Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. Blue Bird Corp (1589526) 10-Q published on May 14, 2020 at 5:09 pm
Reporting Period: Apr 03, 2020
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 rate. We are currently evaluating the impact this ASU may have on our consolidated financial statements.
As reported in our May 8, 2020 Current Report on Form 8-K, 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, among other things, provides for an aggregate lender commitment of $41.9 million of additional revolving commitments bringing the total revolving commitments to $141.9 million. The additional revolving commitments are intended to be used for working capital, to fund general corporate purposes and to pay transaction costs, fees and expenses related thereto and in connection with the Second Amendment. The revolving commitments under the Amended Credit Agreement will mature on September 13, 2023, which is the fifth anniversary of the effective date of the First Amendment. The interest rate pricing grid remained unchanged, but the LIBOR floor was amended from 0% to 0.75%. Approximately $0.9 million in fees were incurred related to the amendment and are expected to be capitalized.
The full extent of the potential impacts of COVID-19 on the Company's financial results in FY2020 is uncertain as it must take into account the level of demand among our customers and the ability of school boards to make timely decisions, the ability of suppliers who were shut down to resume operations and finally the ability of our employees to return to work and our ability to maintain continuous production for the balance of our fiscal year. A prolonged economic shutdown could also have a material adverse impact on sales and financial results beyond FY2020. See PART II, Item 1A. Risk Factors, of this Quarterly Report for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.
The Company is taking actions to improve liquidity and ensure continuity of supply; we currently have adequate liquidity and our manufacturing processes are presently operating. Even with adequate liquidity, we are evaluating and considering actions to reduce costs and spending across our organization to be responsive to potential longer-term impacts of business interruptions from the pandemic. This includes reducing hiring activities and limiting discretionary spending. We may reduce anticipated spending on capital investment projects. We will continue to actively monitor the situation and may take further actions that may alter our business operations as may be required
We rely on specialist suppliers, some of which are single-source suppliers, for critical components (including but not limited to engines, transmissions and axles) and replacement of any of these components with like parts from another supplier normally requires engineering and testing resources, which entail costs and take time. We also currently rely on a limited number of single-source suppliers and/or have limited alternatives for important bus parts such as diesel engines and emission components, propane and gasoline engines including powertrains, control modules, steering systems, seats, specialty resins, and other key components. In addition to protecting our employees' health, our plant shut-down was partially due to the potential for an inability to obtain critical components from our suppliers due to COVID-19. Delays or interruptions in the supply chain due to the COVID-19 pandemic exposes us to the following risks that if materialized could significantly increase our costs and/or impact our ability to meet customer demand:
Almost all U.S. states, including Georgia where our headquarters and manufacturing facilities are located, have issued “shelter-in-place” orders, quarantines, executive orders and similar government orders, restrictions and recommendations for their residents to control the spread of COVID-19. Orders could be re-issued at or after their expiration and future orders may introduce broader restrictions. Such orders, restrictions and recommendations, and the perception that additional orders, restrictions or recommendations could occur, have resulted in widespread closures of businesses not deemed “essential,” work stoppages, interruptions, slowdowns and delays, work-from-home policies and travel restrictions. While our business has been deemed essential by the State of Georgia, we have employed remote work policies when and where possible to be responsive to the health risks that may impact our employees. Given the nature of our business, we do not have the ability to manufacture a bus without our on-site manufacturing personnel. While we have not experienced any pervasive COVID-19 illnesses to date, if we were to experience some form of outbreak within our facilities, we would take all appropriate measures to protect the health and safety of our employees, which could include a temporary halt in production. Any extended production halt or diminution in production capacity would likely have a negative impact on our ability to fulfill orders and on our revenues.