What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-03-03 · 159 added, 171 removed, 371 unchanged (47% of the section changed)

6 unchanged sentences

Virtually all of our revenues were from our product sales;

miscellaneous sources of revenue such as royalty income and service related repair work and the associated sale of parts represented less than 1% of our sales in each of the years ended January 3, 2020, December 28, 2018 and December 29, 2017.

We have determined that we operate in one reportable segment, which is the manufacturing, sale and service of performance-defining products.

Our products fall into the following two categories:

• powered vehicles, including Side-by-Sides, certain on-road vehicles with off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, motorcycles, and commercial trucks;

• specialty sports products, which consist primarily of bike suspension and component products.

In each of the years ended January 3, 2020, December 28, 2018 and December 29, 2017, approximately 60%, 54% and 48%, respectively, of our sales were attributable to sales of products for powered vehicles and approximately 40%, 46% and 52%, respectively, of our sales were attributable to sales of specialty sports products.

In each of the years ended January 1, 2021, January 3, 2020 and December 28, 2018, approximately 59%, 60% and 54%, respectively, of our sales were attributable to sales of products for powered vehicles and approximately 41%, 40% and 46%, respectively, of our sales were attributable to sales of specialty sports products.

Our North American sales totaled $593.3 million, $502.3 million and $388.7 million, or 67%, 67% and 63% of our total sales in fiscal years 2020, 2019 and 2018, respectively.

Our international sales totaled $297.3 million, $248.8 million and $230.5 million, or 33%, 33% and 37% of our total sales in fiscal years 2020, 2019 and 2018, respectively.

Sales attributable to countries outside the United States are based on shipment location.

Our international sales, however, do not necessarily reflect the location of the end users of our products as many of our products are incorporated into bikes that are assembled at international locations and then shipped back to the United States.

We estimate, based on our internal projections, that approximately one-third of the end users of our products are located outside the United States.

Sales attributable to countries outside the U.S.

are based on shipment location.

We estimate, based on our internal projections, that approximately one-third of the end users of our bike products are located outside the U.S.

Opportunities, challenges and risks

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Losses in market share or a decline in the overall market of our OEM customers or the discontinuance by our OEM customers of their products that incorporate our products could negatively impact our business and our results of operations.

During 2018, we moved our corporate headquarters from Scotts Valley, California to our offices in Braselton, Georgia.

We are also currently constructing an approximately 336,000 square foot state-of-the-art facility in Hall County, Georgia to diversify our manufacturing platform and provide additional long-term capacity to support growth in our Powered Vehicles Group.

The first phase of the Hall County, Georgia project is expected to be completed late in the second quarter of 2020 and will be used for manufacturing, warehousing, distribution and office space.

Our Scotts Valley, California location will remain an essential shared services facility housing certain corporate functions.

In addition, we relocated our aftermarket bike products distribution, sales and service operations from Watsonville and Scotts Valley, California to Reno, Nevada to better serve our customers.

We have substantially completed the construction of an approximately 336,000 square foot state-of-the-art facility in Hall County, Georgia to diversify our manufacturing platform and provide additional long-term capacity to support growth in our Powered Vehicles Group.

The first phase of the Hall County, Georgia project was completed late in the second quarter of 2020 and will be used for manufacturing, warehousing, distribution and office space.

From time to time, we have experienced, and may continue to experience, warranty costs and claims relating to our products.

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Basis of presentation

Sales are primarily comprised of:

Composition of sales

• Product sales:

34 unchanged sentences

Our sales and marketing expenses include costs related to our sales, customer service and marketing personnel, including their wages, employee benefits and related stock-based compensation, and occupancy related expenses.

Other significant sales and marketing expenses include race support and sponsorships of events and athletes, advertising and promotions related to trade shows, travel and entertainment, promotional materials and products and our sales office costs.

Other significant sales and marketing expenses include race support and sponsorships of events and athletes, advertising and promotions related to trade shows, travel and entertainment, commissions paid to outside sales representatives, promotional materials and products and our sales office costs.

Our research and development expenses consist primarily of salaries and personnel costs, including wages, employee benefits and related stock-based compensation for our engineering, research and development teams, occupancy related expenses, fees for third party consultants, service fees, and expenses for prototype tooling and materials, travel, and supplies.

We expense research and development costs as incurred and such costs are included as research and development expenses on our consolidated statements of income.

Our general and administrative expenses include costs related to our executive, finance, information technology, business development, human resources and administrative personnel, including wages, employee benefits and related stock-based compensation expenses.

Our general and administrative expenses include costs related to our executive, finance, legal, information technology, business development, human resources and administrative personnel, including wages, employee benefits and related stock-based compensation expenses.

We record professional and contract service expenses, occupancy related expenses associated with corporate locations and equipment, and legal expenses in general and administrative expenses.

1 unchanged sentence

Our intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be fully recoverable.

No impairments of intangible assets were identified in the years ended January 3, 2020, December 28, 2018 and December 29, 2017.

Our fair value adjustments of contingent consideration and acquisition-related compensation related primarily to adjustments to our contingent consideration liability arising from the acquisition of Sport Truck as well as accruals for earn-outs related to our acquisition of Race Face/Easton.

Our contingent consideration and acquisition-related compensation for the Sport Truck and Race Face/Easton acquisitions have been fully recognized and paid as of January 3, 2020.

No impairments of intangible assets were identified in the years ended January 1, 2021, January 3, 2020 and December 28, 2018.

Income from operations

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We use income from operations as an indicator of the profitability of our business and our ability to manage costs.

Other expense, net

Other expense, net consists of interest expense and other expense, net.

Interest and other expense, net

Interest expense consists of interest charged to us under our credit facility.

Other expense, net, consists of foreign currency transaction gains and losses, gains and losses on the disposal of fixed assets, and other miscellaneous items.

We are subject to income taxes in the United States (federal and state) and various other foreign jurisdictions.

We are subject to income taxes in the U.S.

(federal and state) and various other foreign jurisdictions.

Our effective tax rate could be affected by numerous factors such as change in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, losses incurred in jurisdictions for which we are not able to realize related tax benefits, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework and other laws and accounting rules in various jurisdictions.

