Company Quick10K Filing
Quick10K
Blue Bird
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$17.52 26 $462
10-Q 2019-06-29 Quarter: 2019-06-29
10-Q 2019-03-30 Quarter: 2019-03-30
10-Q 2018-12-29 Quarter: 2018-12-29
10-K 2018-09-29 Annual: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-30 Quarter: 2017-12-30
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-10-01 Annual: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-Q 2016-01-02 Quarter: 2016-01-02
10-K 2015-10-03 Annual: 2015-10-03
10-Q 2015-07-04 Quarter: 2015-07-04
10-Q 2015-04-04 Quarter: 2015-04-04
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
8-K 2019-08-07 Earnings, Regulation FD, Exhibits
8-K 2019-05-09 Earnings, Regulation FD, Exhibits
8-K 2019-03-05 Shareholder Vote
8-K 2019-02-06 Earnings, Regulation FD, Exhibits
8-K 2018-12-06 Earnings, Regulation FD, Exhibits
8-K 2018-12-04 Officers, Exhibits
8-K 2018-10-24 Regulation FD, Other Events, Exhibits
8-K 2018-09-13 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-08 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-06-14 Other Events, Exhibits
8-K 2018-04-03 Regulation FD, Other Events, Exhibits
8-K 2018-03-05 Shareholder Vote
AMD Advanced Micro Devices 29,430
DTE DTE Energy 22,650
ONCE Spark Therapeutics 4,250
WMK Weis Markets 1,060
DNR Denbury Resources 870
INAP Internap 98
DNJR Golden Bull 83
DIT Amcon Distributing 56
DCT DCT Industrial Trust 0
NXGH Cuentas 0
BLBD 2019-06-29
Part I - Financial Information
Item 1. Financial Statements (Unaudited).
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 6. Exhibits.
EX-31.1 a10q2019q3ex311.htm
EX-31.2 a10q2019q3ex312.htm
EX-32.1 a10q2019q3ex321.htm

Blue Bird Earnings 2019-06-29

BLBD 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a10-q20193q62919.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

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

For the quarterly period ended June 29, 2019

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

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

Commission File Number 001-36267

BLUE BIRD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
 
46-3891989
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
        
3920 Arkwright Road, 2nd Floor, Macon, Georgia 31210
(Address of principal executive offices)
(Zip Code)

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

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

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

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

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

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

At August 5, 2019, 26,475,918 shares of the registrant’s common stock, $0.0001 par value, were outstanding.



BLUE BIRD CORPORATION
FORM 10-Q

TABLE OF CONTENTS









Special Note Regarding Forward-Looking Statements

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

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

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

Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the reports we file with the Securities and Exchange Commission (the “SEC”), specifically the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2018 Form 10-K, filed with the SEC on December 12, 2018. 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 2018 Form 10-K, filed with the SEC on December 12, 2018.

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. Any materials we file with, or furnish to, the SEC may also be read and/or copied at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.






PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands of dollars, except for share data)
June 29, 2019
 
September 29, 2018
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
29,075

 
$
60,260

Accounts receivable, net
40,229

 
24,067

Inventories
140,688

 
57,333

Other current assets
12,036

 
8,183

Total current assets
$
222,028

 
$
149,843

Property, plant and equipment, net
94,727

 
66,054

Goodwill
18,825

 
18,825

Intangible assets, net
55,492

 
55,472

Equity investment in affiliate
12,281

 
11,123

Deferred tax assets
4,559

 
4,437

Other assets
466

 
1,676

Total assets
$
408,378

 
$
307,430

Liabilities and Stockholders' Deficit
 
 
 
Current liabilities
 
 
 
Accounts payable
$
135,902

 
$
95,780

Warranty
9,008

 
9,142

Accrued expenses
28,163

 
21,935

Deferred warranty income
8,408

 
8,159

Other current liabilities
15,691

 
3,941

Current portion of long-term debt
9,900

 
9,900

Total current liabilities
$
207,072

 
$
148,857

Long-term liabilities
 
 
 
Revolving credit facility
$
25,000

 
$

Long-term debt
175,479

 
132,239

Warranty
13,512

 
13,504

Deferred warranty income
15,177

 
15,032

Deferred tax liabilities
1,088

 
197

Other liabilities
12,402

 
4,924

Pension
19,834

 
21,013

Total long-term liabilities
$
262,492

 
$
186,909

Guarantees, commitments and contingencies (Note 6)

 

Stockholders' deficit
 
 
 
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 and 93,000 issued with liquidation preference of $0 and $9,300 at June 29, 2019 and September 29, 2018, respectively
$

 
$
9,300

Common stock, $0.0001 par value, 100,000,000 shares authorized, 26,460,456 and 27,259,262 shares outstanding at June 29, 2019 and September 29, 2018, respectively
3

 
3

Additional paid-in capital
83,189

 
70,023

Accumulated deficit
(57,241
)
 
(69,235
)
Accumulated other comprehensive loss
(36,855
)
 
(38,427
)
Treasury stock, at cost, 1,782,568 and 0 shares at June 29, 2019 and September 29, 2018, respectively
(50,282
)
 

Total stockholders' deficit
$
(61,186
)
 
$
(28,336
)
Total liabilities and stockholders' deficit
$
408,378

 
$
307,430

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

2


BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
(in thousands of dollars except for share data)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net sales
$
308,774

 
$
314,186

 
$
675,342

 
$
693,363

Cost of goods sold
266,992

 
277,213

 
588,496

 
614,074

Gross profit
$
41,782

 
$
36,973

 
$
86,846

 
$
79,289

Operating expenses
 
 
 
 
 
 
 
Selling, general and administrative expenses
20,996

 
20,489

 
61,197

 
64,226

Operating profit
$
20,786

 
$
16,484

 
$
25,649

 
$
15,063

Interest expense
(3,369
)
 
(1,834
)
 
(10,241
)
 
(5,112
)
Interest income

 
25

 
9

 
42

Other expense, net
(410
)
 
(667
)
 
(1,034
)
 
(399
)
Income before income taxes
$
17,007

 
$
14,008

 
$
14,383

 
$
9,594

Income tax (expense) benefit
(3,248
)
 
7,485

 
(2,833
)
 
5,662

Equity in net income of non-consolidated affiliate
842

 
398

 
1,158

 
632

Net income
$
14,601

 
$
21,891

 
$
12,708

 
$
15,888

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Net income (from above)
$
14,601

 
$
21,891

 
$
12,708

 
$
15,888

Less: preferred stock dividends

 
182

 

 
1,715

Net income available to common stockholders
$
14,601

 
$
21,709

 
$
12,708

 
$
14,173

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
26,451,107

 
26,209,697

 
26,449,751

 
24,677,838

Diluted weighted average shares outstanding
26,720,110

 
28,556,914

 
26,920,285

 
25,809,491

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.55

 
$
0.83

 
$
0.48

 
$
0.57

Diluted earnings per share
$
0.55

 
$
0.77

 
$
0.47

 
$
0.55

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


3


BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
(in thousands of dollars)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Net income
$
14,601

 
$
21,891

 
$
12,708

 
$
15,888

Other comprehensive income, net of tax
 
 
 
 
 
 
 
Net change in defined benefit pension plan
524

 
669

 
1,572

 
1,901

Total other comprehensive income
$
524

 
$
669

 
$
1,572

 
$
1,901

Comprehensive income
$
15,125

 
$
22,560

 
$
14,280

 
$
17,789


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


4


BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine Months Ended
(in thousands of dollars)
June 29, 2019
 
June 30, 2018
Cash flows from operating activities
 
 
 
Net income
$
12,708

 
$
15,888

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
7,406

 
6,325

Non-cash interest expense
2,172

 
572

Share-based compensation
3,146

 
2,380

Equity in net income of affiliate
(1,158
)
 
(632
)
Loss on disposal of fixed assets
50

 
115

Deferred taxes
500

 
8,422

Amortization of deferred actuarial pension losses
2,068

 
2,640

Foreign currency hedges
109

 
(828
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(16,162
)
 
(12,422
)
Inventories
(83,355
)
 
(36,872
)
Other assets
(5,014
)
 
(1,502
)
Accounts payable
42,429

 
41,959

Accrued expenses, pension and other liabilities
15,988

 
(19,023
)
Total adjustments
$
(31,821
)
 
$
(8,866
)
Total cash (used in) provided by operating activities
$
(19,113
)
 
$
7,022

Cash flows from investing activities
 
 
 
Cash paid for fixed and acquired intangible assets
$
(30,154
)
 
$
(15,572
)
Proceeds from sale of fixed assets

 
12

Total cash used in investing activities
$
(30,154
)
 
$
(15,560
)
Cash flows from financing activities
 
 
 
Borrowings under the revolving credit facility
$
25,000

 
$

Borrowings under the senior term loan
50,000

 

Repayments under the senior term loan
(7,425
)
 
(6,000
)
Cash paid for capital leases

 
(118
)
Payment of dividends on preferred stock

 
(1,715
)
Cash paid for employee taxes on vested restricted shares and stock option exercises
(622
)
 
(571
)
Proceeds from exercises of warrants
1,499

 
15,114

Common stock repurchases under share repurchase programs

 
(18,864
)
Tender offer repurchase of common stock and preferred stock
(50,370
)
 

Total cash provided by (used in) financing activities
$
18,082

 
$
(12,154
)
Change in cash and cash equivalents
(31,185
)
 
(20,692
)
Cash and cash equivalents, beginning of period
60,260

 
62,616

Cash and cash equivalents, end of period
$
29,075

 
$
41,924

 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
Cash paid during the period for:
 
 
 
Interest paid, net of interest received
$
7,916

 
$
4,549

Income tax paid, net of tax refunds
2,431

 
3,665

Non-cash investing and financing activities:
 
 
 
Changes in accounts payable for capital additions to property, plant and equipment and other current assets for capitalized intangible assets
$
(1,307
)
 
$
3,574

Cashless exercise of stock options
295

 
897

Right-of-use assets obtained in exchange for operating lease obligations
8,040

 

Conversion of preferred stock into common stock
9,264

 
30,700

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

5


BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(Unaudited)
 
Three Months Ended
(in thousands of dollars, except for share data)
Common Stock
 
Convertible Preferred Stock
 
 
 
 
 
Treasury Stock
 
 
 
 Shares
 
Par Value
 
Additional Paid-In-Capital
 
Shares
 
Amount
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Shares
 
Amount
 
Total Stockholders' Deficit
Balance, 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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2018
23,912,188

 
$
2

 
$
38,748

 
400,000

 
$
40,000

 
$
(42,643
)
 
$
(106,058
)
 

 
$

 
$
(69,951
)
Warrant exercises
487,810

 

 
5,610

 

 

 

 

 

 

 
5,610

Preferred stock dividends

 

 
(182
)
 

 

 

 

 

 

 
(182
)
Share-based compensation expense

 

 
839

 

 

 

 

 

 

 
839

Share repurchase program
(151,693
)
 

 
(3,353
)
 

 

 

 

 

 

 
(3,353
)
Preferred stock conversion
2,649,962

 

 
30,700

 
(307,000
)
 
(30,700
)
 

 

 

 

 

Net income

 

 

 

 

 

 
21,891

 

 

 
21,891

Other comprehensive income, net of tax

 

 

 

 

 
669

 

 

 

 
669

Balance, June 30, 2018
26,898,267

 
$
2

 
$
72,362

 
93,000

 
$
9,300

 
$
(41,974
)
 
$
(84,167
)
 

 
$

 
$
(44,477
)


6


 
Nine Months Ended
(in thousands of dollars, except for share data)
Common Stock
 
Convertible Preferred Stock
 
 
 
 
 
Treasury Stock
 
 
 
 Shares
 
Par Value
 
Additional Paid-In-Capital
 
Shares
 
Amount
 
Accumulated Other Comprehensive Loss
 
Accumulated Deficit
 
Shares
 
Amount
 
Total Stockholders' Deficit
Balance, 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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2017
23,739,344

 
$
2

 
$
45,418

 
400,000

 
$
40,000

 
$
(43,875
)
 
$
(100,055
)
 

 
$

 
$
(58,510
)
Warrant exercises
1,314,224

 

 
15,114

 

 

 

 

 

 

 
15,114

Restricted stock activity
33,963

 

 
(370
)
 

 

 

 

 

 

 
(370
)
Stock option activity
18,680

 

 
(201
)
 

 

 

 

 

 

 
(201
)
Preferred stock dividends

 

 
(1,715
)
 

 

 

 

 

 

 
(1,715
)
Share-based compensation expense

 

 
2,280

 

 

 

 

 

 

 
2,280

Share repurchase program
(857,906
)
 

 
(18,864
)
 

 

 

 

 

 

 
(18,864
)
Preferred stock conversion
2,649,962

 

 
30,700

 
(307,000
)
 
(30,700
)
 

 

 

 

 

Net income

 

 

 

 

 

 
15,888

 

 

 
15,888

Other comprehensive income, net of tax

 

 

 

 

 
1,901

 

 

 

 
1,901

Balance, June 30, 2018
26,898,267

 
$
2

 
$
72,362

 
93,000

 
$
9,300

 
$
(41,974
)
 
$
(84,167
)
 

 
$

 
$
(44,477
)



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


7


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

1. Nature of Business and Basis of Presentation

Nature of Business

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

Basis of Presentation

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and Article 8 of Regulation S-X. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. In fiscal year 2019, there is a total of 52 weeks. For fiscal years 2019 and 2018, the third quarters both included 13 weeks and the nine months ended both included 39 weeks.

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

The Condensed Consolidated Balance Sheet data as of September 29, 2018 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 29, 2018 as set forth in the Company's 2018 Form 10-K filed on December 12, 2018.

Preferred Stock Conversion

On November 13, 2018, the Company converted all remaining outstanding shares of Preferred Stock, and issued 799,615 shares of Common Stock. There were no dividends paid with the conversion.

Use of Estimates and Assumptions

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


8


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

The Company’s significant accounting policies are described in the Company’s 2018 Form 10-K, filed with the SEC on December 12, 2018. 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 June 29, 2019, except as follows (as also discussed in the Recently Adopted Accounting Standards section of this Note 2):

Revenue Recognition

The Company records revenue, net of tax, when the following five steps have been completed:

1.
Identification of the contract(s) with a customer;
2.
Identification of the performance obligation(s) in the contract;
3.
Determination of the transaction price;
4.
Allocation of the transaction price to the performance obligations in the contract; and
5.
Recognition of revenue when, or as, we satisfy performance obligations.

The Company records revenue when performance obligations are satisfied by transferring control of a promised good or service to the customer. The Company evaluates the transfer of control primarily from the customer’s perspective where the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, that good or service.

Our product revenue includes sales of buses and bus parts, each of which are generally recognized as revenue at a point in time, once all conditions for revenue recognition have been met, as they represent our performance obligations in a sale. For buses, control is generally transferred and the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the product when the product is delivered or when the product has been completed, is ready for delivery, has been paid for, its title has transferred and it is awaiting pickup by the customer. For certain bus sale transactions, we may provide incentives including payment of a limited amount of future interest charges our customers may incur related to their purchase and financing of the bus with third party financing companies. We reduce revenue at the recording date by the full amount of potential future interest we may be obligated to pay, which is an application of the "most likely amount" method. For parts sales, control is generally transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the products, which generally coincides with the point in time when the customer has assumed risk of loss and title has passed for the goods sold.

The Company sells extended warranties related to its products. Revenue related to these contracts is recognized based on the stand-alone selling price of the arrangement, on a straight-line basis over the contract period, and costs thereunder are expensed as incurred.

The Company includes shipping and handling revenues, which represents costs billed to customers, in net sales on the Condensed Consolidated Statements of Operations. The related costs incurred by the Company are included in cost of goods sold on the Condensed Consolidated Statements of Operations.

Leases

We determine if an arrangement is a lease at inception. Operating leases include lease right-of-use (“ROU”) assets, which we include in property, plant and equipment on our Condensed Consolidated Balance Sheets. The lease liabilities associated with operating leases are included in other current liabilities and other liabilities on our Condensed Consolidated Balance Sheets. We do not have any finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the leases recorded do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any base rental or lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term as a component of selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.


9


Derivative Instruments

In limited circumstances, we may utilize derivative instruments to manage certain exposures to changes in foreign currency exchange rates or as cash flow hedges for variable rate debt. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these derivative instruments are recognized in our operating results or included in other comprehensive income (loss), depending on whether the derivative instrument is a fair value or cash flow hedge and whether it qualifies for hedge accounting treatment. If realized, gains and losses on derivative instruments are recognized in the operating results line item that reflects the underlying exposure that was hedged. The exchange of cash, if any, associated with derivative transactions is classified in the same category as the cash flows from the items subject to the economic hedging relationships.

Statement of Cash Flows

We classify distributions received from our equity method investment using the nature of distribution approach, such that distributions received are classified based on the nature of the activity of the investee that generated the distribution. Returns on investment are classified within operating activities, while returns of investment are classified within investing activities.

Recently Issued Accounting Standards

We believe that no new accounting guidance was issued during the three months ended June 29, 2019 that is relevant to our financial statements.

Recently Adopted Accounting Standards

ASU 2017-07 — In March 2017, the Financial Accounting Standards Board ("FASB") issued ASU No. 2017-07, Compensation—Retirement Benefits (Topic 715), Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires that an employer report the service cost component (if any) of pension expense in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.

We adopted this new standard in the first quarter of fiscal 2019 on a retrospective basis, as required. There is no service cost component to our periodic pension expense. Previously all components of our pension expense were recorded as a component of operating expenses, and the new standard requires these expenses to be outside a subtotal of operating profit. As a result, we have revised previously reported results of operations, as follows:
 
June 30, 2018
 
Three Months Ended
 
Nine Months Ended
(in thousands of dollars)
As Previously Reported
 
New Standard Adjustment
 
As Restated
 
As Previously Reported
 
New Standard Adjustment
 
As Restated
Selling, general and administrative expenses
$
20,950

 
$
(461
)
 
$
20,489

 
$
65,609

 
$
(1,383
)
 
$
64,226

Operating profit
16,023

 
461

 
16,484

 
13,680

 
1,383

 
15,063

Other expense, net
(206
)
 
(461
)
 
(667
)
 
984

 
(1,383
)
 
(399
)
Net income
21,891

 

 
21,891

 
15,888

 

 
15,888


10


ASU 2018-15 — In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We adopted this standard on a prospective (applies only to eligible costs incurred after adoption) basis in the first quarter of fiscal 2019, and there was not a significant impact on our consolidated financial statements.

ASU 2017-12 — In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which intends to simplify the application of hedge accounting guidance and better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both non-financial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. We adopted this amended guidance in the first quarter of fiscal 2019 using the required modified retrospective approach; however we had no hedging relationships in effect at the adoption date that were impacted by the guidance. We do not expect the impact on the Company's consolidated financial statements to be material.

ASU 2016-12 and 2016-10 — In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, and in April 2016 issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, both of which provide further clarification to be considered when implementing ASU 2014-09, Revenue from Contracts with Customers (Topic 606). We adopted this standard in the first quarter of fiscal 2019 using the modified retrospective transition approach, which we applied to all contracts impacted by the new standard at the date of initial application. At adoption, we accounted for specific sales incentives offered to our customers by recording an increase of $0.9 million in accrued liabilities, a $0.7 million adjustment to retained earnings, and a $0.2 million deferred tax asset. Amounts recorded in prior comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. Please see Note 8, Revenue, for additional information regarding the adoption of this new accounting standard.

ASU 2018-05 — In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, which updates income tax accounting to reflect the SEC's interpretive guidance released on December 22, 2017, when the Tax Cuts and Jobs Act (the "Tax Act") was signed into law. For more information regarding the impact of the Tax Act, see Note 5, Income Taxes.

ASU 2016-02 — In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize assets on the balance sheet for the rights and obligations created by all leases with terms greater than 12 months. The standard will also require certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. We adopted this standard in the first quarter of fiscal 2019 using the modified retrospective adoption approach with a cumulative-effect adjustment recognized on the balance sheet on the adoption date with prior periods not recast, and electing the practical expedients allowed under the standard. At adoption, we recognized right-of-use assets totaling $7.3 million and operating lease liabilities totaling $9.2 million. The impact on our results of operations and cash flows was not material.

ASU 2016-15 — In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which made targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted this standard in the first quarter of fiscal 2019 and contemporaneous with adoption made a policy election to classify distributions received from our equity method investment using the nature of distribution approach. Adoption of the standard had no current impact on the Company's consolidated financial statements, as this is the manner in which we have recorded previous distributions from our equity method investee. There were no distributions in the nine months ended June 29, 2019.

3. Supplemental Financial Information

Inventories

The following table presents the components of inventories at the dates indicated:
(in thousands of dollars)
June 29, 2019
 
September 29, 2018
Raw materials
$
94,452

 
$
42,439

Work in process
34,730

 
13,141

Finished goods
11,506

 
1,753

Total inventories
$
140,688

 
$
57,333



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Product Warranties

The following table reflects activity in accrued warranty cost (current and long-term portions combined) for the periods presented:
 
Three Months Ended
 
Nine Months Ended
(in thousands of dollars)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Balance at beginning of period
$
21,520

 
$
19,283

 
$
22,646

 
$
20,910

Add current period accruals
3,358

 
3,421

 
7,196

 
7,786

Current period reductions of accrual
(2,358
)
 
(2,853
)
 
(7,322
)
 
(8,845
)
Balance at end of period
$
22,520

 
$
19,851

 
$
22,520

 
$
19,851

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)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Balance at beginning of period
$
22,901

 
$
20,461

 
$
23,191

 
$
19,295

Add current period deferred income
2,880

 
2,974

 
6,686

 
7,800

Current period recognition of income
(2,196
)
 
(1,434
)
 
(6,292
)
 
(5,094
)
Balance at end of period
$
23,585

 
$
22,001

 
$
23,585

 
$
22,001


With the adoption of ASU No. 2016-12 (as described in Note 2, Summary of Significant Accounting Policies and Recently Issued Accounting Standards), the outstanding balance of deferred warranty income in the table above is considered a "contract liability", and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize $3.0 million of the outstanding contract liability during the remainder of fiscal 2019, $7.5 million in fiscal 2020, 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)
June 29, 2019
 
September 29, 2018
Current portion
$
2,882

 
$
3,332

Long-term portion
1,757

 
1,901

Total accrued self-insurance
$
4,639

 
$
5,233


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 $6.0 million and $6.5 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $12.5 million and $13.5 million for the nine months ended June 29, 2019 and June 30, 2018, respectively. The related cost of goods sold was $5.3 million and $5.8 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $11.0 million and $11.7 million for the nine months ended June 29, 2019 and June 30, 2018, respectively.

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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)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Interest cost
$
1,512

 
$
1,357

 
$
4,535

 
$
4,071

Expected return on plan assets
(1,905
)
 
(1,776
)
 
(5,714
)
 
(5,328
)
Amortization of prior loss
689

 
880

 
2,068

 
2,640

Net periodic benefit cost
$
296

 
$
461

 
$
889

 
$
1,383

Amortization of prior loss, recognized in other comprehensive income
689

 
880

 
2,068

 
2,640

Total recognized in net periodic pension benefit cost and other comprehensive income
$
(393
)
 
$
(419
)
 
$
(1,179
)
 
$
(1,257
)

Pension expense is recognized as a component of other expense, net on our Condensed Consolidated Statement of Operations. As disclosed in Note 2, we reclassified previously reported pension expense amounts of $0.5 million and $1.4 million from selling, general and administrative expenses to other expense, net for the three and nine months ended June 30, 2018, respectively.

Warrants

At June 29, 2019, there were a total of 820,614 warrants outstanding to purchase 410,307 shares of our Common Stock.

Derivative Instruments

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

Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting. At June 29, 2019, the fair value of the interest rate collar contract was $(1.1) million and is included in "other current liabilities" on the Condensed Consolidated Balance Sheets. The fair value of the interest rate collar is a Level 2 fair value measurement, based on quoted prices of similar items in active markets.

4. Debt

Amended Credit Agreement

On September 13, 2018, the Company entered into a first amendment of our December 12, 2016 credit agreement ("Amended Credit Agreement"). The Amended Credit Agreement provided for additional funding of $50.0 million and was funded in the first quarter of fiscal 2019. Substantially all the proceeds were used to complete a tender offer to purchase shares of our common and preferred stock.

The Amended Credit Agreement also increased the revolving credit facility to $100.0 million from $75.0 million. The amendment extended the maturity date to September 13, 2023, five years from the effective date of the first amendment. In connection with the Amended Credit Agreement, we incurred $2.0 million of debt discount and issuance costs, which were recorded as contra-debt and will be amortized over the life of the Amended Credit Agreement using the effective interest method.

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Additional Disclosures

Term debt consisted of the following at the dates indicated:
(in thousands of dollars)
June 29, 2019
 
September 29, 2018
2023 and 2021 term loans, net of deferred financing costs of $3,346 and $4,011, respectively
$
185,379

 
$
142,139

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

 
9,900

Long-term debt, net of current portion
$
175,479

 
$
132,239


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 June 29, 2019 and September 29, 2018, $188.7 million and $146.2 million, respectively, were outstanding on the term loans.

At June 29, 2019 and September 29, 2018, the stated interest rates on the term loans were 4.4% and 4.5%, respectively. At June 29, 2019 and September 29, 2018, the weighted-average annual effective interest rates for the term loans were 5.0% and 4.1%, respectively, which includes amortization of the deferred financing costs.

At June 29, 2019, $25.0 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 $68.1 million on the revolving line of credit.

Interest expense on all indebtedness was $3.4 million and $1.8 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $10.3 million and $5.1 million for the nine months ended June 29, 2019 and June 30, 2018, respectively.

The schedules of remaining principal maturities for total debt for the next five fiscal years are as follows:
(in thousands of dollars)
Year
 
Principal Payments
2019
 
$
2,475

2020
 
9,900

2021
 
9,900

2022
 
14,850

2023
 
176,600

Total remaining principal payments
 
$
213,725


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.

Three Months

The effective tax rate for the three month period ended June 29, 2019 was 19.1%, which differed from the 2019 statutory federal income 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.

For the three month period ended June 30, 2018, we recorded a tax benefit of $8.1 million due to the lapse of statute of limitations on the underlying item that created our uncertain tax position. We also recorded a $1.7 million benefit related to the filing of our prior year tax returns. The benefit resulted from various deductions that were accelerated and reported in a higher tax rate year. The return filing also allowed us to reassess and reverse a $0.5 million valuation allowance for our foreign tax credit carryforward that had been recorded earlier in 2018.



14


The effective tax rate for the three month period ended June 30, 2018 was (53.4)%, which significantly differed from the transitional 2018 statutory federal tax rate of 24.5%. The difference is mainly due to the above noted release of uncertain tax positions and provision to return adjustments, but the rate was also favorably impacted by normal tax rate benefit items, such as the domestic production activities deduction, state tax credits, and share based award related deductions in excess of recorded book expense.

Nine Months

The effective tax rate for the nine month period ended June 29, 2019 was 19.7%, which differed from the 2019 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.

For the nine month period ended June 30, 2018, we recorded a tax benefit of $8.1 million due to the lapse of statute of limitations on the underlying item that created our uncertain tax position. We also recorded a $1.7 million benefit related to the filing of our prior year tax returns. The benefit resulted from various deductions that were accelerated and reported in a higher tax rate year. The return filing also allowed us to reassess and reverse a $0.5 million valuation allowance for our foreign tax credit carryforward that had been recorded earlier in 2018.

The effective tax rate for the nine month period ended June 30, 2018 was (59.0)% and significantly differed from the transitional 2018 statutory federal income tax rate of 24.5%. The difference is mainly due to the above noted release of uncertain tax positions and provision to return adjustments, but was partially offset by a $2.4 million expense recorded in the prior fiscal quarter to reflect the newly enacted Tax Act. The Tax Act adjustments include resetting our deferred tax accounts to the new rates as well as $1.1 million of expense from increasing the carrying value of our uncertain tax positions, and $0.5 million of additional valuation allowance for our foreign tax credit carryforward. Of this adjustment amount, the portion relating to uncertain tax positions and valuation allowance were reversed in the current quarter. The rate was also favorably impacted by normal tax rate benefit items, such as the domestic production activities deduction, state tax credits, and share based award related deductions in excess of recorded book expense.

6. Guarantees, Commitments and Contingencies

Litigation

At June 29, 2019, 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 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 June 29, 2019, we had $3.0 million in aggregate guarantees outstanding which relate to guarantees of indebtedness for term loans with remaining maturities of up to 3.6 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 June 29, 2019, $0.4 million was included in other current liabilities on our Condensed Consolidated Balance Sheets for the estimated fair value of the guarantees.    

Lease Commitments

We lease office and warehouse space for use in our operations, which are accounted for as operating leases. The operating leases have remaining terms ranging from seven months to 8.4 years. One of our leases includes a renewal option to extend the lease for five years.

Total operating lease expense was $0.5 million and $1.4 million for the three and nine months ended June 29, 2019, respectively, and is recorded in selling, general and administrative expenses on the Condensed Consolidated Statements of Operations. Total rent expense was $0.2 million and $0.5 million for the three and nine months ended June 30, 2018, respectively, and is recorded in selling, general

15


and administrative expenses on the Condensed Consolidated Statements of Operations. Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows was $1.2 million for the nine months ended June 29, 2019.

At June 29, 2019, right-of-use assets totaling $7.3 million were included in property, plant and equipment, net, and lease liabilities totaling $1.4 million and $8.0 million were included in other current liabilities and other liabilities (non-current), respectively.

At June 29, 2019, the weighted average remaining lease term was 7.2 years and the weighted average discount rate used to calculate the present value of future lease payments was 4.5%.

Maturities of operating lease liabilities at June 29, 2019 are as follows:
(in thousands of dollars)
 
 
Fiscal Years Ended
 
Amount
2019
 
$
589

2020
 
1,577

2021
 
1,399

2022
 
1,421

2023
 
1,441

Thereafter
 
4,624

Total future minimum lease payments
 
11,051

Less: imputed interest
 
1,659

Total operating lease liabilities
 
$
9,392


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)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Bus (1)
$
292,166

 
$
297,653

 
$
626,441

 
$
647,525

Parts (1)
16,608

 
16,533

 
48,901

 
45,838

Segment net sales
$
308,774

 
$
314,186

 
$
675,342

 
$
693,363

 
(1) Parts segment revenue includes $1.0 million and $2.5 million for the three months ended June 29, 2019 and June 30, 2018, respectively, and $0.6 million and $1.9 million for the nine months ended June 29, 2019 and June 30, 2018, 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)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Bus
$
35,996

 
$
31,342

 
$
69,653

 
$
63,062

Parts
5,786

 
5,631

 
17,193

 
16,227

Segment gross profit
$
41,782

 
$
36,973

 
$
86,846

 
$
79,289



16


The following table is a reconciliation of segment gross profit to consolidated income before income taxes for the periods presented:
 
Three Months Ended
 
Nine Months Ended
(in thousands of dollars)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Segment gross profit
$
41,782

 
$
36,973

 
$
86,846

 
$
79,289

Adjustments:
 
 
 
 
 
 
 
Selling, general and administrative expenses
(20,996
)
 
(20,489
)
 
(61,197
)
 
(64,226
)
Interest expense
(3,369
)
 
(1,834
)
 
(10,241
)
 
(5,112
)
Interest income

 
25

 
9

 
42

Other expense, net
(410
)
 
(667
)
 
(1,034
)
 
(399
)
Income before income taxes
$
17,007

 
$
14,008

 
$
14,383

 
$
9,594


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)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
United States
$
286,499

 
$
274,984

 
$
629,668

 
$
628,046

Canada
21,639

 
37,490

 
43,499

 
59,949

Rest of world
636

 
1,712

 
2,175

 
5,368

Total net sales
$
308,774

 
$
314,186

 
$
675,342

 
$
693,363


8. Revenue

As noted in Note 2, Summary of Significant Accounting Policies and Recently Issued Accounting Standards, the Company adopted the new revenue recognition guidance (ASC 606) effective September 30, 2018 using the modified retrospective approach. As a result, we recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings at September 30, 2018. Adopting the new standard primarily impacted the timing of recognition of specific sales incentives offered to our customers. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The difference in revenue recognized under the new guidance versus the previous guidance was an increase of $0.8 million for the nine months ended June 29, 2019. Under the new guidance, at adoption, we recorded $0.9 million in accrued liabilities, a deferred tax asset of $0.2 million, and a $0.7 million retained earnings adjustment. Under previous guidance, we would not have recorded any accrued liabilities or deferred tax assets resulting in no retained earnings impact to our Condensed Consolidated Balance Sheets.

The following table disaggregates revenue by product category for the periods presented:
 
Three Months Ended
 
Nine Months Ended
(in thousands of dollars)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Diesel buses
$
135,246

 
$
191,355

 
$
335,553

 
$
427,353

Alternative fuel buses (1)
141,939

 
96,189

 
260,340

 
201,067

Other (2)
15,486

 
10,593

 
32,061

 
20,577

Parts
16,103

 
16,049

 
47,388

 
44,366

Net sales
$
308,774

 
$
314,186

 
$
675,342

 
$
693,363

 
(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, chassis and bus shell sales.


17


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)
June 29, 2019
 
June 30, 2018
 
June 29, 2019
 
June 30, 2018
Numerator:
 
 
 
 
 
 
 
Net income
$
14,601

 
$
21,891

 
$
12,708

 
$
15,888

Less: convertible preferred stock dividends

 
182

 

 
1,715

Net income available to common stockholders
$
14,601

 
$
21,709

 
$
12,708

 
$
14,173

 
 
 
 
 
 
 
 
Basic earnings per share (1):
 
 
 
 
 
 
 
Weighted average common shares outstanding
26,451,107

 
26,209,697

 
26,449,751

 
24,677,838

Basic earnings per share
$
0.55

 
$
0.83

 
$
0.48

 
$
0.57

 
 
 
 
 
 
 
 
Diluted earnings per share (2):
 
 
 
 
 
 
 
Weighted average common shares outstanding
26,451,107

 
26,209,697

 
26,449,751

 
24,677,838

Weighted average dilutive securities, convertible preferred stock

 
1,471,902

 
131,979

 

Weighted average dilutive securities, restricted stock
94

 
687

 
29,149

 
24,403

Weighted average dilutive securities, warrants
150,292

 
607,532

 
178,290

 
836,932

Weighted average dilutive securities, stock options
118,617

 
267,096

 
131,116

 
270,318

Weighted average shares and dilutive potential common shares
26,720,110

 
28,556,914

 
26,920,285

 
25,809,491

Diluted earnings per share
$
0.55

 
$
0.77

 
$
0.47

 
$
0.55

 
(1) Basic earnings per share is calculated by dividing income available to common stockholders by the weighted average common shares outstanding during the period.
(2) For the nine months ended June 30, 2018, 2,791,468 shares of convertible preferred stock were excluded from the dilutive calculation as the if-converted impact would be anti-dilutive.


18


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
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
)
 
 
 
 
 
 
 
 
 
June 30, 2018
 
 
 
 
 
 
 
 
Beginning Balance
 
$
(42,643
)
 
$
(42,643
)
 
$
(43,875
)
 
$
(43,875
)
Amounts reclassified from other comprehensive loss and included in earnings
 
880

 
880

 
2,640

 
2,640

Total other comprehensive income, before taxes
 
880

 
880

 
2,640

 
2,640

Income tax expense
 
(211
)
 
(211
)
 
(739
)
 
(739
)
Ending Balance June 30, 2018
 
$
(41,974
)
 
$
(41,974
)
 
$
(41,974
)
 
$
(41,974
)


19


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 June 29, 2019 and June 30, 2018 and related notes appearing in Part I, Item 1 of this Report. Our actual results may not be indicative of future performance. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors”. Actual results may differ materially from those contained in any forward-looking statements. Certain monetary amounts, percentages and other figures included in this Report have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated, may not be the arithmetic aggregation of the percentages that precede them.

We refer to the fiscal year ended September 29, 2018 as “fiscal 2018”. We refer to the quarter ended June 29, 2019 as the “third quarter of fiscal 2019” and we refer to the quarter ended June 30, 2018 as the “third quarter of fiscal 2018”. There were 13 weeks in the third quarters of both fiscal 2019 and fiscal 2018.

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 school buses and all-electric school buses.

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

Critical Accounting Policies and Estimates, Recent Accounting Pronouncements

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

The Company’s accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described in the Company’s 2018 Form 10-K, filed with the SEC on December 12, 2018 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 June 29, 2019, except as follows:

Revenue Recognition

The Company records revenue, net of tax, when the following five steps have been completed:

1.
Identification of the contract(s) with a customer;
2.
Identification of the performance obligation(s) in the contract;
3.
Determination of the transaction price;
4.
Allocation of the transaction price to the performance obligations in the contract; and
5.
Recognition of revenue when, or as, we satisfy performance obligations.

The Company records revenue when performance obligations are satisfied by transferring control of a promised good or service to the customer. The Company evaluates the transfer of control primarily from the customer’s perspective where the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from that good or service.


20


Our product revenue includes sales of buses and bus parts, each of which are generally recognized as revenue at a point in time, once all conditions for revenue recognition have been met, as they represent our performance obligations in a sale. For buses, control is generally transferred and the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the product when the product is delivered or when the product has been completed, is ready for delivery, has been paid for, its title has transferred and it is awaiting pickup by the customer. For certain bus sale transactions, we may provide incentives including payment of a limited amount of future interest charges our customers may incur related to their purchase and financing of the bus with third party financing companies. We reduce revenue at the recording date by the full amount of potential future interest we may be obligated to pay, which is an application of the "most likely amount" method. For parts sales, control is generally transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the products, which generally coincides with the point in time when the customer has assumed risk of loss and title has passed for the goods sold.

The Company sells extended warranties related to its products. Revenue related to these contracts is recognized based on the stand-alone selling price of the arrangement, on a straight-line basis over the contract period and costs thereunder are expensed as incurred.

The Company includes shipping and handling revenues, which represents costs billed to customers, in net sales on the Condensed Consolidated Statements of Operations. The related costs incurred by the Company are included in cost of goods sold on the Condensed Consolidated Statements of Operations.

Leases

We determine if an arrangement is a lease at inception. Operating leases include lease right-of-use (“ROU”) assets, which we include in property, plant and equipment on our Condensed Consolidated Balance Sheets. The lease liabilities associated with operating leases are included in other current liabilities and other liabilities on our Condensed Consolidated Balance Sheets. We do not have any finance leases.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the leases recorded do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any base rental or lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term as a component of selling, general and administrative expenses on Condensed Consolidated Statements of Operations.

Derivative Instruments

In limited circumstances, we may utilize derivative instruments to manage certain exposures to changes in foreign currency exchange rates or as cash flow hedges for variable rate debt. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these derivative instruments are recognized in our operating results or included in other comprehensive income (loss), depending on whether the derivative instrument is a fair value or cash flow hedge and whether it qualifies for hedge accounting treatment. If realized, gains and losses on derivative instruments are recognized in the operating results line item that reflects the underlying exposure that was hedged. The exchange of cash, if any, associated with derivative transactions is classified in the same category as the cash flows from the items subject to the economic hedging relationships.

Statement of Cash Flows

We classify distributions received from our equity method investment using the nature of distribution approach, such that distributions received are classified based on the nature of the activity of the investee that generated the distribution. Returns on investment are classified within operating activities, while returns of investment are classified within investing activities.

21



Recent Accounting Pronouncements

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

Factors Affecting Our Revenues

Our revenues are driven primarily by the following factors:

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

Factors Affecting Our Expenses and Other Items

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

Cost of goods sold. The components of our cost of goods sold consist of material costs (principally powertrain components, steel and rubber, as well as aluminum and copper), labor expense and overhead. Our cost of goods sold may vary from period to period in part due to changes in sales volume, efforts by certain suppliers to pass through the economics associated with key commodities, design changes with respect to specific components, design changes with respect to specific bus models, wage increases for plant labor, productivity of plant labor, delays in receiving materials and other logistical problems, and the impact of overhead items such as utilities.
Selling, general and administrative expenses. Our selling, general and administrative expenses include costs associated with our selling and marketing efforts, engineering, centralized finance, human resources, purchasing and information technology services, as well as 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.


22


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.
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.
Equity in net income of non-consolidated affiliate. We include in this line item our share of income or loss from our investment in Micro Bird, our unconsolidated 50/50 Canadian joint venture.