What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-12-15 compared with 2020-12-17 · 417 added, 320 removed, 672 unchanged (52% of the section changed)

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Blue Bird Corporation (the “Company”) as of October 3, 2020 and September 28, 2019, the related consolidated statements of operations and comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended October 3, 2020, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 3, 2020 and September 28, 2019, and the results of its operations and its cash flows for each of the three years in the period ended October 3, 2020 , in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Blue Bird Corporation (the “Company”) and subsidiaries as of October 2, 2021 and October 3, 2020, the related consolidated statements of operations and comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended October 2, 2021, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 2, 2021 and October 3, 2020, and the results of its operations and its cash flows for each of the three years in the period ended October 2, 2021 , in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of October 2, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated December 15, 2021 expressed an unqualified opinion thereon.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of Warranty Reserve

As discussed in Note 2 to the consolidated financial statements, the Company's warranty reserve is calculated based on the average expected warranty claims using warranty claims by body type, by month, over the life of the bus, which is then multiplied by remaining months under warranty, by warranty type.

The total warranty reserve was $19 million as of October 2, 2021.

We identified the evaluation of certain assumptions related to the average warranty costs per unit and the average expected warranty claim payment patterns used in the evaluation of the warranty reserve as a critical audit matter.

The principal considerations for our determination were (i) the Company’s assumptions relating to the average warranty costs per unit and the payment patterns over the term of the warranty involved a higher degree of auditor judgment, and (ii) specialized actuarial skills were needed to assess the Company's process and evaluate the assumptions regarding the determination of the average expected warranty claims and the affect of those assumptions on the reserve.

The primary procedures we performed to address this critical audit matter included:

• Testing the design, implementation and operating effectiveness of controls over the Company's warranty claim process, including the data, inputs, and assumptions utilized to estimate the warranty reserve;

• Testing the warranty reserve calculation, including the mathematical accuracy of the calculation, the relevance, reliability, and sufficiency of the assumptions and the sources of data from which the assumptions were derived;

• Involving actuarial professionals with specialized knowledge and skills to assist in:

(i) reviewing the Company’s actuarial methodology in calculating the warranty reserve, (ii) evaluating certain key assumptions used, including average warranty costs per unit and payment patterns over the term of the warranty, in the determination of the average expected warranty claims, and (iii) determining whether the methodology, assumptions, and calculation were consistent with historical evaluations and the aggregate impact of any changes to assumptions.

/s/ BDO USA, LLP

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Stockholders and Board of Directors

Blue Bird Corporation

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 2, 2021, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of October 3, 2020 and September 28, 2019, the related consolidated statements of operations and comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended October 3, 2020, and the related notes and schedule and our report dated December 17, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of October 2, 2021 and October 3, 2020, the related consolidated statements of operations and comprehensive income, stockholders’ deficit, and cash flows for each of the three years in the period ended October 2, 2021, and the related notes and schedule and our report dated December 15, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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CONSOLIDATED BALANCE SHEETS

(in thousands except for share data)

October 3, 2020

September 28, 2019

(in thousands except for share data) October 2, 2021 October 3, 2020

Current assets

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Accounts receivable, net 9,967 7,623

Inventories 125,206 56,523

Other current assets 9,191 8,243

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Property, plant and equipment, net 105,482 103,372

Goodwill 18,825 18,825

Intangible assets, net 49,443 51,632

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Finance lease right-of-use assets 5,486 6,983

Other assets 1,481 1,022

Total assets $ 356,020 $ 317,415

Liabilities and Stockholders' Deficit

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Accounts payable $ 72,270 $ 57,602

Warranty 7,385 8,336

Accrued expenses 12,267 15,773

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Long-term liabilities

Revolving credit facility $ 45,000 $ —

Long-term debt 149,573 164,204

Warranty 11,165 13,038

Deferred warranty income 12,312 14,048

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Other liabilities 14,882 14,315

Pension 22,751 47,259

Total long-term liabilities $ 263,894 $ 258,997

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Stockholders' deficit

Preferred stock, $0.0001 par value, 10,000,000 shares authorized, 0 issued with liquidation preference of $0 at October 3, 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 October 3, 2020 and September 28, 2019, respectively.

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, 0 issued with liquidation preference of $ 0 at October 2, 2021 and October 3, 2020

Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 27,205,269 and 27,048,404 shares outstanding at October 2, 2021 and October 3, 2020, respectively

Additional paid-in capital 96,170 88,910

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Accumulated other comprehensive loss ( 44,794 ) ( 58,397 )

Treasury stock, at cost, 1,782,568 shares at October 3, 2020 and September 28, 2019

Treasury stock, at cost, 1,782,568 shares at October 2, 2021 and October 3, 2020

( 50,282 ) ( 50,282 )

Total stockholders' deficit $ ( 32,656 ) $ ( 53,230 )

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(in thousands except for share data) 2021 2020 2019

Net sales $ 683,995 $ 879,221 $ 1,018,874

Cost of goods sold 611,854 783,021 885,400

Gross profit $ 72,141 $ 96,200 $ 133,474

Operating expenses

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Other income (expense), net 1,776 738 ( 1,331 )

Income before income taxes

Income tax (expense) benefit

Loss on debt modification ( 598 ) — —

(Loss) income before income taxes $ ( 1,978 ) $ 10,491 $ 29,631

Income tax benefit (expense) 1,191 ( 1,519 ) ( 7,573 )

Equity in net income of non-consolidated affiliate 498 3,213 2,242

Earnings per share:

Net income (from above)

preferred stock dividends

Net income available to common stockholders

Net (loss) income $ ( 289 ) $ 12,185 $ 24,300

(Loss) earnings per share:

Basic weighted average shares outstanding 27,139,054 26,850,999 26,455,436

Diluted weighted average shares outstanding 27,139,054 27,086,555 27,043,814

Basic earnings per share

Diluted earnings per share

Basic (loss) earnings per share $ ( 0.01 ) $ 0.45 $ 0.92

Diluted (loss) earnings per share $ ( 0.01 ) $ 0.45 $ 0.90

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

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(in thousands) 2021 2020 2019

Other comprehensive (loss) income, net of tax

Net (loss) income $ ( 289 ) $ 12,185 $ 24,300

Other comprehensive income (loss), net of tax

Net change in defined benefit pension plan 13,603 ( 2,243 ) ( 17,727 )

Total other comprehensive (loss) income, net of tax

Total other comprehensive income (loss), net of tax $ 13,603 $ ( 2,243 ) $ ( 17,727 )

Comprehensive income $ 13,314 $ 9,942 $ 6,573

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Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by operating activities:

Net (loss) income $ ( 289 ) $ 12,185 $ 24,300

Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:

Depreciation and amortization 13,446 14,400 10,383

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Share-based compensation 5,938 4,141 4,273

Equity in net income of affiliate

Equity in net income of non-consolidated affiliate ( 498 ) ( 3,213 ) ( 2,242 )

(Gain) loss on disposal of fixed assets ( 679 ) ( 76 ) 5

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Amortization of deferred actuarial pension losses 1,861 1,720 2,758

Loss on debt modification 598 — —

Foreign currency hedges — — 109

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Accounts receivable ( 2,345 ) 2,914 13,530

Inventories ( 68,684 ) 22,308 ( 21,497 )

Other assets ( 409 ) 5,068 ( 4,651 )

Accounts payable 14,081 ( 40,258 ) 6,318

Accrued expenses, pension and other liabilities ( 19,090 ) ( 19,410 ) 9,707

Dividend from equity investment in affiliate

Dividend from equity investment in non-consolidated affiliate — — 2,259

Total adjustments $ ( 53,952 ) $ ( 8,726 ) $ 31,406

Total cash provided by operating activities

Total cash (used in) provided by operating activities $ ( 54,241 ) $ 3,459 $ 55,706

Cash flows from investing activities

Cash paid for fixed assets and acquired intangible assets

Cash paid for fixed assets $ ( 12,212 ) $ ( 18,968 ) $ ( 35,514 )

Proceeds from sale of fixed assets 903 165 47

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Cash flows from financing activities

Net borrowings under the revolving credit facility $ 45,000 $ — $ —

Borrowings under the term loan — — 50,000

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Principal payments on finance leases ( 1,294 ) ( 945 ) ( 133 )

Cash paid for capital leases

Cash paid for debt issuance costs

Payment of dividends on preferred stock

Cash paid for employee taxes on vested restricted shares and stock option exercises

Cash paid for debt costs ( 2,476 ) ( 935 ) —

Net cash received (paid) for exercises and employee taxes on vested restricted shares and stock option exercises 1,422 ( 3,568 ) ( 636 )

Proceeds from exercises of warrants — 4,240 1,499

Common stock, preferred stock, and warrant repurchases under share repurchase programs

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

Total cash used in financing activities

Total cash provided by (used in) financing activities $ 32,752 $ ( 11,108 ) $ ( 9,540 )

Change in cash and cash equivalents ( 32,798 ) ( 26,452 ) 10,699

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Interest paid, net of interest received $ 11,568 $ 7,591 $ 10,408

Income tax (received) paid, net of tax refunds

Income tax paid (received), net of tax refunds 31 ( 1,542 ) 4,586

Non-cash Investing and Financing Activities:

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

Convertible Preferred Stock

Treasury Stock

(in thousands except for share data)

Additional Paid-In-Capital

Accumulated Other Comprehensive Loss

Accumulated Deficit

Total Stockholders' Deficit

Common Stock Convertible Preferred Stock Treasury Stock

(in thousands except for share data) 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 revenue recognition standard (ASC 606) adjustment — — — — — — ( 714 ) — — ( 714 )

Exercise of stock warrants 144,996 — 1,499 — — — — — — 1,499

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Stock option activity 3,836 — ( 40 ) — — — — — — ( 40 )

Preferred stock dividends

Share repurchase program

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 ) — — — — —

Share-based compensation expense — — 4,173 — — — — — — 4,173

Other comprehensive income, net of tax

Net income — — — — — — 24,300 — — 24,300

Other comprehensive loss, net of tax — — — — — ( 17,727 ) — — — ( 17,727 )

Balance, September 28, 2019 26,476,336 $ 3 $ 84,271 — $ — $ ( 56,154 ) $ ( 45,649 ) 1,782,568 $ ( 50,282 ) $ ( 67,811 )

Adoption of new revenue recognition standard (ASC 606) adjustment

Exercise of stock warrants 368,712 — 4,240 — — — — — — 4,240

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Stock option activity 108,632 — ( 1,945 ) — — — — — — ( 1,945 )

Tender offer share repurchases

Preferred stock conversion

Share-based compensation expense — — 3,967 — — — — — — 3,967

Net income — — — — — — 12,185 — — 12,185

Other comprehensive loss, net of tax — — — — — ( 2,243 ) — — — ( 2,243 )

Balance, September 28, 2019

Exercise of stock warrants

Balance, October 3, 2020 27,048,404 $ 3 $ 88,910 — $ — $ ( 58,397 ) $ ( 33,464 ) 1,782,568 $ ( 50,282 ) $ ( 53,230 )

Restricted stock activity 36,404 — ( 517 ) — — — — — — ( 517 )

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Share-based compensation expense — — 5,838 — — — — — — 5,838

Other comprehensive loss, net of tax

Net loss — — — — — — ( 289 ) — — ( 289 )

Other comprehensive income, net of tax — — — — — 13,603 — — — 13,603

Balance, October 2, 2021 27,205,269 $ 3 $ 96,170 — $ — $ ( 44,794 ) $ ( 33,753 ) 1,782,568 $ ( 50,282 ) $ ( 32,656 )

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Nature of Business

Blue Bird Body Company, a wholly-owned subsidiary of Blue Bird, 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.