For the years ended January 3, 2020, December 28, 2018 and December 29, 2017, we had effective tax rates of 13.0%, 6.1% and 32.8%, respectively.

We have concluded certain elements of our international restructuring in response to the Tax Cuts Jobs Act (the "TCJA"), and expect that certain other changes will be carried out over a number of years.

For the years ended January 1, 2021, January 3, 2020 and December 28, 2018, we had effective tax rates of 12.2%, 13.0% and 6.1%, respectively.

We have concluded our international restructuring in response to the Tax Cuts Jobs Act (the "TCJA"), and expect that certain other operational changes will be carried out over a number of years.

The TCJA significantly changed how the U.S.

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In the future, our effective tax rate could vary as we update our assessment of valuation allowances for our deferred tax assets, including those associated with credit carryforwards.

It is reasonably possible that we could record a material adjustment to the valuation allowance in the next twelve months as we assess the progress and outcome of our restructuring activities.

It is reasonably possible that we could record a material adjustment to the valuation allowance in the next 12 months as we assess the progress and outcome of our plans to alter the generation and utilization of foreign tax credits.

We also have federal and state research credit carryforwards of approximately $1.3 million and $2.3 million, respectively.

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As of January 1, 2021, our deferred tax assets included $1.2 million associated with stock-based compensation expense.

We adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting in 2016, and as a result, record the difference between the deferred tax asset and the actual tax deduction for stock-based compensation as a component of our income tax expense.

Prior to adoption, such differences were recorded as a component of equity.

In the three years ended January 3, 2020, and in future periods, our effective tax rate will vary based on such differences.

The difference between the deferred tax asset and the actual tax deduction for stock-based compensation is recorded as a component of our income tax expense.

Our effective tax rate will vary based on such differences.

We are subject to examination of our income tax returns by the U.S.

IRS and other tax authorities.

Internal Revenue Service ("IRS") and other tax authorities.

We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our income tax liabilities and expense.

1 unchanged sentence

Any such adjustments could have a significant impact on our effective tax rate.

In 2018, we received a no change letter from the Internal Revenue Service ("IRS") related to the audit of our 2015 federal tax return.

In 2018, we received a no change letter from the IRS related to the audit of our 2015 federal tax return.

Additionally, we entered into a closing agreement with the IRS that resolved the uncertainty about the deductibility of amortization and depreciation arising from the Compass Group Diversified Holdings LLC's acquisition of us in 2008 (the "Compass Acquisition") for all open tax years.

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Results of operations

The table below summarizes our results of operations for the fiscal years ended January 3, 2020, December 28, 2018, and December 29, 2017:

The table below summarizes our results of operations for the fiscal years ended January 1, 2021, January 3, 2020, and December 28, 2018:

For the fiscal years ended

January 3, December 28, December 29,

January 1 January 3 December 28

(in thousands) 2021 2020 2018

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Amortization of purchased intangibles 17,583 6,344 6,065

Fair value adjustment of contingent consideration and acquisition-related compensation — — 1,447

Total operating expenses 175,398 129,926 110,964

Income from operations 114,149 112,809 94,532

Other expense, net:

Interest and other expense, net:

Interest expense 9,294 3,173 3,059

Other expense 325 1,067 583

Total other expense, net 4,240 3,642 2,756

Total interest and other expense, net 9,619 4,240 3,642

Income before income taxes 104,530 108,569 90,890

5 unchanged sentences

For the fiscal years ended

January 3, December 28, December 29,

January 1 January 3 December 28

2021 2020 2018

7 unchanged sentences

Amortization of purchased intangibles 2.0 0.8 1.0

Fair value adjustment of contingent consideration and acquisition-related compensation — — 0.3

Total operating expenses 19.7 17.3 17.9

Income from operations 12.8 15.0 15.3

Other expense, net:

Interest and other expense, net:

Interest expense 1.0 0.4 0.5

Other expense — 0.1 0.1

Other expense, net 0.6 0.6 0.6

Interest and other expense, net 1.1 0.6 0.6

Income before income taxes 11.7 14.5 14.7

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*Percentages may not foot due to rounding.

Fiscal year ended January 3, 2020 compared to fiscal year ended December 28, 2018

Fiscal year ended January 1, 2021 compared to fiscal year ended January 3, 2020

For the fiscal years ended

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Sales $ 890.6 $ 751.0 $ 139.6 18.6 %

Sales for the year ended January 3, 2020 increased approximately $131.8 million, or 21.3%, compared to the year ended December 28, 2018.

The sales increase reflects 33.8% growth in Powered Vehicle products as well as a 6.3% increase in Specialty Sports products for the year ended January 3, 2020 compared to the prior year.

The increase in sales of Powered Vehicle product sales was primarily due to the continued success of our product lineup, particularly in the OEM channel, as well as the inclusion of Ridetech's results.

The increase in Specialty Sports product sales reflects new product introductions and strong sell through with certain higher growth OEMs.

Sales for the year ended January 1, 2021 increased approximately $139.6 million, or 18.6%, compared to the year ended January 3, 2020.

The sales increase reflects a 22.4% increase in Specialty Sports products as well as a 16.1% growth in Powered Vehicle products for the year ended January 1, 2021 compared to the prior year.

The increase in Specialty Sports product sales reflects higher demand in both OEM and aftermarket channels.

The increase in sales of Powered Vehicle product sales was primarily due to the inclusion of SCA's results.

Cost of sales

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Cost of sales $ 601.0 $ 508.3 $ 92.7 18.2 %

Cost of sales for the year ended January 3, 2020 increased approximately $94.6 million, or 22.9%, compared to the year ended December 28, 2018.

Cost of sales for the year ended January 1, 2021 increased approximately $92.7 million, or 18.2%, compared to the year ended January 3, 2020.

The increase in cost of sales was driven primarily by an increase in product sales, as well as certain business factors affecting gross margin, which are discussed below.

For the year ended January 3, 2020, our gross margin was 32.3% compared to 33.2% for the year ended December 28, 2018.

The decrease in our gross profit margin was primarily due to a shift in customer and product mix as the Company's larger North American OEMs represented a higher portion of sales.

Additionally, we incurred manufacturing and supply chain inefficiencies associated with a higher than anticipated increase in customer demand.

