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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 91 added, 154 removed, 136 unchanged (64% of the section changed)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited condensed consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2021, as filed with the SEC on February 25, 2021, and our other reports and registration statements that we file with the SEC from time to time.

Securities and Exchange Commission ("SEC") on February 24, 2022, and our other reports and registration statements that we file with the SEC from time to time.

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

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and global economy, which could in turn disrupt the business activities and operations of our customers, as well as our businesses and operations;

• our ability to maintain our suppliers for materials, product parts and vehicle chassis without significant supply chain disruptions;

• changes in general economic conditions, including market and macro-economic disruptions resulting from the Russian invasion of Ukraine;

• 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;

• our ability to develop new and innovative products in our current end-markets;

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Critical Accounting Policies and Estimates

As a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA" or "Tax Act") in December 2017, we believe that it is more likely than not that a portion of our foreign tax credits will not be realizable before their expiration and therefore have provided a partial valuation allowance of $7.2 million against that tax asset.

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

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

In the first and second quarters of 2021, the Company increased the forecast for additional revenue from Taiwan.

The additional revenue is expected to generate foreign tax credits, that the Company believes will result in tax credits carried over from prior periods not to be realizable before their expiration.

Therefore, the Company added $3.0 million and $0.6 million to the valuation allowance in the first and second quarters of 2021, respectively.

There was no change to the valuation allowance in the third quarter of 2021.

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

In the first quarter of 2022, final tax regulations regarding foreign tax credits (“FTC”) were published in the Federal Register.

These final FTC regulations apply to foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021.

The new regulations narrow the definition of withholding taxes that are eligible for an FTC by imposing a new source-based jurisdictional nexus or “attribution” requirement.

The application of these final FTC regulations makes it more likely than not that all of our foreign tax credits will be realizable before their expiration, therefore the Company released its partial valuation allowance of $9.2 million in the first quarter of 2022.

There have been no other changes to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 24, 2022, that have had a material impact on our condensed consolidated financial statements and related notes.

Recent Accounting Pronouncements

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The table below summarizes our results of operations:

For the three months ended For the nine months ended

(in thousands) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

For the three months ended

(in thousands) April 1, 2022 April 2, 2021

Sales $ 377,977 $ 281,136

10 unchanged sentences

Interest expense 1,977 2,904

Other (income) expense (187) (189) 855 (57)

Other expense, net 1,692 959

Interest and other expense, net 3,669 3,863

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Net income $ 48,050 $ 37,986

net income attributable to non-controlling interest — — — 1,072

Net income attributable to FOX stockholders $ 43,823 $ 38,020 $ 126,084 $ 58,878

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

For the three months ended For the nine months ended

October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

For the three months ended

April 1, 2022 April 2, 2021

Sales 100.0 % 100.0 %

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Interest expense 0.5 1.0

Other (income) expense (0.1) (0.1) 0.1 —

Other expense, net 0.4 0.3

Interest and other expense, net 1.0 1.4

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Net income 12.7 % 13.5 %

net income attributable to non-controlling interest — — — 0.2

Net income attributable to FOX stockholders 12.6 % 14.6 % 13.2 % 9.4 %

*Percentages may not foot due to rounding.

Three months ended October 1, 2021 compared to three months ended October 2, 2020

Three months ended April 1, 2022 compared to three months ended April 2, 2021

For the three months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

Powered Vehicle products $ 208.1 $ 162.7 $ 45.4 27.9 %

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Total sales $ 378.0 $ 281.1 $ 96.9 34.4 %

Total sales for the three months ended October 1, 2021 increased approximately $86.7 million, or 33.3%, compared to the three months ended October 2, 2020.

Powered Vehicle product sales increased by $35.0 million, or 22.8%, due to strong performance in our upfitting product lines and increased demand in both the original equipment manufacturer ("OEM") and aftermarket channels.

Specialty Sports product sales increased by $51.7 million, or 48.1%, due to continued strong demand in the OEM channel.

