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Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-11-10 · 84 added, 172 removed, 140 unchanged (65% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2020, as filed with the U.S.

Securities and Exchange Commission ("SEC") on March 3, 2020, and our other reports and registration statements that we file with the SEC from time to time.

In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs.

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• the outcome of pending litigation;

• our ability to adapt to the impact of certain changes in tax laws;

• future disruptions in the operations of our manufacturing facilities;

• our ability to adapt our business model to mitigate the impact of certain changes in tax laws;

• changes in the relative proportion of profit earned in the numerous jurisdictions in which we do business and in tax legislation, case law and other authoritative guidance in those jurisdictions;

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In addition to the risks, uncertainties and other factors discussed above and elsewhere in this Quarterly Report on Form 10-Q, the risks, uncertainties and other factors expressed or implied in Part I, Item 1A.

"Risk Factors" of our 2019 Annual Report on Form 10-K, as filed with the SEC on March 3, 2020, could cause or contribute to actual results differing materially from those set forth in any forward-looking statement.

"Risk Factors" of our 2020 Annual Report on Form 10-K, as filed with the SEC on February 25, 2021, could cause or contribute to actual results differing materially from those set forth in any forward-looking statement.

Moreover, we operate in a very competitive and challenging environment.

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Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

Recent Developments

Acquisition of SCA Performance, Inc.

On March 11, 2020, we, through Fox Factory, Inc., acquired 100% of the issued and outstanding stock of SCA Performance Holdings, Inc.

("SCA") from Southern Rocky Holdings, LLC for $329.5 million, net of cash acquired and exclusive of vehicle inventory.

SCA is a leading OEM authorized specialty vehicle manufacturer for light duty trucks and SUVs with headquarters in Trussville, Alabama.

In connection with the acquisition, we also agreed to an additional $10.6 million of contingent retention incentives for key SCA management, to be held in escrow and payable over the next two years in a combination of cash and stock.

Additionally, we paid $1.8 million in transaction compensation to key SCA management concurrently with the closing.

Secondary Stock Offering

In June 2020, we completed a secondary offering selling 2.8 million shares of common stock at a price of $76.00 per share for gross proceeds of $209.8 million.

The net proceeds to us after underwriters' discounts and commissions of $11.0 million and $0.5 million of offering costs was $198.2 million.

The total shares sold included 0.4 million shares that were sold in connection with the underwriters' option to purchase additional shares.

This offering was made pursuant to our registration statement on Form S-3.

Purchase of Non-controlling Interest

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 $25.0 million payable in a combination of stock and cash.

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

Critical Accounting Policies and Estimates

Beginning in the first quarter of fiscal year 2019, the Company adopted Accounting Standards Update No.

2016-02, Leases.

See Note 1 - Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies to the accompanying notes to unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details of this update.

As a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA" or "Tax Act") in December 2017, we believe that it is more likely than not that a portion of our foreign tax credits will not be realizable before their expiration and therefore provided a partial valuation allowance of $6.8 million against that tax asset.

As a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA" or "Tax Act") in December 2017, we believe that it is more likely than not that a portion of our foreign tax credits will not be realizable before their expiration and therefore have provided a partial valuation allowance of $6.8 million against that tax asset.

We reassess our projections and assumptions regarding the realization of our foreign tax credits periodically as changes in our business and tax regulations occur.

To the extent such a valuation allowance is established or reduced in a period, we reflect the change with a corresponding increase or decrease of our income tax provision in our consolidated statements of income.

There have been no material changes in the valuation allowance for foreign tax credits for the three and nine month periods ended October 2, 2020 or September 27, 2019.

There have been no other changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended January 3, 2020, as filed with the SEC on March 3, 2020, that have had a material impact on our condensed consolidated financial statements and related notes.

In the first quarter of 2021, the Company increased the forecast for additional revenue from Taiwan.

The additional revenue will generate foreign tax credits that the Company believes will render tax credits carried over from prior periods not be realizable before their expiration.

The Company has therefore added $3.0 million to the valuation allowance in the first quarter of 2021.

