What changed in this filing

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Item 1A. Risk Factors

2022-12-12 compared with 2021-12-15 · 65 added, 59 removed, 272 unchanged (31% of the section changed)

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Risk Factors Relating to Our Business and Industry

The current COVID-19 pandemic continues to have, and other public health crises, epidemics or pandemics could have, a material adverse effect on our business, results of operations, financial condition, and cash flows, particularly resulting from supply chain disruptions, reductions in demand for our products, disruptions or other developments negatively impacting our workforce or workplace conditions, and/or reduced access to capital markets and reductions in liquidity.

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 COVID-19 pandemic and subsequent supply chain constraints have had, and other public health crises, epidemics or pandemics could have, a material adverse effect on our business, results of operations, financial condition, and cash flows, particularly resulting from reductions in demand for our products, shortages of critical components that hinder the

production of units to fulfill sales orders, disruptions or other developments negatively impacting our workforce or workplace conditions, and/or reduced access to capital markets and reductions in liquidity.

During the second half of fiscal 2020 and the first half of fiscal 2021 and continuing on a smaller scale subsequently through the end of fiscal 2022, the novel coronavirus known as "COVID-19" spread throughout the world, resulting in a global pandemic.

The pandemic has, among other impacts:

• negatively impacted demand for school buses due to schools operating totally or partially virtually;

• negatively impacted demand for school buses due to schools operating totally or partially virtually, primarily during the second half of fiscal 2020 and first half of fiscal 2021;

• triggered significant volatility in capital markets;

• caused significant disruptions in global supply chains;

• caused significant disruptions in global supply chains primarily impacting the Company during the second half of fiscal 2021 and throughout fiscal 2022;

• significantly altered global consumer demand;

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• changed global workplace conditions resulting from "shelter-in-place" orders and "work from home" employer policies.

The degree to which the COVID-19 pandemic impacts our future business, results of operations and financial condition will depend on future developments, which are uncertain, including but not limited to the duration, spread and severity of the pandemic, government responses and other actions to mitigate the spread of and to treat COVID-19, and when and to what extent more normal business, economic and social activity and conditions resume and continue without further disruption.

We are similarly unable to predict the extent to which the pandemic will continue to impact our customers, suppliers and other partners and their financial conditions, but adverse effects on these parties would likely also adversely affect us.

Finally, the COVID-19 pandemic makes it challenging for management to estimate the future performance of our business.

The pandemic materially impacted our fiscal 2021 results, causing, among other matters, lower customer orders for both buses and bus parts, primarily during the first half of the fiscal year;

supply chain disruptions, which became more prevalent and had a much more significant, unfavorable impact on our operations and results in the second half of the fiscal year;

higher rates of absenteeism among our hourly production workforce and several temporary shutdowns of our manufacturing facilities as a result of an inadequate 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.

At the present time, we consider the following areas to be the most significant material risks to our business resulting from the current pandemic:

The degree to which the COVID-19 pandemic could impact our future business, results of operations and financial condition depends on future developments, which are uncertain, including but not limited to the duration, spread and severity of the pandemic, government responses and other actions to mitigate the spread of and to treat COVID-19, and when and to what extent business, economic and social activity and conditions are disrupted.

We are similarly unable to predict the extent to which the pandemic could impact our customers, suppliers and other partners and their financial conditions, but adverse effects on these parties would likely also adversely affect us.

Finally, the threat of future COVID-19 outbreaks makes it challenging for management to estimate the future performance of our business.

While the reduction in the demand of school buses resulting from the COVID-19 pandemic began subsiding around the middle of calendar year 2021, the subsequent supply chain constraints had a significant, unfavorable impact on our results during the second half of fiscal 2021 and all of fiscal 2022.

Specifically, an inadequate supply of critical components prevented us from initiating, or completing, as applicable, the production process to fulfill sales orders.

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

At the present time, we consider the following areas to be the most significant material risks to our business resulting from the pandemic and subsequent supply chain constraints:

Supply Chain Disruptions

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We also currently rely on a limited number of single-source suppliers and/or have limited alternatives for important bus parts such as diesel engines and emission components, propane and gasoline engines including powertrains, control modules, steering systems, seats, specialty resins, and other key components.

