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Item 7. Management’s Discussion and Analysis

2022-12-12 compared with 2021-12-15 · 282 added, 170 removed, 428 unchanged (51% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company’s audited financial statements for the fiscal years ended October 2, 2021, October 3, 2020 and September 28, 2019 and related notes appearing elsewhere in this Report.

The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Company’s audited financial statements for the fiscal years ended October 1, 2022, October 2, 2021 and October 3, 2020 and related notes appearing elsewhere in this Report.

Our actual results may not be indicative of future performance.

This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.

This discussion and

analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those discussed or incorporated by reference in the sections of this Report titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.

Certain monetary amounts, percentages and other figures included in this Report have been subjected to rounding adjustments.

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We distinguish ourselves from our principal competitors by dedicating our focus to the design, engineering, manufacture and sale of school buses, and related parts.

As the only principal manufacturer of chassis and body production specifically designed for school bus applications, Blue Bird is recognized as an industry leader for school bus innovation, safety, product quality/reliability/durability, efficiency, and lower operating costs.

As the principal manufacturer of chassis and body production specifically designed for school bus applications in the U.S., Blue Bird is recognized as an industry leader for school bus innovation, safety, product quality/reliability/durability and, during more normal times, efficiency and lower operating costs.

In addition, Blue Bird is the market leader in alternative powered product offerings with its propane, gasoline, CNG, and electric powered school buses.

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Blue Bird also sells directly to major fleet operators, the U.S.

Government, state governments, and authorized dealers in a number of foreign countries.

Impact of COVID-19 on Our Business

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

The pandemic triggered a significant downturn in global commerce as early as February 2020 and the challenging market conditions are expected to continue for an extended period of time.

Government, state governments, and authorized dealers in certain limited foreign countries.

Impacts of COVID-19 and Subsequent Supply Chain Constraints on Our Business

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

The pandemic triggered a significant downturn in global commerce as early as February 2020 and the challenging market conditions continued into the early months of calendar year 2021.

Countermeasures taken to address the COVID-19 pandemic included virtual and hybrid schooling in many jurisdictions throughout the U.S.

The uncertainty of when and how schools would open materially affected demand within the Type C and Type D school bus industry in the second half of the Company's fiscal 2020.

In an effort to contain the spread of COVID-19, maintain the well-being of our employees and stakeholders, address the reduced demand from our customers and be responsive and efficient with supply chain constraints, management took decisive actions including closing our manufacturing facilities for two weeks in April 2020 and implementing stringent safety protocols, including administering COVID-19 testing for all manufacturing and office employees and requesting office employees to work from home.

Management also decided to cease production for a full week in each of March and May 2021 due to supply chain disruptions that resulted in a shortage of critical components.

Additionally, management closely monitors the expected receipt of critical components on a daily basis and has had to cease part or all of production for shorter periods of time as a result of supply shortages.

These temporary closures of our manufacturing facility did not materially impact our operations during fiscal 2020 or the first half of fiscal 2021 as we did not need to operate at full capacity to fulfill sales orders at those times.

However, such supply chain disruptions did significantly impact our operations and results during the second half of fiscal 2021 due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders.

The temporary closure of our manufacturing facility did not materially impact our operations during fiscal 2020 as we did not need to operate at full capacity to fulfill sales orders at that time.

While demand for school buses remained suppressed during the first half of fiscal 2021 as a result of the continuing impact of the COVID-19 pandemic, it strengthened substantially during the second half of the fiscal year as COVID-19 vaccines were administered and many jurisdictions began preparing for a return to in-person learning environments for the new school year that began in mid-August to early September 2021.

However, during the second half of fiscal 2021, the Company, and automotive industry as a whole, began experiencing significant supply chain constraints resulting from, among others, labor shortages due to the ‘great resignation;’ the lack of maintenance on, and acquisition of, capital assets during the extended COVID-19 global lockdowns;

significant increased demand for consumer products containing certain materials required for the production of vehicles, such as microchips, as consumers spent stimulus and other funds on items for their homes;

These supply chain disruptions had a significant adverse impact our operations and results due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and our inability to complete the production of buses to fulfill sales orders.

Specifically, management estimates that the sale of approximately 2,000 units was deferred from fiscal 2021 into fiscal 2022 as a result of the shortage of critical components that prevented the Company from initiating or completing, as applicable, the production process for certain units that were otherwise scheduled to be delivered to customers during the year.

Including these units, the Company's backlog exceeded 4,200 units as of October 2, 2021 as demand for our products remains strong, with no sales orders canceled as a result of delays in our production process.

The Company has also experienced increased purchase costs for certain of its raw materials during the pandemic that have negatively impacted the gross profit it recognized on sales, particularly during the second half of fiscal 2021.

The decreased gross profit is expected to continue into the first half of fiscal 2022 given the increased purchase costs we incurred acquiring the inventory that we accumulated at the end of fiscal 2021 as a result of our inability to build and sell buses due to critical component shortages.

In response, in July 2021 the Company announced two sales price increases that will apply to new sales orders and are intended to mitigate the impact of rising purchase costs on our operations and results.

In general, management believes that such supply chain disruptions will continue in future periods and will materially impact our results if we are unable to i) produce during quarters having higher sales volumes and/or ii) pass along rising costs to our customers.

Including these units, the Company's backlog exceeded 4,200 units as of October 2, 2021.

Although there were pockets of COVID-19 outbreaks in the U.S.

throughout fiscal 2022, most school systems maintained partial or full in-person learning environments for the entirety of the school year.

Accordingly, new bus orders during fiscal year 2022 remained extremely robust, primarily due to pent-up demand resulting from the cumulative effect of the COVID-19 pandemic when many school systems conducted virtual learning (i.e., approximately January 2020 through June 2021).

This strong demand, when coupled with an already challenged global supply chain for automotive parts that continued from fiscal 2021 but that was further impacted, including continuing escalating inventory purchase costs, by additional stress resulting from Russia’s invasion of Ukraine in February 2022 (see further discussion below) and several complete shutdowns in China as a result of widespread COVID-19 outbreaks, resulted in the Company’s order backlog continuing to grow during fiscal 2022, exceeding 5,000 units as of October 1, 2022 (only minimal sales orders were canceled during the fiscal year as a result of continued delays in our production process).

Shortages of key components during the second half of fiscal 2021 and all of fiscal 2022 has hindered the Company's ability to complete the production of buses to fulfill sales orders, which has had a significant, adverse impact on the Company's revenues during these periods.

The Company has also experienced significant increased purchase costs for many of its raw materials as a result of supply chain disruptions over these same periods that have negatively impacted the gross profit it recognized on sales.

In response, beginning in July 2021 and continuing throughout fiscal 2022, the Company announced a number of sales price increases that apply to new sales orders and partially applied to backlog orders that were both intended to mitigate the impact of rising purchase costs on our operations and results.

Additionally, during fiscal 2022, the Company began including price escalation provisions when bidding on contracts so that it can consider economic fluctuations between the bid date and the contract date to determine whether increased costs should be passed along to customers.

Most of these price increases were generally not realized in the first half of fiscal 2022 as sales recorded during such period related to the backlog of orders that existed prior, and therefore were not subject, to the price increases.

While they began to impact sales and gross profit in the latter half of fiscal 2022, such impact did not offset the significant continued increase in the Company's production costs, resulting in further deterioration of the Company's gross profit, which management is expecting to continue into the first few months of fiscal 2023 as it produces and sells the oldest units included in the backlog existing at the end of fiscal 2022.

In general, management believes that such supply chain disruptions could continue in future periods and could materially impact our results if we are unable to i) produce during quarters having higher sales volumes and/or ii) pass along rising costs to our customers.

Additionally, although we have not experienced any pervasive COVID-19 illnesses to date, if we were to experience some form of outbreak within our facilities, we would take all appropriate measures to protect the health and safety of our employees, which could include another temporary halt in production.

The pandemic has resulted, and is likely to continue to result, in significant economic disruption and has adversely affected our business.

It will continue to adversely impact our business into fiscal year 2022 and perhaps beyond.

Significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic and its impact on the overall U.S and global economy.

The duration of any demand reductions, production and supply chain disruptions, and related financial impacts on our business cannot be estimated at this time.

The continuing impacts from COVID-19 on the Company's operations in fiscal 2021 negatively affected our revenue, profit and cash flows.

We continue to monitor and assess the level of future customer demand, the ability of school boards to make decisions regarding maintaining normal in-person learning in the foreseeable future, the ability of suppliers to resume and/or maintain normal operations and to provide parts and supplies in sufficient quantities to meet our production needs, the ability of our employees to continue to work, and our ability to maintain continuous production as we plan for fiscal 2022 and beyond.

The COVID-19 pandemic and subsequent supply chain constraints have resulted, and could to continue to result, in significant economic disruption and have adversely affected our business.

They could continue to adversely impact our business into fiscal 2023 and perhaps beyond.

Significant uncertainty exists concerning the magnitude of the impact and duration of any future COVID-19 outbreaks and their potential impact on the overall economy, both within the U.S and globally.

Accordingly, the magnitude and duration of any demand reductions, production and supply chain disruptions, and related financial impacts on our business cannot be estimated at this time.

The impacts from the COVID-19 pandemic and subsequent supply chain constraints on the Company's business and operations during the second half of fiscal 2020 and continuing through fiscal 2022 negatively affected our revenues, gross profit, income and cash flows.

We continue to monitor and assess the level of future customer demand, the ability of school boards to maintain normal in-person learning in the foreseeable future, the ability of suppliers to resume and/or maintain operations and to provide parts and supplies in sufficient quantities to meet our production needs, the ability of our employees to continue to work, and our ability to maintain continuous production during fiscal 2023 and beyond.

See PART I, Item 1A.

"Risk Factors," of this Report for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.

The Company has also taken actions to control spending and secure adequate liquidity, including headcount rationalization, changes to the minimum required financial covenants resulting from the execution of a fourth amendment to the Credit Agreement in November 2021 and raising $75.0 million of net proceeds through the issuance and sale of an aggregate 4,687,500 shares of common stock at $16.00 per share in a private placement transaction on December 15, 2021.

Further detail and discussion of the Credit Agreement amendment and private placement transaction can be found in this Report in the "Liquidity and Capital Resources" section of this Item 7.

"Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in Note 19, Subsequent Events , to the Company’s consolidated financial statements, respectively.

Even with adequate liquidity, we are evaluating and considering further actions to reduce costs and spending across our organization to be responsive to potential longer-term impacts on our business from the pandemic.

The Company has also taken actions to control spending and secure adequate liquidity, including headcount rationalization, temporary pay reductions and furloughs for certain employees, deferral of certain discretionary spending, changes to the minimum required financial covenants resulting from the execution of several amendments to the Credit Agreement in November 2021, August 2022 and November 2022 and raising $74.8 million of net proceeds through the issuance and sale of an aggregate 4,687,500 shares of common stock at $16.00 per share in a private placement transaction on December 15, 2021.

Further detail and discussion of the Credit Agreement amendments and private placement transaction can be found in this Report in the "Liquidity and Capital Resources" section of this Item 7.

"Management’s Discussion and Analysis of Financial Condition and Results of Operations" and in Note 19, Subsequent Events , to the Company’s consolidated financial statements, as applicable.

Even with adequate liquidity, we are evaluating and considering further actions to continue controlling costs and spending across our organization to be responsive to potential longer-term impacts on our business from the pandemic and/or supply chain disruptions.

Our actions may include reducing hiring activities, limiting discretionary spending, limiting spending on capital investment projects or other steps necessary to preserve adequate liquidity.

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"Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Report.

Impact of Russia’s Invasion of Ukraine on Our Business

On February 24, 2022, Russian military forces launched a large-scale invasion of Ukraine.

While the Company has no assets or customers in either of these countries, this military conflict has had a significant negative impact on the Company’s operations, cash flows and results during fiscal 2022, primarily in an indirect manner since the Company does not sell to customers located in, or source goods directly from, either country.

Specifically, Ukraine has historically been a large exporter of ferroalloy materials used in the manufacture of steel and the disruption in the supply of these minerals resulted in a significant increase in the price of steel from $1,057 per ton the third week of February 2022 to as high as $1,492 per ton the third week of April 2022 before finally decreasing to an average of $1,078 per ton the last two weeks of June and continuing to decline to $791 per ton the last week in September (source:

sheet prices published by the CRU Index every Wednesday that provide price benchmarking in North America for U.S.

Midwest Domestic Hot-Rolled Coil Steel).

While the Company has generally mitigated its direct exposure to steel prices by executing fixed price purchase contracts (generally purchased one quarter in advance) for the majority of the significant amount of steel used in the manufacture of school bus bodies, many suppliers from which the Company purchases components containing steel have increased the price that they charge the Company to acquire such inventory, primarily during the latter half of fiscal 2022.

These inventory cost increases impact gross profit when school buses are sold and cash flows when the related invoices are paid.

Additionally, Russia has historically been a large global exporter of oil and many countries have ceased buying Russian oil in protest of the invasion and to comply with sanctions imposed by the U.S.

and many European countries.

Accordingly, the disruption in the supply of oil has significantly impacted the price of goods refined from oil, such as diesel fuel, which increased from $4.055 per gallon the week ending February 21, 2022 to as high as $5.810 per gallon the week ending June 20, 2022, before decreasing slightly throughout the remainder of our fiscal 2022 to $4.889 per gallon the week ending September 26, 2022 (source:

U.S Energy Information Administration - Weekly U.S.

No 2 Diesel Retail Prices).

These increases have significantly impacted the Company both as a result of the price that suppliers charge the Company to acquire inventory (since diesel fuel impacts their cost of acquiring the inventory used in producing their goods) and the price that the Company pays for freight to deliver the inventory that it acquires.

Finally, both countries have large quantities of other minerals that impact commodity costs, such as rubber and resin, among others, and the disruption caused by the ongoing military conflict has increased the cost and/or decreased the supply of components containing these materials, further impacting an already challenged global supply chain for automotive parts.

Russia’s invasion of Ukraine has resulted, and is likely to continue to result, in significant economic disruption and has adversely affected our business.

Specifically, it has contributed to higher inventory purchase costs, including freight costs, that negatively impacted the gross profit recognized on sales during the latter part of fiscal 2022.

Because peace negotiations do not appear to be productive and because Russia has announced its intention to continue military operations in Ukraine in the immediate term, we currently believe that this matter will continue to adversely impact our business into fiscal 2023 and perhaps beyond.

Significant uncertainty exists concerning the magnitude of the impact and duration of the ongoing military conflict and its impact on the overall economy, both within the U.S.

and globally.

Accordingly, the duration of any production and supply chain disruptions, and related financial impacts, cannot be estimated at this time.

Factors Affecting Our Revenues

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Increases or decreases in the number of school bus riders have a direct impact on school district demand.

Due to the COVID-19 pandemic and evolving protocols for social distancing and public health concerns, the future form of educational delivery remains uncertain, and increased remote learning could reasonably be expected to decrease the number of school bus riders.

Evolving protocols for public health concerns and/or continued technological advancements could shift the future form of educational delivery away from in-person learning on a more permanent basis, with increased remote learning reasonably expected to decrease the number of school bus riders.

• Revenue mix .

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Pricing may or may not be favorable to us, depending upon a number of factors impacting purchasing decisions.

Additionally, in certain cases, prices originally quoted with dealers and school districts may have become less favorable, or more unfavorable, to us given increasing inventory costs between the time the sales order was contractually agreed upon and the bus is built and delivered as a result of ongoing supply chain disruptions and general inflationary pressures.

• Buying patterns of major fleets .

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Sales during the third and fourth fiscal quarters are typically greater than the first and second fiscal quarters due to the desire of municipalities to have any new buses that they order available to them at the beginning of the new school year.

With the COVID-19 pandemic impact on school systems and the uncertainty regarding (i) in-person schooling schedules and duration and (ii) the severity and duration of ongoing supply chain constraints, seasonality has become unpredictable.