There have been no other changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended January 1, 2021, as filed with the SEC on February 25, 2021, that have had a material impact on our condensed consolidated financial statements and related notes.

Recent Accounting Pronouncements

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The table below summarizes our results of operations:

For the three months ended For the nine months ended

(in thousands) October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019

For the three months ended

(in thousands) April 2, 2021 April 3, 2020

Sales $ 281,136 $ 184,361

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Income from operations 45,856 11,567

Other expense, net:

Interest and other expense, net:

Interest expense 2,904 1,847

Other (income) expense (189) (37) (57) 532

Other expense, net 2,102 711 6,973 3,114

Other expense 959 62

Interest and other expense, net 3,863 1,909

Income before income taxes 41,993 9,658

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The following table sets forth selected statement of income data as a percentage of sales for the periods indicated:

For the three months ended For the nine months ended

October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019

For the three months ended

April 2, 2021 April 3, 2020

Sales 100.0 % 100.0 %

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Income from operations 16.3 6.3

Other expense, net:

Interest and other expense, net:

Interest expense 1.0 1.0

Other (income) expense (0.1) — — 0.1

Other expense, net 0.8 0.3 1.1 0.6

Other expense 0.3 —

Interest and other expense, net 1.4 1.0

Income before income taxes 14.9 5.2

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*Percentages may not foot due to rounding.

Three months ended October 2, 2020 compared to three months ended September 27, 2019

Three months ended April 2, 2021 compared to three months ended April 3, 2020

For the three months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

(in millions) April 2, 2021 April 3, 2020 Change ($) Change (%)

Powered Vehicle products $ 162.7 $ 120.5 $ 42.2 35.0 %

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Total sales $ 281.1 $ 184.3 $ 96.8 52.5 %

Total sales for the three months ended October 2, 2020 increased approximately $49.4 million, or 23.4%, compared to the three months ended September 27, 2019.

Powered Vehicle product sales increased by $23.0 million, or 17.7%, primarily due to the impact of our SCA subsidiary, which was acquired in March 2020.

Total sales for the three months ended April 2, 2021 increased approximately $96.8 million, or 52.5%, compared to the three months ended April 3, 2020.

Powered Vehicle product sales increased by $42.2 million, or 35.0%, primarily due to the impact of our SCA subsidiary, which was acquired in March 2020, and the continued success of our product lineup.

Additionally, Specialty Sports product sales increased by $54.6 million, or 85.5%, primarily due to increased demand in both the OEM and aftermarket channels.

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For the three months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

(in millions) April 2, 2021 April 3, 2020 Change ($) Change (%)

Cost of sales $ 183.2 $ 127.7 $ 55.5 43.5 %

Cost of sales for the three months ended October 2, 2020 increased approximately $29.7 million, or 21.0%, compared to the three months ended September 27, 2019.

Cost of sales for the three months ended April 2, 2021 increased approximately $55.5 million, or 43.5%, compared to the three months ended April 3, 2020.

The increase in cost of sales was primarily due to the 52.5% increase in sales in the same period, as well as certain business factors affecting gross margin which are discussed below.

For the three months ended October 2, 2020, our gross margin increased 130 basis points to 34.3% compared to 33.0% for the three months ended September 27, 2019.

For the three months ended April 2, 2021, our gross margin increased 410 basis points to 34.8% compared to 30.7% for the three months ended April 3, 2020.

The increase in gross margin was primarily due to favorable product and channel mix including the impact of the SCA acquisition.

Additionally, approximately $1.8 million of additional factory costs were incurred during the three months ended April 3, 2020 as compared to the three months ended April 2, 2021 due to mandated closures in response to COVID-19.

Operating expenses

For the three months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

(in millions) April 2, 2021 April 3, 2020 Change ($) Change (%)

Operating expenses:

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Total operating expenses $ 52.1 $ 45.0 $ 7.1 15.8 %

Total operating expenses for the three months ended October 2, 2020 were $43.9 million compared to $34.5 million for the three months ended September 27, 2019.

