What changed in this filing

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Item 1. Financial Statements

2020-08-05 compared with 2020-05-06 · 139 added, 101 removed, 501 unchanged (32% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

April 3, January 3

July 3, January 3

Current assets:

Cash and cash equivalents $ 217,965 $ 43,736

Accounts receivable (net of allowances of $ 1,205 and $ 810 at April 3, 2020 and January 3, 2020, respectively)

Accounts receivable (net of allowances of $ 1,212 and $ 810 at July 3, 2020 and January 3, 2020, respectively)

87,670 91,632

23 unchanged sentences

Stockholders’ equity

Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of April 3, 2020 and January 3, 2020

Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of July 3, 2020 and January 3, 2020

Common stock, $ 0.001 par value — 90,000 authorized;

39,493 shares issued and 38,603 outstanding as of April 3, 2020;

42,327 shares issued and 41,438 outstanding as of July 3, 2020;

39,448 shares issued and 38,559 outstanding as of January 3, 2020

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Treasury stock, at cost;

890 common shares as of April 3, 2020 and January 3, 2020

890 common shares as of July 3, 2020 and January 3, 2020

( 13,754 ) ( 13,754 )

Accumulated other comprehensive (loss) income ( 790 ) 150

Accumulated other comprehensive income 133 150

Retained earnings 325,165 312,491

5 unchanged sentences

(in thousands, except per share data)

For the three months ended

April 3, March 29,

For the three months ended For the six months ended

July 3, June 28, July 3, June 28,

2020 2019 2020 2019

Sales $ 183,102 $ 192,122 $ 367,463 $ 353,822

10 unchanged sentences

Interest expense 2,892 1,005 4,739 1,834

Other expense (income) 62 ( 13 )

Other expense 71 582 133 569

Other expense, net 2,963 1,587 4,872 2,403

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(in thousands)

For the three months ended

April 3, March 29,

For the three months ended For the six months ended

July 3, June 28, July 3, June 28,

2020 2019 2020 2019

Net income $ 13,192 $ 23,362 $ 21,930 $ 41,764

Other comprehensive loss

Other comprehensive income (loss)

Foreign currency translation adjustments, net of tax effects 923 314 ( 17 ) 155

Other comprehensive loss ( 940 ) ( 159 )

Other comprehensive income (loss) 923 314 ( 17 ) 155

Comprehensive income 14,115 23,676 21,913 41,919

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Balance - March 29, 2019 39,061 $ 38 890 $ ( 13,754 ) $ 116,519 $ ( 943 ) $ 237,561 $ 339,421 $ 14,581

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 115 — — — ( 2,264 ) — — ( 2,264 ) —

Issuance of stock for business acquisition 98 — — — 7,167 — — 7,167 —

Stock-based compensation expense — — — — 1,621 — — 1,621 —

Foreign currency translation adjustment — — — — — 314 — 314 —

Net income — — — — — 22,921 22,921 441

Balance - June 28, 2019 39,274 $ 38 890 $ ( 13,754 ) $ 123,043 $ ( 629 ) $ 260,482 $ 369,180 $ 15,022

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

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Balance - April 3, 2020 39,493 $ 39 890 $ ( 13,754 ) $ 123,470 $ ( 790 ) $ 320,741 $ 429,706 $ 16,207

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 74 — — — ( 2,301 ) — — ( 2,301 ) —

Issuance of common stock, net 2,760 2 — — 198,234 — — 198,236 —

Adjustment to the fair value of non-controlling interest — — — — — — ( 8,184 ) ( 8,184 ) 8,184

Stock-based compensation expense — — — — 2,076 — — 2,076 —

Foreign currency translation adjustment — — — — — 923 — 923 —

Net income — — — — — 12,608 12,608 584

Balance - July 3, 2020 42,327 $ 41 890 $ ( 13,754 ) $ 321,479 $ 133 $ 325,165 $ 633,064 $ 24,975

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

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(in thousands)

For the three months ended

April 3, 2020 March 29, 2019

For the six months ended

July 3, 2020 June 28, 2019

OPERATING ACTIVITIES:

Net income $ 21,930 $ 41,764

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

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 15,019 8,184

2 unchanged sentences

Amortization of loan fees 713 120

Loss on extinguishment of debt — 516

Changes in operating assets and liabilities, net of effects of acquisition of business:

5 unchanged sentences

Accrued expenses and other liabilities ( 2,644 ) ( 2,483 )

Net cash (used in) provided by operating activities ( 33,485 ) 8,745

Net cash provided by operating activities 5,689 20,424

INVESTING ACTIVITIES:

7 unchanged sentences

Repayment of debt ( 2,500 ) ( 2,813 )

Proceeds from sale of common stock, net 198,236 —

Repurchases from stock compensation program, net ( 4,348 ) ( 3,494 )

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CASH AND CASH EQUIVALENTS—End of period $ 217,965 $ 39,021

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Cash Flows

(in thousands)

For the six months ended

SUPPLEMENTAL CASH FLOW INFORMATION:

July 3, 2020 June 28, 2019

Cash paid during the period for:

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Right-of-use assets obtained in exchange for lease obligations $ 4,336 $ 6,131

Acquisition of business in exchange for equity $ — $ 7,167

Non-cash investing activities:

Capital expenditures included in accounts payable $ 4,784 $ 1,770

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The twelve month periods ended January 1, 2021 and January 3, 2020, will include or have included 52 and 53 weeks, respectively.

The three month periods ended April 3, 2020 and March 29, 2019 each included 13 weeks .

The three and six month periods ended July 3, 2020 and June 28, 2019 each included 13 weeks and 26 weeks, respectively.

Principles of Consolidation - These condensed consolidated financial statements include the Company and its subsidiaries.

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For larger OEMs, the Company may also enter into master agreements.

Revenues exclude sales tax.

FOX FACTORY HOLDING CORP.

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Measuring the material rights requires judgments including forecasts of future sales and product mix.

At April 3, 2020, the balance of deferred revenue related to pricing provisions was $ 191 .

These amounts are expected to be recognized over the next 12 months.

Revenues exclude sales tax.

At July 3, 2020, the balance of deferred revenue related to pricing provisions was $ 0 as such arrangements containing these pricing provisions had expired.

Segments - The Company has determined that it has a single operating and reportable segment.

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Certain Significant Risks and Uncertainties - The Company is subject to those risks common in manufacturing-driven markets, including, but not limited to, competitive forces, dependence on key personnel, customer demand for its products, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.

Additionally, the Company has been impacted by the recent coronavirus (“COVID-19”) outbreak.

Additionally, the Company has been impacted by the recent coronavirus (“COVID-19”) pandemic.

The global outbreak of COVID-19 has negatively affected the U.S.

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The Company’s manufacturing facilities in North America have been affected by local and state “shelter-in-place” orders including the temporary suspension of non-essential operations in certain facilities.

The Company is taking actions to manage costs during this time by enacting executive pay cuts and temporary furloughs, curtailing non-essential capital expenditures, and reducing expenses.

The Company took actions to manage costs during this time by enacting temporary executive pay cuts and furloughs, curtailing non-essential capital expenditures, and reducing expenses.

Despite the Company’s efforts to manage and remedy these impacts to the Company, the ultimate impact and the extent to which the COVID-19 pandemic will continue to affect the business, results of operation and financial condition is difficult to predict and depends on numerous evolving factors outside of the Company’s control, including:

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The carrying amounts of the Company's financial instruments, including cash, receivables, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature.

Amounts owed under the Company's Credit Facility (as defined in Note 8 - Debt below) approximate fair value due to the variable interest rate features embedded in both the line of credit and the term debt.

Amounts owed under the Company's First Amended and Restated Credit Facility (as defined in Note 8 - Debt below) approximate fair value due to the variable interest rate features embedded in both the line of credit and the term debt.

FOX FACTORY HOLDING CORP.

1 unchanged sentence

(in thousands, except per share amounts)

Recent Accounting Pronouncements - In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes the existing guidance for lease accounting.

Recent Accounting Pronouncements - In February 2016, the FASB issued accounting standards update ("ASU") 2016-02, Leases, which supersedes the existing guidance for lease accounting.

To meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases, this ASU requires lessees to recognize most leases on the balance sheet as right-of-use assets and lease liabilities.

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In March 2020, the FASB issued ASU 2020-04, Facilitation of Effects of Reference Rate Reform on Financial Reporting, which was created in response to concerns about structural risks of interbank offered rates ("IBORs") and the risk of cessation of the London Interbank Offered Rate ("LIBOR").

This standard provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

This standard provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

This standard is effective for all entities as of March 12, 2020 through December 31, 2022.

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The following table summarizes total sales by product category:

For the three months ended

April 3, 2020 March 29, 2019

For the three months ended For the six months ended

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Powered Vehicles $ 98,524 $ 115,245 $ 219,050 $ 211,954

2 unchanged sentences

The following table summarizes total sales by sales channel:

For the three months ended

April 3, 2020 March 29, 2019

For the three months ended For the six months ended

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

OEM $ 87,860 $ 117,321 $ 191,608 $ 217,826

2 unchanged sentences

The following table summarizes total sales generated by geographic location of the customer:

For the three months ended

April 3, 2020 March 29, 2019

For the three months ended For the six months ended

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

North America $ 116,970 $ 131,158 $ 247,592 $ 240,790

4 unchanged sentences

Inventory consisted of the following:

April 3, January 3

July 3, January 3

Raw materials $ 102,313 $ 87,779

7 unchanged sentences

Prepaids and other current assets consisted of the following:

April 3, January 3

July 3, January 3

Prepaid chassis deposits $ 27,916 $ 6,701

5 unchanged sentences

Property, plant and equipment, net consisted of the following:

April 3, January 3

July 3, January 3

Building and building improvements $ 68,223 $ 42,343

9 unchanged sentences

The Company’s long-lived assets by geographic location are as follows:

April 3, January 3

July 3, January 3

United States $ 135,005 $ 100,508

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As most of the Company's leases do not provide an interest rate, the Company used the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

The weighted-average remaining lease term for the Company's operating leases was 4.53 years and the weighted-average incremental borrowing rate was 3.54 % as of April 3, 2020.

The weighted-average remaining lease term for the Company's operating leases was 4.29 years and the weighted-average incremental borrowing rate was 3.54 % as of July 3, 2020.

Operating lease costs consisted of the following:

For the three months ended

April 3, 2020 March 29, 2019

For the three months ended For the six months ended

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Operating lease cost $ 1,798 $ 1,549 $ 3,374 $ 2,969

4 unchanged sentences

Supplemental balance sheet information related to the Company's operating leases is as follows:

Balance Sheet Classification April 3, 2020

Balance Sheet Classification July 3, 2020

Operating lease right-of-use assets Lease right-of-use assets $ 19,221

3 unchanged sentences

For fiscal year Total future payments

2020 (excluding the 3 months ended April 3, 2020) $ 5,276

2020 (excluding the 6 months ended July 3, 2020) $ 3,476

Thereafter 2,766

9 unchanged sentences

Accrued expenses consisted of the following:

April 3, January 3

July 3, January 3

Payroll and related expenses $ 9,662 $ 14,595

5 unchanged sentences

Activity related to warranties is as follows:

For the three months ended

April 3, 2020 March 29, 2019

For the three months ended For the six months ended

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Beginning warranty liability $ 8,719 $ 5,740 $ 5,649 $ 6,433

11 unchanged sentences

("Bank of America").

Amended and Restated Credit Facility

In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was later amended and restated on March 11, 2020 (the "Credit Facility").

The Credit Facility, which matures on March 11, 2025, provides a senior secured revolving line of credit with a borrowing capacity of $ 250,000 and a maturing secured term loan of $ 400,000 .

First Amended and Restated Credit Facility

In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which was amended and restated on March 11, 2020 and June 19, 2020 (as most recently amended and restated as the "First Amended and Restated Credit Facility").

The First Amended and Restated Credit Facility, which matures on March 11, 2025, provides a senior secured revolving line of credit with a borrowing capacity of $ 250,000 and a maturing secured term loan of $ 400,000 .

The term loan is subject to quarterly amortization payments.

1 unchanged sentence

Additionally, the Company had $ 434 of remaining unamortized debt issuance costs.

The Company expensed $ 277 of the remaining unamortized debt issuance costs, which are included in other expense, net on the Condensed Consolidated Statements of Income for the three months ended April 3, 2020 and the remaining $ 157 were allocated to the line of credit.

Loan fees allocated to the term debt will be amortized using the interest method and loan fees allocated to the line of credit will be amortized on a straight-line basis over the term of the Credit Facility.

The Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.00 % to 1.75 %, or based on the base rate offered by Bank of America plus a margin ranging from 0.00 % to 0.75 %.

At April 3, 2020, the one-month LIBOR and prime rates were 0.99 % and 3.25 %, respectively.

At April 3, 2020, our weighted average interest rate on outstanding borrowing was 2.33 %.

The Credit Facility is secured by substantially all of the Company’s assets, restricts the Company's ability to make certain payments and engage in certain transactions, and requires that the Company satisfy customary financial ratios.

The Company was in compliance with the covenants as of April 3, 2020.

The Credit Facility permits up to $ 25,000 of the aggregate revolving commitment to be used by the Company for issuance of letters of credit, of which $ 15,000 was outstanding at April 3, 2020.

The following table summarizes the line of credit under the Credit Facility:

The Company expensed $ 277 of the remaining unamortized debt issuance costs, which are included in other expense, net on the Condensed Consolidated Statements of Income for the six months ended July 3, 2020 and the remaining $ 157 were allocated to the line of credit.

The First Amended and Restated Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.00 % to 2.25 %, or based on the base rate offered by Bank of America plus a margin ranging from 0.00 % to 1.25 %.

At July 3, 2020, the one-month LIBOR and prime rates were 0.17 % and 3.25 %, respectively.

At July 3, 2020, our weighted-average interest rate on outstanding borrowing was 2.05 %.

The First Amended and Restated Credit Facility is secured by substantially all of the Company’s assets, restricts the Company's ability to make certain payments and engage in certain transactions, and requires that the Company satisfy customary financial ratios.

The Company was in compliance with the covenants as of July 3, 2020.

The First Amended and Restated Credit Facility permits up to $ 25,000 of the aggregate revolving commitment to be used by the Company for issuance of letters of credit, of which $ 15,000 was outstanding at July 3, 2020.

The following table summarizes the line of credit under the First Amended and Restated Credit Facility:

Amount outstanding $ 15,000

6 unchanged sentences

(in thousands, except per share amounts)

As of April 3, 2020, future principal payments for long-term debt, including the current portion, as summarized as follows:

As of July 3, 2020, future principal payments for long-term debt, including the current portion, as summarized as follows:

For fiscal year

2020 (remaining nine months) $ 7,500

2020 (remaining six months) $ 5,000

Thereafter 325,000

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The CAFC found in favor of the Company and has vacated and remanded all of the PTAB findings with the exception of their finding that the ‘027 patent met the prima facia test for obviousness, which was affirmed.

SRAM has appealed to the CAFC to rehear the case en banc.

The CAFC has declined to rehear the case and has issued the final remand order sending the case back to the PTAB.

The PTAB has issued an opinion in the ‘250 Patent petition case stating that the Company has not shown the claims of the ‘250 Patent to be obvious.

The Company has appealed that PTAB opinion to the CAFC and the CAFC ruling is pending.

The PTAB has issued an opinion in the ‘250 Patent case stating that the Company has not shown the claims of the ‘250 Patent to be obvious.

The Company has appealed that PTAB opinion to the CAFC and the CAFC has affirmed the PTAB opinion.

In a separate action, the Company filed a lawsuit on January 29, 2016 in the U.S.

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Based on information currently available, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's financial condition, results of operations or cash flows.

Other Commitments - On November 30, 2017, the Company through FF US Holding Corp.

acquired an 80 % interest in the business of Flagship, Inc.

The stockholders' agreement provides the Company with a call option (the "Call Option") to acquire the remaining 20 % of Tuscany any time from November 30, 2019 through November 30, 2024 at a value that approximates fair market value.

In addition, if the Call Option has not been exercised as of November 30, 2024, the non-controlling owners shall be entitled to exercise a put option on November 30, 2024 and for a 180 -day period thereafter, which would require the Company to purchase all of the remaining shares held by the non-controlling owners at a price that approximates fair market value.

On July 24, 2019 the Company entered into a standard form of agreement between with design-builder Carroll Daniel Construction Company to provide design and construction services related to an approximately 336,000 square foot facility located in Gainesville, Georgia.

Other Commitments - On November 30, 2017, the Company through FF US Holding Corp., acquired the assets of Flagship, Inc., d/b/a Tuscany and issued a 20% interest in FF US Holding Corp.

to Flagship, Inc.

A stockholders' agreement with Flagship, Inc.

provided the Company with a call option (the "Call Option") to acquire the remaining 20 % of FF US Holding Corp.

at any time from November 30, 2019 through November 30, 2024 at a value that approximates fair market value.

On July 22, 2020, subsequent to its second fiscal quarter, the Company exercised the Call Option and entered into a stock purchase agreement with Flagship, Inc.

whereby the Company agreed to purchase the remaining 20 % interest for $ 24,975 payable in a combination of stock and cash.

The cash portion will be settled in quarterly installment payments through July 2022, which amount to $ 6,556 , $ 4,550 and $ 2,700 in 2020, 2021 and 2022, respectively.

The exercise of the Call Option effectively canceled the put option held by Flagship, Inc.

On July 24, 2019, the Company entered into a standard form of agreement with design-builder Carroll Daniel Construction Company to provide design and construction services related to an approximately 336,000 square foot facility located in Gainesville, Georgia.

The Company plans to use the facility for the manufacture of its products including vehicle shock absorbers.

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As a result of the Court’s decision, most states enacted legislation to require sellers who meet economic nexus thresholds to register, collect and remit sales and use taxes on transactions with out-of-state customers.

The Company believes that it is possible that it will incur a liability for uncollected sales tax on some portion of its e-commerce sales through April 3, 2020.

Any retroactively imposed liability is not expected to be material to the Company’s results of operations or financial position because direct end-user sales in states where the Company is not registered comprise a small portion of total revenues.

The Company believes that it is possible that it will incur a liability for uncollected sales tax on some portion of its e-commerce sales through July 3, 2020.

Based on information currently available, any retroactively imposed liability is not expected to be material to the Company’s results of operations or financial position because direct end-user sales in states where the Company is not registered comprise a small portion of total revenues.

FOX FACTORY HOLDING CORP.

3 unchanged sentences

The following table presents the Company's hierarchy for its assets, liabilities and redeemable non-controlling interest measured at fair value on a recurring basis as of the following periods:

April 3, 2020 January 3, 2020

July 3, 2020 January 3, 2020

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

2 unchanged sentences

Total liabilities measured at fair value $ — $ 406,393 $ 24,975 $ 431,368 $ — $ 68,000 $ 15,719 $ 83,719

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three month period ended April 3, 2020.

The Company used Level 2 inputs to determine the fair value of its Credit Facility.

As of April 3, 2020, the carrying amount of the principal under the Company’s Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio.

The Company has potential obligations to purchase the non-controlling interests held by third parties in the Tuscany subsidiary.

These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within the specified periods outlined in the put provision within the Tuscany stockholders' agreement.

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three and six month period ended July 3, 2020.

The Company used Level 2 inputs to determine the fair value of its First Amended and Restated Credit Facility.

As of July 3, 2020, the carrying amount of the principal under the Company’s First Amended and Restated Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio.

As of July 3, 2020, the Company had potential obligations to purchase the non-controlling interests held by third parties in the Tuscany subsidiary.

These obligations were in the form of put provisions and were exercisable at the third-party owners' discretion within the specified periods outlined in the put provision within the Tuscany stockholders' agreement.

If these put provisions were exercised, the Company would be required to purchase the third-party owners' non-controlling interests at the appraised fair value.

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The estimated fair value is then compared to the carrying value based on the initial valuation and the cumulative net earnings attributable to the non-controlling interest.

At April 3, 2020, the estimated fair value was lower than the carrying value and, in accordance with applicable guidance, the non-controlling interest has been adjusted to the carrying value.

The estimated fair values of the non-controlling interests subject to put provisions can fluctuate and the implicit multiple of earnings at which these non-controlling interest obligations may ultimately be settled could vary significantly from our future estimates depending upon market conditions.

At July 3, 2020, the estimated fair value was adjusted based on the agreement between the Company and the non-controlling interest holders executed on July 22, 2020.

Refer to Note 9 - Commitments and Contingencies for additional details of this agreement.

The following table provides a reconciliation of the beginning and ending balances for the Company's redeemable non-controlling interest measured at fair value using Level 3 inputs:

2 unchanged sentences

Net income attributable to non-controlling interest 1,072

Balance at April 3, 2020 $ 16,207

Change in fair value 8,184

Balance at July 3, 2020 $ 24,975

FOX FACTORY HOLDING CORP.

2 unchanged sentences

Stockholders' Equity

Secondary Stock Offerings

In June 2020, the Company closed a secondary offering whereby it sold 2,760 shares of its common stock at a price of $ 76.00 per share for gross proceeds of $ 209,760 .

The net proceeds to the Company after underwriters' discounts and commissions of $ 11,015 and $ 511 of offering costs was $ 198,234 .

The total shares sold included 360 shares that were sold in connection with the underwriters' option to purchase additional shares.

This offering was made pursuant to the Company's registration statement on Form S-3.

Equity Incentive Plans

The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income:

For the three months ended

April 3, 2020 March 29, 2019

For the three months ended For the six months ended

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Cost of sales $ 147 $ 114 $ 276 243

3 unchanged sentences

Total $ 2,076 $ 1,621 $ 3,997 3,350

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the three months ended April 3, 2020:

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the six months ended July 3, 2020:

Unvested RSUs

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Vested ( 190 ) $ 36.37

Unvested at April 3, 2020 386 $ 49.01

As of April 3, 2020, the Company had approximately $ 14,299 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.62 years.

During the three months ended April 3, 2020, no shares of common stock were issued due to the exercise of stock options and no options to purchase common stock expired or were forfeited.

As of April 3, 2020, stock-based compensation expense related to stock options has been fully recognized.

Unvested at July 3, 2020 474 $ 48.20

As of July 3, 2020, the Company had approximately $ 20,523 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.89 years.

During the six months ended July 3, 2020, no shares of common stock were issued due to the exercise of stock options and no options to purchase common stock expired or were forfeited.

As of July 3, 2020, stock-based compensation expense related to stock options has been fully recognized.

FOX FACTORY HOLDING CORP.

1 unchanged sentence

(in thousands, except per share amounts)

For the three months ended

April 3, 2020 March 29, 2019

For the three months ended For the six months ended

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Provision for income taxes $ 3,204 $ 4,522 $ 4,124 $ 7,123

Effective tax rates 19.5 % 16.2 % 15.8 % 14.6 %

For the three months ended April 3, 2020, the difference between the Company's effective tax rate of 9.5 % and the 21 % federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, research and development credits, and a reduction of Switzerland withholding tax.

These benefits were partially offset by state taxes, global low-tax intangible income tax and nondeductible expenses.

There was a $ 40 excess benefit related to stock-based compensation.

For the three months ended March 29, 2019, the difference between the Company's effective tax rate of 12.4 % and the 21 % federal statutory rate resulted primarily from lower foreign tax rates, lower effective federal rates on foreign derived intangible income, research and development credits, and $ 1,825 from excess benefits related to the exercise of stock options.

These benefits were partially offset by state taxes, foreign withholding taxes and the impact of nondeductible expenses.

For the three and six months ended July 3, 2020, the difference between the Company's effective tax rate and the 21 % federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, research and development credits, and $ 646 and $ 686 in excess benefits related to stock-based compensation, respectively.

For the three months ended April 3, 2020, the Company benefited from a negotiated reduction of Switzerland withholding tax on prior year earnings.

These benefits were partially offset by state taxes, global low-tax intangible income tax and non-deductible expenses.

For the three and six months ended June 28, 2019, the difference between the Company's effective tax rate and the 21 % federal statutory rate resulted primarily from lower foreign tax rates, a lower tax rate on foreign derived intangible income, research and development credits, and $ 1,808 and $ 3,635 from excess benefits related to stock-based compensation, respectively.

These benefits were partially offset by state taxes, foreign withholding taxes and the impact of non-deductible expenses.

We do not expect the results from any ongoing income tax audit to have a material impact on our consolidated financial condition, results of operations, or cash flows.

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The lease is effective through April 1, 2024, with monthly rent payments of $ 16 .

Rent expense under this lease was $ 48 for the three months ended April 3, 2020.

Rent expense under this lease was $ 48 and $ 96 for the three and six months ended July 3, 2020.

On March 11, 2020, the Company acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc.

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The lease is effective through April 13, 2028, with monthly rent payments of $ 28 .

Rent expense under this lease was $ 28 for the three months ended April 3, 2020.

Rent expense under this lease was $ 84 and $ 112 for the three and six months ended July 3, 2020.

Refer to Note 14 - Acquisitions for further details of this acquisition.

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The Company also agreed to an additional $ 10,589 of contingent retention incentives for key SCA management, of which $ 9,283 is cash and $ 1,306 is stock, to be held in escrow and payable over the next two years.

The Company recognized $ 143 in costs associated with such retention incentives during the three months ended April 3, 2020.

Additionally, the Company agreed to pay $ 1,750 in transaction compensation to key SCA management concurrently with the closing.

The Company recognized $ 1,350 and $ 1,493 in costs associated with such retention incentives during the three and six months ended July 3, 2020.

Additionally, the Company paid $ 1,750 in transaction compensation to key SCA management concurrently with the closing.

The purchase price of SCA has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of March 11, 2020 with the excess purchase price allocated to goodwill.

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Purchase price allocation $ 329,531

The Company incurred $ 10,579 of acquisition costs in conjunction with the SCA acquisition, including $ 1,750 of transaction compensation during the three months ended April 3, 2020 and $602 of transaction costs during the three months ended January 3, 2020.

The Company incurred $ 10,582 of acquisition costs in conjunction with the SCA acquisition, including $ 1,750 of transaction compensation during the six months ended July 3, 2020 and $ 602 of transaction costs during the three months ended January 3, 2020.

These costs are classified as general and administrative expenses in the accompanying condensed consolidated statements of income.

Additional debt issuance costs of $ 6,622 were incurred in association with financing the transaction and will be amortized over the term of the Credit Facility.

Additional debt issuance costs of $ 6,622 were incurred in association with financing the transaction and will be amortized over the term of the First Amended and Restated Credit Facility.

Refer to Note 8 - Debt for further details.

11 unchanged sentences

The goodwill is not deductible for income tax purposes.

SCA previously purchased intangibles and goodwill in asset acquisitions with a remaining net tax basis approximating $77,989 which the Company may deduct for income tax purposes.

SCA previously purchased intangibles in asset acquisitions with a remaining net tax basis approximating $ 77,989 which the Company may deduct for income tax purposes.

The following unaudited pro forma financial information shows the combined results of operations of the Company and SCA, as if the acquisition had occurred as of the beginning of the periods presented.

2 unchanged sentences

A pro forma adjustment has been made to reflect the income taxes that would have been recorded at the federal statutory rate based on SCA’s net income.

The pro forma results for the three months ended April 3, 2020 exclude transaction costs associated with the acquisition and the results for the three months ended March 29, 2019 have been adjusted to include these charges.

The pro forma results for the six months ended July 3, 2020 exclude transaction costs associated with the acquisition and the results for the six months ended June 28, 2019 have been adjusted to include these charges.

This pro forma data is presented for informational purposes only and does not purport to be indicative of the results of future operations or of the results that would have occurred had the acquisition taken place in the periods noted below.

For the three months ended

April 3, 2020 March 29, 2019

For the six months ended

July 3, 2020 June 28, 2019

Pro forma sales $ 386,811 $ 394,700

4 unchanged sentences

Total SCA pre-tax income included in the condensed consolidated statements of income $ 333

Subsequent Events

On July 22, 2020 the Company entered into a stock purchase agreement with Flagship, Inc.

whereby the Company agreed to purchase the remaining 20 % interest of FF US Holding Corp.

for $ 24,975 payable in a combination of stock and cash.

The cash portion will be settled in quarterly installment payments through July 2022.

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

What changed 10-Q

Item 1. Financial Statements