Total sales for the three months ended April 1, 2022 increased approximately $96.9 million, or 34.4%, compared to the three months ended April 2, 2021.

Specialty Sports product sales increased by $51.5 million, or 43.5%, due to continued strong demand in both the OEM and aftermarket channels.

Powered Vehicle product sales increased by $45.4 million, or 27.9%, due to strong performance in our upfitting product lines.

Cost of sales

For the three months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

Cost of sales $ 257.7 $ 183.2 $ 74.5 40.7 %

Cost of sales for the three months ended October 1, 2021 increased approximately $60.2 million, or 35.2%, compared to the three months ended October 2, 2020.

Cost of sales for the three months ended April 1, 2022 increased approximately $74.5 million, or 40.7%, compared to the three months ended April 2, 2021.

The increase in cost of sales was primarily due to the 34.4% increase in sales in the same period, as well as certain business factors affecting gross margin, which are discussed below.

For the three months ended October 1, 2021, our gross margin decreased 90 basis points to 33.4% compared to 34.3% for the three months ended October 2, 2020.

The decrease in gross margin was primarily driven by supply chain related costs, including increased raw materials prices and higher freight costs.

For the three months ended April 1, 2022, our gross margin decreased 300 basis points to 31.8% compared to 34.8% for the three months ended April 2, 2021.

The decrease in gross margin was primarily driven by continued increases in supply chain related costs, including increased prices for raw materials and freight.

Additionally, the completion of the planned shutdown of our Watsonville, California facility and transition of those production lines resulted in inefficiencies as we ramp up our Gainesville, Georgia facility.

Operating expenses

For the three months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

Operating expenses:

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Total operating expenses $ 66.1 $ 52.1 $ 14.0 26.9 %

Total operating expenses for the three months ended October 1, 2021 were $60.8 million compared to $43.9 million for the three months ended October 2, 2020.

When expressed as a percentage of total sales, total operating expenses increased to 17.5% of total sales for the three months ended October 1, 2021 compared to 16.8% of total sales in the three months ended October 2, 2020.

The increase in operating expenses is primarily due to higher employee related costs, higher commission costs, and higher investments to right-size our administrative support functions.

Within operating expenses, our sales and marketing expenses increased approximately $3.8 million primarily due to higher commissions of $3.0 million.

Total operating expenses for the three months ended April 1, 2022 were $66.1 million compared to $52.1 million for the three months ended April 2, 2021.

The increase in operating expenses is primarily due to higher employee related costs, higher commission costs, and higher insurance and facility-related expenses.

When expressed as a percentage of total sales, total operating expenses were 17.5% for the three months ended April 1, 2022, a decrease of 100 basis points, compared to 18.5% of total sales in the three months ended April 2, 2021.

Within operating expenses, sales and marketing expenses increased approximately $5.7 million primarily due to higher commissions and marketing related expenses.

Research and development costs increased approximately $2.7 million primarily due to personnel investments to support future growth and product innovation.

General and administrative expenses increased by approximately $9.2 million due to higher employee related costs of $4.5 million, as well as increases in various other costs as we continue to expand our administrative support functions.

General and administrative expenses increased by approximately $5.2 million due to higher employee related costs of $2.1 million, higher insurance and facility related costs of $2.2 million, as well as increases in various other costs.

Income from operations

For the three months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

Income from operations $ 54.2 $ 45.9 $ 8.3 18.1 %

As a result of the factors discussed above, income from operations for the three months ended October 1, 2021 increased approximately $9.6 million, or 21.1%, compared to income from operations for the three months ended October 2, 2020.

As a result of the factors discussed above, income from operations for the three months ended April 1, 2022 increased approximately $8.3 million, or 18.1%, compared to income from operations for the three months ended April 2, 2021.

Interest and other expense, net

For the three months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

Interest and other expense, net:

Interest expense $ 2.0 $ 2.9 $ (0.9) (31.0) %

Other (income) expense (0.2) (0.2) — — %

Other expense, net 1.7 1.0 0.7 70.0 %

Interest and other expense, net $ 3.7 $ 3.9 $ (0.2) (5.1) %

Interest and other expense, net for the three months ended October 1, 2021 decreased by $0.5 million to $1.6 million compared to $2.1 million for the three months ended October 2, 2020.