When expressed as a percentage of total sales, total operating expenses increased to 16.8% of total sales for the three months ended October 2, 2020 compared to 16.3% of total sales in the three months ended September 27, 2019.

The increase in operating expenses is primarily due to SCA related costs, including acquisition costs, operating costs and amortization expense.

Within operating expenses, our sales and marketing expenses increased approximately $2.0 million primarily due to $2.4 million of costs associated with our SCA subsidiary, partially offset by reduced spending on trade shows and race events.

Research and development costs increased approximately $0.1 million.

General and administrative expenses increased by approximately $3.7 million resulting from various factors including SCA acquisition-related compensation costs of approximately $1.3 million and the inclusion of SCA operating costs of $1.9 million as well as higher headcount costs as we expand our administrative support functions.

These increases were partially offset by decreases in various other costs.

Amortization of purchased intangibles for the three months ended October 2, 2020 increased by approximately $3.6 million as compared to the three months ended September 27, 2019.

Total operating expenses for the three months ended April 2, 2021 were $52.1 million compared to $45.0 million for the three months ended April 3, 2020.

When expressed as a percentage of total sales, total operating expenses decreased to 18.5% of total sales for the three months ended April 2, 2021 compared to 24.4% of total sales in the three months ended April 3, 2020.

The increase in operating expenses is primarily due to the inclusion of a full quarter of SCA related costs, including operating costs and amortization expense, as well as higher employee related expenses and various other costs, partially offset by lower acquisition related costs.

Within operating expenses, our sales and marketing expenses increased approximately $4.8 million primarily due to SCA costs of $3.3 million, employee related expenses of $1.0 million, and various others.

Research and development costs increased approximately $1.9 million primarily due to investments to support future growth and product innovation.

General and administrative expenses decreased by approximately $2.0 million due to various factors including a decrease in acquisition related costs of $9.9 million, partially offset by higher headcount and incentive compensation costs of $4.7 million as we continue to expand our administrative support functions, the inclusion of a full quarter of SCA operating costs of $1.4 million and various other costs.

Amortization of purchased intangibles for the three months ended April 2, 2021 increased by approximately $2.4 million as compared to the three months ended April 3, 2020.

The increase is primarily due to the amortization of intangible assets obtained through our acquisition of SCA.

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For the three months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

(in millions) April 2, 2021 April 3, 2020 Change ($) Change (%)

Income from operations $ 45.9 $ 11.6 $ 34.3 295.7 %

As a result of the factors discussed above, income from operations for the three months ended October 2, 2020 increased approximately $10.2 million, or 28.8%, compared to income from operations for the three months ended September 27, 2019.

Other expense, net

As a result of the factors discussed above, income from operations for the three months ended April 2, 2021 increased approximately $34.3 million, or 295.7%, compared to income from operations for the three months ended April 3, 2020.

Interest and other expense, net

For the three months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

Other expense, net:

(in millions) April 2, 2021 April 3, 2020 Change ($) Change (%)

Interest and other expense, net:

Interest expense $ 2.9 $ 1.8 $ 1.1 61.1 %

Other (income) expense (0.2) — (0.2) NA

Other expense, net $ 2.1 $ 0.7 $ 1.4 200.0 %

Other expense, net for the three months ended October 2, 2020 increased by $1.4 million to $2.1 million compared to $0.7 million for the three months ended September 27, 2019.

The increase in other expense, net is primarily due to interest expense on additional borrowings in connection with our March 2020 acquisition of SCA.

Other expense 1.0 0.1 0.9 900.0 %

Interest and other expense, net $ 3.9 $ 1.9 $ 2.0 105.3 %

Interest and other expense, net for the three months ended April 2, 2021 increased by $2.0 million to $3.9 million compared to $1.9 million for the three months ended April 3, 2020.

The increase in interest and other expense, net is primarily due to interest expense on additional borrowings in connection with our March 2020 acquisition of SCA and higher foreign exchange losses.

For the three months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

(in millions) April 2, 2021 April 3, 2020 Change ($) Change (%)

Provision for income taxes $ 4.0 $ 0.9 $ 3.1 344.4 %

The effective tax rates were 12.5% and 12.9% for the three months ended October 2, 2020 and September 27, 2019, respectively.

