What changed in this filing

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Item 1A. Risk Factors

2021-05-06 compared with 2020-11-10 · 248 added, 180 removed, 369 unchanged (54% of the section changed)

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In that event, the trading price of our common stock could decline.

Risks related to our business

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

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

Summary of Risk Factors

The risks described below include, but are not limited to, the following:

Risks Related to Our Business and Operations

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

• failure to effectively compete against competitors, enhance existing products or develop, manufacture and market new products that respond to consumer needs and preferences and achieve market acceptance could result in a decrease in demand for our products and negatively impact our business and financial results;

• our performance-defining products, and the bike and powered vehicles into which they are incorporated, are discretionary purchases and may be adversely impacted by changes in the economy, a shrinking market for these powered vehicles, or a material decline in demand for the high-end bikes that make up a significant portion of our sales;

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

• a disruption in the operations of our facilities, such as work stoppages, or delays in our planned expansion of certain facilities, could have a negative effect on our business, financial condition or results of operations;

• our business depends substantially on our ability to attract and retain experienced and qualified talent, including our senior management team;

• we may not be able to sustain our past growth or successfully implement our growth strategy, which may have a negative effect on our business, financial condition or results of operations;

• the loss of the support of professional athletes for our products, or the inability to attract new professional athletes or disruption in relationships with dealers and distributors may harm our business;

• our business is dependent in large part on the orders we receive from our OEM customers and from their success.

The loss of all or a substantial portion of our sales to any of these customers could have a material adverse impact on us and our results of operations;

• our international operations are exposed to risks associated with conducting business globally, including currency exchange rate fluctuations and policies related to global trade and tariffs;

• if we are unable to enforce our intellectual property rights, our reputation and sales could be adversely affected, while intellectual property disputes could lead to significant costs or the inability to sell products;

• if we inaccurately forecast demand for our products, we may manufacture insufficient or excess quantities or our manufacturing costs could increase, which could adversely affect our business;

• product recalls, and significant product repair and/or replacement due to product warranty costs and claims have had, and in the future, could have, a material adverse impact on our business;

• an adverse determination in any material product liability claim against us could adversely affect our operating results or financial condition;

• we are subject to certain risks in our manufacturing and in the testing of our products;

• fuel shortages, or high prices for fuel, could have a negative effect on the use of powered vehicles that use our products;

• we rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions.

If our information systems fail to perform these functions adequately, if we or our vendors or commercial partners experience an interruption in our operations, or if we are impacted by cybersecurity attacks, our business could suffer;

• our dependency on a limited number of suppliers for materials, product parts, and vehicle chassis could lead to an increase in material costs, disruptions in our supply chain, or reputational costs;

• we have grown and may continue to grow in the future through acquisitions and we may not be able to effectively integrate businesses we acquire or we may not be able to identify or complete any future acquisitions on favorable terms, or at all;

• our operating results are subject to quarterly variations in our sales, which could make our operating results difficult to predict and could adversely affect the price of our common stock;

• growth in our sales and the mix of domestic versus export shipments from Taiwan could cause additional foreign tax credits to not be realizable, potentially reducing our income and adversely affecting our cash flows;

Risks Related to Our Indebtedness and Liquidity

• our First Amended and Restated Credit Facility places operating restrictions on us and creates default risks, and the variable rate makes us more vulnerable to increases in interest rates;

• we will continue to have the ability to incur debt and our levels of debt may affect our operations and our ability to pay the principal of and interest on our debt;

• we may incur losses on interest rate swap and hedging arrangements;

Risks Related to Laws and Regulations

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

• we are subject to extensive U.S.

federal and state, foreign and international safety, environmental, employment practices and other government regulations that may require us to incur expenses or modify product offerings in order to maintain compliance with such regulation, which could have a negative effect on our business and results of operations;

• unpredictability in increasingly stringent emission standards and increasing focus on environmental, social and governance responsibility, including climate change, may impose additional costs and new risks on us;

• we are subject to employment practice laws and regulations, and, as such, are exposed to litigation risks;

and we may incur higher employee costs in the future;

• we retain certain personal information about individuals and are subject to various privacy and consumer protection laws;

• our vendors and any potential commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements;

Risks Related to Ownership of Our Common Stock

• potential volatility in our trading price, publications by securities or industry analysts, and future issuances, sales, and the perception of such could cause our stock price and trading volume to decline;

• anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our Company;

• our Amended and Restated Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees;

General Risk Factors

• failure of our internal control over financial reporting could adversely affect our business and financial results.