Our manufacturing facilities shutdowns during fiscal 2021 were partially due to an inability to obtain critical components from our

Future delays or interruptions in the supply chain due to the COVID-19 pandemic expose us to the following risks which would likely significantly increase our costs and/or impact our ability to meet customer demand:

Future delays or interruptions in the supply chain expose us to the following risks which would likely significantly increase our costs and/or impact our ability to meet customer demand:

• we or our third-party suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly, and delivery or shipment of our products;

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• we or our suppliers may have excess or inadequate inventory of materials and components;

• we or our third-party suppliers may be subject to price fluctuations due to the pandemic and a lack of long-term supply arrangements for key components;

• we or our third-party suppliers may be subject to price fluctuations, including for inbound freight costs that are incurred to transport goods and supplies to production facilities, and a lack of long-term supply arrangements for key components;

• we may experience delays in delivery by our third-party suppliers due to changes in demand from us or their other customers;

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Almost all U.S.

states, including Georgia where our headquarters and manufacturing facilities are located, have issued “shelter-in-place” orders, quarantines, executive orders and similar government orders, restrictions and recommendations for their residents to control the spread of COVID-19.

These orders may continue to be re-issued in the future and may introduce broader restrictions.

Such orders, restrictions and recommendations have resulted in widespread closures of businesses, work stoppages, interruptions, slowdowns and delays, work-from-home policies and travel restrictions.

While our business has been deemed "essential" by the State of Georgia, we have employed remote work policies when and where necessary to be responsive to the health risks that may impact our employees.

states, including Georgia where our headquarters and manufacturing facilities are located, issued, primarily during calendar years 2020 and 2021, “shelter-in-place” orders, quarantines, executive orders and similar government orders, restrictions and recommendations for their residents to control the spread of COVID-19.

These orders could be re-issued in the future and could introduce broader restrictions.

Such orders, restrictions and recommendations resulted in widespread closures of businesses, work stoppages, interruptions, slowdowns and delays, work-from-home policies and travel restrictions.

While our business was deemed "essential" by the State of Georgia, we employed remote work policies when and where necessary to be responsive to the health risks that could impact our employees.

Given the nature of our business, we do not have the ability to manufacture a bus without our on-site manufacturing personnel.

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Reduced profitability and liquidity, resulting in the restructuring of our credit facilities, and/or inadequate access to credit and capital markets

The COVID-19 pandemic has materially adversely impacted global commercial activity and has contributed to significant volatility in financial markets.

The pandemic continues to have a materially adverse impact on economic and market conditions, potentially reducing our ability to access capital, which could in the future negatively affect our liquidity.

The continuing pandemic could cause a more severe contraction in our profits and/or liquidity which could lead to issues complying with the financial covenants in our credit facility.

Our primary financial covenants are (i) for fiscal 2022, minimum consolidated EBITDA, which is an adjusted EBITDA metric that could differ from Adjusted EBITDA appearing in the Company’s periodic filings on Form 10-K or Form 10-Q as the adjustments to the calculations are not uniform, at the end of each fiscal quarter for the consecutive four fiscal quarter period most recently then ending;

(ii) for fiscal 2022 and through April 1, 2023, minimum liquidity at the end of each fiscal month;

(iii) when applicable during fiscal 2022, minimum school bus units manufactured calculated on a three month trailing basis at the end of each fiscal month;

and (iv) beginning in fiscal 2023 and thereafter, Total Net Leverage Ratio ("TNLR"), defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA.

We may need to seek amendment for additional covenant relief or even refinance the debt to a "covenant light" or "no covenant" structure.

The COVID-19 pandemic and subsequent supply chain disruption have materially adversely impacted global commercial activity and contributed to significant volatility in financial markets.

The supply chain constraints, including the resulting inflationary environment that has developed, continue to have a materially adverse impact on economic and market conditions, potentially reducing our ability to access capital, which could in the future negatively affect our liquidity.

Future COVID-19 outbreaks and/or continuing supply chain constraints could cause a more severe contraction in our profits and/or liquidity, which could lead to issues complying with the financial covenants in our credit facility.

Our primary financial covenants are (i) minimum consolidated EBITDA, which is an adjusted EBITDA metric that could differ from Adjusted EBITDA appearing in the Company’s periodic filings on Form 10-K or Form 10-Q as the adjustments to the calculations are not uniform, at the end of each fiscal quarter for the trailing four fiscal quarter period most recently then ended for fiscal 2022 and at the end of the third and fourth fiscal quarters of fiscal 2023 calculated on an annualized basis;

(ii) for fiscal 2022 through December 30, 2023, minimum liquidity at the end of each fiscal month;

(iii) when applicable during fiscal 2022 through April 1, 2023, minimum school bus units manufactured calculated on a three month trailing basis at the end of each fiscal month for fiscal 2022 and on a cumulative basis at the end of each fiscal month for the first and second fiscal quarters of fiscal 2023;

and (iv) beginning in the fiscal year ending September 28, 2024 ("fiscal 2024") and thereafter, Total Net Leverage Ratio ("TNLR"), defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA, at the end of each fiscal quarter.