For the three months ended October 2, 2020, the difference between our effective tax rate of 12.5% and the 21% federal statutory rate resulted primarily from lower foreign tax rates, a lower tax rate on foreign derived intangible income, research and development credits, realization of foreign tax credits, and $3.1 million of excess tax benefit related to stock based compensation.

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

For the three months ended September 27, 2019, the difference between our effective tax rate of 12.9% and the 21% federal statutory rate resulted primarily from lower foreign tax rates, lower effective federal rates on foreign derived intangible income, research and development credits, and $1.9 million of excess benefits related to stock-based compensation.

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

The effective tax rate for the three months ended October 2, 2020 decreased as compared to the same period in 2019 primarily as a result of excess stock based compensation deductions, an increase in foreign derived intangible income, and realization of foreign tax credit, partially offset by an increase in global low-tax intangible income tax and nondeductible expenses.

The effective tax rate was 9.5% for the three month periods ended April 2, 2021 and April 3, 2020.

For the three months ended April 2, 2021, the difference between the Company's effective tax rate of 9.5% and the 21% federal statutory rate resulted primarily from windfall on stock based compensation, the recognition of uncertain tax positions due to the conclusion of an audit and a lower tax rate on foreign derived intangible income.

These benefits were partially offset by an increase in the valuation allowance for foreign tax credits, state taxes and non-deductible expenses.

For the three months ended April 3, 2020, the difference between our effective tax rate of 9.5% and the 21% federal statutory rate resulted primarily from a negotiated reduction of Switzerland withholding tax on prior year earnings.

These benefits were partially offset by state taxes, global low-tax intangible income, nondeductible expenses, and an excess benefit related to stock-based compensation

For the three months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

Net income $ 38.0 $ 30.2 $ 7.8 25.8 %

As a result of the factors described above, our net income increased $7.8 million, or 25.8%, to $38.0 million in the three months ended October 2, 2020 from $30.2 million for the three months ended September 27, 2019.

Nine months ended October 2, 2020 compared to nine months ended September 27, 2019

For the nine months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

Powered Vehicle products $ 372.1 $ 342.0 $ 30.1 8.8 %

Specialty Sports products 256.1 223.1 33.0 14.8

Total sales $ 628.2 $ 565.1 $ 63.1 11.2 %

Total sales for the nine months ended October 2, 2020 increased approximately $63.1 million, or 11.2%, compared to the nine months ended September 27, 2019.

Powered Vehicle product sales increased by $30.1 million, or 8.8%, primarily due to the SCA acquisition and strength in the aftermarket channel, partially offset by impacts of the COVID-19 pandemic on our OEM customers.

Additionally, Specialty Sports product sales increased by $33.0 million, or 14.8%, primarily due to increased demand in both the OEM and aftermarket channels.

Cost of sales

For the nine months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

Cost of sales $ 422.1 $ 382.0 $ 40.1 10.5 %

Cost of sales for the nine months ended October 2, 2020 increased approximately $40.1 million, or 10.5%, compared to the nine months ended September 27, 2019.

The increase in cost of sales was primarily due to the 11.2% increase in sales during the same period.

For the nine months ended October 2, 2020, our gross margin increased 40 basis points to 32.8% compared to 32.4% for the nine months ended September 27, 2019.

The increase in year-to-date gross margin was primarily due to the impact of the SCA acquisition and a change in product and channel mix partially offset by incremental cost due to government mandated closures in response to the COVID-19 pandemic.

Operating expenses

For the nine months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

Operating expenses:

Sales and marketing $ 38.3 $ 32.2 $ 6.1 18.9 %

Research and development 24.8 23.4 1.4 6.0

General and administrative 53.4 36.1 17.3 47.9

Amortization of purchased intangibles 13.1 4.7 8.4 178.7

Total operating expenses $ 129.6 $ 96.4 $ 33.2 34.4 %

Total operating expenses for the nine months ended October 2, 2020 were $129.6 million compared to $96.4 million for the nine months ended September 27, 2019.

