Blue Bird Corp 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Blue Bird Corporation Macon, Georgia Opinion on the Consolidated Financial Statements 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. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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. 42 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 We have served as the Company's auditor since 2016. Atlanta, Georgia December 15, 2021 43 Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Blue Bird Corporation Macon, Georgia Opinion on Internal Control over Financial Reporting We have audited Blue Bird Corporation’s (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 (the “COSO criteria”). 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 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP Atlanta, Georgia December 15, 2021 44 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except for share data) October 2, 2021 October 3, 2020 Assets Current assets Cash and cash equivalents $ 11,709 $ 44,507 Accounts receivable, net 9,967 7,623 Inventories 125,206 56,523 Other current assets 9,191 8,243 Total current assets $ 156,073 $ 116,896 Property, plant and equipment, net 105,482 103,372 Goodwill 18,825 18,825 Intangible assets, net 49,443 51,632 Equity investment in affiliate 14,817 14,320 Deferred tax assets 4,413 4,365 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 Current liabilities Accounts payable $ 72,270 $ 57,602 Warranty 7,385 8,336 Accrued expenses 12,267 15,773 Deferred warranty income 7,832 8,540 Finance lease obligations 1,327 1,280 Other current liabilities 8,851 10,217 Current portion of long-term debt 14,850 9,900 Total current liabilities $ 124,782 $ 111,648 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 Deferred tax liabilities 3,673 254 Finance lease obligations 4,538 5,879 Other liabilities 14,882 14,315 Pension 22,751 47,259 Total long-term liabilities $ 263,894 $ 258,997 Guarantees, commitments and contingencies (Note 10) Stockholders' deficit 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 3 3 Additional paid-in capital 96,170 88,910 Accumulated deficit ( 33,753 ) ( 33,464 ) Accumulated other comprehensive loss ( 44,794 ) ( 58,397 ) 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 ) Total liabilities and stockholders' deficit $ 356,020 $ 317,415 The accompanying notes are an integral part of these consolidated financial statements. 45 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended (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 Selling, general and administrative expenses 65,619 74,206 89,642 Operating profit $ 6,522 $ 21,994 $ 43,832 Interest expense ( 9,682 ) ( 12,252 ) ( 12,879 ) Interest income 4 11 9 Other income (expense), net 1,776 738 ( 1,331 ) 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 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 (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. 46 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Fiscal Years Ended (in thousands) 2021 2020 2019 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 income (loss), net of tax $ 13,603 $ ( 2,243 ) $ ( 17,727 ) Comprehensive income $ 13,314 $ 9,942 $ 6,573 The accompanying notes are an integral part of these consolidated financial statements. 47 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended (in thousands) 2021 2020 2019 Cash flows from 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 Non-cash interest expense 2,754 3,651 3,822 Share-based compensation 5,938 4,141 4,273 Equity in net income of non-consolidated affiliate ( 498 ) ( 3,213 ) ( 2,242 ) (Gain) loss on disposal of fixed assets ( 679 ) ( 76 ) 5 Deferred taxes ( 925 ) 29 6,632 Amortization of deferred actuarial pension losses 1,861 1,720 2,758 Loss on debt modification 598 — — Foreign currency hedges — — 109 Changes in assets and liabilities: 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 non-consolidated affiliate — — 2,259 Total adjustments $ ( 53,952 ) $ ( 8,726 ) $ 31,406 Total cash (used in) provided by operating activities $ ( 54,241 ) $ 3,459 $ 55,706 Cash flows from investing activities Cash paid for fixed assets $ ( 12,212 ) $ ( 18,968 ) $ ( 35,514 ) Proceeds from sale of fixed assets 903 165 47 Total cash used in investing activities $ ( 11,309 ) $ ( 18,803 ) $ ( 35,467 ) Cash flows from financing activities Net borrowings under the revolving credit facility $ 45,000 $ — $ — Borrowings under the term loan — — 50,000 Repayments of the term loan ( 9,900 ) ( 9,900 ) ( 9,900 ) Principal payments on finance leases ( 1,294 ) ( 945 ) ( 133 ) 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 Tender offer repurchase of common stock and preferred stock — — ( 50,370 ) 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 Cash and cash equivalents, beginning of year 44,507 70,959 60,260 Cash and cash equivalents, end of year $ 11,709 $ 44,507 $ 70,959 48 Fiscal Years Ended (in thousands) 2021 2020 2019 Supplemental disclosures of cash flow information Cash paid or received during the period: Interest paid, net of interest received $ 11,568 $ 7,591 $ 10,408 Income tax paid (received), net of tax refunds 31 ( 1,542 ) 4,586 Non-cash Investing and Financing Activities: Changes in accounts payable for capital additions to property, plant and equipment and other current assets for capitalized intangible assets $ 587 $ ( 5,422 ) $ 8,040 Cashless exercise of stock options 2,299 5,246 481 Cashless exercise of warrants — — 416 Right-of-use assets obtained in exchange for operating lease obligations 62 — 8,040 Right-of-use assets obtained in exchange for finance lease obligations — 3,496 4,770 Conversion of preferred stock into common stock — — 9,264 The accompanying notes are an integral part of these consolidated financial statements. 