Blue Bird Corp 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Blue Bird Corporation Macon, Georgia Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Blue Bird Corporation (the “Company”) and subsidiaries as of October 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. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of October 1, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated December 12, 2022 expressed an unqualified opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of Warranty Reserve As discussed in Note 2 to the consolidated financial statements, the Company's warranty reserve is calculated based on the average expected warranty claims using warranty claims by body type, by month, over the life of the bus, which is then multiplied by remaining months under warranty, by warranty type. The total warranty reserve was $16 million as of October 1, 2022. 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 effect of those assumptions on the reserve. 50 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, 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: (i) reviewing the Company’s actuarial methodology in calculating the warranty reserve, (ii) evaluating certain key assumptions used, including average warranty costs per unit and payment patterns over the term of the warranty, in the determination of the average expected warranty claims, and (iii) determining whether the methodology, assumptions, and calculation were consistent with historical evaluations and the aggregate impact of any changes to assumptions. /s/ BDO USA, LLP We have served as the Company's auditor since 2016. Atlanta, Georgia December 12, 2022 51 Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Blue Bird Corporation Macon, Georgia Opinion on Internal Control over Financial Reporting We have audited Blue Bird Corporation’s (the “Company’s”) internal control over financial reporting as of October 1, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 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 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP Atlanta, Georgia December 12, 2022 52 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except for share data) October 1, 2022 October 2, 2021 Assets Current assets Cash and cash equivalents $ 10,479 $ 11,709 Accounts receivable, net 12,534 9,967 Inventories 142,977 125,206 Other current assets 8,486 9,191 Total current assets $ 174,476 $ 156,073 Property, plant and equipment, net 100,608 105,482 Goodwill 18,825 18,825 Intangible assets, net 47,433 49,443 Equity investment in affiliate 10,659 14,817 Deferred tax assets 10,907 4,413 Finance lease right-of-use assets 1,736 5,486 Other assets 1,482 1,481 Total assets $ 366,126 $ 356,020 Liabilities and Stockholders' Equity (Deficit) Current liabilities Accounts payable $ 107,937 $ 72,270 Warranty 6,685 7,385 Accrued expenses 16,386 12,267 Deferred warranty income 7,205 7,832 Finance lease obligations 566 1,327 Other current liabilities 6,195 8,851 Current portion of long-term debt 19,800 14,850 Total current liabilities $ 164,774 $ 124,782 Long-term liabilities Revolving credit facility $ 20,000 $ 45,000 Long-term debt 130,390 149,573 Warranty 9,285 11,165 Deferred warranty income 11,590 12,312 Deferred tax liabilities — 3,673 Finance lease obligations 1,574 4,538 Other liabilities 11,107 14,882 Pension 16,024 22,751 Total long-term liabilities $ 199,970 $ 263,894 Guarantees, commitments and contingencies (Note 10) 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 $ — $ — Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 32,024,911 and 27,205,269 shares outstanding at October 1, 2022 and October 2, 2021, respectively 3 3 Additional paid-in capital 173,103 96,170 Accumulated deficit ( 79,512 ) ( 33,753 ) Accumulated other comprehensive loss ( 41,930 ) ( 44,794 ) Treasury stock, at cost, 1,782,568 shares at October 1, 2022 and October 2, 2021 ( 50,282 ) ( 50,282 ) 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. 53 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended (in thousands except for share data) 2022 2021 2020 Net sales $ 800,637 $ 683,995 $ 879,221 Cost of goods sold 764,091 611,854 783,021 Gross profit $ 36,546 $ 72,141 $ 96,200 Operating expenses Selling, general and administrative expenses 77,246 65,619 74,206 Operating (loss) profit $ ( 40,700 ) $ 6,522 $ 21,994 Interest expense ( 14,675 ) ( 9,682 ) ( 12,252 ) Interest income 9 4 11 Other income, net 2,947 1,776 738 Loss on debt modification ( 632 ) ( 598 ) — (Loss) income before income taxes $ ( 53,051 ) $ ( 1,978 ) $ 10,491 Income tax benefit (expense) 11,451 1,191 ( 1,519 ) Equity in net (loss) income of non-consolidated affiliate ( 4,159 ) 498 3,213 Net (loss) income $ ( 45,759 ) $ ( 289 ) $ 12,185 (Loss) earnings per share: Basic weighted average shares outstanding 31,020,399 27,139,054 26,850,999 Diluted weighted average shares outstanding 31,020,399 27,139,054 27,086,555 Basic (loss) earnings per share $ ( 1.48 ) $ ( 0.01 ) $ 0.45 Diluted (loss) earnings per share $ ( 1.48 ) $ ( 0.01 ) $ 0.45 The accompanying notes are an integral part of these consolidated financial statements. 54 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME Fiscal Years Ended (in thousands) 2022 2021 2020 Net (loss) income $ ( 45,759 ) $ ( 289 ) $ 12,185 Other comprehensive income (loss), net of tax Net change in defined benefit pension plan 2,864 13,603 ( 2,243 ) Total other comprehensive income (loss), net of tax $ 2,864 $ 13,603 $ ( 2,243 ) Comprehensive (loss) income $ ( 42,895 ) $ 13,314 $ 9,942 The accompanying notes are an integral part of these consolidated financial statements. 55 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended (in thousands) 2022 2021 2020 Cash flows from operating activities Net (loss) income $ ( 45,759 ) $ ( 289 ) $ 12,185 Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: Depreciation and amortization expense 14,050 13,446 14,400 Non-cash interest expense 3,400 2,754 3,651 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 — Changes in assets and liabilities: Accounts receivable ( 2,567 ) ( 2,345 ) 2,914 Inventories ( 26,523 ) ( 68,684 ) 22,308 Other assets 1,913 ( 409 ) 5,068 Accounts payable 35,075 14,081 ( 40,258 ) Accrued expenses, pension and other liabilities ( 15,325 ) ( 19,090 ) ( 19,410 ) Total adjustments $ 21,322 $ ( 53,952 ) $ ( 8,726 ) Total cash (used in) provided by operating activities $ ( 24,437 ) $ ( 54,241 ) $ 3,459 Cash flows from investing activities Cash paid for fixed assets $ ( 6,453 ) $ ( 12,212 ) $ ( 18,968 ) Proceeds from sale of fixed assets — 903 165 Total cash used in investing activities $ ( 6,453 ) $ ( 11,309 ) $ ( 18,803 ) Cash flows from financing activities 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 ) Sale of common stock (Note 13) 75,000 — — Cash paid for common stock issuance costs ( 202 ) — — Proceeds from exercises of warrants — — 4,240 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 ) Change in cash and cash equivalents ( 1,230 ) ( 32,798 ) ( 26,452 ) Cash and cash equivalents, beginning of year 11,709 44,507 70,959 Cash and cash equivalents, end of year $ 10,479 $ 11,709 $ 44,507 56 Fiscal Years Ended (in thousands) 2022 2021 2020 Supplemental disclosures of cash flow information Cash paid or received during the period: Interest paid, net of interest received $ 15,171 $ 11,568 $ 7,591 Income tax (received) paid, net of tax refunds ( 79 ) 31 ( 1,542 ) Non-cash investing and financing activities: 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 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 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. 57 BLUE BIRD CORPORATION AND SUBSIDIARIES 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) Equity Balance, September 28, 2019 26,476,336 $ 3 $ 84,271 — $ — $ ( 56,154 ) $ ( 45,649 ) 1,782,568 $ ( 50,282 ) $ ( 67,811 ) Exercise of stock warrants 368,712 — 4,240 — — — — — — 4,240 Restricted stock activity 94,724 — ( 1,623 ) — — — — — — ( 1,623 ) Stock option activity 108,632 — ( 1,945 ) — — — — — — ( 1,945 ) Share-based compensation expense — — 3,967 — — — — — — 3,967 Net income — — — — — — 12,185 — — 12,185 Other comprehensive loss, net of tax — — — — — ( 2,243 ) — — — ( 2,243 ) Balance, October 3, 2020 27,048,404 $ 3 $ 88,910 — $ — $ ( 58,397 ) $ ( 33,464 ) 1,782,568 $ ( 50,282 ) $ ( 53,230 ) Restricted stock activity 36,404 — ( 517 ) — — — — — — ( 517 ) Stock option activity 120,461 — 1,939 — — — — — — 1,939 Share-based compensation expense — — 5,838 — — — — — — 5,838 Net loss — — — — — — ( 289 ) — — ( 289 ) Other comprehensive income, net of tax — — — — — 13,603 — — — 13,603 Balance, October 2, 2021 27,205,269 $ 3 $ 96,170 — $ — $ ( 44,794 ) $ ( 33,753 ) 1,782,568 $ ( 50,282 ) $ ( 32,656 ) Private placement (Note 13) 4,687,500 — 74,798 — — — — — — 74,798 Restricted stock activity 116,556 — ( 1,688 ) — — — — — — ( 1,688 ) Stock option activity 15,586 — 284 — — — — — — 284 Share-based compensation expense — — 3,539 — — — — — — 3,539 Net loss — — — — — — ( 45,759 ) — — ( 45,759 ) Other comprehensive income, net of tax — — — — — 2,864 — — — 2,864 Balance, October 1, 2022 32,024,911 $ 3 $ 173,103 — $ — $ ( 41,930 ) $ ( 79,512 ) 1,782,568 $ ( 50,282 ) $ 1,382 The accompanying notes are an integral part of these consolidated financial statements. 58 BLUE BIRD CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business and Basis of Presentation Nature of Business Blue Bird Body Company ("BBBC"), a wholly-owned subsidiary of Blue Bird Corporation, was incorporated in 1958 and has manufactured, assembled and sold school buses to a variety of municipal, federal and commercial customers since 1927. The majority of BBBC’s sales are made to an independent 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. We are headquartered in Macon, Georgia. Basis of Presentation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company transactions and accounts have been eliminated in consolidation. The Company’s fiscal year ends on the Saturday closest to September 30 with its quarters consisting of thirteen weeks in most years. The fiscal years ended October 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. 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; etc. 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. 59 2. Summary of Significant Accounting Policies and Recently Issued Accounting Standards Use of Estimates and Assumptions The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) requires management to make estimates and assumptions. At the date of the financial statements, these estimates and assumptions affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities, and during the reporting period, these estimates and assumptions affect the reported amounts of revenues and expenses. For example, significant management judgments are required in determining excess, obsolete, or unsalable inventory, allowance for doubtful accounts, potential impairment of long-lived assets, goodwill and intangible assets, the accounting for self-insurance reserves, warranty reserves, pension obligations, income taxes, environmental liabilities and contingencies. Future events, including the extent and duration of 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. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations. Actual results could differ from the estimates that the Company has used. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Allowance for Doubtful Accounts Accounts receivable consist of amounts owed to the Company by customers. The Company monitors collections and payments from customers, and generally does not require collateral. Accounts receivable are generally due within 30 to 90 days. The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. The Company reserves for an account when it is considered potentially uncollectible. The Company estimates its allowance for doubtful accounts based on historical experience, aging of accounts receivable and information regarding the creditworthiness of its customers. To date, losses have been within the range of management’s expectations. The Company writes off accounts receivable if it determines that the account is uncollectible. Revenue Recognition The Company records revenue when the following five steps have been completed: 1. Identification of the contract(s) with a customer; 2. Identification of the performance obligation(s) in the contract; 3. Determination of the transaction price; 4. Allocation of the transaction price to the performance obligations in the contract; and 5. Recognition of revenue, when, or as, we satisfy performance obligations. The Company records revenue when performance obligations are satisfied by transferring control of a promised good or service to the customer. The Company evaluates the transfer of control primarily from the customer’s perspective where the customer has the ability to direct the use of, and obtain substantially all of the remaining benefits from, that good or service. Our product revenue includes sales of buses and bus parts, each of which are generally recognized as revenue at a point in time, once all conditions for revenue recognition have been met, as they represent our performance obligations in a sale. For buses, control is generally transferred and the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the product when the product is delivered or when the product has been completed, is ready for delivery, has been paid for, its title has transferred and it is awaiting pickup by the customer. For certain bus sale transactions, we may provide incentives including payment of a limited amount of future interest charges our customers may incur related to their purchase and financing of the bus with third party financing companies. We reduce revenue at the recording date by the full amount of potential future interest we may be obligated to pay, which is an application of the "most likely amount" method. For parts sales, control is generally transferred when the customer has the ability to direct the use of and obtain substantially all of the remaining benefits of the products, which generally coincides with the point in time when the customer has assumed risk of loss and title has passed for the goods sold. 60 The Company sells extended warranties related to its products. Revenue related to these contracts is recognized based on the stand-alone selling price of the arrangement, on a straight-line basis over the contract period, and costs thereunder are expensed as incurred. The Company includes shipping and handling revenues, which are costs billed to customers, in net sales on the Consolidated Statements of Operations. Shipping and handling costs incurred are included in cost of goods sold. See Note 12, Revenue , for further revenue information. See Note 3, Supplemental Financial Information, for further information on warranties. Self-Insurance The Company is self-insured for the majority of its workers’ compensation and medical claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a liability. Self-insurance losses for claims filed and claims incurred but not reported are accrued based upon estimates of the aggregate liability for uninsured claims, using loss development factors and actuarial assumptions followed in the insurance industry and historical loss development experience. See Note 3, Supplemental Financial Information, and Note 16 , Benefit Plans, for further information. Financial Instruments The Company’s financial instruments consist primarily of cash and cash equivalents, trade receivables, accounts payable, revolving credit facility and long-term debt. The carrying amounts of cash and cash equivalents, trade receivables and accounts payable approximate their fair values because of the short-term maturity and highly liquid nature of these instruments. The carrying value of the Company’s revolving credit facility and long-term debt approximates fair value due to the variable rates of interest, which reset frequently, relating to these debt instruments. See Note 8, Debt, for further discussion. Derivative Instruments In limited circumstances, we may utilize derivative instruments to manage certain exposures to changes in foreign currency exchange rates or interest rates relating to variable rate debt. The fair values of all derivative instruments are recognized as assets or liabilities at the balance sheet date. Changes in the fair value of these derivative instruments are recognized in our operating results or included in other comprehensive income (loss), depending on whether the derivative instrument qualifies, and is appropriately designated, for hedge accounting treatment and if so, whether it represents a fair value or cash flow hedge. Gains and losses on derivative instruments are recognized in the operating results line item that reflects the underlying exposure that was mitigated either via a formal hedge accounting relationship or economically. Inventories The Company values inventories at the lower of cost or net realizable value. The Company uses a standard costing methodology, which approximates cost on a first-in, first-out (“FIFO”) basis. The Company reviews the standard costs of raw materials, work-in-process and finished goods inventory on a periodic basis to ensure that its inventories approximate current actual costs. Manufacturing cost includes raw materials, direct labor and manufacturing overhead. Obsolete inventory amounts are based on historical usage and assumptions about future demand. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is calculated on a straight-line basis using the following periods, which represent the estimated useful lives of the assets: Years Buildings 15 - 33 Machinery and equipment 5 - 10 Office furniture, equipment and other 3 - 10 Computer equipment and software 3 - 7 61 Costs, including capitalized interest and certain design, construction and installation costs related to assets that are under construction and are in the process of being readied for their intended use, are recorded as construction in progress and are not depreciated until such time as the subject asset is placed in service. Repairs and maintenance that do not extend the useful life of the asset are expensed as incurred. Upon sale, retirement, or other disposition of these assets, the costs and related accumulated depreciation are removed from the respective accounts and any gain or loss on the disposition is included on our Consolidated Statements of Operations. Leases We determine if an arrangement is or contains a lease at inception. The Company enters into lease arrangements primarily for office space, warehouse space, or a combination of both. We elected to account for leases with initial terms of 12 months or less 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. We determine whether the lease is an operating or finance lease at inception based on the information and expectations for the lease at that time. Operating lease ROU assets are included in property, plant and equipment and the lease liabilities are included in other current liabilities and other liabilities on our Consolidated Balance Sheets. Finance lease ROU assets are included in finance lease right-of-use assets and the lease liabilities are included in finance lease obligations (current) and finance lease obligations (long-term) on our Consolidated Balance Sheets. Lease ROU assets and liabilities are 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. Operating lease ROU assets also include any base rental or lease payments made and exclude lease incentives. The two components of operating lease expense, amortization and interest, are recognized on a straight-line basis over the lease term as a single expense element within selling, general and administrative expenses on the Consolidated Statements of Operations. Under the finance lease model, interest on the lease liability is recognized in interest expense and amortization of ROU assets is recorded on the Consolidated Statements of Operations based on the underlying use of the assets. Impairment of Long-Lived Assets The Company reviews its long-lived assets, including property, plant and equipment, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If we are required to analyze recoverability based on a triggering event, undiscounted future cash flows over the estimated remaining life of the asset, or asset group, are projected. If these projected cash flows are less than the carrying amount, an impairment loss is recognized to the extent the fair value of the asset less any costs of disposition is less than the carrying amount of the asset. Judgments regarding the existence of impairment indicators are based on market and operational performance. Evaluating potential impairment also requires estimates of future operating results and cash flows. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the assets acquired less liabilities assumed in connection with such acquisition. In accordance with the provisions of Accounting Standards Codification Topic ("ASC") 350, Intangibles—Goodwill and Other , goodwill and intangible assets with indefinite useful lives acquired in an acquisition are not amortized, but instead are tested for impairment at least annually or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired. Such events or circumstances may include a significant change in business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion thereof. We have two reporting units for which we test goodwill for impairment: Bus and Parts. In the evaluation of goodwill for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. 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 62 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. 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. The cash flow forecasts are based on approved strategic operating plans and long-term forecasts. In the evaluation of indefinite lived assets for impairment, we have the option to perform a qualitative assessment to determine whether further impairment testing is necessary, or to perform a quantitative assessment by comparing the fair value of an asset to its carrying amount. The Company’s intangible asset with an indefinite useful life is the "Blue Bird" trade name. 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. The fair value of our trade name is derived by using the relief from royalty method, which discounts the estimated cash savings we realized by owning the name instead of otherwise having to license or lease it. Our intangible assets with a definite useful life are amortized over their estimated useful lives, 7 or 20 years, using the straight-line method. The useful lives of our intangible assets are reassessed annually and they are tested for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Debt Issue Costs Amounts paid directly to lenders or as an original issue discount and amounts classified as issuance costs are recorded as a reduction in the carrying value of the debt, for which the Company had deferred financing costs totaling $ 1.4 million and $ 2.0 million at October 1, 2022 and October 2, 2021, respectively, incurred in connection with its debt facilities and related amendments. All deferred financing costs are amortized to interest expense. The effective interest method is used for debt discounts related to the term loan. The Company’s amortization of these costs was $ 1.5 million, $ 1.1 million and $ 0.9 million for fiscal 2022, fiscal 2021 and fiscal 2020, respectively, and is reflected as a component of interest expense on the Consolidated Statements of Operations. See Note 8, Debt , for a discussion of the Company’s indebtedness. Pensions The Company accounts for its pension benefit obligations using actuarial models. The measurement of plan obligations and assets was made at September 30, 2022. Effective January 1, 2006, the benefit plan was frozen to all participants. No accrual of future benefits is earned or calculated beyond this date. Accordingly, our obligation estimate is based on benefits earned at that time discounted using an estimate of the single equivalent discount rate determined by matching the plan’s future expected cash flows to spot rates from a yield curve comprised of high-quality corporate bond rates of various durations. The Company recognizes the funded status of its pension plan obligations on the Consolidated Balance Sheet and records in other comprehensive income (loss) certain gains and losses that arise during the period, but are deferred under pension accounting rules. Pension expense is recognized as a component of other income (expense), net on our Consolidated Statements of Operations. Product Warranty Costs The Company’s products are generally warranted against defects in material and workmanship for a period of one year to five years . A provision for estimated warranty costs is recorded at the time a unit is sold. The methodology to determine the warranty reserve calculates the average expected warranty claims using warranty claims by body type, by month, over the life of the bus, which is then multiplied by remaining months under warranty, by warranty type. Management believes the methodology provides an accurate reserve estimate. Actual claims incurred could differ from the original estimates, requiring future adjustments. The Bus segment also sells extended warranties related to its products. Revenue related to these contracts is recognized on a straight-line basis over the contract period and costs thereunder are expensed as incurred. All warranty expenses are recorded in the cost of goods sold line on the Consolidated Statements of Operations. The current methodology to determine short-term extended warranty income reserve is based on twelve months of the remaining warranty value for each effective extended warranty at the balance sheet date. See Note 3, Supplemental Financial Information, for further information. 63 Research and Development Research and development costs are expensed as incurred and included in selling, general and administrative expenses on our Consolidated Statements of Operations. For fiscal 2022, fiscal 2021 and fiscal 2020, the Company expensed $ 6.1 million, $ 5.2 million and $ 6.4 million, respectively. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the financial statement and tax basis of assets and liabilities. The Company evaluates its ability, based on the weight of evidence available, to realize future tax benefits from deferred tax assets and establishes a valuation allowance to reduce a deferred tax asset to a level which, more likely than not, will be realized in future years. The Company recognizes uncertain tax positions based on a cumulative probability assessment if it is more likely than not that the tax position will be sustained upon examination by an appropriate tax authority with full knowledge of all information. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Amounts recorded for uncertain tax positions are periodically assessed, including the evaluation of new facts and circumstances, to ensure sustainability of the positions. The Company records interest and penalties related to unrecognized tax benefits in income tax expense. The Company's policy for releasing income tax effects from accumulated other comprehensive income (loss) is to use a specific identification approach. Environmental Liabilities The Company records reserves for environmental liabilities on a discounted basis when environmental investigation and remediation obligations are probable and related costs are reasonably estimable. See Note 10, Guarantees, Commitments and Contingencies, for further information. Segment Reporting Operating segments are components of an entity that engage in business activities with discrete financial information available that is regularly reviewed by the chief operating decision maker (“CODM”) in order to assess performance and allocate resources. The Company’s CODM is its President and Chief Executive Officer. As discussed further in Note 11, Segment Information , the Company determined its operating and reportable segments to be Bus and Parts. The Bus segment includes the manufacturing and assembly of school buses to be sold to a variety of customers across the U.S., Canada and in 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, 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. 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. Recently Issued Accounting Standards 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): 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 the U.S. 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 64 reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, computing variation margin settlements, and calculating price alignment interest in connection with reference rate reform activities under way in global financial markets. The above amendments are effective for all entities from March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments to contract modifications on a (i) full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or (ii) prospective basis from any date within an interim period that includes or is subsequent to March 12, 2020 through the date that the interim financial statements are issued or available to be issued. On March 5, 2021, the Intercontinental Exchange, Inc. ("ICE") Benchmark Administration ("IBA"), the administrator of LIBOR, issued a statement, following the completion of a formal consultation process, reaffirming the preliminary announcement it made on November 30, 2020, to cease publication of (i) 1 week and 2 month LIBOR subsequent to December 31, 2021 and (ii) the overnight and 1, 3, 6 and 12 month LIBOR tenors subsequent to June 30, 2023. The IBA’s statement regarding such cessation dates primarily resulted from a majority of LIBOR panel banks communicating to the IBA that they would be unwilling to continue contributing to the relevant LIBOR settings after such dates. As a result, the IBA determined that it would be unable to publish the relevant LIBOR settings on a representative basis after such dates. The United Kingdom Financial Conduct Authority ("FCA"), which regulates the IBA, confirmed that, based on information it received from LIBOR panel banks, it does not expect that any LIBOR settings will become unrepresentative before the announced cessation dates summarized above. 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. 3. Supplemental Financial Information Accounts Receivable Accounts receivable, net, consisted of the following at the dates indicated: ( in thousands ) October 1, 2022 October 2, 2021 Accounts receivable $ 12,634 $ 10,067 Allowance for doubtful accounts ( 100 ) ( 100 ) Accounts receivable, net $ 12,534 $ 9,967 65 Product Warranties The following table reflects activity in accrued warranty cost (current and long-term portion combined) for the fiscal years presented: (in thousands) 2022 2021 2020 Balance at beginning of period $ 18,550 $ 21,374 $ 22,343 Add: current period accruals 7,348 6,920 8,980 Less: current period reductions of accrual ( 9,928 ) ( 9,744 ) ( 9,949 ) Balance at end of period $ 15,970 $ 18,550 $ 21,374 Extended Warranties The following table reflects activity in deferred warranty income (current and long-term portions combined), for the sale of extended warranties of two years to five years , for the fiscal years presented: (in thousands) 2022 2021 2020 Balance at beginning of period $ 20,144 $ 22,588 $ 24,045 Add: current period deferred income 6,847 6,192 7,298 Less: current period recognition of income ( 8,196 ) ( 8,636 ) ( 8,755 ) Balance at end of period $ 18,795 $ 20,144 $ 22,588 The outstanding balance of deferred warranty income in the table above is considered a "contract liability," and represents a performance obligation of the Company that we satisfy over the term of the arrangement but for which we have been paid in full at the time the warranty was sold. We expect to recognize $ 7.2 million of the outstanding contract liability in fiscal 2023, and the remaining balance thereafter. Self-Insurance The following table reflects the total accrued self-insurance liability, comprised of workers' compensation and health insurance related claims, at the dates indicated: (in thousands) October 1, 2022 October 2, 2021 Current portion $ 3,996 $ 2,781 Long-term portion 1,794 1,732 Total accrued self-insurance $ 5,790 $ 4,513 The current and long-term portions of the accrued self-insurance liability are included in accrued expenses and other liabilities, respectively, on the accompanying Consolidated Balance Sheets. Shipping and Handling Shipping and handling revenues recognized were $ 16.0 million, $ 13.4 million and $ 16.9 million for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. The related cost of goods sold were $ 14.3 million, $ 11.7 million and $ 14.5 million for fiscal 2022, fiscal 2021 and fiscal 2020, respectively. Derivative Instruments We are charged variable rates of interest on our indebtedness outstanding under the Amended Credit Agreement (defined in Note 8) which exposes us to fluctuations in interest rates. On October 24, 2018, the Company entered into a four year interest rate collar with a $ 150.0 million notional value with an effective date of November 30, 2018. The collar was entered into in order to partially mitigate our exposure to interest rate fluctuations on our variable rate debt. The collar 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. 66 4. Inventories The following table presents components of inventories at the dates indicated: (in thousands) October 1, 2022 October 2, 2021 Raw materials $ 106,070 $ 74,862 Work in process 35,398 41,257 Finished goods 1,509 9,087 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. 5. Property, Plant and Equipment Property, plant and equipment, net, consisted of the following at the dates indicated: (in thousands) October 1, 2022 October 2, 2021 Land $ 2,504 $ 2,504 Buildings 57,570 47,307 Machinery and equipment 105,789 101,836 Office furniture, equipment and other 2,276 2,185 Computer equipment and software 20,471 19,233 Construction in process 15,004 25,555 Property, plant and equipment, gross 203,614 198,620 Accumulated depreciation and amortization ( 108,493 ) ( 98,290 ) Operating lease right-of-use assets (1) 5,487 5,152 Property, plant and equipment, net $ 100,608 $ 105,482 (1) Further information is included in Note 10, Guarantees, Commitments and Contingencies . Depreciation and amortization expense for property, plant and equipment was $ 10.9 million, $ 9.8 million, and $ 10.1 million for fiscal 2022, fiscal 2021, and fiscal 2020, respectively. 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. 6. Goodwill The carrying amounts of goodwill by reporting unit are as follows at the dates indicated: (in thousands) Gross Goodwill Accumulated Impairments Net Goodwill October 1, 2022 Bus $ 15,139 $ — $ 15,139 Parts 3,686 — 3,686 Total $ 18,825 $ — $ 18,825 October 2, 2021 Bus $ 15,139 $ — $ 15,139 Parts 3,686 — 3,686 Total $ 18,825 $ — $ 18,825 67 In the fourth quarters of fiscal 2022 and fiscal 2021, we performed our annual impairment assessment of goodwill that did not indicate that an impairment existed; therefore, no impairments of goodwill have been recorded. 7. Intangible Assets The gross carrying amounts and accumulated amortization of intangible assets are as follows at the dates indicated: October 1, 2022 October 2, 2021 (in thousands) Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Finite lived: Engineering designs $ 3,156 $ 3,016 $ 140 $ 3,156 $ 2,876 $ 280 Finite lived: Customer relationships 37,425 29,948 7,477 37,425 28,078 9,347 Total amortized intangible assets 40,581 32,964 7,617 40,581 30,954 9,627 Indefinite lived: Trade name 39,816 — 39,816 39,816 — 39,816 Total intangible assets $ 80,397 $ 32,964 $ 47,433 $ 80,397 $ 30,954 $ 49,443 Management considers the "Blue Bird" trade name to have an indefinite useful life and, accordingly, it is not subject to amortization. Management reached this conclusion principally due to the longevity of the Blue Bird name and because management considers renewal upon reaching the legal limit of the trademarks related to the trade name as perfunctory. The Company expects to maintain usage of the trade name on existing products and introduce new products in the future that will also display the trade name. During the fourth quarters of fiscal 2022 and fiscal 2021, we performed our annual impairment assessment of our trade name, which did not indicate that an impairment existed; therefore, no impairment of our indefinite lived intangible has been recorded. Customer relationships are amortized on a straight-line basis over an estimated life of 20 years. Engineering designs are amortized on a straight-line basis over an estimated life of 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. Amortization expense for finite lived intangible assets for the next five years is expected to be as follows: (in thousands) Fiscal Years Ending Amortization Expense 2023 $ 2,010 2024 1,869 2025 1,869 2026 1,869 Total amortization expense $ 7,617 8. Debt Original Credit Agreement On December 12, 2016, BBBC ("Borrower"), executed a $ 235.0 million five-year credit agreement with Bank of Montreal, which acts as the administrative agent and an issuing bank, Fifth Third Bank, as co-syndication agent and an issuing bank, and Regions Bank, as co-syndication agent, together with other lenders ("Credit Agreement"). The credit facilities provided for under the Credit Agreement consisted of a term loan facility in an aggregate initial principal amount of $ 160.0 million (the “Term Loan Facility”) and a revolving credit facility with aggregate commitments of $ 75.0 million. The revolving credit facility included a $ 15.0 million letter of credit sub-facility and a $ 5.0 million swing-line sub-facility (“Revolving Credit Facility,” and together with the Term Loan Facility, each a “Credit Facility” and collectively, the “Credit Facilities”). The obligations under the Credit Agreement and the related loan documents (including without limitation, the borrowings under the Credit Facilities and obligations in respect of certain cash management and hedging obligations owing to the agents, the lenders or their affiliates), are, in each case, secured by a lien on and security interest in substantially all of the assets of the Company and its subsidiaries including the Borrower, with certain exclusions as set forth in a collateral agreement entered into on the closing date. 68 First Amendment to the Credit Agreement On September 13, 2018, the Company entered into a first amendment to the Credit Agreement ("First Amended Credit Agreement"). The First Amended Credit Agreement provided for additional funding of $ 50.0 million and was funded in the first quarter of fiscal 2019. Substantially all of the proceeds were used to complete a tender offer to purchase shares of our common and preferred stock. The First Amended Credit Agreement also increased the revolving credit facility to $ 100.0 million from $ 75.0 million, a $ 25.0 million increase. The amendment extended the maturity date to September 13, 2023, five years from the effective date of the first amendment. The first amendment also amended the interest rate pricing matrix (as follows) as well as the principal payment schedule (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 I Less than 2.00x 0.75 % 1.75 % II Greater than or equal to 2.00x and less than 2.50x 1.00 % 2.00 % III Greater than or equal to 2.50x and less than 3.00x 1.25 % 2.25 % IV Greater than or equal to 3.00x and less than 3.25x 1.50 % 2.50 % V Greater than or equal to 3.25x and less than 3.50x 1.75 % 2.75 % VI Greater than 3.50x 2.00 % 3.00 % Second Amendment to the Credit Agreement On May 7, 2020, the Company entered into a second amendment to the Credit Agreement and First Amended Credit Agreement (“Second Amended Credit Agreement”). The Second Amended Credit Agreement provided $ 41.9 million in additional revolving commitments bringing the total revolving commitments to $ 141.9 million. The revolving commitments under the Second Amended Credit Agreement mature on September 13, 2023, which is the fifth anniversary of the effective date of the First Amended Credit Agreement. The interest rate pricing grid remained unchanged, but the LIBOR floor was amended from 0 % to 0.75 %. We incurred $ 0.9 million in fees related to the amendment. The fees were capitalized to other assets on the Consolidated Balance Sheets and are being amortized on a straight-line basis to interest expense until maturity of the 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"). 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 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. 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 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 69 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 (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 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: 70 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. 71 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: (in thousands) October 1, 2022 October 2, 2021 Term loans, net of deferred financing costs of $ 1,410 and $ 2,027 , respectively $ 150,190 $ 164,423 Less: Current portion of long-term debt 19,800 14,850 Long-term debt, net of current portion $ 130,390 $ 149,573 Term loans are recognized on the Consolidated Balance Sheets at the unpaid principal balance, and are not subject to fair value measurement; however, given the variable rates on the loans, the Company estimates the unpaid principal balance to approximate fair value. If measured at fair value in the financial statements, the term loans would be classified as Level 2 in the fair value hierarchy. At October 1, 2022 and October 2, 2021, $ 151.6 million and $ 166.5 million, respectively, were outstanding on the term loans. At October 1, 2022 and October 2, 2021, the stated interest rates on the term loans were 7.9 % and 4.0 %, respectively. At October 1, 2022 and October 2, 2021, the weighted-average annual effective interest rates for the term loans were 8.0 % and 6.0 %, respectively, which included amortization of the deferred debt issuance costs and interest payments relating to the interest rate collar, as applicable. There were $ 20.0 million in borrowings outstanding on the Revolving Credit Facility at October 1, 2022. Additionally, there were $ 6.3 million of Letters of Credit outstanding on October 1, 2022, providing the Company the ability to borrow $ 73.7 million on the revolving line of credit. 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. 72 The schedule of remaining principal maturities for the term loans is as follows at October 1, 2022: (in thousands) Year Principal Payments 2023 $ 19,800 2024 19,800 2025 112,000 Total remaining principal payments $ 151,600 9. Income Taxes The components of income tax benefit (expense) were as follows for the fiscal years presented: (in thousands) 2022 2021 2020 Current tax provision: Federal $ 380 $ 348 $ ( 1,425 ) State — ( 82 ) ( 65 ) Total current tax benefit (expense) $ 380 $ 266 $ ( 1,490 ) Deferred tax provision: Federal $ 10,862 $ 604 $ ( 715 ) State 209 321 686 Total deferred tax benefit (expense) 11,071 925 ( 29 ) Income tax benefit (expense) $ 11,451 $ 1,191 $ ( 1,519 ) At October 1, 2022, the Company had $ 9.5 million in state tax credit carryforwards and $ 0.5 million federal tax credit carryforwards. The Company maintains a partial valuation allowance on the state tax credit carryforwards. Of this balance, the Company estimates approximately $ 6.3 million of state tax credit carryforwards will expire unused between 2025 and 2032. At October 1, 2022, the Company had $ 37.1 million in state net operating loss ("NOL") carryforwards and $ 28.4 million Federal NOL carryforwards. Of this balance, the Company estimates approximately $ 10.9 million of state NOL carryforwards will expire unused between 2028 and 2033. The effective tax rates for fiscal 2022, fiscal 2021 and fiscal 2020 were 21.6 %, 60.2 % and 14.5 %, respectively. 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. These increases were partially offset by a change in uncertain tax positions. The effective tax rate for fiscal 2020 differed from the statutory Federal income tax rate of 21 %. There were minor items that lowered the effective tax rate to 14.5 %, primarily the impacts of tax credits and state taxes on the Federal rate. These decreases were offset to a lesser degree by the recording of a partial valuation allowance for state taxes and minor return to accrual adjustments. 73 A reconciliation between the reported income tax benefit (expense) and the amount computed by applying the statutory federal income tax rate is as follows: (in thousands) 2022 2021 2020 Federal tax benefit (expense) at statutory rate $ 11,141 $ 415 $ ( 2,203 ) Increase (reduction) in income tax benefit resulting from: State taxes, net 2,240 552 1,508 Change in uncertain tax positions 395 ( 635 ) — Share-based compensation ( 513 ) ( 135 ) 188 Permanent items ( 31 ) ( 20 ) ( 33 ) Valuation allowance ( 2,050 ) — ( 977 ) Tax credits 285 450 390 Return to accrual adjustments ( 212 ) 476 ( 260 ) Investor tax on non-consolidated affiliate income 231 ( 28 ) ( 185 ) Other ( 35 ) 116 53 Income tax benefit (expense) $ 11,451 $ 1,191 $ ( 1,519 ) The guidance for accounting for uncertainty in income taxes requires that a determination be made regarding whether a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination, which is the threshold required for recognition of the tax position in the financial statements. During fiscal 2021, management obtained additional information that resulted in a conclusion that certain tax positions previously recognized in specific prior year financial statements may be subject to adjustment in conjunction with an examination. Accordingly, such determination resulted in the derecognition of these tax positions during fiscal 2021. The Company's liability arising from uncertain tax positions ("UTPs"), including accrued interest and penalties, is recorded in other liabilities in the Consolidated Balance Sheets. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: (in thousands) 2022 2021 2020 Balance, beginning of year $ 370 $ — $ — 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 $ 0.1 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 1, 2022, tax years prior to 2018 are generally no longer subject to examination by Federal and most state tax authorities. 74 The following table sets forth the sources of and differences between the financial accounting and tax bases of the Company’s assets and liabilities which give rise to the net deferred tax assets at the dates indicated: (in thousands) October 1, 2022 October 2, 2021 Deferred tax liabilities Property, plant and equipment $ ( 9,899 ) $ ( 10,475 ) Other intangible assets ( 11,539 ) ( 12,060 ) Investor tax on non-consolidated affiliate income ( 461 ) ( 692 ) Other assets ( 127 ) ( 105 ) Total deferred tax liabilities $ ( 22,026 ) $ ( 23,332 ) Deferred tax assets NOL carryforward $ 7,928 $ 1,126 Accrued expenses 5,335 6,941 Compensation 5,139 6,691 Interest limitation carryforward 5,098 1,071 Inventories 3,972 760 Unearned income 3,046 3,488 Tax credits 7,918 7,448 Total deferred tax assets $ 38,436 $ 27,525 Less: valuation allowance ( 5,503 ) ( 3,453 ) Deferred tax assets less valuation allowance $ 32,933 $ 24,072 Net deferred tax assets $ 10,907 $ 740 10. Guarantees, Commitments and Contingencies Litigation At October 1, 2022, the Company had a number of product liability and other cases pending. Management believes that, considering the Company’s insurance coverage and its intention to vigorously defend its positions, the ultimate resolution of these matters will not have a material adverse impact on the Company’s financial statements. Environmental The Company is subject to a variety of environmental regulations relating to the use, storage, discharge and disposal of hazardous materials used in its manufacturing processes. Failure by the Company to comply with present and future regulations could subject it to future liabilities. In addition, such regulations could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The Company is currently not involved in any material environmental proceedings and therefore, management believes that the resolution of environmental matters will not have a material adverse effect on the Company’s financial statements. Our environmental liability using a discount rate of 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 remaining undiscounted payments at October 1, 2022 are as follows: 75 (in thousands) Year Future Payments 2023 $ 88 2024 9 2025 9 2026 9 2027 9 Total remaining principal payments $ 124 Future expenditures may exceed the amounts accrued and estimated. 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 1.2 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: (in thousands) Fiscal Years Ended Lease cost Classification 2022 2021 Operating leases Selling, general and administrative expenses $ 1,399 $ 1,149 Finance leases Amortization of lease assets Cost of goods sold 1,157 1,497 Interest on lease liabilities Interest expense 171 241 Short-term leases (1) Cost of goods sold or selling, general and administrative expenses 995 487 Total lease cost $ 3,722 $ 3,374 (1) Short-term lease cost includes both leases and rentals with initial terms of one year or less. Classification depends on the purpose of the underlying lease. The following table summarizes the lease amounts included on the Consolidated Balance Sheets as follows: (in thousands) Balance Sheet Location October 1, 2022 October 2, 2021 Assets Operating Property, plant and equipment $ 5,487 $ 5,152 Finance (1) Finance lease right-of-use 1,736 5,486 Total lease assets $ 7,223 $ 10,638 Liabilities Current Operating Other current liabilities $ 2,150 $ 1,158 Finance Finance lease obligations 566 1,327 Long-term Operating Other liabilities 4,578 5,529 Finance Finance lease obligations 1,574 4,538 Total lease liabilities $ 8,868 $ 12,552 (1) Net of accumulated amortization of $ 1.8 million and $ 2.8 million, respectively. The financing and operating leases recorded do not assume renewal based on our analysis of those leases and their contractual terms. 76 Lease liability maturities are presented in the following table: (in thousands) October 1, 2022 Fiscal Years Ended Operating Finance Total 2023 $ 2,436 $ 631 $ 3,067 2024 1,697 631 2,328 2025 1,456 994 2,450 2026 1,097 — 1,097 2027 587 — 587 Thereafter 98 — 98 Total future minimum lease payments 7,371 2,256 9,627 Less: imputed interest 643 116 759 Total lease liabilities $ 6,728 $ 2,140 $ 8,868 Lease terms and discount rates are presented in the following table: October 1, 2022 Operating Finance Weighted average remaining lease term 3.8 years 2.4 years Weighted average discount rate 5.1 % 3.3 % Supplemental cash flow information is presented in the following table: Fiscal Years Ended (in thousands) 2022 2021 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows - operating leases $ 1,572 $ 1,394 Operating cash flows - finance leases 171 241 Financing cash flows - finance leases 1,132 1,294 Right-of-use assets exchanged for lease liabilities Operating leases $ 1,424 $ 62 Purchase Commitments In the ordinary course of business, the Company enters into short-term contractual purchase orders for manufacturing inventory and capital assets. The amount of these commitments is expected to be as follows: (in thousands) Fiscal Years Ended Amount 2023 $ 63,562 Total purchase commitments $ 63,562 11. Segment Information We manage our business in two operating segments: (i) the Bus segment, which includes the manufacture and assembly of buses to be sold to a variety of customers across the U.S., Canada, and in 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: 77 Net sales (in thousands) 2022 2021 2020 Bus (1) $ 723,505 $ 625,198 $ 822,616 Parts (1) 77,132 58,797 56,605 Segment net sales $ 800,637 $ 683,995 $ 879,221 (1) Parts segment revenue includes $ 3.9 million, $ 3.8 million, and $ 4.1 million for fiscal 2022, fiscal 2021 and fiscal 2020, respectively, related to inter-segment sales of parts that was eliminated by the Bus segment upon consolidation. Gross profit (in thousands) 2022 2021 2020 Bus $ 5,065 $ 50,394 $ 76,059 Parts 31,481 21,747 20,141 Segment gross profit $ 36,546 $ 72,141 $ 96,200 The following table is a reconciliation of segment gross profit to consolidated income before income taxes for the fiscal years presented: (in thousands) 2022 2021 2020 Segment gross profit $ 36,546 $ 72,141 $ 96,200 Adjustments: Selling, general and administrative expenses ( 77,246 ) ( 65,619 ) ( 74,206 ) Interest expense ( 14,675 ) ( 9,682 ) ( 12,252 ) Interest income 9 4 11 Other income, net 2,947 1,776 738 Loss on debt modification ( 632 ) ( 598 ) — (Loss) income before income taxes $ ( 53,051 ) $ ( 1,978 ) $ 10,491 Sales are attributable to geographic areas based on customer location and were as follows for the fiscal years presented: (in thousands) 2022 2021 2020 United States $ 726,227 $ 601,751 795,207 Canada 69,683 75,644 79,442 Rest of world 4,727 6,600 4,572 Total net sales $ 800,637 $ 683,995 879,221 12. Revenue The following table disaggregates revenue by product category for the periods presented: Fiscal Years Ended (in thousands) 2022 2021 2020 Diesel buses $ 276,395 $ 291,203 $ 397,567 Alternative powered buses (1) 407,599 300,706 381,555 Other (2) 41,858 34,875 45,191 Parts 74,785 57,211 54,908 Net sales $ 800,637 $ 683,995 $ 879,221 (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. 78 13. 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. 14. (Loss) Earnings Per Share The following table presents the basic and diluted earnings per share computation for the fiscal years presented: (in thousands except share data) 2022 2021 2020 Numerator: Net (loss) income $ ( 45,759 ) $ ( 289 ) $ 12,185 Basic (loss) earnings per share: Weighted average common shares outstanding 31,020,399 27,139,054 26,850,999 Basic (loss) earnings per share $ ( 1.48 ) $ ( 0.01 ) $ 0.45 Diluted (loss) earnings per share (1): Weighted average common shares outstanding 31,020,399 27,139,054 26,850,999 Weighted average dilutive securities, restricted stock — — 188,791 Weighted average dilutive securities, stock options — — 46,765 Weighted average shares and dilutive potential common shares 31,020,399 27,139,054 27,086,555 Diluted (loss) earnings per share $ ( 1.48 ) $ ( 0.01 ) $ 0.45 (1) Potentially dilutive securities representing 0.5 million and 0.9 million shares of common stock were excluded from the computation of diluted earnings per share for fiscal 2022 and fiscal 2021, respectively, as their effect would have been anti-dilutive. 15. Share-Based Compensation In fiscal 2015, we adopted the Omnibus Equity Incentive Plan ("Plan") and in fiscal 2020, amended and restated it. The Plan is administered by the Compensation Committee of our Board of Directors and the Committee may grant awards for the issuance of up to an aggregate of 5,200,000 shares of common stock in the form of non-qualified stock options, incentive stock options, stock appreciation rights (collectively, “SARs,” and each individually, a “SAR”), restricted stock, restricted stock units, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based awards. The exercise price of a share subject to a stock option may not be less than 100 % of the fair market value of a share of the Company's common stock with respect to the grant date of such stock option. No portion of the options vest and become exercisable after the date on which the optionee’s service with the Company and its subsidiaries terminates. The vesting of all unvested shares of common stock subject to an option will automatically be accelerated in connection with a “Change in Control,” as defined in the Plan. New shares of the Company's common stock are issued upon stock option exercises, or at the time of vesting for restricted stock. We have granted performance awards as part of our overall compensation plans. The vesting of these awards is primarily based upon the attainment of certain performance metrics established under our annual Management Incentive Plan ("MIP"), with the Compensation Committee of the Board of Directors maintaining final discretion over vesting amounts. Stock-based payments to employees, including grants of stock options, restricted stock and restricted stock units ("RSU"), are recognized in the financial statements based on their fair value. The fair value of each stock option award on the grant date is estimated using the Black-Scholes option-pricing model with the following assumptions: expected dividend yield, expected stock price volatility, weighted-average risk-free interest rate and weighted average expected term of the options. For fiscal 2020, 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 79 vesting tranche of awards. The mid-point between the vesting date and the expiration date is used as the expected term under this method. The risk-free interest rate used in the Black-Scholes model is based on the implied yield curve available on U.S. Treasury zero-coupon issues at the date of grant with a remaining term equal to the Company’s expected term assumption. The Company has never declared or paid a cash dividend on its common stock. Restricted stock and RSUs are valued based on the intrinsic value of the difference between the exercise price, if any, of the award and the fair market value of our common stock on the grant date. We expense any award with graded-vesting features using a straight-line attribution method and account for forfeitures in recording share-based compensation expense as they occur. Restricted Stock Awards The following table summarizes the Company's restricted stock and RSU activity for the fiscal year presented: 2022 Restricted Stock Activity Number of Shares Weighted-Average Grant Date Fair Value Balance, beginning of year 248,845 $ 18.50 Granted 188,711 17.45 Vested ( 214,926 ) 23.73 Forfeited ( 65,313 ) 17.78 Balance, end of year 157,317 17.35 The weighted-average grant date fair value of restricted stock awards granted in fiscal 2021 and fiscal 2020 was $ 18.50 and $ 18.64 , respectively. 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 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 The following table summarizes the Company's stock option activity for the fiscal year presented: 2022 Number of Options Weighted Average Exercise Price per Share ($) Outstanding options, beginning of year 626,167 $ 17.93 Granted 169,465 19.37 Exercised (1) ( 15,586 ) 18.28 Expired (57,580) 17.76 Forfeited ( 205,879 ) 17.86 Outstanding options, end of year (2) 516,587 $ 18.07 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 less than $ 0.1 million. (2) Stock options outstanding at the end of the fiscal year had $( 5.0 ) million intrinsic value. (3) Fully vested and exercisable options at the end of the fiscal year had $( 3.5 ) million intrinsic value. The total aggregate intrinsic value of stock options exercised during fiscal 2021 and fiscal 2020 was $ 1.1 million and $ 4.3 million, respectively. 80 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 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: 2022 2021 2020 Expected volatility 46 % 41 % 32 % Expected dividend yield 0 % 0 % 0 % Risk-free interest rate 1.30 % 0.49 % 1.61 % Expected term (in years) 4.5 - 6.0 2.7 - 6.0 4.5 - 6.0 Weighted-average grant-date fair value $ 7.04 $ 6.58 $ 6.91 16. Benefit Plans Defined Benefit Pension Plan The Company has a defined benefit pension plan (“Defined Benefit Plan”) covering U.S. hourly and salaried personnel. On May 13, 2002, the Defined Benefit Plan was amended to freeze new participation as of May 15, 2002, and therefore, any new employees who started on or after May 15, 2002 were not permitted to participate in the Defined Benefit Plan. Effective January 1, 2006, the benefit plan was frozen to all participants. No accrual of future benefits is calculated beyond this date. The Company 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. The projected benefit obligation (“PBO”) for the Defined Benefit Plan was $ 122.6 million and $ 160.1 million at October 1, 2022 and October 2, 2021, respectively. The reconciliation of the beginning and ending balances of the PBO for the Defined Benefit Plan for the fiscal years indicated is presented in the following table: Benefit Obligation (in thousands) 2022 2021 Projected benefit obligation balance, beginning of year $ 160,088 $ 169,741 Interest cost 4,368 4,227 Actuarial gain (1) ( 33,293 ) ( 6,627 ) Benefits paid ( 8,592 ) ( 7,253 ) Projected benefit obligations balance, end of year $ 122,571 $ 160,088 (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. Plan Assets: The summary and reconciliation of the beginning and ending balances of the fair value of the Defined Benefit Plan assets are as follows: Plan Assets (in thousands) 2022 2021 Fair value of plan assets, beginning of year $ 137,337 $ 122,482 Actual return on plan assets ( 22,198 ) 17,188 Employer contribution — 4,920 Benefits paid ( 8,592 ) ( 7,253 ) Fair value of plan assets, end of year $ 106,547 $ 137,337 81 Funded Status: The following table reconciles the benefit obligations, plan assets, funded status and net liability information of the Defined Benefit Plan at the dates indicated. The net pension liability is reflected in long-term liabilities on the Consolidated Balance Sheets. Funded Status (in thousands) October 1, 2022 October 2, 2021 Benefit obligation $ 122,571 $ 160,088 Fair value of plan assets 106,547 137,337 Funded status ( 16,024 ) ( 22,751 ) Net pension liability recognized $ ( 16,024 ) $ ( 22,751 ) Fair Value of Plan Assets: The Company determines the fair value of its financial instruments in accordance with the Fair Value Measurements and Disclosures Topic of the ASC. Fair value represents the price to hypothetically sell an asset or transfer a liability in an orderly manner in the principal market for that asset or liability. This topic provides a hierarchy that gives highest priority to unadjusted quoted market prices in active markets for identical assets or liabilities. This topic requires that financial assets and liabilities are classified into one of the following three categories: Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability Level 3 Unobservable inputs for the asset or liability The Company evaluates fair value measurement inputs on an ongoing basis in order to determine if there is a change of sufficient significance to warrant a transfer between levels. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's valuation process. The Defined Benefit Plan assets are comprised of various investment funds, which are valued based upon their quoted market prices. The invested pension plan assets of the Defined Benefit Plan are all Level 2 assets under ASC 820, Fair Value Measurements (“ASC 820”). During fiscal 2022 and fiscal 2021, there were no transfers between levels. There are no sources of significant concentration risk in the invested assets at September 30, 2022. The following table sets forth, by level within the fair value hierarchy, a summary of the Defined Benefit Plan’s investments measured at fair value: (in thousands) Level 1 Level 2 Level 3 Total October 1, 2022 Assets: Equity securities $ — $ 50,590 $ — $ 50,590 Debt securities — 55,957 — 55,957 Total assets at fair value $ — $ 106,547 $ — $ 106,547 October 2, 2021 Assets: Equity securities $ — $ 87,827 $ — $ 87,827 Debt securities — 49,510 — 49,510 Total assets at fair value $ — $ 137,337 $ — $ 137,337 82 The following table represents net periodic benefit (income) expense and changes in plan assets and benefit obligations recognized in other comprehensive (income) loss, before tax effect, for the fiscal years presented: (in thousands) 2022 2021 2020 Interest cost $ 4,368 $ 4,227 $ 4,947 Expected return on plan assets ( 8,491 ) ( 7,777 ) ( 7,384 ) Amortization of net loss 1,163 1,861 1,720 Net periodic benefit income $ ( 2,960 ) $ ( 1,689 ) $ ( 717 ) Net (gain) loss $ ( 2,605 ) $ ( 16,038 ) $ 4,671 Amortization of net loss ( 1,163 ) ( 1,861 ) ( 1,720 ) Total recognized in other comprehensive (income) loss $ ( 3,768 ) $ ( 17,899 ) $ 2,951 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. The unrecognized gain or loss is amortized as follows: the total unrecognized gain or loss, less the larger of 10% of the liability or 10% of the assets, is divided by the average future working lifetime of active plan participants. The following actuarial assumptions were used to determine the benefit obligations at the dates indicated: Weighted-average assumptions used to determine benefit obligations: October 1, 2022 October 2, 2021 Discount rate 5.10 % 2.80 % Rate of compensation increase N/A N/A Weighted-average assumptions used to determine net periodic benefit cost: October 1, 2022 October 2, 2021 Discount rate 2.80 % 2.55 % Expected long-term return on plan assets 6.37 % 6.37 % Rate of compensation increase N/A N/A The benchmark for the discount rates is an estimate of the single equivalent discount rate determined by matching the Defined Benefit Plan’s future expected cash flows to spot rates from a yield curve comprised of high-quality corporate bond rates of various durations. The Defined Benefit Plan asset allocations at the dates indicated are as follows: October 1, 2022 October 2, 2021 Equity securities 47 % 64 % Debt securities 53 % 36 % Total securities 100 % 100 % There was no Company common stock included in equity securities. Assets of the Defined Benefit Plan are invested primarily in funds that further invest in equity or debt securities. Assets are valued using quoted prices in active markets. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the PBO. In estimating that rate, appropriate consideration is given to the returns being earned by the plan assets in the fund and rates of return expected to be available for reinvestment and a building block method. The expected rate of return on each asset class is broken down into three components: (1) inflation, (2) the real risk-free rate of return (i.e., the long-term estimate of future returns on default free U.S. government securities), and (3) the risk premium for each asset class (i.e., the expected return in excess of the risk-free rate). The investment strategy for pension plan assets is to limit risk through asset allocation, diversification, selection and timing. Assets are managed on a total return basis, with dividends and interest reinvested in the account. 83 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: (in thousands) Expected Payments 2023 $ 8,566 2024 8,730 2025 8,869 2026 8,963 2027 8,987 2028 - 2032 44,331 Total expected future benefit payments $ 88,446 Defined Contribution Plan The Company offers a defined contribution 401(k) plan covering substantially all U.S. employees and a defined contribution plan for Canadian employees. During fiscal 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 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. Compensation expense related to defined contribution plans totaled $ 1.6 million, $ 0.5 million and $ 2.2 million for fiscal 2022, fiscal 2021, and fiscal 2020, respectively. Health Benefits The Company provides and is predominantly self-insured for medical, dental, and accident and sickness benefits. A liability related to this obligation is recorded on the Company’s Consolidated Balance Sheets as accrued expenses. Total expense related to this plan recorded for fiscal 2022, fiscal 2021, and fiscal 2020, was $ 13.6 million, $ 13.8 million, and $ 14.9 million, respectively. Employee Compensation Plans The MIP compensates certain key salaried management employees and is derived based upon the "Adjusted EBITDA" (earnings before interest, taxes, depreciation, and amortization, as adjusted) and "Free Cash Flow" metrics. There were no MIP bonus liabilities included in accrued expenses on the Consolidated Balance Sheets at October 1, 2022 or October 2, 2021. 17. Equity Investment in Affiliate On October 14, 2009, Blue Bird and Girardin MiniBus JV Inc. entered into a joint venture, Micro Bird Holdings, Inc. (“Micro Bird”), to combine the complementary expertise of the two separate manufacturers. Blue Bird Micro Bird by Girardin Type A buses are produced in Drummondville, Quebec by Micro Bird. The Company holds a 50 % equity interest in Micro Bird, utilizing the equity method of accounting as the Company does not have control to direct the activities that most significantly impact Micro Bird’s financial performance based on the shared powers of the venture partners. The carrying amount of the equity method investment is adjusted for the Company’s proportionate share of net earnings or losses and any dividends received. At October 1, 2022 and October 2, 2021, the carrying value of the Company's investment was $ 10.7 million and $ 14.8 million, respectively. 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 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. 84 18. Accumulated Other Comprehensive Loss The following table provides information on changes in accumulated other comprehensive loss (“AOCL”) for the periods presented: (in thousands) Defined Benefit Pension Plan Total AOCL Balance, September 28, 2019 $ ( 56,154 ) $ ( 56,154 ) Other comprehensive loss, gross ( 4,671 ) ( 4,671 ) Amounts reclassified and included in earnings 1,720 1,720 Total before taxes ( 2,951 ) ( 2,951 ) Income taxes 708 708 Balance, October 3, 2020 $ ( 58,397 ) $ ( 58,397 ) Other comprehensive income, gross 16,038 16,038 Amounts reclassified and included in earnings 1,861 1,861 Total before taxes 17,899 17,899 Income taxes ( 4,296 ) ( 4,296 ) Balance, October 2, 2021 $ ( 44,794 ) $ ( 44,794 ) Other comprehensive income, gross 2,605 2,605 Amounts reclassified and included in earnings 1,163 1,163 Total before taxes 3,768 3,768 Income taxes ( 904 ) ( 904 ) Balance, October 1, 2022 $ ( 41,930 ) $ ( 41,930 ) 19. Subsequent Events 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 July 1, 2023 $ 50.0 Fiscal quarter ending September 30, 2023 $ 60.0 85 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. 86 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. 87 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.