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Item 8. Financial Statements and Supplementary Data

2022-12-12 compared with 2021-12-15 · 247 added, 197 removed, 892 unchanged (33% of the section changed)

5 unchanged sentences

Opinion on the Consolidated Financial Statements

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

We have audited the accompanying consolidated balance sheets of Blue Bird Corporation (the “Company”) and subsidiaries as of October 1, 2022 and October 2, 2021, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended October 1, 2022, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at October 1, 2022 and October 2, 2021, and the results of its operations and its cash flows for each of the three years in the period ended October 1, 2022 , in conformity with accounting principles generally accepted in the United States of America.

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

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

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

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

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

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

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

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

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 1, 2022, based on the COSO criteria .

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

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of October 1, 2022 and October 2, 2021, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended October 1, 2022, and the related notes and schedule and our report dated December 12, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control over Financial Reporting”.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

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Total assets $ 366,126 $ 356,020

Liabilities and Stockholders' Deficit

Liabilities and Stockholders' Equity (Deficit)

Current liabilities

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Guarantees, commitments and contingencies (Note 10)

Stockholders' deficit

Stockholders' equity (deficit)

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, 0 issued with liquidation preference of $ 0 at October 1, 2022 and October 2, 2021

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( 50,282 ) ( 50,282 )

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

Total liabilities and stockholders' deficit $ 356,020 $ 317,415

Total stockholders' equity (deficit) $ 1,382 $ ( 32,656 )

Total liabilities and stockholders' equity (deficit) $ 366,126 $ 356,020

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

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Selling, general and administrative expenses 77,246 65,619 74,206

Operating profit $ 6,522 $ 21,994 $ 43,832

Operating (loss) profit $ ( 40,700 ) $ 6,522 $ 21,994

Interest expense ( 14,675 ) ( 9,682 ) ( 12,252 )

Interest income 9 4 11

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

Other income, net 2,947 1,776 738

Loss on debt modification ( 632 ) ( 598 ) —

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Income tax benefit (expense) 11,451 1,191 ( 1,519 )

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

Equity in net (loss) income of non-consolidated affiliate ( 4,159 ) 498 3,213

Net (loss) income $ ( 45,759 ) $ ( 289 ) $ 12,185

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BLUE BIRD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Fiscal Years Ended

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Total other comprehensive income (loss), net of tax $ 2,864 $ 13,603 $ ( 2,243 )

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

Comprehensive (loss) income $ ( 42,895 ) $ 13,314 $ 9,942

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

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

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

Depreciation and amortization expense 14,050 13,446 14,400

Non-cash interest expense 3,400 2,754 3,651

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

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

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

Deferred taxes ( 925 ) 29 6,632

Share-based compensation expense 3,690 5,938 4,141

Equity in net loss (income) of non-consolidated affiliate 4,159 ( 498 ) ( 3,213 )

Loss (gain) on disposal of fixed assets 15 ( 679 ) ( 76 )

Impairment of fixed assets 1,354 — —

Lower of cost or net realizable value loss 8,752 — —

Deferred income tax (benefit) expense ( 11,071 ) ( 925 ) 29

Amortization of deferred actuarial pension losses 3,768 1,861 1,720

Loss on debt modification 632 598 —

Foreign currency hedges — — 109

Changes in assets and liabilities:

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Accrued expenses, pension and other liabilities ( 15,325 ) ( 19,090 ) ( 19,410 )

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

Total adjustments $ 21,322 $ ( 53,952 ) $ ( 8,726 )

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Cash flows from financing activities

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

Borrowings under the term loan — — 50,000

Repayments of the term loan ( 9,900 ) ( 9,900 ) ( 9,900 )

Revolving credit facility borrowings $ 135,000 $ 117,000 $ 199,000

Revolving credit facility repayments ( 160,000 ) ( 72,000 ) ( 199,000 )

Term loan repayments ( 14,850 ) ( 9,900 ) ( 9,900 )

Principal payments on finance leases ( 1,132 ) ( 1,294 ) ( 945 )

Cash paid for debt costs ( 2,751 ) ( 2,476 ) ( 935 )

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

Sale of common stock (Note 13) 75,000 — —

Cash paid for common stock issuance costs ( 202 ) — —

Proceeds from exercises of warrants — — 4,240

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

Repurchase of common stock in connection with stock award exercises ( 1,708 ) ( 517 ) ( 3,568 )

