revg-10q_20180731.htm

0001564590-18-022674.txt : 20180905 0001564590-18-022674.hdr.sgml : 20180905 20180905170052 ACCESSION NUMBER: 0001564590-18-022674 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 91 CONFORMED PERIOD OF REPORT: 20180731 FILED AS OF DATE: 20180905 DATE AS OF CHANGE: 20180905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REV Group, Inc. CENTRAL INDEX KEY: 0001687221 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLES & PASSENGER CAR BODIES [3711] IRS NUMBER: 263013415 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-37999 FILM NUMBER: 181055766 BUSINESS ADDRESS: STREET 1: 111 EAST KILBOURN AVENUE STREET 2: SUITE 2600 CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 414-290-0190 MAIL ADDRESS: STREET 1: 111 EAST KILBOURN AVENUE STREET 2: SUITE 2600 CITY: MILWAUKEE STATE: WI ZIP: 53202 10-Q 1 revg-10q_20180731.htm 10-Q revg-10q_20180731.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37999

REV Group, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	26-3013415
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

111 East Kilbourn Avenue, Suite 2600 Milwaukee, WI	53202
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (414) 290-0190

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐

Non-accelerated filer	☒ (Do not check if a small reporting company)		Small reporting company	☐
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of September 4, 2018, the registrant had 63,194,645 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
Cautionary Statement About Forward-Looking Statements		3
Website and Social Media Disclosure		3
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Unaudited Consolidated Balance Sheets	4
	Condensed Unaudited Consolidated Statements of Income and Other Comprehensive Income	5
	Condensed Unaudited Consolidated Statements of Cash Flows	6
	Condensed Unaudited Consolidated Statement of Shareholders’ Equity	7
	Notes to Condensed Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42
Signatures		43

Cautionary Statement About Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate,” “aim” and other similar expressions, and include our segment net sales and other expectations described under “Overview” below, although not all forward-looking statements contain these identifying words. Investors are cautioned that forward-looking statements are inherently uncertain. A number of factors could cause actual results to differ materially from these statements, including, but not limited to increases in interest rates, availability of credit, low consumer confidence, availability of labor, significant increases in repurchase obligations, inadequate liquidity or capital resources, availability and price of fuel, a slowdown in the economy, increased material and component costs, availability of chassis and other key component parts, sales order cancellations, slower than anticipated sales of new or existing products, new product introductions by competitors, the effect of global tensions and integration of operations relating to mergers and acquisitions activities. Additional information concerning certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested is contained in the “Risk Factors” section in our filings with the U.S. Securities and Exchange Commission (“SEC”). We disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this Form 10-Q or to reflect any changes in expectations after the date of this release or any change in events, conditions or circumstances on which any statement is based, except as required by law.

Website and Social Media Disclosure

We use our website (www.revgroup.com) and corporate Twitter account (@revgroupinc) as routine channels of distribution of company information, including news releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under SEC Regulation FD. Accordingly, investors should monitor our website and our corporate Twitter account in addition to following press releases, SEC filings and public conference calls and webcasts. Additionally, we provide notifications of news or announcements as part of our investor relations website. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.

None of the information provided on our website, in our press releases, public conference calls and webcasts, or through social media channels is incorporated into, or deemed to be a part of, this Quarterly Report on Form 10-Q or in any other report or document we file with the SEC, and any references to our website or our social media channels are intended to be inactive textual references only.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Balance Sheets

(Dollars in millions, except share and per share amounts)

	July 31, 2018			October 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	14.7		$	17.8
Accounts receivables, net		232.8			243.2
Inventories, net		531.5			452.4
Other current assets		24.2			13.4
Total current assets		803.2			726.8
Property, plant and equipment, net		241.1			217.1
Goodwill		162.6			133.2
Intangibles assets, net		179.9			167.9
Other long-term assets		16.3			9.4
Total assets	$	1,403.1		$	1,254.4
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	1.3		$	0.8
Accounts payable		167.2			217.2
Customer advances		110.8			95.8
Accrued warranty		19.6			26.0
Other current liabilities		56.1			70.2
Total current liabilities		355.0			410.0
Long-term debt, less current maturities		440.4			229.1
Deferred income taxes		24.5			22.5
Other long-term liabilities		19.8			20.3
Total liabilities		839.7			681.9
Commitments and contingencies
Shareholders' Equity:
Preferred stock ($.001 par value, 95,000,000 shares authorized, none issued or outstanding)		—			—
Common Stock ($.001 par value, 605,000,000 shares authorized; 63,191,445 and 64,145,945 shares issued and outstanding, respectively)		0.1			0.1
Additional paid-in capital		498.6			532.0
Retained earnings		65.9			40.4
Accumulated other comprehensive loss		(1.2	)		—
Total shareholders' equity		563.4			572.5
Total liabilities and shareholders' equity	$	1,403.1		$	1,254.4

See Notes to Condensed Unaudited Consolidated Financial Statements.

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Income

(Dollars in millions, except per share amounts)

	Three Months Ended						Nine Months Ended
	July 31, 2018			July 29, 2017			July 31, 2018			July 29, 2017
Net sales	$	597.7		$	595.6		$	1,721.4		$	1,583.9
Cost of sales		518.2			517.6			1,516.6			1,385.5
Gross profit		79.5			78.0			204.8			198.4
Operating expenses:
Selling, general and administrative		43.5			40.6			133.2			139.7
Research and development costs		1.6			1.2			4.9			3.4
Restructuring		0.9			2.3			6.9			3.5
Amortization of intangible assets		4.6			5.1			13.6			10.4
Total operating expenses		50.6			49.2			158.6			157.0
Operating income		28.9			28.8			46.2			41.4
Interest expense, net		6.8			4.5			18.3			15.4
Loss on early extinguishment of debt		—			—			—			11.9
Income before provision (benefit) for income taxes		22.1			24.3			27.9			14.1
Provision (benefit) for income taxes		3.8			9.1			(7.2	)		5.4
Net income	$	18.3		$	15.2		$	35.1		$	8.7

Other comprehensive loss, net of tax		(0.4	)		(0.3	)		(1.2	)		(0.1	)
Comprehensive income	$	17.9		$	14.9		$	33.9		$	8.6

Income per common share:
Basic	$	0.29		$	0.24		$	0.55		$	0.15
Diluted	$	0.28		$	0.23		$	0.53		$	0.14
Dividends declared per common share	$	0.05		$	0.05		$	0.15		$	0.10

See Notes to Condensed Unaudited Consolidated Financial Statements.

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Cash Flows

(Dollars in millions)

	Nine Months Ended
	July 31, 2018			July 29, 2017
Cash flows from operating activities:
Net income	$	35.1		$	8.7
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		33.9			26.8
Amortization of debt issuance costs		1.3			1.3
Amortization of Senior Note discount		—			0.1
Stock-based compensation expense		5.1			26.1
Deferred income taxes		(0.8	)		(5.1	)
Loss on early extinguishment of debt		—			11.9
Gain on disposal of property, plant and equipment		(2.2	)		(0.6	)
Changes in operating assets and liabilities net of effects of business acquisitions:
Receivables, net		14.7			(37.0	)
Inventories, net		(68.9	)		(71.2	)
Other current assets		(11.6	)		(2.7	)
Accounts payable		(48.3	)		7.9
Accrued warranty		(8.7	)		(7.1	)
Customer advances		14.9			7.7
Other liabilities		(22.0	)		(26.2	)
Long-term assets		0.7			(0.6	)
Net cash used in operating activities		(56.8	)		(60.0	)
Cash flows from investing activities:
Purchase of property, plant and equipment		(31.9	)		(49.9	)
Payments for rental fleet vehicles		(15.9	)		(9.7	)
Proceeds from sale of property, plant and equipment		6.4			3.6
Investment in China JV		(7.6	)		—
Acquisition of businesses, net of cash acquired		(60.1	)		(155.1	)
Net cash used in investing activities		(109.1	)		(211.1	)
Cash flows from financing activities:
Net proceeds from borrowings under revolving credit facility		161.5			146.4
Proceeds from Term Loan		50.0			75.0
Net proceeds from initial public offering		—			253.6
Payment of dividends		(9.7	)		(3.2	)
Payment of debt issuance costs		(0.9	)		(6.7	)
Repayment of long-term debt		—			(180.0	)
Senior Note prepayment premium		—			(7.7	)
Redemption of common stock options including employer payroll taxes		(1.9	)		(3.3	)
Payments of withholding and employer payroll taxes for vesting of restricted stock		(0.1	)		—
Proceeds from exercise of common stock options, net of employer payroll taxes		9.4			0.3
Repurchase and retirement of common stock		(45.5	)		—
Net cash provided by financing activities		162.8			274.4
Net (decrease) increase in cash and cash equivalents		(3.1	)		3.3
Cash and cash equivalents, beginning of period		17.8			10.8
Cash and cash equivalents, end of period	$	14.7		$	14.1
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	16.7		$	21.8
Income taxes, net of refunds	$	15.2		$	11.5

See Notes to Condensed Unaudited Consolidated Financial Statements.

REV Group, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statement of Shareholders’ Equity

(Dollars in millions)

	Common Stock					Additional						Accumulated Other			Total
	Amount		# Shares			Paid-in Capital			Retained Earnings			Comprehensive Income (Loss)			Shareholders' Equity
Balance, October 31, 2017	$	0.1		64,145,945 Sh.		$	532.0		$	40.4		$	-		$	572.5
Net income										35.1						35.1
Other comprehensive loss, net of tax													(1.2	)		(1.2	)
Stock-based compensation expense							2.6									2.6
Exercise of common stock options		—		1,746,783 Sh.			9.6									9.6
Vesting of restricted stock, net of employee tax withholding		—		13,231 Sh.			(0.1	)								(0.1	)
Dividends declared on common stock										(9.6	)					(9.6	)
Repurchase and retirement of common stock		—		(2,714,514 Sh.	)		(45.5	)								(45.5	)
Balance, July 31, 2018	$	0.1		63,191,445 Sh.		$	498.6		$	65.9		$	(1.2	)	$	563.4

See Notes to Condensed Unaudited Consolidated Financial Statements.

REV Group, Inc. and Subsidiaries

Notes to the Condensed Unaudited Consolidated Financial Statements

(All dollar amounts presented in millions except share and per share amounts)

Note 1. Basis of Presentation

The condensed unaudited consolidated financial statements include the accounts of REV Group, Inc. (“REV” or “the Company”) and all its subsidiaries and are prepared in conformity within generally accepted accounting principles in the United States of America (“U.S. GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying condensed unaudited consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly REV’s consolidated financial position as of July 31, 2018, and October 31, 2017, and the consolidated results of income and comprehensive income for the three and nine months ended July 31, 2018 and July 29, 2017 and the consolidated cash flows for the nine months then ended. The condensed unaudited consolidated statements of income and comprehensive income for the three and nine months ended July 31, 2018, and July 29, 2017 are not necessarily indicative of the results to be expected for the full year. The condensed unaudited consolidated balance sheet data as of October 31, 2017, was derived from audited financial statements, but does not include all of information and footnotes required by U.S. GAAP for complete financial statements. These interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In the second quarter of fiscal year 2018, the Company made its initial investment in its China joint venture, Anhui Chery REV Specialty Vehicle Technology Co., Ltd (“China JV”). The initial investment of $0.9 million is included in other long-term assets in the Company’s consolidated balance sheet as of July 31, 2018. REV has 10% equity interest in the China JV. During the third quarter of fiscal year 2018, the Company extended a loan to China JV in the amount of $6.7 million at the rate of 5% per annum. The principal and interest of the loan may be converted at the Company’s sole option into an additional 40% equity interest in the China JV. The Company recorded its investment in the China JV under the equity method of accounting.

Initial Public Offering: On January 26, 2017, the Company announced the pricing of an initial public offering (“IPO”) of shares of its common stock, which began trading on the New York Stock Exchange on January 27, 2017. On February 1, 2017, the Company completed the IPO of 12,500,000 shares of common stock at a price of $22.00 per share. The Company received $275.0 million in gross proceeds from the IPO, or $253.6 million in net proceeds after deducting the underwriting discount and expenses related to the IPO. The net proceeds of the IPO were used to pay down the Company’s existing debt. Immediately prior to closing of the IPO, the Company completed an 80-for-one stock split of its Class A common stock and Class B common stock and reclassified the Class A common stock and Class B common stock into a single class of common stock, which was the same class as the shares sold in the IPO.

Recent Accounting Pronouncements

Accounting Pronouncements Recently Adopted

The Company adopted Accounting Standard Update (“ASU”) 2015-11, “Simplifying the Measurement of Inventory” (“ASU 2015-11”) effective fiscal year 2018 and such adoption did not have a material effect on the Company’s consolidated financial statements.

The Company adopted ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting (Topic 718)” (“ASU 2016-09”) effective fiscal year 2018 and such adoption did not have a material effect on the Company’s consolidated financial statements. ASU 2016-09 simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for the related income taxes, forfeitures, statutory tax withholding requirements and classification in the statement of cash flows.

Accounting Pronouncements – To be adopted

In May 2014, the FASB issued their final standard on revenue from contracts with customers. The standard, issued as ASU 2014-09 "Revenue From Contracts with Customers (Topic 606)" by the FASB, outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is effective beginning November 1, 2018 (the beginning of the Company’s fiscal year 2019). Based on the Company’s assessment completed to date and historical terms of its most significant revenue contracts with customers,

the Company does not expect a material difference in the timing and amount of revenues recognized today and those upon the adoption of ASU 2014-09, and expects to adopt the standard on a modified retrospective basis. The Company continues to assess the impact of adopting this standard as revenue contracts for fiscal year 2019 are executed. The Company’s preliminary conclusion may differ from that reached on the adoption date, based on actual terms of our revenue contracts with customers, industry clarifications and additional guidance from the FASB and the Securities and Exchange Commission, in effect as of the adoption date.

In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill, by removing the second step of the goodwill impairment test. This ASU is effective for annual reporting periods, and interim reporting beginning after December 15, 2019 (the beginning of the Company’s fiscal year 2021). Early adoption is permitted for testing dates after January 1, 2017. The Company is currently evaluating the impact of ASU 2017-04 on our consolidated financial statements.

Note 2. Acquisitions

The Company has completed numerous acquisitions over the past several years as a component of its growth strategy. The Company has acquired industry leading brands and technologies to position itself as a leader in the industries served.

The Company has accounted for all business combinations using the acquisition method of accounting to record a new cost basis for the assets acquired and liabilities assumed. The difference between the purchase price and the fair value of the assets acquired and liabilities assumed has been recorded as goodwill in the financial statements. The results of operations are reflected in the consolidated financial statements of the Company from the dates of acquisition.

Lance Camper Manufacturing Acquisition

On January 12, 2018, the Company acquired 100% of the common shares of Lance Camper Mfg. Corp. and its sister company Avery Transport, Inc. (collectively, “Lance” and the “Lance Acquisition”). Lance designs, engineers and manufactures truck campers, towable campers and toy haulers. This acquisition gives the Company a meaningful entrance into the high volume and rapidly growing towables segment of the recreational vehicle market. The purchase price paid for Lance was $67.9 million ($61.9 million net of $6.0 million cash acquired), which included an adjustment based on the level of net working capital at closing, as defined in the purchase agreement and was funded through the Company’s revolving credit facility. Lance is reported as part of the Recreation segment.

The Company will also pay up to an additional $10.0 million to the selling shareholders subsequent to the acquisition date in the form of deferred purchase price payable of $5.0 million on each of the 12- and 24-month anniversary dates of the acquisition date as per the agreement terms. This deferred payment will be recognized as an expense in the Company’s consolidated statement of operations over the period of the agreement.

As of July 31, 2018, the Company had not completed its assessment of the fair value of all acquired assets and liabilities assumed, or of the determination of the final purchase price calculation, as defined in the purchase agreement. The preliminary purchase price allocation resulted in goodwill of $27.0 million, which is deductible for income tax purposes.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed for Lance:

Assets:
Cash	$	6.0
Accounts receivable, net		4.4
Inventories, net		10.3
Other current assets		0.3
Property, plant and equipment		4.6
Intangible assets, net		24.5
Other long-term assets		0.1
Total assets acquired		50.2
Liabilities:
Accounts payable		2.4
Accrued warranty		1.4
Other current liabilities		5.5
Other long-term liabilities		—
Total liabilities assumed		9.3
Net Assets Acquired		40.9
Consideration Paid		67.9
Goodwill	$	27.0

Intangible assets acquired as a result of the Lance Acquisition are as follows:

Customer relationships (6 year life)	$	12.4
Order backlog (1 year life)		1.7
Non-compete agreements (4 year life)		0.6
Trademarks (indefinite life)		9.8
Total intangible assets, net	$	24.5

Net sales and operating income attributable to Lance were $34.6 million and $3.8 million for the three months ended July 31, 2018, respectively, and $74.1 million and $8.6 million for the nine months ended July 31, 2018, respectively. The Company has not included pro forma financial information in this report as if the acquisition had occurred on November 1, 2016, since the operating results from Lance were not considered material to the Company’s operating results as a whole.

Van-Mor Enterprises Inc. Acquisition

On May 15, 2017, the Company acquired certain real estate assets and operating assets and liabilities of Van-Mor Enterprises, Inc. (“Van-Mor” and the “Van-Mor Acquisition”). Van-Mor is a supplier of certain materials and components for the Company’s fire apparatus divisions. The final purchase price for Van-Mor was $1.6 million. The net cash consideration paid at closing was funded through the Company’s cash from operations. Van-Mor is reported as part of the Fire & Emergency segment.

Ferrara Fire Apparatus Acquisition

On April 25, 2017, the Company acquired 100% of the common shares of Ferrara Fire Apparatus, Inc. (“Ferrara” and the “Ferrara Acquisition”). Ferrara is a leading custom fire apparatus and rescue vehicle manufacturer that engineers and manufactures vehicles for municipal and industrial customers. This acquisition enhances the Company’s emergency vehicle product offering, particularly with custom fire apparatus including pumpers, aerials, and industrial vehicles. The final purchase price for Ferrara was $97.8 million ($94.8 million net of $3.0 million cash acquired) which includes a subsequent adjustment of $2.3 million received from the seller based on the level of net working capital on the acquisition date. The net cash consideration paid at closing was funded through the Company’s revolving credit facility and Term Loan. Ferrara is reported as part of the Fire & Emergency segment. The final purchase price allocation resulted in goodwill of $31.7 million, which is not deductible for income tax purposes.

