What changed in this filing

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Item 1A. Risk Factors

2020-08-05 compared with 2020-05-06 · 49 added, 70 removed, 493 unchanged (19% of the section changed)

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Risks related to our business

Our business, financial condition and results of operations have been and may continue to be adversely affected by global public health epidemics or pandemics, including the recent COVID-19 pandemic.

We face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the recent coronavirus (“COVID-19”) pandemic.

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S.

Government in March 2020.

The impact of the COVID-19 pandemic, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity.

There have been extraordinary actions taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including travel bans, quarantines, “stay-at-home” orders, and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

These government-mandated closures, “shelter-in-place” directives, or an outbreak among, or quarantine of, the employees in any of our facilities, have caused and could continue cause significant interruptions to, or temporary closures of our operations.

These impacts include, but are not limited to:

• Significant reductions in demand or significant future volatility in demand for one or more of our products, which may be caused by, among other things:

the temporary inability of consumers to purchase our products due to illness, quarantine or other travel restrictions, store closures, or financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products, supply chain and shipping constraints, reduced options for marketing and promotion of products or other restrictions in connection with the COVID-19 pandemic;

if prolonged, such impacts can further increase the difficulty of operating our business, including accurately planning and forecasting, planning for operations and may adversely impact our results;

• Inability to meet our current or future demand due to disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials, truck chassis, or other components, transportation, workforce, or other manufacturing and distribution capability;

• Failure of third parties on which we rely, including our suppliers, contract manufacturers, distributors, contractors, commercial banks, and external business partners, to meet their obligations to the Company or to timely meet those obligations, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact our operations;

• Significant changes in the political conditions in markets in which we manufacture, sell or distribute our products, including additional or expanded quarantines, governmental or regulatory actions, closures or other restrictions that further limit or close our operating and manufacturing facilities, restrict our employees’ ability to travel or perform necessary business functions, restrict or prevent consumers from having access to our products, or otherwise prevent our third-party partners, dealers, suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results;

• Increased difficulty in determining the fair value of the Company’s goodwill and other assets for accounting purposes given the level of judgment and estimation that is inherently higher in the current environment considering the uncertainty created by the COVID-19 pandemic, which could result in estimates and assumptions made in valuing goodwill and other Company assets proving to be inaccurate in the future.

These impacts have had and could continue to have a negative effect on our business, financial condition, results of operations and cash flows, as well as the trading price of our securities.

Furthermore, the COVID-19 pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, interest rates, and liquidity.

The recent volatility in capital markets has also increased the cost of capital and adversely impacted access to capital.

We have modified, and might further modify, our business practices in response to the COVID-19 pandemic, related third-party responses, including from government authorities and our suppliers, customers and distributors, and the economic and social ramifications of the disease and societal responses across the markets in which the Company operates.

Despite our 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 our business, results of operation and financial condition is difficult to predict and depends on numerous evolving factors outside our control including:

the duration and scope of the pandemic;

government, social, business and other actions that have been and will be taken in response to the pandemic;

and the effect of the pandemic on short- and long-term general economic conditions.

If we are unable to continue to enhance existing products and develop, manufacture and market new products that respond to consumer needs and preferences and achieve market acceptance, we may experience a decrease in demand for our products, and our business and financial results could suffer.

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Our growth in the powered vehicle category is in part attributable to the expansion of the market for powered vehicles that require performance-defining products.

Such market growth includes the creation of new classes of vehicles that need our products, such as trucks that are up-fitted to be off-road capable, and our ability to create products for these vehicles.

In the event these markets stopped expanding or contracted, or we are unsuccessful in creating new products for these markets or other competitors successfully enter into these markets, we may fail to achieve future growth or our sales could decrease, and our business, financial condition or results of operations could be negatively affected.

Such market growth includes the creation of new classes of vehicles that can benefit from our products, such as trucks that are up-fitted with products to enhance their off-road capability, and our ability to create products for these vehicles.

Additionally, with our acquisitions of SCA Performance and Tuscany, a growing portion of our sales are expected to be generated from providing up-fitting solutions.

In the event these markets stopped expanding or contracted due to economic factors, changes in consumer preferences or other reasons, or we are unsuccessful in creating new products for these markets or other competitors successfully enter into these markets, we may fail to achieve future growth or our sales could decrease, and our business, financial condition or results of operations could be negatively affected.

A significant portion of our sales are highly dependent on the demand for high-end bikes and a material decline in the demand for these bikes or their suspension components could have a material adverse effect on our business or results of operations.

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Changes in our customer, channel and product mix could place demands that are more rigorous on our infrastructure and cause our profitability percentages to fluctuate.

From time to time, we may experience changes in our customer, channel and product mix from changes in demands from existing customers due to shifts in their products and markets.

We may experience changes in our customer, channel and product mix time to time as a result of changes in demands from existing customers due to shifts in their products and markets.

Additionally, the Company may pursue new customers and markets.

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Any significant delay in deliveries to our customers could lead to increased returns or cancellations, expose us to damage claims from our customers or damage our brand and, in turn, negatively affect our business, financial condition or results of operations.

Our business, financial condition and results of operations have been and may continue to be adversely affected by global public health epidemics or pandemics, including the recent COVID-19 outbreak.

We face various risks related to public health issues, including epidemics, pandemics, and other outbreaks, including the recent coronavirus (“COVID-19”) outbreak.

The global outbreak of COVID-19 was declared a pandemic by the World Health Organization and a national emergency by the U.S.

Government in March 2020.

The impact of COVID-19, including changes in consumer behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity.

These impacts include, but are not limited to:

• Continued significant reductions in demand or significant future volatility in demand for one or more of our products, which may be caused by, among other things:

if prolonged, such impacts can further increase the difficulty of operating our business, including accurately planning and forecasting, planning for operations and may adversely impact our results;

• Inability to meet our dealers’ or consumers’ needs and achieve cost targets due to disruptions in our manufacturing and supply arrangements caused by the loss or disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capability;

These impacts have had and could continue to have a negative effect on our business, financial condition, results of operations and cash flows, as well as the trading price of our securities.

Furthermore, COVID-19 has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates, interest rates, and liquidity.

The recent volatility in capital markets has also increased the cost of capital and adversely impacted access to capital.

the duration and scope of the pandemic;

government, social, business and other actions that have been and will be taken in response to the pandemic;

and the effect of the pandemic on short- and long-term general economic conditions.

Work stoppages or other disruptions at seaports could adversely affect our operating results.

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We have a global supply chain and we import products from our third-party vendors as well as our Fox Taiwan facility into the United States largely through ports on the West Coast.

Longshoremen, none of whom are our employees, must offload freight from ships arriving at West Coast ports.

Dockworkers, none of whom are our employees, must offload freight from ships arriving at West Coast ports.

We do not control the activities of these employees or seaports and we could suffer supply chain disruptions due to any disputes, capacity shortages, slowdowns or shutdowns that may occur, as was experienced in February 2015, in relation to certain West Coast ports.

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Dennison or any other key employees.

We believe that the top nine members of our senior management team are key to establishing our focus and executing our corporate strategies as they have extensive knowledge of our systems and processes.

We believe that the top ten members of our senior management team are key to establishing our focus and executing our corporate strategies as they have extensive knowledge of our systems and processes.

Given our senior management team’s knowledge of our industry and the limited number of direct competitors in the industry, we believe that it could be difficult to find replacements should any of the members of our senior management team leave.

For example, our former Chief Financial Officer, Zvi Glasman, resigned effective November 1, 2019, and, although we have named an interim replacement, we have not yet designated a permanent replacement for Mr.

If we are unable to designate a permanent Chief Financial Officer in a timely manner, there may be an adverse effect on our financial reporting processes, our financial controls and procedures and our ability to raise additional capital.

We could also be adversely affected if we fail to attract and retain talent throughout our organization.

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As a supplier to OEM customers, we are dependent in large part on the success of the business of our OEM customers.

Model year changes by our OEM customers may adversely impact our sales or cause our sales to vary from quarter to quarter.

Model year changes by our OEM customers or production disruptions or hiatuses may adversely impact our sales or cause our sales to vary from quarter to quarter.

In addition, losses in market share individually or a decline in the overall market of our OEM customers or the discontinuance by our OEM customers of their products which incorporate our products could negatively impact our business, financial condition or results of operations.

For example, if our bike producing OEM customers reduce production of their high-end bikes, their orders to us for our products would in turn be reduced, which could negatively affect our business, financial condition or results of operations.

A relatively small number of customers account for a substantial portion of our sales.

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In particular, sales to Ford, a powered vehicles OEM, accounted for approximately 11%, 8% and 8% in 2019, 2018 and 2017, respectively.

In the event that Ford were to experience manufacturing or other problems, or were to fail to pay us, it could have a material impact on our business, financial condition or results of operations.

In the event that Ford were to experience manufacturing or other problems, including disruptions related to COVID-19, or were to fail to pay us, it could have a material impact on our business, financial condition or results of operations.

Currency exchange rate fluctuations could impact gross margins and expenses.

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In the ordinary course of business, we incur warranty costs and reserve against such costs in our financial statements.

However, there is a risk that we could become aware of an underperforming product and be forced to adjust our warranty reserves or incur costs in excess of these reserves, which could adversely affect our results of operations.

However, there is a risk that a product could underperform and require us to adjust our warranty reserves or incur costs in excess of these reserves, which could adversely affect our results of operations.

If any of our products are or are alleged to be defective, we may be required to participate in a recall involving such products.

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We will continue to have the ability to incur debt and our levels of debt may affect our operations and our ability to pay the principal of and interest on our debt.

In the future, we and our subsidiaries may be able to incur substantial additional debt from amendments to our credit facility with Bank of America and other named lenders (the "Credit Facility"), additional lending sources subject to the restrictions contained in the Credit Facility, or because of certain debt instruments we may issue.

As of April 3, 2020, we had $479.2 million of indebtedness and $150.0 million in revolving credit available to borrow under the Credit Facility.

Our ability to borrow under the Credit Facility fluctuates from time to time due to, among other factors, our borrowings under the Credit Facility.

In the future, we and our subsidiaries may be able to incur substantial additional debt from amendments to our credit facility with Bank of America and other named lenders (the "First Amended and Restated Credit Facility"), additional lending sources subject to the restrictions contained in the First Amended and Restated Credit Facility, or because of certain debt instruments we may issue.

As of July 3, 2020, we had $406.4 million of indebtedness and $220.0 million in revolving credit available to borrow under the First Amended and Credit Facility.

Our ability to borrow under the First Amended and Restated Credit Facility fluctuates from time to time due to, among other factors, our borrowings under the First Amended and Restated Credit Facility.

Our indebtedness could be costly or have adverse consequences, such as:

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If we incur substantial additional indebtedness in the future, these higher levels of indebtedness may affect our ability to pay the principal of and interest on existing indebtedness and our creditworthiness generally.

Our outstanding indebtedness under the Credit Facility bears interest at a variable rate, which makes us more vulnerable to increases in interest rates and could cause our interest expense to increase and decrease cash available for operations and other purposes.

Borrowings under our Credit Facility bear interest on a variable rate, which increases and decreases based upon changes in the underlying interest rate and/or our leverage ratio.

Any such increases in the interest rate or increases of our borrowings under the Credit Facility will increase our interest expense.

As of April 3, 2020, we had $479.2 million of indebtedness, bearing interest at a variable rate, outstanding under the Credit Facility.

Our outstanding indebtedness under the First Amended and Restated Credit Facility bears interest at a variable rate, which makes us more vulnerable to increases in interest rates and could cause our interest expense to increase and decrease cash available for operations and other purposes.

Borrowings under our First Amended and Restated Credit Facility bear interest on a variable rate, which increases and decreases based upon changes in the underlying interest rate and/or our leverage ratio.

Any such increases in the interest rate or increases of our borrowings under the First Amended and Restated Credit Facility will increase our interest expense.

As of July 3, 2020, we had $406.4 million of indebtedness, bearing interest at a variable rate, outstanding under the First Amended and Restated Credit Facility.

Recent interest rates in the United States have been at historically low levels, and any increase in these rates would increase our interest expense and reduce our funds available for operations and other purposes.

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Accordingly, we may experience material increases in our interest expense as a result of increases in interest rate levels generally.

Based on the $479.2 million of variable interest rate indebtedness that was outstanding as of April 3, 2020, a hypothetical 100 basis point increase or decrease in the interest rate would have resulted in an approximately $1.2 million change to our interest expense for the three months ended April 3, 2020.

Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financial performance.

In 2017, Congress enacted the Tax Cuts and Jobs Act of 2017 (the "TCJA" or “Tax Act”), which significantly changed how the U.S.

taxes corporations.

Additional guidance related to the Tax Act continues to be issued by the U.S.

Department of the Treasury and the Internal Revenue Service ("IRS").

The Tax Act requires complex computations to be performed that were not previously required under U.S.

tax law, significant judgments to be made in interpretation of the provisions of the Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced.

Department of the Treasury, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered that is different from our interpretations.

In addition, it remains unclear in some cases how these U.S.

federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities, or how foreign governments will view the changes.

Our analysis and interpretation of this legislation is ongoing.

Additionally, the reduction in the U.S.

corporate tax rate, the revision of rules governing foreign tax credits, and changes in the rules regarding the sourcing of income are expected to have an impact on our ability to utilize our existing and future foreign tax credits, and as such, we have provided a partial valuation allowance on these tax assets.

A full valuation allowance was not provided primarily due to the decision to implement a prudent and feasible tax planning strategy to restructure business functions.

However, there can be no assurance that we will be able to implement such a plan.

Changes in our estimates regarding our ability to utilize our foreign tax credits could have a material impact on our tax provision, net income and cash flows.

There may be other material adverse effects resulting from the legislation that will become apparent as regulations are issued, and practice evolves through interpretation and case law.

While some of the changes made by the tax legislation may adversely affect the Company in one or more reporting periods and prospectively, other changes may be beneficial.

We continue to work with our tax advisors to determine the full impact that the recent tax legislation as a whole will have on us.

We are subject to income and other taxes in the United States and numerous foreign jurisdictions.

Our tax liabilities in the United States and abroad are affected by the amounts we charge in intercompany transactions for inventory, services, licenses, funding and other items.

We are subject to ongoing tax audits in various jurisdictions.

Tax authorities may disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters, and may assess additional taxes as a result.

We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision.

However, there can be no assurance that we will accurately predict the outcomes of these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously included in our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows .

Based on the $406.4 million of variable interest rate indebtedness that was outstanding as of July 3, 2020, a hypothetical 100 basis point increase or decrease in the interest rate would have resulted in an approximately $1.0 million change to our interest expense for the three months ended July 3, 2020.

Changes in tax laws and regulations or other factors could cause our income tax obligations to increase, potentially reducing our net income and adversely affecting our cash flows.

We are subject to income tax requirements in various jurisdictions in the U.S and internationally.

In preparing our financial statements, we provide for income taxes based on current tax laws and regulations and the estimated taxable income within each of these jurisdictions.

Our income tax obligations may be higher due to numerous factors.

Changes to tax laws or interpretations, modifications to the U.S.

tax reform enacted in December 2017, revisions to estimates regarding our ability to utilize foreign tax credits, increases in applicable tax rates, and actions by tax authorities in jurisdictions in which we operate could have a material impact on our net income and cash flows.

We are subject to certain risks in our manufacturing and in the testing of our products.

As of April 3, 2020, we employed approximately 2,900 full-time employees worldwide, a large percentage of which work at our manufacturing facilities.

As of July 3, 2020, we employed approximately 2,350 full-time employees worldwide, a large percentage of which work at our manufacturing facilities.

Our business involves complex manufacturing processes that can be inherently dangerous.

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Furthermore, such suppliers could experience difficulties in providing us with some or all of the materials we require, which could result in disruptions in our manufacturing operations.

If we experience difficulties with our suppliers or manufacturing delays caused by our suppliers, whether in connection with our manufacturing operations in the United States or in Taiwan, our business, financial condition or results of operations could be materially and adversely impacted.

Our business, financial condition or results of operations could be materially and adversely impacted if we experience difficulties with our suppliers or manufacturing delays caused by our suppliers, whether in connection with our manufacturing operations in the United States or in Taiwan.

We also purchase various raw materials in order to manufacture our products.

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The issuance of additional shares of our common stock could dilute the ownership interest of our common stockholders and could depress the market price of shares of our common stock.

Our Amended and Restated Certificate of Incorporation authorizes us to issue 90,000,000 shares of common stock, 38,602,757 of which shares were outstanding as of April 3, 2020.

Our Amended and Restated Certificate of Incorporation authorizes us to issue 90,000,000 shares of common stock, 41,437,614 of which shares were outstanding as of July 3, 2020.

In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with financings, acquisitions, registration statements or otherwise.

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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 1A. Risk Factors