What changed in this filing

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Item 1A. Risk Factors

2022-05-05 compared with 2021-11-04 · 54 added, 56 removed, 581 unchanged (16% of the section changed)

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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 and has resulted in five million deaths worldwide, as of the date of filing this Quarterly Report, and it continues to spread in major markets in which we operate.

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

The impact of the COVID-19 pandemic, including changes in consumer behavior, COVID-19 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.

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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, including the Delta variant;

any additional waves or resurgences of the virus;

availability and ultimate efficacy of the vaccine on new variants of the virus, including the Omicron variant;

and the effect of the COVID-19 pandemic on short- and long-term general economic conditions.

The impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials is uncertain, but may prove to negatively impact our business and operations.

The short and long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time.

We continue to monitor any adverse impact that the outbreak of war in Ukraine and the subsequent institution of sanctions against Russia by the United States and several European and Asian countries may have on the global economy in general, on our business and operations and on the businesses and operations of our suppliers and customers.

For example, a prolonged conflict may result in increased inflation, escalating energy prices and constrained availability, and thus increasing costs, of raw materials.

To the extent the war in Ukraine may adversely affect our business, it may also have the effect of heightening many of the other risks described in our risk factors, such as those relating to data security, supply chain, volatility in prices of inputs, and market conditions, any of which could negatively affect our business and financial condition.

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.

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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 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, or there are rising prices due to overall inflationary pressures, 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.

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and countries in Europe.

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

These areas have historically experienced recessions, disruptions in banking and/or financial systems, economic weakness and uncertainty, and there appears to be an increasing risk of recessions or inflationary economic impacts primarily due to the global COVID-19 pandemic, the Russian invasion of Ukraine, escalating energy costs, global supply chain disruptions and other economic changes.

In addition, our products are recreational in nature and are generally discretionary purchases by consumers.

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If we are unable to maintain our premium brand image, our business may suffer.

OEMs dealers and distributors select our products in part because of the premium brand reputation we hold with them and our end users.

OEM dealers and distributors select our products in part because of the premium brand reputation we hold with them and our end users.

Therefore, our success depends on our ability to maintain and build the image of our brands.

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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, continue to provide high-quality products and services, and preserve our reputation.

In order to continue to enhance the image of our brands, 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.

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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 brand or our sponsored athletes, which could be amplified on social media;

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

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

• inconsistent uses of our brand and our other intellectual property assets, as well as failure to protect our intellectual property;

• inconsistent uses of our brands and our other intellectual property assets, as well as failure to protect our intellectual property;

• 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.

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

Our growth in the powered vehicle category is dependent upon our continued ability to expand our product sales into powered vehicles that require performance-defining products and the continued expansion of the market for these powered vehicles.

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Such market growth includes the creation of new classes of vehicles that can benefit from our products, such as trucks that are up-fitted with products to enhance their off-road capability, and our ability to create products for these vehicles.

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

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

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.

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A disruption in the operations of our facilities, or delays in our planned expansion of certain facilities, could have a negative effect on our business, financial condition or results of operations.

During 2017, we completed the process of moving all of the manufacturing of our bike suspension component products to our facility in Taichung, Taiwan.

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.

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.

We are in the process of moving additional manufacturing operations as we re-balance existing facilities or expand to new manufacturing locations.

As a result, we have incurred, and expect to continue to incur, costs associated with some duplication of facilities, equipment and personnel, the amount of which could vary materially from our projections.

We recently completed the construction of the Gainesville, Georgia facility to diversify our manufacturing platform and provide additional long-term capacity to support growth in our Powered Vehicles Group.

The Hall County Facility is being used for manufacturing, warehousing, distribution and office space.

In the first quarter of 2022, we completed the transition of our Watsonville, California facility and relocation of our powered vehicles suspension manufacturing to the Hall County Facility.

As a result, we have incurred, and may to continue to incur, costs associated with some duplication of facilities, equipment and personnel, the amount of which could vary materially from our projections.

Unforeseen difficulties in our Georgia expansion project and future expansion projects, whatever the cause, could have a material adverse effect on our business, customer relationships, financial condition, operating results, cash flow, and liquidity.

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If there was a manufacturing disruption in any of our manufacturing facilities, we might be unable to meet product delivery requirements and our business, financial condition or results of operations could be negatively affected, even if the disruption was covered in whole or in part by our business interruption insurance.

Any significant delay in deliveries to our customers could lead to increased returns or cancellations, expose us to damage claims from our customers or damage our brand and, in turn, negatively affect our business, financial condition or results of operations.

Any significant delay in deliveries to our customers could lead to increased returns or cancellations, expose us to damage claims from our customers or damage our brands and, in turn, negatively affect our business, financial condition or results of operations.

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

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Furthermore, the ongoing COVID-19 pandemic has only increased uncertainty for global supply chains, as port congestion and shipping container shortages have become exacerbated, which could adversely affect our operating results.

The proposed new regulation concerning mandatory COVID-19 vaccination of employees could have a material adverse impact on our business and results of operations.