The following table summarizes the fair values of the assets acquired and liabilities assumed for Ferrara:

Assets:
Cash	$	3.0
Accounts receivable, net		15.8
Inventories, net		40.1
Other current assets		0.4
Property, plant and equipment		12.5
Other long-term assets		0.1
Intangible assets, net		32.7
Total assets acquired		104.6
Liabilities:
Accounts payable		17.1
Accrued warranty		3.4
Customer advances		7.7
Deferred income taxes		3.6
Other current liabilities		2.8
Other long-term liabilities		3.9
Total liabilities assumed		38.5
Net Assets Acquired		66.1
Consideration Paid		97.8
Goodwill	$	31.7

Intangible assets acquired as a result of the Ferrara Acquisition are as follows:

Customer relationships (12 year life)	$	14.4
Order backlog (1 year life)		3.2
Non-compete agreements (4 year life)		1.5
Trade names (indefinite life)		13.6
Total intangible assets, net	$	32.7

Net sales and operating income attributable to Ferrara were $30.8 million and $2.8 million for the three months ended July 31, 2018, respectively, and $91.0 million and $4.1 million for the nine months ended July 31, 2018, respectively. The Company has not included pro forma financial information in this report as if the acquisition had occurred on November 1, 2016, since the Ferrara Acquisition did not meet the materiality requirement for such disclosure.

Midwest Automotive Designs Acquisition

On April 13, 2017, the Company acquired certain assets and liabilities of Midwest Automotive Designs (“Midwest” and the “Midwest Acquisition”). Midwest manufactures Class B recreational vehicles (“RVs”) and luxury vans. This acquisition enhances the Company’s product offerings in both its Recreation and Commercial segments, by adding a selection of Class B recreational vehicles and multiple products for the luxury limousine, charter and tour bus markets. The final purchase price for Midwest was $34.9 million (net of cash acquired), which included a subsequent adjustment of $0.5 million received from the seller based on the level of net working capital on the acquisition date. The net cash consideration paid at closing was funded through the Company’s revolving credit facility. Midwest is reported as part of the Recreation segment. The final purchase price allocation resulted in goodwill of $12.9 million, which is deductible for income tax purposes.

The following table summarizes the fair values of the assets acquired and liabilities assumed for Midwest:

Assets:
Cash	$	—
Accounts receivable, net		4.3
Inventories, net		9.0
Other current assets		0.1
Property, plant and equipment		0.2
Intangible assets, net		16.5
Total assets acquired		30.1
Liabilities:
Accounts payable		6.7
Accrued warranty		0.3
Customer advances		0.9
Other current liabilities		0.2
Total liabilities assumed		8.1
Net Assets Acquired		22.0
Consideration Paid		34.9
Goodwill	$	12.9

Intangible assets acquired as a result of the Midwest Acquisition are as follows:

Customer relationships (6 year life)	$	12.9
Order backlog (1 year life)		0.5
Trade names (indefinite life)		3.1
Total intangible assets, net	$	16.5

Net sales and operating income attributable to Midwest were $16.5 million and $1.2 million for the three months ended July 31, 2018, respectively, and $48.3 million and $3.5 million for the nine months ended July 31, 2018, respectively. The Company has not included pro forma financial information in this report as if the acquisition had occurred on November 1, 2016, since the Midwest Acquisition did not meet the materiality requirement for such disclosure.

Renegade RV Acquisition

On December 30, 2016, the Company acquired 100% of the common shares of Kibbi, LLC, which operated as Renegade RV (“Renegade” and the “Renegade Acquisition”). Renegade is a leading manufacturer of Class C and “Super C” RVs and heavy-duty special application trailers. The final purchase price for Renegade was $22.5 million ($20.9 million net of $1.6 million cash acquired), which included a $0.3 million payment to Renegade’s sellers based on the level of net working capital on the acquisition date. The net cash consideration paid at closing was funded through the Company’s revolving credit facility. Renegade is reported as part of the Recreation segment. The final purchase price allocation resulted in goodwill of $4.2 million, which is not deductible for income tax purposes.

The following table summarizes the fair values of the assets acquired and liabilities assumed for Renegade:

Assets:
Cash	$	1.6
Accounts receivable, net		2.3
Inventories, net		14.3
Other current assets		0.1
Property, plant and equipment		0.9
Intangible assets, net		7.7
Total assets acquired		26.9
Liabilities:
Accounts payable		4.1
Accrued warranty		0.4
Customer advances		0.3
Other current liabilities		1.0
Deferred income taxes		2.7
Other long-term liabilities		0.1
Total liabilities assumed		8.6
Net Assets Acquired		18.3
Consideration Paid		22.5
Goodwill	$	4.2

Intangible assets acquired as a result of the Renegade Acquisition are as follows:

Customer relationships (6 year life)	$	5.2
Order backlog (1 year life)		0.9
Trade names (indefinite life)		1.6
Total intangible assets, net	$	7.7

Net sales and operating income attributable to Renegade were $34.7 million and $5.7 million for the three months ended July 31, 2018, respectively, and $94.9 million and $13.7 million for the nine months ended July 31, 2018, respectively. The Company has not included pro forma financial information in this report as if the acquisition had occurred on November 1, 2016, since the Renegade Acquisition did not meet the materiality requirement for such disclosure.

Note 3. Inventories

Inventories, net of reserves, consisted of the following:

	July 31, 2018			October 31, 2017
Chassis	$	53.1		$	54.7
Raw materials		192.6			162.5
Work in process		191.8			180.1
Finished products		108.7			68.4
		546.2			465.7
Less: reserves		(14.7	)		(13.3	)
Total inventories, net	$	531.5		$	452.4

Note 4. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

	July 31, 2018			October 31, 2017
Land & land improvements	$	25.3		$	25.5
Buildings & improvements		112.1			104.2
Machinery & equipment		76.9			70.3
Rental fleet		33.6			17.7
Computer hardware & software		53.3			39.7
Office furniture & fixtures		5.3			5.0
Construction in process		32.5			34.8
		339.0			297.2
Less: accumulated depreciation		(97.9	)		(80.1	)
Total property, plant and equipment, net	$	241.1		$	217.1

Depreciation expense was $7.1 million and $6.4 million for the three months ended July 31, 2018, and July 29, 2017, respectively, and $20.2 million and $16.4 million for the nine months ended July 31, 2018, and July 29, 2017, respectively.

Note 5. Goodwill and Intangible Assets

The table below represents goodwill by segment:

	July 31, 2018		October 31, 2017
Fire & Emergency	$	88.6	$	88.3
Commercial		29.9		28.7
Recreation		44.1		16.2
Total goodwill	$	162.6	$	133.2

The change in the net carrying value amount of goodwill consisted of the following:

	Nine Months Ended
	July 31, 2018		July 29, 2017
Balance at beginning of period	$	133.2	$	84.5
Activity during the quarter:
Activity from prior year acquisitions		2.4		1.1
Activity from current year acquisitions		27.0		44.2
Balance at end of period	$	162.6	$	129.8

Intangible assets (excluding goodwill) consisted of the following:

	Weighted- Average Life		July 31, 2018			October 31, 2017
Finite-lived intangible assets:
Technology-related		7.0	$	1.7		$	1.7
Customer relationships		8.0		124.4			112.0
Order backlog		1.0		6.5			4.7
Non-compete agreements		5.0		2.7			2.0
Trade names		7.0		3.5			3.5
				138.8			123.9
Less: accumulated amortization				(74.8	)		(62.1	)
				64.0			61.8
Indefinite-lived trade names				115.9			106.1
Total intangible assets, net			$	179.9		$	167.9

Amortization expense was $4.6 million and $5.1 million for the three months ended July 31, 2018, and July 29, 2017, respectively, and $13.7 million and $10.4 million for the nine months ended July 31, 2018, and July 29, 2017, respectively.

Note 6. Other Current Liabilities

Other current liabilities consisted of the following:

	July 31, 2018		October 31, 2017
Payroll and related benefits and taxes	$	27.9	$	21.6
Incentive compensation		0.2		11.7
Customer sales programs		4.5		6.1
Restructuring costs		1.8		0.6
Interest payable		1.7		1.5
Income taxes payable		—		11.2
Dividends payable		3.2		3.2
Deferred purchase price payment		2.8		—
Other		14.0		14.3
Total other current liabilities	$	56.1	$	70.2

Note 7. Long-Term Debt

The Company was obligated under the following debt instruments:

	July 31, 2018			October 31, 2017
Senior secured facility:
Revolving credit ABL facility	$	319.5		$	157.0
Term Loan, net of debt issuance costs ($1.9 and $1.8)		122.2			72.9
		441.7			229.9
Less: current maturities		(1.3	)		(0.8	)
Long-term debt, less current maturities	$	440.4		$	229.1

April 2017 ABL Facility

Effective April 25, 2017, the Company entered into a $350.0 million revolving credit and guaranty agreement (the “April 2017 ABL Facility” or “ABL Agreement”) with a syndicate of lenders. The April 2017 ABL Facility consists of: (i) Revolving Loans, (ii) Swing Line Loans, and (iii) Letters of Credit, aggregating up to a combined maximum of $350.0 million. The total amount borrowed under the April 2017 ABL Facility is subject to a $30.0 million sublimit for Swing Line loans and a $35.0 million sublimit for Letters of Credit, along with certain borrowing base and other customary restrictions as defined in the ABL Agreement. The Company incurred

$4.9 million of debt issuance costs related to the April 2017 ABL Facility. The amount of debt issuance costs is included in other long-term assets in the Company’s consolidated balance sheet as of July 31, 2018.

The April 2017 ABL Facility allows for incremental borrowing capacity in an aggregate amount of up to $100.0 million, plus the excess, if any, of the borrowing base then in effect over total commitments then in effect. Any such incremental borrowing capacity is subject to receiving additional commitments from lenders and certain other customary conditions. The April 2017 ABL Facility matures on April 25, 2022.

On December 22, 2017 the Company exercised its $100.0 million incremental commitment option under the April 2017 ABL Facility, which increased total borrowing capacity under the facility from $350.0 million to $450.0 million. The Company incurred an additional $0.4 million of debt issuance costs related to the incremental commitment option under the April 2017 ABL Facility.

Revolving Loans under the April 2017 ABL Facility bear interest at rates equal to, at the Company’s option, either a base rate plus an applicable margin, or a Eurodollar rate plus an applicable margin. Applicable interest rate margins are initially 0.75% for all base rate loans and 1.75% for all Eurodollar rate loans (with the Eurodollar rate having a floor of 0%), subject to adjustment based on utilization in accordance with the ABL Agreement. Interest is payable quarterly for all base rate loans, and is payable monthly or quarterly for all Eurodollar rate loans.

The lenders under the April 2017 ABL Facility have a first priority security interest in substantially all accounts receivable and inventory of the Company, and a second priority security interest in substantially all other assets of the Company.

The Company may prepay principal, in whole or in part, at any time without penalty.

The April 2017 ABL Facility contains customary representations and warranties, affirmative and negative covenants, subject in certain cases to customary limitations, exceptions and exclusions. The April 2017 ABL Facility also contains certain customary events of default, which should such events occur, could result in the termination of the commitments under the April 2017 ABL Facility and the acceleration of all outstanding borrowings under it. The April 2017 ABL Facility contains a financial covenant restricting the Company from allowing its fixed charge coverage ratio to drop below 1.00 to 1.00 during a compliance period, which is triggered when the availability under the April 2017 ABL Facility falls below a threshold set forth in the credit agreement.

The Company was in compliance with all financial covenants under the April 2017 ABL Facility as of July 31, 2018.

October 2013 ABL Facility

On April 25, 2017, the Company repaid all outstanding loans and obligations under its $150.0 million senior secured revolving credit and guaranty agreement (the “ABL Facility”) in full, and that ABL Facility was terminated and resulted in a $0.7 million loss on early extinguishment of debt, which consisted entirely of the write-off of unamortized debt issuance costs.

Term Loan

Effective April 25, 2017, the Company entered into a $75.0 million term loan agreement (“Term Loan” and “Term Loan Agreement”), as Borrower with certain subsidiaries of the Company, as Guarantor Subsidiaries. Principal may be prepaid at any time during the term of the Term Loan without penalty. The Company incurred $2.0 million of debt issuance costs related to the Term Loan.

The Term Loan Agreement allows for incremental facilities in an aggregate amount of up to $125.0 million. Any such incremental facilities are subject to receiving additional commitments from lenders and certain other customary conditions. The Term Loan agreement requires annual payments of $0.8 million per year, with remaining principal payable at maturity, which is April 25, 2022.

On July 18, 2018, the Company exercised its $50.0 million incremental commitment option under the Term Loan Agreement, which increased total borrowing under the facility from $75.0 million to $125.0 million. The Company incurred an additional $0.5 million of debt issuance costs related to the incremental commitment option under the Term Loan. Proceeds from the incremental commitment were used to repay a portion of the outstanding borrowings under the April 2017 ABL Facility.

Applicable interest rate margins for the Term Loan are initially 2.50% for base rate loans and 3.50% for Eurodollar rate loans (with the Eurodollar rate having a floor of 1.00%). Interest is payable quarterly for all base rate loans, and is payable monthly or quarterly for all Eurodollar rate loans.

The Term Loan Agreement contains customary representations and warranties, affirmative and negative covenants, in each case, subject to customary limitations, exceptions and exclusions. The Term Loan Agreement also contains certain customary events of default. The Term Loan Agreement requires the Company to maintain a specified secured leverage ratio as follows:

Through July 31, 2018		4.00 to 1.00
Through July 31, 2019		3.75 to 1.00
Through July 31, 2020		3.50 to 1.00
Through July 31, 2021		3.25 to 1.00
Through April 25, 2022		3.00 to 1.00

The Company was in compliance with all financial covenants under the Term Loan as of July 31, 2018.

Senior Secured Notes

On January 17, 2017, the Company issued a Notice of Conditional Redemption for its 8.5% Senior Secured Notes (the “Notes”), subject to the completion of the Company’s IPO, to redeem all the outstanding Notes at a redemption price of 104.250% plus accrued and unpaid interest. On February 16, 2017, the Company redeemed all Notes, which were outstanding as of that date, and retired the debt. As a result of this redemption, the Company recorded a $11.2 million loss associated with the early extinguishment of the debt, which consisted of a prepayment premium of $7.7 million, $3.1 million of unamortized debt issuance costs and $0.4 million of original issue discount.

Note 8. Warranties

The Company’s products generally carry explicit warranties that extend from several months to several years, based on terms that are generally accepted in the marketplace. Selected components (such as engines, transmissions, tires, etc.) included in the Company’s end products may include warranties from original equipment manufacturers (“OEM”). These OEM warranties are passed on to the end customer of the Company’s products, and the customer deals directly with the applicable OEM for any issues encountered on those components.

Changes in the Company’s warranty liability consisted of the following:

	Nine Months Ended
	July 31, 2018			July 29, 2017
Balance at beginning of period	$	40.2		$	38.8
Warranty provisions		13.2			21.5
Settlements made		(19.7	)		(25.9	)
Warranties for current year acquisitions		1.4			3.3
Changes in liability of pre-existing warranties		(1.7	)		(2.7	)
Balance at end of period	$	33.4		$	35.0

Accrued warranty is classified in the Company’s consolidated balance sheets as follows:

	July 31, 2018		October 31, 2017
Current liabilities	$	19.6	$	26.0
Other long-term liabilities		13.8		14.2
Total warranty liability	$	33.4	$	40.2

Provisions for estimated warranty and other related costs are recorded at the time of sale and are periodically adjusted to reflect actual experience. Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. At times, warranty issues arise that are beyond the scope of the Company’s historical experience. The potential liability for these issues is evaluated on a case by case basis.

Note 9. Stock Repurchase Program

time to time through open market or through private transactions. Shares purchased under the share repurchase program are retired and returned to authorized and unissued status. During the three months ended July 31, 2018, the Company repurchased 2,475,967 shares under this repurchase program at a total cost of $40.7 million at an average price per share of $16.42. During the nine months ended July 31, 2018, the Company repurchased 2,714,514 shares under this repurchase program at a total cost of $45.5 million at an average price per share of $16.76. As of July 31, 2018, the Company had $4.5 million of authorization remaining under this program.

On September 5, 2018 the Company’s Board of Directors authorized an additional $50.0 million of repurchases of the Company’s issued and outstanding common stock with an expiration date of September 4, 2020.

Note 10. Earnings Per Share

Basic earnings per common share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding including shares of contingently redeemable common stock. Diluted EPS is computed by dividing net income by the weighted-average number of common shares outstanding assuming dilution. The difference between basic EPS and diluted EPS is the result of the dilutive effect of outstanding stock options and restricted stock units. The table below reconciles basic weighted-average common shares outstanding to diluted weighted-average shares outstanding for the three and nine months ended July 31, 2018 and July 29, 2017:

	Three Months Ended				Nine Months Ended
	July 31, 2018		July 29, 2017		July 31, 2018		July 29, 2017
Basic weighted-average common shares outstanding		63,993,398		63,769,388		64,258,655		59,617,447
Dilutive stock options		854,163		1,751,220		1,571,864		1,670,652
Dilutive restricted stock units		—		8,083		2,163		13,137
Dilutive performance stock units		—		—		—		—
Diluted weighted-average common shares outstanding		64,847,561		65,528,691		65,832,682		61,301,236

The table below represents exclusions from the calculation of weighted-average shares outstanding assuming dilution due to the anti-dilutive effect of the common stock equivalents for the three and nine months ended July 31, 2018 and July 29, 2017:

	Three Months Ended				Nine Months Ended
	July 31, 2018		July 29, 2017		July 31, 2018		July 29, 2017
Anti-Dilutive Stock Options		40,951		—		97,085		—
Anti-Dilutive Restricted Stock Units		528,515		—		541,584		—
Anti-Dilutive Performance Stock Units		91,509		—		91,509		—
Anti-Dilutive Common Stock Equivalents		660,975		—		730,178		—

Note 11. Stock Compensation

During the three and nine months ended July 31, 2018, the Company recorded stock-based compensation expense of $1.4 million and $5.1 million, respectively, compared to $0.3 million and $26.1 million for the three and nine months ended July 29, 2017, respectively, as selling, general and administrative expenses in the Company’s consolidated statements of income.

Stock Option Awards: During the three and nine months ended July 31, 2018, the Company recorded stock compensation expense of zero and $1.9 million, respectively, to redeem performance based stock options. During the three and nine months ended July 29, 2017, the Company recorded stock compensation expense of zero and $3.3 million, respectively, to redeem performance based stock options. The amount paid per share to redeem these stock options was equal to the fair value of the Company’s common stock on the date of redemption less the stock option exercise price.

The change in the number of stock options outstanding consisted of the following:

	Number of Shares			Weighted-Average Exercise Price Per Share
Outstanding, October 31, 2017		3,063,668		$	5.80
Granted		—			—
Exercised		(1,746,783	)	$	5.52
Cancelled		(499,934	)	$	4.61
Outstanding, July 31, 2018		816,951		$	7.12

Restricted Stock Units Awards: The Company has granted restricted stock units to certain employees and non-employee directors.