For the year ended January 1, 2021, our gross margin was 32.5% compared to 32.3% for the year ended January 3, 2020.

The increase in gross margin was primarily due to the impact of the SCA acquisition and a favorable change in product and channel mix partially offset by incremental cost due to the COVID-19 pandemic as well as duplicate costs incurred as we transition our North American manufacturing operations.

Operating expenses

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Total operating expenses for the year ended January 1, 2021 increased approximately $45.5 million, or 35.0%, over the comparable period in 2019.

When expressed as a percentage of sales, operating expenses decreased to 17.3% of sales for the year ended January 3, 2020 compared to 17.9% of sales in 2018.

Within operating expenses, our sales and marketing expense increased by approximately $5.5 million primarily due to wages and related expenses of $2.2 million, costs related to our recently acquired Ridetech subsidiary of $1.7 million, and various other promotional expenses to expand our marketing team and continue to grow our brand.

Research and development expenses increased approximately $6.0 million primarily due to headcount investments of $4.6 million as we continue to pursue product innovation, facilities related costs and cost associated with Ridetech.

General and administrative expenses increased approximately $7.2 million due to payroll related costs of $4.0 million, facility and depreciation expense of $2.4 million, costs associated with Ridetech of $0.6 million and various other items, partially offset by a decrease of $1.3 million in litigation expenses.

Amortization of purchased intangible assets for the year ended January 3, 2020 increased by approximately $0.2 million as compared to the year ended December 28, 2018, due to the amortization of Ridetech's intangible assets.

When expressed as a percentage of sales, operating expenses increased to 19.7% of sales for the year ended January 1, 2021 compared to 17.3% of sales in 2019.

Within operating expenses, our sales and marketing expense increased by approximately $9.4 million primarily due to costs related to SCA of $8.5 million.

Additionally, we incurred higher personnel and commission expenses of $2.8 million, which were partially offset by reduced spending on trade shows and race events.

Research and development expenses increased approximately $2.5 million primarily due to headcount and facility-related expenses, partially offset by reductions in supplies, equipment, and other various expenses across our organization.

General and administrative expenses increased approximately $22.3 million due to acquisition-related costs of approximately $14.1 million and the inclusion of SCA operating costs of $5.9 million, and higher headcount costs including incentive compensation, partially offset by lower patent-related legal costs.

Amortization of purchased intangible assets for the year ended January 1, 2021 increased by approximately $11.3 million as compared to the year ended January 3, 2020, due to the amortization of SCA's intangible assets.

Income from operations

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As a result of the factors discussed above, income from operations for the year ended January 1, 2021 increased approximately $1.3 million, or 1.2%, compared to income from operations in the same period in 2019.

Other expense, net

Interest and other expense, net

For the fiscal years ended

(in millions) 2020 2019 Change ($) Change (%)

Other expense, net:

Interest and other expense, net:

Interest expense $ 9.3 $ 3.2 $ 6.1 190.6 %

Other expense, net $ 0.3 $ 1.0 (0.7) (70.0) %

Other expense, net $ 4.2 $ 3.6 $ 0.6 16.7 %

Other expense, net for the year ended January 3, 2020 increased by approximately $0.6 million to $4.2 million compared to $3.6 million for the year ended December 28, 2018.

The increase in other expense, net is primarily due to a $0.5 million increase in foreign exchange losses in the year ended January 3, 2020.

Interest and other expense, net $ 9.6 $ 4.2 $ 5.4 128.6 %

Interest and other expense, net for the year ended January 1, 2021 increased by approximately $5.4 million to $9.6 million compared to $4.2 million for the year ended January 3, 2020.

The increase in interest and other expense, net is primarily due to interest expense on additional borrowings in connection with our acquisition of SCA.

For the fiscal years ended

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Provision for income taxes $ 12.8 $ 14.1 $ (1.3) (9.2) %

Income tax expense for the year ended January 3, 2020 increased by approximately $8.6 million to $14.1 million compared to income tax expense of $5.5 million in the same period in 2018.

The increase in expense resulted primarily from the non-recurring Compass Acquisition uncertain tax position which was reflected in 2018, partially offset by the benefit of U.S.

foreign derived earnings and the benefit of excess deductions on stock-based compensation.

The effective tax rates were 13.0% and 6.1% for the years ended January 3, 2020 and December 28, 2018, respectively.

For the year ended January 3, 2020, the difference between our effective tax rate and the 21% federal statutory rate resulted primarily from the benefit of excess deductions on stock-based compensation, the benefit of a lower tax rate on U.S.

foreign derived earnings, partially offset by non-deductible executive compensation and state taxes .

For the year ended December 28, 2018, the difference between our effective tax rate and the 21% federal statutory rate resulted primarily from the favorable result of the uncertain tax position related to the Compass Acquisition, the benefit of excess deductions on stock-based compensation, the benefit of a lower tax rate on U.S.

Income tax expense for the year ended January 1, 2021 decreased by approximately $1.3 million to $12.8 million compared to income tax expense of $14.1 million in the same period in 2019.

The decrease in expense resulted from the decrease in pre-tax profit, as well as from the benefits of excess deductions on stock-based compensation and the benefit of a lower tax rate on U.S.

foreign derived earnings.

The effective tax rates were 12.2% and 13.0% for the years ended January 1, 2021 and January 3, 2020, respectively.

For the year ended January 1, 2021, the difference between our effective tax rate and the 21% federal statutory rate resulted from the decrease in pre-tax profit, as well as, the benefit of excess deductions on stock-based compensation and the benefit of a lower tax rate on U.S.

foreign derived earnings .

foreign derived earnings, partially offset by non-deductible executive compensation and state taxes.

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Net income $ 91.7 $ 94.5 $ (2.8) (3.0) %

As a result of the factors described above, our net income increased $9.1 million, or 10.7%, to $94.5 million in the year ended January 3, 2020 from $85.4 million for the same period in 2018.

Fiscal year ended December 28, 2018 compared to fiscal year ended December 29, 2017

As a result of the factors described above, our net income decreased $2.8 million, or 3.0%, to $91.7 million in the fiscal year ended January 1, 2021 from $94.5 million for the same period in 2019.