49 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF 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 Restricted stock activity 51,195 — ( 596 ) — — — — — — ( 596 ) Stock option activity 3,836 — ( 40 ) — — — — — — ( 40 ) 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 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 ) Exercise of stock warrants 368,712 — 4,240 — — — — — — 4,240 Restricted stock activity 94,724 — ( 1,623 ) — — — — — — ( 1,623 ) Stock option activity 108,632 — ( 1,945 ) — — — — — — ( 1,945 ) Share-based compensation expense — — 3,967 — — — — — — 3,967 Net income — — — — — — 12,185 — — 12,185 Other comprehensive loss, net of tax — — — — — ( 2,243 ) — — — ( 2,243 ) 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 ) Stock option activity 120,461 — 1,939 — — — — — — 1,939 Share-based compensation expense — — 5,838 — — — — — — 5,838 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 ) The accompanying notes are an integral part of these consolidated financial statements. 50 BLUE BIRD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business and Basis of Presentation Nature of Business 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. We are headquartered in Macon, Georgia. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. 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. COVID-19 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. 2. 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.") (“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 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. The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. 51 Allowance for Doubtful Accounts Accounts receivable consist of amounts owed to the Company by customers. The Company monitors collections and payments from customers, and generally does not require collateral. Accounts receivable are generally due within 30 to 90 days. The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. The Company reserves for an account when it is considered potentially uncollectible. The Company estimates its allowance for doubtful accounts based on historical experience, aging of accounts receivable and information regarding the creditworthiness of its customers. To date, losses have been within the range of management’s expectations. The Company writes off accounts receivable if it determines that the account is uncollectible. Revenue Recognition The Company records revenue when the following five steps have been completed: 1. Identification of the contract(s) with a customer; 2. Identification of the performance obligation(s) in the contract; 3. Determination of the transaction price; 4. Allocation of the transaction price to the performance obligations in the contract; and 5. Recognition of revenue, when, or as, we satisfy performance obligations. The Company records revenue when performance obligations are satisfied by transferring control of a promised good or service to the customer. The Company evaluates the transfer of control primarily from the customer’s perspective where the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, that good or service. Our product revenue includes sales of buses and bus parts, each of which are generally recognized as revenue at a point in time, once all conditions for revenue recognition have been met, as they represent our performance obligations in a sale. For buses, control is generally transferred and the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the product when the product is delivered or when the product has been completed, is ready for delivery, has been paid for, its title has transferred and it is awaiting pickup by the customer. For certain bus sale transactions, we may provide incentives including payment of a limited amount of future interest charges our customers may incur related to their purchase and financing of the bus with third party financing companies. We reduce revenue at the recording date by the full amount of potential future interest we may be obligated to pay, which is an application of the "most likely amount" method. For parts sales, control is generally transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the products, which generally coincides with the point in time when the customer has assumed risk of loss and title has passed for the goods sold. The Company sells extended warranties related to its products. Revenue related to these contracts is recognized based on the stand-alone selling price of the arrangement, on a straight-line basis over the contract period, and costs thereunder are expensed as incurred. The Company includes shipping and handling revenues, which are costs billed to customers, in net sales on the Consolidated Statements of Operations. Shipping and handling costs incurred are included in cost of goods sold. See Note 12, Revenue , for further revenue information. See Note 3, Supplemental Financial Information, for further information on warranties. Self-Insurance The Company is self-insured for the majority of its workers’ compensation and medical claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims, using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience. See Note 3, Supplemental Financial Information, and Note 16 , Benefit Plans, for further information. Financial Instruments 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 revolving credit facility and long-term debt approximates fair value due to the variable interest rate. See Note 8, Debt, for further discussion. 52 Derivative Instruments In limited circumstances, we may utilize derivative instruments to manage certain exposures to changes in foreign currency exchange rates or interest rates relating to variable rate debt. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these derivative instruments are recognized in our operating results or included in other comprehensive income (loss), depending on whether the derivative instrument 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. Inventories The Company values inventories at the lower of cost or net realizable value. The Company uses a standard costing methodology, which approximates cost on a first-in, first-out (“FIFO”) basis. The Company reviews the standard costs of raw materials, work-in-process and finished goods inventory on a periodic basis to ensure that its inventories approximate current actual costs. Manufacturing cost includes raw materials, direct labor and manufacturing overhead. Obsolete inventory amounts are based on historical usage and assumptions about future demand. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is calculated on a straight-line basis using the following periods, which represent the estimated useful lives of the assets: Years Buildings 15 - 33 Machinery and equipment 5 - 10 Office furniture, equipment and other 3 - 10 Computer equipment and software 3 - 7 Costs, including capitalized interest and certain design, construction and installation costs related to assets that are under construction and are in the process of being readied for their intended use, are recorded as construction in progress and are not depreciated until such time as the subject asset is placed in service. Repairs and maintenance that do not extend the useful life of the asset are expensed as incurred. Upon sale, retirement, or other disposition of these assets, the costs and related accumulated depreciation are removed from the respective accounts and any gain or loss on the disposition is included on our Consolidated Statements of Operations. Leases We determine if an arrangement is or contains a lease at inception. The Company enters into lease arrangements primarily for office space, warehouse space, or a combination of both. We elected to account for leases with initial terms of 12 months or less as straight-line expense and not record assets or liabilities. For a lease with an initial term greater than 12 months, the Company recognizes a right-of-use (“ROU”) asset and lease liability on the Consolidated Balance Sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. We determine whether the lease is an operating or finance lease at inception based on the information and expectations for the lease at that time. Operating lease ROU assets are included in property, plant and equipment and the lease liabilities are included in other current liabilities and other liabilities on our Consolidated Balance Sheets. Finance lease ROU assets are included in finance lease right-of-use assets and the lease liabilities are included in finance lease obligations (current) and finance lease obligations (long-term) on our Consolidated Balance Sheets. Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the leases recorded do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. 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 exclude lease incentives. 53 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. Under the finance lease model, interest on the lease liability is recognized in interest expense and amortization of ROU assets is recorded on the Consolidated Statements of Operations based on the underlying use of the assets. Impairment of Long-Lived Assets The Company reviews its long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If we are required to analyze recoverability based on a triggering event, undiscounted future cash flows over the estimated remaining life of the asset, or asset group, are projected. If these projected cash flows are less than the carrying amount, an impairment loss is recognized to the extent the fair value of the asset less any costs of disposition is less than the carrying amount of the asset. Judgments regarding the existence of impairment indicators are based on market and operational performance. Evaluating potential impairment also requires estimates of future operating results and cash flows. No impairment charge was recognized in any of the periods presented. Goodwill and Intangible Assets 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 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: Bus and Parts. In the evaluation of goodwill for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If, under the quantitative assessment, the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured under step two of the impairment analysis. In step two of the analysis, we would record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, should such a circumstance arise. Fair value of the reporting units is estimated primarily using the income approach, which incorporates the use of discounted cash flow ("DCF") analysis. A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market shares, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate and working capital changes. The cash flow forecasts are based on approved strategic operating plans and long-term forecasts. In the evaluation of indefinite lived assets for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary, or to perform a quantitative assessment by comparing the fair value of an asset to its carrying amount. The Company’s intangible asset with an indefinite useful life is the "Blue Bird" trade name. Under the qualitative assessment, an entity is not required to calculate the fair value of the asset unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If a qualitative assessment is not performed or if a quantitative assessment is otherwise required, then the entity compares the fair value of an asset to its carrying amount and the amount of the impairment loss, if any, is the difference between fair value and carrying value. The fair value of our trade name is derived by using the relief from royalty method, which discounts the estimated cash savings we realized by owning the name instead of otherwise having to license or lease it. Our intangible assets with a definite useful life are amortized over their estimated useful lives, 2 , 7 , or 20 years, using the straight-line method. The useful lives of our intangible assets are reassessed annually and they are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. 