Cash received from stock option exercises 303 1,939 —

Total cash provided by (used in) financing activities $ 29,660 $ 32,752 $ ( 11,108 )

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Interest paid, net of interest received $ 15,171 $ 11,568 $ 7,591

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

Income tax (received) paid, net of tax refunds ( 79 ) 31 ( 1,542 )

Non-cash investing and financing activities:

Changes in accounts payable for capital additions to property, plant and equipment and other current assets for capitalized intangible assets $ 587 $ ( 5,422 ) $ 8,040

Accrued capital additions to property, plant and equipment and other current assets for capitalized intangible assets $ 948 $ 587 $ ( 5,422 )

Cashless exercise of stock options — 2,299 5,246

Cashless exercise of warrants — — 416

Right-of-use assets obtained in exchange for operating lease obligations 1,424 62 —

Right-of-use assets obtained in exchange for finance lease obligations — — 3,496

Conversion of preferred stock into common stock — — 9,264

Finance lease right-of-use assets removed due to non-renewal of lease ( 2,451 ) — —

Finance lease obligations removed due to non-renewal of lease 2,593 — —

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

BLUE BIRD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

Common Stock Convertible Preferred Stock Treasury Stock

(in thousands except for share data) Shares Par Value Additional Paid-In-Capital Shares Amount Accumulated Other Comprehensive Loss Accumulated Deficit Shares Amount Total Stockholders' Deficit

(in thousands except for share data) Shares Par Value Additional Paid-In-Capital Shares Amount Accumulated Other Comprehensive Loss Accumulated Deficit Shares Amount Total Stockholders' (Deficit) Equity

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

Adoption of revenue recognition standard (ASC 606) adjustment — — — — — — ( 714 ) — — ( 714 )

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

1 unchanged sentence

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

Tender offer share repurchases ( 1,782,568 ) — ( 52 ) ( 364 ) ( 36 ) — — 1,782,568 ( 50,282 ) ( 50,370 )

Preferred stock conversion 799,615 — 9,264 ( 92,636 ) ( 9,264 ) — — — — —

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

1 unchanged sentence

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

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

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

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

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

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

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

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

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

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

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

Private placement (Note 13) 4,687,500 — 74,798 — — — — — — 74,798

Restricted stock activity 116,556 — ( 1,688 ) — — — — — — ( 1,688 )

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Blue Bird Body Company ("BBBC"), a wholly-owned subsidiary of Blue Bird Corporation, was incorporated in 1958 and has manufactured, assembled and sold school buses to a variety of municipal, federal and commercial customers since 1927.

The majority of BBBC’s sales are made to an independent distributor network, which in turn sells buses to ultimate end users.

The majority of BBBC’s sales are made to an independent dealer network, which in turn sells buses to ultimate end users.

References in these notes to financial statements to “Blue Bird,” the “Company,” “we,” “our,” or “us” refer to Blue Bird Corporation and its wholly-owned subsidiaries, unless the context specifically indicates otherwise.

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The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years.

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

The fiscal years ended October 1, 2022, October 2, 2021 and October 3, 2020 are referred to herein as “fiscal 2022,” “fiscal 2021” and “fiscal 2020,” respectively.

There were 52 weeks in fiscal 2022 and fiscal 2021, and there were 53 weeks in fiscal 2020.

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

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

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

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

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

Countermeasures taken to address the COVID-19 pandemic included virtual and hybrid schooling in many jurisdictions throughout the United States of America ("U.S.") and Canada.

The uncertainty of when and how schools would open materially affected demand for new buses and replacement/maintenance parts during the second half of fiscal 2020 and first half of fiscal 2021, significantly impacting our business and operations.

Demand for school buses strengthened substantially during the second half of fiscal 2021 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 this same period of time, the Company, and automotive industry as a whole, began experiencing significant supply chain constraints resulting from, among others, labor shortages;

the lack of maintenance on, and acquisition of, capital assets by suppliers 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 have had a significant adverse impact our operations and results during the second half of fiscal 2021 and all of fiscal 2022 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.

Additionally, Russian military forces launched a large-scale invasion of Ukraine on February 24, 2022, which further exacerbated global supply chain disruptions.