The decrease in interest and other expense, net is primarily due to lower interest rates.

Interest and other expense, net for the three months ended April 1, 2022 decreased by $0.2 million to $3.7 million compared to $3.9 million for the three months ended April 2, 2021.

For the three months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

Provision for income taxes $ 2.4 $ 4.0 $ (1.6) (40.0) %

The effective tax rate was 18.2% and 12.5% for the three month periods ended October 1, 2021 and October 2, 2020, respectively.

For the three months ended October 1, 2021, the difference between the Company's effective tax rate of 18.2% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign-derived intangible income and a windfall from stock-based compensation.

These benefits were partially offset by other non-deductible expenses and state taxes.

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

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

The effective tax rates were 4.8% and 9.5% for the three month periods ended April 1, 2022 and April 2, 2021, respectively.

For the three months ended April 1, 2022, the difference between the Company's effective tax rate of 4.8% and the 21% federal statutory rate resulted primarily from the impact of the recently finalized U.S.

tax regulations published by the U.S Treasury and Internal Revenue Service on January 4, 2022.

These regulations limit the amount of newly generated foreign taxes that are creditable against U.S income taxes which resulted in a release of the Company’s valuation allowance against foreign tax credits due to the Company's ability to use foreign tax credit carryforwards that had previously been reserved against.

This benefit was partially offset by state taxes and other nondeductible expenses.

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

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

For the three months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

Net income $ 43.8 $ 38.0 $ 5.8 15.3 %

As a result of the factors described above, our net income increased $5.8 million, or 15.3%, to $43.8 million in the three months ended October 1, 2021 from $38.0 million for the three months ended October 2, 2020.

Nine months ended October 1, 2021 compared to nine months ended October 2, 2020

For the nine months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

Powered Vehicle products $ 540.2 $ 372.1 $ 168.1 45.2 %

Specialty Sports products 416.6 256.1 160.5 62.7

Total sales $ 956.8 $ 628.2 $ 328.6 52.3 %

Total sales for the nine months ended October 1, 2021 increased approximately $328.6 million, or 52.3%, compared to the nine months ended October 2, 2020.

Powered Vehicle product sales increased by $168.1 million, or 45.2%, due to increased demand primarily in the aftermarket channel, including strong performance from our upfitting product lines, and the inclusion of a full nine months of revenues from our SCA subsidiary.

Additionally, our prior year results were impacted by production shutdowns at a majority of our OEM partners due to the COVID-19 pandemic.

Specialty Sports product sales increased by $160.5 million, or 62.7%, drive by increased demand primarily in the OEM channel.

Cost of sales

For the nine months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

Cost of sales $ 631.7 $ 422.1 $ 209.6 49.7 %

Cost of sales for the nine months ended October 1, 2021 increased approximately $209.6 million, or 49.7%, compared to the nine months ended October 2, 2020.

The increase in cost of sales was primarily due to the 52.3% increase in sales in the same period, as well as certain business factors affecting gross margin, which are discussed below.

For the nine months ended October 1, 2021, our gross margin increased 120 basis points to 34.0% compared to 32.8% for the nine months ended October 2, 2020.

The increase in gross margin was primarily due to higher volume sales in our Specialty Sports Group and the strong performance of our upfitting product lines, as well as favorable product and channel mix.

Additionally, our gross margin for the first nine months of the prior fiscal year period was negatively impacted by incremental costs related to the COVID-19 pandemic.

Operating expenses

For the nine months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

Operating expenses:

Sales and marketing $ 52.2 $ 38.3 $ 13.9 36.3 %

Research and development 33.4 24.8 8.6 34.7

General and administrative 70.2 53.4 16.8 31.5

Amortization of purchased intangibles 15.4 13.1 2.3 17.6

Total operating expenses $ 171.2 $ 129.6 $ 41.6 32.1 %

Total operating expenses for the nine months ended October 1, 2021 were $171.2 million compared to $129.6 million for the nine months ended October 2, 2020.