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 $ 2.0 million and $ 2.2 million at October 2, 2021 and October 3, 2020, respectively, incurred in connection with its debt facilities and related amendments. 54 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 $ 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. Pensions The Company accounts for its pension benefit obligations using actuarial models. 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. No accrual of future benefits is earned or calculated beyond this date. Accordingly, our obligation estimate is based on benefits earned at that time discounted using an estimate of the single equivalent discount rate determined by matching the plan’s future expected cash flows to spot rates from a yield curve comprised of high-quality corporate bond rates of various durations. 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 income (expense), net on our Consolidated Statements of Operations. Product Warranty Costs The Company’s products are generally warranted against defects in material and workmanship for a period of one year to five years . A provision for estimated warranty costs is recorded at the time a unit is sold. The methodology to determine the warranty reserve calculates 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. Management believes the methodology provides an accurate reserve estimate. Actual claims incurred could differ from the original estimates, requiring future adjustments. The Bus segment also sells extended warranties related to its products. Revenue related to these contracts is recognized on a straight-line basis over the contract period and costs thereunder are expensed as incurred. All warranty expenses are recorded in the cost of goods sold line on the Consolidated Statements of Operations. The current methodology to determine short-term extended warranty income reserve is based on twelve months of the remaining warranty value for each effective extended warranty at the balance sheet date. See Note 3, Supplemental Financial Information, for further information. Research and Development Research and development costs are expensed as incurred and included in selling, general and administrative expenses on our Consolidated Statements of Operations. For fiscal 2021, fiscal 2020 and fiscal 2019, the Company expensed $ 5.2 million, $ 6.4 million and $ 11.5 million, respectively. Income Taxes 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. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities. The Company evaluates its ability, based on the weight of evidence available, to realize future tax benefits from deferred tax assets and establishes a valuation allowance to reduce a deferred tax asset to a level which, more likely than not, will be realized in future years. The Company recognizes uncertain tax positions based on a cumulative probability assessment if it is more likely than not that the tax position will be sustained upon examination by an appropriate tax authority with full knowledge of all information. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Amounts recorded for uncertain tax positions are periodically assessed, including the evaluation of new facts and circumstances, to ensure sustainability of the positions. 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 The Company records reserves for environmental liabilities on a discounted basis when environmental investigation and remediation obligations are probable and related costs are reasonably estimable. See Note 10, Guarantees, Commitments and Contingencies, for further information. 55 Segment Reporting 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 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 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. Statement of Cash Flows We classify distributions received from our equity method investment using the nature of distribution approach, such that distributions received are classified based on the nature of the activity of the investee that generated the distribution. Returns on investment are classified within operating activities, while returns of investment are classified within investing activities. Recently Adopted Accounting Standards 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 (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. 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. 56 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. 