While the Company has no assets or customers in either of these countries, this military conflict significantly impacted our financial results during the second half of 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, it has contributed to increased a) costs charged by suppliers for the purchase of inventory that is at least partially dependent on resources originating from either of the countries and b) freight costs, both of which negatively impacted the gross profit recognized on sales during the second half of fiscal 2022.

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

Summary of Significant Accounting Policies and Recently Issued Accounting Standards

Use of Estimates and Assumptions

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

The preparation of financial statements in accordance with accounting principles generally accepted in the U.S.

GAAP”) requires management to make estimates and assumptions.

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For example, significant management judgments are required in determining excess, obsolete, or unsalable inventory, allowance for doubtful accounts, potential impairment of long-lived assets, goodwill and intangible assets, the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies.

Future events, including the extent and duration of the COVID-19 related economic impacts, and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment.

Future events, including the extent and duration of any COVID-19 outbreaks and continued supply chain constraints and their related economic impacts, and their effects cannot be predicted with certainty, and, accordingly, the Company’s accounting estimates require the exercise of judgment.

The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes.

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

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

The carrying value of the Company’s revolving credit facility and long-term debt approximates fair value due to the variable rates of interest, which reset frequently, relating to these debt instruments.

See Note 8, Debt, for further discussion.

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

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

The Company values inventories at the lower of cost or net realizable value.

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The Company enters into lease arrangements primarily for office space, warehouse space, or a combination of both.

We elected to account for leases with initial terms of 12 months or less as straight-line expense and not record assets or liabilities.

For a lease with an initial term greater than 12 months, the Company recognizes a right-of-use (“ROU”) asset and lease liability on the Consolidated Balance Sheets.

We elected to account for leases with initial terms of 12 months or less by recording operating lease expense on a straight-line basis instead of recording lease assets or liabilities.

For a lease with an initial term greater than 12 months, the Company records a right-of-use (“ROU”) asset and lease liability on the Consolidated Balance Sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

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Finance lease ROU assets are included in finance lease right-of-use assets and the lease liabilities are included in finance lease obligations (current) and finance lease obligations (long-term) on our Consolidated Balance Sheets.

Lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

As the leases recorded do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Lease ROU assets and liabilities are recorded at commencement date based on the present value of lease payments over the lease term.

As the leases recorded typically do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

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

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Evaluating potential impairment also requires estimates of future operating results and cash flows.

No impairment charge was recognized in any of the periods presented.

Goodwill and Intangible Assets

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In the evaluation of goodwill for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill.

Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

If, under the quantitative assessment, the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured under step two of the impairment analysis.

When performing a qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

If, when performing a quantitative assessment, the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured using step two of the

impairment analysis.

In step two of the analysis, we would record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, should such a circumstance arise.

Fair value of the reporting units is estimated primarily using the income approach, which incorporates the use of discounted cash flow ("DCF") analysis.

The fair value of the reporting units is estimated primarily using the income approach, which incorporates the use of discounted cash flow ("DCF") analysis.

A number of significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows, including markets and market shares, sales volumes and prices, costs to produce, tax rates, capital spending, discount rate and working capital changes.

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The Company’s intangible asset with an indefinite useful life is the "Blue Bird" trade name.

Under the qualitative assessment, an entity is not required to calculate the fair value of the asset unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

When performing a qualitative assessment, an entity is not required to calculate the fair value of the asset unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

If a qualitative assessment is not performed or if a quantitative assessment is otherwise required, then the entity compares the fair value of an asset to its carrying amount and the amount of the impairment loss, if any, is the difference between fair value and carrying value.

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

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

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

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

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

Statement of Cash Flows

We classify distributions received from our equity method investment using the nature of distribution approach, such that distributions received are classified based on the nature of the activity of the investee that generated the distribution.

We classify distributions received from our equity method investment, if any, using the nature of distribution approach, such that distributions received are classified based on the nature of the activity of the investee that generated the distribution.

Returns on investment are classified within operating activities, while returns of investment are classified within investing activities.

Recently Adopted Accounting Standards

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

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

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

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

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

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

Recently Issued Accounting Standards

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

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

ASU 2020-04 On March 12, 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848):

Dollar London Interbank Offering Rate ("LIBOR"), which was initially expected to occur on December 31, 2021.

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

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

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

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

reference rate reform activities.

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

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

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

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

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

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

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

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

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

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

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

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

During fiscal 2022 , the Company’s interest rate collar, which was not designated in a hedge accounting relationship, and Amended Credit Agreement (defined below) were the only contracts that referenced an interest rate index (i.e., LIBOR) that is subject to the reference rate reform guidance included in the above amendments.

The interest rate collar matured on September 30, 2022, prior to the July 1, 2023 date on which the IBA will no longer publish applicable LIBOR tenors, and therefore, was not modified to reflect the discontinuation of LIBOR.

Accordingly, the Company was not required to decide whether or not to elect to adopt such amendments for the interest rate collar prior to December 31, 2022 (i.e., the last effective date for adopting the amendments).

On September 2, 2022, the Company executed a fifth amendment and limited waiver to the Credit Agreement (see Note 8, Debt , for further information), which among other things, resulted in an early opt-in to change one of the market interest rate indices that the Company can elect to accrue interest on outstanding borrowings from LIBOR 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.

By the end of the first quarter of fiscal 2023, no outstanding borrowings will accrue interest utilizing LIBOR.

Although the modification had no impact on fiscal 2022 as no interest was accrued utilizing SOFR, the Company will adjust the effective interest rate on outstanding borrowings on a prospective basis, which is not expected to have a material impact on the consolidated financial statements.

Any recently issued accounting standards not identified above do not apply to the Company or the impact is expected to be immaterial.

Supplemental Financial Information

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The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt.

The collar establishes a range where we will pay the counterparty if the three month LIBOR rate falls below the established floor rate of 1.5 %, and the counterparty will pay us if the three month LIBOR rate exceeds the ceiling rate of 3.3 %.

The collar settles quarterly through the termination date of September 30, 2022.

No payments or receipts are exchanged on the interest rate collar contracts unless interest rates rise above or fall below the contracted ceiling or floor rates.

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

Changes in the interest rate collar fair value are recorded in interest expense as the collar does not qualify for hedge accounting.

At October 2, 2021, the fair value of the interest rate collar contract was $ 2.0 million and is included in "other current liabilities" on the Consolidated Balance Sheets.

The fair value of the interest rate collar is a Level 2 fair value measurement, based on quoted prices of similar items in active markets.

The collar established a range where we paid the counterparty if the three month LIBOR rate fell below the established floor rate of 1.5 %, and the counterparty paid us if the three month LIBOR rate exceeded the ceiling rate of 3.3 %.

The collar settled quarterly through the termination date of September 30, 2022.

No payments or receipts were exchanged on the interest rate collar contracts unless interest rates rose above or fell below the contracted ceiling or floor rates.

Throughout much of the fiscal year ended October 1, 2022, the three month LIBOR rate fell below the established floor, which required us to make $ 1.2 million in total cash payments to the counterparty.

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

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Total inventories $ 142,977 $ 125,206

At October 1, 2022, certain Bus segment inventory had an approximate $ 8.8 million cumulative cost in excess of net realizable value, which was recognized as a loss in fiscal 2022.

Property, Plant and Equipment

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We capitalized $ 0.7 million of interest expense in fiscal 2022 related to the construction of plant manufacturing assets.

A $1.4 million impairment loss for certain equipment that is no longer used in the Bus segment production process was recognized in fiscal 2022.

No impairment loss was recognized in fiscal 2021 or fiscal 2020.

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

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Customer relationships are amortized on a straight-line basis over an estimated life of 20 years.

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

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

Total amortization expense for intangible assets was $ 2.0 million, $ 2.2 million, and $ 3.1 million for fiscal 2022, fiscal 2021, and fiscal 2020, respectively.

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The amendment extended the maturity date to September 13, 2023, five years from the effective date of the first amendment.

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

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

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

The first amendment also amended the interest rate pricing matrix (as follows) as well as the principal payment schedule (which was subsequent amended as discussed below).

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

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

Level Total Net Leverage Ratio ABR Loans Eurodollar Loans

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We incurred $ 0.9 million in fees related to the amendment.

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

The fees were capitalized to other assets on the Consolidated Balance Sheets and are being amortized on a straight-line basis to interest expense until maturity of the Amended Credit Agreement (defined below).

Third Amendment to the Credit Agreement

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

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

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

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.

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

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

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

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

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

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

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

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

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

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 Amended Credit Agreement required that 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 exceeded $ 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 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.

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

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

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

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

Fourth Amendment to the Credit Agreement

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

The Fourth Amended Credit Agreement, among other things, 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 Fourth Amended Credit Agreement.

With respect to the financial performance covenants, during the Amended Limited Availability Period for the fiscal quarters ended 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

Fiscal quarter ending January 1, 2022 $ 14.5

Fiscal quarter ending April 2, 2022 $( 4.5 )

Fiscal quarter ending July 2, 2022 $( 6.8 )

Fiscal quarter ending October 1, 2022 $ 20.0

However, in the event that Borrower 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

Fourth amendment effective date through January 1, 2022 $ 10.0

January 2, 2022 through April 2, 2022 $ 5.0

April 3, 2022 through July 2, 2022 $ 15.0

Thereafter $ 20.0

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

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

Period Minimum Units Manufactured

Three month period ending November 27, 2021 1,128

Three month period ending January 1, 2022 776

Three month period ending January 29, 2022 748

Three month period ending February 26, 2022 727

Three month period ending April 2, 2022 763

Three month period ending April 30, 2022 1,111

Three month period ending May 28, 2022 1,525

Three month period ending July 2, 2022 2,053

Three month period ending July30, 2022 2,072

Three month period ending August 27, 2022 2,199

Three month period ending October 1, 2022 2,306

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 Fourth 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

I Less than 2.00x 0.75 % 1.75 %

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

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

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

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

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

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

VIII Greater than 5.00x 4.25 % 5.25 %

During the Amended Limited Availability Period (notwithstanding the pricing grid set forth above), the applicable rate 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 Note 13, Stockholders' Equity (Deficit) , 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.

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

Of such total, approximately $ 1.1 million and $ 0.8 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Amended Credit Agreement (defined below).

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

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

Fifth Amendment and Limited Waiver to the 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" and collectively, the "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 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.

The Company incurred approximately $0.3 million in lender fees and other issuance costs relating to the fifth amendment.

Of such total, approximately $0.1 million and $0.1 million was capitalized within other assets and long-term debt (as a contra-balance), respectively, on the Consolidated Balance Sheets and will be amortized as an adjustment to interest expense on a straight-line basis and utilizing the effective interest method, respectively, until maturity of the Amended Credit Agreement.

The remaining approximate $0.1 million was recorded to loss on debt modification on the Consolidated Statements of Operations.

Additional Disclosures

On November 21, 2022, the maturity date of the Amended Credit Agreement was extended from September 13, 2023 to December 31, 2024 as discussed in Note 19, Subsequent Events .

Accordingly, the balance of borrowings outstanding on the Term Loan Facility and Revolving Credit Facility at October 1, 2022 have been classified within current and long-term liabilities on the Consolidated Balance Sheets and in the discussion below based upon the new maturity date.

Debt consisted of the following at the dates indicated:

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Interest expense on all indebtedness for fiscal 2022, fiscal 2021 and fiscal 2020 was $ 14.7 million, $ 9.7 million, and $ 12.3 million, respectively.

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

The schedule of remaining principal maturities for the term loans is as follows at October 1, 2022:

(in thousands)

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State — ( 82 ) ( 65 )

Foreign — — ( 112 )

Total current tax benefit (expense) $ 380 $ 266 $ ( 1,490 )

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The effective tax rate for fiscal 2022 differed from the statutory Federal income tax rate of 21.0 %.

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 differed from the statutory Federal income tax rate of 21 %.

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.

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

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

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

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

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

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Federal tax benefit (expense) at statutory rate $ 11,141 $ 415 $ ( 2,203 )

(Increase) reduction in income tax expense resulting from:

Increase (reduction) in income tax benefit resulting from:

State taxes, net 2,240 552 1,508

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Investor tax on non-consolidated affiliate income 231 ( 28 ) ( 185 )

Tax rate adjustments — — ( 32 )

Other ( 35 ) 116 53

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Additions for tax positions of prior years — 370 —

Lapses of applicable statute of limitations ( 260 ) — —

Balance, end of year $ 110 $ 370 $ —

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

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

There were accrued interest and penalties of $ 0.1 million at October 1, 2022 and $ 0.3 million at October 2, 2021.