When expressed as a percentage of total sales, total operating expenses increased to 20.6% of total sales for the nine months ended October 2, 2020 compared to 17.1% of total sales in the nine months ended September 27, 2019.

The increase in operating expenses is primarily due to SCA related costs, including acquisition-related costs, operating costs and amortization expense, partially offset by reductions in various other expenses.

Within operating expenses, our sales and marketing expenses increased approximately $6.1 million primarily due to costs related to SCA of $5.8 million and higher personnel and commission expenses of $2.5 million, which were partially offset by reduced spending on trade shows and race events.

Research and development costs increased approximately $1.4 million primarily due to personnel investments and facility-related expense related to the Company's expanding Technology Center in Georgia, partially offset by reductions in other various expenses.

General and administrative expenses increased by approximately $17.3 million resulting from various factors including acquisition-related costs of approximately $12.9 million and the inclusion of SCA operating costs of $4.0 million, as well as increases in various other costs as the Company expands its administrative support functions.

Amortization of purchased intangibles for the nine months ended October 2, 2020 increased by approximately $8.4 million as compared to the nine months ended September 27, 2019.

The increase is primarily due to the amortization of intangible assets obtained through our acquisition of SCA.

Income from operations

For the nine months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

Income from operations $ 76.5 $ 86.7 $ (10.2) (11.8) %

As a result of the factors discussed above, income from operations for the nine months ended October 2, 2020 decreased approximately $10.2 million, or 11.8%, compared to income from operations for the nine months ended September 27, 2019.

Other expense, net

For the nine months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

Other expense, net:

Interest expense $ 7.0 $ 2.6 $ 4.4 169.2 %

Other (income) expense (0.1) 0.5 (0.6) (120.0)

Other expense, net $ 6.9 $ 3.1 $ 3.8 122.6 %

Other expense, net for the nine months ended October 2, 2020 increased by $3.8 million to $6.9 million compared to $3.1 million for the nine months ended September 27, 2019.

The increase in other expense, net is primarily due to additional interest expense incurred on additional borrowings in connection with the Company's acquisition of SCA in March 2020.

For the nine months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

Provision for income taxes $ 9.6 $ 11.6 $ (2.0) (17.2) %

The effective tax rates were 13.7% and 13.9% for the nine months ended October 2, 2020 and September 27, 2019, respectively.

For the nine months ended October 2, 2020, the difference between our effective tax rate of 13.7% and the 21% federal statutory rate resulted primarily from lower foreign tax rates, a lower tax rate on foreign derived intangible income, research and development credits, a negotiated reduction of Switzerland withholding tax on prior year earnings, realization of foreign tax credits, and $3.8 million from excess tax benefits related to stock-based compensation.

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

For the nine months ended September 27, 2019, the difference between our effective tax rate of 13.9% and the 21% federal statutory rate resulted primarily from lower foreign tax rates, lower effective federal rates on foreign derived intangible income, research and development credits, and $5.5 million of excess benefits related to stock-based compensation.

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

The effective tax rate for the nine months ended October 2, 2020 decreased as compared to the same period in 2019 primarily as a result of an increase in foreign derived intangible income, realization of foreign tax credits, and a negotiated reduction of Switzerland withholding tax on prior year earnings partially offset by a decrease in excess stock based compensation deductions and increase in nondeductible expenses.

For the nine months ended

(in millions) October 2, 2020 September 27, 2019 Change ($) Change (%)

(in millions) April 2, 2021 April 3, 2020 Change ($) Change (%)

Net income $ 38.0 $ 8.7 $ 29.3 336.8 %

As a result of the factors described above, our net income decreased $11.9 million, or 16.6%, to $60.0 million in the nine months ended October 2, 2020 from $71.9 million for the nine months ended September 27, 2019.

As a result of the factors described above, our net income increased $29.3 million, or 336.8%, to $38.0 million in the three months ended April 2, 2021 from $8.7 million for the three months ended April 3, 2020.