With the COVID-19 pandemic impacting the demand for Company products and the impact of the subsequent supply chain constraints hindering the Company's ability to produce and sell buses, seasonality has become unpredictable.

Seasonality and variations from historical seasonality have impacted the comparison of results between fiscal periods.

As discussed previously above, supply chain disruptions developing subsequent to the COVID-19 pandemic and, more recently, Russia's invasion of Ukraine, have significantly increased our inventory purchase costs, including freight costs incurred to expedite receipt of critical components, reflected in cost of goods sold during the second half of fiscal 2021 and continuing throughout fiscal 2022.

In response, the Company announced a number of sales price increases that apply to new sales orders and partially applied to backlog orders that were both intended to mitigate the impact of rising purchase costs on our operations and results.

Most of these price increases were generally not realized in the first half of fiscal 2022 as sales recorded during such quarters related to the backlog of orders that existed prior, and therefore were not subject, to the price increases.

However, they are expected to have a positive impact on sales and gross profit during the remainder of fiscal 2023.

F actors Affecting Our Expenses and Other Items

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Other immaterial amounts not associated with operating expenses may also be included in this balance.

• Equity in net income of non-consolidated affiliate .

• Equity in net income or loss of non-consolidated affiliate .

We include in this line item our 50% share of net income or loss from our investment in Micro Bird, our unconsolidated Canadian joint venture.

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“Adjusted EBITDA,” “Adjusted EBITDA Margin,” and “Free Cash Flow.” Adjusted EBITDA and Free Cash Flow are financial metrics that are utilized by management and the Board of Directors to determine (a) the annual cash bonus payouts, if any, to be made to certain members of management based upon the terms of the Company’s Management Incentive Plan, and (b) whether the performance criteria have been met for the vesting of certain equity awards granted annually to certain members of management based upon the terms of the Company’s Omnibus Equity Incentive Plan.

Additionally, consolidated EBITDA, which is an adjusted EBITDA metric defined by our Amended Credit Agreement (defined subsequently herein) that could differ from Adjusted EBITDA discussed above as the adjustments to the calculations are not uniform, is used to determine the Company's ongoing compliance with several financial covenant requirements, including being utilized in the denominator of the calculation of the TNLR, as and when applicable.

Additionally, consolidated EBITDA, which is an adjusted EBITDA metric defined by our Amended Credit Agreement (defined below) that could differ from Adjusted EBITDA discussed above as the adjustments to the calculations are not uniform, is used to determine the Company's ongoing compliance with several financial covenant requirements, including being utilized in the denominator of the calculation of the TNLR, as and when applicable, which is also utilized in determining the interest rate we pay on borrowings under our Amended Credit Agreement (defined below).

Accordingly, management views these non-GAAP financial metrics as key for the above purposes and as a useful way to evaluate the performance of our operations as discussed further below.

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GAAP financial statements) that represents amortization charges on right-of-use lease assets;

as adjusted for certain non-cash charges or credits that we may record on a recurring basis such as stock-compensation expense and unrealized gains or losses on certain derivative financial instruments;

as adjusted for certain non-cash charges or credits that we may record on a recurring basis such as share-based compensation expense and unrealized gains or losses on certain derivative financial instruments;

net gains or losses on the disposal of assets as well as certain charges such as (i) significant product design changes;

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We manage our business in two operating segments, which are also our reportable segments:

(i) the Bus segment, which involves the design, engineering, manufacture and sales of school buses and extended warranties;

(i) the Bus segment, which involves the design, engineering, manufacture and sale of school buses and extended warranties;

and (ii) the Parts segment, which includes the sale of replacement bus parts.

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Selling, general and administrative expenses 77,246 65,619

Operating profit

$ 6,522 $ 21,994

Operating (loss) profit $ (40,700) $ 6,522

Interest expense (14,675) (9,682)

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Loss on debt modification (632) (598)

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

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

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

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

Loss before income taxes $ (53,051) $ (1,978)

Income tax benefit 11,451 1,191

Equity in net (loss) income of non-consolidated affiliate (4,159) 498

Net loss $ (45,759) $ (289)

Other financial data:

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Adjusted EBITDA Margin

(1.8) % 5.0 %

The following provides the results of operations of Blue Bird's two reportable segments:

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$ 36,546 $ 72,141

Net sales were $684.0 million for fiscal 2021, a decrease of $195.2 million, or 22.2%, compared to $879.2 million for fiscal 2020.

The decrease in net sales is attributed to the COVID-19 pandemic, which caused supply chain constraints that have limited the availability of certain critical components and thus, limited the number of buses the Company could produce and deliver.

Bus sales decreased $197.4 million, or 24.0%, reflecting a decrease in units booked that was partially offset by higher sales prices.

Net sales were $800.6 million for fiscal 2022, an increase of $116.6 million, or 17.1%, compared to $684.0 million for fiscal 2021.

The increase in net sales is primarily due to product and mix changes as well as pricing actions taken by management in response to increased inventory purchase costs.

During the first half of fiscal 2021, the COVID-19 pandemic caused many schools to shut down in-person learning, decreasing the demand for buses and related maintenance and replacement parts.

However, by the third quarter of fiscal 2021, many schools began signaling a return to in-person learning by the beginning of the 2021/2022 school year (i.e., August and September 2021), resulting in a significant increase in the demand for buses and a corresponding increase in our net sales during the second half of fiscal 2021.

Although schools have generally continued to conduct in-person learning and demand for buses and related parts has remained strong as indicated by our sales backlog, significant supply chain disruptions began limiting the availability of certain critical components primarily beginning towards the end of the third quarter of fiscal 2021 and continuing throughout fiscal 2022.

Accordingly, such shortages have limited the number of buses the Company could produce and deliver during this time period.

Bus sales increased $98.3 million, or 15.7%, reflecting a small increase in units booked and a 13.3% increase in average sales price per unit resulting from pricing actions taken by management to partially offset increases in inventory purchase costs as well as product and customer mix change.

In fiscal 2022, 6,822 units were booked compared to 6,679 units booked for fiscal 2021.

The decrease in Bus revenue and volumes reflects the constraints on the Company's ability to produce and deliver buses due to COVID-19 driven shortages of critical components.

The 1.0% increase in unit price for fiscal 2021 compared to fiscal 2020 mainly reflects pricing actions taken by management to partially offset increases in commodity costs, as well as product and customer mix changes.

Parts sales increased $2.2 million, or 3.9%, for fiscal 2021 compared to fiscal 2020, largely due to higher sales volume.

Both fiscal 2020 and 2021 were significantly impacted by lower school bus units in operation due to school closures from the second quarter of fiscal 2020 through the second quarter of fiscal 2021 caused by the COVID-19 pandemic.

However, the last half of fiscal 2021 experienced large increases in sales volume as schools prepared to resume in-person learning, including preparing buses to be fully operational for the first time in over a year.

Parts sales increased $18.3 million, or 31.2%, for fiscal 2022 compared to fiscal 2021.

This increase is primarily attributed to (a) more schools offering in-person learning during the 2021/2022 school year when compared with the 2020/2021 school year, which increased school bus units in operation and thus increased bus repair and maintenance activities and (b) pricing actions taken by management to offset increases in purchased parts costs.

Cost of goods sold .

Total cost of goods sold was $611.9 million for fiscal 2021, a decrease of $171.2 million, or 21.9%, compared to $783.0 million for fiscal 2020.

Total cost of goods sold was $764.1 million for fiscal 2022, an increase of $152.2 million, or 24.9%, compared to $611.9 million for fiscal 2021.

As a percentage of net sales, total cost of goods sold increased from 89.5% to 95.4%.

Bus segment cost of goods sold decreased $171.8 million, or 23.0%, for fiscal 2021 compared to fiscal 2020 due to reduced sales volumes.

The average cost of goods sold per unit for fiscal 2021 was 2.3% higher compared to the average cost of goods sold per unit for fiscal 2020 due to increases in manufacturing costs from several COVID-19 related factors including hourly workforce absenteeism and supply chain disruptions that resulted in higher purchase costs for components and freight, all of which created manufacturing inefficiencies and higher costs.