The change in the number of unvested restricted stock units outstanding consisted of the following:

	Restricted Stock Units Outstanding			Weighted-Average Grant Date Fair Value Per Unit
Outstanding, October 31, 2017		59,192		$	25.44
Granted		417,197		$	26.18
Exercised		(17,637	)	$	25.37
Cancelled		(44,719	)	$	28.78
Outstanding, July 31, 2018		414,033		$	25.83

Performance Stock Units Awards: The change in the number of unvested performance stock units outstanding consisted of the following:

	Performance Stock Units Outstanding		Weighted-Average Grant Date Fair Value Per Unit
Outstanding, October 31, 2017		73,101	$	27.36
Granted		121,167	$	22.70
Vested		—		—
Cancelled		—		—
Outstanding, July 31, 2018		194,268	$	24.45

Note 12. Restructuring Charges

In the third quarter of fiscal year 2017, the Company restructured certain management positions in its Commercial segment and in its Corporate office, and incurred personnel costs, including severance and other employee benefit payments of $1.5 million.

In the first and second quarters of fiscal year 2018, the Company undertook cost reduction initiatives related to its Fire & Emergency, Commercial and Recreation segments, as well as its corporate office. Costs incurred in the first quarter of fiscal year 2018 consisted of $3.5 million of personnel costs, including severance, and other employee benefit payments, as well as facility closure expenses of $0.6 million in the Recreation segment. Costs incurred in the second and third quarters of fiscal year 2018 relating to these initiatives consisted of $2.2 million of personnel costs, including severance and other employee benefit payments, and $0.6 million for facility lease termination expenses in the Recreation segment and its former Miami corporate office location.

A summary of the changes in the Company’s restructuring liability is as follows:

	2018 Restructuring			2017 Restructuring			Total
Balance at October 31, 2017	$	—		$	0.6		$	0.6
Expenses Incurred		6.9			—			6.9
Amounts Paid		(5.3	)		(0.4	)		(5.7	)
Balance at July 31, 2018	$	1.6		$	0.2		$	1.8

Note 13. Income Taxes

For interim financial reporting, the Company estimates its annual effective tax rate based on the projected income for its entire fiscal year and records a provision (benefit) for income taxes on a quarterly basis based on the estimated annual effective income tax rate, adjusted for any discrete tax items.

The Company recorded income tax benefit of $7.2 million for the nine months ended July 31, 2018, or (25.8)% of pre-tax income, compared to $5.4 million expense, or 38.1% of pre-tax income, for the nine months ended July 29, 2017. Results for the nine months ended July 31, 2018 were favorably impacted by $14.7 million of net discrete tax benefits, including a $12.5 million benefit related to the remeasurement of net deferred tax liabilities as a result of tax legislation in the United States and a $1.1 million benefit related to a federal provision-to-return adjustment. Results for the nine months ended July 29, 2017 were favorably impacted by income tax incentives for U.S. manufacturing and research and negatively impacted by nondeductible business acquisition costs.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed and enacted into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the corporate tax rate from 35% to 21%

effective January 1, 2018, while also repealing the deduction for domestic production activities and implementing a territorial tax system. As a fiscal year taxpayer, the Company’s federal statutory tax rate reduction is effective January 1, 2018; therefore, the Company’s fiscal year 2018 estimated annual effective tax rate reflects the benefit from the reduced U.S. federal rate of 23.3%. A number of other provisions will not impact the Company until fiscal year 2019, such as elimination of the domestic manufacturing deduction and U.S. taxation of foreign earnings.

U.S. GAAP requires the impact of tax legislation be recognized in the period in which the law was enacted. In accordance with SEC Staff Accounting Bulletin No. 118, the Company recorded the estimated income tax impact of the Tax Reform Act during the first quarter of fiscal year 2018. During the third quarter of fiscal year 2018, the Company updated the provisional amounts previously recorded based on its completed fiscal year 2017 federal income tax return. This resulted in additional tax benefit of $2.1 million related to the remeasurement of net deferred tax liabilities. For the nine months ended July 31, 2018, the Company recorded cumulative tax benefit of $12.5 million due to remeasurement of net deferred tax liabilities. Although the $12.5 million tax benefit represents what the Company believes is a reasonable estimate of the income tax effects of the Tax Reform Act on its consolidated financial statements as of July 31, 2018, it is a provisional amount and will be impacted by the Company’s ongoing analysis of the legislation and full fiscal year 2018 financial results. Any adjustments to these provisional amounts will be reported as a component of income tax expense (benefit) in the reporting period in which any such adjustments are determined, which will be no later than the first quarter of fiscal year 2019.

Because of the complexity of the new Global Intangible Low-Taxed Income (GILTI) tax rules, the Company continues to evaluate this provision of the Tax Reform Act and the application of ASC740, Income Taxes. Under U.S. GAAP, the Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company’s measurement of its deferred taxes (the “deferred method”). The Company's selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends on not only the Company's current structure and estimated future results of global operations but also its intent and ability to modify its structure. The Company is currently in the process of analyzing its structure and, as a result, is not yet able to reasonably estimate the effect of this provision of the Tax Reform Act. Therefore, the Company has not made any adjustments related to potential GILTI tax in its financial statements and has not made a policy decision regarding whether to use the period cost method or the deferred method.

The Company periodically evaluates its valuation allowance requirements in light of changing facts and circumstances, and may adjust its deferred tax asset valuation allowances accordingly. It is reasonably possible that the Company will either add to, or reverse a portion of its existing deferred tax asset valuation allowances in the future. Such changes in the deferred tax asset valuation allowances will be reflected in the current operations through the Company’s effective income tax rate. During the three or nine months ended July 31, 2018, there were no changes to the Company’s valuation allowances.

The Company’s liability for unrecognized tax benefits, including interest and penalties, was $2.3 million as of July 31, 2018 and $2.9 million as of October 31, 2017. The unrecognized tax benefits are presented in other long-term liabilities in the Company’s consolidated balance sheets for the period ended July 31, 2018. During the next twelve months, it is reasonably possible that $0.2 million of the unrecognized tax benefits, if recognized, would affect the annual effective income tax rate. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes in its consolidated statement of operations.

The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. As of July 31, 2018, the Company believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position and the results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company’s estimates and from its historical income tax provisions and income tax liabilities and could have a material effect on operating results and cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, and interest assessments related to income tax examinations.

Note 14. Commitments and Contingencies

Market Risks: The Company is contingently liable under bid, performance and specialty bonds and has open standby letters of credit issued by the Company’s banks in favor of third parties as follows:

	July 31, 2018		October 31, 2017
Performance, bid and specialty bonds	$	215.4	$	272.2
Open standby letters of credit		11.1		7.2
Total	$	226.5	$	279.4

Chassis Contingent Liabilities: The Company obtains certain vehicle chassis from automobile manufacturers under converter pool agreements. These agreements generally provide that the manufacturer will supply chassis at the Company’s various production facilities under the terms and conditions set forth in the agreement. The manufacturer does not transfer the certificate of origin to the Company and, accordingly, the chassis are treated as consigned inventory of the automobile manufacturer. Upon being put into production, the Company becomes obligated to pay the manufacturer for the chassis. Chassis are typically converted and delivered to customers within 90 to 120 days of receipt. If the chassis are not converted within this timeframe of delivery, the Company generally purchases the chassis and records the inventory or the Company is obligated to begin paying an interest charge on this inventory until purchased. The Company’s contingent liability under such agreements for future chassis inventory purchases was $42.0 million and $85.9 million at July 31, 2018 and October 31, 2017, respectively.

Repurchase Commitments: The Company has entered into repurchase agreements with certain lending institutions. The repurchase commitments are on an individual unit basis with a term from the date it is financed by the lending institution through payment date by the dealer or other customer, generally not exceeding two years. The Company’s outstanding obligations under such agreements were $288.5 million as of July 31, 2018 and October 31, 2017. This value represents the gross value of all vehicles under repurchase agreements and does not take into consideration proceeds that would be received upon resale of repossessed vehicles, which would be used to reduce the Company’s ultimate net liability. Such agreements are customary in the industries in which the Company operates and the Company’s exposure to loss under such agreements is limited by the potential loss on the resale value of the inventory which is required to be repurchased. Losses incurred under such arrangements have not been significant and the Company expects this pattern to continue into the future. The reserve for losses included in other liabilities on contracts outstanding at July 31, 2018 and October 31, 2017 is immaterial.

Guarantee Arrangements: The Company is party to multiple agreements whereby it guarantees indebtedness of others, including losses under loss pool agreements. The Company estimated that its maximum loss exposure under these contracts was $21.4 million at July 31, 2018 and $0.6 million at October 31, 2017. Under the terms of these and various related agreements and upon the occurrence of certain events, the Company generally has the ability to, among other things, take possession of the underlying collateral. If the financial condition of the customers and dealers were to deteriorate and result in their inability to make payments, then additional accruals may be required. While the Company does not expect to experience losses under these agreements that are materially in excess of the amounts reserved, it cannot provide any assurance that the financial condition of the third parties will not deteriorate resulting in the third party’s inability to meet their obligations.

In the event that third parties are unable to meet obligations under these agreements, the Company cannot guarantee that the collateral underlying the agreements will be available or sufficient to avoid losses materially in excess of the amounts reserved. Any losses under these guarantees would generally be mitigated by the value of any underlying collateral, including financed equipment, and are generally subject to the finance company’s ability to provide the Company clear title to foreclosed equipment and other conditions. During periods of economic weakness, collateral values generally decline and can contribute to higher exposure to losses.

Other Matters: There are three federal and one state putative securities class actions presently pending against the Company and certain of its officers and directors, each on behalf of a putative class of purchasers of the Company’s stock in or traceable to the Company’s January 2017 IPO, as well as, for two of the actions, from January 27, 2017 through June 7, 2018. Two of the complaints also name certain of the underwriters for the Company’s IPO as defendants. The complaints allege certain violations of the Securities Act of 1933 and, for two of the actions, the Securities Exchange Act of 1934. The federal court in the Central District of California has ordered each of the federal complaints to be transferred to the U.S. District Court for the Eastern District of Wisconsin.

The Company also received a complaint on August 23, 2018 against the Company and certain of its officers and directors, on behalf of a putative class of purchasers of the Company’s stock in its secondary offering of common stock in October 2017. This complaint also named certain of the underwriters for the offering, and alleges certain violations of the Securities Act of 1933 made in connection with the October 2017 offering.

Collectively, the actions seek certification of the putative classes asserted and compensatory damages and attorneys’ fees and costs. The underwriter defendants have notified the Company of their intent to seek indemnification from the Company pursuant to the IPO underwriting agreement in regard to the claims asserted in the actions with respect to the IPO, and the Company expects them to do the same in regard to the claims asserted in the action with respect to the October 2017 offering. The Company and the other defendants intend to defend these lawsuits vigorously. Additional lawsuits may be filed and, at this time, the Company is unable to predict the outcome of the lawsuits, the possible loss or range of loss, if any, associated with the resolution of the lawsuits, or any potential effect that it may have on the Company or its operations.

The Company is subject to certain other legal proceedings that arise in the ordinary course of business. Although the final results of all such matters and claims cannot be predicted with certainty, management believes that the ultimate resolution of all such other matters and claims will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. Actual results could vary, among other things, due to the uncertainties involved in litigation.

Note 15. Related Party Transactions

During the three months ended July 31, 2018 and July 29, 2017, the Company reimbursed expenses of its primary equity holder in the amount of $0.2 million and $0.1 million, respectively. During the nine months ended July 31, 2018, and July 29, 2017, the Company reimbursed expenses in the amount of $0.5 million and $0.4 million, respectively. These expenses are included in selling, general and administrative expenses in the Company’s consolidated statements of operations.

Certain production facilities and offices for two of the Company’s subsidiaries are leased from related parties owned by certain members of management. Rent expense under these arrangements totaled $0.4 million and $0.1 million for the three months ended July 31, 2018, and July 29, 2017, respectively. Rent expense under these arrangements totaled $1.0 million and $0.5 million for the nine months ended July 31, 2018 and July 29, 2017, respectively.

The Company engaged with an information technology, software and consulting company (the “IT Consulting Company”) in which the Company’s CEO had a material equity interest. The IT Consulting Company provided software development and installation to the Company. The Company made payments of $1.3 million and $2.7 million during the three and nine months ended July 29, 2017, respectively, to the IT Consulting Company. The amounts paid to the IT Consulting Company included payments which are made to another unrelated consulting company. Excluding the payments to this unrelated consulting company, the payments made to the IT Consulting Company were $0.5 million and $1.1 million during the three and nine months ended July 29, 2017, respectively. On October 27, 2017 the IT Consulting Company was sold to an unrelated third party and therefore any future consulting business that the Company has undertaken or will undertake with the IT Consulting Company after such date will not be considered a related party transaction.

Note 16. Business Segment Information

The Company is organized into three reportable segments based on management’s process for making operating decisions, allocating capital and measuring performance, and based on the similarity of products, customers served, common use of facilities, and economic characteristics. The Company’s segments are as follows:

Fire & Emergency: This segment includes KME, E-One, Inc., Ferrara, American Emergency Vehicles, Inc., Leader Emergency Vehicles, Inc., Horton Enterprises, Inc., REV Ambulance Orlando and REV Brazil. These business units manufacture and market commercial and custom fire and emergency vehicles primarily for fire departments, airports, other governmental units, contractors, hospitals and other care providers in the United States and other countries.

Commercial: This segment includes Collins Bus, Champion Bus, Inc., ENC, ElDorado National (Kansas), Inc., Revability, Capacity and Lay-Mor. Collins Bus manufactures, markets and distributes school buses, normally referred to as Type A school buses, as well as shuttle buses used for churches, transit authorities, hotels and resorts, retirement centers and other similar uses. Champion Bus, Inc., ENC, ElDorado National (Kansas), Inc. and Revability manufacture, market and distribute shuttle buses and mobility vans for transit, airport car rental and hotel/motel shuttles, tour and charter operations and other uses under several well-established brand names. Capacity manufactures, markets and distributes trucks used in terminal type operations, i.e., rail yards, warehouses, rail terminals and shipping terminals/ports. Lay-Mor manufactures, markets and distributes industrial sweepers for both the commercial and rental markets.

parts to a diverse cross section of original equipment manufacturers and other commercial and industrial customers, including various components for RRG, which is one of Goldshield’s primary customers. Midwest manufactures Class B RVs and luxury vans. Lance designs, engineers and manufactures truck campers, towable campers and toy haulers.

For purposes of measuring financial performance of its business segments, the Company does not allocate to individual business segments costs or items that are of a corporate nature. The caption “Corporate and Other” includes corporate office expenses, results of insignificant operations, intersegment eliminations and income and expense not allocated to reportable segments.

Total assets of the business segments exclude general corporate assets, which principally consist of cash and cash equivalents, certain property, plant and equipment and certain other assets pertaining to corporate and other centralized activities.

Intersegment sales generally include amounts invoiced by a segment for work performed for another segment. Amounts are based on actual work performed and agreed-upon pricing which is intended to be reflective of the contribution made by the supplying business segment. All intersegment transactions have been eliminated in consolidation.

Selected financial information of the Company’s segments is as follows:

	Three Months Ended July 31, 2018
	Fire & Emergency		Commercial		Recreation		Corporate and Other			Consolidated
Sales:
Net Sales—External Customers	$	238.9	$	157.6	$	197.3	$	3.9		$	597.7
Net Sales—Intersegment	$	—	$	0.7	$	5.7	$	(6.4	)	$	—
Depreciation and amortization	$	3.3	$	1.9	$	3.6	$	2.9		$	11.7
Capital expenditures	$	2.1	$	1.1	$	2.1	$	2.9		$	8.2
Total assets	$	607.4	$	299.2	$	359.9	$	136.6		$	1,403.1
Adjusted EBITDA	$	25.3	$	11.8	$	17.9	$	(7.4	)

	Three Months Ended July 29, 2017
	Fire & Emergency		Commercial		Recreation		Corporate and Other			Consolidated
Sales:
Net Sales—External Customers	$	262.1	$	154.4	$	177.9	$	1.2		$	595.6
Net Sales—Intersegment	$	—	$	0.2	$	3.2	$	(3.4	)	$	—
Depreciation and amortization	$	4.5	$	2.4	$	3.5	$	1.2		$	11.6
Capital expenditures	$	1.5	$	6.5	$	1.7	$	2.1		$	11.8
Total assets	$	625.7	$	272.6	$	253.2	$	94.6		$	1,246.1
Adjusted EBITDA	$	29.0	$	12.9	$	11.7	$	(8.1	)

	Nine Months Ended July 31, 2018
	Fire & Emergency		Commercial		Recreation		Corporate and Other			Consolidated
Sales:
Net Sales—External Customers	$	706.1	$	447.9	$	563.4	$	4.0		$	1,721.4
Net Sales—Intersegment	$	—	$	8.8	$	16.6	$	(25.4	)	$	—
Depreciation and amortization	$	11.8	$	7.5	$	9.5	$	5.1		$	33.9
Capital expenditures	$	4.8	$	3.4	$	6.3	$	17.4		$	31.9
Total assets	$	607.4	$	299.2	$	359.9	$	136.6		$	1,403.1
Adjusted EBITDA	$	65.5	$	25.7	$	38.7	$	(25.6	)

	Nine Months Ended July 29, 2017
	Fire & Emergency		Commercial		Recreation		Corporate and Other			Consolidated
Sales:
Net Sales—External Customers	$	666.5	$	444.2	$	470.9	$	2.3		$	1,583.9
Net Sales—Intersegment	$	—	$	3.2	$	9.7	$	(12.9	)	$	—
Depreciation and amortization	$	10.2	$	6.0	$	8.2	$	2.4		$	26.8
Capital expenditures	$	9.0	$	8.6	$	3.9	$	28.4		$	49.9
Total assets	$	625.7	$	272.6	$	253.2	$	94.6		$	1,246.1
Adjusted EBITDA	$	70.2	$	35.6	$	21.8	$	(23.5	)

In considering the financial performance of the business, the chief operating decision maker analyzes the primary financial performance measure of Adjusted EBITDA. Adjusted EBITDA is defined as net income for the relevant period before depreciation and amortization, interest expense and provision for income taxes, as adjusted for transaction expenses, sponsor expenses, restructuring costs, loss on early extinguishment of debt, certain legal matters, non-cash purchase accounting expenses, stock based compensation expense, initial public company costs and deferred purchase price payment which the Company believes are not indicative of the Company’s ongoing operating performance. Adjusted EBITDA is not a measure defined by U.S. GAAP, but is computed using amounts that are determined in accordance with U.S. GAAP. A reconciliation of this performance measure to income before provision for income taxes is included below.

The Company believes that Adjusted EBITDA is useful to investors and used by management for measuring profitability because the measure excludes the impact of certain items which management believes has less bearing on the Company’s core operating performance. The Company believes that utilizing Adjusted EBITDA allows for a more meaningful comparison of operating fundamentals between companies within its industries by eliminating the impact of capital structure and taxation differences between the companies.