Liquidity and Capital Resources

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A summary of our operating, investing and financing activities are shown in the following table:

For the nine months ended

(in thousands) October 2, 2020 September 27, 2019

Net cash provided by operating activities $ 99,801 $ 30,924

For the three months ended

(in thousands) April 2, 2021 April 3, 2020

Net cash provided by (used in) operating activities $ 66,028 $ (33,485)

Net cash used in investing activities (16,885) (342,050)

Net cash provided by financing activities 510,019 5,841

Net cash (used in) provided by financing activities (3,752) 408,332

Effect of exchange rate changes on cash and cash equivalents 316 (351)

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Operating activities

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

In the nine months ended October 2, 2020, net cash provided by operating activities was $99.8 million and consisted of net income of $60.0 million, plus non-cash items totaling $20.4 million and less changes in operating assets and liabilities totaling $19.5 million.

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

In the three months ended April 2, 2021, net cash provided by operating activities was $66.1 million and consisted of net income of $38.0 million, plus non-cash items totaling $12.6 million and changes in operating assets and liabilities totaling $15.5 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $10.1 million, stock-based compensation of $2.5 million, and amortization of loan fees of $0.4 million, offset by a $0.4 million change in deferred taxes and uncertain tax positions.

Our investment in operating assets and liabilities is a result of increased prepaids and other current assets of $14.7 million, accounts receivable of $12.6 million, and inventory of $0.6 million, offset by increases in accounts payable of $36.7 million, increases in accrued expenses of $7.5 million, and income taxes of $3.2 million.

The change 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 recently acquired SCA subsidiary.

The changes in inventory, accounts receivable, and accounts payable reflect seasonality as well as timing of vendor payments.

Our investment in operating assets and liabilities is a result of increased inventory of $40.1 million, and accounts receivable of $16.6 million, offset by a decrease in prepaids and other current assets of $33.3 million, and increases in accounts payable of $33.7 million, accrued expenses of $2.9 million, and income taxes of $2.3 million.

The decrease in prepaids and other current assets is primarily due to timing of chassis deposits at our SCA and Tuscany subsidiaries.

The changes in inventory, accounts receivable, and accounts payable reflect business growth.

The changes in accrued expenses and income taxes are primarily attributable to the timing of rebate payments and the timing of tax payments, respectively.

In the nine months ended September 27, 2019, net cash provided by operating activities was $30.9 million and consisted of net income of $71.9 million, plus non-cash items totaling $13.0 million and less changes in operating assets and liabilities totaling $54.0 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $13.0 million, stock-based compensation of $5.0 million, and loss on the extinguishment of debt of $0.5 million, offset by a $5.5 million change in deferred taxes and uncertain tax positions.

Our investment in operating assets and liabilities is a result of increases in accounts receivable of $28.3 million, inventory of $20.3 million, and prepaids and other assets of $7.6 million, and decreases in accrued expenses of $0.2 million and income taxes of $7.4 million, partially offset by an increase in accounts payable of $9.8 million.

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

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

In the three months ended April 3, 2020, net cash used in operating activities was $33.5 million and consisted of net income of $8.7 million, plus non-cash items totaling $0.5 million and less changes in operating assets and liabilities totaling $41.7 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $5.8 million, stock-based compensation of $1.9 million, and amortization of loan fees of $0.4 million, offset by a $8.6 million change in deferred taxes and uncertain tax positions.

Our investment in operating assets and liabilities is a result of increased prepaids and other current assets of $61.7 million, inventory of $22.4 million, and decreases in accrued expenses of $3.2 million, offset by decreases in accounts receivable of $14.4 million, increases in accounts payable of $30.3 million and income taxes of $0.9 million.

The change 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 March 2020 SCA subsidiary acquisition.

The changes in inventory, accounts receivable, and accounts payable reflect the impact of mandated shutdowns in response to COVID-19 on our shipment, collection and payment cycles.

The changes in accrued expenses and income taxes are primarily attributable to seasonality and the timing of tax payments.

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 procurement of property and equipment.

In the nine months ended October 2, 2020 and September 27, 2019, net cash used in investing activities was $375.4 million and $32.7 million, respectively.

Investing activities for the nine months ended October 2, 2020 consisted of $329.2 million of cash consideration for our acquisition of SCA, $46.0 million of property and equipment additions and $0.3 million of acquisition of other assets.

Our investing activities for the nine months ended September 27, 2019 consisted of $25.9 million of property and equipment additions and $6.8 million of cash consideration for our acquisition of Ridetech.

In the three months ended April 2, 2021 and April 3, 2020, net cash used in investing activities was $16.9 million and $342.1 million, respectively.

Investing activities for the three months ended April 2, 2021 consisted of $16.9 million of property and equipment additions.

Our investing activities for the three months ended April 3, 2020 consisted of $329.2 million of cash consideration for our acquisition of SCA and $12.8 million of property and equipment additions.

Financing activities

Cash provided by financing activities primarily relates to various forms of debt and equity instruments used to finance our business.

In the nine months ended October 2, 2020, net cash provided by financing activities was $510.0 million, which consisted 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 $4.6 million to repurchase shares of our common stock as part of our stock-based compensation program and $3.0 million in installment payments related to the purchase of the Tuscany non-controlling interest.

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

In the nine months ended September 27, 2019, net cash provided by financing activities was $5.8 million, which consisted of $67.5 million in proceeds from our line of credit, partially offset by $52.1 million paid on our line of credit and $2.8 million paid on our term debt.

In addition, we paid $6.8 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, as part of our stock-based compensation program.

Former Second Amended and Restated Credit Facility

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").

Cash used in or provided by financing activities primarily relates to various forms of debt and equity instruments used to finance our business.

In the three months ended April 2, 2021, net cash used in financing activities was $3.8 million, which consisted of payments on our term debt of $2.5 million and $1.9 million in installment payments related to the purchase of the Tuscany non-controlling interest.

These outflows were partially offset by $0.6 million in net proceeds received as part of our stock-based compensation program.

Refer to Note 9 - Commitments and Contingencies for additional information on our purchase of the Tuscany non-controlling interest.

In the three months ended April 3, 2020, net cash provided by financing activities was $408.3 million, which consisted of $393.4 million in proceeds, net of issuance costs, from our credit facility entered into in June 2019 with Bank of America and other named lenders, which was amended and restated in connection with our acquisition of SCA, as well as net draws of $17.0 million from our line of credit.

In addition, we paid $2.1 million to repurchase shares of our common stock, as part of our stock-based compensation program.

First Amended and Restated Credit Facility

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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 other expense, net on the condensed consolidated statements of income for the six months ended October 2, 2020 and the remaining $0.2 million were allocated to the line of credit.

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 three months ended April 3, 2020 and the remaining $0.2 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%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 1.25% with a floor rate of 0.50%.

At October 2, 2020, the one-month LIBOR and prime rates were 0.14% and 3.25%, respectively.

At October 2, 2020, our weighted-average interest rate on outstanding borrowing was 1.87%.

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 April 2, 2021, the one-month LIBOR and prime rates were 0.11% and 3.25%, respectively.

At April 2, 2021, our weighted-average interest rate on outstanding borrowing was 1.87%.

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 October 2, 2020.

Hall County, Georgia Project - Phase 1

As previously announced on October 31, 2018, the Company is expanding its manufacturing and operations capacity and relocating the Company’s headquarters to Hall County, Georgia.

The Company plans to invest approximately $55.9 million in capital expenditures and employ up to 800 personnel over the next five years, dependent on market and general economic conditions in Georgia.

The first phase of the project was completed in August 2020 at a cost of approximately $47.3 million.

The Company currently estimates that the second phase of the project will be completed in late 2021.

The amount of any such capital expenditures is subject to change depending on the circumstances and the scope of the project.

The Company was in compliance with the covenants as of April 2, 2021.

Off-Balance Sheet Arrangements

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However, significant increases in inflation, particularly those related to wages and increases in the cost of raw materials, could have an adverse impact on our business, financial condition and results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the disclosures discussed in the section “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended January 1, 2021, as filed with the SEC on February 25, 2021.

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 2. Management’s Discussion and Analysis