Bus segment cost of goods sold increased $143.6 million, or 25.0%, for fiscal 2022 compared to fiscal 2021.

The increase was primarily driven by increasing inventory costs as the average cost of goods sold per unit for fiscal 2022 was 22.4% higher compared to fiscal 2021.

This increase was primarily due to increases in manufacturing costs attributable to a) increased raw materials costs resulting from ongoing inflationary pressures, b) supply chain disruptions that resulted in higher purchase costs for components and freight and c) increased manufacturing inefficiencies resulting from the shortage of certain critical components that required more off-line labor to produce buses.

As a result, at October 1, 2022, certain Bus segment inventory had an approximate $8.8 million cumulative cost in excess of net realizable value that was recognized as a loss in fiscal 2022 with no similar activity in fiscal 2021.

The $8.6 million, or 23.2%, increase in parts segment cost of goods sold for fiscal 2022 compared to fiscal 2021 largely aligned with the increase in sales volume noted above, with slight variations due to product and channel mix.

Operating profit .

Operating profit was $6.5 million for fiscal 2021, a decrease of $15.5 million, or 70.3%, compared to $22.0 million for fiscal 2020.

Profitability was negatively impacted by a decrease of $24.1 million in gross profit, as outlined in the revenue and cost of goods sold discussions above.

This decrease was partially offset by a decrease of $8.6 million in selling, general and administrative expenses as we have taken actions to control spending during the pandemic.

Operating (loss) profit .

Operating loss was $40.7 million for fiscal 2022, a decrease of $47.2 million, or 724.0%, compared to $6.5 million of operating profit for fiscal 2021.

Profitability was negatively impacted by a decrease of $35.6 million in gross profit, as outlined in the revenue and cost of goods sold discussions above, as well as an increase of $11.6 million in selling, general and administrative expenses, primarily due to a $7.5 million increase in professional services, largely relating to several cost cutting and operational transformation initiatives, a $1.2 million increase in research and development expense, and a $1.1 million increase in payroll, largely resulting from merit increases for all Company employees that were effective at the beginning of fiscal 2022 and were intended to partially mitigate the impact of increasing inflation.

Additionally, selling, general and administrative expenses during the first half of fiscal 2021 benefited from actions taken by management to reduce labor costs and certain discretionary spending during the early months of the pandemic with similar actions taken to reduce labor costs only during the fourth quarter of fiscal 2022 given the competitiveness of the overall labor market primarily resulting from continuing labor shortages.

Interest expense .

Interest expense was $9.7 million for fiscal 2021, a decrease of $2.6 million, or 21.0%, compared to $12.3 million for fiscal 2020.

The decrease was largely attributable to fluctuations in the fair value of the interest rate collar (a liability balance) recorded in interest expense.

The fiscal 2020 balance included a $2.6 million net increase in the fair value of the interest rate collar, while the fiscal 2021 balance included a $1.6 million decrease in fair value, thus resulting in a net $4.2 million decrease in interest expense.

This decrease was partially offset by increased effective interest rates on outstanding borrowings.

Interest expense was $14.7 million for fiscal 2022, an increase of $5.0 million, or 51.6%, compared to $9.7 million for fiscal 2021.

The increase was primarily attributable to an increase in the stated term loan interest rate from 4.0% at October 2, 2021 to 7.9% at October 1, 2022, as well as increased revolving credit facility borrowings outstanding during fiscal 2022 when compared with fiscal 2021.

Income taxes .

We recorded income tax benefit of $1.2 million for fiscal 2021, compared to income tax expense of $1.5 million for fiscal 2020.

This fluctuation was primarily attributed to lower amounts of taxable income in fiscal 2021 due to the ongoing impacts of COVID-19 on our operations as discussed above.

We recorded income tax benefit of $11.5 million and $1.2 million for fiscal 2022 and fiscal 2021, respectively.

This fluctuation was primarily attributable to an increase in taxable loss in fiscal 2022 due primarily to the ongoing impacts of supply chain constraints on our operations as discussed above.

The effective tax rate for fiscal 2022 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 increase in the effective tax rate to 21.6% was primarily due to the impacts of state taxes on the Federal rate.

This increase was partially offset by an increase in the valuation allowance.

The effective tax rate for fiscal 2021 was 60.2%, which differed from the statutory Federal income tax rate of 21%.

The minor items that lowered the effective tax rate primarily included 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.

There were several items that increased the effective tax rate, 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.

Adjusted EBITDA .

Adjusted EBITDA was $(14.7) million, or (1.8)% of net sales, for fiscal 2022, a decrease of $48.8 million, or 143.0%, compared to $34.1 million, or 5.0% of net sales, for fiscal 2021.

The decrease in Adjusted EBITDA was primarily the result of decreased revenues and gross profit, which was also unfavorably impacted by higher manufacturing costs, due to the COVID-19 pandemic.

Additionally, there were decreases in operational transformation initiatives, interest expense, and depreciation, amortization, and disposals, which were partially offset by an increase in share-based compensation expense.

The following table sets forth a reconciliation of net (loss) income to Adjusted EBITDA for the fiscal years presented:

The decrease in Adjusted EBITDA is primarily the result of a $45.5 million increase in net loss, as a result of the factors discussed above, and a decrease in share-based compensation expense of $2.2 million as the expense recorded in fiscal 2021 was impacted by the retirement of two members of the executive team with no similar activity in fiscal 2022.

The following table sets forth a reconciliation of net loss to Adjusted EBITDA for the fiscal years presented:

(in thousands) 2022 2021

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

Net loss $ (45,759) $ (289)

Interest expense, net (1)

14,973 10,010

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

Income tax benefit (11,451) (1,191)

Depreciation, amortization, and disposals (2)

2 unchanged sentences

Loss on debt modification 632 598

Share-based compensation

Share-based compensation expense 3,690 5,938

Product redesign initiatives

4 unchanged sentences

Adjusted EBITDA Margin (percentage of net sales)

(1) Includes $0.3 million and $0.4 million for fiscal 2021 and 2020, respectively, representing interest expense on operating lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Consolidated Statements of Operations.

(1.8) % 5.0 %

(1) Includes $0.3 million for both fiscal 2022 and 2021, representing interest expense on operating lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Consolidated Statements of Operations.

(2) Includes $1.1 million and $0.8 million for fiscal 2022 and 2021, respectively, representing amortization on right-of-use operating lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Consolidated Statements of Operations.

(3) Primarily costs incurred for third party cleaning services and personal protective equipment for our employees in response to the COVID-19 pandemic.

Consolidated Results of Operations for the fiscal years ended October 3, 2020 and September 28, 2019:

Consolidated Results of Operations for the fiscal years ended October 2, 2021 and October 3, 2020:

(in thousands) 2021 2020

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Interest income 4 11

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

Income before income taxes

$ 10,491 $ 29,631

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

Other income, net 1,776 738

Loss on debt extinguishment

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

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

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

Net income $ 12,185 $ 24,300

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

Other financial data:

12 unchanged sentences

$ 72,141 $ 96,200

Net sales were $879.2 million for fiscal 2020, a decrease of $139.7 million, or 13.7%, compared to $1.019 billion for fiscal 2019.

The decrease in net sales was attributed to the COVID-19 pandemic which caused the unplanned and abrupt increase in remote learning arrangements and uncertainty in how school districts would administer schooling, resulting in decreased demand for school buses.

Bus sales decreased $129.6 million, or 13.6%, reflecting a decrease in units booked that was partially offset by slightly higher sales prices.

In fiscal 2020, 8,878 units were booked compared to 11,017 units booked in fiscal 2019.

The decrease in Bus revenue and volumes reflect the timing of orders being significantly impacted by COVID-19.

The 7.2% increase in unit price for fiscal 2020 compared to fiscal 2019 mainly reflects the full-year impact of pricing actions taken in fiscal 2019 to partially offset commodity costs, as well as product and customer mix changes.

