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 September 30, 2023 and October 1, 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the three years in the period ended September 30, 2023, 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 September 30, 2023 and October 1, 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023 , 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 September 30, 2023, 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 11, 2023 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 $15.4 million as of September 30, 2023. We identified the evaluation of the methodology, including the assumptions for the average warranty costs per unit and the payment patterns over the term of the warranty used in the evaluation of the warranty reserve as a critical audit matter. The principle considerations for our determination were (i) the Company’s methodology and 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 methodology and assumptions regarding the determination of the average expected warranty claims and the effect of those assumptions on the reserve. 52 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 methodology and assumptions utilized to estimate the warranty reserve; • Testing management's process used to develop the warranty reserve, including the mathematical accuracy of the calculation and the relevance, reliability, and appropriateness of the methodology and assumptions and the sources of data from which the assumptions were derived; • Utilizing 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 related to the 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, P.C. We have served as the Company's auditor since 2016. Atlanta, Georgia December 11, 2023 53 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 September 30, 2023, 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 September 30, 2023, 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 September 30, 2023 and October 1, 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for each of the three years in the period ended September 30, 2023, and the related notes and schedule and our report dated December 11, 2023 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, P.C. Atlanta, Georgia December 11, 2023 54 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except for share data) September 30, 2023 October 1, 2022 Assets Current assets Cash and cash equivalents $ 78,988 $ 10,479 Accounts receivable, net 12,574 12,534 Inventories 135,286 142,977 Other current assets 9,215 8,486 Total current assets $ 236,063 $ 174,476 Property, plant and equipment, net 95,101 100,608 Goodwill 18,825 18,825 Intangible assets, net 45,424 47,433 Equity investment in affiliate 17,619 10,659 Deferred tax assets 2,182 10,907 Finance lease right-of-use assets 1,034 1,736 Other assets 1,518 1,482 Total assets $ 417,766 $ 366,126 Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 137,140 $ 107,937 Warranty 6,711 6,685 Accrued expenses 32,894 16,386 Deferred warranty income 8,101 7,205 Finance lease obligations 583 566 Other current liabilities 24,391 6,195 Current portion of long-term debt 19,800 19,800 Total current liabilities $ 229,620 $ 164,774 Long-term liabilities Revolving credit facility $ — $ 20,000 Long-term debt 110,544 130,390 Warranty 8,723 9,285 Deferred warranty income 15,022 11,590 Deferred tax liabilities 2,513 — Finance lease obligations 987 1,574 Other liabilities 7,955 11,107 Pension 2,404 16,024 Total long-term liabilities $ 148,148 $ 199,970 Guarantees, commitments and contingencies (Note 10) Stockholders' equity Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, 0 issued with liquidation preference of $ 0 at September 30, 2023 and October 1, 2022 $ — $ — Common stock, $ 0.0001 par value, 100,000,000 shares authorized, 32,165,225 and 32,024,911 shares outstanding at September 30, 2023 and October 1, 2022, respectively 3 3 Additional paid-in capital 177,861 173,103 Accumulated deficit ( 55,700 ) ( 79,512 ) Accumulated other comprehensive loss ( 31,884 ) ( 41,930 ) Treasury stock, at cost, 1,782,568 shares at September 30, 2023 and October 1, 2022 ( 50,282 ) ( 50,282 ) Total stockholders' equity $ 39,998 $ 1,382 Total liabilities and stockholders' equity $ 417,766 $ 366,126 The accompanying notes are an integral part of these consolidated financial statements. 55 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended (in thousands except for share data) 2023 2022 2021 Net sales $ 1,132,793 $ 800,637 $ 683,995 Cost of goods sold 993,943 764,091 611,854 Gross profit $ 138,850 $ 36,546 $ 72,141 Operating expenses Selling, general and administrative expenses 87,193 77,246 65,619 Operating profit (loss) $ 51,657 $ ( 40,700 ) $ 6,522 Interest expense ( 18,012 ) ( 14,675 ) ( 9,682 ) Interest income 1,004 9 4 Other (expense) income, net ( 8,307 ) 2,947 1,776 Loss on debt modification ( 537 ) ( 632 ) ( 598 ) Income (loss) before income taxes $ 25,805 $ ( 53,051 ) $ ( 1,978 ) Income tax (expense) benefit ( 8,953 ) 11,451 1,191 Equity in net income (loss) of non-consolidated affiliate 6,960 ( 4,159 ) 498 Net income (loss) $ 23,812 $ ( 45,759 ) $ ( 289 ) Earnings (loss) per share: Basic weighted average shares outstanding 32,071,940 31,020,399 27,139,054 Diluted weighted average shares outstanding 32,258,652 31,020,399 27,139,054 Basic earnings (loss) per share $ 0.74 $ ( 1.48 ) $ ( 0.01 ) Diluted earnings (loss) per share $ 0.74 $ ( 1.48 ) $ ( 0.01 ) The accompanying notes are an integral part of these consolidated financial statements. 56 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Fiscal Years Ended (in thousands) 2023 2022 2021 Net income (loss) $ 23,812 $ ( 45,759 ) $ ( 289 ) Other comprehensive income, net of tax Net change in defined benefit pension plan 10,046 2,864 13,603 Total other comprehensive income, net of tax $ 10,046 $ 2,864 $ 13,603 Comprehensive income (loss) $ 33,858 $ ( 42,895 ) $ 13,314 The accompanying notes are an integral part of these consolidated financial statements. 