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

and various state jurisdictions.

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

At October 1, 2022, tax years prior to 2018 are generally no longer subject to examination by Federal and most state tax authorities.

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

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Our environmental liability using a discount rate of 7.1 %, included in current accrued expenses and other long-term liabilities on the Consolidated Balance Sheets, was $ 0.1 million and $ 0.2 million at October 1, 2022 and October 2, 2021, respectively.

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

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

The estimated remaining undiscounted payments at October 1, 2022 are as follows:

(in thousands)

Year Future Payments

Total remaining principal payments $ 124

Future expenditures may exceed the amounts accrued and estimated.

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

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

The $ 3.0 million represents the estimated maximum amount we would be required to pay upon default of all guaranteed indebtedness, and we believe the likelihood of required performance to be remote.

At October 2, 2021, $ 0.2 million was included in other current liabilities on our Consolidated Balance Sheets for the estimated fair value of the guarantee.

Lease Commitments

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

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

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.

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

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(1) Net of accumulated amortization of $ 1.8 million and $ 2.8 million, respectively.

The operating leases recorded do not assume renewal based on our analysis of those leases and their contractual terms.

One of our finance leases assumes renewal based on our expectations with regard to the lease and the contractual terms.

The financing and operating leases recorded do not assume renewal based on our analysis of those leases and their contractual terms.

Lease liability maturities are presented in the following table:

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Operating leases $ 1,424 $ 62

Finance leases — 3,496

Purchase Commitments

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We manage our business in two operating segments:

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

and (ii) the Parts segment, which consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network.

The tables below present segment net sales and gross profit for the periods presented:

(i) the Bus segment, which includes the manufacture and assembly of buses to be sold to a variety of customers across the U.S., Canada, and in certain limited international markets;

and (ii) the Parts segment, which consists primarily of the purchase of parts from third parties to be sold to dealers within the Company’s network and certain large fleet customers.

Management evaluates the segments based primarily upon revenues and gross profit, which are reflected in the tables below for the periods presented:

(in thousands) 2022 2021 2020

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Interest income 9 4 11

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

Other income, net 2,947 1,776 738

Loss on debt modification ( 632 ) ( 598 ) —

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Net sales $ 800,637 $ 683,995 $ 879,221

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

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

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

Stockholders’ Deficit

Repurchase of Convertible Preferred Stock

On November 13, 2018, the Company converted all remaining outstanding shares of its Series A Convertible Cumulative Preferred Stock, and issued 799,615 shares of common stock.

There were no dividends paid with the conversion.

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

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

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

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

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

Stockholders’ Equity (Deficit)

Sale of Common Stock

On December 15, 2021, the Company issued and sold through a private placement an aggregate 4,687,500 shares of its common stock at $ 16.00 per share (“Private Placement”) to Coliseum Capital Partners and Blackwell Partners LLC (collectively, “Coliseum”), with net proceeds of $ 74.8 million.

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

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

The Company used the net proceeds from the Private Placement 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.

(Loss) Earnings Per Share

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Weighted average common shares outstanding 31,020,399 27,139,054 26,850,999

Weighted average dilutive securities, convertible preferred stock — — 98,984

Weighted average dilutive securities, restricted stock — — 188,791

Weighted average dilutive securities, warrants — — 179,105

Weighted average dilutive securities, stock options — — 46,765

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

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

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

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

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

GAAP, which is based on the vesting period and contractual term for each

vesting tranche of awards.

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

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Compensation expense for restricted stock awards, recognized in selling, general and administrative expenses on the Consolidated Statements of Operations, was $ 2.6 million, $ 3.9 million, and $ 2.7 million for fiscal 2022, fiscal 2021, and fiscal 2020, respectively, with associated tax benefits of $ 0.7 million, $ 1.0 million, and $ 0.7 million, respectively.

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

At October 1, 2022, unrecognized compensation cost related to restricted stock awards totaled $ 1.0 million and is expected to be recognized over a weighted-average period of 0.5 years.

Stock Option Awards

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Fully vested and exercisable options, end of year (3) 372,120 $ 17.70

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

(1) Stock options exercised during the fiscal year had an aggregate intrinsic value totaling less than $ 0.1 million.