Parts sales decreased $10.0 million, or 15.0%, for fiscal 2020 compared to fiscal 2019, as we had lower sales volume, mainly from lower school bus units in operation due to school closures caused by the COVID-19 pandemic.

Stay at home orders and school closures reduced bus repair and maintenance activities due to lower bus use.

Net sales were $684.0 million for fiscal 2021, a decrease of $195.2 million, or 22.2%, compared to $879.2 million for fiscal 2020.

The decrease in net sales is attributed to supply chain constraints that limited the availability of certain critical components and thus, limited the number of buses the Company could produce and deliver.

Bus sales decreased $197.4 million, or 24.0%, reflecting a decrease in units booked that was partially offset by higher sales prices.

In fiscal 2021, 6,679 units were booked compared to 8,878 units booked for fiscal 2020.

The decrease in Bus revenue and volumes reflects the constraints on the Company's ability to produce and deliver buses due to shortages of critical components.

Parts sales increased $2.2 million, or 3.9%, for fiscal 2021 compared to fiscal 2020, largely due to higher sales volume.

Cost of goods sold .

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Bus segment cost of goods sold decreased $171.8 million, or 23.0%, for fiscal 2021 compared to fiscal 2020 due to reduced sales volumes.

The average cost of goods sold per unit for fiscal 2020 was 10.0% higher compared to the average cost of goods sold per unit for fiscal 2019 due to increases in manufacturing costs from several COVID-19 related factors including hourly workforce absenteeism and supply chain disruptions, each of which created manufacturing inefficiencies and higher costs.

The $6.7 million, or 15.5%, decrease in parts segment cost of goods sold for fiscal 2020 compared to fiscal 2019 aligned with the decrease in sales volume noted above.

The $0.6 million, or 1.6%, increase in parts segment cost of goods sold for fiscal 2021 compared to fiscal 2020 largely aligned with the increase in sales volume noted above, with slight variations due to product and channel mix.

Operating profit .

Operating profit was $6.5 million for fiscal 2021, a decrease of $15.5 million, or 70.3%, compared to $22.0 million for fiscal 2020.

Profitability was negatively impacted by a decrease of $37.3 million in gross profit, which was partially offset by a decrease of $15.4 million in selling, general and administrative expenses due in large part to several significant product development initiatives during fiscal 2019 as well as cost control measures implemented in fiscal 2020, as a response to the COVID-19 pandemic, including headcount reductions and lower travel-related expense.

Profitability was negatively impacted by a decrease of $24.1 million in gross profit, as outlined in the revenue and cost of goods sold discussions above.

This decrease was partially offset by a decrease of $8.6 million in selling, general and administrative expenses as we took actions to control spending during the pandemic.

Interest expense .

Interest expense was $9.7 million for fiscal 2021, a decrease of $2.6 million, or 21.0%, compared to $12.3 million for fiscal 2020.

The decrease was primarily attributed to lower interest rates and a lower average borrowing level on the term debt.

The decrease was largely attributable to fluctuations in the fair value of the interest rate collar (a liability balance) recorded in interest expense.

This decrease was partially offset by increased effective interest rates on outstanding borrowings.

Income taxes .

We recorded income tax expense of $1.5 million for fiscal 2020, compared to income tax expense of $7.6 million for fiscal 2019.

The reduction in expense was primarily attributed to lower amounts of taxable income in fiscal 2020 due to the impacts of COVID-19 on our operations.

We recorded income tax benefit of $1.2 million for fiscal 2021, compared to income tax expense of $1.5 million for fiscal 2020.

This fluctuation was primarily attributed to lower amounts of taxable income in fiscal 2021 due to the ongoing impacts of COVID-19 on our operations as discussed above.

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

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.

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 was 14.5%, which differed from the statutory Federal income tax rate of 21%.

The difference was mainly due to the unfavorable impact of valuation allowances, share-based and other compensation limitations, and state taxes, which included the application of tax credits claimed as offsets against our payroll tax liabilities.

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

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

The minor items that lowered the effective tax rate primarily included 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.

Adjusted EBITDA .

1 unchanged sentence

The decrease in Adjusted EBITDA was primarily the result of decreased revenues and gross profit, which was also unfavorably impacted by higher manufacturing costs, due to the COVID-19 pandemic.

The decrease was partially offset by lower selling, general and administrative expenses.

The following table sets forth a reconciliation of net income to Adjusted EBITDA for the fiscal years presented:

The following table sets forth a reconciliation of net (loss) income to Adjusted EBITDA for the fiscal years presented:

(in thousands) 2021 2020

$ 12,185 $ 24,300

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

Interest expense, net (1)

10,010 12,616

Income tax expense 1,519 7,573

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

Depreciation, amortization, and disposals (2)

1 unchanged sentence

Operational transformation initiatives

Foreign currency hedges

Share-based compensation

Loss on debt modification 598 —

Share-based compensation expense 5,938 4,141

Product redesign initiatives

4 unchanged sentences

Adjusted EBITDA Margin (percentage of net sales)

(1) Includes $0.4 million for both fiscal 2020 and 2019, representing interest expense on operating lease liabilities, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Consolidated Statements of Operations.

(2) Includes $0.7 million for both fiscal 2020 and 2019, representing amortization on right-of-use operating lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Consolidated Statements of Operations.

(2) Includes $0.8 million and $0.7 million for fiscal 2021 and 2020, respectively, representing amortization on right-of-use operating lease assets, which are a component of lease expense and presented as a single operating expense in selling, general and administrative expenses on our Consolidated Statements of Operations.

(3) Primarily costs incurred for third party cleaning services and personal protective equipment for our employees in response to the COVID-19 pandemic.

16 unchanged sentences

limitations on liens, dispositions of assets, consolidations and mergers, loans and investments, indebtedness, transactions with affiliates (including management fees and compensation), dividends, distributions and other restricted payments, change in fiscal year, fundamental changes, amendments to and subordinated indebtedness, restrictive agreements, sale and leaseback transactions and certain permitted acquisitions.

Dividends, distributions, and other restricted payments are permitted in certain circumstances under the Credit Agreement, generally based upon our levels of excess Free Cash Flow and unrestricted cash (as defined in the Credit Agreement) and maintenance of specified TNLRs.

Dividends, distributions, and other restricted payments were permitted in certain circumstances under the Credit Agreement, generally based upon our levels of excess Free Cash Flow and unrestricted cash (as defined in the Credit Agreement) and maintenance of specified TNLRs.

First Amended Credit Agreement

On September 13, 2018, the Company executed an amendment to the Credit Agreement (the "First Amended Credit Agreement"), by and among the Company, the Borrower, and Bank of Montreal, acting as administrative agent together with other lenders.

The First Amended Credit Agreement provided for an aggregate lender commitment of $50.0 million in additional term loan borrowings (the

“Incremental Term Loan”) that was intended to finance a portion of a tender offer up to $50.0 million, which transaction closed in October 2018.

The First Amended Credit Agreement provided for an aggregate lender commitment of $50.0 million in additional term loan borrowings (the “Incremental Term Loan”) that was intended to finance a portion of a tender offer up to $50.0 million, which transaction closed in October 2018.

After giving effect to the First Amended Credit Agreement, the initial $160.0 million Term Loan Facility, with a balance of $146.2 million at September 29, 2018, increased $50.0 million, and the initial $75.0 million Revolving Credit Facility increased $25.0 million.

The amended Credit Facilities each mature on September 13, 2023, the fifth anniversary of the effective date of the First Amended Credit Agreement.

After giving effect to the First Amended Credit Agreement, the interest payable with respect to the Term Loan Facility was (i) from the first amendment effective date until the first quarter ended on or about September 30, 2018, LIBOR plus 2.25% and (ii) commencing with the fiscal quarter ended on or about September 30, 2018 and thereafter, dependent on the TNLR of the Company, an election of either base rate or LIBOR pursuant to the table below.

Dollar London Interbank Offering Rate ("LIBOR") plus 2.25% and (ii) commencing with the fiscal quarter ended on or about September 30, 2018 and thereafter, dependent on the TNLR of the Company, an election of either base rate or LIBOR pursuant to the table below.

