What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 159 added, 115 removed, 460 unchanged (37% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

April 2, January 1,

July 2, January 1,

Current assets:

Cash and cash equivalents $ 274,976 $ 245,764

Accounts receivable (net of allowances of $ 803 and $ 663 at April 2, 2021 and January 1, 2021, respectively)

Accounts receivable (net of allowances of $ 974 and $ 663 at July 2, 2021 and January 1, 2021, respectively)

149,695 121,194

16 unchanged sentences

Total current liabilities 248,879 165,389

Line of credit 3,238 —

Long-term debt, less current portion 370,275 377,088

3 unchanged sentences

Stockholders’ equity

Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of April 2, 2021 and January 1, 2021

Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of July 2, 2021 and January 1, 2021

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

42,854 shares issued and 41,964 outstanding as of April 2, 2021;

42,972 shares issued and 42,083 outstanding as of July 2, 2021;

42,692 shares issued and 41,802 outstanding as of January 1, 2021

1 unchanged sentence

Treasury stock, at cost;

890 common shares as of April 2, 2021 and January 1, 2021

890 common shares as of July 2, 2021 and January 1, 2021

( 13,754 ) ( 13,754 )

7 unchanged sentences

(in thousands, except per share data)

For the three months ended

April 2, April 3,

For the three months ended For the six months ended

July 2, July 3, July 2, July 3,

2021 2020 2021 2020

Sales $ 328,164 $ 183,102 $ 609,300 $ 367,463

27 unchanged sentences

(in thousands)

For the three months ended

April 2, April 3,

For the three months ended For the six months ended

July 2, July 3, July 2, July 3,

2021 2020 2021 2020

Net income $ 44,275 $ 13,192 $ 82,261 $ 21,930

19 unchanged sentences

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

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

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

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

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

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

Other comprehensive income — — — — — 923 — 923 —

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

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

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

FOX FACTORY HOLDING CORP.

9 unchanged sentences

Balance - April 2, 2021 42,854 $ 42 890 $ ( 13,754 ) $ 340,347 $ 2,689 $ 432,967 $ 762,291 $ —

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

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 118 — — — ( 5,702 ) — — ( 5,702 ) —

Stock-based compensation expense — — — — 3,374 — — 3,374 —

Other comprehensive income — — — — — 131 — 131 —

Net income — — — — — 44,275 44,275 —

Balance - July 2, 2021 42,972 $ 42 890 $ ( 13,754 ) $ 338,019 $ 2,820 $ 477,242 $ 804,369 $ —

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

FOX FACTORY HOLDING CORP.

1 unchanged sentence

(in thousands)

For the three months ended

April 2, 2021 April 3, 2020

For the six months ended

July 2, 2021 July 3, 2020

OPERATING ACTIVITIES:

Net income $ 82,261 $ 21,930

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

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

Depreciation and amortization 21,433 15,019

9 unchanged sentences

Accrued expenses and other liabilities 14,587 ( 2,644 )

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

Net cash provided by operating activities 81,690 5,689

INVESTING ACTIVITIES:

8 unchanged sentences

Installment on purchase of non-controlling interest ( 2,750 ) —

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

Proceeds (repurchases) from stock compensation program, net ( 5,104 ) ( 4,348 )

7 unchanged sentences

(in thousands)

For the three months ended

For the six months ended

SUPPLEMENTAL CASH FLOW INFORMATION:

April 2, 2021 April 3, 2020

July 2, 2021 July 3, 2020

Cash paid during the period for:

27 unchanged sentences

The twelve month periods ended December 31, 2021 and January 1, 2021, will include or have included 52 weeks.

The three month periods ended April 2, 2021 and April 3, 2020 each included 13 weeks.

The three and six month periods ended July 2, 2021 and July 3, 2020 each included 13 weeks and 26 weeks, respectively.

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

38 unchanged sentences

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

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

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

FOX FACTORY HOLDING CORP.

4 unchanged sentences

The Company adopted ASU 2019-12 effective in the first quarter of fiscal year 2021.

The adoption of ASU 2019-12 did not have a material impact on the Company's consolidated financial statements.

The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.

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

3 unchanged sentences

The Company adopted ASU 2020-10 effective in the first quarter of fiscal year 2021.

The adoption of ASU 2020-10 did not have a material impact on the Company's consolidated financial statements and related disclosures.

The adoption of ASU 2020-10 did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

The following table summarizes total sales by product category:

For the three months ended

April 2, 2021 April 3, 2020

For the three months ended For the six months ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Powered Vehicles $ 189,419 $ 98,524 $ 352,166 $ 219,050

2 unchanged sentences

The following table summarizes total sales by sales channel:

For the three months ended

April 2, 2021 April 3, 2020

For the three months ended For the six months ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

OEM $ 172,547 $ 87,860 $ 324,027 $ 191,608

2 unchanged sentences

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

For the three months ended

April 2, 2021 April 3, 2020

For the three months ended For the six months ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

North America $ 217,695 $ 116,970 $ 398,178 $ 247,592

3 unchanged sentences

Total sales $ 328,164 $ 183,102 $ 609,300 $ 367,463

Remaining performance obligations represent the transaction price of contracts, generally considered to be the customer's purchase order, for which work has not been performed or has been partially performed.

The Company has elected to exclude remaining performance obligations with an original expected duration of one year or less.

Revenue expected to be recognized from remaining performance obligations as of July 2, 2021 for contracts with a duration more than one year was approximately $ 10,040 , all of which is expected to be recognized during fiscal year 2022.

FOX FACTORY HOLDING CORP.

1 unchanged sentence

(in thousands, except per share amounts)

The Company has elected to exclude remaining performance obligations with an original expected duration of one year or less.

Revenue expected to be recognized from remaining performance obligations as of April 2, 2021 for contracts with a duration more than one year was approximately $ 30,304 , all of which is expected to be recognized during fiscal year 2022.

Inventory consisted of the following:

April 2, January 1,

July 2, January 1,

Raw materials $ 151,385 $ 87,503

4 unchanged sentences

Prepaids and other current assets consisted of the following:

April 2, January 1,

July 2, January 1,

Prepaid chassis deposits $ 65,368 $ 66,812

8 unchanged sentences

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

April 2, January 1,

July 2, January 1,

Building and building improvements $ 70,882 $ 75,753

1 unchanged sentence

Internal-use computer software 21,803 19,853

Land 9,642 9,698

Land and land improvements 15,438 9,698

Leasehold improvements 18,136 15,075

4 unchanged sentences

Property, plant and equipment, net $ 177,630 $ 163,288

During the six months ended July 2, 2021, the Company reclassified certain assets from buildings to land and land improvements to better depict the nature of the assets.

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

April 2, January 1,

July 2, January 1,

United States $ 153,894 $ 144,529

10 unchanged sentences

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

The weighted-average remaining lease term for the Company's operating leases was 4.36 years and the weighted-average incremental borrowing rate was 3.14 % as of April 2, 2021.

The weighted-average remaining lease term for the Company's operating leases was 4.71 years and the weighted-average incremental borrowing rate was 2.77 % as of July 2, 2021.

Operating lease costs consisted of the following:

For the three months ended

April 2, 2021 April 3, 2020

For the three months ended For the six months ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Operating lease cost $ 1,983 $ 1,798 $ 4,053 $ 3,374

4 unchanged sentences

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

Balance Sheet Classification April 2, 2021

Balance Sheet Classification July 2, 2021

Operating lease right-of-use assets Lease right-of-use assets $ 31,955

3 unchanged sentences

For fiscal year Total future payments

2021 (excluding the 3 months ended April 2, 2021) $ 5,983

2021 (excluding the 6 months ended July 2, 2021) $ 4,375

Thereafter 4,935

9 unchanged sentences

Accrued expenses consisted of the following:

April 2, January 1,

July 2, January 1,

Payroll and related expenses $ 25,991 $ 22,407

3 unchanged sentences

Accrued sales rebate 10,637 4,471

Current portion of non-controlling interest buyout liability 3,600 4,550

Other accrued expenses 11,401 8,329

1 unchanged sentence

Activity related to warranties is as follows:

For the three months ended

April 2, 2021 April 3, 2020

For the three months ended For the six months ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Beginning warranty liability $ 11,521 $ 8,719 $ 9,835 $ 5,649

6 unchanged sentences

(in thousands, except per share amounts)

First Amended and Restated Credit Facility

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

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

Credit Facility

In June 2019, the Company entered into a credit facility with Bank of America and other named lenders, which has been periodically amended and restated and/or amended.

The credit facility was amended and restated on March 11, 2020, and further amended on June 19, 2020, and June 11, 2021 (as amended to date, the "Credit Facility").

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

The term loan is subject to quarterly amortization payments.

1 unchanged sentence

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

The Company expensed $ 277 of the remaining unamortized debt issuance costs, which are included in interest and other expense, net in the condensed consolidated statements of income for the three months ended April 3, 2020.

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

The remaining $ 157 were allocated to the line of credit.

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

The First Amended and Restated Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.00 % to 2.25 %, with a floor rate of 0.50%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00 % to 1.25 %.

At 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 April 2, 2021.

In August 2020, the Company entered into an interest rate swap agreement to hedge the variability of cash flows in interest payments associated with $ 200,000 of its variable rate term debt.

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

At July 2, 2021, the one-month LIBOR and prime rates were 0.10 % and 3.25 %, respectively.

At July 2, 2021, our weighted-average interest rate on outstanding borrowing was 1.32 %.

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

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

On June 11, 2021, the Company terminated its existing swap agreement and entered into a new interest rate swap agreement to obtain a more favorable interest rate and to manage interest rate risk exposure, which was effective July 2, 2021.

Through the interest rate swap agreement, the Company hedges the variability of cash flows in interest payments associated with $ 200,000 of its variable rate term debt.

Refer to Note 10 - Derivatives and Hedging for further details of this agreement.

The First Amended and Restated Credit Facility permits up to $ 25,000 of the aggregate revolving commitment to be used by the Company for issuance of letters of credit, of which $ 15,000 was outstanding at April 2, 2021.

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

The Credit Facility permits up to $ 25,000 of the aggregate revolving commitment to be used by the Company for issuance of letters of credit, of which $ 15,000 was outstanding at July 2, 2021.

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

Amount outstanding $ 3,238

6 unchanged sentences

(in thousands, except per share amounts)

As of April 2, 2021, future principal payments for long-term debt, including the current portion, as summarized as follows:

As of July 2, 2021, future principal payments for long-term debt, including the current portion, as summarized as follows:

For fiscal year

34 unchanged sentences

Due to the inherent uncertainties of litigation, the Company is not able to predict either the outcomes or a range of reasonably possible losses, if any, at this time.

Accordingly, no amounts have been recorded in the consolidated financial statements for the settlement of these matters.

Accordingly, no amounts have been recorded in the condensed consolidated financial statements for the settlement of these matters.

Were an unfavorable ruling to occur, or if factors indicate that a loss is probable and reasonably estimable, the Company's business, financial condition or results of operations could be materially and adversely affected.

9 unchanged sentences

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

The Company paid $ 1,850 during the three months ended April 2, 2021 and had a remaining liability of $ 16,569 as of April 2, 2021.

The Company paid $ 900 and $ 2,750 during the three and six months ended July 2, 2021.

The stock portion of 136 shares held in escrow has been or will be released quarterly starting January 2021 through July 2022.

The Company released 19 shares of stock during the three months ended April 2, 2021.

The Company released 19 and 39 shares of stock during the three and six months ended July 2, 2021.

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

3 unchanged sentences

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

The Company believes that it is possible that it will incur a liability for uncollected sales tax on some portion of its e-commerce sales through April 2, 2021.

The Company believes that it is possible that it will incur a liability for uncollected sales tax on some portion of its e-commerce sales through July 2, 2021.

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

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Derivatives and Hedging

On August 17, 2020 the Company entered into a swap (the "Swap") to mitigate the cash flow risk associated with changes in interest rates on $ 200,000 of its variable rate debt.

Refer to Note 8 - Debt for further details of the Company's variable rate debt.

The Swap matures on March 11, 2025.

The Company pays a base fixed rate of 0.73 % and in return receives the greater of (1) 1-month LIBOR, or (2) 0.50 %.

The Company accounts for interest rate swap contracts in accordance with ASC 815, Derivatives and Hedging, which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value.

The Swap has been designated and accounted for as a cash flow hedge for a portion of the forecasted interest payments on the Company’s debt.

As long as the Swap continues to be a highly effective hedge of the designated interest rate risk, changes in the fair value of the Swap are recorded in accumulated other comprehensive income (loss), a component of equity.

Any ineffective portion of a change in the fair value of a hedge is recorded in earnings.

The fair value of the Swap on April 2, 2021 was an asset of $ 1,895 .

The Company is exposed to certain risks relating to its ongoing business operations.

The primary risk managed by using derivative instruments is interest rate risk.

The Company utilizes interest rate swaps to limit its exposure to interest rate risk by converting a portion of its floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense.

Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments based on the one-month LIBOR over the lives of the agreements without an exchange of the underlying principal amounts.

As of July 2, 2021 and January 1, 2021 the Company had the following open interest rate swap contracts:

July 2, 2021 January 1, 2021

Effective Date Termination Date Notional Amount Unrealized Gain (Loss) in AOCI Unrealized Gain (Loss) in AOCI

September 2, 2020 June 11, 2021 $ 200,000 $ 319 $ ( 915 )

July 2, 2021 March 11, 2025 $ 200,000 887 —

Total $ 1,206 $ ( 915 )

On June 11, 2021 the Company terminated its existing swap agreement and entered into a new interest rate swap agreement with a notional amount of $ 200,000 .

The terminated swap resulted in an unrealized gain of $ 324 at the termination date, that will continue to be accounted for in accumulated other comprehensive income and amortized into earnings over the term of the associated debt instrument.

The new swap agreement (the "Interest Rate Swap"), has a maturity date of March 11, 2025 and is indexed to a one-month LIBOR with a fixed leg of 0.50 %.

The Interest Rate Swap met the criteria for cash flow hedges under ASC 815, Derivatives and Hedging, and is recorded in other assets on the Condensed Consolidated Balance Sheet.

Refer to Note 11 - Fair Value Measurements and Financial Instruments for additional information on determining the fair value.

The asset is included in Other Assets in the Consolidated Balance Sheets.

At both the inception of the Swap and at April 2, 2021, the interest rate swap was considered highly effective and accordingly, the $ 1,895 change in fair value incurred from inception was deferred and recorded in other comprehensive income (loss), net of taxes.

As required under ASC 815, the Swap’s effectiveness will be assessed on a quarterly basis.

The Company’s derivative counterparty is an investment grade financial institution.

The Company does not have any collateral arrangements with its derivative counterparty and the derivative contract does not contain credit risk related contingent features.

The unrealized gains or losses, after tax, are recorded in accumulated other comprehensive income, a component of equity, and are expected to be reclassified into interest expense on the Condensed Consolidated Statement of Income when the forecasted transactions affect earnings.

As required under ASC 815, the Interest Rate Swap’s effectiveness will be assessed on a quarterly basis using a quantitative regression analysis.

The gains and losses, net of tax, related to the effective portion of derivative instruments designated as cash flow hedges recognized in accumulated other comprehensive income for the three and six months ended July 2, 2021 were a loss of $ 525 and a gain of $ 1,620 , respectively.

No gains or losses were incurred for the three and six months ended July 3, 2020.

Unrealized losses of $ 808 included in accumulated other comprehensive income related to the Interest Rate Swap are expected to be recognized in interest expense over the next twelve months.

FOX FACTORY HOLDING CORP.

2 unchanged sentences

Fair Value Measurements and Financial Instruments

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

April 2, 2021 January 1, 2021

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

July 2, 2021 January 1, 2021

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

4 unchanged sentences

Total liabilities measured at fair value $ — $ 388,513 $ — $ 388,513 $ — $ 390,503 $ — $ 390,503

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three month period ended April 2, 2021.

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

The Company believes the carrying amount of its First Amended and Restated Credit Facility approximates the fair value at April 2, 2021 because, while subject to a minimum LIBOR floor rate, the interest rate approximates current market rates of debt with similar terms and comparable credit risk.

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

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three and six month period ended July 2, 2021.

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

The Company believes the carrying amount of its Credit Facility approximates the fair value at July 2, 2021 because, while subject to a minimum LIBOR floor rate, the interest rate approximates current market rates of debt with similar terms and comparable credit risk.

On June 11, 2021, the Company entered into an interest rate swap agreement to mitigate the cash flow risk associated with changes in interest rates on its variable rate debt.

Refer to N ote 10 - Derivatives and Hedging for additional details of the agreement.

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

In accordance with ASC 815, Derivatives and Hedging, an interest rate swap contract is recognized as an asset or liability on the Condensed Consolidated Balance Sheets and is measured at fair value.

The fair value was calculated utilizing Level 2 inputs.

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Stockholders' Equity

Secondary Stock Offerings

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

Follow-on Stock Offerings

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

The net proceeds to the Company after underwriters' discounts and commissions of $ 11,015 and $ 511 of offering costs was $ 198,233 .

2 unchanged sentences

Equity Incentive Plans

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

For the three months ended

April 2, 2021 April 3, 2020

The following table summarizes the allocation of stock-based compensation in the accompanying Condensed Consolidated Statements of Income:

For the three months ended For the six months ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Cost of sales $ 190 $ 147 $ 311 276

3 unchanged sentences

Total $ 3,374 $ 2,076 $ 5,868 3,997

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

As of January 1, 2021, $ 421 of stock-based compensation expense related to our executive bonus plan is included in Accrued Expenses on the Consolidated Balance Sheets.

This amount was recognized as additional paid in capital during the three months ended April 2, 2021 upon the issuance of the underlying restricted stock units.

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the three months ended April 2, 2021:

As of January 1, 2021, $ 421 of stock-based compensation expense related to our executive bonus plan is included in Accrued Expenses on the Condensed Consolidated Balance Sheets.

This amount was recognized as additional paid in capital during the six months ended July 2, 2021 upon the issuance of the underlying restricted stock units.

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the six months ended July 2, 2021:

Unvested RSUs

4 unchanged sentences

Vested ( 140 ) $ 48.76

Unvested at April 2, 2021 464 $ 56.97

As of April 2, 2021, the Company had approximately $ 19,544 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.45 years.

During the three months ended April 2, 2021, the Company issued performance share units (“PSUs”) to certain executives that represent shares potentially issuable in the future.

Unvested at July 2, 2021 387 $ 72.47

As of July 2, 2021, the Company had approximately $ 23,982 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.39 years.

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

During the six months ended July 2, 2021, the Company issued performance share units (“PSUs”) to certain executives that represent shares potentially issuable in the future.

Issuance is based upon the Company's performance, over a 2 - 3 year performance period, on certain measures including return on invested capital and free cash flow.

1 unchanged sentence

The fair value of performance share units is calculated based on the stock price on the date of grant.

The following table summarizes the activity for the Company's unvested PSUs for the three months ended April 2, 2021:

The following table summarizes the activity for the Company's unvested PSUs for the six months ended July 2, 2021:

Unvested PSUs

2 unchanged sentences

Granted 29 $ 141.46

Unvested at April 2, 2021 26 $ 140.24

The stock-based compensation expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued.

Future stock-based compensation expense for unvested performance based awards could reach a maximum of $ 7,270 assuming payout of all unvested awards.

Unvested at July 2, 2021 29 $ 141.46

The stock-based compensation expense recognized each period is dependent upon our estimate of the number of shares that will ultimately vest based on the achievement of certain performance conditions.

Future stock-based compensation expense for unvested performance based awards could reach a maximum of $ 7,635 assuming achievement at the maximum level.

The unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 2.01 years.

For the three months ended April 2, 2021, the Company had 54 unvested RSUs and PSUs outstanding which were excluded from the calculation of dilutive earnings per share because the effect would be anti-dilutive.

During the three months ended April 2, 2021, 144 shares of common stock were issued due to the exercise of stock options and no options to purchase common stock expired or were forfeited.

As of April 2, 2021, stock-based compensation expense related to stock options has been fully recognized.

For the six months ended July 2, 2021, the Company had 53 unvested RSUs and PSUs outstanding which were excluded from the calculation of dilutive earnings per share because the effect would be anti-dilutive.

During the six months ended July 2, 2021, 180 shares of common stock were issued due to the exercise of stock options and no options to purchase common stock expired or were forfeited.

As of July 2, 2021, stock-based compensation expense related to stock options has been fully recognized.

FOX FACTORY HOLDING CORP.

1 unchanged sentence

(in thousands, except per share amounts)

For the three months ended

April 2, 2021 April 3, 2020

For the three months ended For the six months ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Provision for income taxes $ 6,767 $ 3,204 $ 10,774 $ 4,124

Effective tax rates 13.3 % 19.5 % 11.6 % 15.8 %

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.

For the three months ended July 2, 2021, the difference between the Company's effective tax rate and the 21 % federal statutory rate resulted primarily from excess benefits related to stock-based compensation, 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 the Company's effective tax rate of 9.5 % and the 21 % federal statutory rate resulted primarily from the negotiated reduction of Switzerland withholding tax on prior year earnings.

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

There are no ongoing income tax audits as of April 2, 2021.

For the six months ended July 2, 2021, the difference between the Company’s effective tax rate and the 21 % federal statutory rate resulted primarily from excess benefits related to stock-based compensation, a lower tax rate on foreign derived intangible income and the recognition of uncertain tax positions due to the conclusion of an audit.

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

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

For the six months ended July 3, 2020, the difference between the Company's effective tax rate and the 21 % federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, research and development credits, a negotiated reduction of Switzerland withholding tax on prior year earnings, and excess tax benefits related to stock-based compensation.

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

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

Related Party Transactions

3 unchanged sentences

The lease is effective from May 1, 2019 through April 1, 2024, with monthly rent payments of $ 16 .

Rent expense under this lease was $ 48 for the three months ended April 2, 2021.

Rent expense under this lease was $ 48 and $ 96 for the three and six months ended July 2, 2021.

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

The Company has transactions with an automotive dealership owned by a former owner of SCA, who is now an employee of the Company.

The Company purchased approximately $ 202 of parts and vehicles and sold approximately $ 120 of upfit packages to the dealership during the three months ended April 2, 2021.

As of April 2, 2021, the Company had $ 27 and $ 88 in accounts payable and accounts receivable, respectively, related to this dealership.

The Company purchased approximately $ 262 and $ 464 of parts and vehicles and sold approximately $ 130 and $ 250 of upfit packages to the dealership during the three and six ended July 2, 2021.

As of July 2, 2021, the Company had $ 143 and $ 8 in accounts payable and accounts receivable, respectively, related to this dealership.

Refer to Note 15 - Acquisitions for further details of this acquisition.

12 unchanged sentences

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

The Company recognized $ 1,290 in costs associated with such retention incentives during the three months ended April 2, 2021.

The Company recognized $ 1,130 and $ 2,419 in costs associated with such retention incentives during the three and six months ended July 2, 2021.

The Company’s allocation of the purchase price to the net tangible and intangible assets acquired and liabilities assumed is as follows:

5 unchanged sentences

Total $ 331,853

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

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

These costs are classified as general and administrative expenses in the accompanying Condensed Consolidated Statements of Income.

5 unchanged sentences

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

On May 25, 2021, the Company, through its wholly owned subsidiary, SCA Performance, Inc., acquired 100 % of the issued and outstanding stock of Manifest Joy LLC, dba Outside Van ("Outside Van") for $ 15,139 , net of cash acquired.

Outside Van is a custom van conversion company that designs and custom engineers recreational vehicles with headquarters in Portland, Oregon.

This purchase was accounted for as a business combination.

The purchase price of Outside Van is allocated to the assets acquired and liabilities assumed based on their estimated respective fair values as of May 25, 2021, with the excess purchase price allocated to goodwill.

The allocation of the purchase price to the net liabilities assumed of $ 1,057 , $ 5,560 in identifiable intangible assets and goodwill acquired of $ 10,636 , is preliminary and subject to the completion of the Company's validation of working capital and its intangible valuation procedures, with the assistance of specialists.

The acquisition was not material to the Company's financial statements.

On May 21, 2021, the Company, through its wholly owned subsidiary, Fox Factory Australia Pty Ltd., acquired substantially all the assets of Sola Sport Pty Ltd.

The acquisition was not material to the Company's financial statements.

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

What changed 10-Q

Item 1. Financial Statements