57 BLUE BIRD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended (in thousands) 2023 2022 2021 Cash flows from operating activities Net income (loss) $ 23,812 $ ( 45,759 ) $ ( 289 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization expense 15,978 14,050 13,446 Non-cash interest expense 1,470 3,400 2,754 Share-based compensation expense 4,173 3,690 5,938 Equity in net (income) loss of non-consolidated affiliate ( 6,960 ) 4,159 ( 498 ) Loss (gain) on disposal of fixed assets 64 15 ( 679 ) Impairment of fixed assets — 1,354 — Lower of cost or net realizable value loss — 8,752 — Deferred income tax expense (benefit) 8,065 ( 11,071 ) ( 925 ) Amortization of deferred actuarial pension losses 1,195 3,768 1,861 Loss on debt modification 537 632 598 Changes in assets and liabilities: Accounts receivable ( 40 ) ( 2,567 ) ( 2,345 ) Inventories 7,691 ( 26,523 ) ( 68,684 ) Other assets 453 1,913 ( 409 ) Accounts payable 28,712 35,075 14,081 Accrued expenses, pension and other liabilities 34,778 ( 15,325 ) ( 19,090 ) Total adjustments $ 96,116 $ 21,322 $ ( 53,952 ) Total cash provided by (used in) operating activities $ 119,928 $ ( 24,437 ) $ ( 54,241 ) Cash flows from investing activities Cash paid for fixed assets $ ( 8,520 ) $ ( 6,453 ) $ ( 12,212 ) Proceeds from sale of fixed assets — — 903 Total cash used in investing activities $ ( 8,520 ) $ ( 6,453 ) $ ( 11,309 ) Cash flows from financing activities Revolving credit facility borrowings $ 45,000 $ 135,000 $ 117,000 Revolving credit facility repayments ( 65,000 ) ( 160,000 ) ( 72,000 ) Term loan repayments ( 19,800 ) ( 14,850 ) ( 9,900 ) Principal payments on finance leases ( 570 ) ( 1,132 ) ( 1,294 ) Cash paid for debt costs ( 3,272 ) ( 2,751 ) ( 2,476 ) Sale of common stock (Note 13) — 75,000 — Cash paid for common stock issuance costs (Note 13) — ( 202 ) — Repurchase of common stock in connection with stock award exercises ( 376 ) ( 1,708 ) ( 517 ) Cash received from stock option exercises 1,119 303 1,939 Total cash (used in) provided by financing activities $ ( 42,899 ) $ 29,660 $ 32,752 Change in cash and cash equivalents 68,509 ( 1,230 ) ( 32,798 ) Cash and cash equivalents, beginning of year 10,479 11,709 44,507 Cash and cash equivalents, end of year $ 78,988 $ 10,479 $ 11,709 58 Fiscal Years Ended (in thousands) 2023 2022 2021 Supplemental disclosures of cash flow information Cash paid or received during the period: Interest paid, net of interest received $ 15,049 $ 15,171 $ 11,568 Income tax (received) paid, net of tax refunds ( 29 ) ( 79 ) 31 Non-cash investing and financing activities: Accrued capital additions to property, plant and equipment and other current assets for capitalized intangible assets $ 941 $ 948 $ 587 Cashless exercise of stock options — — 2,299 Right-of-use assets obtained in exchange for operating lease obligations 626 1,424 62 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. 59 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, 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 Restricted stock activity 79,545 — ( 376 ) — — — — — — ( 376 ) Stock option activity 60,769 — 1,119 — — — — — — 1,119 Share-based compensation expense — — 4,015 — — — — — — 4,015 Net income — — — — — — 23,812 — — 23,812 Other comprehensive income, net of tax — — — — — 10,046 — — — 10,046 Balance, September 30, 2023 32,165,225 $ 3 $ 177,861 — $ — $ ( 31,884 ) $ ( 55,700 ) 1,782,568 $ ( 50,282 ) $ 39,998 The accompanying notes are an integral part of these consolidated financial statements. 60 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 September 30, 2023, October 1, 2022 and October 2, 2021 are referred to herein as “fiscal 2023,” “fiscal 2022” and “fiscal 2021,” respectively. There were 52 weeks in fiscal 2023, fiscal 2022, and fiscal 2021. Impacts of COVID-19 and Subsequent Supply Chain Constraints on our Business Towards the end of the second quarter of our fiscal year that ended October 3, 2020 (“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 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. Towards the end of fiscal 2022 and continuing into fiscal 2023, there were slight improvements in the supply chain's ability to deliver the parts and components necessary to support our production operations, resulting in increased (i) manufacturing efficiencies and (ii) production of buses to fulfill sales orders during fiscal 2023. However, the higher costs charged by suppliers to procure inventory that continued into fiscal 2023 had a significant adverse impact on our operations and results. Specifically, such cost increases outpaced the increases in sales prices that we charged for the buses that were sold during the first quarter of fiscal 2023, many of which were included in the backlog of fixed price sales orders originating in fiscal 2021 and the early months of fiscal 2022 that carried forward into fiscal 2023. During the remainder of fiscal 2023, the buses that were sold were generally included in the backlog of fixed price sales orders originating more recently (i.e., the latter months of fiscal 2022 and in fiscal 2023), with the cumulative increases in sales prices we charged for those buses generally outpacing the higher costs we paid to procure inventory, resulting in gross profit during the quarters. While the gross margin on bus sales during the second quarter of fiscal 2023 lagged the historical gross margin reported prior to the COVID-19 pandemic, it returned to more normal historical levels during the latter half of fiscal 2023. 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 and continuing into fiscal 2023, 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 and continuing into fiscal 2023. 61 Significant uncertainty exists concerning the magnitude and duration of the pandemic and subsequent supply chain constraints and accordingly, precludes any prediction as to the ultimate severity of the adverse impacts on our business, financial condition, results of operations, and liquidity. 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 62 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. 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 63 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 64 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 $ 1.5 million and $ 1.4 million at September 30, 2023 and October 1, 2022, 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, $ 1.5 million and $ 1.1 million for fiscal 2023, fiscal 2022 and fiscal 2021, 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, 2023. 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. 65 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 2023, fiscal 2022 and fiscal 2021, the Company expensed $ 6.6 million, $ 6.1 million and $ 5.2 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 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 66 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. ASU 2022-06 On December 21, 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 , which defers the sunset date of ASC 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in ASC 848. The above amendments were effective for all entities from March 12, 2020 through December 31, 2022. An entity could 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 included or was subsequent to March 12, 2020 or (ii) prospective basis from any date within an interim period that included or was subsequent to March 12, 2020 through the date that the interim financial statements were 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 did not expect that any LIBOR settings would become unrepresentative before the announced cessation dates summarized above. With the