The Company's TNLR is defined as the ratio of (a) consolidated net debt to (b) 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.

24 unchanged sentences

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

The Third Amended Credit Agreement, among other things, provided 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;

The Third Amended Credit Agreement, among other things, provided 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 was 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 elected to terminate the Limited Availability Period;

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

1 unchanged sentence

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 applied 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, remained unchanged.

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

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

During the Limited Availability Period, the Third Amended Credit Agreement required that the 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.

During the Limited Availability Period, the Third Amended Credit Agreement required that the Borrower prepay existing revolving loans and, if undrawn and unreimbursed letters of credit exceeded $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 could 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 implemented 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 Third Amended Credit Agreement sets forth additional monthly reporting requirements, and required subordination agreements and intercreditor arrangements for certain other indebtedness and liens subject to administrative agent approval.

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

Fourth Amended 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" and collectively, the "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 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):

Amended Credit Agreement, among other things, provided 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 elected 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 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 was not applicable, although it continued to impact the interest rate that was charged on outstanding borrowings as discussed below.

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

Period Minimum Consolidated EBITDA

3 unchanged sentences

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 3.50x.

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):

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

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

Period Minimum Liquidity

3 unchanged sentences

Thereafter $20.0

Additionally, a new financial performance covenant was added to the 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 $50.0 million during the Amended Limited Availability Period:

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 was triggered only if the Company’s liquidity for the most-recently ended fiscal month was less than $50.0 million during the Amended Limited Availability Period:

Period Minimum Units Manufactured

10 unchanged sentences

Three month period ending October 1, 2022 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 Amended Credit Agreement, which is based on the TNLR, is determined in accordance with the amended pricing matrix set forth below:

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

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

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

Level Total Net Leverage Ratio ABR Loans Eurodollar Loans

7 unchanged sentences

VIII Greater than 5.00x 4.25% 5.25%

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

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

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

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

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

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

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

During the Amended Limited Availability Period (notwithstanding the pricing grid set forth above), the applicable rate was (a) solely to the extent that the aggregate revolving exposures exceeded $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 were 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 was required to prepay the outstanding revolving loans (with no permanent reduction in the revolving commitments) in an amount equal to the lesser of (a) 100% of the net proceeds from such Junior Capital and (b) the aggregate of revolving exposures then outstanding.

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

Following the issuance and sale of $75.0 million of common stock in a private placement transaction on December 15, 2021 (see the section entitled "Short-Term and Long-Term Liquidity Requirements" below for further details), the Availability Cap was permanently reduced to $100.0 million.

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

Fifth Amended Credit Agreement

On September 2, 2022, the Company executed a fifth amendment and limited waiver to the Credit Agreement, First Amended Credit Agreement, Second Amended Credit Agreement, Third Amended Credit Agreement and Fourth Amended Credit Agreement ("Fifth Amended Credit Agreement").

The Fifth Amended Credit Agreement, among other things, resulted in Borrower and administrative agent jointly electing an early opt-in to change one of the market interest rate indices that Borrower can elect to accrue interest on outstanding borrowings from LIBOR, which is being discontinued subsequent to June 30, 2023, to the Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York (“SOFR”).

Such change will become effective at the end of the applicable interest period for any LIBOR borrowings outstanding on the fifth amendment effective date.

The Fifth Amended Credit Agreement also provided covenant relief, through December 31, 2022, via a waiver of the $20.0 million minimum consolidated EBITDA covenant calculated on a four quarter trailing basis for the fiscal quarter ended October 1, 2022 and the 2,306 minimum Units Covenant calculated on a three fiscal month trailing basis for the fiscal month ended October 1, 2022.

The Company requested such covenant relief given the supply chain disruptions that continued to challenge the Company throughout fiscal 2022.

Finally, the Fifth Amended Credit Agreement requires the Company to provide a rolling thirteen week cash flow forecast to the Administrative Agent, on a monthly basis, beginning with the fiscal month ended August 27, 2022 and ending with the fiscal month ending April 1, 2023.

Sixth Amended Credit Agreement

On November 21, 2022, the Company executed a sixth amendment to the Credit Agreement, First Amended Credit Agreement, Second Amended Credit Agreement, Third Amended Credit Agreement, Fourth Amended Credit Agreement and Fifth Amended Credit Agreement ("Sixth Amended Credit Agreement" and collectively, the "Amended Credit Agreement").

The Sixth Amended Credit Agreement, among other things, extends the maturity date for both the Term Loan Facility and Revolving Credit Facility from September 13, 2023 to December 31, 2024.

The total Revolving Credit Facility commitment is reduced to an aggregate principal

amount of $90.0 million, of which $80.0 million is available for Borrower to draw, with the remaining $10.0 million subject to written approval from the lenders, which, once obtained, will be irrevocable.

There was no change in the Term Loan Facility commitment;

however, the Sixth Amended Credit Agreement requires principal repayments approximating $5.0 million on a quarterly basis through September 30, 2024, with the remaining balance due upon maturity.

There were $151.6 million of term loan borrowings outstanding on the sixth amendment effective date.

The Sixth Amended Credit Agreement also provides for temporary amendments to certain financial performance covenants during the Amended Limited Availability Period, which will terminate on the date on which the Company’s TNLR for the two fiscal quarters most recently ended is each less than 4.00x and no default or event of default has occurred and is continuing.

However, the Amended Limited Available Period can re-occur upon a default or event of default or if the TNLR for the immediately preceding fiscal quarter is equal to or greater than 4.00x.

The minimum consolidated EBITDA that the Company is required to maintain during the Amended Limited Availability Period is updated as set forth in the table below (in millions):

Period Minimum Consolidated EBITDA

Fiscal quarter ending July 1, 2023 $50.0

Fiscal quarter ending September 30, 2023 $60.0

For purposes of complying with the above minimum consolidated EBITDA covenant, the Company’s consolidated EBITDA for the (i) two fiscal quarter period ending July 1, 2023 is multiplied by 2 and (ii) three fiscal quarter period ending September 30, 2023 is multiplied by 4/3

The minimum liquidity (in the form of undrawn availability under the Revolving Credit Facility and unrestricted cash and cash equivalents) that the Company is required to maintain at the end of each fiscal month during the Amended Limited Availability Period is amended as set forth in the table below (in millions):

Period Minimum Liquidity

Sixth amendment effective date through December 30, 2023 $30.0

Additionally, the Units Covenant is amended for Units to be calculated at the end of each applicable fiscal month on a cumulative basis, with the minimum cumulative threshold that the Company is required to maintain during the Amended Limited Availability Period amended as set forth in the table below.

The Units Covenant is triggered only if the Company’s liquidity for the most-recently ended fiscal month is less than $50.0 million during the Amended Limited Availability Period:

Period Minimum Units Manufactured

Period from October 2, 2022 and ending October 29, 2022 450

Period from October 2, 2022 and ending November 26, 2022 900

Period from October 2, 2022 and ending December 31, 2022 1,400

Period from October 2, 2022 and ending January 28, 2023 1,900

Period from October 2, 2022 and ending February 25, 2023 2,400

Period from October 2, 2022 and ending April 1, 2023 3,000

The Company is not required to comply with a maximum TNLR financial maintenance covenant for any fiscal quarters from the sixth amendment effective date through September 30, 2023, with the maximum threshold amended thereafter as follows :

Period Maximum Total

Net Leverage Ratio

Fiscal Quarter ending December 30, 2023 through the fiscal quarter ending March 30, 2024 4.00:1.00

Fiscal quarter ending June 29, 2024 and thereafter 3.50:1.00

The pricing grid in the Amended Credit Agreement, which is based on the TNLR, is applicable to both term loan and revolving borrowings and is determined in accordance with the amended pricing matrix set forth below:

Level Total Net Leverage Ratio ABR Loans SOFR 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 4.00x 2.00% 3.00%

VII Greater than or equal to 4.00x and less than 4.50x 2.75% 3.75%

VIII Greater than or equal to 4.50x and less than 5.00x 3.75% 4.75%

IX Greater than 5.00x 4.75% 5.75%

Further, the pricing margins for levels VII though IX above are each increased (x) by 0.25% if the aggregate revolving borrowings are equal to or greater than $50.0 million and less than or equal to $80.0 million and (y) by 0.50% if the aggregate revolving borrowings are greater than $80.0 million.