Fiscal year ended January 3, 2020 compared to fiscal year ended December 28, 2018

For the fiscal years ended

1 unchanged sentence

Sales $ 751.0 $ 619.2 $ 131.8 21.3 %

Sales for the year ended December 28, 2018 increased approximately $143.6 million, or 30.2%, compared to the year ended December 29, 2017.

The sales increase reflects 46.5% growth in Powered Vehicle products as well as a 14.9% increase in Specialty Sports products for the year ended December 28, 2018 compared to the prior year.

The increase in sales of Powered Vehicle products was primarily due to continued higher demand for on and off-road suspension products, including increased OEM sales, as well as the inclusion of Tuscany's results.

The increase in Specialty Sports product sales was primarily due to the success of our current bike product lines including new products within those lines.

Sales for the fiscal year ended January 3, 2020 increased approximately $131.8 million, or 21.3%, compared to the year ended December 28, 2018.

The sales increase reflects 33.8% growth in Powered Vehicle products as well as a 6.3% increase in Specialty Sports products for the fiscal year ended January 3, 2020 compared to the prior fiscal year.

The increase in Specialty Sports product sales reflects new product introductions and strong sell through with certain higher growth OEMs.

Cost of sales

2 unchanged sentences

Cost of sales $ 508.3 $ 413.7 $ 94.6 22.9 %

Cost of sales for the year ended December 28, 2018 increased approximately $92.6 million, or 28.8%, compared to the year ended December 29, 2017.

Cost of sales for the fiscal year ended January 3, 2020 increased approximately $94.6 million, or 22.9%, compared to the year ended December 28, 2018.

The increase in cost of sales was driven primarily by an increase in product sales, as well as certain business factors affecting gross margin, which are discussed below.

For the year ended December 28, 2018, our gross margin was 33.2% compared to 32.5% for the year ended December 29, 2017.

The increase in our gross profit margin was primarily attributable to increased operating leverage on higher volume and improved manufacturing efficiencies.

For the year ended January 3, 2020, our gross margin was 32.3% compared to 33.2% for the fiscal year ended December 28, 2018.

The decrease in our gross profit margin was primarily due to a shift in customer and product mix as the Company's larger North American OEMs represented a higher portion of sales.

Additionally, we incurred manufacturing and supply chain inefficiencies associated with a higher than anticipated increase in customer demand.

Operating expenses

6 unchanged sentences

Amortization of purchased intangibles 6.3 6.1 0.2 3.3 %

Fair value adjustment of contingent consideration and acquisition related compensation — 1.4 (1.4) (100.0) %

Total operating expenses $ 129.9 $ 111.0 $ 18.9 17.0 %

Total operating expenses for the year ended December 28, 2018 increased approximately $23.6 million, or 27.0%, over the comparable period in 2017.

When expressed as a percentage of sales, operating expenses decreased to 17.9% of sales for the year ended December 28, 2018 compared to 18.3% of sales in 2017.

Within operating expenses, our sales and marketing expense increased by approximately $9.4 million primarily due to costs incurred at our recently acquired Tuscany subsidiary of $6.9 million, as well as increased headcount and promotional expenses in our existing business lines to expand our marketing team and continue to grow our brand.

Research and development expenses increased approximately $5.6 million primarily due to headcount investments of $3.3 million, prototyping and equipment costs of $0.9 million, higher patent costs of $0.6 million, costs incurred at Tuscany of $0.2 million, and various other items.

General and administrative expenses increased approximately $6.9 million due to higher legal costs related to ongoing litigation of $2.1 million, expenses of $1.7 million incurred at Tuscany, higher facility-related costs of $0.6 million, higher professional fees of $1.3 million related to our ERP project, general legal and compliance costs, consulting resources, and various other items, partially offset by lower acquisition-related expenses.

Amortization of purchased intangible assets for the year ended December 28, 2018 increased by approximately $3.1 million as compared to the year ended December 29, 2017.

This increase is due to the amortization of Tuscany's customer relationship assets.

We incurred $1.4 million in acquisition-related compensation in connection with management earn-out arrangements during the year ended December 29, 2017.

Earn-out arrangements were completed during the fiscal year 2017.

Total operating expenses for the fiscal year ended January 3, 2020 increased approximately $18.9 million, or 17.0%, over the comparable period in 2018.

When expressed as a percentage of sales, operating expenses decreased to 17.3% of sales for the fiscal year ended January 3, 2020 compared to 17.9% of sales in 2018.

Amortization of purchased intangible assets for the fiscal year ended January 3, 2020 increased by approximately $0.2 million as compared to the fiscal year ended December 28, 2018, due to the amortization of Ridetech's intangible assets.

Income from operations

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Income from operations $ 112.8 $ 94.5 $ 18.3 19.4 %

As a result of the factors discussed above, income from operations for the year ended December 28, 2018 increased approximately $27.5 million, or 41.0%, compared to income from operations in the same period in 2017.

Other expense, net

As a result of the factors discussed above, income from operations for the fiscal year ended January 3, 2020 increased approximately $18.3 million, or 19.4%, compared to income from operations in the same period in 2018.

Interest and other expense, net

For the fiscal years ended

(in millions) 2019 2018 Change ($) Change (%)

Other expense, net:

Interest and other expense, net:

Interest expense $ 3.2 $ 3.1 $ 0.1 3.2 %

Other expense, net 1.0 0.5 0.5 100.0 %

Other expense, net $ 3.6 $ 2.8 $ 0.8 28.6 %

Other expense, net for the year ended December 28, 2018 increased by approximately $0.8 million to $3.6 million compared to $2.8 million for the year ended December 29, 2017.

The increase in other expense, net is primarily due to a $0.7 million increase in interest expense in the year ended December 28, 2018 due to additional borrowings and higher interest rates as compared to the year ended December 29, 2017.

Interest and other expense, net $ 4.2 $ 3.6 $ 0.6 16.7 %

Interest and other expense, net for the fiscal year ended January 3, 2020 increased by approximately $0.6 million to $4.2 million compared to $3.6 million for the fiscal year ended December 28, 2018.

The increase in interest and other expense, net is primarily due to a $0.5 million increase in foreign exchange losses in the fiscal year ended January 3, 2020.