In fiscal 2020 through 2022, we executed, and in future periods may need to seek, amendments for covenant relief and/or we may even need to refinance the debt to a "covenant light" or "no covenant" structure.

We cannot assure our investors that we would be successful in amending or refinancing our existing debt.

An amendment or refinancing of our existing debt could lead to higher interest rates and possible up front expenses than included in our historical financial statements.

The military conflict in Ukraine, and future military conflicts in other countries, could cause additional supply chain disruptions that could have a material adverse impact on our business, results of operations, financial condition and cash flows.

During fiscal 2022, the ongoing pressure on the global supply chain was further exacerbated as a result of Russia’s invasion of Ukraine towards the end of February 2022.

Both countries have large quantities of minerals and other natural resources that impact commodity costs, such as diesel fuel, steel, rubber and resin, among others, and the conflict has further restricted access to inventory that is at least partially dependent upon such commodities, primarily for the Company’s suppliers.

Such restricted access has, in certain cases, limited our ability to obtain critical component parts and/or resulted in us paying premium prices for freight and to access the limited supply of inventory.

The degree to which this conflict impacts our future business, results of operations, financial condition and cash flows will depend on future developments, which are uncertain, including but not limited to the duration of, potential spread and severity of, and additional governmental actions in response to, the conflict and when and to what extent normal business and economic activity and conditions resume and continue without further disruption.

General economic conditions in the markets we serve have a significant impact on demand for our buses.

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We seek to mitigate supply chain risks with our key suppliers by entering into long-term agreements, by commencing contract negotiations with suppliers of critical components significantly before contract expiration dates, and by diversifying our suppliers of key components with contingency programs when possible.

If any of our critical component suppliers limit or reduce the supply of components due to commercial reasons, financial difficulties or other problems, we could experience a loss of revenues due to our inability to fulfill orders, as was the case in the second half of fiscal 2021.

These single-source and other suppliers are each subject to quality and operational issues, materials shortages, unplanned demand, reduction in capacity and other factors that may disrupt the flow of goods to us or to our customers, which would adversely affect our business and customer relationships.

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We currently rely on a limited number of single-source suppliers and/or have limited alternatives for important bus parts such as diesel engines and emission components, propane and gasoline engines including powertrains, control modules, air brakes, steering systems, seats, specialty resins, and other key components.

Shortages and allocations by such manufacturers may result in inefficient operations and a build-up of inventory, which could negatively affect our working capital position, as was the case towards the end of fiscal 2021.

Our products may not achieve or maintain market acceptance or competing products could gain market share, which could adversely affect our competitive position.

We operate in a highly competitive domestic market.

Our principal competitors are Thomas Built Bus (owned by Daimler Trucks North America) and IC Bus (owned by Navistar International), which, at the consolidated level, have potential access to more technical, financial and marketing resources than our Company.

Our competitors may develop or gain access to products that are superior to our products, develop methods of more efficiently and effectively providing products and services, or adapt more quickly than we do to new technologies or evolving customer requirements.

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Our business is cyclical, which has had, and could have future, adverse effects on our sales and results of operations and lead to significant shifts in our results of operations from quarter to quarter that make it difficult to project long-term performance.

The school bus market historically has been and is expected to continue to be cyclical.

The school bus market historically has been and is expected to resume being, at some point in the relatively near future, cyclical.

This cyclicality has an impact both on the school bus industry and also on the comparative analysis of quarterly results of our Company.

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During downturns, we may find it necessary to reduce line rates and employee levels due to lower overall demand.

An economic downturn may reduce, and in the past, including 2020, has reduced, demand for school buses, resulting in lower sales volumes, lower prices and decreased profits.

An economic downturn may reduce, and in the past, including during the second half of fiscal 2020 and first half of fiscal 2021, has reduced, demand for school buses, resulting in lower sales volumes, lower prices and decreased profits.

Primarily as a result of the historical seasonal nature of our business, we operate with negative working capital for significant portions of our fiscal year.

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We cannot assure you that our ability to sell our products at reasonable margins will not be impaired by the imposition of tariffs or other changes in trade policy which may make it more difficult or more expensive to purchase our products.

We enter into firm fixed-price school bus sales contracts without price escalation clauses which could subject us to losses if we have cost overruns or if our costs increase.

We often bid on contracts weeks or months before school buses are delivered and enter into school bus sales contracts with fixed prices per bus.

The sales contracts generally do not have an indexed price escalation formula to account for economic fluctuations between the contract date and the delivery date.

As a result, we typically are unable to pass along increased costs due to economic fluctuations to our customers, which is generally expected to occur for sales occurring in the first half of fiscal 2022 and could continue into future periods.

We generally purchase steel one quarter in advance, but because we usually do not hedge our other primary raw materials (rubber, aluminum and copper), changes in prices of raw materials can significantly impact operating margins.

Our actual costs and any gross profit realized on these fixed-price contracts could vary from the estimated costs on which these contracts were originally based.

At times we enter into firm fixed-price school bus sales contracts without price escalation clauses that could subject us to reduced gross profits or losses if we have cost overruns or if our costs increase.

We sometimes provide fixed-price bids on potential school bus orders months before the expected delivery date.

Also, a substantial amount of time may lapse between the bid date and the date that a school bus sales contract containing a fixed price is executed.

The sales bids historically have not included price escalation provisions to account for economic fluctuations between the bid date and delivery date.

As a result, we have historically been unable to pass along to our customers increased costs due to economic fluctuations between these dates, which is generally not expected to continue as the Company now includes price escalation provisions when bidding on contracts.

However, once a sales contract containing a fixed bus price is executed with a customer, we are generally unable to pass along increased costs resulting from economic fluctuations between the contract date and delivery date.

We generally purchase steel one quarter in advance at fixed prices, but because we usually do not hedge our other primary raw materials (rubber, aluminum and copper), changes in prices of raw materials can significantly impact operating margins.

Our actual costs and any gross profit realized on fixed-price sales contracts could vary from the estimated costs on which these contracts were originally based.

New laws, regulations or governmental policies regarding environmental, health and safety standards, or changes in existing ones, may have a significant negative impact on how we do business.

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In addition, if we expand into more international jurisdictions, we could potentially incur additional costs in order to tailor our products to the applicable local law requirements of such jurisdictions.

Further, we must comply with additional regulatory requirements applicable to us as a federal contractor for our GSA contracts, which increases our costs.

Further, we must comply with additional regulatory requirements applicable to us as a federal contractor for our GSA contracts, which increase our costs.

GSA contracts are also subject to audit and increased inspections and costs of compliance.

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All investigations of suspect areas have been completed.

Implementation of a corrective action plan is forthcoming, which will consist of re-surfacing the landfill cap, possible monitoring, and ground water use restrictions for the old landfill.

Implementation of a corrective action plan has commenced, which will consist of re-surfacing the landfill cap, ongoing monitoring, and ground water use restrictions for the old landfill.

There are currently no proposed remediation actions to be included in the corrective action plan.

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If school bus sales deteriorate, our results of operations, financial condition, and cash flows will suffer.

Our continued profitability requires us to maintain certain minimum school bus sales volumes and margins.

Our profitability requires us to maintain certain minimum school bus sales volumes and margins.

As is typical for a vehicle manufacturer, we have significant fixed costs and, therefore, changes in our school bus sales volume can have a disproportionately large effect on profitability.

If our school bus sales decline to levels significantly below our assumptions, due to a financial downturn, renewed recessionary conditions, changes in consumer confidence, geopolitical events, inability to secure an adequate supply of critical components or any other reason that would limit our ability to produce sufficient quantities of school buses, limited access to financing or other factors, our financial condition, results of operations and cash flows would be materially adversely affected.

If Blue Bird Capital Services cannot provide financial services to our dealers and customers to acquire our products, our sales and results of operations could deteriorate.

Our dealers and customers benefit from their relationships with BBCS, which provides (i) floorplan financing for certain of our network dealers and (ii) a modest amount of vehicle lease financing to school districts.

Although we neither assume any balance sheet risk nor receive any direct economic benefit from BBCS, which is financed by TCF Inventory Finance, Inc., we could be materially adversely affected if BBCS was unable to provide this financing and our dealers were unable to obtain alternate financing, at least until a replacement for BBCS was identified.

BBCS faces a number of business, economic and financial risks that could impair its access to capital and negatively affect its business and operations and its ability to provide financing and leasing to our dealers and customers.

Because BBCS serves as an additional source of leasing and financing options for dealers and customers, an impairment of BBCS’ ability to provide such financial services could negatively affect our efforts to expand our market penetration among customers that rely on these financial services to acquire new school buses and dealers that seek financing.

If our school bus sales decline to levels significantly below our assumptions, due to a financial downturn, recessionary conditions, changes in consumer confidence, geopolitical events, inability to secure an adequate supply of critical components or any other reason that would limit our ability to produce sufficient quantities of school buses, limited access to financing or other factors, our financial condition, results of operations and cash flows would be materially adversely affected.

If Huntington Distribution Finance, Inc.

cannot provide financial services to our dealers and customers to acquire our products, our sales and results of operations could deteriorate.

Our dealers and customers benefit from their relationships with Huntington, which provides (i) floorplan financing for certain of our network dealers and (ii) a modest amount of vehicle lease financing to school districts.

Axlthough we neither assume any balance sheet risk nor receive any direct economic benefit from Huntington, we could be materially adversely affected if Huntington was unable to provide this financing and our dealers were unable to obtain alternate financing, at least until a replacement for Huntington was identified.

Huntington faces a number of business, economic and financial risks that could impair its access to capital and negatively affect its business and operations and its ability to provide financing and leasing to our dealers and customers.

Because Huntington serves as an additional source of leasing and financing options for dealers and customers, an impairment of Huntington’s ability to provide such financial services could negatively affect our efforts to expand our market penetration among customers that rely on these financial services to acquire new school buses and dealers that seek financing.

We rely heavily on trade secrets to gain a competitive advantage in the market and the unenforceability of our nondisclosure agreements may adversely affect our operations.

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Further, we have certain sales contracts that are transacted in Canadian Dollars.

While we aim to hedge any such transactions, that may not always be the case.

As a result, foreign currency fluctuations and the associated remeasurements and translations could have a material adverse effect on our results of operations and financial condition.

While we generally aim to hedge any such transactions, that may not always be the case.

As a result, foreign currency fluctuations and

the associated remeasurements and translations could have a material adverse effect on our results of operations and financial condition.

The manufacture of our Type A buses is conducted by the Micro Bird joint venture that we do not control and cannot operate solely for our benefit.

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Interest rates could change substantially, materially impacting our profitability.

Our borrowings under our credit facility are at variable rates of interest and expose us to interest rate risk.

We monitor and manage this exposure as part of our overall risk management program, which recognizes the unpredictability of interest rates and seeks to reduce

potentially adverse effects on our business.

The majority of our debt interest payments are protected against increases in short-term rates;

Our borrowings under our credit facility bear interest at variable market rates and expose us to interest rate risk.

We monitor and manage this exposure as part of our overall risk management program, which recognizes the unpredictability of interest rates and seeks

to reduce potentially adverse effects on our business.

However, changes in interest rates cannot always be predicted, hedged, or offset with price increases to eliminate earnings volatility.

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Concentration of ownership of our common stock may have the effect of delaying or preventing a change in control.

At October 2, 2021, approximately 35% of our common stock was owned by ASP, an affiliate of American Securities LLC ("American Securities").

As a result, American Securities has the ability to significantly influence the outcome of corporate actions of

our Company requiring stockholder approval.

At October 1, 2022, approximately 30% and 15% of our common stock was owned by ASP, an affiliate of American Securities LLC ("American Securities"), and Coliseum Capital Management LLC ("Coliseum"), respectively.

As a result, American Securities and Coliseum have the ability to significantly influence the outcome of corporate actions of our Company requiring stockholder approval.

This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock.

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On December 15, 2021, we issued and sold through a private placement an aggregate 4,687,500 shares of our common stock at $16.00 per share.

The $75.0 million of net proceeds that we received from this transaction may be used for working capital and other general corporate purposes, which may include acquisitions, investments in technologies or businesses, operating expenses and capital expenditures.

Refer to Note 19, Subsequent Events , to the Company’s consolidated financial statements for additional information regarding this transaction.

The approximate $74.8 million of net proceeds that we received from this transaction were used to repay outstanding revolving borrowings as required by the terms of the Amended Credit Agreement (defined below), which increased the available borrowing capacity of the Revolving Credit Facility (defined below) that could be used for working capital and other general corporate purposes, including acquisitions, investments in technologies or businesses, operating expenses and capital expenditures.

Refer to Note 13, Stockholders' Equity (Deficit) , to the Company’s consolidated financial statements for additional information regarding this transaction.

Additionally, on November 16, 2021, we filed a Registration Statement on Form S-3 that allows the Company to sell up to $200.0 million in the aggregate of any combination of several different type of securities, including shares of common stock, from time to time in one or more offerings.

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• the exclusive right of our Board of Directors to elect a director to fill a vacancy created by the expansion of the Board of Directors or the resignation, death, or removal of a director with or without cause by stockholders, which prevents stockholders from being able to fill vacancies on our Board of Directors;

• subject to any rights of holders of existing preferred shares, the ability of our board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

• subject to any rights of holders of existing preferred shares, if any, the ability of our Board of Directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

• a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

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

What changed 10-K

Item 1A. Risk Factors