(2) Stock options outstanding at the end of the fiscal year had $( 5.0 ) million intrinsic value.

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Compensation expense for stock option awards, recognized in selling, general and administrative expenses on the Consolidated Statements of Operations, was $ 0.9 million, $ 1.9 million, and $ 1.4 million for fiscal 2022, fiscal 2021, and fiscal 2020, respectively, with associated tax benefits of $ 0.2 million, $ 0.5 million, and $ 0.4 million, respectively.

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

At October 1, 2022, unrecognized compensation cost related to stock option awards totaled $ 0.4 million and is expected to be recognized over a weighted-average period of 1.2 years.

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

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No accrual of future benefits is calculated beyond this date.

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

The Company made no contributions to the Defined Benefit Plan during fiscal 2022 and made $ 4.9 million contributions in fiscal 2021.

For fiscal 2022 and fiscal 2021, benefits paid were $ 8.6 million and $ 7.3 million, respectively.

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Interest cost 4,368 4,227

Assumption changes (1) ( 6,580 ) 9,750

Actuarial gain (1) ( 33,293 ) ( 6,627 )

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Projected benefit obligations balance, end of year $ 122,571 $ 160,088

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

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

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

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Amortization of net loss 1,163 1,861 1,720

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

Net periodic benefit income $ ( 2,960 ) $ ( 1,689 ) $ ( 717 )

Net (gain) loss $ ( 2,605 ) $ ( 16,038 ) $ 4,671

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Total recognized in other comprehensive (income) loss $ ( 3,768 ) $ ( 17,899 ) $ 2,951

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

Total recognized in net periodic pension benefit income and other comprehensive (income) loss $ ( 6,728 ) $ ( 19,588 ) $ 2,234

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

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

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

The Company expects to make no contributions to its Defined Benefit Plan in fiscal 2023 in accordance with required IRS minimums.

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

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During fiscal 2022, fiscal 2021 and fiscal 2020, the Company offered a 50 % match on the first 6 % of the employee’s contributions.

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

However, due to the impacts of COVID-19 and subsequent supply chain constraints, the Company temporarily paused this match from October 2020 through July 2021 and again from August 2022 through the end of fiscal 2022.

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

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

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

There were no MIP bonus liabilities included in accrued expenses on the Consolidated Balance Sheets at October 1, 2022 or October 2, 2021.

Equity Investment in Affiliate

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During fiscal 2022 and fiscal 2021, Micro Bird did not pay any dividends to the venture partners.

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

In recognizing the Company’s 50 % portion of Micro Bird net income or loss, the Company recorded $( 4.2 ) million, $ 0.5 million, and $ 3.2 million in equity in net (loss) income of non-consolidated affiliate for fiscal 2022, fiscal 2021, and fiscal 2020, respectively.

Accumulated Other Comprehensive Loss

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Income taxes 708 708

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

Other comprehensive loss, gross ( 4,671 ) ( 4,671 )

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

Other comprehensive income, gross 16,038 16,038

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

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Subsequent Events

Fourth Amendment to the Credit Agreement

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

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

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

Sixth Amendment to the 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").

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 January 1, 2022 $ 14.5

Fiscal quarter ending April 2, 2022 $( 4.5 )

Fiscal quarter ending July 1, 2023 $ 50.0

Fiscal quarter ending October 1, 2022 $ 20.0

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

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

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

Fourth amendment effective date through January 1, 2022 $ 10.0

January 2, 2022 through April 2, 2022 $ 5.0

April 3, 2022 through July 2, 2022 $ 15.0

Thereafter $ 20.0

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

Three month period ending November 27, 2021 1,128

Three month period ending January 1, 2022 776

Three month period ending January 29, 2022 748

Three month period ending February 26, 2022 727

Three month period ending April 2, 2022 763

Three month period ending April 30, 2022 1,111

Three month period ending May 28, 2022 1,525

Three month period ending July 2, 2022 2,053

Three month period ending July30, 2022 2,072

Three month period ending August 27, 2022 2,199

Three month period ending October 1, 2021 2,306

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

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

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

Level Total Net Leverage Ratio ABR Loans Eurodollar Loans

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 %

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

VIII Greater than 5.00x 4.25 % 5.25 %

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

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

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

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

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

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

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

Sale of Common Stock

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

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

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

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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data