For the fiscal years ended

1 unchanged sentence

Provision for income taxes $ 14.1 $ 5.5 $ 8.6 156.4 %

Income tax expense for the year ended December 28, 2018 decreased by approximately $15.6 million to $5.5 million compared to income tax expense of $21.1 million in the same period in 2017.

The decrease in expense resulted primarily from the decrease in U.S.

corporate tax rate, the recognition of $9.8 million in uncertain tax positions incurred as a result of the Compass Acquisition, and the non-recurrence of transition items related to the TCJA, which resulted in a net expense of $9.3 million in 2017, partially offset by additional taxes associated with a 41.4% increase in pre-tax income and loss of deductibility of certain components of performance-based executive compensation.

Additionally, our 2018 income tax expense increased by $3.4 million as a result of a reduction in the excess benefit of stock-based compensation.

The effective tax rates were 6.1% and 32.8% for the years ended December 28, 2018 and December 29, 2017, respectively.

Income tax expense for the fiscal year ended January 3, 2020 increased by approximately $8.6 million to $14.1 million compared to income tax expense of $5.5 million in the same period in 2018.

The increase in expense resulted primarily from the non-recurring Compass Acquisition uncertain tax position which was reflected in 2018, partially offset by the benefit of U.S.

foreign derived earnings and the benefit of excess deductions on stock-based compensation.

The effective tax rates were 13.0% and 6.1% for the fiscal years ended January 3, 2020 and December 28, 2018, respectively.

For the fiscal year ended January 3, 2020, the difference between our effective tax rate and the 21% federal statutory rate resulted primarily from the benefit of excess deductions on stock-based compensation, the benefit of a lower tax rate on U.S.

foreign derived earnings, partially offset by non-deductible executive compensation and state taxes.

For the year ended December 29, 2017, the difference between our effective tax rate and the 35% federal statutory rate resulted primarily from the benefit of excess deductions on stock-based compensation, lower rates on foreign earnings, the impact of the TCJA on our net deferred tax liabilities, our research and development credits, and the reversal of our liability for uncertain tax positions as a result of the expiration of the statute of limitations for certain tax filings.

These positive rate impacts were partially offset by the valuation allowance on foreign tax credits and the taxes on unremitted foreign earnings as a result of the TCJA.

For the fiscal year ended December 28, 2018, the difference between our effective tax rate and the 21% federal statutory rate resulted primarily from the favorable result of the uncertain tax position related to the Compass Acquisition, the benefit of excess deductions on stock-based compensation, the benefit of a lower tax rate on U.S.

foreign derived earnings, partially offset by non-deductible executive compensation and state taxes.

For the fiscal years ended

1 unchanged sentence

Net income $ 94.5 $ 85.4 $ 9.1 10.7 %

As a result of the factors described above, our net income increased $42.2 million, or 97.7%, to $85.4 million in the year ended December 28, 2018 from $43.2 million for the same period in 2017.

As a result of the factors described above, our net income increased $9.1 million, or 10.7%, to $94.5 million in the fiscal year ended January 3, 2020 from $85.4 million for the same period in 2018.

Liquidity and Capital Resources

2 unchanged sentences

These sources of liquidity may be impacted by various factors, including demand for our products, investments made by us in acquired businesses, our plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology.

As of January 3, 2020, we held $40.6 million of our $43.7 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate, subject to withholding taxes in some jurisdictions.

As of January 1, 2021, we held $22.4 million of our $245.8 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate.

We manage our foreign cash, intercompany payables and intercompany debt to provide a foreign currency hedge against U.S.

2 unchanged sentences

For the years ended

January 3, December 28, December 29,

January 1 January 3 December 28

(in thousands) 2021 2020 2018

4 unchanged sentences

Increase (decrease) in cash and cash equivalents $ 202,028 $ 15,778 $ (7,989)

We expect that cash on hand, cash flow from operations and availability under our credit facility will be sufficient to fund our operations during the next twelve months from the date of this Annual Report on Form 10-K.

See Note 18 - Subsequent Events of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K for additional discussion related to acquisitions and our credit facility.

We expect that cash on hand, cash flow from operations and availability under our credit facility will be sufficient to fund our operations during the next 12 months from the date of this Annual Report on Form 10-K.

Operating activities

Cash provided by operating activities primarily consists of net income, adjusted for certain non-cash items, primarily depreciation and amortization, stock-based compensation, and deferred income taxes, offset by net cash invested in working capital.

In the year ended January 3, 2020, cash provided by operating activities was $74.8 million and consisted of net income of $94.5 million plus non-cash items and other adjustments totaling $14.5 million less changes in operating assets and liabilities totaling $34.2 million.

In the fiscal year ended January 1, 2021, cash provided by operating activities was $82.7 million and consisted of net income of $91.7 million plus non-cash items and other adjustments totaling $30.0 million less changes in operating assets and liabilities totaling $39.0 million.

Non-cash items and other adjustments consisted primarily of depreciation and amortization of $33.9 million, stock-based compensation of $8.6 million, and amortization of loan fees of $1.5 million, offset by a $14.1 million change in deferred taxes.

Cash invested in operating assets and liabilities is primarily the result of increases in prepaids and other current assets of $66.4 million and accounts receivable of $18.8 million, partially offset by decreases in accounts payable of $25.9 million, accrued expenses of $11.2 million and inventory of $7.9 million.

The increase in prepaids and other current assets is primarily due to deposits on chassis and acquisition-related compensation payments held in escrow, both related to our acquired SCA subsidiary.

The changes in inventory, accounts receivable, accounts payable and accrued expenses reflect business growth as well as timing of vendor payments.

In the fiscal year ended January 3, 2020, cash provided by operating activities was $74.8 million and consisted of net income of $94.5 million plus non-cash items and other adjustments totaling $14.5 million less changes in operating assets and liabilities totaling $34.2 million.

Non-cash items and other adjustments consisted primarily of depreciation and amortization of $17.7 million, stock-based compensation of $6.9 million, and loss on the extinguishment of debt of $0.5 million, offset by a $10.6 million change in deferred taxes.

Cash invested in operating assets and liabilities is primarily the result of increases in inventory of $17.0 million, and accounts receivable of $12.1 million, decreases in income taxes of $3.6 million and accrued expenses of $2.3 million, partially offset by a decrease in prepaids and other assets of $1.7 million.