When expressed as a percentage of total sales, total operating expenses decreased to 17.9% of total sales for the nine months ended October 1, 2021 compared to 20.6% of total sales in the nine months ended October 2, 2020.

The increase in operating expenses is primarily due to higher employee related costs, increases in various other costs as we continue to expand our administrative support functions, and the impact of a full nine months of SCA operating costs.

These increases were partially offset by lower acquisition-related costs and lower patent litigation-related expenses.

Within operating expenses, our sales and marketing expenses increased approximately $13.9 million primarily due to commissions of $8.7 million, employee related expenses of $3.5 million, and various other expenses.

Research and development costs increased approximately $8.6 million primarily due to personnel investments to support future growth and product innovation.

General and administrative expenses increased by approximately $16.8 million due to higher employee related costs of $15.5 million, as well as various other investments of $9.8 million as we continue to right-size our administrative support functions.

These increases were partially offset by lower acquisition-related costs of $9.4 million and lower litigation expenses of $0.9 million.

Amortization of purchased intangibles for the nine months ended October 1, 2021 increased by approximately $2.3 million as compared to the nine months ended October 2, 2020.

The increase is primarily due to the amortization of intangible assets obtained through our acquisitions of SCA and Outside Van.

Income from operations

For the nine months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

Income from operations $ 153.8 $ 76.5 $ 77.3 101.0 %

As a result of the factors discussed above, income from operations for the nine months ended October 1, 2021 increased approximately $77.3 million, or 101.0%, compared to income from operations for the nine months ended October 2, 2020.

Interest and other expense, net

For the nine months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

Interest and other expense, net:

Interest expense $ 6.3 $ 7.0 $ (0.7) (10.0) %

Other expense (income) 0.9 (0.1) 1.0 (1,000.0) %

Interest and other expense, net $ 7.2 $ 6.9 $ 0.3 4.3 %

Interest and other expense, net for the nine months ended October 1, 2021 increased by $0.3 million to $7.2 million compared to $6.9 million for the nine months ended October 2, 2020.

The increase in interest and other expense, net is primarily due to higher foreign exchange losses, partially offset by a decrease in interest expense due to the pay down of additional borrowings incurred in the prior year in connection with our March 2020 acquisition of SCA and lower interest rates.

For the nine months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

Provision for income taxes $ 20.5 $ 9.6 $ 10.9 113.5 %

The effective tax rate was 14.0% and 13.7% for the nine months periods ended October 1, 2021 and October 2, 2020, respectively.

For the nine months ended October 1, 2021, the difference between the Company's effective tax rate of 14.0% and the 21% federal statutory rate resulted primarily from a windfall on 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 and state taxes.

For the nine months ended October 2, 2020, the difference between our effective tax rate of 13.7% and the 21% federal statutory rate resulted primarily from a lower tax rate on foreign-derived intangible income, research and development credits, a negotiated reduction of Switzerland's 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.

For the nine months ended

(in millions) October 1, 2021 October 2, 2020 Change ($) Change (%)

(in millions) April 1, 2022 April 2, 2021 Change ($) Change (%)

Net income $ 48.1 $ 38.0 $ 10.1 26.6 %

As a result of the factors described above, our net income increased $66.1 million, or 110.2%, to $126.1 million for the nine months ended October 1, 2021 from $60.0 million for the nine months ended October 2, 2020.

As a result of the factors described above, our net income increased $10.1 million, or 26.6%, to $48.1 million in the three months ended April 1, 2022 from $38.0 million for the three months ended April 2, 2021.

Liquidity and Capital Resources

Our primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments.

Historically, we have generally financed our liquidity needs with operating cash flows, borrowings under our Credit Facility and the issuance of common stock.

Historically, we have generally financed our liquidity needs with operating cash flows, borrowings under our Prior Credit Facility and the issuance of common stock.

These sources of liquidity may be impacted by various factors, including demand for our products, impacts of the COVID-19 pandemic, investments made by us in acquired businesses, our plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology.

As of April 1, 2022, we held $43.8 million of our $68.8 million of cash and cash equivalents in accounts of our subsidiaries outside of the U.S., which we may repatriate.

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

dollar-denominated trade receivable balances held by our Taiwan location.

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

For the nine months ended

(in thousands) October 1, 2021 October 2, 2020

Net cash provided by operating activities $ 149,309 $ 99,801

For the three months ended

(in thousands) April 1, 2022 April 2, 2021

Net cash (used in) provided by operating activities $ (143,124) $ 66,028

Net cash used in investing activities (8,191) (16,885)

Net cash (used in) provided by financing activities (20,291) 510,019

Net cash provided by (used in) financing activities 38,632 (3,752)

Effect of exchange rate changes on cash and cash equivalents 1,770 316

Change in cash and cash equivalents $ (110,913) $ 45,707

We expect that cash on hand, cash flow from operations and availability under our 2022 Credit Facility will be sufficient to fund our operations during the next 12 months from the date of this Form 10-Q and beyond.

Operating activities

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

In the nine months ended October 1, 2021, net cash provided by operating activities was $149.3 million and consisted of net income of $126.1 million, plus non-cash items totaling $42.2 million, offset by changes in operating assets and liabilities totaling $19.0 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $32.3 million, stock-based compensation of $9.9 million, and amortization of loan fees of $1.2 million, offset by a $1.2 million change in deferred taxes and uncertain tax positions.

Our investment in operating assets and liabilities is a result of increased inventory of $116.8 million, and accounts receivable of $37.9 million, partially offset by increases in accounts payable of $66.1 million, accrued expenses of $25.9 million, and income taxes of $8.3 million and a decrease in prepaids and other assets of $35.4 million.

The changes in inventory and accounts payable are primarily due to additional raw materials purchases to mitigate risks associated with supply chain uncertainty.

The change in accounts receivable reflects business growth.

The changes in accrued expenses and income taxes reflect higher compensation related accruals, warranty reserves, sales rebates and income taxes payable due to both business growth, as well as the timing of such payments.

The change in prepaids and other assets are primarily due to a decrease in deposits on chassis.

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

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

In the three months ended April 1, 2022, net cash used in operating activities was $143.1 million and consisted of net income of $48.1 million, plus non-cash items totaling $5.2 million, offset by changes in operating assets and liabilities totaling $196.4 million.

Non-cash items and other adjustments consisted of depreciation and amortization of $11.9 million, stock-based compensation of $3.0 million, and amortization of loan fees of $0.4 million, offset by a $10.1 million change in deferred taxes.

Our investment in operating assets and liabilities is a result of increases in prepaids and other assets of $171.3 million, accounts receivable of $37.7 million, inventory of $37.5 million, and decreases in income taxes of $5.0 million and accrued expenses of $3.5 million, partially offset by an increase in accounts payable of $58.6 million.

The change in prepaids and other assets is due to increased chassis deposits to secure supply for our upfitting business for the remainder of the year.

The change in inventory is due to additional raw materials purchases to mitigate risks associated with supply chain uncertainty.

The changes in accounts receivable and accounts payable reflect business growth and the timing of vendor payments.

The changes in accrued expenses and income taxes reflect lower compensation related accruals and income taxes payable due to business growth and the timing of such payments.

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

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

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

The change in prepaids and other current assets is primarily due to deposits on chassis and acquisition-related compensation payments held in escrow, both related to our SCA subsidiary acquisition in March 2020.

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

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

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

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

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

Investing activities

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

In the nine months ended October 1, 2021 and October 2, 2020, net cash used in investing activities was $55.6 million and $375.4 million, respectively.

Investing activities for the nine months ended October 1, 2021 consisted of $40.0 million of property and equipment additions and $15.6 million of cash consideration for our purchases of Outside Van and Sola Sport Pty Ltd.

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

Cash used in investing activities primarily relates to investments in our manufacturing and general infrastructure through the procurement of property and equipment.