On September 9, 2021, President Biden announced a proposed new rule requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require unvaccinated workers to get a negative test at least once a week.

The Department of Labor’s Occupational Safety and Health Administration is drafting an emergency regulation to carry out this mandate, which is expected to take effect in the coming weeks.

It remains unclear, among other things, if the vaccine mandate will apply to all employees or only to employees who work in the office, and how compliance will be documented.

It is currently not possible to predict with certainty the exact impact the new regulation would have on us.

As a company with more than 100 employees, we would be required to mandate COVID-19 vaccination of our workforce or our unvaccinated employees would require weekly testing.

This may result in employee attrition, which could be material as a substantial number of our employees are based in states where vaccination rates are below the national average.

If we were to lose employees, it could have an adverse effect on future revenues and costs, which could be material.

Accordingly, the proposed new regulation when implemented could have a material adverse effect on our business and results of operations.

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

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We also rely on our dealers and distributors to be knowledgeable about our products and their features.

If we are not able to educate our dealers and distributors so that they may effectively sell our products as part of a positive buying experience, or if they fail to implement effective retail sales initiatives, focus selling efforts on our competitors’ products, reduce the quantity of our products that they sell or reduce their operations due to financial difficulties or otherwise, our brand and business could suffer.

We do not control our dealers or distributors, and many of our contracts allow these entities to offer our competitors’ products.

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• difficulty in transporting materials internationally, including labor disputes at West Coast ports, which handle a large amount of our products;

• geopolitical regional conflicts, including the impact of the Russian invasion of Ukraine on the global economy, energy supplies and raw materials, terrorist activity, political unrest, civil strife, acts of war and other political uncertainty;

• political, economic, or other actions from China could impact Taiwan and its economy, and may adversely affect our operations in Taiwan, our customers, and our supply chain;

• increased difficulty in protecting our intellectual property rights and trade secrets;

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• unexpected government action or changes in legal or regulatory requirements;

• geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war and other political uncertainty;

• political, economic, or other actions from China could impact Taiwan and its economy, and may adversely affect our operations in Taiwan, our customers, and our supply chain;

• changes in tariffs, quotas, trade barriers and other similar restrictions on sales;

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If any of the foregoing were to occur, our sales could decrease and our business, financial condition or results of operations could suffer.

We have been and may become subject to intellectual property disputes that could cause us to incur significant costs or pay significant damages or that could prohibit us from selling our products.

We have been and may become subject to intellectual property disputes that could cause us to incur significant costs, pay significant damages or prohibit us from selling our products.

As we develop new products or attempt to use our brands in connection with new products, we seek to avoid infringing the valid patents and other intellectual property rights of our competitors.

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If any of our products are or are alleged to be defective, we may be required to participate in a recall involving such products.

Our products and items where our product are incorporated as original equipment on the purchased item are frequently subject to regulation by various agencies, including, for example, the National Highway Traffic Safety Administration ("NHTSA"), the Consumer Product Safety Commission ("CPSC") and/or similar state and international regulatory authorities.

Our products and items where our products are incorporated as original equipment on the purchased item are frequently subject to regulation by various agencies, including, for example, the National Highway Traffic Safety Administration ("NHTSA"), the Consumer Product Safety Commission ("CPSC") and/or similar state and international regulatory authorities.

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.

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In addition to the direct costs related to these or other recalls, our aftermarket and OEM sales could be adversely affected if we do not have a ready replacement product for such recalled products.

Such recall events could also adversely affect our brand image and have a negative effect on our relationships with our OEMs, sponsored athletes and race teams, or otherwise have a negative effect on our business, financial condition or results of operations.

Such recall events could also adversely affect the image of brands and have a negative effect on our relationships with our OEMs, sponsored athletes and race teams, or otherwise have a negative effect on our business, financial condition or results of operations.

An adverse determination in any material product liability claim against us could adversely affect our operating results or financial condition.

The use of our products by consumers, often under extreme conditions, exposes us to risks associated with product liability claims.

If our products are defective or used incorrectly by our customers, bodily injury, property damage or other injury, including death, may result in, and could give rise to product liability claims against us, which could adversely affect our brand image or reputation.

We have encountered product liability claims in the past and carry product liability insurance to help protect us against the costs of such claims, although our insurance may not be sufficient to cover all losses.

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

As of October 1, 2021, we employed approximately 3,870 full-time employees worldwide, a large percentage of which work at our manufacturing facilities.

As of April 1, 2022, we employed approximately 4,200 employees worldwide, a large percentage of which work at our manufacturing facilities.

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

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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.

For example, there have been significant increases in the price of gasoline and diesel fuel due to geopolitical developments, including the impacts resulting from Russian military actions in Ukraine, and there are heightened uncertainties regarding the future price and availability of gasoline and diesel fuel.

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.

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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.

Further, the evolving labor market and increased ability for employees in our industry and other industries to work from home or have remote work arrangements may impact the turnover of our employees, potentially making it more difficult for us to compete.

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

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

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

• earthquakes, fires, floods, hurricanes and other natural disasters;

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

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and other jurisdictions that could adversely impact our business and require that we incur substantial costs.

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.

We use a variety of information technology systems in the ordinary course of business, which are potentially vulnerable to unauthorized access, computer viruses, ransomware software viruses and other similar types of malicious activities 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.

Further, ransomware attacks are becoming increasingly prevalent and severe.

To alleviate the financial, operational, and reputational impact of a ransomware attack, it may be preferable to make extortion payments, but we may be unwilling or unable to do so, including, for example, if applicable laws or regulations prohibit such payments.

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

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

The CCPA has been amended several times, including by the California Privacy Rights Act (the "CPRA"), a California ballot initiative that passed in November 2020, and takes effect on January 1, 2023, which, among other things, significantly modifies the CCPA, including by expanding consumers' rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts.

The CCPA has been amended several times, including by the California Privacy Rights Act (the "CPRA"), a California ballot initiative that passed in November 2020, and takes effect in most material aspects starting on January 1, 2023, which, among other things, significantly modifies the CCPA, including by expanding consumers' rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts.

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

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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.

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

Such events could cause disruptions in our operations.

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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.

We have completed several acquisitions over the past several years, including our acquisition of SCA in March 2020, Outside Van and Sola Sport Pty Ltd.

("Sola Sport") in May 2021, and Shock Therapy in December 2021.

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

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The 2022 Credit Facility places operating restrictions on us and creates default risks.

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

The 2022 Credit Facility with Wells Fargo Bank, National Association 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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In the future, we and our subsidiaries may be able to incur substantial additional debt from amendments to the 2022 Credit Facility, additional lending sources subject to the restrictions contained in the 2022 Credit Facility, or because of certain debt instruments we may issue.

As of October 1, 2021, we had $380.6 million of indebtedness, and $235.0 million in revolving credit available to borrow under the Credit Facility.

As of April 5, 2022, we had $475.0 million of indebtedness, and $175.0 million in revolving credit available to borrow under the 2022 Credit Facility.

Our ability to borrow under the 2022 Credit Facility fluctuates from time to time due to, among other factors, our borrowings under the 2022 Credit Facility.

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Any such increases in the interest rate or increases of our borrowings under the 2022 Credit Facility will increase our interest expense.

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.

Interest rates in the U.S.

have been increasing from recent 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 April 2022, 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 rate swap arrangement.

As of October 1, 2021, we had $380.6 million of indebtedness outstanding under the Credit Facility.

Based on the $180.6 million of variable interest rate indebtedness that was outstanding as of October 1, 2021, after giving effect to our interest rate swap, a hypothetical 100 basis point increase or decrease in the interest rate would have resulted in an approximately $0.5 million increase or decrease in interest expense for the three months ended October 1, 2021, respectively.

As of April 5, 2022, we had $475.0 million of indebtedness outstanding under the 2022 Credit Facility.

Based on the $375.0 million of variable interest rate indebtedness that was outstanding under the 2022 Credit Facility as of April 5, 2022, after giving effect to our interest rate swap, a hypothetical 100 basis point increase or decrease in the interest rate would have resulted in an approximately $0.9 million increase or decrease in interest expense for the three months ended April 1, 2022, respectively.

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.

We may periodically enter into agreements to reduce the risks associated with increases in interest rates, such as our 2021 Swap Agreement and 2022 Swap Agreement.

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

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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 income tax requirements in various jurisdictions in the U.S and internationally.

We are subject to income tax requirements in various jurisdictions in the U.S.

and internationally.

In preparing our financial statements, we provide for income taxes based on current tax laws and regulations and the estimated taxable income within each of these jurisdictions.

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

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

Changes to tax laws or interpretations proposed by the current administration in the U.S.;

modifications to the U.S.

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and the European Union also imposed tariffs on each other's products stemming from a dispute at the World Trade Organization related to aircraft.

The Biden Administration and United States Congress have created significant uncertainty about their review of tariffs and future relationships between the United States and other countries with respect to regulations.

The Biden Administration and U.S.

Congress have created significant uncertainty about their review of tariffs and future relationships between the U.S.

and other countries with respect to regulations.

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.

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The issuance of additional shares of our common stock, such as the follow-on offering of 2.8 million shares of common stock that we completed in June 2020, could dilute the ownership interest of our common stockholders and could depress the market price of shares of our common stock.

Our Amended and Restated Certificate of Incorporation authorizes us to issue 90,000,000 shares of common stock, 42,103,983 of which shares were outstanding as of October 1, 2021.

Our Amended and Restated Certificate of Incorporation authorizes us to issue 90,000,000 shares of common stock, 42,148,734 of which shares were outstanding as of April 1, 2022.

In the future, we may issue additional shares of common stock or other equity or debt securities convertible into common stock in connection with financings, acquisitions, registration statements or otherwise.

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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 1A. Risk Factors