RISKS RELATED TO OUR BUSINESS AND OPERATIONS

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

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

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

Government in March 2020.

Government in March 2020 and has resulted in over two and a half million deaths worldwide, as of the date of filing this Quarterly Report, and continues to spread in major markets in which we operate.

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

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

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

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

These impacts include, but are not limited to:

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

increases in COVID-19 case counts;

any additional waves of the virus;

availability and ultimate efficacy of the vaccine on new variants of the virus;

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

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Our business depends substantially on global economic and market conditions.

In particular, we believe that currently a significant majority of the end users of our products live in the United States and countries in Europe.

In particular, we believe that currently a significant majority of the end users of our products live in the U.S.

and countries in Europe.

These areas have historically experienced recessions, disruptions in banking and/or financial systems, economic weakness and uncertainty.

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For example, we sponsor a number of professional athletes and professional race teams.

In order to continue to enhance our brand image, we will need to maintain our position in the performance-defining products industry and continue to provide high-quality products and services.

In addition, we will need to continue to invest in sponsorships, marketing and public relations.

There can be no assurance, however, that we will be able to maintain or enhance the strength of our brands in the future.

In order to continue to enhance our brand image, we will need to maintain our position in the performance-defining products industry, continue to provide high-quality products and services, and preserve our reputation.

The rising popularity of social media and other consumer-oriented technologies creates new risks and challenges that could cause damage to our brands and reputation.

Social media platforms make it easy for anyone to provide public feedback that can influence perceptions of our brands, and social media platforms can also accelerate and potentially amplify the scope of negative publicity.

There can be no assurance that we will be able to maintain or enhance the strength of our brands in the future.

Our brands could be adversely impacted by, among other things:

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• high profile component failures (such as a component failure during a race on a mountain bike ridden by an athlete that we sponsor);

• negative publicity regarding our sponsored athletes;

• negative publicity regarding our brand or our sponsored athletes, which could be amplified on social media;

• high profile injury or death to one of our sponsored athletes;

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• changes in consumer trends and perceptions;

• lack of investment in sponsorships, marketing and public relations.

Any adverse impact on our brand could in turn negatively affect our business, financial condition or results of operations.

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

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

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

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

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

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

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

Additionally, the Company may pursue new customers and markets.

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In connection with this move, we are utilizing, and expect to continue to use, suppliers who are located closer to our facility in Taichung, Taiwan for a number of materials and components.

With the transition of our entire bike suspension component manufacturing to Taichung, Taiwan, we converted the Watsonville manufacturing facility to be a powered vehicle suspension products manufacturing location exclusively.

In addition, we are 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.

In 2020, we substantially completed the first phase of 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 will be used for manufacturing, warehousing, distribution and office space.

In the future, we may move additional manufacturing operations as we re-balance existing facilities or expand to new manufacturing locations.

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

A significant portion of our goods move through ports on the Western Coast of the United States.

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

A significant portion of our goods move through ports on the Western Coast of the U.S.

We have a global supply chain and we import products from our third-party vendors as well as our Fox Taiwan facility into the U.S.

largely through ports on the West Coast.

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

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Dennison or any other key employees.

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

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

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

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The loss of all or a substantial portion of our sales to any of these customers, whether through the temporary or permanent discontinuation of their products which incorporate our products or otherwise, or the loss of market share by these customers could have a material adverse impact on us and our results of operations.

Sales attributable to our five largest OEM customers, which can vary from year to year, collectively accounted for approximately 32% of our sales in fiscal years 2019, 2018 and 2017.

The loss of all or a substantial portion of our sales to any of these OEM customers, whether through the temporary or permanent discontinuation of their products which incorporate our products or otherwise, or the loss of market share by these customers could have a material adverse impact on our business, financial condition or results of operations.

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

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

Sales attributable to our five largest OEM customers, which can vary from year to year, collectively accounted for approximately 23%, 32%, and 32% of our sales in fiscal years 2020, 2019, and 2018.

The loss of all or a substantial portion of our sales to any of these OEM customers, whether through the temporary or permanent discontinuation of their products which incorporate our products or otherwise, the loss of market share by these customers, manufacturing or other problems, including disruptions related to COVID-19, could have a material impact on our business, financial condition or results of operations.

Currency exchange rate fluctuations could impact gross margins and expenses.

Foreign currency fluctuations could in the future have an adverse effect on our business, financial condition or results of operations.

We sell our products inside and outside of the United States primarily in U.S.

We sell our products inside and outside of the U.S.

primarily in U.S.

Dollars and New Taiwan Dollars.

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Our international operations are exposed to risks associated with conducting business globally.

As a result of our international presence, we are exposed to increased risks inherent in conducting business outside of the United States.

As a result of our international presence, we are exposed to increased risks inherent in conducting business outside of the U.S.

In addition to foreign currency risks, these risks include:

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Foreign Corrupt Practices Act, local international environmental, health and safety laws, and increasingly complex regulations relating to the conduct of international commerce;

• increased difficulty in controlling and monitoring foreign operations from the United States, including increased difficulty in identifying and recruiting qualified personnel for our foreign operations;

• increased difficulty in controlling and monitoring foreign operations from the U.S., including increased difficulty in identifying and recruiting qualified personnel for our foreign operations;

• increased difficulty in staffing and managing foreign operations or international sales.

An adverse change in any of these conditions could have a negative effect upon our business, financial condition or results of operations.

policies related to global trade and tariffs could have a material adverse effect on our results of operations.

The current domestic and international political environment, including existing and potential changes to U.S.

policies related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy.

In 2018, the U.S.

imposed tariffs of 25 percent on steel and 10 percent on aluminum, with only a handful of countries exempt from the increase.

Since the beginning of the Trump Administration, the United States and China have imposed a variety of tariffs on most goods traded between the two countries, though a January 2020 trade deal has lessened the threat of further escalation.

The United States has imposed tariffs on products from the European Union as a result of a dispute at the World Trade Organization.

The European Union was recently authorized to impose similar tariffs on products from the United States.

Plans by the United States to impose tariffs on global imports of automobiles and auto parts appear to be on hold for now.

While we have limited exposure to implemented tariffs at this time, any expansion in the types of tariffs implemented has the potential to negatively impact our supply chain costs as well as the operating performance of our customers, thus negatively affecting our sales, gross margin and operating performance.

Additionally, there is a risk that the U.S.

tariffs on imports could be met with additional retaliatory tariffs on U.S.

produced exports and that the broader trade uncertainty could intensify.

This has the potential to significantly impact global trade and economic conditions in many of the regions where we do business and have a material adverse effect on our results of operations.

Our sales could be adversely impacted by the disruption or cessation of sales by other bike component manufacturers or if other bike component manufacturers enter into the specialty bike component market.

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and various foreign patent offices.

Additionally, we have registered or have applied for trademarks and service marks with the United States Patent and Trademark Office and a number of foreign countries, including the marks FOX ® , FOX RACING SHOX ® , RACE FACE ® and REDEFINE YOUR LIMITS ® , to be used with certain goods and services.

Additionally, we have registered or have applied for trademarks and service marks with the U.S.

Patent and Trademark Office and a number of foreign countries, including the marks FOX ® , FOX RACING SHOX ® , RACE FACE ® and REDEFINE YOUR LIMITS ® , to be used with certain goods and services.

When appropriate, we may from time to time assert our rights against those who infringe on our patents, trademarks, trade dress, or other intellectual property.

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If our efforts to develop and enforce our intellectual property are unsuccessful, or if a third party misappropriates our rights, this may adversely affect our business, financial condition or results of operations.

Additionally, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States, and it may be more difficult for us to successfully challenge the use of our proprietary rights by other parties in these countries.

Additionally, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the U.S., and it may be more difficult for us to successfully challenge the use of our proprietary rights by other parties in these countries.

Furthermore, other competitors may be able to successfully produce products that imitate certain of our products without infringing upon any of our patents, trademarks or trade dress.

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If we incorrectly forecast demand, we may incur capacity issues in our manufacturing plant and supply chain, increased material costs, increased freight costs, additional overtime, and costs associated with excess inventory, all of which in turn adversely impact our cost of sales and our gross margin.

Economic weakness and uncertainty in the United States, Europe and other countries may make accurate forecasting particularly challenging.

Economic weakness and uncertainty in the U.S., Europe and other countries may make accurate forecasting particularly challenging.

In the future, if actual demand for our products exceeds forecasted demand, the margins on our incremental sales in excess of anticipated sales may be lower due to temporary higher costs, which could result in a decrease in our overall margins.

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We have had in the past, and may have in the future, recalls (both voluntary and involuntary) of our products or of items that incorporate our products.

For example, in October 2016, we initiated a voluntary recall of certain bicycle Float X2 shock absorber products.

Most recently, in May 2017, we announced a voluntary recall of approximately 2,500 of FOX's Harley Davidson specific aftermarket motorcycle shock absorbers.

In the case of OEM sales, each manufacturer has its own practices regarding product recalls and other product liability actions that could involve its suppliers.

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Any losses that we may suffer from any product liability claims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may have a negative impact on our business, financial condition or results of operations.

Our credit facility places operating restrictions on us and creates default risks.

Our credit facility contains covenants that place restrictions on our operating activities.

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

As of April 2, 2021, we employed approximately 3,240 full-time employees worldwide, a large percentage of which work at our manufacturing facilities.

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

Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur in one of our facilities.

In addition, prior to the introduction of new products, our employees test the products under rigorous conditions, which involve the risk of injury or death.

Any accident could result in manufacturing or product delays, which could negatively affect our business, financial condition or results of operations.

The outcome of litigation is difficult to assess or quantify and the cost to defend litigation can be significant.

As a result, the costs to defend any action or the potential liability resulting from any such accident or death or arising out of any other litigation, and any negative publicity associated therewith, could have a negative effect on our business, financial condition or results of operations.

Fuel shortages, or high prices for fuel, could have a negative effect on the use of powered vehicles that use our products.

Gasoline or diesel fuel is required for the operation of the powered vehicles that use our products.

There can be no assurance that the supply of these fuels will continue uninterrupted, that rationing will not be imposed or that the price of or tax on these petroleum products will not significantly increase in the future.

Future shortages of gasoline and diesel fuel and substantial increases in the price of fuel could have a material adverse effect on our powered vehicle product category, which could have a negative effect on our business, financial condition or results of operations.

We do not control our suppliers, OEMs, other customers or partners, or require them to comply with a formal code of conduct, and actions that they might take could harm our reputation and sales.

We do not control our suppliers, OEMs, other customers or partners, or their labor, environmental or other practices.

A violation of labor, environmental, intellectual property or other laws by our suppliers, OEMs, other customers or partners, or a failure of these parties to follow generally accepted ethical business practices, could create negative publicity and harm our reputation.

In addition, we may be required to seek alternative suppliers or partners if these violations or failures were to occur.

We do not inspect or audit compliance of our suppliers, OEMs, customers or partners with these laws or practices, and we do not require our suppliers, OEMs, customers or partners to comply with a formal code of conduct.

Any conduct or actions that our suppliers could take could reduce demand for our products, harm our ability to meet demand or harm our reputation, brand image, business, financial condition or results of operations.

We may incur higher employee costs in the future.

We are subject to government-mandated wage and benefit laws and regulations in many varying countries and jurisdictions.

For example, the State of California, where a substantial number of our employees are located, has passed legislation designed to raise the statewide minimum wage gradually until it reaches $15.00 per hour in 2022.

Under the California law, signed on April 4, 2016, the minimum wage increased to $11.00 per hour effective January 1, 2018, and will gradually increase each calendar year through January 1, 2022, when it will reach $15.00 per hour.

Additionally, in 2021, the U.S.

Congress is considering whether to pass national minimum wage legislation.

As we expand internationally, we are also subject to applicable laws in each such jurisdiction.

Increases in the mandated wage in any or all of the jurisdictions in which we operate could subject us to increased costs, thereby impacting our business, financial condition, or results of operations.

We maintain a self-insured healthcare plan for our employees based in the U.S.

We have insurance coverage in place for individual claims above a specified amount in any year.

Inflation in healthcare costs, as well as additional costs we may incur as a result of current or future federal or state healthcare legislation and regulations, could significantly increase our employee healthcare costs in the future.

Continued increases in our employee costs could adversely affect our earnings, financial condition and liquidity.

We rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions.

If our information systems fail to perform these functions adequately or if we experience an interruption in our operations, our business could suffer.

All of our major operations, including manufacturing, distribution, sales and accounting, are dependent upon our complex information systems.

Our information systems are vulnerable to damage or interruption from, among other things:

• earthquake, fire, flood, hurricane and other natural disasters;

• power loss, computer systems failure, internet and telecommunications or data network failure;

• hackers, computer viruses, software bugs or glitches.

Any damage or significant disruption in the operation of such systems or the failure of our information systems to perform as expected could disrupt our operations, reduce our efficiency, delay our fulfillment of customer orders or require significant unanticipated expenditures to correct, and thereby have a negative effect on our business, financial condition or results of operations.

In 2015, we began the process of implementing a global enterprise resource planning system ("ERP").

The pilot phase of the new ERP was completed in fiscal year 2016 and additional phases were completed in 2018 and 2019.

ERP implementations are complex and time-consuming projects that involve substantial expenditures on system software and implementation activities.

ERP implementations also require transformation of business and financial processes in order to reap the benefits of the ERP system.

Any such transformation involves risks inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations.

Our business and results of operations may be adversely affected if we experience operating problems or cost overruns during the ERP implementation process, or if the ERP system and the associated process changes do not give rise to the benefits that we expect.

Additionally, if we do not effectively implement the ERP system as planned or the system does not operate as intended, the effectiveness of our internal control over financial reporting could be adversely affected.

We could be negatively impacted by cybersecurity attacks.

We use a variety of information technology systems in the ordinary course of business, which are potentially vulnerable to unauthorized access, computer viruses and cyber-attacks, including cyber-attacks to our information technology infrastructure and attempts by others to gain access to our propriety or sensitive information, and ranging from individual attempts to advanced persistent threats.

The procedures and controls we use to monitor these threats and mitigate our exposure may not be sufficient to prevent cybersecurity incidents.

The results of these incidents could include misstated financial data, theft of trade secrets or other intellectual property, liability for disclosure of confidential customer, supplier or employee information, increased costs arising from the implementation of additional security protective measures, litigation and reputational damage, which could materially adversely affect our financial condition, business or results of operations.

Any remedial costs or other liabilities related to cybersecurity incidents may not be fully insured or indemnified by other means.

Additionally, security breaches could result in a violation of applicable U.S.

and international privacy and other laws and subject us to governmental investigations and proceedings, which could result in our exposure to material civil or criminal liability.

For example, the European Union adopted a new regulation that became effective in May 2018, called the General Data Protection Regulation (“GDPR”).

GDPR requires companies to meet new requirements regarding the handling of personal data, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves.

Similarly, the California Consumer Privacy Act (“CCPA”), which took effect on January 1, 2020, imposes additional obligations on businesses to make new disclosures about data collection, use, and sharing practices and affords consumers new rights with respect to their data.

It also provides a new private right of action for data breaches.

Failure to meet GDPR and CCPA requirements could result in financial penalties.

Our vendors’ and commercial partners’ information technology systems may fail or suffer security breaches, which could result in a material disruption of our operations.

Despite the implementation of security measures, the information technology systems of our vendors or commercial partners are vulnerable to damage from computer viruses, unauthorized access, natural disasters, and electrical failures.

Such events could cause disruptions in our operations.

To the extent that any disruption or security breach were to result in a loss of, or damage to, our data, or inappropriate disclosure of confidential or propriety information, we could be subject to litigation and reputational harm, which could materially adversely affect our financial condition, business or results of operations.

We depend on a limited number of suppliers for our materials and component parts for some of our products, and the loss of any of these suppliers or an increase in cost of raw materials could harm our business.

We depend on a limited number of suppliers for certain components.

If our current suppliers, in particular the minority of those that are "single-source" suppliers, are unable to timely fulfill orders, or if we are required to transition to other suppliers, we could experience significant production delays or disruption to our business.

We define a single-source supplier as a supplier from which we purchase all of a particular raw material or input used in our manufacturing operations, although other suppliers are available from which to purchase the same raw material or input or an equivalent substitute.

We do not maintain long-term supply contracts with any of our suppliers and instead purchase these components on a purchase order basis.

As a result, we cannot force any supplier to sell us the necessary components we use in creating our products and we could face significant supply disruptions should they refuse to do so.

As the majority of our bike component manufacturing occurs in Taiwan, we could experience difficulties locating qualified suppliers geographically located closer to these facilities.

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

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

or in Taiwan.

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

The main commodity items purchased for production include aluminum, magnesium, steel and carbon.

Historically, price fluctuations for these components and raw materials have not had a material impact on our business.

In the future, however, if we experience material increases in the price of components or raw materials and are unable to pass on those increases to our customers, or there are shortages in the availability of such component parts or raw materials, it could negatively affect our business, financial condition or results of operations.

In addition to our various single-source suppliers, we also rely on one "sole-source" supplier, Miyaki Corporation, or Miyaki.

We define a sole-source supplier as a supplier of a raw material or input for which there is no other supplier of the same product or an equivalent substitute.

Miyaki is the exclusive producer of the Kashima coating for our suspension component tubes.

As part of our agreement with Miyaki, we have been granted the exclusive right to use the trademark "KASHIMACOAT" on products comprising the aluminum finished parts for suspension components (e.g., tubes) and on related sales and marketing material worldwide, subject to certain exclusions.

Although we believe we could obtain other coatings of comparable utility from other sources if necessary, we could no longer obtain this specific Kashima coating or use the trademark "KASHIMACOAT" if Miyaki were to stop supplying us with this coating.

The need to replace the Kashima coating could temporarily disrupt our business and harm our business, financial condition or results of operations.

We also have OEM partners that supply vehicle chassis used in our upfitting operations.

An OEM may encounter difficulties and may be unable to deliver chassis according to our production needs, or an OEM may choose to discontinue supplying chassis for other reasons.

Any interruption or discontinuation in the availability of chassis may result in increased production costs, delays in the delivery of our products, and lost sales, which could have an adverse effect on our business and financial condition.

We have grown and may continue to grow in the future through acquisitions.

Growth by acquisitions involves risks and we may not be able to effectively integrate businesses we acquire or we may not be able to identify or consummate any future acquisitions on favorable terms, or at all.

We have completed several acquisitions over the past several years, including our acquisition of SCA in March 2020.

Additionally, we intend to selectively evaluate additional acquisitions in the future.

Any acquisitions that we have made and might make are subject to various risks and uncertainties and could have a negative impact on our business, financial condition or results of operations.

These risks include the inability to integrate effectively the operations, products, technologies and personnel of the acquired companies (some of which may be spread out in different geographic regions), the inability to achieve anticipated cost savings or operating synergies, the earn-outs we may contractually obligate ourselves to pay, and the risk we may not be able to effectively manage our operations at an increased scale of operations resulting from such acquisitions.

In the event we do complete acquisitions in the future, such acquisitions could affect our cash flows and net income as we expend funds, increase indebtedness and incur additional expenses in connection with pursuing acquisitions.

We may also issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments.

We may not be able to identify or consummate any future acquisitions on favorable terms, or at all.

Our operating results are subject to quarterly variations in our sales, which could make our operating results difficult to predict and could adversely affect the price of our common stock.

We have experienced, and expect to continue to experience, substantial quarterly variations in our sales and net income.

Our quarterly results of operations fluctuate, in some cases significantly, as a result of a variety of other factors, including, among other things:

• the timing of new product releases or other significant announcements by us or our competitors;

• new advertising initiatives;

• fluctuations in raw materials and component costs;

• changes in our practices with respect to building inventory.

As a result of these quarterly fluctuations, comparisons of our operating results between different quarters within a single year are not necessarily meaningful and may not be accurate indicators of our future performance.

Any future quarterly fluctuations that we report may differ from the expectations of market analysts and investors, which could cause the price of our common stock to fluctuate significantly.

We also believe that the seasonal nature of our business may have been overshadowed throughout the past few years due to the rapid growth in sales we have experienced during those periods.

Our beliefs regarding the future growth of the performance-defining product market are supported by qualitative data and limited sources and may not be reliable.

A reduction or lack of continued growth in the popularity of high-end bikes, bikes or powered vehicles or in the number of consumers who are willing to pay premium prices for well-designed, performance-oriented equipment in the markets in which we sell our products could adversely affect our product sales and profits, financial condition or results of operations.

We generate virtually all of our revenues from sales of performance-defining products.

Our beliefs regarding the outlook of the performance-defining product market come from qualitative data and limited sources, which may not be reliable.

If our beliefs regarding the opportunities in the market for our products are incorrect or the number of consumers who we believe are willing to pay premium prices for well-designed, performance-oriented equipment in the markets in which we sell our products does not increase, or declines, we may fail to achieve future growth and our business, financial condition or results of operations could be negatively affected.

Our operations may be impaired if our information technology systems fail to perform adequately or if they are the subject of a data breach or cyber-attack.

Information technology systems are critically important to operating our business.

We rely on information technology systems to manage business data, communications, supply chain, order entry and fulfillment, and other business processes.

The failure of any of the information technology systems to perform as anticipated could disrupt our business and could result in transaction errors, processing inefficiencies and the loss of sales and customers, which could materially adversely affect our business, financial condition, or results of operations.

RISKS RELATED TO OUR INDEBTEDNESS AND LIQUIDITY

Our First Amended and Restated Credit Facility places operating restrictions on us and creates default risks.

Our First Amended and Restated Credit Facility with Bank of America and other named lenders contains covenants that place restrictions on our operating activities.

These covenants, among other things, limit our ability to:

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These restrictions may interfere with our ability to obtain financing or to engage in other business activities, which may have a material adverse effect on our business, financial condition or results of operations.

If we are unable to comply with the covenants contained in our credit facility, it could constitute an event of default and our lenders could declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable.

If we are unable to repay or otherwise refinance these borrowings when due, our lenders could sell the collateral securing our credit facility, which constitutes substantially all of our assets.

If we are unable to comply with the covenants contained in our First Amended and Restated Credit Facility, it could constitute an event of default and our lenders could declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable.

If we are unable to repay or otherwise refinance these borrowings when due, our lenders could sell the collateral securing our First Amended and Restated Credit Facility, which constitutes substantially all of our assets.

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

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

As of October 2, 2020, we had $389.2 million of indebtedness and $235.0 million in revolving credit available to borrow under the First Amended and Credit Facility.

In the future, we and our subsidiaries may be able to incur substantial additional debt from amendments to our First Amended and Restated Credit Facility, additional lending sources subject to the restrictions contained in the First Amended and Restated Credit Facility, or because of certain debt instruments we may issue.

As of April 2, 2021, we had $392.5 million of indebtedness, excluding loan fees, and $235.0 million in revolving credit available to borrow under the First Amended and Restated Credit Facility.

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

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

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

Recent interest rates in the U.S.

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

Although from time to time we may enter into agreements to hedge a portion of our interest rate exposure, such as the interest rate swap entered into in August 2020, these agreements may be costly and may not protect against all interest rate fluctuations.

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

Refer to Note 10- Derivatives and Hedging for additional information regarding the interest swap arrangement.

As of October 2, 2020, we had $395.0 million of indebtedness outstanding under the First Amended and Restated Credit Facility.

Based on the $195.0 million of variable interest rate indebtedness that was outstanding as of October 2, 2020, after giving effect to our interest rate swap, a hypothetical 100 basis point increase in the interest rate would have resulted in an approximately $0.5 million increase in interest expense for the three months ended October 2, 2020.

Refer to Note 10- Derivatives and Hedging for additional information regarding the interest rate swap arrangement.

As of April 2, 2021, we had $392.5 million of indebtedness outstanding under the First Amended and Restated Credit Facility.

Based on the $192.5 million of variable interest rate indebtedness that was outstanding as of April 2, 2021, after giving effect to our interest rate swap, a hypothetical 100 basis point increase in the interest rate would have resulted in an approximately $0.5 million increase in interest expense for the three months ended April 2, 2021.

A hypothetical 100 basis point decrease in the interest rate would not impact interest expense given that the current borrowing rate reflects the floor rate of 0.50%.

We may incur losses on interest rate swap and hedging arrangement

We may incur losses on interest rate swap and hedging arrangements.

We may periodically enter into agreements to reduce the risks associated with increases in interest rates, such as our August 2020 interest rate swap agreement.

Although these agreements may partially protect against rising interest rates, they also may reduce the benefits to us if interest rates decline.

RISKS RELATED TO LAWS AND REGULATIONS

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

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

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

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

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

As of October 2, 2020, we employed approximately 2,930 full-time employees worldwide, a large percentage of which work at our manufacturing facilities.

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

Although we employ safety procedures in the design and operation of our facilities, there is a risk that an accident or death could occur in one of our facilities.

In addition, prior to the introduction of new products, our employees test the products under rigorous conditions, which involve the risk of injury or death.

Any accident could result in manufacturing or product delays, which could negatively affect our business, financial condition or results of operations.

The outcome of litigation is difficult to assess or quantify and the cost to defend litigation can be significant.

We are subject to extensive United States federal and state, foreign and international safety, environmental, employment practices and other government regulations that may require us to incur expenses or modify product offerings in order to maintain compliance with such regulation, which could have a negative effect on our business and results of operations.

We are subject to extensive laws and regulations relating to safety, environmental, and other laws and regulations promulgated by the United States federal and state governments, as well as foreign and international regulatory authorities.

Changes to tax laws or interpretations proposed by the current administration in the United States;

modifications to the U.S.

tax reform enacted in December 2017;

revisions to estimates regarding our ability to utilize foreign tax credits, particularly increases in revenues generated in Taiwan or changes in the export potential from Taiwan;

increases in applicable tax rates;

and actions by tax authorities in jurisdictions in which we operate could have a material impact on our net income and cash flows.

We are subject to extensive U.S.

We are subject to extensive laws and regulations relating to safety, environmental, and other laws and regulations promulgated by the U.S.

federal and state governments, as well as foreign and international regulatory authorities.

Although we believe that our products, policies and processes comply with applicable safety, environmental, and other standards and related regulations, future regulations may require additional safety standards that would require additional expenses and/or modification of product offerings in order to maintain such compliance.

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Any assessment of the potential impact of future climate change legislation, regulations or industry standards, as well as any international treaties and accords, is uncertain given the scope of potential regulatory change in the countries in which we operate.

We are subject to employment practice laws and regulations, and, as such, are exposed to litigation risks.

We are subject to employment practice laws and regulations, and, as such, are exposed to litigation risks, and we may incur higher employee costs in the future.

We are subject to extensive laws and regulations relating employment practices, including wage and hour, wrongful termination and discrimination.

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Compliance with laws or regulations that are more stringent, as well as different interpretations of existing laws, more vigorous enforcement by regulators or unanticipated events, could require additional expenditures that may materially affect our business, financial condition or results of operations.

Federal, state, local, foreign and international laws and regulations relating to land-use, and noise and air pollution may have a negative impact on our future sales and results of operations.

Federal, state, local, foreign and international laws and regulations relating to environmental matters, land-use, and noise and air pollution may have a negative impact on our future sales and results of operations.

The products in our powered vehicles line are used in vehicles that are subject to numerous federal, state, local, foreign and international laws and regulations relating to noise and air pollution.

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For example, in San Mateo County, California, mountain bikes are not allowed on county trails, and ATV and Side-by-Side riding is not allowed in Zion National Park, among many other national and state parks.

In addition, recreational snowmobiling has been restricted in some national parks and federal lands in Canada, the United States and other countries.

In addition, recreational snowmobiling has been restricted in some national parks and federal lands in Canada, the U.S.

and other countries.

If more of these laws and regulations are passed and the users of our products lose convenient locations to ride their mountain bikes and powered vehicles, our sales could decrease and our business, financial condition or results of operations could suffer.