In the three months ended April 1, 2022 and April 2, 2021, net cash used in investing activities consisted of $8.2 million and $16.9 million in property and equipment additions, respectively.

Financing activities

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

In the nine months ended October 1, 2021, net cash used in financing activities was $20.3 million, which consisted of payments of $6.6 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, payments on our term debt of $10.0 million, and $3.7 million in installment payments related to the purchase of the Tuscany non-controlling interest.

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

In the three months ended April 1, 2022, net cash used in financing activities was $38.6 million, which consisted of net proceeds from our Prior Credit Facility of $42.9 million, which were partially offset by payments on our term debt of $2.5 million, $0.9 million in installment payments related to the purchase of the Tuscany non-controlling interest and payments of $0.8 million to repurchase shares of our common stock, net of proceeds from our stock-based compensation program.

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

In the nine months ended October 2, 2020, net cash provided by financing activities was $510.0 million, which consisted of $392.4 million in proceeds, net of issuance costs, from our Credit Facility, which was amended and restated in connection with our acquisition of SCA, partially offset by net payments of $68.0 million on our line of credit and payments on our term debt of $5.0 million.

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

These inflows were partially offset by $4.6 million to repurchase shares of our common stock as part of our stock-based compensation program and $3.0 million in installment payments related to the purchase of the Tuscany non-controlling interest.

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

The term loan is subject to quarterly amortization payments.

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

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

Prior Credit Facility

The Prior Credit Facility (which was terminated on April 5, 2022 and replaced with the 2022 Credit Facility (as discussed below)), would have matured on March 11, 2025, and provided a senior secured revolving line of credit with a borrowing capacity of $250.0 million and a term loan of $400.0 million.

The term loan was subject to quarterly amortization payments.

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

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

The Company expensed $0.3 million of the remaining unamortized debt issuance costs, which are included in interest and other expense, net on the Condensed Consolidated Statements of Income for the nine months ended October 2, 2020.

The Company expensed $0.3 million of the remaining unamortized debt issuance costs.

The remaining $0.2 million were allocated to the line of credit.

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

The Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate ("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 October 1, 2021, the one-month LIBOR and prime rates were 0.08% and 3.25%, respectively.

At October 1, 2021, our weighted-average interest rate on outstanding borrowing was 1.30%.

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 October 1, 2021.

Off-Balance Sheet Arrangements

We have no material off-balance sheet arrangements.

Loan fees allocated to the term debt were amortized using the interest method and loan fees allocated to the line of credit were amortized on a straight-line basis over the term of the Prior Credit Facility.

The Prior Credit Facility provided for interest at a rate either based on the London Interbank Offered Rate ("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 April 1, 2022, the one-month LIBOR and prime rates were 0.44% and 3.50%, respectively.

At April 1, 2022, our weighted-average interest rate on outstanding borrowing was 1.68%.

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

The Company was in compliance with the covenants as of April 1, 2022.

2022 Credit Facility

On April 5, 2022, the Company entered into the a new credit agreement with Wells Fargo Bank, National Association, and other named lenders (the "2022 Credit Facility"), and concurrently repaid in full and terminated the Prior Credit Facility.

The 2022 Credit Facility, which matures on April 5, 2027, provides for revolving loans, swingline loans and letters of credit up to an aggregate amount of $650.0 million.

Refer to Note 16 - Subsequent Events for further details of the 2022 Credit Facility.

Material Cash Requirements

There have been no material changes to the information on our material cash requirements material cash requirements related to commitments or contractual obligations from those reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 24, 2022.

Historically, inflation has not had a material effect on our results of operations.

However, we have recently experienced a rise in raw material costs, supply constraints, labor availability issues and logistical cost increases and our expectation is that these impacts will continue into the fourth quarter of 2021.

While we are currently taking actions to mitigate these impacts, should these actions be unsuccessful or should such costs exceed what we can effectively mitigate, our business, financial condition and results of operations could be adversely impacted.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

There have been no material changes to the disclosures discussed in the section “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 24, 2022.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis