What changed in this filing

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Item 1A. Risk Factors

2023-12-11 compared with 2022-12-12 · 53 added, 45 removed, 292 unchanged (25% of the section changed)

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

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

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

The pandemic has, among other impacts:

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• triggered significant volatility in capital markets;

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

• caused significant disruptions in global supply chains primarily impacting the Company beginning during the second half of fiscal 2021, all of fiscal 2022 and continuing, to a lesser extent, throughout fiscal 2023;

• significantly altered global consumer demand;

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

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

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

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

We are similarly unable to predict the extent to which any future COVID-19 outbreaks could impact our customers, suppliers and other partners and their financial conditions, but adverse effects on these parties would likely also adversely affect us.

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

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

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

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

While the reduction in the demand of school buses resulting from the COVID-19 pandemic began subsiding around the middle of calendar year 2021, the industry began experiencing significant supply chain constraints resulting from, among others, labor shortages due to the ‘great resignation;’ the lack of maintenance on, and acquisition of, capital assets during the extended COVID-19 global lockdowns;

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

These supply chain disruptions had a significant adverse impact our operations and results due to higher purchasing costs, including freight costs incurred to expedite receipt of critical components, increased manufacturing inefficiencies and hindered ability to complete the production of buses to fulfill sales orders, primarily during the latter half of fiscal 2021 and most of fiscal 2022.

The continuing development and fluidity of COVID-19 outbreaks and subsequent supply chain constraints precludes any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity.

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

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

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

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

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

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

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

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

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

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

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

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

Beginning in the fiscal year ending September 28, 2024 ("fiscal 2024") and thereafter, our primary financial covenants are (i) a pro forma Total Net Leverage Ratio ("TNLR"), defined as the ratio of consolidated net debt to consolidated EBITDA (which is an adjusted EBITDA metric that could differ from Adjusted EBITDA appearing in the Company’s periodic filings on Form 10-K or Form 10-Q as the adjustments to the calculations are not uniform) on a trailing four quarter basis, of not greater than 3.00:1.00 and (ii) a pro forma fixed charge coverage ratio (as defined in the 2023 Credit Agreement, which is discussed below) of not less than 1.20:1.00.

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

We can offer no assurances that we would be successful in amending or refinancing the debt.

An amendment or refinancing of our debt could lead to higher interest rates and possible up-front expenses not included in our historical financial statements.

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

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

During fiscal 2022 and fiscal 2023, the ongoing pressure on the global supply chain was further exacerbated as a result of Russia’s invasion of Ukraine towards the end of February 2022.

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

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

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

potential spread and severity of, and additional governmental actions in response to, the conflict and when and to what extent normal business and economic activity and conditions resume and continue without further disruption.

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

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We operate in a highly competitive domestic market.

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

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

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

IC Bus and Thomas Built Bus both sell electric and propane powered school buses.

This brings both competitors into direct competition with our electric and propane powered product offerings.

IC Bus and Thomas Built Bus both sell electric powered school buses.

This brings both competitors into direct competition with our electric powered product offerings.

Our competitors may achieve cost savings or be able to withstand a substantial downturn in the market because their businesses are consolidated with other vehicle lines.

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The school bus market does not have “Buy America” regulations, so competitors or new entrants to the market could manufacture school buses in more cost-effective jurisdictions and import them to the U.S.

to compete with us.

compete with us.

Any increase in competition may cause us to lose market share or compel us to reduce prices to remain competitive, which could result in reduced sales, profitability and cash flows.

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

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

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

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

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

During economic downturns, this tends to result in our utilizing a substantial portion of our cash reserves.

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trade policy, including the imposition of tariffs and anti-dumping/countervailing duties on these components.

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

We can provide no assurance that our ability to sell our products at reasonable margins will not be impaired by the imposition of tariffs or other changes in trade policy which may make it more difficult or more expensive to purchase our products.

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

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

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

As a result, we have historically been unable to pass along to our customers increased costs due to economic fluctuations between these dates as was the case during the second half of fiscal 2021, all of fiscal 2022 and the first quarter of fiscal 2023, which is generally not expected to continue as the Company now includes price escalation provisions when bidding on contracts.

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

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

We generally purchase steel at fixed prices up to four quarters in advance, with larger quantities subject to fixed price purchase contracts in the more immediate upcoming quarters with quantities decreasing in later quarters, but because we usually do not hedge our other primary raw materials (rubber, aluminum and copper), changes in prices of raw materials can significantly impact operating margins.

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

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We may also be required to remedy or retrofit buses in the event that an order is not built to a customer’s specifications or where a design error has been made.

Significant retrofit

and remediation costs or product recalls could have a material adverse effect on our financial condition, results of operations and cash flows.

Significant retrofit and remediation costs or product recalls could have a material adverse effect on our financial condition, results of operations and cash flows.

A failure to renew dealer agreements or cancellation of, or significant delay in, new bus orders may result in unexpected declines in revenue and profitability.

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

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

There are currently no proposed remediation actions to be included in the

corrective action plan.

Based on the data generated from the latest site investigation, we believe our environmental risks have been reduced substantially, but not eliminated.

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If our cash flows and capital resources are insufficient to fund the interest payments on our outstanding borrowings under our credit facility and other debt service obligations and keep us in compliance with the covenants under our debt agreements or to fund our other liquidity needs, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness.

We cannot assure investors that we would be able to take any of these actions, that these actions would permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, which may impose significant operating and financial restrictions on us and could adversely affect our ability to finance our future operations or capital needs;

We can provide no assurance that we would be able to take any of these actions, that these actions would permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, which may impose significant operating and financial restrictions on us and could adversely affect our ability to finance our future operations or capital needs;

obtain standby letters of credit, bank guarantees or performance bonds required to bid on or secure certain customer contracts;

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and plan for or react to market conditions or otherwise execute our business strategies.

If we cannot make scheduled payments on our debt, or if we breach any of the covenants in our debt agreements, we will be in default and, as a result, our lenders could declare all outstanding principal and interest to be due and payable, could terminate their commitments to lend us money and foreclose against the assets securing our borrowings, and we could be forced into bankruptcy or liquidation.

In addition, we and certain of our subsidiaries may incur significant additional indebtedness, including additional secured indebtedness.

commitments to lend us money and foreclose against the assets securing our borrowings, and we could be forced into bankruptcy or liquidation.

In addition, we and certain of our subsidiaries may incur significant additional indebtedness, including additional secured and/or unsecured indebtedness.

Although the terms of our debt agreements contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be significant.

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

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

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

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

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Without the protections afforded by registration, our ability to protect and use our trademarks and other unregistered intellectual property may be limited, which could negatively affect our business in the future.

In addition, while we have not faced intellectual property infringement claims from others in recent years, in the event successful infringement claims are brought against us, particularly claims (under patents or otherwise) against our product design or manufacturing processes, such claims could have a material adverse effect on our business, financial condition or results of operation.

In addition, while we have not faced intellectual property infringement claims from others in recent years, in the event successful infringement claims are brought against

us, particularly claims (under patents or otherwise) against our product design or manufacturing processes, such claims could have a material adverse effect on our business, financial condition or results of operation.

Our business could be materially adversely affected by changes in foreign currency exchange rates.

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

As a result, foreign currency fluctuations and

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

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

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

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Given the extent to which we rely on our employees, any significant deterioration in our relationships with our key employees or overall workforce could materially harm us.

Work stoppages or instability in our relationships with our employees could delay the production and/or development of our products, which could strain relationships with customers and cause a loss of revenues which would adversely affect our operations.

In addition, local economic conditions in the Central Georgia area (where our principal manufacturing facilities are located) may impact our ability to attract and retain qualified personnel.

The ability to negotiate a collective bargaining agreement on terms that are favorable to the Company is uncertain and the final terms of, and costs associated with, the collective bargaining agreement could adversely affect our business, cash flow, results of operations and financial condition.

The Company's business is labor intensive.

As a result of the USW election, a large majority of our workforce is now represented by a labor union.

The Company expects to negotiate in good faith toward a collective bargaining agreement, and any such resulting agreement may cause it to incur higher labor costs for our employees than we would have incurred absent such agreement.

At this time, it is uncertain as to when and if an agreement with the USW will be reached.

As such, uncertainty exists regarding labor costs and labor actions, which may include increased labor costs, strikes, work stoppages, unfair labor practices claims and other disturbances and disputes.

Union actions that may occur in the future could cause disruptions to our operations and may cause us to incur additional costs, any of which could have a material adverse effect on our cash flow, results of operations and financial condition.

Our worker’s compensation insurance may not provide adequate coverage against potential liabilities.

Although we maintain a workers’ compensation insurance stop loss policy to cover us for costs and expenses we may incur resulting from work-related injuries to our employees over our self-insured limit, this insurance may not provide adequate coverage against potential liabilities as we incur the costs and expenses up to our self-insured limit.

In addition, we may incur substantial costs in order to comply with current or future health and safety laws and regulations.

In addition, we may incur substantial costs in order

to comply with current or future health and safety laws and regulations.

These current or future laws and regulations may negatively impact our manufacturing operations.

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

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

to reduce potentially adverse effects on our business.

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

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

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

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

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

At September 30, 2023, approximately 20% of our common stock was owned by ASP, an affiliate of American Securities LLC ("American Securities").

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

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

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On May 28, 2015 and March 12, 2020, we registered 3,700,000 and 1,500,000 common stock shares, respectively, representing the shares of common stock issuable under the Blue Bird Corporation 2015 Omnibus Equity Incentive Plan (the “Incentive Plan”) and, pursuant to Rule 416(c) under the Securities Act of 1933, as amended, an indeterminable number of additional shares of common stock issuable under the Incentive Plan, as such amount may be adjusted as a result of stock splits, stock dividends, recapitalizations, anti-dilution provisions and similar transactions.

At October 1, 2022, there were 1,320,051 common stock shares remaining to be issued under the Incentive Plan.

At September 30, 2023, there were 718,034 common stock shares remaining to be issued under the Incentive Plan.

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

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

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

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

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

The number of shares is indeterminable and is dependent on whether or not common stock is a security being sold in a future offering and, if so, the amount of capital we are attempting to raise and the price at which the shares of common stock can be sold.

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Unresolved Staff Comments

Cybersecurity

The information to be furnished under this item is not required with respect to the fiscal year ended September 30, 2023.

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

What changed 10-K

Item 1A. Risk Factors