The changes in inventory, accounts receivable, accrued expenses and prepaids and other assets are primarily due to seasonal impacts on working capital.

The changes in inventory, accounts receivable, accrued expenses and prepaids and other assets are primarily attributable to business growth and the impact of the Ridetech acquisition.

The decrease in income taxes is primarily due to the timing of estimated tax payments and refunds.

In the year ended December 28, 2018, cash provided by operating activities was $65.4 million and consisted of net income of $85.4 million plus non-cash items and other adjustments totaling $2.8 million less changes in operating assets and liabilities totaling $22.7 million.

In the fiscal year ended December 28, 2018, cash provided by operating activities was $65.4 million and consisted of net income of $85.4 million plus non-cash items and other adjustments totaling $2.8 million less changes in operating assets and liabilities totaling $22.7 million.

Non-cash items and other adjustments consisted primarily of depreciation and amortization of $14.7 million, and stock-based compensation of $7.3 million, offset by a $19.3 million change in deferred taxes.

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The increases in inventory, accounts receivable, accounts payable and accrued expenses reflect the growth of our business, changes in customer mix and timing, and the expansion of our manufacturing facilities.

In the year ended December 29, 2017, cash provided by operating activities was $48.2 million and consisted of net income of $43.2 million plus non-cash items totaling $17.9 million less changes in operating assets and liabilities and other adjustments totaling $13.0 million.

Non-cash items and other adjustments consisted primarily of depreciation and amortization of $10.3 million, and stock-based compensation of $8.7 million, offset by a $1.2 million change in deferred taxes.

Cash invested in operating assets and liabilities is primarily the result of increases in inventory of $8.3 million and prepaids and other assets of $6.4 million, and a decrease in accrued expenses of $10.5 million, partially offset by a decrease in accounts receivable of $3.6 million, and increases in accounts payable of $2.2 million and income taxes net payable of $6.4 million.

The increases in inventory and accounts payable reflects the growth of our business, and the expansion of our manufacturing facilities.

The decrease in accounts receivable reflects changes in customer mix and timing.

The decrease in accrued expenses is primarily due to payments of our acquisition-related compensation and timing of payments for certain other non-vendor liabilities.

The increase in prepaid and other assets is a result of advanced payments to vendors and the timing of insurance and benefits payments.

The change in net current income tax accounts is primarily due to timing of estimated tax payments and refunds.

Investing activities

Cash used in investing activities primarily relates to strategic acquisitions of businesses and other assets, and investments in our manufacturing and general infrastructure through the acquisition of property and equipment.

In the year ended January 3, 2020, cash used in investing activities was $60.3 million which primarily consisted of $53.5 million in property and equipment additions and $6.8 million of cash consideration for our acquisition of Ridetech.

In the year ended December 28, 2018, cash used in investing activities was $30.2 million which consisted entirely of property and equipment additions.

In the year ended December 29, 2017, cash used in investing activities was $70.5 million which consisted primarily of $53.6 million invested in the Tuscany acquisition and $16.9 million in property and equipment additions.

In the fiscal year ended January 1, 2021, cash used in investing activities was $388.5 million which primarily consisted of $331.5 million of cash consideration for our acquisition of SCA and $56.7 million in property and equipment additions.

In the fiscal year ended January 3, 2020, cash used in investing activities was $60.3 million which primarily consisted of $53.5 million in property and equipment additions and $6.8 million of cash consideration for our acquisition of Ridetech.

In the fiscal year ended December 28, 2018, cash used in investing activities was $30.2 million which consisted entirely of property and equipment additions.

Financing activities

Cash provided by or used in financing activities primarily relates to changes in our capital structure, including the various forms of debt and equity instruments used to finance our business.

In the year ended January 3, 2020, net cash provided by financing activities was $0.9 million, which consisted primarily of $7.7 million in net proceeds from our credit facility offset by $6.8 million in payments to repurchase shares to cover tax withholding related to the vesting of restricted stock awards, net of proceeds from the exercise of stock options.

In the year ended December 28, 2018, net cash used in financing activities was $43.4 million, which consisted primarily of $39.3 million in net payments on our credit facility and $4.1 million in payments to repurchase shares to cover tax withholding related to the vesting of restricted stock awards, net of proceeds from the exercise of stock options.

In the year ended December 29, 2017, net cash provided by financing activities was $22.0 million, which consisted primarily of $31.4 million in net proceeds from our credit facility used to finance acquisitions, partially offset by a payment of $5.4 million in contingent consideration related to our 2014 acquisition of Sport Truck, and $4.0 million in payments to repurchase shares to cover tax withholding related to the vesting of restricted stock awards, net of proceeds from the exercise of stock options.

In the fiscal year ended January 1, 2021, net cash provided by financing activities was $506.7 million, which consisted primarily of $392.4 million in proceeds, net of issuance costs, from our First Amended and Restated Credit Facility, which was amended and restated in connection with our acquisition of SCA, partially offset by net payments of $68.0 million on our line of credit and payments on our term debt of $5.0 million.

In addition, we received $198.2 million from our June 2020 issuance of common stock.

These inflows were partially offset by $4.3 million to repurchase shares of our common stock as part of our stock-based compensation program and $6.6 million in installment payments related to the purchase of the Tuscany non-controlling interest.

Refer to Note 1 2 - Commitments and Contingencies for additional details.

In the fiscal year ended January 3, 2020, net cash provided by financing activities was $0.9 million, which consisted primarily of $7.7 million in net proceeds from our credit facility offset by $6.8 million in payments to repurchase shares to cover tax withholding related to the vesting of restricted stock awards, net of proceeds from the exercise of stock options.

In the fiscal year ended December 28, 2018, net cash used in financing activities was $43.4 million, which consisted primarily of $39.3 million in net payments on our credit facility and $4.1 million in payments to repurchase shares to cover tax withholding related to the vesting of restricted stock awards, net of proceeds from the exercise of stock options.

Former Second Amended and Restated Credit Facility

In August 2013, we entered into the 2013 Credit Facility with SunTrust Bank and other named lenders.

The 2013 Credit Facility provided a revolving line of credit.

On March 31, 2014, in connection with our asset purchase of Sport Truck, we amended and restated the 2013 Credit Facility.