Blue Bird Body Company ("BBBC"), 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 BBBC’s sales are made to an independent distributor network, which in turn sells buses to ultimate end users.

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.

Beginning in our second fiscal quarter of 2020, the novel coronavirus known as "COVID-19" began to spread throughout the world, resulting in a global pandemic.

The pandemic impacted our 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.

We are headquartered in Macon, Georgia.

Basis of Presentation

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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 were 53 weeks and there were 52 weeks in fiscal years 2019 and 2018 .

The fiscal years ended October 2, 2021, October 3, 2020 and September 28, 2019 are referred to herein as “fiscal 2021,” “fiscal 2020” and “fiscal 2019,” respectively.

There were 52 weeks in fiscal 2021 and fiscal 2019, and there were 53 weeks in fiscal 2020.

Beginning at the end of our second quarter of fiscal 2020 and continuing throughout fiscal 2021, the novel coronavirus known as "COVID-19" spread throughout the world, resulting in a global pandemic.

The pandemic significantly impacted our financial results for the second half of fiscal 2020, which continued throughout fiscal 2021, causing, among other matters, lower customer orders for both buses and bus parts, major supply chain disruptions, particularly in the second half of fiscal 2021, higher rates of absenteeism among our hourly production workforce and several temporary shutdowns of our manufacturing facilities during fiscal 2021 as we could not secure an adequate supply of critical components to allow us to initiate or complete, as applicable, the production process to fulfill sales orders.

The continuing development and fluidity of the pandemic and its trailing impact precludes any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity.

Summary of Significant Accounting Policies and Recently Issued Accounting Standards

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.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S.") (“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.

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 intangible assets, the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies.

Future events, including the extent and duration of the 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.

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Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, accounts payable, revolving credit facilities and long-term debt.

The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, accounts payable, revolving credit facility and long-term debt.

The carrying amounts of cash and cash equivalents, trade receivables and accounts payable approximate their fair values because of the short-term maturity and highly liquid nature of these instruments.

The carrying value of the Company’s term loan approximates fair value due to the variable interest rate.

The carrying value of the Company’s revolving credit facility and long-term debt approximates fair value due to the variable interest rate.

See Note 8, Debt, for further discussion.

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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 mitigated.

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 qualifies, and is appropriately designated, for hedge accounting treatment and if so, whether it represents a fair value or cash flow hedge.

Gains and losses on derivative instruments are recognized in the operating results line item that reflects the underlying exposure that was mitigated either via a formal hedge accounting relationship or economically.

The exchange of cash, if any, associated with derivative transactions is classified in the same category as the cash flows from the underlying items giving rise to the foreign currency or interest rate exposures.

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Depreciation and amortization is calculated on a straight-line basis using the following periods, which represent the estimated useful lives of the assets:

Buildings 15 - 33

Machinery and equipment 5 - 10

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Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Operating lease ROU assets also include any base rental or lease payments made and excludes lease incentives.

Operating lease ROU assets also include any base rental or lease payments made and exclude lease incentives.

The two components of operating lease expense, amortization and interest, are recognized on a straight-line basis over the lease term as a single expense element within selling, general and administrative expenses on the Consolidated Statements of Operations.

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Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the assets acquired less liabilities assumed in connection with such acquisition.

In accordance with the provisions of ASC 350, Intangibles—Goodwill and Other , goodwill and intangible assets with indefinite useful lives acquired in an acquisition are not amortized, but instead are tested for impairment at least annually or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired.

Such events or circumstances may be a significant change in business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion thereof.

In accordance with the provisions of Accounting Standards Codification Topic ("ASC") 350, Intangibles—Goodwill and Other , goodwill and intangible assets with indefinite useful lives acquired in an acquisition are not amortized, but instead are tested for impairment at least annually or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired.

Such events or circumstances may include a significant change in business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion thereof.

We have two reporting units for which we test goodwill for impairment:

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Debt Issue Costs

Amounts paid directly to lenders or as an original issue discount and amounts classified as issuance costs are recorded as a reduction in the carrying value of the debt, for which the Company had deferred financing costs totaling $ 2.2 million and $ 3.1 million at October 3, 2020 and September 28, 2019 , respectively, incurred in connection with its debt facilities and related amendments.

Amounts paid directly to lenders or as an original issue discount and amounts classified as issuance costs are recorded as a reduction in the carrying value of the debt, for which the Company had deferred financing costs totaling $ 2.0 million and $ 2.2 million at October 2, 2021 and October 3, 2020, respectively, incurred in connection with its debt facilities and related amendments.

All deferred financing costs are amortized to interest expense.

The effective interest method is used for debt discounts related to the term loan.

The Company’s amortization of these costs was $ 0.9 million , $ 0.9 million and $ 0.8 million for the fiscal years ended 2020 , 2019 and 2018 , respectively, and is reflected as a component of interest expense on the Consolidated Statements of Operations.

The Company’s amortization of these costs was $ 1.1 million, $ 0.9 million and $ 0.9 million for fiscal 2021, fiscal 2020 and fiscal 2019, respectively, and is reflected as a component of interest expense on the Consolidated Statements of Operations.

See Note 8, Debt , for a discussion of the Company’s indebtedness.

The Company accounts for its pension benefit obligations using actuarial models.

The measurement of plan obligations and assets was made at October 3, 2020 .

The measurement of plan obligations and assets was made at September 30, 2021.

Effective January 1, 2006, the benefit plan was frozen to all participants.

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The Company recognizes the funded status of its pension plan obligations on the Consolidated Balance Sheet and records in other comprehensive income (loss) certain gains and losses that arise during the period, but are deferred under pension accounting rules.

Pension expense is recognized as a component of other expense, net on our Consolidated Statements of Operations.

Pension expense is recognized as a component of other income (expense), net on our Consolidated Statements of Operations.

Product Warranty Costs

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Research and development costs are expensed as incurred and included in selling, general and administrative expenses on our Consolidated Statements of Operations.

For the fiscal years ended 2020 , 2019 and 2018 , the Company expensed $ 6.4 million , $ 11.5 million and $ 8.5 million , respectively.

For fiscal 2021, fiscal 2020 and fiscal 2019, the Company expensed $ 5.2 million, $ 6.4 million and $ 11.5 million, respectively.

The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires an asset and liability approach to financial accounting and reporting for income taxes.

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The Company records interest and penalties related to unrecognized tax benefits in income tax expense.

The Company's policy for releasing income tax effects from accumulated other comprehensive income (loss) is to use a specific identification approach.

Environmental Liabilities

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Operating segments are components of an entity that engage in business activities with discrete financial information available that is regularly reviewed by the chief operating decision maker (“CODM”) in order to assess performance and allocate resources.

The Company’s CODM is the Company’s President and Chief Executive Officer.

The Company’s CODM is its President and Chief Executive Officer.

As discussed further in Note 11, Segment Information , the Company determined its operating and reportable segments to be Bus and Parts.

The Bus segment includes the manufacturing and assembly of school buses to be sold to a variety of customers across the United States, Canada and in international markets.

The Bus segment includes the manufacturing and assembly of school buses to be sold to a variety of customers across the U.S., Canada and in international markets.

The Parts segment consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network.

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Recently Adopted Accounting Standards

ASU 2018-02 – In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 improve the usefulness of information reported to financial statement users.

This ASU was 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 early adopted this standard effective the first quarter of fiscal 2020 and the the impacts of adopting this standard were not material.

ASU 2016-13 In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which requires that credit losses on most financial instruments measured at amortized cost and certain other financial instruments be measured using an expected credit loss model.

Under this model, entities are required to estimate credit losses over the entire contractual term of the financial instrument from the date of initial recognition of the instrument.

As required, the Company adopted this guidance on October 4, 2020, the first day of the Company’s first quarter of fiscal 2021.

While a number of financial instruments are subject to the scope of ASU 2016-13, its provisions applied only to the Company’s accounts receivable.

Given that the Company extends credit with short contractual terms on only a small percentage of its sales, the adoption of the expected credit loss model did not have any impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards

ASU 2020-04 On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR, which is currently expected to occur on December 31, 2021.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , providing temporary guidance to ease the potential burden in accounting for reference rate reform primarily resulting from the discontinuation of LIBOR (defined below), which was initially expected to occur on December 31, 2021.

The amendments in ASU 2020-04 are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued.

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.

ASU 2021-01 On January 7, 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848):

Scope , which refines the scope of ASC 848, Reference Rate Reform , and clarifies some of its guidance as part of the FASB’s ongoing monitoring of global reference rate reform activities.

The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets.

The above amendments are effective for all entities from March 12, 2020 through December 31, 2022.

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

On March 5, 2021, the Intercontinental Exchange, Inc.

("ICE") Benchmark Administration ("IBA"), the administrator of the U.S.

Dollar London Interbank Offering Rate ("LIBOR"), issued a statement, following the completion of a formal consultation process, reaffirming the preliminary announcement it made on November 30, 2020, to cease publication of (i) 1 week and 2 month LIBOR subsequent to December 31, 2021 and (ii) the overnight and 1, 3, 6 and 12 month LIBOR tenors subsequent to June 30, 2023.

The IBA’s statement regarding such cessation dates primarily resulted from a majority of LIBOR panel banks communicating to the IBA that they would be unwilling to continue contributing to the relevant LIBOR settings after such dates.

As a result, the IBA determined that it would be unable to publish the relevant LIBOR settings on a representative basis after such dates.

The United Kingdom Financial Conduct Authority ("FCA"), which regulates the IBA, confirmed that, based on information it received from LIBOR panel banks, it does not expect that any LIBOR settings will become unrepresentative before the announced cessation dates summarized above.

Currently, the Company’s interest rate collar, which is not designated in a hedge accounting relationship, and Amended Credit Agreement (defined below) are the only contracts that reference an interest rate index (i.e., 3 month LIBOR) that is subject to the reference rate reform guidance included in the above amendments.

While the termination date of the interest rate collar, September 30, 2022, occurs prior to the July 1, 2023 date on which the IBA will no longer publish 3 month LIBOR, the Amended Credit Agreement matures on September 13, 2023, approximately 2.5 months subsequent to such cessation date.

However, as management does not currently forecast that the Company will have sufficient cash to fund the term loan borrowings that are expected to be outstanding under the terms of the Amended Credit Agreement upon maturity, it is expecting to refinance such borrowings prior to maturity, with such refinancing likely to occur before the July 1, 2023 LIBOR cessation date.

Therefore, it is highly likely that neither the interest rate collar nor Amended Credit Agreement will be modified to reflect the discontinuation of 3 month LIBOR effective July 1, 2023 and accordingly, the Company will not be required to decide whether or not to elect to adopt such amendments prior to or on December 31, 2022 (i.e., the last effective date for adopting the amendments).

However, to the extent that either or both of the contracts are modified prior to December 31, 2022, the Company plans to adopt the amendments on a prospective basis by adjusting the derivative fair value and/or debt effective interest rate, as applicable, neither of which is expected to have a material impact on the consolidated financial statements.

Supplemental Financial Information

2 unchanged sentences

( in thousands )

October 3, 2020

September 28, 2019

October 2, 2021 October 3, 2020

Accounts receivable $ 10,067 $ 7,723

19 unchanged sentences

The following table reflects the total accrued self-insurance liability, comprised of workers' compensation and health insurance related claims, at the dates indicated:

(in thousands)

October 3, 2020

September 28, 2019

(in thousands) October 2, 2021 October 3, 2020

Current portion $ 2,781 $ 2,993

3 unchanged sentences

Shipping and Handling

Shipping and handling revenues recognized were $ 16.9 million , $ 19.4 million and $ 20.7 million for the fiscal years ended 2020 , 2019 and 2018 , respectively.

The related cost of goods sold were $ 14.5 million , $ 17.0 million and $ 17.8 million for the fiscal years ended 2020 , 2019 and 2018 , respectively.

Shipping and handling revenues recognized were $ 13.4 million, $ 16.9 million and $ 19.4 million for fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

The related cost of goods sold were $ 11.7 million, $ 14.5 million and $ 17.0 million for fiscal 2021, fiscal 2020 and fiscal 2019, respectively.

Derivative Instruments

2 unchanged sentences

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.

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 fiscal year ended October 3, 2020 , the three-month LIBOR rate fell below the established floor, which required an immaterial cash payment to the counterparty.

Additionally, $ 0.5 million was accrued as interest expense in the fourth quarter of fiscal 2020 when the three-month LIBOR rate again fell below the established floor and is expected to be paid in the first quarter of fiscal 2021.

Throughout the fiscal year ended October 2, 2021, the three month LIBOR rate fell below the established floor, which required us to make $ 2.0 million in total cash payments 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.

2 unchanged sentences

The following table presents components of inventories at the dates indicated:

(in thousands)

October 3, 2020

September 28, 2019

(in thousands) October 2, 2021 October 3, 2020

Raw materials $ 74,862 $ 43,272

4 unchanged sentences

Property, plant and equipment, net, consisted of the following at the dates indicated:

(in thousands)

October 3, 2020

September 28, 2019

(in thousands) October 2, 2021 October 3, 2020

Land $ 2,504 $ 2,164

Buildings 47,307 46,509

Machinery and equipment 101,836 100,112

7 unchanged sentences

(1) Further information is included in Note 10, Guarantees, Commitments and Contingencies .

Depreciation and amortization expense for property, plant and equipment was $ 10.1 million , $ 7.3 million , and $ 7.0 million for the fiscal years ended 2020 , 2019 , and 2018 , respectively.

We capitalized $ 0.5 million of interest expense in the fiscal year ended 2020 related to the construction of plant manufacturing assets.

Depreciation and amortization expense for property, plant and equipment was $ 9.8 million, $ 10.1 million, and $ 7.3 million for fiscal 2021, fiscal 2020, and fiscal 2019, respectively.

We capitalized $ 0.8 million of interest expense in fiscal 2021 related to the construction of plant manufacturing assets.

The carrying amounts of goodwill by reporting unit are as follows at the dates indicated:

(in thousands)

(in thousands) Gross

Goodwill Accumulated

Impairments Net Goodwill

October 2, 2021

September 28, 2019

In the fourth quarters of the fiscal years ended 2020 and 2019 , we performed our annual impairment assessment of goodwill which did not indicate that an impairment existed;

Bus $ 15,139 $ — $ 15,139

Parts 3,686 — 3,686

Total $ 18,825 $ — $ 18,825

October 3, 2020

Bus $ 15,139 $ — $ 15,139

Parts 3,686 — 3,686

Total $ 18,825 $ — $ 18,825

In the fourth quarters of fiscal 2021 and fiscal 2020, we performed our annual impairment assessment of goodwill that did not indicate that an impairment existed;

therefore, no impairments of goodwill have been recorded.

1 unchanged sentence

The gross carrying amounts and accumulated amortization of intangible assets are as follows at the dates indicated:

October 3, 2020

September 28, 2019

(in thousands)

October 2, 2021 October 3, 2020

(in thousands) Gross

Amount Accumulated

Amortization Total Gross

Amount Accumulated

Amortization Total

Finite lived:

4 unchanged sentences

Indefinite lived:

Trade name 39,816 — 39,816 39,816 — 39,816

Total intangible assets $ 80,397 $ 30,954 $ 49,443 $ 80,397 $ 28,765 $ 51,632

2 unchanged sentences

The Company expects to maintain usage of the trade name on existing products and introduce new products in the future that will also display the trade name.

During the fourth quarters of the fiscal years ended 2020 and 2019 , we performed our annual impairment assessment of our trade name, which did not indicate that an impairment existed;

During the fourth quarters of fiscal 2021 and fiscal 2020, we performed our annual impairment assessment of our trade name, which did not indicate that an impairment existed;

therefore, no impairment of our indefinite lived intangible has been recorded.

1 unchanged sentence

Engineering designs are amortized on a straight-line basis over an estimated life of 2 or 7 years.

Total amortization expense for intangible assets was $ 3.1 million , $ 2.9 million , and $ 2.0 million for the fiscal years ended 2020 , 2019 , and 2018 , respectively.

Total amortization expense for intangible assets was $ 2.2 million, $ 3.1 million, and $ 2.9 million for fiscal 2021, fiscal 2020, and fiscal 2019, respectively.

Amortization expense for finite lived intangible assets for the next five years is expected to be as follows:

(in thousands)

Fiscal Years Ending

Amortization Expense

Fiscal Years Ending Amortization Expense

Total amortization expense $ 9,627

Original Credit Agreement

On December 12, 2016, Blue Bird Body Company, a wholly-owned subsidiary of the Company (the "Borrower"), executed a $ 235.0 million five -year credit agreement with Bank of Montreal, which acts as the administrative agent and an issuing bank, Fifth Third Bank, as co-syndication agent and an issuing bank, and Regions Bank, as Co-Syndication Agent, together with other lenders (the "Credit Agreement").

The credit facility provided for under the Credit Agreement consisted of a term loan facility in an aggregate initial principal amount of $ 160.0 million (the “Term Loan Facility”) and a revolving credit facility with aggregate commitments of $ 75.0 million .

The revolving credit facility includes a $ 15.0 million letter of credit sub-facility and a $ 5.0 million swing-line sub-facility (the “Revolving Credit Facility,” and together with the Term Loan Facility, each a “Credit Facility” and collectively, the “Credit Facilities”).

On December 12, 2016, BBBC ("Borrower"), executed a $ 235.0 million five -year credit agreement with Bank of Montreal, which acts as the administrative agent and an issuing bank, Fifth Third Bank, as co-syndication agent and an issuing bank, and Regions Bank, as co-syndication agent, together with other lenders ("Credit Agreement").

The credit facilities provided for under the Credit Agreement consisted of a term loan facility in an aggregate initial principal amount of $ 160.0 million (the “Term Loan Facility”) and a revolving credit facility with aggregate commitments of $ 75.0 million.

The revolving credit facility included a $ 15.0 million letter of credit sub-facility and a $ 5.0 million swing-line sub-facility (“Revolving Credit Facility,” and together with the Term Loan Facility, each a “Credit Facility” and collectively, the “Credit Facilities”).

The obligations under the Credit Agreement and the related loan documents (including without limitation, the borrowings under the Credit Facilities and obligations in respect of certain cash management and hedging obligations owing to the agents, the lenders or their affiliates), are, in each case, secured by a lien on and security interest in substantially all of the assets of the Company and its subsidiaries including the Borrower, with certain exclusions as set forth in a collateral agreement entered into on the closing date.

First Amendment to the Credit Agreement

On September 13, 2018, the Company entered into a first amendment of the December 12, 2016 Credit Agreement ("First Amended Credit Agreement").

On September 13, 2018, the Company entered into a first amendment to the Credit Agreement ("First Amended Credit Agreement").

The First Amended Credit Agreement provided for additional funding of $ 50.0 million and was funded in the first quarter of fiscal 2019.

3 unchanged sentences

The first amendment also amended the interest rate pricing matrix (as follows) as well as the principal payment schedule (as disclosed at the end of this footnote).

In connection with the First 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 First Amended Credit Agreement using the effective interest method.

The interest rate on the Term Loan Facility was (i) from the first amendment effective date until the first quarter ended on or about September 30, 2018, LIBOR plus 2.25 % , and (ii) commencing with the fiscal quarter ended on or about September 30, 2018 and thereafter, dependent on the Total Net Leverage Ratio of the Company, an election of either base rate or LIBOR pursuant to the table below:

Total Net Leverage Ratio

Eurodollar Loans

Less than 2.00x

Greater than or equal to 2.00x and less than 2.50x

Greater than or equal to 2.50x and less than 3.00x

Greater than or equal to 3.00x and less than 3.25x

Greater than or equal to 3.25x and less than 3.50x

Greater than 3.50x

In connection with the First Amended Credit Agreement, we incurred $ 2.0 million of debt discount and issuance costs, which were recorded as contra-debt and are being amortized over the life of the First Amended Credit Agreement using the effective interest method.

thereafter, dependent on the Total Net Leverage Ratio ("TNLR") of the Company, an election of either base rate or LIBOR pursuant to the table below:

Level Total Net Leverage Ratio ABR Loans Eurodollar Loans

I Less than 2.00x 0.75 % 1.75 %

II Greater than or equal to 2.00x and less than 2.50x 1.00 % 2.00 %

III Greater than or equal to 2.50x and less than 3.00x 1.25 % 2.25 %

IV Greater than or equal to 3.00x and less than 3.25x 1.50 % 2.50 %

V Greater than or equal to 3.25x and less than 3.50x 1.75 % 2.75 %

VI Greater than 3.50x 2.00 % 3.00 %

Second Amendment to the Credit Agreement

On May 7, 2020, the Company entered into a second amendment which amended the First Amended Credit Agreement, dated as of September 13, 2018 (the “Second Amended Credit Agreement”).

On May 7, 2020, the Company entered into a second amendment to the Credit Agreement and First Amended Credit Agreement (“Second Amended Credit Agreement”).

The Second Amended Credit Agreement provided $ 41.9 million in additional revolving commitments bringing the total revolving commitments to $ 141.9 million.

The revolving commitments under the Second Amended Credit Agreement matures on September 13, 2023, which is the fifth anniversary of the effective date of the First Amended Credit Agreement.

The revolving commitments under the Second Amended Credit Agreement mature on September 13, 2023, which is the fifth anniversary of the effective date of the First Amended Credit Agreement.

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.

The fees were capitalized to other assets on the Consolidated Balance Sheets and are being amortized on a straight-line basis to interest expense until maturity of the agreement.

Third Amendment to the Credit Agreement

On December 4, 2020, the Company executed a third amendment to the Credit Agreement, First Amended Credit Agreement and Second Amended Credit Agreement ("Third Amended Credit Agreement" and collectively, the "Amended Credit Agreement").

The Third Amended Credit Agreement, among other things, provides for certain temporary amendments to the Credit Agreement from the third amendment effective date through and including the first date on which (a)(i) a compliance certificate is timely delivered with respect to a fiscal quarter ending on or after March 31, 2022 demonstrating compliance with certain financial performance covenants for such fiscal quarter (the “Limited Availability Period”), or (ii) the Borrower elects to terminate the Limited Availability Period;

and (b) the absence of a default or event of default.

Amendments to the financial performance covenants provide that during the Limited Availability Period, a higher maximum TNLR is permitted, and requires the Company to maintain liquidity (in the form of undrawn availability under the Revolving Credit Facility and unrestricted cash and cash equivalents) of at least $ 15.0 million.

For the duration between the fiscal quarter ended on or around December 31, 2020 and the fiscal quarter ended on or around September 30, 2021 that fell within the Limited Availability Period, a quarterly minimum consolidated EBITDA covenant applies instead of a maximum TNLR.

The pricing grid in the First Amended Credit Agreement, which is based on the ratio of the Company’s consolidated net debt to consolidated EBITDA, remains unchanged.

However, during the Limited Availability Period, an additional margin of 0.50 % applies.

During the Limited Availability Period, the Amended Credit Agreement requires that Borrower prepay existing revolving loans and, if undrawn and unreimbursed letters of credit exceed $ 7.0 million, cash collateralize letters of credit if unrestricted cash and cash equivalents exceed $ 20.0 million, as determined on a semimonthly basis.

Any issuance, amendment, renewal, or extension of credit during the Limited Availability Period may not cause unrestricted cash and cash equivalents to exceed $ 20.0 million, or cause the aggregate outstanding Revolving Credit Facility principal to exceed $ 100.0 million.

The Third Amended Credit Agreement also implements a cap on permissible investments, restricted payments, certain payments of indebtedness and the fair market value of all assets subject to permitted dispositions during the Limited Availability Period.

For the duration of the Limited Availability Period, the Amended Credit Agreement sets forth additional monthly reporting requirements, and requires subordination agreements and intercreditor arrangements for certain other indebtedness and liens subject to administrative agent approval.

The Company incurred approximately $ 2.5 million in lender fees and other issuance costs relating to the third amendment.

Of such total, approximately $ 1.1 million and $ 0.9 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Consolidated Balance Sheets and are being amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Amended Credit Agreement.

The remaining approximate $ 0.5 million was recorded to loss on debt modification on the Consolidated Statements of Operations.

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

Additional Disclosures

Debt consisted of the following at the dates indicated:

(in thousands)

October 3, 2020

September 28, 2019

2023 term loan, net of deferred financing costs of $2,246 and $3,124, respectively

(in thousands) October 2, 2021 October 3, 2020

2023 term loans, net of deferred financing costs of $ 2,027 and $ 2,246 , respectively

$ 164,423 $ 174,104

Current portion of long-term debt 14,850 9,900

3 unchanged sentences

If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy.

At October 3, 2020 and September 28, 2019 , $ 176.4 million and $ 186.3 million , respectively, were outstanding on the term loans.

At October 3, 2020 and September 28, 2019 , the stated interest rates on the term loans were 3.5 % and 4.4 % , respectively.

At October 3, 2020 and September 28, 2019 , the weighted-average annual effective interest rates for the term loans were 4.1 % and 5.0 % , respectively, which included amortization of the deferred financing costs.

No borrowings were outstanding on the Revolving Credit Facility at October 3, 2020 ;

however, there were $ 6.9 million of Letters of Credit outstanding on October 3, 2020 , providing the Company the ability to borrow $ 135.0 million on the revolving line of credit.

Interest expense on all indebtedness for the fiscal years ended 2020 , 2019 and 2018 was $ 12.3 million , $ 12.9 million , and $ 6.7 million , respectively.

The schedule of remaining principal maturities for total debt is as follows:

At October 2, 2021 and October 3, 2020, $ 166.5 million and $ 176.4 million, respectively, were outstanding on the term loans.

At October 2, 2021 and October 3, 2020, the stated interest rates on the term loans were 4.0 % and 3.5 %, respectively.

At October 2, 2021 and October 3, 2020, the weighted-average annual effective interest rates for the term loans were 6.0 % and 4.1 %, respectively, which included amortization of the deferred debt issuance costs and interest payments relating to the interest rate collar, as applicable.

There were $ 45.0 million in borrowings outstanding on the Revolving Credit Facility at October 2, 2021.

Additionally, there were $ 6.3 million of Letters of Credit outstanding on October 2, 2021, providing the Company the ability to borrow $ 48.7 million on the revolving line of credit.

Interest expense on all indebtedness for fiscal 2021, fiscal 2020 and fiscal 2019 was $ 9.7 million, $ 12.3 million, and $ 12.9 million, respectively.

The schedule of remaining principal maturities for the term loans is as follows:

(in thousands)

Principal Payments

Year Principal Payments

2022 $ 14,850

Total remaining principal payments $ 166,450

The components of income tax (expense) benefit were as follows for the fiscal years presented:

The components of income tax benefit (expense) were as follows for the fiscal years presented:

(in thousands) 2021 2020 2019

Current tax provision:

Total current tax (provision) benefit

Federal $ 348 $ ( 1,425 ) $ 156

State ( 82 ) ( 65 ) ( 985 )

Foreign — — ( 112 )

Total current tax benefit (expense) $ 266 $ ( 1,490 ) $ ( 941 )

Deferred tax provision:

Total deferred tax (provision) benefit

Income tax (expense) benefit

At October 3, 2020 , the Company had $ 8.0 million in state tax credit carryforwards and no federal tax credit carryforwards.

Federal $ 604 $ ( 715 ) $ ( 5,844 )

State 321 686 ( 788 )

Total deferred tax benefit (expense) 925 ( 29 ) ( 6,632 )

Income tax benefit (expense) $ 1,191 $ ( 1,519 ) $ ( 7,573 )

At October 2, 2021, the Company had $ 8.9 million in state tax credit carryforwards and $ 0.5 million federal tax credit carryforwards.

The Company maintains a partial valuation allowance on the state tax credit carryforwards.

Of this balance, the Company estimates approximately $ 3.6 million of state tax credit carryforwards will expire unused between 2028 and 2031.

At October 3, 2020 , the Company had $ 11.3 million in state net operating loss ("NOL") carryforwards and no Federal NOL carryfowards.

At October 2, 2021, the Company had $ 16.5 million in state net operating loss ("NOL") carryforwards and $ 1.0 million Federal NOL carryforwards.

Of this balance, the Company estimates approximately $ 10.9 million of state NOL carryforwards will expire unused between 2028 and 2033.

The effective tax rates for the fiscal years ended 2020 , 2019 and 2018 were 14.5 % , 25.6 % and ( 9.7 )% , respectively.

On December 22, 2017, the U.S.

enacted the Tax Cuts and Jobs Act (“Tax Act”), which significantly changed U.S.

The Tax Act lowered the Company’s U.S.

statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income.

While the statutory rate was 21 % in 2018, the Company applied a transitional or blended U.S.

statutory federal income tax rate of 24.5 % for the fiscal year ended 2018.

The impact of the Tax Act decreased our benefit for income taxes by $ 2.1 million in 2018.

The decrease was composed of $ 2.0 million related to the re-measurement of net deferred tax assets and liabilities and $ 0.1 million associated with the deemed repatriation tax.

In 2018, we finalized our tax reform estimates under Staff Accounting Bulletin 118.

The effective tax rate for the fiscal year ended 2020 differed from the statutory Federal income tax rate of 21.0 % .

The effective tax rates for fiscal 2021, fiscal 2020 and fiscal 2019 were 60.2 %, 14.5 % and 25.6 %, respectively.

The effective tax rate for fiscal 2021 differed from the statutory Federal income tax rate of 21.0 %.

There were several items that increased the effective tax rate to 60.2 %, including the impacts of tax credits, return to accrual adjustments, and state taxes on the Federal rate.

These increases were partially offset by a change in uncertain tax positions.

The effective tax rate for fiscal 2020 differed from the statutory Federal income tax rate of 21 %.

There were minor items that lowered the effective tax rate to 14.5 %, primarily the impacts of tax credits and state taxes on the Federal rate.

These were offset to a lesser degree by the recording of a partial valuation allowance for state taxes and minor provision to return adjustments.

The effective tax rate for the fiscal year ended 2019 significantly differed from the statutory federal income tax rate of 21 % , mainly due to the unfavorable impact of valuation allowances, share-based and other compensation limitations, and state taxes, which included the application of tax credits claimed as offsets against our payroll tax liabilities.

These decreases were offset to a lesser degree by the recording of a partial valuation allowance for state taxes and minor return to accrual adjustments.

The effective tax rate for fiscal 2019 differed from the statutory federal income tax rate of 21 %, mainly due to the unfavorable impact of valuation allowances, share-based and other compensation limitations, and state taxes, which included the application of tax credits claimed as offsets against our payroll tax liabilities.

The valuation allowance increased mainly due to the accrual of income tax credits that were greater than our ability to utilize before expiration.

These items were partially offset by benefits from Federal and state tax credits.

The effective tax rate for the fiscal year ended 2018 differed from the statutory federal income tax rate of 24.5 % , mainly due to one-time events like the decrease in our uncertain tax positions and a re-measurement of our deferred tax assets and liabilities as a result of the Tax Act.

The rate was also favorably impacted by normal tax rate benefit items, such as the domestic production activities deduction, federal and state tax credits, and share based award related deductions in excess of recorded book expense.

A reconciliation between the reported income tax (expense) benefit and the amount computed by applying the statutory federal income tax rate is as follows:

A reconciliation between the reported income tax benefit (expense) and the amount computed by applying the statutory federal income tax rate is as follows:

(in thousands) 2021 2020 2019

Federal tax expense at statutory rate

(Increase) reduction in income taxes resulting from:

Federal tax benefit (expense) at statutory rate $ 415 $ ( 2,203 ) $ ( 6,223 )

(Increase) reduction in income tax expense resulting from:

State taxes, net 552 1,508 ( 611 )

3 unchanged sentences

Valuation allowance — ( 977 ) ( 1,043 )

Return to accrual true-ups

Tax credits 450 390 470

Return to accrual adjustments 476 ( 260 ) 115

Investor tax on non-consolidated affiliate income ( 28 ) ( 185 ) 14

Tax rate adjustments — — ( 32 )

Income tax (expense) benefit

The Company’s liability arising from uncertain tax positions was recorded in other non-current liabilities on the Consolidated Balance Sheets.

Other 116 53 116

Income tax benefit (expense) $ 1,191 $ ( 1,519 ) $ ( 7,573 )

The guidance for accounting for uncertainty in income taxes requires that a determination be made regarding whether a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination, which is the threshold required for recognition of the tax position in the financial statements.

During fiscal 2021, management obtained additional information that resulted in a conclusion that certain tax positions previously recognized in specific prior year financial statements may be subject to adjustment in conjunction with an examination.

Accordingly, such determination resulted in the derecognition of these tax positions during fiscal 2021.

The Company's liability arising from uncertain tax positions ("UTPs"), including accrued interest and penalties, is recorded in other liabilities in the Consolidated Balance Sheets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

1 unchanged sentence

Balance, beginning of year $ — $ — $ —

Lapses of applicable statute of limitations

Additions for tax positions of prior years 370 — —

Balance, end of year $ 370 $ — $ —

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.

There were no accrued interest and penalties at October 3, 2020 and September 28, 2019 .

The Company is subject to taxation mostly in the United States and various state jurisdictions.

At October 3, 2020 , tax years prior to 2015 are generally no longer subject to examination by federal and most state tax authorities.

There were accrued interest and penalties of $ 0.3 million at October 2, 2021 and no ne at October 3, 2020.

The Company is subject to taxation mostly in the U.S.

and various state jurisdictions.

At October 2, 2021, tax years prior to 2015 and 2018 are generally no longer subject to examination by Federal and most state tax authorities, respectively.

The following table sets forth the sources of and differences between the financial accounting and tax bases of the Company’s assets and liabilities which give rise to the net deferred tax assets at the dates indicated:

(in thousands)

October 3, 2020

September 28, 2019

(in thousands) October 2, 2021 October 3, 2020

Deferred tax liabilities

2 unchanged sentences

Investor tax on non-consolidated affiliate income ( 692 ) ( 668 )

Other assets ( 105 ) ( 135 )

Total deferred tax liabilities $ ( 23,332 ) $ ( 23,639 )

2 unchanged sentences

Accrued expenses 6,941 8,419

Compensation 6,691 11,416

Interest limitation carryforward 1,071 —

Inventories 760 1,017

Unearned income 3,488 3,444

Tax credits 7,448 6,307

Total deferred tax assets $ 27,525 $ 31,203

10 unchanged sentences

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.

Our environmental liability using a discount rate of 8.8 % , included in current accrued expenses and other long-term liabilities on the Consolidated Balance Sheets, was $ 0.2 million and $ 0.4 million at October 3, 2020 and September 28, 2019 , respectively.

The estimated aggregate undiscounted amount that will be incurred over the next seven years is $ 0.6 million .

Our environmental liability using a discount rate of 9.3 %, included in current accrued expenses and other long-term liabilities on the Consolidated Balance Sheets, was $ 0.2 million and $ 0.2 million at October 2, 2021 and October 3, 2020, respectively.

The estimated aggregate undiscounted amount that will be incurred over the next six years is $ 0.5 million.

At October 2, 2021, the estimated payments for each of the next five years are $ 0.1 million per year and the aggregate amount thereafter is $ 0.1 million.

1 unchanged sentence

In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers.

At October 3, 2020 , we had a $ 3.0 million guarantee outstanding which relates to a guarantee of indebtedness for a term loan with a remaining maturity up to 2.3 years .

At October 2, 2021, we had a $ 3.0 million guarantee outstanding that relates to a guarantee of indebtedness for a term loan with a remaining maturity up to 1.3 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.

2 unchanged sentences

We have operating and finance leases for office space, warehouse space, or a combination of both.

Our leases have remaining lease terms ranging from 4 years, 2 months to 7.2 years with the option to extend leases for up to 5.0 years .

Our leases have remaining lease terms ranging from 1 year to 6.2 years with the option to extend leases for up to 5.0 years.

The components of lease costs included on the Consolidated Statements of Operations are as follows:

(in thousands)

Fiscal Years Ended

Classification

Operating leases

Selling, general and administrative expenses

(in thousands) Fiscal Years Ended

Lease cost Classification 2021 2020

Operating leases Selling, general and administrative expenses $ 1,149 $ 1,440

Finance leases

Amortization of lease assets

Cost of goods sold

Interest on lease liabilities

Interest expense

Short-term leases (1)

Cost of goods sold or selling, general and administrative expenses

Amortization of lease assets Cost of goods sold 1,497 1,168

Interest on lease liabilities Interest expense 241 238

Short-term leases (1) Cost of goods sold or selling, general and administrative expenses 487 1,390

Total lease cost $ 3,374 $ 4,236

1 unchanged sentence

Classification depends on the purpose of the underlying lease.

Total rent expense was $ 2.0 million for the fiscal year 2018 .

The following table summarizes the lease amounts included on the Consolidated Balance Sheets as follows:

(in thousands)

Balance Sheet Location

October 3, 2020

September 28, 2019

Property, plant and equipment

Finance lease right-of-use

(in thousands) Balance Sheet Location October 2, 2021 October 3, 2020

Operating Property, plant and equipment $ 5,152 $ 5,857

Finance (1) Finance lease right-of-use 5,486 6,983

Total lease assets $ 10,638 $ 12,840

Other current liabilities

Finance lease obligations

Other liabilities

Finance lease obligations

Operating Other current liabilities $ 1,158 $ 1,060

Finance Finance lease obligations 1,327 1,280

Operating Other liabilities 5,529 6,651

Finance Finance lease obligations 4,538 5,879

Total lease liabilities $ 12,552 $ 14,870

3 unchanged sentences

Lease liability maturities are presented in the following table:

(in thousands)

October 3, 2020

Fiscal Years Ended

(in thousands) October 2, 2021

Fiscal Years Ended Operating Finance Total

2022 $ 1,437 $ 1,530 $ 2,967

2023 1,427 1,530 2,957

2024 1,444 1,530 2,974

2025 1,456 1,742 3,198

2026 1,097 — 1,097

Thereafter 685 — 685

Total future minimum lease payments 7,546 6,332 13,878

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October 2, 2021

Weighted average remaining lease term

Operating Finance

Weighted average remaining lease term 5.3 years 3.6 years

Weighted average discount rate 4.6 % 3.8 %

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(in thousands)

Fiscal Years Ended

Fiscal Years Ended Amount

2022 $ 58,579

Total purchase commitments $ 58,648

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We manage our business in two operating segments:

(i) the Bus segment, which includes the manufacture and assembly of buses to be sold to a variety of customers across the United States, Canada, and in international markets;

(i) the Bus segment, which includes the manufacture and assembly of buses to be sold to a variety of customers across the U.S., 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.

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(in thousands) 2021 2020 2019

Bus (1) $ 625,198 $ 822,616 $ 952,242

Parts (1) 58,797 56,605 66,632

Segment net sales $ 683,995 $ 879,221 $ 1,018,874

(1) Parts segment revenue includes $ 4.1 million , $ 3.5 million , and $ 2.4 million for the fiscal years ended 2020 , 2019 and 2018 , respectively, related to inter-segment sales of parts that was eliminated by the Bus segment upon consolidation.

(1) Parts segment revenue includes $ 3.8 million, $ 4.1 million, and $ 3.5 million for fiscal 2021, fiscal 2020 and fiscal 2019, respectively, related to inter-segment sales of parts that was eliminated by the Bus segment upon consolidation.

(in thousands) 2021 2020 2019

Bus $ 50,394 $ 76,059 $ 110,015

Parts 21,747 20,141 23,459

Segment gross profit $ 72,141 $ 96,200 $ 133,474

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Other income (expense), net 1,776 738 ( 1,331 )

Income before income taxes

Loss on debt modification ( 598 ) — —

(Loss) income before income taxes $ ( 1,978 ) $ 10,491 $ 29,631

Sales are attributable to geographic areas based on customer location and were as follows for the fiscal years presented:

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United States $ 601,751 $ 795,207 929,523

Canada 75,644 79,442 80,056

Rest of world 6,600 4,572 9,295

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(in thousands) 2021 2020 2019

Alternative fuel buses (1)

(1) Includes buses sold with any fuel source other than diesel (e.g., gasoline, propane, CNG, electric).

Diesel buses $ 291,203 $ 397,567 $ 476,909

Alternative powered buses (1) 300,706 381,555 426,508

Other (2) 34,875 45,191 50,906

Parts 57,211 54,908 64,551

Net sales $ 683,995 $ 879,221 $ 1,018,874

(1) Includes buses sold with any power source other than diesel (e.g., gasoline, propane, CNG, electric).

(2) Includes shipping and handling revenue, extended warranty income, surcharges, chassis, and bus shell sales.

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There were no dividends paid with the conversion.

On October 15, 2018, the Company received $ 50.0 million in funding from the Amended Credit Agreement (refer to Note 8 , Debt , for more information).

On October 15, 2018, the Company received $ 50.0 million in funding from the First Amended Credit Agreement (refer to Note 8, Debt , for more information).

In conjunction with the debt funding, we conducted a tender offer and accepted for purchase:

(i) 1,782,568 shares of our Common Stock at a price of $ 28.00 per share, which we held as Treasury Stock;

(i) 1,782,568 shares of our common stock at a price of $ 28.00 per share, which we hold as treasury stock;

(ii) 364 shares of our Series A Convertible Cumulative Preferred Stock at a price of $ 241.69 per share.

The total aggregate cost was approximately $ 50.3 million, which includes fees and expenses related to the tender offer.

Earnings Per Share

(Loss) Earnings Per Share

The following table presents the basic and diluted earnings per share computation for the fiscal years presented:

(in thousands except share data) 2021 2020 2019

preferred stock dividends

Net income available to common stockholders

Basic earnings per share (1):

Net (loss) income $ ( 289 ) $ 12,185 $ 24,300

Basic (loss) earnings per share:

Weighted average common shares outstanding 27,139,054 26,850,999 26,455,436

Basic earnings per share

Diluted earnings per share:

Basic (loss) earnings per share $ ( 0.01 ) $ 0.45 $ 0.92

Diluted (loss) earnings per share (1):

Weighted average common shares outstanding 27,139,054 26,850,999 26,455,436

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Weighted average shares and dilutive potential common shares 27,139,054 27,086,555 27,043,814

Diluted earnings per share

(1) Potentially dilutive securities representing 0.4 million and 0.2 million shares of common stock were excluded from the computation of diluted earnings per share for the fiscal years ended October 3, 2020 and September 28, 2019, respectively, as their effect would have been anti-dilutive.

Diluted (loss) earnings per share $ ( 0.01 ) $ 0.45 $ 0.90

(1) Potentially dilutive securities representing 0.9 million and 0.4 million shares of common stock were excluded from the computation of diluted earnings per share for fiscal 2021 and fiscal 2020, respectively, as their effect would have been anti-dilutive.

Share-Based Compensation

In fiscal 2015, we adopted the Omnibus Equity Incentive Plan and in fiscal 2020 amended and restated the 2015 Omnibus Equity Incentive Plan (the "Plan").

The Plan is administered by the Compensation Committee of our Board of Directors and the Committee may grant awards for the issuance up to an aggregate of 5,200,000 shares of common stock in the form of non-qualified stock options, incentive stock options, stock appreciation rights (collectively, “SARs” and each individually a “SAR”), restricted stock, restricted stock units, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based awards.

In fiscal 2015, we adopted the Omnibus Equity Incentive Plan ("Plan") and in fiscal 2020, amended and restated it.

The Plan is administered by the Compensation Committee of our Board of Directors and the Committee may grant awards for the issuance of up to an aggregate of 5,200,000 shares of common stock in the form of non-qualified stock options, incentive stock options, stock appreciation rights (collectively, “SARs,” and each individually, a “SAR”), restricted stock, restricted stock units, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based awards.

The exercise price of a share subject to a stock option may not be less than 100 % of the fair market value of a share of the Company's common stock with respect to the grant date of such stock option.

No portion of the options shall vest and become exercisable after the date on which the optionee’s service with the Company and its subsidiaries terminates.

No portion of the options vest and become exercisable after the date on which the optionee’s service with the Company and its subsidiaries terminates.

The vesting of all unvested shares of common stock subject to an option will automatically be accelerated in connection with a “Change in Control,” as defined in the Plan.

New shares of the Company's common stock are issued upon stock option exercises, or at the time of vesting for restricted stock.

We have granted performance awards as part our overall compensation plans.

The vesting of these awards is primarily based upon the attainment of certain performance metrics established under our annual management incentive plan, with the Compensation Committee of the Board of Directors maintaining final discretion over vesting amounts.

Stock-based payments to employees, including grants of stock options, restricted stock awards ("RSA") and restricted stock units ("RSU"), are recognized in the financial statements based on their fair value.

We have granted performance awards as part of our overall compensation plans.

The vesting of these awards is primarily based upon the attainment of certain performance metrics established under our annual Management Incentive Plan ("MIP"), with the Compensation Committee of the Board of Directors maintaining final discretion over vesting amounts.

Stock-based payments to employees, including grants of stock options, restricted stock and restricted stock units ("RSU"), are recognized in the financial statements based on their fair value.

The fair value of each stock option award on the grant date is estimated using the Black-Scholes option-pricing model with the following assumptions:

expected dividend yield, expected stock price volatility, weighted-average risk-free interest rate and weighted average expected term of the options.

The volatility assumption used in the Black-Scholes option-pricing model is based on peer group volatility because we do not have a sufficient trading history as a stand-alone public company.

Because we do not have sufficient history with respect to stock option activity and post-vesting cancellations, the expected term assumption is based on the simplified method under GAAP, which is based on the vesting period and contractual term for each vesting tranche of awards.

For fiscal 2020 and fiscal 2019, the volatility assumption used in the Black-Scholes option-pricing model was based on peer group volatility because we did not have a sufficient trading history as a stand-alone public company.

Because we do not have sufficient history with respect to stock option activity and post-vesting cancellations, the expected term assumption is based on the simplified method under U.S.

GAAP, which is based on the vesting period and contractual term for each vesting tranche of awards.

The mid-point between the vesting date and the expiration date is used as the expected term under this method.

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Treasury zero-coupon issues at the date of grant with a remaining term equal to the Company’s expected term assumption.

The Company has never declared or paid a cash dividend on common shares.

Restricted stock units and restricted stock awards are valued based on the intrinsic value of the difference between the exercise price, if any, of the award and the fair market value of our common stock on the grant date.

We expense any award with graded-vesting features using a straight-line attribution method.

The Company has never declared or paid a cash dividend on its common stock.

Restricted stock and RSUs are valued based on the intrinsic value of the difference between the exercise price, if any, of the award and the fair market value of our common stock on the grant date.

We expense any award with graded-vesting features using a straight-line attribution method and account for forfeitures in recording share-based compensation expense as they occur.

Restricted Stock Awards

The following table summarizes the Company's RSA and RSU activity for the fiscal year presented:

Restricted Stock Activity

Number of Shares

Weighted-Average Grant Date Fair Value

The following table summarizes the Company's restricted stock and RSU activity for the fiscal year presented:

Restricted Stock Activity Number of Shares Weighted-Average Grant Date Fair Value

Balance, beginning of year 171,470 $ 18.64

Granted 183,291 18.82

Vested ( 68,191 ) 19.93

Forfeited ( 37,725 ) 18.35

Balance, end of year 248,845 18.50

The weighted-average grant date fair value of restricted stock awards granted in the fiscal years ended 2019 and 2018 was $ 17.30 and $ 18.59 , respectively.

Compensation expense for restricted stock awards, recognized in selling, general and administrative expenses on the Consolidated Statements of Operations, was $ 2.7 million , $ 2.6 million , and $ 1.6 million for the fiscal years ended 2020 , 2019 , and 2018 , respectively, with associated tax benefits of $ 0.7 million , $ 0.7 million , and $ 0.4 million , respectively.

At October 3, 2020 , unrecognized compensation cost related to restricted stock awards totaled $ 1.1 million and is expected to be recognized over a weighted-average period of one year .

The weighted-average grant date fair value of restricted stock awards granted in fiscal 2020 and fiscal 2019 was $ 18.64 and $ 17.30 , respectively.

Compensation expense for restricted stock awards, recognized in selling, general and administrative expenses on the Consolidated Statements of Operations, was $ 3.9 million, $ 2.7 million, and $ 2.6 million for fiscal 2021, fiscal 2020, and fiscal 2019, respectively, with associated tax benefits of $ 1.0 million, $ 0.7 million, and $ 0.7 million, respectively.

At October 2, 2021, unrecognized compensation cost related to restricted stock awards totaled $ 1.3 million and is expected to be recognized over a weighted-average period of nine months .

Stock Option Awards

The following table summarizes the Company's stock option activity for the fiscal year presented:

Number of Options

Weighted Average Exercise Price per Share ($)

Number of Options Weighted Average Exercise Price per Share ($)

Outstanding options, beginning of year 532,298 $ 17.62

Granted 331,200 16.84

Exercised (1) ( 120,461 ) 16.08

Expired (64,308) 17.39

Forfeited ( 52,562 ) 16.42

Outstanding options, end of year (2) 626,167 $ 17.93

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(1) Stock options exercised during the fiscal year had an aggregate intrinsic value totaling $ 1.1 million.

(2) Stock options outstanding at the end of the fiscal year had no intrinsic value.

(3) Fully vested and exercisable options at fiscal year-end had no intrinsic value.

The total aggregate intrinsic value of stock options exercised during the fiscal years ended 2019 and 2018 was $ 0.1 million and $ 4.2 million , respectively.

Compensation expense for stock option awards, recognized in selling, general and administrative expenses on the Consolidated Statements of Operations, was $ 1.4 million , $ 1.5 million , and $ 0.9 million for the fiscal years ended 2020 , 2019 , and 2018 , respectively, with associated tax benefits of $ 0.4 million , $ 0.4 million , and $ 0.2 million , respectively.

At October 3, 2020 , unrecognized compensation cost related to stock option awards totaled $ 0.7 million and is expected to be recognized over a weighted-average period of one year, two months .

(2) Stock options outstanding at the end of the fiscal year had $ 2.1 million intrinsic value.

(3) Fully vested and exercisable options at the end of the fiscal year had $ 0.9 million intrinsic value.

The total aggregate intrinsic value of stock options exercised during fiscal 2020 and fiscal 2019 was $ 4.3 million and $ 0.1 million, respectively.

Compensation expense for stock option awards, recognized in selling, general and administrative expenses on the Consolidated Statements of Operations, was $ 1.9 million, $ 1.4 million, and $ 1.5 million for fiscal 2021, fiscal 2020, and fiscal 2019, respectively, with associated tax benefits of $ 0.5 million, $ 0.4 million, and $ 0.4 million, respectively.

At October 2, 2021, unrecognized compensation cost related to stock option awards totaled $ 0.8 million and is expected to be recognized over a weighted-average period of nine months .

The fair value of each option award at grant date was estimated using the Black-Scholes option-pricing model with the following assumptions made and resulting grant-date fair values during the fiscal years presented:

2021 2020 2019

Expected volatility 41 % 32 % 31 %

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Defined Benefit Pension Plan

The Company has a defined benefit pension plan (the “Defined Benefit Plan”) covering U.S.

The Company has a defined benefit pension plan (“Defined Benefit Plan”) covering U.S.

hourly and salaried personnel.

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No accrual of future benefits is calculated beyond this date.

The Company contributed $ 0.5 million and $ 0.0 million to the Defined Benefit Plan during the fiscal years ended October 3, 2020 and September 28, 2019 , respectively.

For the fiscal years ended October 3, 2020 and September 28, 2019 , benefits paid were $ 8.2 million and $ 7.3 million , respectively.

The projected benefit obligation (“PBO”) for the Defined Benefit Plan was $ 169.7 million and $ 163.6 million at October 3, 2020 and September 28, 2019 , respectively.

The Company contributed $ 4.9 million and $ 0.5 million to the Defined Benefit Plan during fiscal 2021 and fiscal 2020, respectively.

For fiscal 2021 and fiscal 2020, benefits paid were $ 7.3 million and $ 8.2 million, respectively.

The projected benefit obligation (“PBO”) for the Defined Benefit Plan was $ 160.1 million and $ 169.7 million at October 2, 2021 and October 3, 2020, respectively.

The reconciliation of the beginning and ending balances of the PBO for the Defined Benefit Plan for the fiscal years indicated is presented in the following table:

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Projected benefit obligations balance, end of year $ 160,088 $ 169,741

(1) The assumption changes referenced in the table above result from (i) changes in the utilized discount rate to value Blue Bird’s future obligations, and (ii) updates to the mortality table projections used in the calculation of the benefit obligations.

(1) The assumption changes referenced in the table above result from (i) changes in the utilized discount rate to value the future obligations, and (ii) updates to the mortality table projections used in the calculation of the benefit obligations.

The summary and reconciliation of the beginning and ending balances of the fair value of the Defined Benefit Plan assets are as follows:

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Funded Status

(in thousands)

October 3, 2020

September 28, 2019

(in thousands) October 2, 2021 October 3, 2020

Benefit obligation $ 160,088 $ 169,741

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This topic requires that financial assets and liabilities are classified into one of the following three categories:

Unadjusted quoted prices in active markets for identical assets or liabilities

Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Unobservable inputs for the asset or liability

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Level 3 Unobservable inputs for the asset or liability

The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels.

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The invested pension plan assets of the Defined Benefit Plan are all Level 2 assets under ASC 820, Fair Value Measurements (“ASC 820”).

During the fiscal years ended 2020 and 2019 , there were no transfers between levels.

There are no sources of significant concentration risk in the invested assets at October 3, 2020 , the measurement date.

During fiscal 2021 and fiscal 2020, there were no transfers between levels.

There are no sources of significant concentration risk in the invested assets at September 30, 2021.

The following table sets forth, by level within the fair value hierarchy, a summary of the Defined Benefit Plan’s investments measured at fair value:

(in thousands)

(in thousands) Level 1 Level 2 Level 3 Total

October 2, 2021

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Total assets at fair value $ — $ 137,337 $ — $ 137,337

September 28, 2019

October 3, 2020

Equity securities $ — $ 60,016 $ — $ 60,016

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Total assets at fair value $ — $ 122,482 $ — $ 122,482

The following table represents net periodic benefit cost and changes in plan assets and benefit obligations recognized in other comprehensive income, before tax effect, for the fiscal years presented:

The following table represents net periodic benefit (income) expense and changes in plan assets and benefit obligations recognized in other comprehensive (income) loss, before tax effect, for the fiscal years presented:

(in thousands) 2021 2020 2019

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Amortization of net loss 1,861 1,720 2,758

Net periodic benefit cost

Net loss (gain)

Net periodic benefit (income) expense $ ( 1,689 ) $ ( 717 ) $ 1,186

Net (gain) loss $ ( 16,038 ) $ 4,671 $ 26,083

Amortization of net loss ( 1,861 ) ( 1,720 ) ( 2,758 )

Total loss (gain) recognized in other comprehensive income

Total loss (gain) recognized in net periodic pension benefit cost and other comprehensive income

Total recognized in other comprehensive (income) loss $ ( 17,899 ) $ 2,951 $ 23,325

Total recognized in net periodic pension benefit (income) expense and other comprehensive (income) loss $ ( 19,588 ) $ 2,234 $ 24,511

The estimated net loss for the Defined Benefit Plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $ 1.2 million.

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Weighted-average assumptions used to determine benefit obligations:

October 3, 2020

September 28, 2019

October 2, 2021 October 3, 2020

Discount rate 2.80 % 2.55 %

Rate of compensation increase

Rate of compensation increase N/A N/A

Weighted-average assumptions used to determine net periodic benefit cost:

October 3, 2020

September 28, 2019

October 2, 2021 October 3, 2020

Discount rate 2.55 % 3.10 %

Expected long-term return on plan assets 6.37 % 6.37 %

Rate of compensation increase

Rate of compensation increase N/A N/A

The benchmark for the discount rates is an estimate of the single equivalent discount rate determined by matching the Defined Benefit Plan’s future expected cash flows to spot rates from a yield curve comprised of high-quality corporate bond rates of various durations.

The Defined Benefit Plan asset allocations at the dates indicated, the measurement date, are as follows:

October 3, 2020

September 28, 2019

The Defined Benefit Plan asset allocations at the dates indicated are as follows:

October 2, 2021 October 3, 2020

Equity securities 64 % 49 %

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There was no Company common stock included in equity securities.

Assets of the Defined Benefit Plan are invested primarily in common stock funds.

Assets of the Defined Benefit Plan are invested primarily in funds that further invest in equity or debt securities.

Assets are valued using quoted prices in active markets.

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Assets are managed on a total return basis, with dividends and interest reinvested in the account.

The Company expects to contribute $ 5.8 million to its Defined Benefit Plan in fiscal year 2021 in accordance with required IRS minimums.

The Company expects to contribute $ 0 to its Defined Benefit Plan in fiscal 2022 in accordance with required IRS minimums.

The following benefit payments are expected to be paid out of the Company's pension assets to the plan participants in the fiscal years indicated:

(in thousands)

Expected Payments

(in thousands) Expected Payments

2027 - 2031 44,253

Total expected future benefit payments $ 87,168

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employees and a defined contribution plan for Canadian employees.

During the fiscal years ended 2020 , 2019 and 2018 , the Company offered a 50 % match on the first 6 % of the employee’s contributions.

During fiscal 2021, fiscal 2020 and fiscal 2019, the Company offered a 50 % match on the first 6 % of the employee’s contributions.

However, due to the impacts of COVID-19, the Company temporarily paused this match from October 2020 through July 2021.

The plans also provide for an additional discretionary match depending on Company performance.

Compensation expense related to defined contribution plans totaled $ 2.2 million , $ 2.2 million and $ 1.9 million for the fiscal years ended 2020 , 2019 , and 2018 , respectively.

Compensation expense related to defined contribution plans totaled $ 0.5 million, $ 2.2 million and $ 2.2 million for fiscal 2021, fiscal 2020, and fiscal 2019, respectively.

Health Benefits

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A liability related to this obligation is recorded on the Company’s Consolidated Balance Sheets as accrued expenses.

Total expense related to this plan recorded for the fiscal years ended 2020 , 2019 , and 2018 , was $ 14.9 million , $ 12.1 million , and $ 14.3 million , respectively.

Total expense related to this plan recorded for fiscal 2021, fiscal 2020, and fiscal 2019, was $ 13.8 million, $ 14.9 million, and $ 12.1 million, respectively.

Employee Compensation Plans

The Management Incentive Plan (the “MIP”) compensates certain key salaried management employees and is derived from "Adjusted EBITDA" (earnings before interest, taxes, depreciation, and amortization, as adjusted) and "free cash flow" metrics.

MIP bonus liabilities of $ 0.0 million and $ 4.8 million are included in accrued expenses on the Consolidated Balance Sheets at October 3, 2020 and September 28, 2019 , respectively.

The MIP compensates certain key salaried management employees and is derived based upon the "Adjusted EBITDA" (earnings before interest, taxes, depreciation, and amortization, as adjusted) and "Free Cash Flow" metrics.

There were no MIP bonus liabilities included in accrued expenses on the Consolidated Balance Sheets at October 2, 2021 and October 3, 2020, respectively.

Equity Investment in Affiliate

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The carrying amount of the equity method investment is adjusted for the Company’s proportionate share of net earnings or losses and any dividends received.

At October 3, 2020 and September 28, 2019 , the carrying value of the Company's investment was $ 14.3 million and $ 11.1 million , respectively.

During fiscal years ended 2019 and 2018 , Micro Bird paid dividends to all common stockholders, and the Company received $ 2.3 million , and $ 1.8 million , respectively, gross of any required withholding taxes.

The dividends reduced the carrying value of our investment and are presented as cash inflows in the operating section of our Consolidated Statements of Cash Flows.

In recognizing the Company’s 50 % portion of Micro Bird net income, the Company recorded $ 3.2 million , $ 2.2 million , and $ 1.3 million in equity in net income of non-consolidated affiliate for the fiscal years ended 2020 , 2019 , and 2018 , respectively.

Micro Bird's summarized balance sheet information at its September 30 year end is as follows:

Balance Sheet

(in thousands)

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Total liabilities

Micro Bird's summarized financial results for its three fiscal years ended September 30 are as follows:

Income Statement

(in thousands)

Operating income

At October 2, 2021 and October 3, 2020, the carrying value of the Company's investment was $ 14.8 million and $ 14.3 million, respectively.

During fiscal 2021 and fiscal 2020, Micro Bird did not pay any dividends to the venture partners.

In recognizing the Company’s 50 % portion of Micro Bird net income, the Company recorded $ 0.5 million, $ 3.2 million, and $ 2.2 million in equity in net income of non-consolidated affiliate for fiscal 2021, fiscal 2020, and fiscal 2019, respectively.

Accumulated Other Comprehensive Loss

The following table provides information on changes in accumulated other comprehensive loss (“AOCL”) for the periods presented:

(in thousands)

Defined Benefit Pension Plan

(in thousands) Defined Benefit Pension Plan Total AOCL

Balance, September 29, 2018 $ ( 38,427 ) $ ( 38,427 )

Other comprehensive income, gross

Other comprehensive loss, gross ( 26,083 ) ( 26,083 )

Amounts reclassified and included in earnings 2,758 2,758

Total before taxes ( 23,325 ) ( 23,325 )

Income taxes 5,598 5,598

Balance, September 28, 2019 $ ( 56,154 ) $ ( 56,154 )

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Total before taxes ( 2,951 ) ( 2,951 )

Balance, September 28, 2019

Other comprehensive loss, gross

Income taxes 708 708

Balance, October 3, 2020 $ ( 58,397 ) $ ( 58,397 )

Other comprehensive income, gross 16,038 16,038

Amounts reclassified and included in earnings 1,861 1,861

Total before taxes 17,899 17,899

Income taxes ( 4,296 ) ( 4,296 )

Balance, October 2, 2021 $ ( 44,794 ) $ ( 44,794 )

Subsequent Events

Third Amendment to the Credit Agreement

On December 4, 2020, the Company executed a third amendment to the Credit Agreement, the First Amended Credit Agreement and the Second Amended Credit Agreement (the "Third Amended Credit Agreement").

and (b) the absence of a default or event of default.

Amendments to the financial performance covenants provide that during the Limited Availability Period, a higher maximum total net leverage ratio is permitted, and requires the Company to maintain liquidity (in the form of undrawn availability under the Revolving Credit Facility and unrestricted cash and cash equivalents) of at least $ 15.0 million .

For the duration between the fiscal quarter ending December 31, 2020 and the fiscal quarter ending September 30, 2021 that falls within the Limited Availability Period, a quarterly minimum consolidated EBITDA covenant applies instead of a maximum Total Net Leverage Ratio.

The pricing grid in the First Amended Credit Agreement, which is based on the ratio of the Company’s consolidated net debt to consolidated EBITDA, remains unchanged.

However, during the Limited Availability Period, an additional margin of 0.50 % applies.

During the Limited Availability Period, the Borrower is required to prepay existing revolving loans and, if undrawn and unreimbursed letters of credit exceed $ 7.0 million , cash collateralize letters of credit if unrestricted cash and cash equivalents exceed $ 20.0 million , as determined on a semimonthly basis.

Any issuance, amendment, renewal, or extension of credit during the Limited Availability Period may not cause unrestricted cash and cash equivalents to exceed $ 20.0 million , or cause the aggregate outstanding Revolving Credit Facility principal to exceed $ 100.0 million .

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

Fourth Amendment to the Credit Agreement

On November 24, 2021, the Company executed a fourth amendment to the Credit Agreement, First Amended Credit Agreement, Second Amended Credit Agreement and Third Amended Credit Agreement (the "Fourth Amended Credit Agreement").

The Fourth Amended Credit Agreement, among other things, provides for certain temporary amendments to the Credit Agreement from the third amendment effective date through and including (a) April 1, 2023 (the “Amended Limited Availability Period”), or (b) the first date on which Borrower elects to terminate the Amended Limited Availability Period, in each case, subject to (x) the absence of a default or event of default and (y) pro forma compliance with the financial covenant performance covenants under the Fourth Amended Credit Agreement.

With respect to the financial performance covenants, during the Amended Limited Availability Period for the fiscal quarters ending January 1, 2022 through October 1, 2022, the TNLR requirement is not applicable, although it continues to impact the interest rate that is charged on outstanding borrowings as discussed below.

Instead, the minimum consolidated EBITDA that the Company is required to maintain during the Amended Limited Availability Period has been updated to include fiscal 2022 as set forth in the table below (in millions):

Period Minimum Consolidated EBITDA

Fiscal quarter ending January 1, 2022 $ 14.5

Fiscal quarter ending April 2, 2022 $( 4.5 )

Fiscal quarter ending July 2, 2022 $( 6.8 )

Fiscal quarter ending October 1, 2022 $ 20.0

However, in the event that Borrower elects to terminate the Amended Limited Availability Period in fiscal 2022, the maximum TNLR permitted is 3.50 x.

The minimum liquidity (in the form of undrawn availability under the Revolving Credit Facility and unrestricted cash and cash equivalents) that the Company must maintain during the Amended Limited Availability Period has been amended as set forth in the table below (in millions):

Period Minimum Liquidity

Fourth amendment effective date through January 1, 2022 $ 10.0

January 2, 2022 through April 2, 2022 $ 5.0

April 3, 2022 through July 2, 2022 $ 15.0

Thereafter $ 20.0

Additionally, a new financial performance covenant was added in the Fourth Amended Credit Agreement, requiring that school bus units manufactured by the Company (“Units”) not fall below the pre-set thresholds set forth in the table below on a three month trailing basis (“Units Covenant”).

The Units Covenant is triggered only if the Company’s liquidity for the most-recently ended fiscal month is less than $ 50 million during the Amended Limited Availability Period:

Period Minimum Units Manufactured

Three month period ending November 27, 2021 1,128

Three month period ending January 1, 2022 776

Three month period ending January 29, 2022 748

Three month period ending February 26, 2022 727

Three month period ending April 2, 2022 763

Three month period ending April 30, 2022 1,111

Three month period ending May 28, 2022 1,525

Three month period ending July 2, 2022 2,053

Three month period ending July30, 2022 2,072

Three month period ending August 27, 2022 2,199

Three month period ending October 1, 2021 2,306

If the Units during any three fiscal month period set forth above is less than the minimum required by the Units Covenant, Borrower may elect to carry forward up to 50 % of certain applicable excess Units to satisfy the Units Covenant requirement.

However, Borrower may not make such election in two consecutive three fiscal month periods.

The pricing grid in the Fourth Amended Credit Agreement, which is based on the TNLR, is determined in accordance with the amended pricing matrix set forth below:

Level Total Net Leverage Ratio ABR Loans Eurodollar Loans

I Less than 2.00x 0.75 % 1.75 %

II Greater than or equal to 2.00x and less than 2.50x 1.00 % 2.00 %

III Greater than or equal to 2.50x and less than 3.00x 1.25 % 2.25 %

IV Greater than or equal to 3.00x and less than 3.25x 1.50 % 2.50 %

V Greater than or equal to 3.25x and less than 3.50x 1.75 % 2.75 %

VI Greater than or equal to 3.50x and less than 4.50x 2.00 % 3.00 %

VII Greater than or equal to 4.50x and less than 5.00x 3.25 % 4.25 %

VIII Greater than 5.00x 4.25 % 5.25 %

During the Amended Limited Availability Period (notwithstanding the pricing grid set forth above), the applicable rate shall be (a) solely to the extent that the aggregate revolving exposures exceed $ 100.0 million, 5.75 % with respect to such excess and (b) with respect to all other revolving exposures, the sum of the rate determined by the administrative agent in accordance with the pricing grid set forth above, plus 0.50 %.

Additional allowances have been made in the Fourth Amended Credit Agreement for the Company to issue or incur up to $ 100.0 million of qualified equity interests issued by the Company, unsecured subordinated indebtedness or unsecured convertible indebtedness (collectively, “Junior Capital”).

Upon the issuance or incurrence of any Junior Capital, the Company is required to

prepay the outstanding revolving loans (with no permanent reduction in the revolving commitments) in an amount equal to the lesser of (a) 100 % of the net proceeds from such Junior Capital and (b) the aggregate of revolving exposures then outstanding.

Prior to the initial issuance or incurrence of any Junior Capital, any issuance, amendment, renewal, or extension of credit during the Amended Limited Availability Period may not cause the aggregate outstanding Revolving Credit Facility principal to exceed $ 110.0 million (“Availability Cap”).

Following any issuance or incurrence of Junior Capital, the Availability Cap is permanently reduced to $ 100.0 million.

For the duration of the Amended Limited Availability Period, the Fourth Amended Credit Agreement sets forth additional monthly reporting requirements in connection with the manufactured school bus units required by the financial performance covenants, when applicable.

Sale of Common Stock

On December 15, 2021, the Company issued and sold through a private placement an aggregate 4,687,500 shares of its common stock at $ 16.00 per share (“Private Placement”) to Coliseum Capital Partners and Blackwell Partners LLC (collectively, “Coliseum”).

Subsequent to the sale, Coliseum will own an approximate 15 % equity interest in the Company.

In connection with the purchase of the shares, Coliseum receives customary registration rights and the Company will add Adam Gray of Coliseum as a Class II director.

The Company intends to use the net proceeds ($ 75.0 million) from the Private Placement for working capital and other general corporate purposes, which may include acquisitions, investments in technologies or businesses, operating expenses and capital expenditures.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data