3. Supplemental Financial Information Accounts Receivable Accounts receivable, net, consisted of the following at the dates indicated: ( in thousands ) October 2, 2021 October 3, 2020 Accounts receivable $ 10,067 $ 7,723 Allowance for doubtful accounts ( 100 ) ( 100 ) Accounts receivable, net $ 9,967 $ 7,623 Product Warranties The following table reflects activity in accrued warranty cost (current and long-term portion combined) for the fiscal years presented: (in thousands) 2021 2020 2019 Balance at beginning of period $ 21,374 $ 22,343 $ 22,646 Add: current period accruals 6,920 8,980 10,869 Less: current period reductions of accrual ( 9,744 ) ( 9,949 ) ( 11,172 ) Balance at end of period $ 18,550 $ 21,374 $ 22,343 Extended Warranties The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two years to five years , for the fiscal years presented: (in thousands) 2021 2020 2019 Balance at beginning of period $ 22,588 $ 24,045 $ 23,191 Add: current period deferred income 6,192 7,298 9,238 Less: current period recognition of income ( 8,636 ) ( 8,755 ) ( 8,384 ) Balance at end of period $ 20,144 $ 22,588 $ 24,045 The outstanding balance of deferred warranty income in the table above is considered a "contract liability," and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize $ 7.8 million of the outstanding contract liability in fiscal 2022, and the remaining balance thereafter. 57 Self-Insurance 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 2, 2021 October 3, 2020 Current portion $ 2,781 $ 2,993 Long-term portion 1,732 1,962 Total accrued self-insurance $ 4,513 $ 4,955 The current and long-term portions of the accrued self-insurance liability are included in accrued expenses and other liabilities, respectively, on the accompanying Consolidated Balance Sheets. Shipping and Handling 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 We are charged variable rates of interest on our indebtedness outstanding under the Amended Credit Agreement (defined in Note 8) which exposes us to fluctuations in interest rates. On October 24, 2018, the Company entered into a four year interest rate collar with a $ 150.0 million notional value with an effective date of November 30, 2018. The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. The collar establishes a range where we will pay the counterparty if the three month LIBOR rate falls below the established floor rate of 1.5 %, and the counterparty will pay us if the three month LIBOR rate exceeds the ceiling rate of 3.3 %. The collar settles quarterly through the termination date of September 30, 2022. No payments or receipts are exchanged on the interest rate collar contracts unless interest rates rise above or fall below the contracted ceiling or floor rates. 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. At October 2, 2021, the fair value of the interest rate collar contract was $ 2.0 million and is included in "other current liabilities" on the Consolidated Balance Sheets. The fair value of the interest rate collar is a Level 2 fair value measurement, based on quoted prices of similar items in active markets. 4. Inventories The following table presents components of inventories at the dates indicated: (in thousands) October 2, 2021 October 3, 2020 Raw materials $ 74,862 $ 43,272 Work in process 41,257 8,989 Finished goods 9,087 4,262 Total inventories $ 125,206 $ 56,523 58 5. Property, Plant and Equipment Property, plant and equipment, net, consisted of the following at the dates indicated: (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 Office furniture, equipment and other 2,185 2,184 Computer equipment and software 19,233 17,443 Construction in process 25,555 18,028 Property, plant and equipment, gross 198,620 186,440 Accumulated depreciation and amortization ( 98,290 ) ( 88,925 ) Operating lease right-of-use assets (1) 5,152 5,857 Property, plant and equipment, net $ 105,482 $ 103,372 (1) Further information is included in Note 10, Guarantees, Commitments and Contingencies . 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. 6. Goodwill The carrying amounts of goodwill by reporting unit are as follows at the dates indicated: (in thousands) Gross Goodwill Accumulated Impairments Net Goodwill October 2, 2021 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. 7. Intangible Assets The gross carrying amounts and accumulated amortization of intangible assets are as follows at the dates indicated: October 2, 2021 October 3, 2020 (in thousands) Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Finite lived: Engineering designs $ 3,156 $ 2,876 $ 280 $ 3,156 $ 2,556 $ 600 Finite lived: Customer relationships 37,425 28,078 9,347 37,425 26,209 11,216 Total amortized intangible assets 40,581 30,954 9,627 40,581 28,765 11,816 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 59 Management considers the "Blue Bird" trade name to have an indefinite useful life and, accordingly, it is not subject to amortization. Management reached this conclusion principally due to the longevity of the Blue Bird name and because management considers renewal upon reaching the legal limit of the trademarks related to the trade name as perfunctory. 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 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. Customer relationships are amortized on a straight-line basis over an estimated life of 20 years. 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 $ 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 2022 $ 2,010 2023 2,010 2024 1,869 2025 1,869 2026 1,869 Thereafter — Total amortization expense $ 9,627 8. Debt Original Credit Agreement 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 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. Substantially all of the proceeds were used to complete a tender offer to purchase shares of our common and preferred stock. The First Amended Credit Agreement also increased the revolving credit facility to $ 100.0 million from $ 75.0 million, a $ 25.0 million increase. The amendment extended the maturity date to September 13, 2023, five years from the effective date of the first amendment. 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 are being 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 60 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 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 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 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. 61 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 2, 2021 October 3, 2020 2023 term loans, net of deferred financing costs of $ 2,027 and $ 2,246 , respectively $ 164,423 $ 174,104 Less: Current portion of long-term debt 14,850 9,900 Long-term debt, net of current portion $ 149,573 $ 164,204 Term loans are recognized on the Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates the unpaid principal balance to approximate fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. At 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) Year Principal Payments 2022 $ 14,850 2023 151,600 Total remaining principal payments $ 166,450 9. Income Taxes The components of income tax benefit (expense) were as follows for the fiscal years presented: (in thousands) 2021 2020 2019 Current tax provision: Federal $ 348 $ ( 1,425 ) $ 156 State ( 82 ) ( 65 ) ( 985 ) Foreign — — ( 112 ) Total current tax benefit (expense) $ 266 $ ( 1,490 ) $ ( 941 ) Deferred tax provision: 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. 62 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 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 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. 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 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 ) Change in uncertain tax positions ( 635 ) — — Share-based compensation ( 135 ) 188 ( 320 ) Permanent items ( 20 ) ( 33 ) ( 59 ) Valuation allowance — ( 977 ) ( 1,043 ) 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 ) 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: (in thousands) 2021 2020 2019 Balance, beginning of year $ — $ — $ — 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 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. 63 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 2, 2021 October 3, 2020 Deferred tax liabilities Property, plant and equipment $ ( 10,475 ) $ ( 11,029 ) Other intangible assets ( 12,060 ) ( 11,807 ) Investor tax on non-consolidated affiliate income ( 692 ) ( 668 ) Other assets ( 105 ) ( 135 ) Total deferred tax liabilities $ ( 23,332 ) $ ( 23,639 ) Deferred tax assets NOL carryforward $ 1,126 $ 600 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 Less: valuation allowance ( 3,453 ) ( 3,453 ) Deferred tax assets less valuation allowance $ 24,072 $ 27,750 Net deferred tax assets $ 740 $ 4,111 10. Guarantees, Commitments and Contingencies Litigation At October 2, 2021, the Company had a number of product liability and other cases pending. Management believes that, considering the Company’s insurance coverage and its intention to vigorously defend its positions, the ultimate resolution of these matters will not have a material adverse impact on the Company’s financial statements. Environmental The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is currently not involved in any material environmental proceedings and therefore management believes that the resolution of environmental matters will not have a material adverse effect on the Company’s financial statements. 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. Future expenditures may exceed the amounts accrued and estimated. Guarantees In the ordinary course of business, we may provide guarantees for certain transactions entered into by our dealers. 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. At October 2, 2021, $ 0.2 million was included in other current liabilities on our Consolidated Balance Sheets for the estimated fair value of the guarantee. 64 Lease Commitments We have operating and finance leases for office space, warehouse space, or a combination of both. 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 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 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) Short-term lease cost includes both leases and rentals with initial terms of one year or less. Classification depends on the purpose of the underlying lease. The following table summarizes the lease amounts included on the Consolidated Balance Sheets as follows: (in thousands) Balance Sheet Location October 2, 2021 October 3, 2020 Assets 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 Liabilities Current Operating Other current liabilities $ 1,158 $ 1,060 Finance Finance lease obligations 1,327 1,280 Long-term Operating Other liabilities 5,529 6,651 Finance Finance lease obligations 4,538 5,879 Total lease liabilities $ 12,552 $ 14,870 (1) Net of accumulated amortization of $ 2.8 million and $ 1.3 million, respectively. The operating leases recorded do not assume renewal based on our analysis of those leases and their contractual terms. One of our finance leases assumes renewal based on our expectations with regard to the lease and the contractual terms. Lease liability maturities are presented in the following table: (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 Less: imputed interest 859 467 1,326 Total lease liabilities $ 6,687 $ 5,865 $ 12,552 65 Lease terms and discount rates are presented in the following table: October 2, 2021 Operating Finance Weighted average remaining lease term 5.3 years 3.6 years Weighted average discount rate 4.6 % 3.8 % Supplemental cash flow information is presented in the following table: Fiscal Years Ended (in thousands) 2021 2020 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows - operating leases $ 1,394 $ 1,711 Operating cash flows - finance leases 241 238 Financing cash flows - finance leases 1,294 945 Right-of-use assets exchanged for lease liabilities Operating leases $ 62 $ — Finance leases — 3,496 Purchase Commitments In the ordinary course of business, the Company enters into short-term contractual purchase orders for manufacturing inventory and capital assets. The amount of these commitments is expected to be as follows: (in thousands) Fiscal Years Ended Amount 2022 $ 58,579 2023 69 Total purchase commitments $ 58,648 11. Segment Information 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 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. The tables below present segment net sales and gross profit for the periods presented: Net sales (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 $ 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. Gross profit (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 66 The following table is a reconciliation of segment gross profit to consolidated income before income taxes for the fiscal years presented: (in thousands) 2021 2020 2019 Segment gross profit $ 72,141 $ 96,200 $ 133,474 Adjustments: Selling, general and administrative expenses ( 65,619 ) ( 74,206 ) ( 89,642 ) Interest expense ( 9,682 ) ( 12,252 ) ( 12,879 ) Interest income 4 11 9 Other income (expense), net 1,776 738 ( 1,331 ) 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: (in thousands) 2021 2020 2019 United States $ 601,751 $ 795,207 929,523 Canada 75,644 79,442 80,056 Rest of world 6,600 4,572 9,295 Total net sales $ 683,995 $ 879,221 1,018,874 12. Revenue The following table disaggregates revenue by product category for the periods presented: Fiscal Years Ended (in thousands) 2021 2020 2019 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. 13. Stockholders’ Deficit Repurchase of Convertible Preferred Stock On November 13, 2018, the Company converted all remaining outstanding shares of its Series A Convertible Cumulative Preferred Stock, and issued 799,615 shares of common stock. There were no dividends paid with the conversion. Tender Offer 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 hold as treasury stock; and (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. 67 14. (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 Numerator: 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 (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 Weighted average dilutive securities, convertible preferred stock — — 98,984 Weighted average dilutive securities, restricted stock — 188,791 180,032 Weighted average dilutive securities, warrants — — 179,105 Weighted average dilutive securities, stock options — 46,765 130,257 Weighted average shares and dilutive potential common shares 27,139,054 27,086,555 27,043,814 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. 15. Share-Based Compensation 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 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 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. 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. The risk-free interest rate used in the Black-Scholes model is based on the implied yield curve available on U.S. 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 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. 68 Restricted Stock Awards The following table summarizes the Company's restricted stock and RSU activity for the fiscal year presented: 2021 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 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: 2021 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 Fully vested and exercisable options, end of year (3) 267,779 $ 17.85 (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 $ 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 . 69 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 % Expected dividend yield 0 % 0 % 0 % Risk-free interest rate 0.49 % 1.61 % 2.75 % Expected term (in years) 2.7 - 6.0 4.5 - 6.0 4.5 - 5.5 Weighted-average grant-date fair value $ 6.58 $ 6.91 $ 5.58 16. Benefit Plans Defined Benefit Pension Plan The Company has a defined benefit pension plan (“Defined Benefit Plan”) covering U.S. hourly and salaried personnel. On May 13, 2002, the Defined Benefit Plan was amended to freeze new participation as of May 15, 2002, and therefore, any new employees who started on or after May 15, 2002 were not permitted to participate in the Defined Benefit Plan. Effective January 1, 2006, the benefit plan was frozen to all participants. No accrual of future benefits is calculated beyond this date. 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: Benefit Obligation (in thousands) 2021 2020 Projected benefit obligation balance, beginning of year $ 169,741 $ 163,572 Interest cost 4,227 4,947 Assumption changes (1) ( 6,580 ) 9,750 Actuarial gain ( 47 ) ( 315 ) Benefits paid ( 7,253 ) ( 8,213 ) 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 the future obligations, and (ii) updates to the mortality table projections used in the calculation of the benefit obligations. Plan Assets: The summary and reconciliation of the beginning and ending balances of the fair value of the Defined Benefit Plan assets are as follows: Plan Assets (in thousands) 2021 2020 Fair value of plan assets, beginning of year $ 122,482 $ 118,048 Actual return on plan assets 17,188 12,147 Employer contribution 4,920 500 Benefits paid ( 7,253 ) ( 8,213 ) Fair value of plan assets, end of year $ 137,337 $ 122,482 70 Funded Status: The following table reconciles the benefit obligations, plan assets, funded status and net liability information of the Defined Benefit Plan at the dates indicated. The net pension liability is reflected in long-term liabilities on the Consolidated Balance Sheets. Funded Status (in thousands) October 2, 2021 October 3, 2020 Benefit obligation $ 160,088 $ 169,741 Fair value of plan assets 137,337 122,482 Funded status ( 22,751 ) ( 47,259 ) Net pension liability recognized $ ( 22,751 ) $ ( 47,259 ) Fair Value of Plan Assets: The Company determines the fair value of its financial instruments in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Fair value represents the price to hypothetically sell an asset or transfer a liability in an orderly manner in the principal market for that asset or liability. This topic provides a hierarchy that gives highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities. This topic requires that financial assets and liabilities are classified into one of the following three categories: 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. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's valuation process. The Defined Benefit Plan assets are comprised of various investment funds, which are valued based upon their quoted market prices. The invested pension plan assets of the Defined Benefit Plan are all Level 2 assets under ASC 820, Fair Value Measurements (“ASC 820”). 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) Level 1 Level 2 Level 3 Total October 2, 2021 Assets: Equity securities $ — $ 87,827 $ — $ 87,827 Debt securities — 49,510 — 49,510 Total assets at fair value $ — $ 137,337 $ — $ 137,337 October 3, 2020 Assets: Equity securities $ — $ 60,016 $ — $ 60,016 Debt securities — 62,466 — 62,466 Total assets at fair value $ — $ 122,482 $ — $ 122,482 71 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 Interest cost $ 4,227 $ 4,947 $ 6,047 Expected return on plan assets ( 7,777 ) ( 7,384 ) ( 7,619 ) Amortization of net loss 1,861 1,720 2,758 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 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. The unrecognized gain or loss is amortized as follows: the total unrecognized gain or loss, less the larger of 10% of the liability or 10% of the assets, is divided by the average future working lifetime of active plan participants. The following actuarial assumptions were used to determine the benefit obligations at the dates indicated: Weighted-average assumptions used to determine benefit obligations: October 2, 2021 October 3, 2020 Discount rate 2.80 % 2.55 % Rate of compensation increase N/A N/A Weighted-average assumptions used to determine net periodic benefit cost: 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 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 are as follows: October 2, 2021 October 3, 2020 Equity securities 64 % 49 % Debt securities 36 % 51 % Total securities 100 % 100 % There was no Company common stock included in equity securities. 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. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the PBO. In estimating that rate, appropriate consideration is given to the returns being earned by the plan assets in the fund and rates of return expected to be available for reinvestment and a building block method. The expected rate of return on each asset class is broken down into three components: (1) inflation, (2) the real risk-free rate of return (i.e., the long-term estimate of future returns on default free U.S. government securities), and (3) the risk premium for each asset class (i.e., the expected return in excess of the risk-free rate). The investment strategy for pension plan assets is to limit risk through asset allocation, diversification, selection and timing. Assets are managed on a total return basis, with dividends and interest reinvested in the account. 72 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 2022 $ 8,249 2023 8,438 2024 8,592 2025 8,766 2026 8,870 2027 - 2031 44,253 Total expected future benefit payments $ 87,168 Defined Contribution Plan The Company offers a defined contribution 401(k) plan covering substantially all U.S. employees and a defined contribution plan for Canadian employees. 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 $ 0.5 million, $ 2.2 million and $ 2.2 million for fiscal 2021, fiscal 2020, and fiscal 2019, respectively. Health Benefits The Company provides and is predominantly self-insured for medical, dental, and accident and sickness benefits. 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 fiscal 2021, fiscal 2020, and fiscal 2019, was $ 13.8 million, $ 14.9 million, and $ 12.1 million, respectively. Employee Compensation Plans 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. 17. Equity Investment in Affiliate On October 14, 2009, Blue Bird and Girardin MiniBus JV Inc. entered into a joint venture, Micro Bird Holdings, Inc. (“Micro Bird”), to combine the complementary expertise of the two separate manufacturers. Blue Bird Micro Bird by Girardin Type A buses are produced in Drummondville, Quebec by Micro Bird. The Company holds a 50 % equity interest in Micro Bird, utilizing the equity method of accounting as the Company does not have control to direct the activities that most significantly impact Micro Bird’s financial performance based on the shared powers of the venture partners. 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 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. 73 18. 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 Total AOCL Balance, September 29, 2018 $ ( 38,427 ) $ ( 38,427 ) 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 ) Other comprehensive loss, gross ( 4,671 ) ( 4,671 ) Amounts reclassified and included in earnings 1,720 1,720 Total before taxes ( 2,951 ) ( 2,951 ) 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 ) 19. Subsequent Events 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. 74 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 75 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. 76 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.