The Amended and Restated 2013 Credit Facility provided a maturing secured term loan in the principal amount of $50.0 million, subject to quarterly amortization payments, and extended the term of the 2013 Credit Facility through March 31, 2019.

The proceeds of the term loan were used, in part, to fund the acquisition of Sport Truck and to pay down the revolving line of credit provided under the 2013 Credit Facility.

On December 12, 2014, we amended the existing Amended and Restated 2013 Credit Facility.

The First Amendment increased the term loan by the principal amount of $30.0 million to a total of $56.8 million, subject to quarterly amortization payments, and extended the maturity of the Amended and Restated 2013 Credit Facility through December 12, 2019.

The additional proceeds of the term loan made available through the First Amendment were used to partially fund the acquisition of Race Face/Easton.

Additional amendments entered into on May 29, 2015 and March 31, 2016, respectively, made minor technical changes to the Amended and Restated 2013 Credit Facility.

On May 11, 2016, we amended and restated the existing Amended and Restated 2013 Credit Facility.

Further technical amendments were made on August 11, 2016, June 12, 2017, November 30, 2017 and November 14, 2018 (as most recently amended and restated and as further amended, the "Second Amended and Restated Credit Facility").

The Second Amended and Restated Credit Facility provided a maturing secured term loan in the principal amount of $75.0 million, subject to quarterly amortization payments, increased the availability on the line of credit to $100.0 million, and extended the maturity of the Second Amended and Restated Credit Facility through May 11, 2021.

We paid off the Second Amended and Restated Credit Facility in June 2019 upon entering into the new credit facility with Bank of America.

New Credit Facility

In June 2019, we entered into a credit facility with Bank of America and other named lenders (the "Credit Facility").

The Credit Facility, which matures on June 3, 2024, provides a senior secured revolving line of credit with a maximum borrowing capacity of $250.0 million.

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 1.50%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 0.50%.

In August 2013, the Company entered into a credit facility with SunTrust Bank, N.A.

and other named lenders, which was periodically amended and restated (the "Second Amended and Restated Credit Facility").

The Company paid off the Second Amended and Restated Credit Facility in June 2019 upon entering into the new credit facility with Bank of America, N.A.

("Bank of America").

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 $250.0 million and a term loan of $400.0 million.

The term loan is subject to quarterly amortization payments.

The Company paid $7.6 million in debt issuance costs, of which $6.5 million were allocated to the term debt and $1.2 million were allocated to the line of credit.

Additionally, the Company had $0.4 million of remaining unamortized debt issuance costs.

The Company expensed $0.3 million of the remaining unamortized debt issuance costs, which are included in interest and other expense, net on the condensed consolidated statements of income for the fiscal year ended January 1, 2021 and the remaining $0.1 million were allocated to the line of credit.

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

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%, with a floor rate of 0.50%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 1.25%.

At January 1, 2021, the one-month LIBOR and prime rates were 0.14% and 3.25%, respectively.

At January 1, 2021, our weighted-average interest rate on outstanding borrowing was 1.62%.

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 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 January 1, 2021.

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Total $ 426,878 $ 23,973 $ 48,864 $ 351,312 $ 2,729

As of January 3, 2020, we had a liability of approximately $0.9 million associated with uncertain tax positions, which is classified as a current liability in our consolidated balance sheet because it is reasonably possible that certain federal, foreign, and state tax matters could be concluded in the next twelve months.

As of January 1, 2021, we had a liability of approximately $1.1 million associated with uncertain tax positions, which is classified as a current liability in our consolidated balance sheet because it is reasonably possible that certain federal, foreign, and state tax matters could be concluded in the next 12 months.

However, our liability for uncertain tax positions has been excluded from our summary of contractual obligations as we cannot make a reliable estimate of the period of cash settlement with the respective taxing authorities, nor the amount of the final cash settlement.

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we believe this seasonality is due to the delivery of new products.

Generally, our quarterly sales have been the lowest in the first quarter and highest in the third quarter of the year.

For example, our sales in our first and third quarters of 2019 represented 22% and 28% of our total sales for the year, respectively.

As we have diversified our product offerings and our product launch cycles, seasonal fluctuations are becoming less material.

Off-Balance Sheet Arrangements

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Allowance for doubtful accounts

We record a provision for doubtful accounts deemed not collectible based on historical experience and a detailed assessment of the collectability of our accounts receivable.

In estimating the allowance for doubtful accounts, we consider, among other factors, the aging of the accounts receivable, historical write-offs, and the credit-worthiness of each customer.

We record a provision for doubtful accounts deemed not collectible using the aging method.

The provision is based on how long a receivable has been outstanding, taking into account the historical credit loss rate and adjusting for both current conditions and forecasts of economic conditions into that expected credit loss rate.

If circumstances change, such as higher-than-expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations, we estimate if the recoverability of the amounts due could be reduced by a material amount.

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If the asset or asset group is considered to be impaired, the amount of such impairment would be measured by the difference between the carrying amount of the asset and its fair value.

Unless otherwise required by law, the Company generally offers limited warranties on its products for one to four years.

Acquisition of certain identifiable definite-lived and indefinite-lived assets

In conjunction with an acquisition of a business, the Company records identifiable definite-lived and indefinite-lived intangible assets acquired at their respective fair values as of the date of acquisition.

The estimates used in assessing the fair value for the assets acquired include projected future cash flows, associated discount rates used to calculate present value, asset life cycles, customer retention rates and royalty rates.

The fair value calculated for indefinite-lived intangible assets such as certain tradenames, in addition to intangible assets that are definite-lived such as customer relationships and other technology-based assets may change during the finalization of the purchase price allocation, due to the significant estimates used in determining their fair value.

As a result, the Company may make adjustments to the provisional amounts recorded for certain items as part of the purchase price allocation subsequent to the acquisition, not to exceed one year after the acquisition date, until the purchase accounting allocation is finalized.

Unless otherwise required by law, the Company generally offers limited warranties on its products for one to two years.

We accrue estimated costs related to warranty activities as a component of cost of sales upon product shipment or when information becomes available indicating that an adjustment to the warranty reserves is appropriate.

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As future guidance is issued, we may adjust amounts that we have previously recorded that may materially impact our provision for income taxes in the period in which the adjustments are made.

Our provision for income tax expense also considers our assertions regarding the indefinite reinvestment of earnings of our foreign subsidiaries.

We consider the following matters, among others, in evaluating our plans for indefinite reinvestment:

(i) the financial requirements of both the Company and its foreign operations, both for the long term and for the short term;

(ii) the ability to manage cash globally through intercompany activities;

(iii) the tax consequences of any decision to reinvest the earnings of foreign subsidiaries, including any changes in U.S.

tax law relating to the treatment of these unremitted earnings;

and (iv) any U.S.

and foreign government programs or regulations relating to the repatriation of these unremitted earnings.

As a result of the enactment of the TCJA in December 2017, our unremitted earnings became subject to a transition tax, which we paid with existing foreign tax credits.

We therefore no longer consider our unremitted earnings to be permanently reinvested.

Stock-based compensation

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When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk.

We used Level 2 inputs to determine the fair value of our Second Amended and Restated Credit Facility.

As of December 28, 2018, the carrying amount of the principal under the Second 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.

We paid off the Second Amended and Restated Credit Facility in June 2019 upon entering into the new revolving Credit Facility with Bank of America.

As of January 3, 2020, we used Level 3 inputs to determine the fair value of our 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 (see Note 16 - Acquisitions of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K).

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

The initial non-controlling interest value was implicit in the purchase price.

The Level 3 methodology we use to estimate the fair value of the non-controlling interests subject to these put provisions is based on an average multiple of earnings, taking into consideration historical earnings and other factors.

We used Level 2 inputs to determine the fair value of our First Amended and Restated Credit Facility.

The Company believes the carrying amount of its First Amended and Restated Credit Facility approximates the fair value at January 1, 2021 because, while subject to a minimum LIBOR floor rate, the interest rate approximates current market rates of debt with similar terms and comparable credit risk.

On August 17, 2020 we entered into an interest rate swap agreement to mitigate the cash flow risk associated with changes in interest rates on our variable rate debt.

Refer to N ote 1 1 - Derivatives and Hedging for additional details of the agreement.

In accordance with ASC 815, Derivatives and Hedging Interest rate swap contract is recognized as an asset or liability on the consolidated balance sheets and is measured at fair value.

The fair value was calculated utilizing Level 2 inputs.

On July 22, 2020, we, pursuant to a stock purchase agreement with Flagship, Inc., dated as of the same date, purchased the remaining 20% interest of FF US Holding Corp.

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

Refer to Note 1 2 - Commitments and Contingencies for additional details of this agreement.

Prior to the consummation of the stock purchase, the non-controlling interest was measured at fair value using Level 3 inputs.

Recent Accounting Pronouncements

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Under the new standard, revenue attributed to such pricing provisions is deferred and recognized when the right is exercised by the customer.

The Company recorded a cumulative effect adjustment of $0.4 million gross and $0.3 million net of taxes to the opening balance of retained earnings to reflect the cumulative effect of the adoption of the standard.

The Company recorded a cumulative effect adjustment of $0.4 million gross and $0.3 million net of taxes to the fiscal year 2018 opening balance of retained earnings to reflect the cumulative effect of the adoption of the standard.

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

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The Company did not use the hindsight practical expedient to adopt this guidance.

The Company recorded a cumulative effect adjustment of $13.6 million to operating lease right-of-use assets, $13.9 million to operating lease liabilities, and $0.3 million gross ($0.2 million net of taxes) to the opening balance of the Company's retained earnings to reflect the cumulative effect of the adoption of the standard.

The Company recorded a cumulative effect adjustment of $13.6 million to operating lease right-of-use assets, $13.9 million to operating lease liabilities, and $0.3 million gross ($0.2 million net of taxes) to the fiscal year 2019 opening balance of the Company's retained earnings to reflect the cumulative effect of the adoption of the standard.

This standard did not have a material impact on our consolidated income statements.

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Under this standard, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses.

This standard is effective for public companies for fiscal years beginning after December 15, 2019, including interim reporting periods within those years and early adoption is permitted.

The Company does not expect the impact of this adoption to be material.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows:

Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation of certain transactions, including but not limited to contingent consideration payments made after a business combination and debt prepayment and extinguishment costs in the cash flow statement.

The Company adopted ASU 2016-16 effective in the first quarter of fiscal year 2019.

The Company adopted ASU 2016-13 effective in the first quarter of fiscal year 2020 using the aging method, which calculates the allowance based on how long a receivable has been outstanding, taking into account the historical credit loss rate and adjusting for both current conditions and forecasts of economic conditions into that expected credit loss rate.

The adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements.

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This standard is effective for fiscal years beginning after December 15, 2019.

The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

The Company adopted ASU 2018-13 effective in the first quarter of fiscal year 2020.

The adoption of ASU 2018-13 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other:

Internal-Use Software, which helps simplify how entities evaluate the accounting for costs paid by a customer in a cloud computing arrangement that is a service contract.

This standard is effective for fiscal years beginning after December 15, 2019 and early adoption is permitted.

The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

This standard is effective for fiscal years beginning after December 15, 2019.

The Company adopted ASU 2018-15 effective in the first quarter of fiscal year 2020.

The adoption of ASU 2018-15 did not have a material impact on the Company's consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, which helps simplify how entities account for income taxes by removing various exceptions related to the recognition of deferred tax liabilities and updating other tax computation requirements.

This standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted.

This standard is effective for fiscal years beginning after December 15, 2020.

The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

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 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.

The Company adopted ASU 2020-04 effective in the first quarter of fiscal year 2020.

The adoption of ASU 2020-04 did not have a material impact on the Company's consolidated financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements ("ASU 2020-10").

The amendments in ASU 2020-10 contain improvements to the Codification by including disclosure guidance in appropriate disclosure and ensuring that all guidance that requires or provides an option for an entity to provide information in the notes to financial statements is codified in the Disclosure Section of the Codification.

The ASU also provides clarification to various codification topics to improve consistency in guidance application.

The amendments are effective for interim and annual reporting periods in fiscal years beginning after December 15, 2020, with early adoption permitted.

The Company is currently evaluating ASU 2020-10 and expects no material impact to our consolidated financial statements and related disclosures as a result of adoption.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis