
|
69,653
|
|
|
Parts
|
3,003
|
|
|
5,786
|
|
|
15,667
|
|
|
17,193
|
|
|
Segment gross profit
|
$
|
21,082
|
|
|
$
|
41,782
|
|
|
$
|
66,551
|
|
|
$
|
86,846
|
|
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 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Segment gross profit
|
$
|
21,082
|
|
|
$
|
41,782
|
|
|
$
|
66,551
|
|
|
$
|
86,846
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
(17,793
|
)
|
|
(20,996
|
)
|
|
(58,146
|
)
|
|
(61,197
|
)
|
|
Interest expense
|
(2,406
|
)
|
|
(3,369
|
)
|
|
(9,961
|
)
|
|
(10,241
|
)
|
|
Interest income
|
27
|
|
|
—
|
|
|
27
|
|
|
9
|
|
|
Other income (expense), net
|
181
|
|
|
(410
|
)
|
|
555
|
|
|
(1,034
|
)
|
|
Income (loss) before income taxes
|
$
|
1,091
|
|
|
$
|
17,007
|
|
|
$
|
(974
|
)
|
|
$
|
14,383
|
|
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 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
United States
|
$
|
175,433
|
|
|
$
|
286,499
|
|
|
$
|
544,176
|
|
|
$
|
629,668
|
|
|
Canada
|
13,429
|
|
|
21,639
|
|
|
49,331
|
|
|
43,499
|
|
|
Rest of world
|
319
|
|
|
636
|
|
|
4,303
|
|
|
2,175
|
|
|
Total net sales
|
$
|
189,181
|
|
|
$
|
308,774
|
|
|
$
|
597,810
|
|
|
$
|
675,342
|
|
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 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Diesel buses
|
$
|
88,299
|
|
|
$
|
135,246
|
|
|
$
|
278,698
|
|
|
$
|
335,553
|
|
|
Alternative fuel buses (1)
|
80,975
|
|
|
141,939
|
|
|
245,766
|
|
|
260,340
|
|
|
Other (2)
|
11,583
|
|
|
15,486
|
|
|
30,931
|
|
|
32,061
|
|
|
Parts
|
8,324
|
|
|
16,103
|
|
|
42,415
|
|
|
47,388
|
|
|
Net sales
|
$
|
189,181
|
|
|
$
|
308,774
|
|
|
$
|
597,810
|
|
|
$
|
675,342
|
|
(1) Includes buses sold with any fuel source other than diesel (e.g. gasoline, propane, CNG, electric).
(2) Includes shipping and handling revenue, extended warranty income, surcharges, chassis, and bus shell sales.
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 4, 2020
|
|
June 29, 2019
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
$
|
1,286
|
|
|
$
|
14,601
|
|
|
$
|
244
|
|
|
$
|
12,708
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
27,027,731
|
|
|
26,451,107
|
|
|
26,784,404
|
|
|
26,449,751
|
|
|
Weighted-average dilutive securities, restricted stock
|
50,769
|
|
|
94
|
|
|
135,792
|
|
|
29,149
|
|
|
Weighted-average dilutive securities, warrants
|
—
|
|
|
150,292
|
|
|
—
|
|
|
178,290
|
|
|
Weighted-average dilutive securities, stock options
|
1,515
|
|
|
118,617
|
|
|
60,284
|
|
|
131,116
|
|
|
Weighted-average shares and dilutive potential common shares
|
27,080,015
|
|
|
26,720,110
|
|
|
26,980,480
|
|
|
26,788,306
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.05
|
|
|
$
|
0.55
|
|
|
$
|
0.01
|
|
|
$
|
0.48
|
|
|
Diluted earnings per share
|
$
|
0.05
|
|
|
$
|
0.55
|
|
|
$
|
0.01
|
|
|
$
|
0.47
|
|
(1) Potentially dilutive securities representing 0.4 million and 0.3 million shares of common stock were excluded from the computation of diluted earnings per share for the three and nine months ended July 4, 2020, respectively, as their effect would have been anti-dilutive.
10. Accumulated Other Comprehensive Loss
The following table provides information on changes in accumulated other comprehensive loss for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
|
Defined Benefit Pension Plan
|
|
Total
|
|
Defined Benefit Pension Plan
|
|
Total
|
|
July 4, 2020
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(55,501
|
)
|
|
$
|
(55,501
|
)
|
|
$
|
(56,154
|
)
|
|
$
|
(56,154
|
)
|
|
Amounts reclassified from other comprehensive loss and included in earnings
|
|
430
|
|
|
430
|
|
|
1,289
|
|
|
1,289
|
|
|
Total other comprehensive income, before taxes
|
|
430
|
|
|
430
|
|
|
1,289
|
|
|
1,289
|
|
|
Income tax expense
|
|
(103
|
)
|
|
(103
|
)
|
|
(309
|
)
|
|
(309
|
)
|
|
Ending Balance July 4, 2020
|
|
$
|
(55,174
|
)
|
|
$
|
(55,174
|
)
|
|
$
|
(55,174
|
)
|
|
$
|
(55,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
(37,379
|
)
|
|
$
|
(37,379
|
)
|
|
$
|
(38,427
|
)
|
|
$
|
(38,427
|
)
|
|
Amounts reclassified from other comprehensive loss and included in earnings
|
|
689
|
|
|
689
|
|
|
2,068
|
|
|
2,068
|
|
|
Total other comprehensive income, before taxes
|
|
689
|
|
|
689
|
|
|
2,068
|
|
|
2,068
|
|
|
Income tax expense
|
|
(165
|
)
|
|
(165
|
)
|
|
(496
|
)
|
|
(496
|
)
|
|
Ending Balance June 29, 2019
|
|
$
|
(36,855
|
)
|
|
$
|
(36,855
|
)
|
|
$
|
(36,855
|
)
|
|
$
|
(36,855
|
)
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company’s unaudited financial statements for the three and nine months ended July 4, 2020 and June 29, 2019 and related notes appearing in Part I, Item 1 of this Report. Our actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors”. Actual results may differ materially from those contained in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.
We refer to the fiscal year ended September 28, 2019 as “fiscal 2019”. We refer to the quarter ended July 4, 2020 as the “third quarter of fiscal 2020” and we refer to the quarter ended June 29, 2019 as the “third quarter of fiscal 2019”. The third quarters of fiscal 2020 and 2019 both included 13 weeks. The nine month periods in fiscal 2020 and 2019 included 40 and 39 weeks, respectively.
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”) of Blue Bird Corporation (“Blue Bird” or the “Company”) contains forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Except as otherwise indicated by the context, references in this Report to “we,” “us” and “our” are to the consolidated business of the Company. All statements in this Report, including those made by the management of the Company, other than statements of historical fact, are forward-looking statements. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “estimate,” “project,” “forecast,” “seek,” “target,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Examples of forward-looking statements include statements regarding the Company’s future financial results, research and development results, regulatory approvals, operating results, business strategies, projected costs, products, competitive positions, management’s plans and objectives for future operations, and industry trends. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. Specifically, forward-looking statements may include statements relating to:
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the future financial performance of the Company;
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negative changes in the market for Blue Bird products;
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expansion plans and opportunities;
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challenges or unexpected costs related to manufacturing;
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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:
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disruption in global financial and credit markets;
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supply shortages and supplier financial risk, especially from our single-source suppliers impacted by the pandemic;
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negative impacts to manufacturing operations or the supply chain from shutdowns or other disruptions in operations;
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negative impacts on capacity and/or production in response to changes in demand due to the pandemic, including possible cost containment actions;
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financial difficulties of our customers impacted by the pandemic;
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reductions in market demand for our products due to the pandemic; and
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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 (the “SEC”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2019 Form 10-K, filed with the SEC on December 12, 2019. Other risks and uncertainties are and will be disclosed in the Company’s prior and future SEC filings. The following information should be read in conjunction with the financial statements included in the Company’s 2019 Form 10-K, filed with the SEC on December 12, 2019.
Available Information
We are subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended, and as a result are obligated to file annual, quarterly, and current reports, proxy statements, and other information with the SEC. We make these filings available free of charge on our website (http://www.blue-bird.com) as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. Information on our website does not constitute part of this Quarterly Report on Form 10-Q. In addition, the SEC maintains a website (http://www.sec.gov) that contains our annual, quarterly, and current reports, proxy and information statements, and other information we electronically file with, or furnish to, the SEC.
Executive Overview
Blue Bird is the leading independent designer and manufacturer of school buses. Our longevity and reputation in the school bus industry have made Blue Bird an iconic American brand. We distinguish ourselves from our principal competitors by dedicating our focus to the design, engineering, manufacture and sale of school buses, and related parts. As the only principal manufacturer of chassis and body production specifically designed for school bus applications, Blue Bird is recognized as an industry leader for school bus innovation, safety, product quality/reliability/durability, efficiency, and lower operating costs. In addition, Blue Bird is the market leader in alternative to diesel fuel applications with its propane-powered, gasoline-powered, compressed natural gas (“CNG”)-powered, and all-electric-powered school buses.
Blue Bird sells its buses and parts through an extensive network of United States and Canadian dealers that, in their territories, are exclusive to Blue Bird on Type C and Type D school buses. Blue Bird also sells directly to major fleet operators, the United States Government, state governments, and authorized dealers in a number of foreign countries.
Impact of COVID-19 on Our Business
During our third fiscal quarter of 2020, the novel coronavirus known as "COVID-19" continued to spread throughout the world, perpetuating a global pandemic. The pandemic had triggered a significant downturn in global commerce as early as February 2020 and the challenging market conditions are expected to continue for an extended period of time. In early April, in an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, address the reduced demand from our customers and be responsive and efficient with supply chain constraints, we closed our manufacturing facilities for two weeks and requested our office employees to work from home. In late April, we successfully restarted manufacturing operations and have continued to manufacture buses since that time without further material disruption. While we have not experienced any pervasive COVID-19 illnesses to date, if we were to experience some form of outbreak within our facilities, we would take all appropriate measures to protect the health and safety of our employees, which could include another temporary halt in production.
The pandemic has resulted, and is likely to continue to result, in significant economic disruption and has adversely affected our business. It will continue to adversely impact our business for the remainder of our fiscal year 2020 and perhaps beyond. Significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic and its impact on the overall U.S and global economy. While the global market downturn, closures and limitations on movement are expected to be temporary, the duration of any demand reductions, production and supply chain disruptions, and related financial impacts, cannot be estimated at this time.
The full impacts from COVID-19 on the Company's financial results in fiscal year 2020 are uncertain as we continue to monitor and assess the level of future customer demand, the ability of school boards to make timely decisions, the ability of suppliers to resume and maintain operations, the ability of our employees to continue to work, and our ability to maintain continuous production for the remaining portion of our fiscal year. A prolonged economic downturn would likely have a material adverse impact on our sales and financial results beyond fiscal 2020. See PART II, Item 1A. Risk Factors, of this Quarterly Report for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.
The Company has taken actions to control spending and improve liquidity, including minor headcount rationalization and an increase in the revolving credit facility from $100.0 million to $141.9 million with a Second Amendment to the Credit Agreement. Further detail and discussion of this amendment can be found in the "Liquidity and Capital Resources" section of this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q. Even with adequate liquidity, we are evaluating and considering further actions to reduce costs and spending across our organization to be responsive to potential
longer-term impacts of business interruption from the pandemic. Our actions may include reducing hiring activities, limiting discretionary spending, limiting spending on capital investment projects or other steps necessary to preserve adequate liquidity. We will continue to actively monitor the situation and may need to take further actions required by federal, state or local authorities or enact measures we determine are in the best interests of our employees, customers, suppliers and shareholders. For further details and discussion about our liquidity, refer to the following "Liquidity and Capital Resources" section of this Item 2. "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q.
Critical Accounting Policies and Estimates, Recent Accounting Pronouncements
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Blue Bird evaluates its estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
The Company’s accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described in the Company’s 2019 Form 10-K, filed with the SEC on December 12, 2019 under the caption “ Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates,” which description is incorporated herein by reference. Our senior management has reviewed these critical accounting policies and related disclosures and determined that there were no significant changes in our critical accounting policies during the nine months ended July 4, 2020, except as follows:
Amortization of Deferred Pension Losses
Historically, the Company has amortized deferred losses from our frozen defined benefit pension plan accounted for under ASC 715, Compensation - Retirement Benefits, over the expected remaining employment period of the participants who remained employed with the Company. ASC 715 states that if all or almost all of a plan's participants are inactive, the average remaining life expectancy of the inactive participants shall be used to amortize the unrecognized net gain or loss instead of the average remaining service period of active plan participants. In the first quarter of 2020, the ratio of active (employed) to inactive participants in our plan declined to less than 10%, a figure we believe meets the definition of almost all participants as inactive. Accordingly, we have changed the amortization period from approximately seven years in 2019 to approximately 23 years in 2020. Future years will be determined based on the participant data at that time.
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:
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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.
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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.
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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.
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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.
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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.
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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.
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Seasonality. Historically, our sales have been subject to seasonal variation based on the school calendar with the peak season during our third and fourth fiscal quarters. Sales during the third and fourth fiscal quarters were typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they order available to them at the beginning of the new school year. With the COVID-19 pandemic impact on school systems and the uncertainty surrounding in-person schooling schedules and duration, seasonality has become unpredictable. Seasonality and variations from historical seasonality have impacted the comparison of results between fiscal periods.
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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:
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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.
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Selling, general and administrative expenses. Our selling, general and administrative expenses include costs associated with our selling and marketing efforts, engineering, centralized finance, human resources, purchasing, information technology services, and other administrative matters and functions. In most instances, other than direct costs associated with sales and marketing programs, the principal component of these costs is salary expense. Changes from period to period are typically driven by the number of our employees, as well as by merit increases provided to experienced personnel.
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Interest expense. Our interest expense relates to costs associated with our debt instruments and reflects both the amount of indebtedness and the interest rate that we are required to pay on our debt. Interest expense also includes unrealized gains or losses from interest rate hedges, if any, as well as expenses related to debt guarantees, if any.
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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.
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Other income (expense), net. This includes periodic pension expense as well as gains or losses on foreign currency, if any. Other immaterial amounts not associated with operating expenses may also be included here.
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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.
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Key Non-GAAP Financial Measures We Use to Evaluate Our Performance
This filing includes the following non-GAAP financial measures: “Adjusted EBITDA”, “Adjusted EBITDA Margin”, and “Free Cash Flow.” Management views these metrics as a useful way to look at the performance of our operations between periods and to exclude decisions on capital investment and financing that might otherwise impact the review of profitability of the business based on present market conditions.
Adjusted EBITDA is defined as net income prior to interest income, interest expense including the component of lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents interest expense on lease liabilities, income taxes, depreciation and amortization including the component of lease expense (which is presented as a single operating expense in selling, general and administrative expenses in our GAAP financial statements) that represents amortization charges on right-of-use lease assets, and disposals, as adjusted to add back certain charges that we may record each year,
such as stock-compensation expense, as well as non-recurring charges such as (i) significant product design changes; (ii) transaction related costs; (iii) discrete expenses related to major cost cutting initiatives; or (iv) costs directly attributed to the COVID-19 pandemic. We believe these expenses and non-recurring charges are not considered an indicator of ongoing company performance. We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales. Adjusted EBITDA and Adjusted EBITDA margin are not measures of performance defined in accordance with GAAP. The measures are used as a supplement to GAAP results in evaluating certain aspects of our business, as described below.
We believe that Adjusted EBITDA and Adjusted EBITDA margin are useful to investors in evaluating our performance because the measures consider the performance of our operations, excluding decisions made with respect to capital investment, financing, and other non-recurring charges as outlined in the preceding paragraph. We believe the non-GAAP metrics offer additional financial metrics that, when coupled with the GAAP results and the reconciliation to GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business.
Adjusted EBITDA and Adjusted EBITDA margin should not be considered as alternatives to net income as an indicator of our performance or as alternatives to any other measure prescribed by GAAP as there are limitations to using such non-GAAP measures. Although we believe that Adjusted EBITDA and Adjusted EBITDA margin may enhance an evaluation of our operating performance based on recent revenue generation and product/overhead cost control because they exclude the impact of prior decisions made about capital investment, financing, and other expenses, (i) other companies in Blue Bird’s industry may define Adjusted EBITDA and Adjusted EBITDA margin differently than we do and, as a result, they may not be comparable to similarly titled measures used by other companies in Blue Bird’s industry, and (ii) Adjusted EBITDA and Adjusted EBITDA margin exclude certain financial information that some may consider important in evaluating our performance.
We compensate for these limitations by providing disclosure of the differences between Adjusted EBITDA and GAAP results, including providing a reconciliation to GAAP results, to enable investors to perform their own analysis of our operating results.
Our measure of “Free Cash Flow” is used in addition to and in conjunction with results presented in accordance with GAAP and free cash flow should not be relied upon to the exclusion of GAAP financial measures. Free cash flow reflects an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. We strongly encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
We define free cash flow as total cash provided by/used in operating activities minus cash paid for fixed assets and acquired intangible assets. We use free cash flow, and ratios based on the free cash flow, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a more conservative measure of cash flow since purchases of fixed assets and intangible assets are a necessary component of ongoing operations. In limited circumstances in which proceeds from sales of fixed or intangible assets exceed purchases, free cash flow would exceed cash flow from operations. However, since we do not anticipate being a net seller of fixed or intangible assets, we expect free cash flow to be less than operating cash flows.
Our Segments
We manage our business in two operating segments, which are also our reportable segments: (i) the Bus segment, which involves the design, engineering, manufacture and sales of school buses and extended warranties; and (ii) the Parts segment, which includes the sales of replacement bus parts. Financial information is reported on the basis that it is used internally by the chief operating decision maker (“CODM”) in evaluating segment performance and deciding how to allocate resources to segments. The President and Chief Executive Officer of the Company has been identified as the CODM. Management evaluates the segments based primarily upon revenues and gross profit.
Consolidated Results of Operations for the Three Months Ended July 4, 2020 and June 29, 2019:
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Three Months Ended
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(in thousands of dollars)
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July 4, 2020
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June 29, 2019
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Net sales
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$
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189,181
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$
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308,774
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Cost of goods sold
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168,099
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266,992
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Gross profit
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$
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21,082
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$
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41,782
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Operating expenses
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Selling, general and administrative expenses
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17,793
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20,996
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Operating profit
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$
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3,289
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$
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20,786
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Interest expense
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(2,406
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)
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(3,369
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)
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Other income (expense), net
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181
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(410
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)
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Income before income taxes
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$
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1,091
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$
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17,007
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Income tax expense
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(765
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)
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(3,248
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)
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Equity in net income of non-consolidated affiliate
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960
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842
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Net income
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$
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1,286
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$
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14,601
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Other financial data:
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Adjusted EBITDA
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$
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12,481
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$
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29,041
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Adjusted EBITDA margin
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6.6
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%
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9.4
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%
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The following provides the results of operations of Blue Bird’s two reportable segments:
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(in thousands of dollars)
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Three Months Ended
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Net Sales by Segment
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July 4, 2020
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June 29, 2019
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Bus
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$
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180,592
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$
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292,166
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Parts
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8,589
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16,608
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Total
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$
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189,181
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$
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308,774
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Gross Profit by Segment
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Bus
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$
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18,079
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$
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35,996
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Parts
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3,003
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5,786
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Total
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$
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21,082
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$
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41,782
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Net sales. Net sales were $189.2 million for the third quarter of fiscal 2020, a decrease of $119.6 million, or 38.7%, compared to $308.8 million for the third quarter of fiscal 2019. The decrease in net sales is attributed to the COVID-19 pandemic which caused the unplanned and abrupt increase in remote learning arrangements as school districts remain unsure of how schooling will be administered in the fall of 2020 and beyond.
Bus sales decreased $111.6 million, or 38.2%, reflecting a decrease in units booked, which was partially offset by higher sales prices per unit. Bus volumes reflect the timing of orders. In the third quarter of fiscal 2020, 1,948 units were booked compared to 3,420 units booked for the same period in fiscal 2019. The decrease is mainly attributed to lower orders due to the uncertainties caused by the COVID-19 pandemic. The 8.5% increase in unit price for the third quarter of fiscal 2020 compared to the same period in fiscal 2019 mainly reflects pricing actions taken in fiscal 2019 to partially offset commodity costs, as well as product and customer mix changes.
Parts sales decreased $8.0 million, or 48.3%, for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019, as we had lower sales volume, mainly from lower school bus units in operation due to early school closures caused by the COVID-19 pandemic. Stay at home orders and school closures reduced bus repair and maintenance activities due to less bus use.
Cost of goods sold. Total cost of goods sold was $168.1 million for the third quarter of fiscal 2020, a decrease of $98.9 million, or 37.0%, compared to $267.0 million for the third quarter of fiscal 2019. As a percentage of net sales, total cost of goods sold increased from 86.5% to 88.9%.
Bus segment cost of goods sold decreased $93.7 million, or 36.6%, for the third quarter of fiscal 2020 compared to the same period in fiscal 2019, which aligned with the decrease in sales volume noted above. The average cost of goods sold per unit for the third quarter of fiscal 2020 was 11.4% higher compared to the third quarter of fiscal 2019 due to increases in manufacturing costs from several COVID-19 related factors including absenteeism amongst our hourly workforce and supply disruptions, each of which created manufacturing inefficiencies and higher costs.
The $5.2 million, or 48.4%, decrease in parts segment cost of goods sold for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 aligned with the decrease in sales volume noted above.
Operating profit. Operating profit was $3.3 million for the third quarter of fiscal 2020, a decrease of $17.5 million, compared to operating profit of $20.8 million for the third quarter of fiscal 2019. Profitability was negatively impacted by a decrease of $20.7 million in gross profit as outlined in the revenue and cost of goods sold discussion. This was partially offset by a decrease of $3.2 million in selling, general and administrative expenses as we have taken actions to control spending during the pandemic.
Interest expense. Interest expense was $2.4 million for the third quarter of fiscal 2020, a decrease of $1.0 million, or 28.6%, compared to $3.4 million for the third quarter of fiscal 2019. The decrease was primarily attributed to lower interest rates and a lower average borrowing level on the senior term debt.
Income taxes. We recorded income tax expense of $0.8 million for the third quarter of fiscal 2020, compared to income tax expense of $3.2 million for the same period in fiscal 2019.
The effective tax rate for the three-month period ended July 4, 2020 was 70.1%, which differed from the statutory federal income tax rate of 21%. The difference is mainly due to discrete period tax expense from prior year tax return adjustments and normal tax rate items, such as the benefit from federal and state tax credits (net of valuation allowance), which were partially offset by net non-deductible compensation expenses and other tax adjustments. The rate is also disproportionately impacted by the discrete items due to near break-even pretax book income.
The effective tax rate for the three-month period ended June 29, 2019 was 19.1%, which differed from the statutory federal tax rate of 21%. The difference is mainly due to normal tax rate benefit items, such as federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.
Adjusted EBITDA. Adjusted EBITDA was $12.5 million, or 6.6% of net sales, for the third quarter of fiscal 2020, a decrease of $16.6 million, or 57.0%, compared to $29.0 million, or 9.4% of net sales, for the third quarter of fiscal 2019. The decrease in Adjusted EBITDA is primarily result of a decrease of $20.7 million in gross profit, mainly from lower sales volumes due to the COVID-19 pandemic as well as higher manufacturing costs. The decrease was partially offset by lower adjusted selling, general and administrative expenses.
The following table sets forth a reconciliation of net income to adjusted EBITDA for the periods presented:
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Three Months Ended
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(in thousands of dollars)
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July 4, 2020
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June 29, 2019
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Net income
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$
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1,286
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|
|
$
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14,601
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|
Adjustments:
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Interest expense, net (1)
|
2,466
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|
|
3,472
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|
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Income tax expense
|
765
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3,248
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Depreciation, amortization, and disposals (2)
|
3,861
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|
|
2,750
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|
Operational transformation initiatives
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339
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|
|
679
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|
Share-based compensation
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1,808
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|
1,101
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Product redesign initiatives
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1,071
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|
|
3,075
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Restructuring charges
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364
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|
|
—
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Costs directly attributed to the COVID-19 pandemic (3)
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521
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|
|
—
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Other
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—
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|
|
115
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|
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Adjusted EBITDA
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$
|
12,481
|
|
|
$
|
29,041
|
|
|
Adjusted EBITDA margin (percentage of net sales)
|
6.6
|
%
|
|
9.4
|
%
|
(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 costs incurred for third party cleaning services and personal protective equipment for our employees.
Consolidated Results of Operations for the Nine Months Ended July 4, 2020 and June 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
(in thousands of dollars)
|
|
July 4, 2020
|
|
June 29, 2019
|
|
Net sales
|
|
$
|
597,810
|
|
|
$
|
675,342
|
|
|
Cost of goods sold
|
|
531,259
|
|
|
588,496
|
|
|
Gross profit
|
|
$
|
66,551
|
|
|
$
|
86,846
|
|
|
Operating expenses
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
58,146
|
|
|
61,197
|
|
|
Operating profit
|
|
$
|
8,405
|
|
|
$
|
25,649
|
|
|
Interest expense
|
|
(9,961
|
)
|
|
(10,241
|
)
|
|
Interest income
|
|
27
|
|
|
9
|
|
|
Other income (expense), net
|
|
555
|
|
|
(1,034
|
)
|
|
(Loss) income before income taxes
|
|
$
|
(974
|
)
|
|
$
|
14,383
|
|
|
Income tax benefit (expense)
|
|
378
|
|
|
(2,833
|
)
|
|
Equity in net income of non-consolidated affiliate
|
|
840
|
|
|
1,158
|
|
|
Net income
|
|
$
|
244
|
|
|
$
|
12,708
|
|
|
Other financial data:
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
32,778
|
|
|
$
|
48,459
|
|
|
Adjusted EBITDA margin
|
|
5.5
|
%
|
|
7.2
|
%
|
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 4, 2020
|
|
June 29, 2019
|
|
Bus
|
|
$
|
554,061
|
|
|
$
|
626,441
|
|
|
Parts
|
|
43,749
|
|
|
48,901
|
|
|
Total
|
|
$
|
597,810
|
|
|
$
|
675,342
|
|
|
|
|
|
|
|
|
Gross Profit by Segment
|
|
|
|
|
|
Bus
|
|
$
|
50,884
|
|
|
$
|
69,653
|
|
|
Parts
|
|
15,667
|
|
|
17,193
|
|
|
Total
|
|
$
|
66,551
|
|
|
$
|
86,846
|
|
Net sales. Net sales were $597.8 million for the nine months ended July 4, 2020, a decrease of $77.5 million, or 11.5%, compared to $675.3 million for the nine months ended June 29, 2019. The decrease in net sales is attributed to the COVID-19 pandemic during our second and third fiscal quarters which caused an unplanned and abrupt increase in remote learning arrangements as school districts remain unsure of how schooling will be administered in the fall of 2020 and beyond.
Bus sales decreased $72.4 million, or 11.6%, reflecting a decrease in units booked and higher sales prices per unit. In the nine months ended July 4, 2020, 6,002 units were booked compared to 7,291 units booked for the same period in fiscal 2019. The decrease is mainly attributed to lower orders due to the uncertainties caused by the COVID-19 pandemic. The average net sales price per unit for the nine months ended July 4, 2020 was 7.4% higher than the price per unit for the nine months ended June 29, 2019. The increase in unit price mainly reflects pricing actions taken in fiscal 2019 to partially offset commodity costs, as well as product and customer mix changes.
Parts sales decreased $5.2 million, or 10.5%, for the nine months ended July 4, 2020 compared to the nine months ended June 29, 2019, as we had lower sales volume, mainly from lower school bus units in operation due to early school closures caused by the COVID-19 pandemic. Stay at home orders and school closures reduced bus repair and maintenance activities due to less bus use.
Cost of goods sold. Total cost of goods sold was $531.3 million for the nine months ended July 4, 2020, a decrease of $57.2 million, or 9.7%, compared to $588.5 million for the nine months ended June 29, 2019. As a percentage of net sales, total cost of goods sold increased from 87.1% to 88.9%.
Bus segment cost of goods sold decreased $53.6 million, or 9.6%, for the nine months ended July 4, 2020 compared to the nine months ended June 29, 2019. The average cost of goods sold per unit for the nine months ended July 4, 2020 was 9.8% higher compared to the nine months ended June 29, 2019 due to increases in manufacturing costs in our third fiscal quarter from several COVID-19 related factors including absenteeism amongst our hourly workforce and supply disruptions, each of which created manufacturing inefficiencies and higher costs.
The $3.6 million, or 11.4%, decrease in parts segment cost of goods sold for the nine months ended July 4, 2020 compared to the nine months ended June 29, 2019 aligns with the decrease in sales volume noted above.
Operating profit. Operating profit was $8.4 million for the nine months ended July 4, 2020, a decrease of $17.2 million compared to an operating profit of $25.6 million for the nine months ended June 29, 2019. Profitability was negatively impacted by a decrease of $20.3 million in gross profit, which was partially offset by a decrease of $3.1 million in selling, general and administrative expenses as we have taken actions to control spending during the pandemic.
Interest expense. Interest expense was $10.0 million for the nine months ended July 4, 2020, a decrease of $0.3 million, or 2.7%, compared to $10.2 million for the nine months ended June 29, 2019. Lower interest expense from lower borrowing rates in the nine months ended July 4, 2020 compared to the prior period were offset by the impact of an increase of $1.9 million in mark to market charges due to changes in the fair value of our interest rate hedge.
Income taxes. Income tax benefit was $0.4 million for the nine months ended July 4, 2020, compared to income tax expense of $2.8 million for the same period in fiscal 2019.
The effective tax rate for the nine-month period ended July 4, 2020 was 38.8%, which differed from the 2019 statutory federal income 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. The rate is also disproportionately impacted by the discrete items due to near break-even pretax book income.
The effective tax rate for the nine-month period ended June 29, 2019 was 19.7% and differed from the transitional 2018 statutory federal income tax rate of 21%. The difference is mainly due to normal tax rate benefit items, primarily federal and state tax credits (net of valuation allowance), which were partially offset by non-deductible share-based compensation expenses and other tax adjustments.
Adjusted EBITDA. Adjusted EBITDA was $32.8 million or 5.5% of net sales for the nine months ended July 4, 2020, a decrease of $15.7 million, or 32.4%, compared to $48.5 million or 7.2% of net sales for the nine months ended June 29, 2019. The decrease in Adjusted EBITDA is primarily the result of a decrease of $20.3 million in gross profit, mainly from lower sales volumes due the COVID-19 pandemic as well as higher manufacturing costs. The decrease was partially offset by lower adjusted selling, general and administrative expenses.
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 4, 2020
|
|
June 29, 2019
|
|
Net income
|
$
|
244
|
|
|
$
|
12,708
|
|
|
Adjustments:
|
|
|
|
|
Interest expense, net (1)
|
10,213
|
|
|
10,542
|
|
|
Income tax (benefit) expense
|
(378
|
)
|
|
2,833
|
|
|
Depreciation, amortization, and disposals (2)
|
11,215
|
|
|
7,990
|
|
|
Operational transformation initiatives
|
3,218
|
|
|
4,193
|
|
|
Foreign currency hedges
|
—
|
|
|
109
|
|
|
Share-based compensation
|
4,105
|
|
|
3,146
|
|
|
Product redesign initiatives
|
3,163
|
|
|
6,876
|
|
|
Restructuring charges
|
364
|
|
|
—
|
|
|
Costs directly attributed to the COVID-19 pandemic (3)
|
628
|
|
|
—
|
|
|
Other
|
6
|
|
|
62
|
|
|
Adjusted EBITDA
|
$
|
32,778
|
|
|
$
|
48,459
|
|
|
Adjusted EBITDA margin (percentage of net sales)
|
5.5
|
%
|
|
7.2
|
%
|
(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 $0.5 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 costs incurred for third party cleaning services and personal protective equipment for our employees.
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 4, 2020, the Company had $12.5 million of available cash (net of outstanding checks) and $90.0 million of additional borrowings available under the revolving line of credit portion of its secured credit facility. The Company’s revolving line of credit is available for working capital requirements, capital expenditures and other general corporate purposes.
On May 7, 2020, the Company entered into a Second Amendment which amended the Credit Agreement, dated as of December 12, 2016 (the “Credit Agreement”, as amended by that certain First Amendment to Credit Agreement, dated as of September 13, 2018 (the “First Amendment”), and as further amended by the Second Amendment, the “Amended Credit Agreement”). The Second Amendment provided $41.9 million in additional revolving commitments bringing the total revolving commitments to $141.9 million. The revolving commitments under the Amended Credit Agreement will mature on September 13, 2023, which is the fifth anniversary of the effective date of the First Amendment. The interest rate pricing grid remained unchanged, but the LIBOR floor was amended from 0% to 0.75%.
Detailed descriptions of the Company’s original Credit Agreement dated December 12, 2016 and its Amended Credit Agreement dated September 13, 2018 are set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” contained in the Company’s Annual Report on Form 10-K for the fiscal year ended September 28, 2019, filed with the Securities and Exchange Commission on December 12, 2019.
At July 4, 2020, the Borrower (as defined, Blue Bird Body Company, a subsidiary of the Company) and the guarantors under the Amended Credit Agreement were in compliance with all covenants.
Short-Term and Long-Term Liquidity Requirements
Our ability to make principal and interest payments on borrowings under 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.
During our third quarter of fiscal 2020, the novel coronavirus known as "COVID-19" continued to spread throughout the world, perpetuating a global pandemic. The pandemic materially impacted our third quarter of fiscal 2020 results causing lower customer orders for both buses and parts, supply disruptions, higher rates of absenteeism among our hourly production workforce, and a temporary shutdown of manufacturing. 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 II, Item 1A. Risk Factors, of this Quarterly Report for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.
The pandemic could cause a severe contraction in our profits and/or liquidity which could lead to issues complying with our Credit Facility covenants. Our primary financial covenant is our Total Net Leverage Ratio. Our Total Net Leverage Ratio is defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA, which includes certain add-backs that are not reflected in the definition of Adjusted EBITDA appearing in the Company’s periodic filings on Form 10-K or Form 10-Q, at the end of each fiscal quarter for the consecutive four fiscal quarter period most recently then ending. We may need to seek amendment for covenant relief or even refinance the debt to a "covenant 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.
On March 27, 2020 the President of the United States signed the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") into law. The CARES Act, among other things, includes provisions related to the deferment of employer-side social security payments (the Employer Payroll Tax Payment Deferral Provision). We have elected to defer these payments that would otherwise be due and payable through December 31, 2020. A 50% minimum payment of the deferred amount is due on December 31, 2021 with the remainder due by December 31, 2022. We estimate between $4.0 and $6.0 million in payments could be delayed. We also have and expect to defer contributions to our defined benefit pension plan of approximately $3.2 million for fiscal 2020. The delayed contribution payments are due on January 1, 2021.
Seasonality
Historically, our business has been highly seasonal with school districts buying their new schools 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 becoming 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 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, 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.