The Company also adjusts for exceptional items which are determined to be those that in management’s judgment need to be disclosed by virtue of their size, nature or incidence, which include non-cash items and items settled in cash. In determining whether an event or transaction is exceptional, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. This is consistent with the way that financial performance is measured by management and reported to the Company’s Board of Directors, assists in providing a meaningful analysis of the Company’s operating performance and used as a measurement in incentive compensation for management.

Provided below is a reconciliation of segment Adjusted EBITDA to net income:

	Three Months Ended						Nine Months Ended
	July 31, 2018			July 29, 2017			July 31, 2018			July 29, 2017
Fire & Emergency Adjusted EBITDA	$	25.3		$	29.0		$	65.5		$	70.2
Commercial Adjusted EBITDA		11.8			12.9			25.7			35.6
Recreation Adjusted EBITDA		17.9			11.7			38.7			21.8
Corporate and Other Adjusted EBITDA		(7.4	)		(8.1	)		(25.6	)		(23.5	)
(Provision) benefit for income taxes		(3.8	)		(9.1	)		7.2			(5.4	)
Depreciation and amortization		(11.7	)		(11.6	)		(33.9	)		(26.8	)
Interest expense, net		(6.8	)		(4.5	)		(18.3	)		(15.4	)
Restructuring costs		(0.9	)		(2.3	)		(6.9	)		(3.5	)
Transaction expenses		—			(0.5	)		(2.1	)		(2.7	)
Stock-based compensation expense		(1.4	)		(0.3	)		(5.1	)		(26.1	)
Non-cash purchase accounting expense		(0.5	)		(1.9	)		(1.2	)		(3.2	)
Sponsor expenses		(0.2	)		(0.1	)		(0.5	)		(0.4	)
Loss on early extinguishment of debt		—			—			—			(11.9	)
Legal matters		(1.1	)		—			(2.8	)		—
Initial public company costs		(1.0	)		—			(1.5	)		—
Deferred purchase price payment		(1.9	)		—			(4.1	)		—
Net Income	$	18.3		$	15.2		$	35.1		$	8.7

Note 17. Comprehensive Income (Loss)

Comprehensive income (loss) includes all changes in equity during a period except those that resulted from investments by or distributions to the Company’s shareholders. Other comprehensive income or loss refers to revenues, expenses, gains and losses that are included in comprehensive income, but excluded from net income as these amounts are recorded directly as an adjustment to shareholders’ equity.

The components of accumulated other comprehensive income (loss) are as follows:

	Nine Months Ended July 31, 2018
	Increase (Decrease) in Fair Value of Derivatives		Translation Adjustment			Other		Accumulated Other Comprehensive Income (loss)
Balance at October 31, 2017	$	0.1	$	(0.1	)	$	0.0	$	—
Changes, net of tax		—		(1.3	)		0.1		(1.2	)
Balance at July 31, 2018	$	0.1	$	(1.4	)	$	0.1	$	(1.2	)

	Nine Months Ended July 29, 2017
	Increase (Decrease) in Fair Value of Derivatives			Translation Adjustment		Other		Accumulated Other Comprehensive Income (Loss)
Balance at October 29, 2016	$	—		$	—	$	0.1	$	0.1
Changes, net of tax		(0.4	)		0.1		0.2		(0.1	)
Balance at July 29, 2017	$	(0.4	)	$	0.1	$	0.3	$	—

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This management’s discussion and analysis should be read in conjunction with the Unaudited Consolidated Financial Statements contained in this Form 10-Q as well as the Management’s Discussion and Analysis and Risk Factors and audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K filed on December 21, 2017 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Overview

REV is a leading designer, manufacturer and distributor of specialty vehicles and related aftermarket parts and services. We provide customized vehicle solutions for applications including: essential needs (ambulances, fire apparatus, school buses, mobility vans and municipal transit buses), industrial and commercial (terminal trucks, cut-away buses and street sweepers) and consumer leisure (recreational vehicles “RVs” and luxury buses). Our brand portfolio consists of 30 well-established principal vehicle brands including many of the most recognizable names within our served markets. Several of our brands pioneered their specialty vehicle product categories and date back more than 50 years. We believe that in most of our markets, we hold the first or second market share position and approximately 61% of our net sales during the third quarter of fiscal year 2018 came from products where we believe we hold such share positions.

Segments

We serve a diversified customer base primarily in the United States through the following segments:

Fire & Emergency – The Fire & Emergency segment sells fire apparatus equipment under the Emergency One, Kovatch Mobile Equipment and Ferrara brands and ambulances under the American Emergency Vehicles, Horton Emergency Vehicles, Leader Emergency Vehicles, Marque, McCoy Miller, Road Rescue, Wheeled Coach and Frontline brands. We believe we are the largest manufacturer by unit volume of fire and emergency vehicles in the United States and have one of the industry’s broadest portfolios of products including Type I ambulances (aluminum body mounted on a heavy truck-style chassis), Type II ambulances (van conversion ambulance typically favored for non-emergency patient transportation), Type III ambulances (aluminum body mounted on a van-style chassis), pumpers (fire apparatus on a custom or commercial chassis with a water pump and small tank to extinguish fires), ladder trucks (fire apparatus with stainless steel or aluminum ladders), tanker trucks and rescue and other vehicles. Each of our individual brands is distinctly positioned and targets certain price and feature points in the market such that dealers often carry and customers often buy more than one REV Fire & Emergency product line.

Commercial – Our Commercial segment serves the bus market through the following principal brands: Collins Bus, Goshen Coach, ENC, ElDorado National, Krystal Coach, Federal Coach, Champion and World Trans. We serve the terminal truck market through the Capacity brand, the sweeper market through the Lay-Mor brand and the mobility van market through our Revability brand. We are a leading producer of small- and medium-sized buses, Type A school buses, transit buses, terminal trucks and street sweepers in the United States. Our products in the Commercial segment include cut-away buses (customized body built on various types and sizes of commercial chassis), transit buses (large municipal buses where we build our own chassis and body), luxury buses (bus-style limo or high-end luxury conversions), street sweepers (three- and four-wheel versions used in road construction activities), terminal trucks (specialized vehicle which moves freight in warehouses or intermodal yards and ports), Type A school buses (small school bus built on commercial chassis), and mobility vans (mini-van converted to be utilized by wheelchair passengers). Within each market segment, we produce a large number of customized configurations to address the diverse needs of our customers.

Recreation – Our Recreation segment serves the RV market through seven principal brands: American Coach, Fleetwood RV, Monaco Coach, Holiday Rambler, Renegade, Midwest and Lance. We believe our brand portfolio contains some of the longest standing, most recognized brands in the RV industry. Under these seven brands, REV provides a variety of highly recognized models such as: American Eagle, Signature, Marquis, Bounder, Pace Arrow, Verona and Daycruiser, among others. Our products in the Recreation segment include Class A motorized RVs (motorhomes built on a heavy duty chassis with either diesel or gas engine configurations), Class C and “Super C” motorized RVs (motorhomes built on a commercial truck or van chassis), a line of heavy-duty special application trailers, and, as a result of the acquisition of Midwest, Class B RVs (motorhomes built out on a van chassis). The Recreation segment also includes Goldshield Fiberglass, which produces a wide range of custom molded fiberglass products for the RV and broader industrial markets. In January 2018, we acquired Lance, a producer of truck campers, towable campers and toy haulers.

Factors Affecting Our Performance

The primary factors affecting our results of operations include:

General Economic Conditions

Our business is impacted by the U.S. economic environment, employment levels, consumer confidence, municipal spending, changes in interest rates and instability in securities markets around the world, among other factors. In particular, changes in the U.S. economic climate can impact demand in key end markets.

RV purchases are discretionary in nature and therefore sensitive to the availability of financing, consumer confidence, unemployment levels, levels of disposable income and changing levels of consumer home equity, among other factors. The 2008 recession caused consumers to reduce their discretionary spending, which negatively affected sales volumes for RVs. Terminal truck sales volumes are also impacted by economic conditions and industrial output, as these factors impact our end-market customers for these products, which include shipping ports, trucking/distribution hubs and rail terminal operators. Although RV and terminal truck sales have increased in recent years, these markets are affected by general U.S. and global economic conditions, which create risks that future economic downturns will further reduce consumer demand and negatively impact our sales.

While less economically sensitive than the Recreation segment, our Fire & Emergency and Commercial segments are also impacted by the overall economic environment. Local tax revenues are an important source of funding for fire and emergency response departments. As fire and emergency products and school buses are typically a larger cost item for municipalities and their service life is relatively long, their purchase is more deferrable, which can result in reduced demand for our products.

A decrease in employment levels, consumer confidence or the availability of financing, or other adverse economic events, or the failure of actual demand for our products to meet our estimates, could negatively affect the sales of our products. Any decline in overall customer demand in markets in which we operate could have a material adverse effect on our operating performance.

Impact of Acquisitions

For the past several years, a significant component of our growth has been the addition of businesses or business units through acquisitions. We typically incur upfront costs as we integrate acquired businesses and implement our operating philosophy at newly acquired companies, including consolidation of supplies and materials, changes to production processes at acquired facilities to implement manufacturing improvements and other restructuring initiatives. The benefits of these integration efforts may not positively impact our financial results until subsequent periods. Operational and financial integration of our recently acquired businesses could be ongoing.

In accordance with GAAP, we recognize acquired assets and liabilities at fair value. This includes the recognition of identified intangible assets and goodwill which, in the case of definite-life intangible assets, are then amortized over their expected useful lives, which typically results in an increase in amortization expense. In addition, assets acquired and liabilities assumed generally include tangible assets, as well as contingent assets and liabilities.

Cost Management Initiatives

Purchased materials, including chassis, represent our largest component of costs of sales. We operate a centralized strategic procurement organization dedicated to reducing our overall level of materials spend across our three segments, while simplifying and standardizing suppliers and parts. Our operating performance is therefore significantly impacted by the results of our initiatives to lower material cost and standardize our products.

Similar to many industrial companies, we are working through some challenges as a result of the strong economy in the United States. Labor markets are tight, commodity and logistics costs have risen rapidly and higher production levels are causing a strain on the Company's supply chain. We are working to mitigate each of these challenges to minimize the negative impact on our results.

The Company has implemented price increases and steel and aluminum surcharges to address the dramatic increase in the cost of materials over the last six months. The Company started to experience the impact of the higher raw material costs in the second quarter of fiscal year 2018. As orders in backlog at the time these pricing actions were implemented were not impacted, the Company expects that it will only partially offset the impact of the higher input costs in fiscal year 2018 and has factored this into its updated outlook.

Results of Operations

Three Months Ended July 31, 2018 Compared with Three Months Ended July 29, 2017

	Three Months Ended				Increase (Decrease)
($ in millions)	July 31, 2018		July 29, 2017		$			%
Net sales	$	597.7	$	595.6	$	2.1			0.4	%
Cost of sales		518.2		517.6		0.6			0.1	%
Gross profit		79.5		78.0		1.5			1.9	%
Operating Expenses:
Selling, general and administrative		43.5		40.6		2.9			7.1	%
Research and development costs		1.6		1.2		0.4			33.3	%
Restructuring		0.9		2.3		(1.4	)	n/m
Amortization of intangible assets		4.6		5.1		(0.5	)		(9.8	)%
Total operating expenses		50.6		49.2		1.4			2.8	%
Operating income		28.9		28.8		0.1			0.3	%
Interest expense, net		6.8		4.5		2.3			51.1	%
Income before provision for income taxes		22.1		24.3		(2.2	)		(9.1	)%
Provision for income taxes		3.8		9.1		(5.3	)		(58.2	)%
Net income	$	18.3	$	15.2	$	3.1			20.4	%
Adjusted EBITDA	$	47.6	$	45.5	$	2.1			4.6	%
Adjusted Net Income	$	24.7	$	21.9	$	2.8			12.8	%

Net Sales. Net sales were $597.7 million for the three months ended July 31, 2018, an increase of $2.1 million, or 0.4%, from $595.6 million for the three months ended July 29, 2017. The increase in net sales was primarily due to an increase in net sales of $20.3 million and $3.6 million in the Recreation and Commercial segments, respectively, offset by a decrease in net sales of $23.2 million in the Fire & Emergency segment. The increase in Recreation segment net sales was primarily due to net sales from Lance, which was acquired in January 2018, partially offset by a decrease in net sales of Class A motorhomes resulting from our decision to rationalize and upgrade our product lineup as well as timing of our new model year introductions in the current year. The decrease in Fire & Emergency segment net sales was primarily due to chassis supply disruptions which resulted in lower unit shipments for ambulances and the timing of firetruck shipments compared to the prior year period. Excluding the impact of the Lance Acquisition, consolidated net sales decreased $32.6 million or 5.5% compared to the prior year period primarily due to the decline in Fire & Emergency segment net sales.

Gross Profit. Gross profit was $79.5 million for the three months ended July 31, 2018, compared to $78.0 million for the three months ended July 29, 2017. Gross profit, as a percentage of net sales, was 13.3% for the three months ended July 31, 2018, a slight increase compared to 13.1% for the three months ended July 29, 2017. This increase is primarily due to higher gross margins in the Recreation segment and pricing actions, net of material cost increases.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses were $43.5 million for the three months ended July 31, 2018, an increase of $2.9 million, or 7.1%, from $40.6 million for the three months ended July 29, 2017. SG&A expenses as a percentage of net sales, were 7.3% and 6.8% for the three months ended July 31, 2018 and July 29, 2017, respectively. The increase in SG&A expenses was due primarily to additional acquired company expenses, increased stock compensation expense and higher legal expenses.

Restructuring. Restructuring costs were $0.9 million for the three months ended July 31, 2018, compared to $2.3 million for the three months ended July 29, 2017. Restructuring expenses in the current year quarter represented additional severance costs for certain employees associated with closing of the Miami corporate office.

Interest Expense, Net. Interest expense, net of interest income was $6.8 million for the three months ended July 31, 2018, an increase of $2.3 million, or 51.1% from $4.5 million for the three months ended July 29, 2017. Interest expense increased compared to prior year primarily due to the increase in borrowings to fund the acquisition of Lance and share repurchases along with higher interest rates.

Income Taxes. Income tax expense was $3.8 million for the three months ended July 31, 2018, or 17.2% of pre-tax income, compared to $9.1 million, or 37.4% of pre-tax income, for the three months ended July 29, 2017. The decrease in the Company’s effective income tax rate for the three months ended July 31, 2018 relative to the prior year relates primarily to new tax legislation in the United States which lowered the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. As a result of U.S. tax

legislation, the Company also recorded a tax benefit of $2.1 million for the three months ended July 31, 2018 related to the remeasurement of net deferred tax liabilities.

Net Income. Net income was $18.3 million for the three months ended July 31, 2018, an increase of $3.1 million, or 20.4% from a net income of $15.2 million for the three months ended July 29, 2017.

Adjusted Net Income. Adjusted Net Income was $24.7 million for the three months ended July 31, 2018, an increase of $2.8 million, or 12.8% from $21.9 million for the three months ended July 29, 2017.

Adjusted EBITDA. Adjusted EBITDA was $47.6 million for the three months ended July 31, 2018, an increase of $2.1 million, or 4.6% from $45.5 million for the three months ended July 29, 2017. Excluding the impact of the acquisition of Lance, Adjusted EBITDA decreased 7.0% compared to the prior year period.

Fire & Emergency Segment

	Three Months Ended						Increase (Decrease)
($ in millions)	July 31, 2018			July 29, 2017			$			%
Net sales	$	238.9		$	262.1		$	(23.2	)		(8.9	)%
Adjusted EBITDA		25.3			29.0			(3.7	)		(12.8	)%
Adjusted EBITDA % of net sales		10.6	%		11.1	%

Fire & Emergency (“F&E”) segment net sales were $238.9 million for the three months ended July 31, 2018, a decrease of $23.2 million, or 8.9%, from $262.1 million for the three months ended July 29, 2017. The decrease in net sales was primarily due to chassis supply disruptions which resulted in lower unit shipments for ambulances and timing of firetruck shipments compared to the prior year period.

F&E segment Adjusted EBITDA was $25.3 million for the three months ended July 31, 2018, a decrease of $3.7 million, or 12.8%, from $29.0 million for the three months ended July 29, 2017. The decrease in Adjusted EBITDA was due to decreased gross profit driven by a decrease in unit shipments for ambulances and firetrucks and continued higher material costs, partially offset by improved profitability at acquired firetruck businesses, lower SG&A expenses and impact of pricing actions for ambulances.

Commercial Segment

	Three Months Ended						Increase (Decrease)
($ in millions)	July 31, 2018			July 29, 2017			$			%
Net sales	$	157.6		$	154.4		$	3.2			2.1	%
Adjusted EBITDA		11.8			12.9			(1.1	)		(8.5	)%
Adjusted EBITDA % of net sales		7.5	%		8.4	%

Commercial segment net sales were $157.6 million for the three months ended July 31, 2018, an increase of $3.2 million, or 2.1%, from $154.4 million for the three months ended July 29, 2017. The increase in net sales was due primarily to an increase in shuttle bus, school bus, motorcoach, mobility van and terminal truck units sold compared to the prior year period, partially offset by lower transit bus sales.

Commercial segment Adjusted EBITDA was $11.8 million for the three months ended July 31, 2018, a decrease of $1.1 million, or 8.5%, from $12.9 million for the three months ended July 29, 2017. This decrease was primarily due to reduced volumes of transit bus units sold compared to the prior year and higher material and freight costs, partially offset by impact of pricing actions in certain product categories.

Recreation Segment

	Three Months Ended						Increase (Decrease)
($ in millions)	July 31, 2018			July 29, 2017			$		%
Net sales	$	197.3		$	177.9		$	19.4		10.9	%
Adjusted EBITDA		17.9			11.7			6.2		53.0	%
Adjusted EBITDA % of net sales		9.1	%		6.6	%

Recreation segment net sales were $197.3 million for the three months ended July 31, 2018, an increase of $19.4 million, or 10.9%, from $177.9 million for the three months ended July 29, 2017. The increase in net sales was due to net sales attributable to our recent Lance Acquisition and increases in net sales across our entire RV brand line-up except Class A motorhomes. Class A RV volume declined compared to the prior year period due to a reduction in the number of different models produced and the timing of new model year introductions as well as slower end market growth. Excluding the impact of net sales from Lance, Recreation segment net sales decreased by $15.2 million compared to the prior year period.

Recreation segment Adjusted EBITDA was $17.9 million for the three months ended July 31, 2018, an increase of $6.2 million, or 53.0%, from $11.7 million for the three months ended July 29, 2017. The increase in Adjusted EBITDA was primarily due to the impact of the acquisition of Lance and higher volumes in the more profitable Class B, Super C and towable product categories, partially offset by lower Class A RV volumes. Excluding the impact of the acquisition of Lance, Recreation segment Adjusted EBITDA increased by $0.9 million, or 7.3% compared to the prior year period.

Nine months ended July 31, 2018 compared with the nine months ended July 29, 2017

	Nine Months Ended					Increase (Decrease)
($ in millions)	July 31, 2018			July 29, 2017		$			%
Net sales	$	1,721.4		$	1,583.9	$	137.5			8.7	%
Cost of sales		1,516.6			1,385.5		131.1			9.5	%
Gross profit		204.8			198.4		6.4			3.2	%
Operating Expenses:
Selling, general and administrative		133.2			139.7		(6.5	)		(4.7	)%
Research and development costs		4.9			3.4		1.5			44.1	%
Restructuring		6.9			3.5		3.4			97.1	%
Amortization of intangible assets		13.6			10.4		3.2			30.8	%
Total operating expenses		158.6			157.0		1.6			1.0	%
Operating income		46.2			41.4		4.8			11.6	%
Interest expense, net		18.3			15.4		2.9			18.8	%
Loss on early extinguishment of debt		—			11.9		(11.9	)		(100.0	)%
Income before (benefit) provision for income taxes		27.9			14.1		13.8			(97.9	)%
(Benefit) provision for income taxes		(7.2	)		5.4		(12.6	)		(233.3	)%
Net income	$	35.1		$	8.7	$	26.4			(303.4	)%
Adjusted EBITDA	$	104.3		$	104.1	$	0.2			0.2	%
Adjusted Net Income	$	51.0		$	46.7	$	4.3			9.2	%

Net Sales. Net sales were $1,721.4 million for the nine months ended July 31, 2018, an increase of $137.5 million, or 8.7%, from $1,583.9 million for the nine months ended July 29, 2017. The increase in consolidated net sales was primarily due to an increase in net sales of $39.6 million, $92.5 million and $3.7 million in the Fire & Emergency, Recreation and Commercial segments, respectively. The increase in net sales in the Recreation segment was due to net sales from the acquisition of Lance as well as higher unit sales volumes in certain RV product categories. The increase in Fire & Emergency segment net sales was due to the impact of net sales from Ferrara acquired in April 2017 partially offset by decreases in sales of certain fire apparatus and ambulance units caused by chassis supply constraints and timing of unit shipments. The increase in Commercial segment net sales was primarily due to increases in sales of shuttle bus units, parts sales partially offset by lower school and transit bus unit volume compared to the prior year period. Excluding net sales from acquired companies, net sales for the nine months ended July 31, 2018 decreased by $27.0 million or 1.7% compared to the same period in the prior year.

Gross Profit. Gross profit was $204.8 million for the nine months ended July 31, 2018, an increase of $6.4 million, or 3.2% from $198.4 million for the nine months ended July 29, 2017. Gross profit, as a percentage of net sales, was 11.9% and 12.5% for the nine months ended July 31, 2018 and July 29, 2017, respectively. The decrease in gross profit, as a percentage of net sales, was due to the mix of units sold and higher material costs, partially offset by pricing actions.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses were $133.2 million for the nine months ended July 31, 2018, a decrease of $6.5 million, or 4.7%, from $139.7 million for the nine months ended July 29, 2017. SG&A expenses, as a percentage of net sales, were 7.7% and 8.8% for the nine months ended July 31, 2018 and July 29, 2017, respectively. The decrease in SG&A expenses was due primarily to decreased stock-based compensation expense as a result of our IPO in the prior year period. The decline in stock-based compensation was partially offset by expenses from acquired companies, higher public company related costs and higher legal expenses compared to the prior year. SG&A expenses for the nine months ended

July 29, 2017 included $26.1 million of stock-based compensation expense compared to $5.1 million for the nine months ended July 31, 2018.

Research and Development. Research and development costs were $4.9 million for the nine months ended July 31, 2018, an increase of $1.5 million, or 44.1% from $3.4 million for the nine months ended July 29, 2017. This increase was primarily due to greater activity for research and development in the Fire & Emergency and Commercial segments.

Restructuring. Restructuring costs were $6.9 million for the nine months ended July 31, 2018, compared to $3.5 million for the nine months ended July 29, 2017. In the first half of fiscal year 2017, the Company implemented a plan to relocate production of Goshen Coach buses from its Elkhart, Indiana facility to its facilities in Salina, Kansas and Imlay City, Michigan and the relocation of our Eldorado mobility van production facility from Salina, Kansas to Longview, Texas. Restructuring expenses in the current year represent costs incurred to close the Miami corporate office, costs to exit a Class B RV production facility and reduce certain management positions in the Fire & Emergency, Commercial and Recreation segments. Costs incurred in the current year consisted of personnel costs, including severance, vacation and other employee benefit payments as well as costs associated with lease terminations.

Amortization of Intangible Assets. Amortization of intangible assets was $13.6 million for the nine months ended July 31, 2018, compared to $10.4 million for the nine months ended July 29, 2017. The increase in amortization expense was due to the amortization of the intangible assets recorded as part of the acquisitions of Renegade in December 2016, Midwest and Ferrara in April 2017, and Lance in January 2018.

Interest Expense, Net. Interest expense, net of interest income was $18.3 million for the nine months ended July 31, 2018, an increase of $2.9 million, or 18.8% from $15.4 million for the nine months ended July 29, 2017, respectively. Interest expense increased compared to prior year primarily due to the increase in debt resulting from the Lance Acquisition in January 2018, share repurchases and higher interest rates.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt was $11.9 million for the nine months ended July 29, 2017, which includes losses recognized upon the redemption of our Notes in February 2017 and our April 2017 re-financing. The Company paid a prepayment premium of $7.7 million and wrote off $3.1 million of unamortized debt issuance costs and $0.4 million of original issue discount resulting from the redemption of our Notes. Loss on early extinguishment of debt also included a write-off of $0.7 million of unamortized debt issuance costs as a result of our debt re-financing in April 2017.

Income Taxes. Consolidated income tax benefit was $7.2 million for the nine months ended July 31, 2018, or (25.8)% of pre-tax income, compared to $5.4 million expense, or 38.1% of pre-tax income, for the nine months ended July 29, 2017. Results for the nine months ended July 31, 2018 were favorably impacted by $14.7 million of net discrete tax benefits, including a $12.5 million benefit related to the remeasurement of net deferred tax liabilities as a result of tax legislation in the United States and a $1.1 million benefit related to a federal provision-to-return adjustment. The effective tax rate for the nine months ended July 31, 2018 before discrete items of 26.8% decreased relative to the prior year primarily due to U.S. tax legislation.

On December 22, 2017, the Tax Reform Act was signed and enacted into law and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions. The Tax Reform Act reduces the U.S. corporate rate from 35% to 21%. A number of other provisions will not impact the Company until fiscal year 2019, such as elimination of the domestic manufacturing deduction and U.S. taxation of foreign earnings. As a result of the Tax Reform Act, the Company recognized a non-cash estimated tax benefit of $10.4 million in the first quarter of fiscal year 2018 related to the remeasurement of the Company’s net deferred tax liabilities. During the third quarter of fiscal year 2018, the Company updated the provisional amounts previously recorded as a result of the Tax Reform Act based on its completed fiscal year 2017 federal income tax return. This resulted in additional tax benefit of $2.1 million related to the remeasurement of net deferred tax liabilities. For the nine months ended July 31, 2018, the Company recorded cumulative tax benefit of $12.5 million due to remeasurement of net deferred tax liabilities. Although the $12.5 million tax benefit represents what the Company believes is a reasonable estimate of the income tax effects of the Tax Reform Act on its consolidated financial statements as of July 31, 2018, it is a provisional amount and will be impacted by the Company’s ongoing analysis of the legislation and full fiscal year 2018 financial results. Any adjustments to these provisional amounts will be reported as a component of income tax expense (benefit) in the reporting period in which any such adjustments are determined, which will be no later than the first quarter of fiscal year 2019.

Net Income. Net income was $35.1 million for the nine months ended July 31, 2018, an increase of $26.4 million, from net income of $8.7 million for the nine months ended July 29, 2017. This increase in net income was due to the prior year impact of various one-time items relating to our IPO and debt re-financings and the income tax benefit in the current year.

Adjusted Net Income. Adjusted Net Income was $51.0 million for the nine months ended July 31, 2018, an increase of $4.3 million, or 9.2% from $46.7 million for the nine months ended July 29, 2017.

Adjusted EBITDA. Adjusted EBITDA was $104.3 million for the nine months ended July 31, 2018, an increase of $0.2 million, or 0.2%, from $104.1 million for the nine months ended July 29, 2017. The increase was due to higher Adjusted EBITDA in the Recreation segment, offset by lower Adjusted EBITDA in the Fire & Emergency and Commercial segments and higher corporate expenses. Excluding acquisitions, Adjusted EBITDA decreased 17.9% for the first nine months of fiscal year 2018 compared to the first nine months of fiscal year 2017.

Fire & Emergency Segment

	Nine Months Ended						Increase (Decrease)
($ in millions)	July 31, 2018			July 29, 2017			$			%
Net sales	$	706.1		$	666.5		$	39.6			5.9	%
Adjusted EBITDA		65.5			70.2			(4.7	)		(6.7	)%
Adjusted EBITDA % of net sales		9.3	%		10.5	%

F&E segment net sales were $706.1 million for the nine months ended July 31, 2018, an increase of $39.6 million, or 5.9%, from $666.5 million for the nine months ended July 29, 2017. Net sales increased primarily due to sales from Ferrara, which was acquired in April 2017 partially offset by decreases in sales of certain ambulance units caused by chassis supply constraints and the timing of firetruck shipments. Excluding the impact of net sales from acquired companies, Fire & Emergency segment net sales decreased by $7.3 million, or 1.1% compared to the prior year period.

F&E segment Adjusted EBITDA was $65.5 million for the nine months ended July 31, 2018, a decrease of $4.7 million, or 6.7%, from $70.2 million for the nine months ended July 29, 2017. The decrease in Adjusted EBITDA was primarily due to a decrease in the sales of higher content fire apparatus, a decrease in ambulance unit sales, higher product costs caused by chassis supply constraints and other higher material costs partially offset by the impact of the Ferrara acquisition and pricing actions. Excluding the impact of the Ferrara acquisition, Fire & Emergency segment Adjusted EBITDA decreased by $7.9 million, or 11.2% compared to the prior year period.

Commercial Segment

	Nine Months Ended						Increase (Decrease)
($ in millions)	July 31, 2018			July 29, 2017			$			%
Net sales	$	447.9		$	444.2		$	3.7			0.8	%
Adjusted EBITDA		25.7			35.6			(9.9	)		(27.8	)%
Adjusted EBITDA % of net sales		5.7	%		8.0	%

Commercial segment net sales were $447.9 million for the nine months ended July 31, 2018, an increase of $3.7 million, or 0.8%, from $444.2 million for the nine months ended July 29, 2017. The increase in net sales was due to increases in sales of shuttle buses, mobility vans and parts sales partially offset by a decrease in school and transit bus unit sales compared to the prior year period.

Commercial segment Adjusted EBITDA was $25.7 million for the nine months ended July 31, 2018, a decrease of $9.9 million, or 27.8%, from $35.6 million for the nine months ended July 29, 2017. The decrease in Adjusted EBITDA was primarily due to reduced volume in our higher margin school and transit bus businesses compared to the prior year and higher material costs, partially offset by pricing actions in certain product categories.

Recreation Segment

	Nine Months Ended						Increase (Decrease)
($ in millions)	July 31, 2018			July 29, 2017			$		%
Net sales	$	563.4		$	470.9		$	92.5		19.6	%
Adjusted EBITDA		38.7			21.8			16.9		77.5	%
Adjusted EBITDA % of net sales		6.9	%		4.6	%

Recreation segment net sales were $563.4 million for the nine months ended July 31, 2018, an increase of $92.5 million, or 19.6%, from $470.9 million for the nine months ended July 29, 2017. The increase in net sales for the first nine months of fiscal year

2018 compared to the prior year period was due to the Lance acquisition, and higher volumes in all classes of RVs except Class A. Excluding the impact of net sales from acquired companies, Recreation segment net sales decreased $25.1 million, compared to the prior year period.

Recreation segment Adjusted EBITDA was $38.7 million for the nine months ended July 31, 2018, an increase of $16.9 million, or 77.5%, from $21.8 million for the nine months ended July 29, 2017. The increase in Adjusted EBITDA was primarily due to impact of the acquired companies and higher profitability in all classes of RVs except Class A. This increase was partially offset by higher purchased material costs and lower Class A sales volumes. Excluding the impact of net sales from acquired companies, Recreation segment Adjusted EBITDA increased $1.2 million, or 5.5% compared to the prior year period.

Backlog

Backlog represents firm orders received from dealers or directly from end customers. Backlog does not include purchase options or verbal orders. The following table presents a summary of our backlog by segment:

					Increase (Decrease)
($ in millions)	July 31, 2018		July 29, 2017		$		%
Fire & Emergency	$	606.5	$	580.6	$	25.9		4.5	%
Commercial		420.0		254.8		165.2		64.8	%
Recreation		249.5		116.1		133.4		114.9	%
Total Backlog	$	1,276.0	$	951.5	$	324.5		34.1	%

Each of our three segments has a backlog of new vehicle orders that generally extends out from two to twelve months in duration. We expect that $75.1 million of our current backlog will not be produced and sold within the next twelve months following July 31, 2018.

Our businesses take orders from our dealers and end customers that are evidenced by a contract, firm purchase order or reserved production slot for delivery of one or many vehicles with a given specification over a period of time. These orders are placed in our backlog and reported at the aggregate selling prices, net of discounts or allowances, at the time the order is received.

As of July 31, 2018, our backlog was $1,276.0 million compared to $951.5 million as of July 29, 2017. The increase in Commercial backlog was due to a large transit bus order that is expected to begin delivering in early fiscal year 2019. The increase in Recreation backlog was partially due to the current year acquisition of Lance.

Liquidity and Capital Resources

General

Our primary requirements for liquidity and capital are working capital, acquiring machinery and equipment, acquiring and building manufacturing facilities, the improvement and expansion of existing manufacturing facilities, debt service payments, regular quarterly dividend payments, general corporate needs, and common stock repurchases under the Company’s recently authorized stock buyback program. Historically, these cash requirements have been met through cash provided by operating activities, cash and cash equivalents and borrowings under our revolving credit facility. During the third quarter of fiscal year 2018, we increased the size of our Term Loan by $50.0 million to support the execution of our stock repurchase program.

We believe that our sources of liquidity and capital will be sufficient to finance our continued operations, growth strategy, cash dividends and additional expenses we expect to incur as a public company. However, we cannot assure you that our cash provided by operating activities and borrowings under our current revolving credit facility will be sufficient to meet our future needs. If we are unable to generate sufficient cash flows from operations in the future, and if availability under our current revolving credit facility is not sufficient due to the size of our borrowing base or other external factors, we may have to obtain additional financing. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain financial and other covenants that may significantly restrict our operations. We cannot assure you that we will be able to obtain refinancing or additional financing on favorable terms or at all.

Cash Flow

The following table shows summary cash flows for the nine months ended July 31, 2018 and July 29, 2017:

	Nine Months Ended
($ in millions)	July 31, 2018			July 29, 2017
Net cash used in operating activities	$	(56.8	)	$	(60.0	)
Net cash used in investing activities		(109.1	)		(211.1	)
Net cash provided by financing activities		162.8			274.4
Net (decrease) increase in cash and cash equivalents	$	(3.1	)	$	3.3

Net Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended July 31, 2018 was $56.8 million, compared to $60.0 million for the nine months ended July 29, 2017. The reduction in cash used in operating activities for the nine months ended July 31, 2018, compared to the prior year was due to continued improvement in inventory management and receivable collection efforts. These benefits were partially offset by timing of vendor payments.

Excluding stock-based compensation expense and restructuring costs, operating income decreased by $12.8 million in the nine months ended July 31, 2018 compared to the prior year period.

Net Cash Used in Investing Activities

Net cash used in investing activities for the nine months ended July 31, 2018 was $109.1 million, compared to $211.1 million for the nine months ended July 29, 2017. The decrease in net cash used in investing activities for the nine months ended July 31, 2018, compared to the prior year period, was primarily due to a decrease in business acquisition activity and lower capital expenditures. The Company completed the acquisition of Lance in the current year period, compared to the acquisitions of Renegade, Ferrara and Midwest in the prior year period.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the nine months ended July 31, 2018 was $162.8 million, which primarily consisted of net borrowings to fund the acquisition of Lance, capital expenditures, to repurchase the Company’s common stock and to pay regular quarterly dividends. Net cash provided by financing activities for the nine months ended July 29, 2017 was $274.4 million, which primarily consisted of net proceeds from our IPO offset by the use of those proceeds to redeem our Notes, and further net borrowings from our ABL Facility and Term Loan to support acquisitions, operating activities and capital expenditures.

In the nine months ended July 31, 2018, the Company paid cash dividends of $9.7 million.

Offering of Common Stock

On January 26, 2017, the Company announced an initial public offering (“IPO”) of our common stock which began trading on the New York Stock Exchange under the ticker symbol “REVG”. On February 1, 2017, the Company completed the offering of 12,500,000 shares of common stock at a price of $22.00 per share and the Company received $275.0 million in gross proceeds from the IPO, or $253.6 million in net proceeds after deducting the underwriting discount and expenses related to the offering. The net proceeds of the IPO were used to partially pay down the Company’s existing debt. The Company redeemed the entire outstanding balance of its Notes, including a prepayment premium and accrued interest, plus it partially paid down the then outstanding balance of its revolving credit facility.

Dividends

Subject to legally available funds and the discretion of our board of directors, we expect to pay a quarterly cash dividend at the rate of $0.05 per share on our common stock. We expect to pay this quarterly dividend on or about the last day of the first month following each fiscal quarter to shareholders of record on the last day of such fiscal quarter. Our dividend policy has certain risks and limitations, particularly with respect to liquidity, and we may not pay dividends according to our policy, or at all. We cannot assure you that we will declare dividends or have sufficient funds to pay dividends on our common stock in the future.

On September 5, 2018, our board of directors declared a cash dividend of $0.05 per share on our common stock, payable in respect of the third quarter of fiscal year 2018. The dividend is payable on November 30, 2018 to holders of record as of October 31, 2018.

Stock Repurchase Program

On March 20, 2018 the Company’s Board of Directors authorized up to $50.0 million of repurchases of the Company’s issued and outstanding common stock with an expiration date of March 19, 2020. The Company’s share repurchase program is executed from time to time through open market or through private transactions. Shares purchased under the share repurchase program are retired and returned to authorized and unissued status. As of July 31, 2018, the Company had $4.5 million of authorization remaining under this program. During the three months ended July 31, 2018, the Company repurchased 2,475,967 shares under this repurchase program at a total cost of $40.7 million at an average price per share of $16.42. During the nine months ended July 31, 2018, the Company repurchased 2,714,514 shares under this repurchase program at a total cost of $45.5 million at an average price per share of $16.76.

Term Loan

On April 25, 2017, we entered into a $75.0 million term loan (“Term Loan” or “Term Loan Agreement”), as Borrower, certain subsidiaries of the Company, as Guarantor Subsidiaries. Principal may be prepaid at any time during the term of the Term Loan without penalty. The Company incurred $2.0 million in debt issuance costs related to the Term Loan. The Term Loan Agreement expires on April 25, 2022.

On July 18, 2018 the Company exercised its $50.0 million incremental commitment option under the Term Loan Agreement, which increased total borrowing under the facility from $75.0 million to $125.0 million. The Company incurred an additional $0.5 million of debt issuance costs related to the incremental commitment option under the Term Loan. Proceeds from the increase in the Term Loan were used to repay a portion of the borrowings under the April 2017 ABL Facility.

The Company may voluntarily prepay principal, in whole or in part, at any time, without penalty. Commencing with fiscal year 2018 and payable in fiscal year 2019, the Company is obligated to prepay certain minimum amounts based on the Company’s excess cash flow, as defined in the Term Loan Agreement. We are not expecting to make significant excess cash flow payments in fiscal year 2019. The Term Loan is also subject to mandatory prepayment if the Company or any of its restricted subsidiaries receives proceeds from certain events, including certain asset sales and casualty events, and the issuance of certain debt and equity interests.

April 2017 ABL Facility

On April 25, 2017, we entered into a new $350.0 million ABL revolving credit agreement with a syndicate of lenders (the “April 2017 ABL Facility” or “ABL Agreement”). The April 2017 ABL Facility provides for revolving loans and letters of credit in an aggregate amount of up to $350.0 million. The total April 2017 ABL Facility is subject to a $30.0 million sublimit for swing line loans and a $35.0 million sublimit for letters of credit, along with certain borrowing base and other customary restrictions as defined in the ABL Agreement. The April 2017 ABL Facility expires on April 25, 2022.

On December 22, 2017 the Company exercised its $100.0 million incremental commitment option under the April 2017 ABL Facility, which increased the facility to $450.0 million.

Funds from the April 2017 ABL Facility were used to repay borrowings on the previous ABL Facility and to fund the Ferrara acquisition.

Principal may be repaid at any time during the term of the ABL Facility without penalty.

The April 2017 ABL Facility contains certain financial covenants. We were in compliance with all financial covenants under the ABL Facility as of July 31, 2018. As of July 31, 2018, our availability under the April 2017 ABL Facility was $119.4 million.

Adjusted EBITDA and Adjusted Net Income

In considering the financial performance of the business, management analyzes the primary financial performance measures of Adjusted EBITDA and Adjusted Net Income. Adjusted EBITDA is defined as net income for the relevant period before depreciation and amortization, interest expense and provision for income taxes, as adjusted for certain items described below that we believe are not indicative of our ongoing operating performance. Adjusted Net Income is defined as net income, as adjusted for certain items

described below that we believe are not indicative of our ongoing operating performance. Neither Adjusted EBITDA nor Adjusted Net Income is a measure defined by GAAP. The most directly comparable GAAP measure to EBITDA, Adjusted EBITDA and Adjusted Net Income is net income for the relevant period.

We believe Adjusted EBITDA and Adjusted Net Income are useful to investors and are used by our management for measuring profitability because these measures exclude the impact of certain items which we believe have less bearing on our core operating performance because they are items that are not needed or available to the Company’s managers in the daily activities of their businesses. We believe that the core operations of our business are those which can be affected by our management in a particular period through their resource allocation decisions that affect the underlying performance of our specialty vehicle operations conducted during that period. We also believe that decisions utilizing Adjusted EBITDA and Adjusted Net Income allow for a more meaningful comparison of operating fundamentals between companies within our markets by eliminating the impact of capital structure and taxation differences between the companies. To determine Adjusted EBITDA, we further adjust net income for the following items: non-cash depreciation and amortization, interest expense and benefit for income taxes. Stock-based compensation expense is excluded from both Adjusted Net Income and Adjusted EBITDA because it is an expense that is measured based upon external inputs such as our current share price and the movement of share price of peer companies, which cannot be impacted by our business managers. Stock-based compensation expense also reflects a cost which may obscure trends in our underlying vehicle businesses for a given period, due to the timing and nature of the equity awards.

We also adjust for exceptional items which are determined to be those that in management’s judgment need to be disclosed by virtue of their size, nature or incidence, which include non-cash items and items settled in cash. In determining whether an event or transaction is exceptional, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. This is consistent with the way that financial performance is measured by management and reported to our Board of Directors, assists in providing a meaningful analysis of our operating performance and used as a measurement in incentive compensation for management. Based on the foregoing factors, management considers the adjustment for non-cash purchase accounting, certain legal matters, initial public company costs, transaction expenses, restructuring costs, sponsor expenses and deferred purchase price payment to be exceptional items.

Adjusted EBITDA and Adjusted Net Income have limitations as analytical tools. These are not presentations made in accordance with GAAP, nor are they measures of financial condition and they should not be considered as an alternative to net income or net loss for the period determined in accordance with GAAP. Adjusted EBITDA and Adjusted Net Income are not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider this performance measure in isolation from, or as a substitute analysis for, our results of operations as determined in accordance with GAAP. Moreover, such measures do not reflect:

•

our cash expenditures, or future requirements for capital expenditures or contractual commitments;

•

changes in, or cash requirements for, our working capital needs;

•

the cash requirements necessary to service interest or principal payments on our debt and, in the case of Adjusted EBITDA, excluding interest expense; and

•

the cash requirements to pay our taxes and, in the case of Adjusted EBITDA, excluding income tax expense.

The following table reconciles net income to Adjusted EBITDA for the periods presented:

	Three Months Ended				Nine Months Ended
($ in millions)	July 31, 2018		July 29, 2017		July 31, 2018			July 29, 2017
Net income	$	18.3	$	15.2	$	35.1		$	8.7
Depreciation and amortization		11.7		11.6		33.9			26.8
Interest expense, net		6.8		4.5		18.3			15.4
Provision (benefit) for income taxes		3.8		9.1		(7.2	)		5.4
Loss on early extinguishment of debt		—		—		—			11.9
EBITDA		40.6		40.4		80.1			68.2
Restructuring costs(a)		0.9		2.3		6.9			3.5
Transaction expenses(b)		—		0.5		2.1			2.7
Stock-based compensation expense(c)		1.4		0.3		5.1			26.1
Non-cash purchase accounting expense(d)		0.5		1.9		1.2			3.2
Sponsor expenses(e)		0.2		0.1		0.5			0.4
Legal matters(f)		1.1		—		2.8			—
Initial public company costs(g)		1.0		—		1.5			—
Deferred purchase price payment(h)		1.9		—		4.1			—
Adjusted EBITDA	$	47.6	$	45.5	$	104.3		$	104.1

(a)

Restructuring expenses in the current fiscal year represent costs incurred to restructure certain management positions in the Fire & Emergency, Commercial and Recreation segments, our corporate office, as well as to relocate our Class B RV production. Costs incurred in the current year consisted of personnel costs, including severance, vacation and other employee benefit payments as well as facility closure and lease termination costs.

Restructuring expenses in the prior year included costs incurred to restructure certain management positions in the Commercial segment and in the corporate office, consisting of personnel costs, including severance and other employee benefit payments.

(b)	Reflects costs incurred in connection with business acquisitions and capital market transactions. These expenses consist primarily of legal, accounting, due diligence, and one-time post-acquisition expenses in addition to costs related to offerings of our common stock.

During the first two quarters of fiscal year 2018, transaction expenses consisted primarily of costs related to the inception of our China Joint venture and expenses related to the Lance Acquisition.

Transaction expenses in the prior year consisted primarily of costs related to various business acquisitions.

(c)	Reflects expenses associated with stock-based compensation and the redemption of performance-based stock options.

(d)	Reflects the amortization of the difference between the book value and fair market value of certain acquired inventory that was subsequently sold after the acquisition date.

(e)	Reflects the reimbursement of expenses to the Company’s primary equity holder.

(f)

Reflects legal fees and costs incurred to litigate and settle legal claims against us which are outside the normal course of business. Current year costs include payments: (i) to settle certain claims arising from a putative class action in the state of California, (ii) for fees and costs to litigate and settle non-ordinary course product, intellectual property and employment disputes and (iii) for fees and costs to litigate the putative securities class actions pending against us and certain of our directors and officers.

(g)	Reflects one-time consulting and audit fees associated with the design and implementation of internal controls over financial reporting to comply with the provisions of the Sarbanes-Oxley Act.

(h)

Reflects the expense associated with the deferred purchase price payment owed to sellers of Lance, who are now employees of the Company. The Company will make payments of $5.0 million on each of the 12- and 24-month anniversary dates of the acquisition date, subject to conditions in the purchase agreement.

The following table reconciles net income to Adjusted Net Income for the periods presented:

	Three Months Ended						Nine Months Ended
($ in millions)	July 31, 2018			July 29, 2017			July 31, 2018			July 29, 2017
Net income	$	18.3		$	15.2		$	35.1		$	8.7
Amortization of intangible assets		4.6			5.1			13.7			10.4
Restructuring costs(a)		0.9			2.3			6.9			3.5
Transaction expenses(b)		—			0.5			2.1			2.7
Stock-based compensation expense(c)		1.4			0.3			5.1			26.1
Non-cash purchase accounting expense(d)		0.5			1.9			1.2			3.2
Loss on early extinguishment of debt(e)		—			—			—			11.9
Sponsor expenses(f)		0.2			0.1			0.5			0.4
Legal matters(g)		1.1			—			2.8			—
First year public company costs(h)		1.0			—			1.5			—
Deferred purchase price payment(i)		1.9			—			4.1			—
Impact of tax rate change(j)		(2.1	)		—			(12.5	)		—
Income tax effect of adjustments(k)		(3.1	)		(3.5	)		(9.5	)		(20.2	)
Adjusted Net Income	$	24.7		$	21.9		$	51.0		$	46.7

(a)

Restructuring expenses in the current fiscal year represent costs incurred to restructure certain management positions in the Fire & Emergency, Commercial and Recreation segments, our corporate office as well as to relocate our Class B RV production. Costs incurred in the current year consisted of personnel costs, including severance, vacation and other employee benefit payments as well as facility closure and lease termination costs.

Restructuring expenses in the prior year included costs incurred to restructure certain management positions in the Commercial segment and in the Corporate office, consisting of personnel costs, including severance and other employee benefit payments.

(b)	Reflects costs incurred in connection with business acquisitions and capital market transactions. These expenses consist primarily of legal, accounting, due diligence, and one-time post-acquisition expenses in addition to costs related to offerings of our common stock.

During the first two quarters of fiscal year 2018, transaction expenses consisted primarily of costs related to the inception of our China Joint venture and expenses related to the Lance Acquisition.

Transaction expenses in the prior year consisted primarily of costs related to various business acquisitions.

(c)	Reflects expenses associated with stock-based compensation and the redemption of performance-based stock options.

(d)	Reflects the amortization of the difference between the book value and fair market value of certain acquired inventory that was subsequently sold after the acquisition date.

(e)

Reflects losses recognized upon the redemption of our Notes in February 2017. The Company paid a prepayment premium of $7.7 million and wrote off $3.1 million of unamortized debt issuance costs and $0.4 million of original issue discount. The loss on early extinguishment of debt also includes the write-off of $0.7 million of unamortized debt issuance costs as a result of our debt re-financing in April 2017.

(f)	Reflects the reimbursement of expenses to AIP, the Company’s primary equity holder.

(g)

(h)	Reflects one-time consulting and audit fees associated with the design and implementation of internal controls over financial reporting to comply with the provisions of the Sarbanes-Oxley Act.

(i)

Reflects the expense associated with the deferred purchase price payment owed to sellers of Lance, who are now employees of the Company. The Company will make payments of $5.0 million on each of the 12 and 24-month anniversary dates of the acquisition date, subject to conditions in the purchase agreement.

(j)	Reflects the one-time provisional impact of net deferred tax liability remeasurement as a result of the U.S. Tax Reform Act enacted in the first quarter of fiscal year 2018.

(k)	Income tax effect of adjustments using 26.5% and 36.5% effective tax rates for the three and nine months ended July 31, 2018 and July 29, 2017, respectively, except for certain non-deductible transaction expenses and impact of tax rate change.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. With the exception of operating lease obligations, we do not have any off-balance sheet arrangements or relationships with entities that are not consolidated into or disclosed in our consolidated financial statements that have, or are reasonably likely to have, a material current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures and capital resources. In addition, we do not engage in trading activities involving non-exchange traded contracts.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates, assumptions and judgments that affect amounts reported in the consolidated financial statements and accompanying notes. The Company's disclosures of critical accounting policies in its 2017 Annual Report on Form 10-K for the fiscal year ended October 31, 2017 have not materially changed since that report was filed.

Recent Accounting Pronouncements

See Note 1 of the Notes to Condensed Unaudited Consolidated Financial Statements for a discussion of the impact on our financial statements of new accounting standards.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our exposure to interest rate risk, foreign exchange risk and commodity price risk from the information provided in the Company’s Annual Report on Form 10-K filed on December 21, 2017.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15(b) of the Exchange Act, the Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the quarter ended July 31, 2018. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the quarter ended July 31, 2018 to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

There are three federal and one state putative securities class actions presently pending against the Company and certain of its officers and directors, each on behalf of a putative class of purchasers of the Company’s stock in or traceable to the Company’s January 2017 IPO, as well as, for two of the actions, from January 27, 2017 through June 7, 2018. Two of the complaints also name certain of the underwriters for the Company’s IPO as defendants. The complaints allege certain violations of the Securities Act of 1933 and, for two of the actions, the Securities Exchange Act of 1934. The federal court in the Central District of California has ordered each of the federal complaints to be transferred to the U.S. District Court for the Eastern District of Wisconsin.

The Company has also received a complaint against the Company and certain of its officers and directors, on behalf of a putative class of purchasers of the Company’s stock in its secondary offering of common stock in October 2017. This complaint also named certain of the underwriters for the offering, and alleges certain violations of the Securities Act of 1933 made in connection with the October 2017 offering.

The Company is subject to certain other legal proceedings that arise in the ordinary course of business. Although the final results of all such other matters and claims cannot be predicted with certainty, management believes that the ultimate resolution of all such matters and claims will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. Actual results could vary, among other things, due to the uncertainties involved in litigation.

Item 1A. Risk Factors.

There have been no material changes to the risk factors associated with our business previously disclosed in “Item 1A. Risk Factors,” in 2017 Annual Report on Form 10-K for the fiscal year ended October 31, 2017, as supplemented by our Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2018, other than as follows:

We are party to four putative securities class actions, as well as other litigation in the ordinary course of business, and uninsured judgments or a rise in insurance premiums may adversely impact our results of operations.

There are three federal and one state putative securities class actions presently pending against us and certain of our officers and directors, each on behalf of a putative class of purchasers of our common stock in or traceable to the Company’s January 2017 IPO, as well as, for two of the actions, from January 27, 2017 through June 7, 2018. We have also received a complaint against us and certain of our officers and directors, on behalf of a putative class of purchasers of our stock in our secondary offering of common stock in October 2017. These complaints allege certain violations of the Securities Act of 1933 and, for two of the actions, the Securities Exchange Act of 1934. See “Item 1. Legal Proceedings.” We are also subject to various claims and litigation in the ordinary course of business. Any such claims, whether with or without merit, could be time consuming and expensive to defend and could divert management’s attention and resources. Some of our businesses have in the past and may in the future face claims and litigation regarding accidents involving their products, including accidents involving passenger injuries and deaths, and the increasing amount of our vehicles on the road may increase our exposure to such matters. In accordance with customary practice, we maintain insurance against some, but not all, of these potential claims. We may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the risks presented. The levels of insurance we maintain may not be adequate to fully cover any and all losses or liabilities. Further, we may not be able to maintain insurance at commercially acceptable premium levels or at all.

For product liability claims, we have a self-insured retention (“SIR”) for product liability matters of $1.0 million. Amounts above the SIR, up to a certain dollar amount, are covered by our excess insurance policy. Currently, we maintain excess liability insurance aggregating $100.0 million with outside insurance carriers to minimize our risks related to catastrophic claims in excess of our self-insured positions for product liability and personal injury matters. Any material change in the aforementioned factors could have an adverse impact on our operating results. Any increase in the frequency and size of these claims, as compared to our experience in prior years, may cause the premium that we are required to pay for insurance to increase significantly and may negatively impact future SIR levels. It may also increase the amounts we pay in punitive damages, not all of which are covered by our self-insurance.

If there is an unfavorable outcome from the securities class actions described above, or if any significant accident, judgment, claim or other event is not fully insured or indemnified against, then in either case that could have a material adverse impact on our business, financial condition and results of operations. We cannot assure that the outcome of all current or future litigation will not have a material adverse impact on our business and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Common Stock Repurchases

The following table sets forth information with respect to purchases of common stock made by the Company during the third quarter of fiscal year 2018 (in millions, except share and per share amounts):

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
May 1 - May 31		—		—		—	$	45.2
June 1 - June 30		1,794,319	$	16.21		1,794,319	$	16.1
July 1 - July 31		681,648	$	16.96		681,648	$	4.5
Total		2,475,967				2,475,967

(1)

On March 20, 2018 the Company’s Board of Directors authorized up to $50.0 million of repurchases of the Company’s issued and outstanding common stock with an expiration date of March 19, 2020. The Company’s share repurchase program is executed from time to time through open market or through private transactions. Shares purchased under the share repurchase program are retired and returned to authorized and unissued status. On September 5, 2018 the Company’s Board of Directors authorized an additional $50.0 million of repurchases of the Company’s issued and outstanding common stock with an expiration date of September 4, 2020.

Item 6. Exhibits.

Exhibit Number		Description

10.1*		Change in Control Severance Agreement between REV Group, Inc. and Ian Walsh dated September 5, 2018.
10.2*		Change in Control Severance Agreement between REV Group, Inc. and Stephen Boettinger dated September 5, 2018.
31.1*		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	REV GROUP, INC.

Date: September 5, 2018	By:	/s/ Tim Sullivan
		Tim Sullivan
		Chief Executive Officer

Date: September 5, 2018	By:	/s/ Dean J. Nolden
		Dean J. Nolden
		Chief Financial Officer

EX-10.1 2 revg-ex101_249.htm EX-10.1 revg-ex101_249.htm

Exhibit 10.1

REV GROUP, INC.

CHANGE IN CONTROL SEVERANCE AGREEMENT

THIS AGREEMENT, made and entered into as of the 5^th day of September, 2018, by and between REV GROUP, INC., a Delaware corporation (“Company”), and Ian Walsh (“Executive”).

WITNESSETH:

WHEREAS, the Executive is employed by the Company as a key executive officer, and the Executive’s services in such capacities are critical to the continued successful conduct of the business of the Company;

WHEREAS, the Company recognizes that circumstances in which a change in control of the Company occurs, through acquisition or otherwise, are highly disruptive and will cause uncertainty about the Executive’s future employment with the Company without regard to the Executive’s competence or past contributions and that such uncertainty may materially adversely affect the Company;

WHEREAS, the Company and the Executive are desirous that any proposal for a change in control or acquisition of the Company will be considered by the Executive objectively, with reference only to the best interests of the Company and its stockholders and without undue regard for the Executive’s personal interests; and

WHEREAS, the Executive will be in a better position to consider the Company’s and its stockholders’ best interests if the Executive is afforded reasonable security, in the form of severance as provided in this Agreement, against altered conditions of employment which could result from any such change in control or acquisition.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements hereinafter set forth, the parties hereto mutually covenant and agree as follows:

1.Definitions.

(a)Accounting Firm. For purposes of this Agreement “Accounting Firm” shall mean a nationally recognized certified public accounting firm or other professional organization that is a certified public accounting firm recognized as an expert in determinations and calculations for purposes of Section 280G of the Code that is selected by the Company prior to a Change of Control for purposes of making the applicable determinations hereunder and is reasonably acceptable to the Executive, which firm shall not, without the Executive’s consent, be

a firm serving as accountant or auditor for the individual, entity or group effecting the Change of Control.

(b)Act. For purposes of this Agreement, the term “Act” means the Securities Exchange Act of 1934, as amended.

(c)Affiliate and Associate. For purposes of this Agreement, the terms “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations of the Act.

(d)Beneficial Owner. For purposes of this Agreement, a Person shall be deemed to be the “Beneficial Owner” of any securities:

(i)which such Person or any of such Person’s Affiliates or Associates has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase;

(ii)which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined pursuant to Rule 13d‑3 of the General Rules and Regulations under the Act), including pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security under this subparagraph (ii) as a result of an agreement, arrangement or understanding to vote such security if the agreement, arrangement or understanding: (A) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Act and (B) is not also then reportable on a Schedule 13D under the Act (or any comparable or successor report); or

(iii)which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in Subsection 1(d)(ii) above) or disposing of any voting securities of the Company.

(e)Cause. “Cause” for termination by the Company of the Executive’s employment after a Change in Control of the Company (or prior to a Change in Control of the Company pursuant to Section 2) shall, for purposes of this Agreement, be limited to any of the following: (i) the engaging by the Executive in intentional conduct not taken in good faith which has caused demonstrable and serious financial injury to the Company; (ii) conviction of a felony (as evidenced by binding and final judgment, order or decree of a court of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal) which substantially impairs the

Executive’s ability to perform his duties or responsibilities; and (iii) continuing willful and unreasonable refusal by the Executive to perform the Executive’s duties or responsibilities (unless significantly changed without the Executive’s consent).

(f)Change in Control of the Company. For purposes of this Agreement, a “Change in Control of the Company” shall be deemed to have occurred if:

i.any Person (other than the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing one-half (50%) or more of the combined voting power of the Company’s then outstanding voting securities;

ii.the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, as of the date of this Agreement, constitute the Board of Directors of the Company and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board of Directors of the Company or nomination for election by the Company’s stockholders was approved or recommended by a vote of a majority of the directors then still in office who either were directors as of the date of this Agreement or whose appointment, election or nomination for election was previously so approved or recommended;

iii.there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than a merger or consolidation immediately following which the individuals who comprise the Board of Directors of the Company immediately prior thereto constitute at least a majority of the Board of Directors of the Company, the entity surviving such merger or consolidation or, if the Company or the entity surviving such merger is then a subsidiary, the ultimate parent thereof; or

iv.there is a complete liquidation of the Company or there is sale or disposition by the Company of all or substantially all of the Company’s assets (or any transaction having a similar effect), other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, immediately following which the individuals who comprise the Board of Directors of the Company immediately prior thereto constitute at least a majority of the board of directors of the entity to which such assets are sold or disposed of or, if such entity is a subsidiary, the ultimate parent thereof.

Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the holders of the Stock immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in an entity which owns all or substantially all of the assets of the Company immediately following such transaction or series of transactions.

(g)Code. For purposes of this Agreement, the term “Code” means the Internal Revenue Code of 1986, including any amendments thereto or successor tax codes thereof.

(h)Covered Termination. For purposes of this Agreement, the term “Covered Termination” means any termination of the Executive’s employment where the Termination Date is any date on or after a Change in Control of the Company (except as provided in Section 2) and prior to the end of the Employment Period.

(i)Disability. For purposes of this Agreement, “Disability” shall mean the Executive’s inability to perform the essential functions of Executive’s job, with or without reasonable accommodation, for a period of one hundred and twenty (120) consecutive days, or one hundred and eighty (180) days in the aggregate during any three hundred sixty-five (365) day period.

(j)Employment Period. For purposes of this Agreement, the term “Employment Period” means the period commencing on the date of a Change in Control of the Company and ending at 11:59 p.m. Milwaukee time on the second anniversary of such date.

(k)Good Reason. For purposes of this Agreement, the Executive shall have a “Good Reason” for termination of employment after a Change in Control of the Company in the event of any of the following without Executive’s written consent:

i.A material reduction in Executive's base salary or annual cash incentive compensation opportunity;

ii.A material reduction in Executive’s authority, duties or responsibilities with the Company;

iii.Executive being required by the Company to be based at any office or location that is more than fifty (50) miles from the location where Executive was principally employed immediately preceding the Change in Control by the Company, which the Parties acknowledge would be a material relocation; and

iv.A material breach by the Company or its successor or assign, of this Agreement.

Notwithstanding the foregoing, in order for Executive to terminate for Good Reason, the Executive must give the Company a written notice of the Executive’s claim for Good Reason within 90 days of the initial existence of the condition(s) specified by Executive that constitute Good Reason and the Company shall have 30 days from the date of such notice in which to cure the condition giving rise to Good Reason, if curable. If, during such 30-day period, the Company cures the condition giving rise to Good Reason, Executive shall not have a “Good Reason” to terminate under this Agreement. If, during such 30-day period, the Company fails or refuses to cure the condition giving rise to Good Reason, the Executive shall have a “Good Reason” to terminate if he terminates his employment within 120 days of Executive’s original written notice of Good Reason.

(l)Net After-Tax Receipt. For purposes of this Agreement, the term “Net After-Tax Receipt” shall mean the present value (as determined in accordance with Section

280G(b)(2)(A)(ii) and Section 280G(d)(4) of the Code) of a Payment net of all taxes imposed on the Executive with respect thereto under Section 1 and Section 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Executive’s taxable income for the immediately preceding taxable year, or such other rate(s) as the Accounting Firm determines to be likely to apply to the Executive in the relevant tax year(s).

(m)Parachute Value. For purpose of this Agreement, the term “Parachute Value” of a Payment shall mean the present value as of the date of the Change of Control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a “parachute payment” under Section 280G(b)(2) of the Code, as determined by the Accounting Firm for purposes of determining whether and to what extent the excise tax under Section 4999 of the Code will apply to such Payment.

(n)Payment. For purposes of this Agreement, “Payment” shall mean any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Executive, whether paid or payable pursuant to the Agreement or otherwise.

(o)Person. For purposes of this Agreement, the term “Person” shall mean any individual, firm, partnership, corporation or other entity, including any successor (by merger or otherwise) of such entity, or a group of any of the foregoing acting in concert.

(p)Safe Harbor Amount. For purposes of this Agreement, “Safe Harbor Amount” shall mean 2.99 times the Executive’s “base amount,” within the meaning of Section 280G(b)(3) of the Code.

(q)Stock. For purposes of this Agreement, the term “Stock” means shares of the common stock, par value $.001 per share, of the Company.

(r)Termination Date. For purposes of this Agreement, except as otherwise provided in Section 6 hereof, the term “Termination Date” means (i) if the Executive’s employment is terminated by the Executive’s death, then the date of death; (ii) if the Executive’s employment is terminated by reason of Disability pursuant to Section 7 hereof, then the date the Notice of Termination is given; (iii) if the Executive’s employment is terminated by the Executive voluntarily, then the date the Notice of Termination is given; and (iv) if the Executive’s employment is terminated by the Company (other than by reason of Disability pursuant to Section 7 hereof) or by the Executive for Good Reason, then the earlier of thirty (30) days after the Notice of Termination is given or one day prior to the end of the Employment Period. Notwithstanding the foregoing,

(A)If termination is by the Company for Cause pursuant to Section 1(e)(iii) of this Agreement and if the Executive has substantially cured the conduct constituting such Cause as described by the Company in its Notice of Termination within such thirty (30) day or shorter period, then the Executive’s employment hereunder shall continue as if the Company had not delivered its Notice of Termination and there shall be no Termination Date arising out of such Notice.

(B)If the termination is described in Section 2 hereof, then the Termination Date shall be the date of the Executive’s termination of employment from the Company.

2.Termination or Cancellation Prior to Change in Control. The Company shall retain the right to terminate the employment of the Executive at any time prior to a Change in Control of the Company, subject to the terms and conditions of any other then existing written employment arrangement or agreement between the Executive and the Company; provided, however, that if the Executive’s employment is terminated by the Company, other than by reason of (i) death, (ii) Disability in accordance with Section 7 hereof, or (iii) Cause, at any time after Board of Directors’ authorized negotiations are commenced between the Company and another Person which ultimately lead to a Change in Control of the Company, then the Executive shall be entitled to receive at the earlier to occur of the closing or the effective date of such Change in Control of the Company all Accrued Benefits (to the extent not theretofore paid) and a Termination Payment, including benefits under Section 5(b) hereof, as if such termination of employment was a Covered Termination under Section 5 hereof. Other than as set forth above or as provided in Section 11 hereof, in the event the Executive’s employment is terminated prior to a Change in Control of the Company, this Agreement shall be terminated and canceled and of no further force and effect and any and all rights and obligations of the parties hereunder shall cease.

3.Termination For Cause or Without Good Reason. If there is a Covered Termination for Cause or due to the Executive’s voluntarily terminating his employment other than for Good Reason (any such terminations to be subject to the procedures set forth in Section 8 hereof), then the Executive shall be entitled to receive only Accrued Benefits described in Section 5(a) hereof.

Termination Giving Rise to a Termination Payment.

(a) If there is a Covered Termination by the Executive for Good Reason, or by the Company other than by reason of (i) death, (ii) Disability pursuant to Section 7 hereof, or (iii) Cause, then the Executive shall be entitled to receive, and the Company shall pay, Accrued Benefits described in Section 5(a) hereof and, as severance pay, the Termination Payment, described in Section 5(b) hereof.

(b)If there is a Covered Termination and the Executive is entitled to Accrued Benefits and the Termination Payment, then the Executive shall be entitled to the following additional benefits:

(i)The Executive shall receive, at the expense of the Company, reasonable outplacement services on an individual basis provided by a nationally recognized executive placement firm selected by the Company and acceptable to Executive for up to one year following the date of the Covered Termination, up to a maximum expense of Thirty Thousand Dollars ($30,000.00).

(ii)Until the earlier of the eighteen month anniversary of the Termination Date or such time as the Executive has obtained new employment and is covered by benefits which in the aggregate are at least equal in value to the following benefits the Executive shall continue to be covered, at the expense of the Company, by the

same or equivalent life insurance, hospitalization, medical and dental coverage as was required hereunder with respect to the Executive immediately prior to the date the Notice of Termination is given. The continuation of hospitalization, medical and dental coverage hereunder shall count as COBRA continuation coverage; and

If an Executive is entitled to the benefits described in this Section 4(b)(ii) due to Executive’s termination of employment pursuant to Section 2 of this Agreement, then to the extent necessary to discharge the Company’s obligation to Executive under this Section 4(b)(ii) the Company shall either (1) reimburse the Executive for any COBRA premiums paid by Executive between the date of the Executive’s Termination Date and the date of the Change in Control of the Company (or such earlier date as the Executive would cease being eligible for the benefits as described herein), or (2) provide retroactive coverage effective as of the Executive’s Termination Date.

5.Payments Upon Termination.

(a)Accrued Benefits. For purposes of this Agreement, the Executive’s “Accrued Benefits” shall include the following amounts, payable as described herein: (i) all base salary for the time period ending with the Termination Date; (ii) reimbursement for any and all monies advanced in connection with the Executive’s employment for reasonable and necessary expenses incurred by the Executive on behalf of the Company for the time period ending with the Termination Date; (iii) any and all other cash earned though the Termination Date and deferred at the election of the Executive or pursuant to any deferred compensation plan then in effect; (iv) subject to any irrevocable deferral election then in effect, a lump sum payment of the bonus, incentive compensation and other compensation reportable on Form W‑2 otherwise payable to the Executive with respect to the year in which termination occurs under all bonus or incentive compensation plan or plans of the Company in which the Executive is a participant; and (v) all other payments and benefits to which the Executive may be entitled as compensatory fringe benefits or under the terms of any benefit plan of the Company. Payment of Accrued Benefits shall be made promptly in accordance with the Company’s prevailing practice with respect to Subsections (i) and (ii) (provided that reimbursements due under clause (ii) must be completed no later than the end of the second calendar year following the year in which the Termination Date occurs) or, with respect to Subsections (iii), (iv) and (v), pursuant to the terms of the benefit plan or practice establishing such benefits.

(b)Termination Payment. The Termination Payment shall be an amount equal to two (2) times the sum of (i) the Executive’s base salary in effect as of the Termination, or if higher, the Executive’s base salary that was in effect immediately prior to the Change in Control of the Company, plus (ii) the greater of (x) the Executive’s target annual cash incentive for the Company’s fiscal year that includes the Termination Date or (y) the Executive’s target annual cash incentive for the fiscal year during which the Change in Control of the Company occurred. The Termination Payment shall be contingent on the Executive executing a general release of claims in substantially the same form as the Release and Waiver included as Exhibit A to this Agreement and the expiration of the revocation period applicable thereto, which execution must occur on or following the Termination Date but no later than forty-five (45)

days following the Termination Date, or earlier if provided in the Release and Waiver. Except as otherwise provided herein, the Termination Payment shall be paid to the Executive in a cash lump sum as soon as practical following the Executive’s execution of, and expiration of the revocation period provided for in the Release and Waiver, but in no event later than sixty (60) business days after the Termination Date. The Executive shall not be required to mitigate the amount of the Termination Payment by securing other employment or otherwise, nor will such Termination Payment be reduced by reason of the Executive securing other employment or for any other reason. For the avoidance of doubt, if the Executive is entitled to the Termination Payment under this Agreement, the Termination Payment shall be in lieu of any payments under any other severance policy or practice of the Company or its successor.

(c)Certain Reductions in Payments.

(i)Notwithstanding anything in this to the contrary, if the Accounting Firm shall determine that receipt of all Payments would subject the Executive to the excise tax under Section 4999 of the Code, the Accounting Firm shall determine whether to reduce any of the Payments paid or payable pursuant to the Agreement (the “Agreement Payments”) so that the Parachute Value (as defined below) of all Payments, in the aggregate, equals the Safe Harbor Amount (as defined below). The Agreement Payments shall be so reduced only if the Accounting Firm determines that the Executive would have a greater Net After-Tax Receipt of aggregate Payments if the Agreement Payments were so reduced. If the Accounting Firm determines that the Executive would not have a greater Net After-Tax Receipt of aggregate Payments if the Agreement Payments were so reduced, the Executive shall receive all Agreement Payments to which the Executive is entitled hereunder.

(ii)If the Accounting Firm determines that aggregate Agreement Payments should be reduced so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount, the Company shall promptly give the Executive notice to that effect and a copy of the detailed calculation thereof. All determinations made by the Accounting Firm under this Section 5(c) shall be binding upon the Company, the Affiliated Entities and the Executive and shall be made as soon as reasonably practicable and in no event later than 15 days following the Termination Date. For purposes of reducing the Agreement Payments so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount, only amounts payable under the Agreement (and no other Payments) shall be reduced. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing the Agreement Payments that are parachute payments in the following order: (1) outplacement benefits under Section 4(b)(i), (2) the cash Termination Payment described under Section 5(b), and (3) subsidized COBRA continuation coverage as provided under Section 4(b)(ii). All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company.

(iii)As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement that should not have been so paid or distributed (each, an “Overpayment”) or that additional amounts that will have not been

paid or distributed by the Company to or for the benefit of the Executive pursuant to this Agreement could have been so paid or distributed (each, an “Underpayment”). In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Executive that the Accounting Firm believes has a high probability of success determines that an Overpayment has been made, any such Overpayment paid or distributed by the Company to or for the benefit of the Executive shall be repaid by the Executive to the Company (as applicable) together with Interest; provided, however, that no such repayment shall be required if and to the extent such deemed repayment would not either reduce the amount on which the Executive is subject to tax under Section 1 and Section 4999 of the Code or generate a refund of such taxes. In the event that the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with Interest.

(iv)To the extent requested by the Executive, the Company and the Affiliated Entities shall cooperate with the Executive in good faith in valuing, and the Accounting Firm shall take into account the value of, services provided or to be provided by the Executive (including, without limitation, the Executive’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant, before, on or after the date of a change in ownership or control of the Company (within the meaning of Q&A-2(b) of the final regulations under Section 280G of the Code)), such that payments in respect of such services may be considered reasonable compensation within the meaning of Q&A-9 and Q&A-40 to Q&A-44 of the final regulations under Section 280G of the Code and/or exempt from the definition of the term “parachute payment” within the meaning of Q&A-2(a) of the final regulations under Section 280G of the Code in accordance with Q&A-5(a) of the final regulations under Section 280G of the Code.

Death.

(a) Except as provided in Section 6(b) hereof, in the event of a Covered Termination due to the Executive’s death, the Executive’s estate, heirs and/or beneficiaries (as determined by the Executive’s personal representative) shall receive all the Executive’s Accrued Benefits through the Termination Date.

(b)In the event the Executive dies after a Notice of Termination is given (i) by the Company, other than by reason of disability, or (ii) by the Executive for Good Reason, the Executive’s estate, heirs and beneficiaries shall be entitled to the benefits described in Section 6(a) hereof and, subject to the provisions of this Agreement, to such Termination Payment as the Executive would have been entitled to had the Executive lived. For purposes of this Section 6(b), the Termination Date shall be the earlier of thirty (30) days following the giving of the Notice of Termination or one day prior to the end of the Employment Period.

7.Termination for Disability. If there is a Covered Termination by the Company due to Executive’s Disability, then the Executive shall be entitled to receive only the Accrued Benefits described in h Section 5(a) hereof; provided, however, that Executive shall remain eligible for all benefits provided by any long term disability programs of the Company in effect at the time of such termination. The Company may terminate Executive’s employment due to Disability hereunder only if (i) the Company provides at least thirty (30) day’s advance written notice to

Executive that it intends to terminate Executive’s employment on account of Disability (which notice shall not constitute the Notice of Termination contemplated below); (ii) Executive shall have not returned to performing essential functions of Executive’s job, with or without accommodation, prior to the termination date specified in such notice; and (iii) the Company provides a Notice of Termination in accordance with Section 8 hereof. The Company may also terminate Executive’s employment due to Disability immediately upon the provision of a Notice of Termination if Executive has returned to work after receiving a notice of intent to terminate for Disability as provided in subsection (ii) above, and Executive is unable or unwilling to perform the essential functions of his/her job with or without accommodation for a period of ninety (90) consecutive days following Executive’s return to work.

8.Termination Notice and Procedure. Any Covered Termination by the Company or the Executive shall be communicated by written Notice of Termination to the Executive, if such Notice is given by the Company, and to the Company, if such Notice is given by the Executive, all in accordance with the following procedures and those set forth in Section 17 hereof:

(a)If such termination is for disability, Cause or Good Reason, the Notice of Termination shall indicate in reasonable detail the facts and circumstances alleged to provide a basis for such termination.

(b)Any Notice of Termination by the Company shall have been approved, prior to the giving thereof to the Executive, by a resolution duly adopted in good faith by a majority of the directors of the Company (or any successor entity) then in office.

(c)The Executive shall have thirty (30) days, or such longer period as the Company may determine to be appropriate, to substantially cure any conduct or act, if curable, alleged to provide grounds for termination of the Executive’s employment for Cause under this Agreement.

(d)Except as otherwise provided in Section 1(k) hereof, the recipient of the Notice of Termination shall personally deliver or mail in accordance with Section 17 hereof written notice of any dispute relating to such Notice of Termination to the party giving such Notice within fifteen (15) days after receipt thereof. After the expiration of such fifteen (15) days, the contents of the Notice of Termination shall become final and not subject to dispute.

9.Confidentiality Obligations of the Executive; Noncompetition; Nonsolicitation.

(a)Confidentiality and Nondisclosure Obligations.

(i)Executive acknowledges (1) Company’s business is both highly specialized and competitive, and (2) certain non-public documents and information regarding Company’s customers, clients, services, methods of operation, sales, and the specialized business needs of Company’s customers and clients, constitute highly Confidential Information (as defined herein) that is not generally known to, or readily ascertainable by, the public or Company’s competitors. Executive further acknowledges that, during Executive’s employment, Executive will have access to Confidential Information and property, processes and/or systems belonging to Company and/or its clients/customers, agrees such information shall remain the exclusive property of Company

and/or its clients/customers respectively, and understands the misappropriation or unauthorized use/disclosure of such information at any time is prohibited and will cause Company irreparable injury.

(ii)For purposes of this Agreement, the term “Trade Secrets” shall have that meaning set forth under applicable law. Likewise, the term “Confidential Information” means information, property, processes and/or systems (whether or not in writing) that is not generally known to the public, is related to Company’s business and is maintained as confidential. Confidential Information includes, without limitation, means (i) any information, including formulas, patterns, compilations, programs, devices, methods, techniques, or processes that Company considers confidential and is valuable and provides a competitive advantage because it is not generally known and not readily ascertainable by proper means); methods or policies; prices or price formulas; processes; procedures; information relating to customers, including customer lists, prospective partners, partners, and other entities; financial information; computer software (including design, programming techniques, flow charts, source code, object code, and related information and documentation); personnel information; and any and all other information of any kind or character relating to the development, improvement, manufacture, sale, or delivery of products or services by Company, whether or not reduced to writing, (ii) information that is marked or otherwise treated as confidential or proprietary by the Company; and (iii) information received by the Company from others which the Company is obligated to keep confidential. Confidential Information does not include information that (a) is or becomes generally available to the public other than by the fault of Executive, (b) becomes available to Executive on a non-confidential basis from a source other than Company, provided that the source is not prohibited from disclosing such information to Executive by any contractual or other obligation with Company or otherwise, or (c) information that can be demonstrated to have been known by Executive prior to Executive’s employment with the Company. Confidential Information also does not include the general nature of Company’s business or this Agreement or a summary of it.

(iii)Both during and after Executive’s employment with the Company, Executive shall not, except as required to fulfill Executive’s job duties for the Company, directly or indirectly use or disclose Trade Secrets.

(iv)During Executive’s employment with the Company and for a period of two (2) years’ thereafter, Executive shall not, except as required to fulfill Executive’s job duties for the Company, directly or indirectly use or disclose any Confidential Information.

(b)Non-Solicitation.

(i)Executive acknowledges Company’s confidential/trade secret information and relationships with its customers, clients, employees, and other business associations are among Company’s most important assets. Executive further acknowledges that, in his/her employment with Company, he/she will have access to such information/relationships and be responsible for developing and maintaining such information/relationships.

(ii)For purposes of this Agreement, the term “Restricted Client” means any individual or entity (i) for whom/which the Company sold or provided products or services and (ii) with whom/which Executive had contact on behalf of the Company, or about whom/which Executive acquired Confidential Information as a result of Executive’s employment by the Company, in the case of both (i) and (ii), above, during the twelve (12) month period immediately prior to the end of Executive’s employment with the Company. Likewise, the term “Prospective Client” means any individual or entity (i) for whom/which the Company has made a bid or proposal to provide goods or services and (ii) with whom/which Executive had contact on behalf of the Company, or about whom/which Executive acquired non-public or proprietary information as a result of his/her employment with the Company, in the case of both (i) and (ii), above, during the twelve (12) month period immediately prior to the end of Executive’s employment with the Company.

(iii)Executive agrees that, during Executive’s employment with Company and for a period of eighteen (18) months thereafter, Executive will not directly or indirectly solicit, divert, or take away, or attempt to solicit, divert, or take away, the business or patronage of any Restricted Client.

(iv)Executive agrees that, during Executive’s employment with Company and for a period of eighteen (18) months thereafter, Executive will not directly or indirectly solicit, divert, or take away, or attempt to solicit, divert, or take away, the business or patronage of any Prospective Client.

(v)Executive agrees that, during Executive’s employment with Company and for a period of eighteen (18) months thereafter, Executive will not directly or indirectly, whether for Executive’s benefit or for the benefit of a third party, recruit, solicit, or induce, or attempt to recruit, solicit, or induce: (1) anyone employed by Company to terminate employment with, or otherwise cease a relationship with, Company; or (2) anyone employed by Company at any time during the immediately preceding twelve (12) months to provide services of any kind to a competitor of Company.

(c)Non-Competition.

For purposes of this Agreement, the term “Restricted Services” means employment duties and functions of the type provided by Executive to the Company during the twelve (12) month period immediately preceding the end of Executive’s employment with the Company. Likewise, the term “Competitor” means any individual or entity that sells goods or services competitive with those sold by the Company, and the term “Territory” shall mean the United States of America.

(ii)For a period of eighteen (18) months immediately following the end, for whatever reason, of Executive’s employment with the Company, Executive agrees not to directly or indirectly provide Restricted Services to any Competitor, anywhere in Restricted Territory

(d)Enforcement.

(i)Executive agrees, during the term of any restriction contained in this Agreement, to disclose the terms of this Section 9 to any person or entity that offers employment to Executive. Executive further agrees that the Company may send a copy of this Agreement to, or otherwise make the provisions hereof known to, any of Executive’s potential or future employers.

(ii)The parties agree that damages will be an inadequate remedy for breaches of this Section 9 and, in addition to damages and any other available relief, a court shall be empowered to grant injunctive relief (without the necessity of posting bond or other security).

(iii)Notwithstanding anything in this Agreement to the contrary, the activity restrictions contained in this Section 9 are intended to run alongside, and neither supersede, be subservient to, nor replace any similar restrictions imposed by other agreements that may exist between Executive and the Company. If any provision of this Section 9 is deemed by a court of competent jurisdiction to be in irresolvable conflict with any other activity restriction that may be in place between Executive and the Company, and each restriction in question is deemed by such court to be fully enforceable on its terms, the provision which is determined by the Company to be more protective of its business interests shall control.

10.Payment Obligations and Expenses in the Event of a Dispute

(a)Payment Obligations Absolute. The Company’s obligations during and after the Employment Period to pay the Executive the amounts and to make the benefit and other arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set off, counterclaim, recoupment, defense or other right which the Company may have against him or anyone else. Except as provided in Section 5(c) and Section 10(b) of this Agreement, all amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company will not seek to recover all or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any reason whatsoever. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment.

(b)Expenses and Interest. If, after a Change in Control of the Company, a good faith dispute arises with respect to the enforcement of the Executive’s rights under this Agreement or if any legal or arbitration proceeding shall be brought in good faith to enforce or

interpret any provision contained herein, or to recover damages for breach hereof, the Executive shall recover from the Company any reasonable attorneys’ fees and necessary costs and disbursements incurred by the Executive as a result of such dispute, legal or arbitration proceeding (“Expenses”), and prejudgment interest on any money judgment or arbitration award obtained by the Executive calculated at the rate of interest announced by US Bank, N.A. from time to time as its prime or base lending rate from the date that payments to him should have been made under this Agreement. Within ten (10) days after the Executive’s written request therefor, but no later than the end of the calendar year following the year in which the Executive incurred the Expense, the Company shall reimburse the Executive, or such other person or entity as the Executive may designate in writing to the Company, the Executive’s Expenses.

Assignment: Successors.

(a) If the Company proposes to engage in a potential Change in Control of the Company, then, at least ten (10) days in advance of the closing of such event, the Company shall, subject only to consummation of such Change in Control of the Company, assign all of its right, title and interest in this Agreement effective as of the closing date of such event to such Person, and the Company shall cause such Person, at least ten (10) days in advance of the closing of such event, by written agreement in form and substance reasonably satisfactory to the Executive and with written notice thereof to Executive, to expressly assume and agree to perform, subject only to consummation of such Change in Control of the Company, from and after the effective date of such event all of the terms, conditions and provisions imposed by this Agreement upon the Company. If such Change in Control of the Company is consummated, failure of the Company to obtain such an assumption agreement at least ten (10) days in advance of the closing of such event shall be a breach of this Agreement constituting “Good Reason” hereunder. In case of an effective assignment by the Company and of assumption and agreement by such Person, “Company” shall thereafter mean such Person which executes and delivers the agreement provided for in this Section 11 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law, and this Agreement shall inure to the benefit of and be enforceable by such Person. The Executive shall, in his discretion, be entitled to proceed against any or all of such Persons, any Person which theretofore was such a successor to the Company (as defined in the first paragraph of this Agreement) and the Company (as so defined) in any action to enforce any rights of the Executive hereunder. Except as provided in this Subsection, this Agreement shall not be assignable by the Company. This Agreement shall not be terminated by the voluntary or involuntary dissolution of the Company.

(b)This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive under Sections 3, 4, 5, 6 and 7 hereof if the Executive had lived shall be paid, in the event of the Executive’s death, to the Executive’s estate, heirs and representatives.

12.Severability. The provisions of this Agreement shall be regarded as divisible, and if any of said provisions or any part hereof are declared invalid or unenforceable by a court of competent jurisdiction, the validity and enforceability of the remainder of such provisions or parts hereof and the applicability thereof shall not be affected thereby.

13.Amendment. This Agreement may not be amended or modified at any time except by written instrument executed by the Company and the Executive.

14.Withholding. The Company shall be entitled to withhold from amounts to be paid to the Executive hereunder any federal, state or local withholding or other taxes or charges which it is from time to time required to withhold; provided, that, the amount so withheld shall not exceed the minimum amount required to be withheld by law. The Company shall be entitled to rely on an opinion of nationally recognized tax counsel if any question as to the amount or requirement of any such withholding shall arise.

15.Certain Rules of Construction. No party shall be considered as being responsible for the drafting of this Agreement for the purpose of applying any rule construing ambiguities against the drafter or otherwise. No draft of this Agreement shall be taken into account in construing this Agreement. Any provision of this Agreement which requires an agreement in writing shall be deemed to require that the writing in question be signed by the Executive and an authorized representative of the Company.

16.Governing Law: Resolution of Disputes. This Agreement and the rights and obligations hereunder shall be governed by and construed in accordance with the laws of the State of Wisconsin. Any dispute arising out of this Agreement shall, at the Executive’s election, be determined by arbitration under the rules of the American Arbitration Association then in effect or by litigation. Whether the dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation shall be Milwaukee, Wisconsin or, at the Executive’s election, in the judicial district encompassing the city in which the Executive resides. The parties consent to personal jurisdiction in each trial court in the selected venue having subject matter jurisdiction notwithstanding their residence or situs, and each party irrevocably consents to service of process in the manner provided hereunder for the giving of notices.

17.Notice. Notices given pursuant to this Agreement shall be in writing and shall be deemed given when actually received by the Executive or actually received by the Company’s General Counsel or any officer of the Company other than the Executive. If mailed, such notices shall be mailed by United States registered or certified mail, return receipt requested, addressee only, postage prepaid, if to the Company, to 111 East Kilbourn Ave., Suite 2600, ATTN: Chief Human Resources Officer, Milwaukee, WI 53202, or if to the Executive, at the address set forth below the Executive’s signature to this Agreement, or to such other address as the party to be notified shall have theretofore given to the other party in writing.

18.No Waiver. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or any prior or subsequent time.

19.Headings. The headings herein contained are for reference only and shall not affect the meaning or interpretation of any provision of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first written above.


EXECUTIVE		REV GROUP, INC.

/s/ Ian Walsh		By:/s/ Timothy W. Sullivan
Ian Walsh		Name: Timothy W. Sullivan Title: Chief Executive Officer
Residential Address: On file with the Company

18137498.4

EXHIBIT A

RELEASE AND WAIVER

This RELEASE AND WAIVER is made this ________ day of ________________, 20____,

by and between __________________and REV GROUP, INC.

IN CONSIDERATION FOR BENEFITS payable to me as contained in the REV Group, Inc. Change in Control Severance Agreement, I hereby agree as follows:

I, with the intention of binding myself, my heirs, executors, administrators and assigns, do hereby release, acquit and forever discharge REV Group, Inc. and its past and present subsidiaries and affiliates, and all of its past, present and future officers, directors, employees, shareholders, agents, partners, principals, members, representatives, insurers, reinsurers, estates, executors, administrators, heirs, successors, assigns and attorneys (hereinafter collectively the “Company"), of and from all manner of actions, causes of action, arbitrations, suits, debts, sums of money, accounts, reckonings, bonds, covenants, controversies, agreements, promises, damages, judgments, charges, claims and demands whatsoever that I now have or may have for actions, inactions or omissions of the Company on or prior to the date of execution of this Agreement, both known and unknown, fixed and contingent, including, but not limited to, any claims of employment discrimination under federal, state or local laws, claims under the Age Discrimination in Employment Act, claims under the Fair Employment Laws, any claimed violations of statute, any violations of public policy, any claims arising from my employment with the Company and/or my separation from employment, any claims growing out of any legal restriction on the Company’s right to terminate its employees, and any tort, contract, quasi-contract or other common law claims; provided, however, that the foregoing release shall not apply to: (i) any breach by the Company of this Agreement; (ii) my rights to any accrued benefits under any employee benefit plans; or (iii) any claims which may arise after the date this Agreement is signed.

I hereby expressly waive the benefits of any statute or rule of law which, if applied to this release, would otherwise exclude from its binding effect any claims not known by me to exist which arose prior to the signing of this Agreement.

Notwithstanding the foregoing, I understand that the scope of this release does not apply to claims under applicable workers’ compensation or unemployment insurance law, to any vested benefits I may be entitled, or to any other laws which, by their nature, cannot be legally released. I further understand and acknowledge that my acceptance of this release does not prevent, restrict or in any way limit my right to file a charge or complaint with a government agency or participate in an investigation or proceeding initiated or conducted by a government agency; provided, however, this release of claims does prevent me from making any personal recovery against the Company, including the recovery of money damages, as a result of filing a charge or complaint with a government agency against the Company.

The Company understands and agrees that the releases set forth herein do not in any way affect my rights to take whatever steps may be necessary to enforce the terms of this Agreement or to obtain relief in the event of the breach of the terms of this Agreement.

I understand that if I am 40 years of age or older, I am entitled to certain information as provided in the Older Workers Benefit Protection Act. If applicable, that information is attached and should remain attached to this RELEASE AND WAIVER. An additional copy has been provided and will be retained by

me. In addition, I understand that I have a period of at least 45 days to review this RELEASE AND WAIVER.

I understand that if I am under the age of 40, I have a period of at least 21 days to review this RELEASE AND WAIVER.

I expressly acknowledge that this RELEASE AND WAIVER is subject to an express agreement that all terms of the RELEASE AND WAIVER are confidential and shall not be disclosed to any person or entity except in response to a specific court order directing me to disclose such terms. If I obtain a prior promise of confidentiality for the benefit of the Company from my professional tax preparer, accountant, or attorney, and/or spouse, as applicable, I may disclose the terms of the RELEASE AND WAIVER to such a person who has agreed to keep the terms of this RELEASE AND WAIVER confidential.

I understand that all payments will cease, if there is any breach of this confidentiality provision.

I have carefully read and fully understand all the provisions of this RELEASE AND WAIVER which sets forth the entire RELEASE AND WAIVER between the Company and me. I have entered into this RELEASE AND WAIVER voluntarily and have not relied upon any representation or statement, written or oral, concerning the subject matter of this RELEASE AND WAIVER which is not set forth herein. I have also read and fully understand the severance letter previously provided to me. I understand that I am hereby advised to consult, and have had the opportunity to consult with, an attorney of my choosing.

I understand that this RELEASE AND WAIVER will be governed by the laws of the state in which I reside and of the United States and may be changed only by an amendment in writing signed by both the Company and me.

I understand that if I am 40 years of age or older, that I may revoke this RELEASE AND WAIVER at any time within a seven (7) day period immediately following the execution of this RELEASE AND WAIVER. This RELEASE AND WAIVER shall not become effective or enforceable until the eighth (8th) day following execution of this RELEASE AND WAIVER.

IN WITNESS WHEREOF, the parties have executed this RELEASE AND WAIVER on the date written above.

(EMPLOYEE):

REV Group, INC. (EMPLOYER):


			By:

Name:			Title:

Date:			Date:

CAUTION

THIS IS A RELEASE AND WAIVER. PLEASE READ BEFORE SIGNING.

YOU ARE HEREBY ADVISED TO SEEK THE ADVICE OF AN ATTORNEY BEFORE SIGNING.

EX-10.2 3 revg-ex102_248.htm EX-10.2 revg-ex102_248.htm

Exhibit 10.2

REV GROUP, INC.

CHANGE IN CONTROL SEVERANCE AGREEMENT

THIS AGREEMENT, made and entered into as of the 5^th day of September, 2018, by and between REV GROUP, INC., a Delaware corporation (“Company”), and Stephen W. Boettinger (“Executive”).