maturity of the interest rate collar on September 30, 2022 (see Note 3) and execution of the Fifth Amended Credit Agreement (defined below) on September 2, 2022, which, among other things, changed 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”) and became effective at the end of the applicable interest period for any LIBOR borrowings outstanding on the fifth amendment effective date, the Company no longer has any contracts that reference LIBOR. The change in interest rate indices from LIBOR to SOFR occurred at the end of December 2022 when the LIBOR interest rate on outstanding borrowings on the fifth amendment effective date matured. At that time, the Company adjusted the effective interest rate on outstanding borrowings on a prospective basis, which did not 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 ) September 30, 2023 October 1, 2022 Accounts receivable $ 12,674 $ 12,634 Allowance for doubtful accounts ( 100 ) ( 100 ) Accounts receivable, net $ 12,574 $ 12,534 Product Warranties The following table reflects activity in accrued warranty cost (current and long-term portion combined) for the fiscal years presented: (in thousands) 2023 2022 2021 Balance at beginning of period $ 15,970 $ 18,550 $ 21,374 Add: current period accruals 9,084 7,348 6,920 Less: current period reductions of accrual ( 9,620 ) ( 9,928 ) ( 9,744 ) Balance at end of period $ 15,434 $ 15,970 $ 18,550 67 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) 2023 2022 2021 Balance at beginning of period $ 18,795 $ 20,144 $ 22,588 Add: current period deferred income 12,013 6,847 6,192 Less: current period recognition of income ( 7,685 ) ( 8,196 ) ( 8,636 ) Balance at end of period $ 23,123 $ 18,795 $ 20,144 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 $ 8.1 million of the outstanding contract liability in fiscal 2024, and the remaining balance thereafter. Other Current Liabilities The balance in other current liabilities as of September 30, 2023 includes approximately $ 18.5 million of funds awarded by the U.S. Environmental Protection Agency in administering the U.S. Infrastructure Investment and Jobs Act (“IIJA”) that was signed into law in mid-November 2021. The IIJA allocates federal funds to help local school jurisdictions purchase zero and low emission school buses over a five year period. The Company recorded the receipt of these funds as deferred revenue and expects to recognize the vast majority of this amount as revenue during first half of fiscal 2024 as the underlying buses are produced and delivered. 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) September 30, 2023 October 1, 2022 Current portion $ 4,475 $ 3,996 Long-term portion 1,771 1,794 Total accrued self-insurance $ 6,246 $ 5,790 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 $ 18.5 million, $ 16.0 million and $ 13.4 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively. The related cost of goods sold were $ 16.6 million, $ 14.3 million and $ 11.7 million for fiscal 2023, fiscal 2022 and fiscal 2021, 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 fiscal 2021 and fiscal 2022, the three month LIBOR rate fell below the established floor, which required us to make $ 2.0 million and $ 1.2 million in total cash payments to the counterparty in each fiscal year, respectively. 68 4. Inventories The following table presents components of inventories at the dates indicated: (in thousands) September 30, 2023 October 1, 2022 Raw materials $ 88,116 $ 106,070 Work in process 45,875 35,398 Finished goods 1,295 1,509 Total inventories $ 135,286 $ 142,977 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. No such cumulative cost in excess of net realizable value was present at September 30, 2023. 5. Property, Plant and Equipment Property, plant and equipment, net, consisted of the following at the dates indicated: (in thousands) September 30, 2023 October 1, 2022 Land $ 2,504 $ 2,504 Buildings 64,206 57,570 Machinery and equipment 115,248 105,789 Office furniture, equipment and other 2,355 2,276 Computer equipment and software 20,662 20,471 Construction in process 7,151 15,004 Property, plant and equipment, gross 212,126 203,614 Accumulated depreciation and amortization ( 121,323 ) ( 108,493 ) Operating lease right-of-use assets (1) 4,298 5,487 Property, plant and equipment, net $ 95,101 $ 100,608 (1) Further information is included in Note 10, Guarantees, Commitments and Contingencies . Depreciation and amortization expense for property, plant and equipment was $ 13.3 million, $ 10.9 million, and $ 9.8 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively. We capitalized $ 0.7 million of interest expense in fiscal 2023 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 2023 or fiscal 2021. 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 September 30, 2023 Bus $ 15,139 $ — $ 15,139 Parts 3,686 — 3,686 Total $ 18,825 $ — $ 18,825 October 1, 2022 Bus $ 15,139 $ — $ 15,139 Parts 3,686 — 3,686 Total $ 18,825 $ — $ 18,825 69 In the fourth quarters of fiscal 2023 and fiscal 2022, 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: September 30, 2023 October 1, 2022 (in thousands) Gross Carrying Amount Accumulated Amortization Total Gross Carrying Amount Accumulated Amortization Total Finite lived: Engineering designs $ 3,156 $ 3,156 $ — $ 3,156 $ 3,016 $ 140 Finite lived: Customer relationships 37,425 31,817 5,608 37,425 29,948 7,477 Total amortized intangible assets 40,581 34,973 5,608 40,581 32,964 7,617 Indefinite lived: Trade name 39,816 — 39,816 39,816 — 39,816 Total intangible assets $ 80,397 $ 34,973 $ 45,424 $ 80,397 $ 32,964 $ 47,433 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 2023 and fiscal 2022, 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, $ 2.0 million, and $ 2.2 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively. Remaining a mortization expense for finite lived intangible assets is expected to be as follows: (in thousands) Fiscal Years Ending Amortization Expense 2024 $ 1,869 2025 1,869 2026 1,870 Total amortization expense $ 5,608 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. 70 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 subsequently 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 71 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: 72 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' (Deficit) Equity , 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. 73 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"). 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 was discontinued subsequent to June 30, 2023, to SOFR. Such change became 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. 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" and collectively, the "Amended Credit Agreement"). The Sixth Amended Credit Agreement, among other things, extends the maturity date for both the Term Loan Facility and Revolving Credit Facility from September 13, 2023 to December 31, 2024. The total Revolving Credit Facility commitment is reduced to an aggregate principal amount of $ 90.0 million, of which $ 80.0 million is available for Borrower to draw, with the remaining $ 10.0 million subject to written approval from the lenders, which, once obtained, will be irrevocable. There was no change in the Term Loan Facility commitment; however, the Sixth Amended Credit Agreement requires principal repayments approximating $ 5.0 million on a quarterly basis through September 30, 2024, with the remaining balance due upon maturity. There were $ 151.6 million of term loan borrowings outstanding on the sixth amendment effective date. The Sixth Amended Credit Agreement also provides for temporary amendments to certain financial performance covenants during the Amended Limited Availability Period, which will terminate on the date on which the Company’s TNLR for the two fiscal quarters most recently ended is each less than 4.00x and no default or event of default has occurred and is continuing. However, the Amended Limited Available Period can re-occur upon a default or event of default or if the TNLR for the immediately preceding fiscal quarter is equal to or greater than 4.00x. The minimum consolidated EBITDA that the Company is required to maintain during the Amended Limited Availability Period is updated as set forth in the table below (in millions): Period Minimum Consolidated EBITDA Fiscal quarter ending July 1, 2023 $ 50.0 Fiscal quarter ending September 30, 2023 $ 60.0 74 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 was adjusted, as applicable, for the fiscal quarter ending December 31, 2022 and subsequently in accordance with the amended pricing grid set forth above. 75 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. The Company incurred approximately $ 3.3 million in lender fees and other issuance costs relating to the sixth amendment. Of such total, approximately $ 1.2 million and $ 1.5 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 $ 0.5 million was recorded to loss on debt modification on the Consolidated Statements of Operations. Additional Disclosures Debt consisted of the following at the dates indicated: (in thousands) September 30, 2023 October 1, 2022 Term loans, net of deferred financing costs of $ 1,456 and $ 1,410 , respectively $ 130,344 $ 150,190 Less: Current portion of long-term debt 19,800 19,800 Long-term debt, net of current portion $ 110,544 $ 130,390 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 September 30, 2023 and October 1, 2022, $ 131.8 million and $ 151.6 million, respectively, were outstanding on the term loans. At September 30, 2023 and October 1, 2022, the stated interest rates on the term loans were 10.0 % and 7.9 %, respectively. At September 30, 2023 and October 1, 2022, the weighted-average annual effective interest rates for the term loans were 10.9 % and 8.0 %, respectively, which included amortization of the deferred debt issuance costs and interest payments relating to the interest rate collar, as applicable. There were no borrowings outstanding on the Revolving Credit Facility at September 30, 2023. Additionally, there were $ 6.3 million of Letters of Credit outstanding on September 30, 2023, providing the Company the ability to borrow $ 83.7 million on the revolving line of credit. Interest expense on all indebtedness for fiscal 2023, fiscal 2022 and fiscal 2021 was $ 18.0 million, $ 14.7 million, and $ 9.7 million, respectively. The schedule of remaining principal maturities for the term loans is as follows at September 30, 2023: (in thousands) Year Principal Payments 2024 $ 19,800 2025 112,000 Total remaining principal payments $ 131,800 On November 17, 2023, prior to filing our fiscal 2023 Form 10-K, the Amended Credit Agreement was refinanced via the execution of a new credit agreement. Among other changes, the new credit agreement requires quarterly principal payments of approximately $ 1.3 million effective for the quarter ending March 30, 2024, with the remaining unpaid principal balance due on November 17, 2028. See Note 20, Subsequent Events , for further discussion. 76 9. Income Taxes The components of income tax (expense) benefit were as follows for the fiscal years presented: (in thousands) 2023 2022 2021 Current tax provision: Federal $ ( 645 ) $ 380 $ 348 State ( 243 ) — ( 82 ) Total current tax (expense) benefit $ ( 888 ) $ 380 $ 266 Deferred tax provision: Federal $ ( 6,230 ) $ 10,862 $ 604 State ( 1,835 ) 209 321 Total deferred tax (expense) benefit ( 8,065 ) 11,071 925 Income tax (expense) benefit $ ( 8,953 ) $ 11,451 $ 1,191 At September 30, 2023, the Company had $ 8.5 million (tax effected) in total state tax attributes, primarily comprised of $ 6.7 million (tax effected) in state tax credit carryforwards and $ 0.9 million (tax effected) in state net operating loss ("NOL") carryforwards. The Company maintains a partial valuation allowance on these state tax attributes. Specifically, the Company estimates that approximately $ 5.2 million (tax effected) of state tax credit carryforwards will expire unused between 2025 and 2032 and approximately $ 0.5 million (tax effected) of state NOL carryforwards will expire unused between 2028 and 2033. At September 30, 2023, the Company had $ 0.2 million (tax effected) in Federal NOL carryforwards, which the Company estimates will be fully utilized in future periods. The effective tax rates for fiscal 2023, fiscal 2022 and fiscal 2021 were 34.7 %, 21.6 % and 60.2 %, respectively. The effective tax rate for fiscal 2023 differed from the statutory Federal income tax rate of 21.0 %. The increase in the effective tax rate to 34.7 % was primarily due to the impacts of state taxes and certain permanent items on the Federal rate. 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 21.0 %. There were several items that increased the effective tax rate to 60.2 %, including the impacts of tax credits, return to accrual adjustments, and state taxes on the Federal rate. These increases were partially offset by a change in uncertain tax positions. A reconciliation between the reported income tax (expense) benefit and the amount computed by applying the statutory federal income tax rate is as follows: (in thousands) 2023 2022 2021 Federal tax (expense) benefit at statutory rate $ ( 5,419 ) $ 11,141 $ 415 (Increase) reduction in income tax expense resulting from: State taxes, net ( 1,700 ) 2,240 552 Change in uncertain tax positions 240 395 ( 635 ) Share-based compensation ( 95 ) ( 513 ) ( 135 ) Permanent items ( 1,582 ) ( 31 ) ( 20 ) Valuation allowance ( 319 ) ( 2,050 ) — Tax credits 330 285 450 Return to accrual adjustments 3 ( 212 ) 476 Investor tax on non-consolidated affiliate income ( 404 ) 231 ( 28 ) Other ( 7 ) ( 35 ) 116 Income tax (expense) benefit $ ( 8,953 ) $ 11,451 $ 1,191 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 77 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) 2023 2022 2021 Balance, beginning of year $ 110 $ 370 $ — Additions for tax positions of prior years — — 370 Lapses of applicable statute of limitations ( 110 ) ( 260 ) — Balance, end of year $ — $ 110 $ 370 The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There was no accrued interest and penalties at September 30, 2023 and $ 0.1 million at October 1, 2022. The Company is subject to taxation mostly in the U.S. and various state jurisdictions. At September 30, 2023, tax years prior to 2019 are generally no longer subject to examination by Federal and most state tax authorities. The following table sets forth the sources of and differences between the financial accounting and tax bases of the Company’s assets and liabilities which give rise to the net deferred tax assets at the dates indicated: (in thousands) September 30, 2023 October 1, 2022 Deferred tax liabilities Property, plant and equipment $ ( 10,880 ) $ ( 9,899 ) Other intangible assets ( 11,167 ) ( 11,539 ) Investor tax on non-consolidated affiliate income ( 866 ) ( 461 ) Other assets — ( 127 ) Total deferred tax liabilities $ ( 22,913 ) $ ( 22,026 ) Deferred tax assets NOL carryforward $ 1,168 $ 7,928 Accrued expenses 5,586 5,335 Compensation 2,839 5,139 Interest limitation carryforward 5,235 5,098 Inventories 743 3,972 Other assets 3,052 — Unearned income 3,096 3,046 Tax credits 6,685 7,918 Total deferred tax assets $ 28,404 $ 38,436 Less: valuation allowance ( 5,822 ) ( 5,503 ) Deferred tax assets less valuation allowance $ 22,582 $ 32,933 Net deferred tax (liabilities) assets $ ( 331 ) $ 10,907 10. Guarantees, Commitments and Contingencies Litigation At September 30, 2023, 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. 78 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, included in current accrued expenses and other long-term liabilities on the Consolidated Balance Sheets, was $ 0.3 million and $ 0.1 million at September 30, 2023 and October 1, 2022, respectively. Cash flows over the next five years are expected to be immaterial each year, with no material difference between total cash flows and our accrued balance. 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 0.3 years to 5.9 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 2023 2022 Operating leases Selling, general and administrative expenses $ 2,188 $ 1,399 Finance leases Amortization of lease assets Cost of goods sold 702 1,157 Interest on lease liabilities Interest expense 60 171 Short-term leases (1) Cost of goods sold or selling, general and administrative expenses 1,993 995 Total lease cost $ 4,943 $ 3,722 (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 September 30, 2023 October 1, 2022 Assets Operating Property, plant and equipment $ 4,298 $ 5,487 Finance (1) Finance lease right-of-use 1,034 1,736 Total lease assets $ 5,332 $ 7,223 Liabilities Current Operating Other current liabilities $ 1,593 $ 2,150 Finance Finance lease obligations 583 566 Long-term Operating Other liabilities 3,608 4,578 Finance Finance lease obligations 987 1,574 Total lease liabilities $ 6,771 $ 8,868 (1) Net of accumulated amortization of $ 2.5 million and $ 1.8 million, respectively. The financing and operating leases recorded do not assume renewal based on our analysis of those leases and their contractual terms. 79 Lease liability maturities are presented in the following table: (in thousands) September 30, 2023 Fiscal Years Ended Operating Finance Total 2024 $ 1,878 $ 631 $ 2,509 2025 1,640 994 2,634 2026 1,284 — 1,284 2027 776 — 776 2028 208 — 208 Thereafter 88 — 88 Total future minimum lease payments 5,874 1,625 7,499 Less: imputed interest 673 55 728 Total lease liabilities $ 5,201 $ 1,570 $ 6,771 Lease terms and discount rates are presented in the following table: September 30, 2023 Operating Finance Weighted average remaining lease term 3.5 years 1.5 years Weighted average discount rate 5.0 % 3.3 % Supplemental cash flow information is presented in the following table: Fiscal Years Ended (in thousands) 2023 2022 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows - operating leases $ 2,688 $ 1,572 Operating cash flows - finance leases 60 171 Financing cash flows - finance leases 570 1,132 Right-of-use assets exchanged for lease liabilities Operating leases $ 626 $ 1,424 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 2024 $ 109,187 Total purchase commitments $ 109,187 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: 80 Net sales (in thousands) 2023 2022 2021 Bus (1) $ 1,034,625 $ 723,505 $ 625,198 Parts (1) 98,168 77,132 58,797 Segment net sales $ 1,132,793 $ 800,637 $ 683,995 (1) Parts segment revenue includes $ 5.6 million, $ 3.9 million, and $ 3.8 million for fiscal 2023, fiscal 2022 and fiscal 2021, respectively, related to inter-segment sales of parts that was eliminated by the Bus segment upon consolidation. Gross profit (in thousands) 2023 2022 2021 Bus $ 91,003 $ 5,065 $ 50,394 Parts 47,847 31,481 21,747 Segment gross profit $ 138,850 $ 36,546 $ 72,141 The following table is a reconciliation of segment gross profit to consolidated income before income taxes for the fiscal years presented: (in thousands) 2023 2022 2021 Segment gross profit $ 138,850 $ 36,546 $ 72,141 Adjustments: Selling, general and administrative expenses ( 87,193 ) ( 77,246 ) ( 65,619 ) Interest expense ( 18,012 ) ( 14,675 ) ( 9,682 ) Interest income 1,004 9 4 Other (expense) income, net ( 8,307 ) 2,947 1,776 Loss on debt modification ( 537 ) ( 632 ) ( 598 ) Income (loss) before income taxes $ 25,805 $ ( 53,051 ) $ ( 1,978 ) Sales are attributable to geographic areas based on customer location and were as follows for the fiscal years presented: (in thousands) 2023 2022 2021 United States $ 1,048,279 $ 726,227 601,751 Canada 78,907 69,683 75,644 Rest of world 5,607 4,727 6,600 Total net sales $ 1,132,793 $ 800,637 683,995 12. Revenue The following table disaggregates revenue by product category for the periods presented: Fiscal Years Ended (in thousands) 2023 2022 2021 Diesel buses $ 341,969 $ 276,395 $ 291,203 Alternative powered buses (1) 648,900 407,599 300,706 Other (2) 46,246 41,858 34,875 Parts 95,678 74,785 57,211 Net sales $ 1,132,793 $ 800,637 $ 683,995 (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. 81 13. Stockholders’ (Deficit) Equity 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, L.P. and Blackwell Partners LLC – Series A (collectively, “Coliseum”), with net proceeds of $ 74.8 million. Subsequent to the sale, Coliseum owned an approximate 15 % equity interest in the Company. During the second half of fiscal 2023, Coliseum sold all of its shares of common stock purchased through the private placement (see Note 19 for further information). 14. Earnings (Loss) Per Share The following table presents the basic and diluted earnings per share computation for the fiscal years presented: (in thousands except share data) 2023 2022 2021 Numerator: Net income (loss) $ 23,812 $ ( 45,759 ) $ ( 289 ) Basic earnings (loss) per share: Weighted average common shares outstanding 32,071,940 31,020,399 27,139,054 Basic earnings (loss) per share $ 0.74 $ ( 1.48 ) $ ( 0.01 ) Diluted earnings (loss) per share (1): Weighted average common shares outstanding 32,071,940 31,020,399 27,139,054 Weighted average dilutive securities, restricted stock 166,720 — — Weighted average dilutive securities, stock options 19,992 — — Weighted average shares and dilutive potential common shares 32,258,652 31,020,399 27,139,054 Diluted earnings (loss) per share $ 0.74 $ ( 1.48 ) $ ( 0.01 ) (1) Potentially dilutive securities representing 0.7 million and 0.5 million shares of common stock were excluded from the computation of diluted earnings per share for fiscal 2023 and fiscal 2022, 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. Because we do not have sufficient history with respect to stock option activity and post-vesting cancellations, the expected term assumption is based on the simplified method under U.S. GAAP, which is based on the vesting period and contractual term for each vesting tranche of awards. 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 82 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: 2023 Restricted Stock Activity Number of Shares Weighted-Average Grant Date Fair Value Balance, beginning of year 157,317 $ 17.35 Granted 541,651 23.41 Vested ( 98,229 ) 17.36 Forfeited ( 16,676 ) 24.05 Balance, end of year 584,063 22.99 The weighted-average grant date fair value of restricted stock awards granted in fiscal 2022 and fiscal 2021 was $ 17.35 and $ 18.50 , respectively. Compensation expense for restricted stock awards, recognized in selling, general and administrative expenses on the Consolidated Statements of Operations, was $ 3.2 million, $ 2.6 million, and $ 3.9 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively, with associated tax benefits of $ 0.8 million, $ 0.7 million, and $ 1.0 million, respectively. At September 30, 2023, unrecognized compensation cost related to restricted stock awards totaled $ 10.4 million and is expected to be recognized over a weighted-average period of 1.5 years. Stock Option Awards The following table summarizes the Company's stock option activity for the fiscal year presented: 2023 Number of Options Weighted Average Exercise Price per Share ($) Outstanding options, beginning of year 516,587 $ 18.07 Granted 221,946 13.19 Exercised (1) ( 60,769 ) 18.41 Expired ( 17,493 ) 18.86 Forfeited ( 19,918 ) 16.27 Outstanding options, end of year (2) 640,353 $ 16.38 Fully vested and exercisable options, end of year (3) 387,796 $ 17.81 (1) Stock options exercised during the fiscal year had an aggregate intrinsic value totaling $ 0.3 million. (2) Stock options outstanding at the end of the fiscal year had $ 3.2 million intrinsic value. (3) Fully vested and exercisable options at the end of the fiscal year had $ 1.4 million intrinsic value. The total aggregate intrinsic value of stock options exercised during fiscal 2022 and fiscal 2021 was less than $ 0.1 million and $ 1.1 million, respectively. Compensation expense for stock option awards, recognized in selling, general and administrative expenses on the Consolidated Statements of Operations, was $ 0.8 million, $ 0.9 million, and $ 1.9 million for fiscal 2023, fiscal 2022, and fiscal 2021, respectively, with associated tax benefits of $ 0.2 million, $ 0.2 million, and $ 0.5 million, respectively. At September 30, 2023, unrecognized compensation cost related to stock option awards totaled $ 0.9 million and is expected to be recognized over a weighted-average period of 1.4 years. 83 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: 2023 2022 2021 Expected volatility 51 % 46 % 41 % Expected dividend yield 0 % 0 % 0 % Risk-free interest rate 3.78 % 1.30 % 0.49 % Expected term (in years) 4.5 - 6.0 4.5 - 6.0 2.7 - 6.0 Weighted-average grant-date fair value $ 6.17 $ 7.04 $ 6.58 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 $ 1.1 million of contributions to the Defined Benefit Plan during fiscal 2023 and made no contributions in fiscal 2022. For fiscal 2023 and fiscal 2022, benefits paid were $ 13.2 million and $ 8.6 million, respectively. The fiscal 2023 benefit payments included $ 5.2 million paid to certain participants who met certain specified criteria (including that they were former employees of the Company who earned enough service to qualify for pension benefits under the terms of the Defined Benefit Plan while they were employed but were not otherwise receiving retirement payments on the date that the benefits were paid) and elected to receive a single lump-sum payment in lieu of future retirement payments, with no similar payments made in fiscal 2022. The projected benefit obligation (“PBO”) for the Defined Benefit Plan was $ 108.4 million and $ 122.6 million at September 30, 2023 and October 1, 2022, 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) 2023 2022 Projected benefit obligation balance, beginning of year $ 122,571 $ 160,088 Interest cost 6,035 4,368 Actuarial gain (1) ( 7,038 ) ( 33,293 ) Benefits paid ( 13,175 ) ( 8,592 ) Projected benefit obligations balance, end of year $ 108,393 $ 122,571 (1) Includes assumption changes, as applicable, 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) 2023 2022 Fair value of plan assets, beginning of year $ 106,547 $ 137,337 Actual return on plan assets 11,504 ( 22,198 ) Employer contribution 1,113 — Benefits paid ( 13,175 ) ( 8,592 ) Fair value of plan assets, end of year $ 105,989 $ 106,547 84 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) September 30, 2023 October 1, 2022 Benefit obligation $ 108,393 $ 122,571 Fair value of plan assets 105,989 106,547 Funded status ( 2,404 ) ( 16,024 ) Net pension liability recognized $ ( 2,404 ) $ ( 16,024 ) 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 2023 and fiscal 2022, there were no transfers between levels. There are no sources of significant concentration risk in the invested assets at September 30, 2023. 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 September 30, 2023 Assets: Equity securities $ — $ 60,055 $ — $ 60,055 Debt securities — 45,934 — 45,934 Total assets at fair value $ — $ 105,989 $ — $ 105,989 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 85 The following table represents net periodic benefit expense (income) and changes in plan assets and benefit obligations recognized in other comprehensive income, before tax effect, for the fiscal years presented: (in thousands) 2023 2022 2021 Interest cost $ 6,035 $ 4,368 $ 4,227 Expected return on plan assets ( 6,518 ) ( 8,491 ) ( 7,777 ) Amortization of net loss 1,195 1,163 1,861 Net periodic benefit expense (income) $ 712 $ ( 2,960 ) $ ( 1,689 ) Net gain $ ( 12,024 ) $ ( 2,605 ) $ ( 16,038 ) Amortization of net loss ( 1,195 ) ( 1,163 ) ( 1,861 ) Total recognized in other comprehensive income $ ( 13,219 ) $ ( 3,768 ) $ ( 17,899 ) Total recognized in net periodic pension benefit expense (income) and other comprehensive income $ ( 12,507 ) $ ( 6,728 ) $ ( 19,588 ) 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 $ 0.7 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: September 30, 2023 October 1, 2022 Discount rate 5.70 % 5.10 % Rate of compensation increase N/A N/A Weighted-average assumptions used to determine net periodic benefit cost: September 30, 2023 October 1, 2022 Discount rate 5.10 % 2.80 % 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: September 30, 2023 October 1, 2022 Equity securities 57 % 47 % Debt securities 43 % 53 % 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. 86 The Company expects to make no contributions to its Defined Benefit Plan in fiscal 2024 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 2024 $ 8,636 2025 8,733 2026 8,789 2027 8,774 2028 8,717 2029 - 2033 41,953 Total expected future benefit payments $ 85,602 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 2023, fiscal 2022 and fiscal 2021, 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 December 2022. The plans also provide for an additional discretionary match depending on Company performance. Compensation expense related to defined contribution plans totaled $ 1.3 million, $ 1.6 million and $ 0.5 million for fiscal 2023, fiscal 2022, and fiscal 2021, 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 2023, fiscal 2022, and fiscal 2021, was $ 15.3 million, $ 13.6 million, and $ 13.8 million, respectively. Employee Compensation Plans The MIP compensates certain salaried employees and is derived based upon the "Adjusted EBITDA" (earnings before interest, taxes, depreciation, and amortization, as adjusted) and "Free Cash Flow" metrics. There was $ 8.3 million in MIP bonus liabilities included in accrued expenses on the Consolidated Balance Sheets at September 30, 2023 and none at October 1, 2022. 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 September 30, 2023 and October 1, 2022, the carrying value of the Company's investment was $ 17.6 million and $ 10.7 million, respectively. During fiscal 2023 and fiscal 2022, 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 $ 7.0 million, $( 4.2 ) million, and $ 0.5 million in equity in net income (loss) of non-consolidated affiliate for fiscal 2023, fiscal 2022, and fiscal 2021, respectively. 87 Micro Bird's summarized balance sheet information at its September 30 year end is as follows: Balance Sheet (in thousands) 2023 2022 Current assets $ 72,232 $ 46,951 Non-current assets 21,220 20,625 Total assets $ 93,452 $ 67,576 Current liabilities 64,230 53,022 Non-current liabilities 2,359 1,036 Total liabilities $ 66,589 $ 54,058 Net assets $ 26,863 $ 13,518 Micro Bird's summarized financial results for its three fiscal years ended September 30 are as follows: Income Statement (in thousands) 2023 2022 2021 Revenues $ 203,086 $ 128,343 $ 131,028 Gross profit 35,453 2,071 10,370 Operating income (loss) 18,310 ( 10,453 ) 1,602 Net income (loss) 13,244 ( 8,924 ) 1,438 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, October 3, 2020 $ ( 58,397 ) $ ( 58,397 ) Other comprehensive loss, 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 ) Other comprehensive income, gross 12,024 12,024 Amounts reclassified and included in earnings 1,195 1,195 Total before taxes 13,219 13,219 Income taxes ( 3,173 ) ( 3,173 ) Balance, September 30, 2023 $ ( 31,884 ) $ ( 31,884 ) 19. Stockholder Transaction Costs On June 7, 2023, the Company entered into an underwriting agreement with BofA Securities, Inc. and Barclays Capital Inc., as representatives of the several underwriters and American Securities LLC and Coliseum ("Selling Stockholders"), pursuant to which the Selling Stockholders agreed to sell 5,175,000 shares of common stock, including the sale of 675,000 shares pursuant to the underwriters’ exercise of their over-allotment option, at a purchase price of $ 20.00 per share. On September 11, 2023, the Company entered into another underwriting agreement with Barclays Capital, Inc., and the Selling Stockholders, pursuant to which the Selling Stockholders agreed to sell 2,500,000 shares of common stock, at purchase price of $ 21.00 per share (collectively, "Offerings") 88 The Offerings were conducted pursuant to prospectus supplements, dated June 7, 2023 and September 11, 2023, respectively, to the prospectus, dated December 22, 2021, included in the Company’s registration statement on Form S-3 (File No. 333-261858) that was initially filed with the SEC on December 23, 2021. The Offerings closed on June 12, 2023 and September 14, 2023, respectively. Although the Company did not sell any shares or receive any proceeds from the Offerings, it was required to pay certain expenses in connection with the Offerings, which totaled $ 7.4 million during fiscal 2023, with no similar expense recorded during fiscal 2022. The $ 7.4 million of expense is included within other (expense) income, net on the Consolidated Statements of Operations for fiscal 2023. 20. Subsequent Events 2023 Credit Agreement On November 17, 2023 (the “2023 Closing Date”), Borrower executed a $ 250.0 million five-year credit agreement with Bank of Montreal, acting as administrative agent and an issuing bank; several joint lead arranger partners and issuing banks, including Bank of America; and a syndicate of other lenders (the "2023 Credit Agreement"). The credit facilities provided for under the 2023 Credit Agreement consist of a term loan facility in an aggregate initial principal amount of $ 100.0 million (the “2023 Term Loan Facility”) and a revolving credit facility with aggregate commitments of $ 150.0 million. The revolving credit facility includes a $ 25.0 million letter of credit sub-facility and $ 5.0 million swingline sub-facility (the “2023 Revolving Credit Facility,” and together with the 2023 Term Loan Facility, each a “2023 Credit Facility” and collectively, the “2023 Credit Facilities”). A minimum of $ 100.0 million of additional term loans and/or revolving credit commitments may be incurred under the 2023 Credit Agreement, subject to certain limitations as set forth in the 2023 Credit Agreement, and which additional loans and/or commitments would require further commitments from existing lenders or from new lenders. Borrower has the right to prepay the loans outstanding under the 2023 Credit Facilities without premium or penalty (subject to customary breakage costs, if applicable). Additionally, proceeds from asset sales, condemnation, casualty insurance and/or debt issuances (in certain circumstances) are required to be used to prepay borrowings outstanding under the 2023 Credit Facilities. Borrowings under the 2023 Term Loan Facility, which were made at the 2023 Closing Date, may not be re-borrowed once they are repaid while borrowings under the 2023 Revolving Credit Facility may be repaid and reborrowed from time to time at our election. The 2023 Term Loan Facility is subject to amortization of principal, payable in equal quarterly installments on the last day of each fiscal quarter, commencing on March 30, 2024, with 5.0 % of the $ 100.0 million aggregate principal amount of all initial term loans outstanding at the 2023 Closing Date payable each year prior to the maturity date of the 2023 Term Loan Facility. The remaining initial aggregate principal amount outstanding under the 2023 Term Loan Facility, as well as any outstanding borrowings under the 2023 Revolving Credit Facility, will be payable on the November 17, 2028 maturity date of the 2023 Credit Agreement. The 2023 Credit Facilities are guaranteed by all of the Company’s wholly-owned domestic restricted subsidiaries (subject to customary exceptions) and are secured by a security agreement which pledges a lien on virtually all of the assets of Borrower, the Company and the Company’s other wholly-owned domestic restricted subsidiaries, other than any owned or leased real property and subject to customary exceptions. The $ 100.0 million of 2023 Term Loan Facility proceeds and $ 36.2 million of 2023 Revolving Credit Facility proceeds that were borrowed on the 2023 Closing Date were used to pay (i) the $ 131.8 million of Term Loan Facility indebtedness outstanding under the Amended Credit Agreement (ii) interest and commitment fees accrued under the Amended Credit Agreement through the 2023 Closing Date and (iii) transaction costs associated with the consummation of the 2023 Credit Agreement. Under the terms of the 2023 Credit Agreement, Borrower, the Company and the Company’s other wholly-owned domestic restricted subsidiaries are subject to customary affirmative and negative covenants and events of default for facilities of this type (with customary grace periods, as applicable, and lender remedies). Borrowings under the 2023 Credit Facilities bear interest, at our option, at (i) base rate or (ii) SOFR plus 0.10 %, plus an applicable margin depending on the TNLR of the Company as follows: Level Total Net Leverage Ratio ABR Loans SOFR Loans I Less than 1.00x 0.75 % 1.75 % II Greater than or equal to 1.00x and less than 1.50x 1.50 % 2.50 % III Greater than or equal to 1.50x and less than 2.25x 2.00 % 3.00 % IV Greater than or equal to 2.25x 2.25 % 3.25 % 89 Pricing on the Closing Date was set at Level III until receipt of the financial information and related compliance certificate for the first fiscal quarter ending after the 2023 Closing Date. Borrower is also required to pay lenders an unused commitment fee of between 0.25 % and 0.45 % per annum on the undrawn commitments under the 2023 Revolving Credit Facility, depending on the TNLR, quarterly in arrears. The 2023 Credit Agreement also includes a requirement that the Company comply with the following financial covenants on the last day of each fiscal quarter through maturity: (i) a pro forma TNLR of not greater than 3.00:1.00 and (ii) a pro forma fixed charge coverage ratio (as defined in the 2023 Credit Agreement) of not less than 1.20:1.00. Joint Venture On December 7, 2023, the Company, through its wholly owned subsidiary, BBBC, and GC Mobility Investments I, LLC, a wholly owned subsidiary of Generate Capital, PBC (“Generate Capital”), a sustainable investment company focusing on clean energy, transportation, water, waste, agriculture, smart cities and industrial decarbonization, executed a definitive agreement (“Joint Venture Agreement”) establishing a joint venture, Clean Bus Solutions, LLC, to provide a fleet-as-a-service ("FaaS") offering using electric school buses manufactured and sold by the Company (“Joint Venture”). The service will be offered to qualified customers of the Company. Through the Joint Venture, the Company will provide its end customers with turnkey electrification solutions, including a wide product range consisting of, among others, electric school buses, financing of electric buses and supporting charging infrastructure, project planning and management, and fleet optimization. The Company and Generate Capital will initially have an equal common ownership interest in the Joint Venture, and will initially jointly share management responsibility and control, with each party having certain customary consent and approval rights and control triggers. The parties have each agreed to contribute up to $ 10.0 million to the Joint Venture, as agreed from time to time, for common interests to fund administrative expenses, and up to an additional $ 100.0 million of capital in the form of preferred interests to fund the purchase, delivery, installation, operation and maintenance of FaaS projects, inclusive of Blue Bird electric school buses and associated charging infrastructure. Of this amount, the Company has committed to provide up to $ 20.0 million and Generate Capital has committed to provide up to $ 80.0 million, with the Company’s aggregate commitment in any one year not to exceed $ 10.0 million without its consent. In accordance with the terms of the Joint Venture Agreement, the Company will promote the Joint Venture as the Company’s preferred FaaS offering for electric school buses and has agreed to not participate as a joint venture partner in any other similar FaaS offering for electric school buses, except as an original equipment manufacturer of buses. The Company’s obligations do not prevent or limit any activities of its dealers. The Joint Venture has a perpetual duration subject to the right of either party to terminate early upon the occurrence of certain events of default or the failure to achieve certain milestones set forth in the terms of the Joint Venture Agreement. In connection with the execution of the Joint Venture Agreement, the Company granted Generate Capital warrants to purchase an aggregate of 1,000,000 shares of Company common stock at an exercise price of $ 25.00 per share (“Warrants”), during a five-year exercise period. Two-thirds of the Warrants are immediately exercisable; the remaining Warrants will become exercisable upon certain funding conditions being satisfied. The exercise price and the number of shares issuable upon exercise of the Warrants are subject to adjustment in the event of a recapitalization, stock dividend or similar event. 90 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.