Company Quick10K Filing
Blue Bird
Price19.34 EPS1
Shares27 P/E22
MCap523 P/FCF9
Net Debt115 EBIT45
TEV638 TEV/EBIT14
TTM 2019-09-28, in MM, except price, ratios
10-Q 2020-07-04 Filed 2020-08-13
10-Q 2020-04-04 Filed 2020-05-14
10-Q 2020-01-04 Filed 2020-02-13
10-K 2019-09-28 Filed 2019-12-12
10-Q 2019-06-29 Filed 2019-08-08
10-Q 2019-03-30 Filed 2019-05-09
10-Q 2018-12-29 Filed 2019-02-07
10-K 2018-09-29 Filed 2018-12-12
10-Q 2018-06-30 Filed 2018-08-08
10-Q 2018-03-31 Filed 2018-05-10
10-Q 2017-12-30 Filed 2018-02-07
10-K 2017-09-30 Filed 2017-12-08
10-Q 2017-07-01 Filed 2017-08-04
10-Q 2017-04-01 Filed 2017-05-12
10-Q 2016-12-31 Filed 2017-02-09
10-K 2016-10-01 Filed 2016-12-15
10-Q 2016-07-02 Filed 2016-08-16
10-Q 2016-04-02 Filed 2016-05-23
10-Q 2016-01-02 Filed 2016-02-09
10-K 2015-10-03 Filed 2015-12-15
10-Q 2015-07-04 Filed 2015-08-18
10-Q 2015-04-04 Filed 2015-05-19
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-11-14
10-Q 2014-06-30 Filed 2014-08-14
10-Q 2014-03-31 Filed 2014-05-13
8-K 2020-10-05 Officers, Other Events, Exhibits
8-K 2020-08-20 Officers, Exhibits
8-K 2020-08-12 Earnings, Regulation FD, Exhibits
8-K 2020-05-14
8-K 2020-05-08
8-K 2020-05-01
8-K 2020-03-04
8-K 2020-02-12
8-K 2019-12-11
8-K 2019-11-18
8-K 2019-11-12
8-K 2019-08-07
8-K 2019-05-09
8-K 2019-03-05
8-K 2019-02-06
8-K 2018-12-06
8-K 2018-12-04
8-K 2018-10-24
8-K 2018-09-13
8-K 2018-08-08
8-K 2018-06-14
8-K 2018-05-10
8-K 2018-04-03
8-K 2018-03-05
8-K 2018-02-07

BLBD 10Q Quarterly Report

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-10.1 a10q2020q3ex101.htm
EX-10.2 a10q2020q3ex102.htm
EX-10.3 a10q2020q3ex103.htm
EX-10.4 a10q2020q4ex104.htm
EX-31.1 a10q2020q3ex311.htm
EX-31.2 a10q2020q3ex312.htm
EX-32.1 a10q2020q3ex321.htm

Blue Bird Earnings 2020-07-04

Balance SheetIncome StatementCash Flow
41029818674-38-1502014201620182020
Assets, Equity
34527320112957-152014201620182020
Rev, G Profit, Net Income
120865218-16-502014201620182020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 4, 2020

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

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

Commission File Number 001-36267

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


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

        
3920 Arkwright Road, 2nd Floor, Macon, Georgia 31210
(Address of principal executive offices)
(Zip Code)

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

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

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

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

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

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

At August 7, 2020, 27,048,404 shares of the registrant’s common stock, $0.0001 par value, were outstanding.



BLUE BIRD CORPORATION
FORM 10-Q

TABLE OF CONTENTS









PART I – FINANCIAL INFORMATION

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.

2


BLUE BIRD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
Nine Months Ended
(in thousands of dollars except for share data)
July 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.


3


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.


4


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.

5


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


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 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.


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.

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




8


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.


9


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

10


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.

11



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