On the sixth amendment effective date, the interest rate was set at SOFR plus 5.75% and will be adjusted, as applicable, for the fiscal quarter ending December 31, 2022 and subsequently in accordance with the amended pricing grid set forth above.

Finally, the Company is required to deliver to the administrative agent, on a quarterly basis, a projected consolidated balance sheet and consolidated statements of projected operations and cash flows for the next four fiscal quarter period.

Short-Term and Long-Term Liquidity Requirements

Our ability to make principal and interest payments on borrowings under our Credit Facilities and our ability to fund planned capital expenditures will depend on our ability to generate cash in the future, which, to a certain extent, is subject to general economic, financial, competitive, regulatory and other conditions.

The continuing adverse impacts from the COVID-19 pandemic materially impacted our fiscal 2021 results, causing lower customer orders for both buses and parts, significant supply chain disruptions, and higher rates of absenteeism among our hourly production workforce.

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

The adverse impacts from ongoing supply chain disruptions, which were further exacerbated by Russia's invasion of Ukraine in February 2022, materially impacted our fiscal 2022 results, by a) constraining our ability to produce buses to fulfill sales orders and b) increasing our manufacturing costs as a result of i) higher purchase costs for components and freight and ii) increased manufacturing inefficiencies due to the shortage of certain critical components that required more off-line labor to produce buses.

The development and fluidity of ongoing or future supply chain constraints preclude any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity.

See PART I, Item 1A.

"Risk Factors," of this Report for a discussion of the material risks we believe we face particularly related to the COVID-19 pandemic.

The pandemic could cause a severe contraction in our profits and/or liquidity which could lead to issues complying with our Amended Credit Agreement covenants.

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, TNLR, defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA.

"Risk Factors," of this Report for a discussion of the material risks we believe we face particularly related to any future COVID-19 outbreaks and/or supply chain constraints.

Also see "Impacts of COVID-19 and Subsequent Supply Chain Constraints on our Business" and "Impact of Russia's Invasion of Ukraine on Our Business" contained in this Item 7.

for further discussion.

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 our Amended Credit Agreement covenants.

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, TNLR, defined as the ratio of (a) consolidated net debt to (b) consolidated EBITDA, at the end of each fiscal quarter.

If we are not able to comply with such covenants, we may need to seek additional covenant relief or even refinance the debt to a "covenant light" or "no covenant" structure.

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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.

Under the revised terms of the Sixth Amendment to the Credit Agreement, $19.8 million in principal payments will be due in both fiscal 2023 and fiscal 2024, while the remaining $112.0 million will be due in fiscal 2025.

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

Our leases have remaining lease terms ranging from 1.2 years to 5.2 years with the option to extend leases for up to 0.3 years.

Finance leases run through fiscal 2025 and have total payments of approximately $2.3 million, approximately $0.6 million of which is due in fiscal 2023.

Operating leases

have remaining terms up to 5.2 years and total payments of approximately $7.4 million, approximately $2.4 million of which is due in fiscal 2023.

In the ordinary course of business, the Company enters into short-term contractual purchase orders for manufacturing inventory and capital assets.

At October 1, 2022, total purchase commitments were $63.6 million, of which all is expected to be paid in fiscal 2023.

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.

To increase our liquidity in future periods, we could pursue raising additional capital via an equity or debt offering as we filed a Registration Statement on Form S-3 with the SEC in November 2021.

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 Credit Agreement, which increased the available borrowing capacity of the Revolving Credit Facility 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.

To increase our liquidity in future periods, we could pursue raising additional capital via an equity or debt offering utilizing a currently effective "shelf" registration statement.

However, we cannot assure our investors that we would be successful in raising this additional capital, which could also lead to increased expense and larger up-front fees when compared with our historical financial statements.

Historically, our business has been highly seasonal with school districts buying their new school buses so that they will be available for use on the first day of the school year, typically in mid-August to early September.

Historically, our business has been highly seasonal with school districts buying their new school buses so that they would be available for use on the first day of the school year, typically in mid-August to early September.

This has resulted in our third and fourth fiscal quarters representing our two busiest quarters from a sales and production perspective, the latter ending on the Saturday closest to September 30.

Our quarterly results of operations, cash flows, and liquidity have been and are likely to be impacted by the seasonal patterns.

Our quarterly results of operations, cash flows, and liquidity have historically been, and are likely to be in future periods, impacted by seasonal patterns.

Working capital has historically been a significant use of cash during the first fiscal quarter due to planned shutdowns and a significant source of cash generation in the fourth fiscal quarter.

With the COVID-19 pandemic and subsequent supply chain constraints, seasonality and working capital trends have become unpredictable.

Seasonality and variations from historical seasonality have impacted the comparison of working capital and liquidity results between fiscal periods.

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Total cash (used in) provided by operating activities

Cash flows used in operating activities totaled $24.4 million for fiscal 2022 and $54.2 million for fiscal 2021.

The primary drivers of the $29.8 million decrease were the following:

• A year over year increase of $45.5 million in net loss.

• The effect of net changes in operating assets and liabilities positively impacted fiscal 2022 operating cash flows by $69.0 million compared to fiscal 2021.

The primary drivers in this category were favorable changes in inventory, other assets, accounts payables, and accrued expenses of $42.2 million, $2.3 million, $21.0 million, and $3.8 million respectively.

These favorable changes were partially offset by an unfavorable change in accounts receivable of $0.2 million.

At the end of fiscal 2022, inflationary pressures and supply chain disruptions significantly increased our purchase costs for components and freight, which resulted in a significant increase in the accounts payable balance when compared with the end fiscal 2021 (a net source of cash).

However, we became more efficient at managing supply chain disruptions, and thus building and selling buses, during the latter months of fiscal 2022 when compared with the same months in fiscal 2021.

These efficiencies resulted in us consuming more inventory in production, which resulted in a significant, but smaller, increase in the inventory balance at the end of fiscal 2022 when compared with fiscal 2021 (a net source of cash).

• The impact of non-cash items (net source of cash) was $6.3 million lower in fiscal 2022 compared to fiscal 2021.

Non-cash items impact net income or loss but do not have direct cash flows associated with them.

The significant differences relate to the impact of a $8.8 million lower of cost or net realizable value loss, a $2.2 million decrease in share-based compensation expense, and a $10.1 million increase in deferred tax benefit, in fiscal 2022 compared to fiscal 2021.

These decreases were partially offset by a $4.7 million increase in equity in net loss of non-consolidated affiliate, $1.9 million decrease in amortization of deferred actuarial pension losses, $1.4 million increase in fixed assets impairment, $0.6 million increase in depreciation and amortization expense, $0.6 million increase in non-cash interest expense, and $0.7 million decrease in gain on disposal of fixed assets, in fiscal 2022 compared to fiscal 2021.

Cash flows used in operating activities totaled $54.2 million for fiscal 2021, as compared with $3.5 million of cash flows provided by operating activities for fiscal 2020.

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The significant differences relate to the impact of higher amounts of share-based compensation of $1.8 million and lower equity in net income of non-consolidated affiliate of $2.7 million in fiscal 2021 compared to fiscal 2020.

These changes were partially offset by decreases in depreciation and amortization expense of $1.0 million, non-cash interest of $0.9 million, and deferred taxes of $1.0 million in fiscal 2021 compared to fiscal 2020.

Cash flows provided by operating activities totaled $3.5 million and $55.7 million for fiscal 2020 and fiscal 2019, respectively.

The primary drivers of the $52.2 million decrease were the following:

• A year over year reduction of $12.1 million in net income.

• The effect of net changes in operating assets and liabilities negatively impacted fiscal 2020 operating cash flow by $35.0 million compared to fiscal 2019.

The primary drivers in this category were the unfavorable changes in accounts payable and accrued expenses of $75.7 million as well as accounts receivable of $10.6 million, which were partially offset by improvements in inventory level changes of $43.8 million and other assets of $9.7 million.

• The impact of non-cash items (net source of cash) was $5.1 million higher in fiscal 2019 compared to fiscal 2020.

Non-cash items impact net income or loss but do not have direct cash flows associated with them.

The significant differences relate to the impact of higher amounts of deferred taxes of $6.6 million, share-based compensation of $0.1 million, and pension amortization expense of $1.0 million in fiscal 2019 compared to fiscal 2020.

These changes were partially offset by an increase in depreciation and amortization expense in fiscal 2020 of $4.0 million.

These changes were partially offset by decreases in depreciation and amortization expense of $1.0 million, non-cash interest of $0.9 million, and deferred income tax expense of $1.0 million in fiscal 2021 compared to fiscal 2020.

Total cash used in investing activities

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Cash flows used in investing activities totaled $11.3 million and $18.8 million for fiscal 2021 and fiscal 2020, respectively.

The $16.7 million decrease in cash used was primarily due to decreased spending on manufacturing assets associated with our paint facility in fiscal 2020 when compared to fiscal 2019.

The $7.5 million decrease in cash used was primarily due to decreased spending on fixed assets in fiscal 2021 as compared to fiscal 2020.

Total cash provided by (used in) financing activities

Cash provided by financing activities totaled $29.7 million for fiscal 2022 and $32.8 million for fiscal 2021.

In fiscal 2022, the private placement sale of our common stock provided $74.8 million of net cash proceeds, with no similar activity in fiscal 2021.

This source of cash was offset by a $70.0 million decrease in net revolving credit facility borrowings, a $5.0 million increase in term loan repayments, a $1.2 million increase in cash paid for the repurchase of shares of our common stock in connection with employee stock award exercises, a $1.6 million decrease in cash received for employee stock option exercises, and a $0.3 million increase in cash paid for debt costs, in fiscal 2022 compared to fiscal 2021.

Cash provided by financing activities totaled $32.8 million for fiscal 2021, as compared with $11.1 million of cash used in financing activities for fiscal 2020.

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This source of cash was partially offset by increased cash paid for debt costs of $1.5 million in fiscal 2021 as compared to fiscal 2020.

Cash used in financing activities totaled $11.1 million and $9.5 million for fiscal 2020 and fiscal 2019, respectively.

In fiscal 2020 we used more cash compared to the prior year on finance lease payments totaling $0.8 million, debt issuance costs totaling $0.9 million, and payments of employee taxes for share-based compensation activity totaling $2.9 million.

These increased cash outflows were partially offset by approximately $2.7 million more in cash received for warrant exercises in fiscal 2020 when compared with fiscal 2019.

All warrants have expired or been exercised so this component of cash flows from financing activities is not expected to repeat in future years.

Free cash flow

Management believes the non-GAAP measurement of Free Cash Flow, defined as net cash used in or provided by operating activities less cash paid for fixed assets and acquired intangible assets, fairly represents the Company’s ability to generate surplus cash that could fund activities not in the ordinary course of business.

could fund activities not in the ordinary course of business.

See “Key Measures We Use to Evaluate Our Performance” for further discussion.

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$ (30,890) $ (66,453) $ (15,509)

Free Cash Flow for fiscal 2021 was $50.9 million lower than Free Cash Flow for fiscal 2020, primarily due to a $57.7 million decrease in cash provided by operating activities as discussed above.

This decrease was partially offset by a reduction of $6.8 million in cash paid for fixed assets in fiscal 2021 as compared to fiscal 2020 as we limited capital expenditures in fiscal 2021 to mitigate the ongoing impact of the COVID-19 pandemic on our operations, financial results and cash flows.

Free Cash Flow for fiscal 2022 was $35.6 million higher than for fiscal 2021 due to a $29.8 million decrease in cash used in operating activities as discussed above and a reduction of $5.8 million in cash paid for fixed assets in fiscal 2022 compared to fiscal 2021 as we limited capital expenditures in fiscal 2022 to further mitigate the ongoing impact of supply chain constraints on our operations, financial results and cash flows.

Free Cash Flow for fiscal 2021 was $50.9 million lower than Free Cash Flow for fiscal 2020, primarily due to a $57.7 million decrease in cash provided by operating activities as discussed above.

This decrease was partially offset by a reduction of $16.5 million in cash paid for fixed assets as we limited capital expenditures in fiscal 2020 and had significant capital expenditures related to our paint facility in fiscal 2019 that did not recur.

This decrease was partially offset by a reduction of $6.8 million in cash paid for fixed assets in fiscal 2021 as compared to fiscal 2020 as we limited capital expenditures in fiscal 2021 to mitigate the ongoing impact of the COVID-19 pandemic and supply chain constraints on our operations, financial results and cash flows.

Off-Balance Sheet arrangements

We had outstanding letters of credit totaling $6.3 million at October 1, 2022, the majority of which secure our self-insured workers compensation program, the collateral for which is regulated by the State of Georgia.

We had a $3.0 million guarantee outstanding at October 2, 2021 which relates to a guarantee of indebtedness for a term loan obtained by one of our dealers 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.

Critical Accounting Policies and Estimates

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

Future events and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting

estimates require the exercise of judgment.

Future events 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, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and may employ outside experts to assist in the Company’s evaluations.

Management has discussed the development, selection, and disclosure of accounting estimates with the Audit Committee of our Board of Directors.

Actual results could differ from the estimates that the Company has used.

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The cash flow forecasts are based on approved strategic operating plans.

During the fourth quarter of each fiscal year presented, we performed our annual impairment assessment of goodwill which did not indicate that an impairment existed.

During the fourth quarter of each fiscal year presented, we performed our annual impairment assessment of goodwill that did not indicate that an impairment existed.

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.

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The fair value of our trade name is derived by using the relief from royalty method, which discounts the estimated cash savings we realize by owning the name instead of otherwise having to license or lease it.

During the fourth quarter of each fiscal year presented, we performed our annual impairment assessment of our trade name which did not indicate that an impairment existed.

During the fourth quarter of each fiscal year presented, we performed our annual impairment assessment of our trade name that did not indicate that an impairment existed.

Our intangible assets with definite useful lives include customer relationships and engineering designs, which are amortized over their estimated useful lives of 7 or 20 years using the straight-line method.

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No impairments have been recorded.

The recorded balances for goodwill were $15.1 million and $3.7 million for the Bus and Parts segments, respectively, at both October 1, 2022 and October 2, 2021.

The recorded balances for intangible assets were $47.4 million and $49.4 million at October 1, 2022 and October 2, 2021, respectively.

We have pension benefit costs and obligations, which are developed from actuarial valuations.

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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.

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 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 pension benefit obligation.

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For example, at October 1, 2022, a one-half percent increase in the discount rate would reduce the projected benefit obligation of our pension plans by approximately $5.8 million, while a one-half percent decrease in the discount rate would increase the projected benefit obligation of our pension plans by approximately $6.3 million.

The projected benefit obligation for the pension plan was $122.6 million and $160.1 million at October 1, 2022 and October 2, 2021, respectively.

Product Warranty Costs

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Accordingly, while management believes that this methodology provides an accurate reserve estimate, actual claims incurred could differ from the original estimates, requiring future adjustments.

At October 1, 2022 and October 2, 2021, accrued product warranty costs totaled approximately $16.0 million and $18.6 million, respectively.

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

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The Company 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.

At October 1, 2022 and October 2, 2021, deferred tax liabilities totaled approximately $22.0 million and $23.3 million, respectively, while deferred tax assets totaled approximately $32.9 million and $24.1 million, respectively.

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.

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

At October 1, 2022 and October 2, 2021, the liability for uncertain tax positions totaled approximately $0.1 million and $0.4 million, respectively

Recent Accounting Pronouncements

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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 7. Management’s Discussion and Analysis