What changed in this filing

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Item 1. Financial Statements

2023-05-04 compared with 2022-11-03 · 126 added, 182 removed, 415 unchanged (43% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

September 30, December 31,

March 31, December 30,

Current assets:

Cash and cash equivalents $ 91,892 $ 145,250

Accounts receivable (net of allowances of $ 455 and $ 410 at September 30, 2022 and December 31, 2021, respectively)

Accounts receivable (net of allowances of $ 789 and $ 443 at March 31, 2023 and December 30, 2022, respectively)

195,313 200,440

13 unchanged sentences

Accrued expenses 118,305 127,729

Current portion of long-term debt — 17,500

Total current liabilities 253,636 258,889

Line of credit 360,000 200,000

Long-term debt, less current portion — 360,953

Other liabilities 46,549 38,061

2 unchanged sentences

Stockholders’ equity

Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of September 30, 2022 and December 31, 2021

Preferred stock, $ 0.001 par value — 10,000 authorized and no shares issued or outstanding as of March 31, 2023 and December 30, 2022

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

43,157 shares issued and 42,267 outstanding as of September 30, 2022;

43,193 shares issued and 42,303 outstanding as of March 31, 2023;

43,160 shares issued and 42,270 outstanding as of December 30, 2022

1 unchanged sentence

Treasury stock, at cost;

890 common shares as of September 30, 2022 and December 31, 2021

890 common shares as of March 31, 2023 and December 30, 2022

( 13,754 ) ( 13,754 )

7 unchanged sentences

(in thousands, except per share data)

For the three months ended For the nine months ended

September 30, October 1, September 30, October 1,

2022 2021 2022 2021

For the three months ended

March 31, April 1,

Sales $ 399,851 $ 377,977

8 unchanged sentences

Income from operations 54,690 54,155

Interest and other (income) expense, net:

Interest and other expense, net:

Interest expense 3,521 1,977

Other (income) expense, net ( 1,441 ) ( 187 ) 3,067 855

Interest and other (income) expense, net 1,226 1,662 9,408 7,206

Other expense, net 24 1,692

Interest and other expense, net 3,545 3,669

Income before income taxes 51,145 50,486

11 unchanged sentences

(in thousands)

For the three months ended For the nine months ended

September 30, October 1, September 30, October 1,

2022 2021 2022 2021

For the three months ended

March 31, April 1,

Net income $ 41,767 $ 48,050

10 unchanged sentences

Shares Amount Shares Amount

Balance - January 1, 2021 42,692 $ 42 890 $ ( 13,754 ) $ 336,834 $ 1,068 $ 394,981 $ 719,171

Balance - December 31, 2021 43,010 $ 42 890 $ ( 13,754 ) $ 344,119 $ 4,876 $ 558,799 $ 894,082

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 29 — — — ( 820 ) — — ( 820 )

3 unchanged sentences

Balance - April 1, 2022 43,039 $ 42 890 $ ( 13,754 ) $ 346,328 $ 9,619 $ 606,849 $ 949,084

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

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 22 — — — ( 1,537 ) — — ( 1,537 )

Stock-based compensation expense — — — — 3,986 — — 3,986

Other comprehensive loss — — — — — ( 601 ) — ( 601 )

Net income — — — — — — 43,823 43,823

Balance - October 1, 2021 42,994 $ 42 890 $ ( 13,754 ) $ 340,468 $ 2,219 $ 521,065 $ 850,040

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

2 unchanged sentences

(in thousands)

Common Stock Treasury Additional paid-in capital Accumulated other comprehensive income Retained earnings Total stockholders' equity

Common Stock Treasury Additional paid-in capital Accumulated other comprehensive loss Retained earnings Total stockholders' equity

Shares Amount Shares Amount

2 unchanged sentences

Stock-based compensation expense — — — — 5,701 — 5,701

Other comprehensive income — — — — — 4,743 — 4,743

Net income — — — — — — 48,050 48,050

Balance - April 1, 2022 43,039 $ 42 890 $ ( 13,754 ) $ 346,328 $ 9,619 $ 606,849 $ 949,084

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 114 — — — ( 2,950 ) — — ( 2,950 )

Stock-based compensation expense — — — — 4,061 — — 4,061

Other comprehensive loss — — — — — ( 2,452 ) — ( 2,452 )

Net income — — — — — — 41,767 41,767

Balance - July 1, 2022 43,153 $ 42 890 $ ( 13,754 ) $ 347,439 $ 7,853 $ 660,347 $ 1,001,927

Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding 4 — — — ( 325 ) — — ( 325 )

Stock-based compensation expense — — — — 4,289 — — 4,289

Other comprehensive loss — — — — — ( 1,528 ) — ( 1,528 )

Net income — — — — — — 50,771 50,771

Balance - September 30, 2022 43,157 $ 42 890 $ ( 13,754 ) $ 351,403 $ 6,325 $ 711,118 $ 1,055,134

Balance - March 31, 2023 43,193 $ 42 890 $ ( 13,754 ) $ 359,785 $ 12,330 $ 805,844 $ 1,164,247

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

2 unchanged sentences

(in thousands)

For the nine months ended

September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

OPERATING ACTIVITIES:

3 unchanged sentences

Stock-based compensation 5,701 3,029

Write off of unamortized loan origination fees 1,927 —

Amortization of loan fees 226 402

Amortization of deferred gains on prior swap agreements ( 2,113 ) ( 27 )

(Gain) loss on disposal of property and equipment ( 1,845 ) 414

Deferred taxes and uncertain tax positions ( 12,515 ) ( 1,218 )

Amortization of deferred gains on prior swap settlements ( 1,063 ) ( 22 )

Amortization of inventory fair value step-up 3,064 —

Deferred taxes 51 ( 10,083 )

Changes in operating assets and liabilities:

5 unchanged sentences

Accrued expenses and other liabilities ( 7,781 ) ( 3,521 )

Net cash provided by operating activities 57,035 148,983

Net cash used in operating activities ( 66,835 ) ( 143,125 )

INVESTING ACTIVITIES:

Acquisitions of businesses ( 130,918 ) —

Acquisition of other assets ( 2,300 ) —

Purchases of property and equipment ( 11,118 ) ( 8,191 )

Acquisition of businesses, net of cash acquired — ( 15,625 )

Proceeds from sale of property and equipment 3,180 49

Net cash used in investing activities ( 144,336 ) ( 8,191 )

FINANCING ACTIVITIES:

Proceeds from line of credit, net of origination fees of $1,980

582,356 17,093

Proceeds from line of credit 190,000 109,336

Payments on line of credit ( 30,000 ) ( 66,484 )

Repayment of term debt upon refinancing of Prior Credit Facility ( 382,500 ) ( 10,000 )

Proceeds from termination of swap agreement 12,270 324

Repayment of term debt — ( 2,500 )

Installment on purchase of non-controlling interest — ( 900 )

Repurchases from stock compensation program, net ( 2,156 ) ( 820 )

Net cash used in financing activities ( 54,004 ) ( 19,967 )

Net cash provided by financing activities 157,844 38,632

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS ( 31 ) 1,770

6 unchanged sentences

(in thousands)

For the nine months ended

For the three months ended

SUPPLEMENTAL CASH FLOW INFORMATION:

September 30, 2022 October 1, 2021

March 31, 2023 April 1, 2022

Cash paid during the period for:

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(the "Company") designs, engineers, manufactures, and markets performance-defining products and systems for customers worldwide.

Our premium brand, performance-defining products and systems are used primarily for bicycles ("bikes"), on-road vehicles with and without off-road capabilities, side-by-side vehicles ("Side-by-Sides"), off-road vehicles and trucks, all-terrain vehicles ("ATVs"), snowmobiles, specialty vehicles and applications, motorcycles and commercial trucks.

Our premium brand, performance-defining products and systems are used primarily for bicycles ("bikes"), side-by-side vehicles ("side-by-sides"), on-road vehicles with and without off-road capabilities, off-road vehicles and trucks, all-terrain vehicles ("ATVs"), snowmobiles, and specialty vehicles and applications.

Some of our products are specifically designed and marketed to the leading cycling and powered vehicle original equipment manufacturers ("OEMs"), while others are distributed to consumers through a global network of dealers and distributors.

12 unchanged sentences

The twelve month periods ended December 29, 2023 and December 30, 2022, will include or have included 52 weeks.

The three and nine month periods ended September 30, 2022 and October 1, 2021 each included 13 weeks and 39 weeks, respectively.

The three month periods ended March 31, 2023 and April 1, 2022 each included 13 weeks.

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

3 unchanged sentences

The Company’s performance-defining products and systems are solutions that improve performance of powered vehicles and bikes.

Powered vehicles include on-road vehicles with off-road capabilities, Side-by-Sides, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, and motorcycles.

Powered vehicles include side-by-sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications, and motorcycles.

Revenue is measured based on the consideration specified in a contract with a customer.

3 unchanged sentences

Sales tax and other similar taxes are excluded from revenues.

Revenues generated from upfit packages generally do not include the vehicle chassis, as the Company is not the principal in this arrangement and the automotive dealer purchases the chassis directly from the OEM.

The Company is required to place a deposit on all vehicle chassis that the dealer purchases directly from the OEM, however that deposit is refunded when the chassis is sold through to the end customer.

Provisions for discounts, rebates, sales incentives, returns, and other adjustments are generally provided for in the period the related sales are recorded, based on management’s assessment of historical trends and projection of future results.

13 unchanged sentences

therefore, actual results could differ from management’s estimates.

Reclassifications - We have reclassified certain prior period amounts within our condensed consolidated statement of cash flows for the nine months ended October 1, 2021 to conform to our current year presentation.

Reclassifications - We have reclassified certain prior period amounts within our condensed consolidated statement of cash flows for the three months ended April 1, 2022 to conform to our current year presentation.

Certain Significant Risks and Uncertainties - The Company is subject to those risks common in manufacturing-driven markets, including, but not limited to, competitive forces, dependence on key personnel, customer demand for its products, the successful protection of its proprietary technologies, compliance with government regulations, and the possibility of not being able to obtain additional financing when needed.

5 unchanged sentences

government, social, business and other actions that have been and will be taken in response to the COVID-19 pandemic;

increases in COVID-19 case counts;

any additional waves of the virus, availability and ultimate efficacy of the vaccine on the 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.

15 unchanged sentences

Amounts owed under the Company's Prior Credit Facility (as defined in Note 8 - Debt below) approximated fair value due to the variable interest rate features embedded in the term debt.

Recent Accounting Pronouncements - In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes, which helps simplify how entities account for income taxes by removing various exceptions related to the recognition of deferred tax liabilities and updating other tax computation requirements.

This standard is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted.

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 condensed consolidated financial statements.

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

The amendments in ASU 2020-10 contain improvements to the Codification to ensure consistency by including disclosure guidance in the appropriate Disclosure Section.

This guidance includes an option for an entity to provide certain information either on the face of the financial statements or in the notes.

ASU 2020-10 amends the Codification to include this language in the appropriate disclosure section.

The ASU also provides clarification to various codification topics to improve consistency in guidance application.

The amendments are effective for interim and annual reporting periods in fiscal years beginning after December 15, 2020, with early adoption permitted.

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 condensed consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Recent Accounting Pronouncements - In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

5 unchanged sentences

Disclosure of Supplier Finance Program Obligations.

Under ASU 2022-04, the buyer in a supplier finance program is required to disclose information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented.

Under ASU 2022-04, the buyer in a supplier finance program is required to disclose sufficient information to allow a user of the financial statements to understand the program's nature, activity during the period, changes from period to period, and potential magnitude.

The guidance is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted.

The Company will adopt this guidance in the first quarter of 2023.

This adoption is not expected to have a material impact on our financial statements.

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

These amendments will be applied retrospectively to each period in which a balance sheet is presented, except for the disclosure of rollforward information, which will be applied prospectively.

The Company adopted the interim disclosure requirements, as applicable, during the first quarter of 2023 and will adopt the annual disclosure requirements, except for the annual rollforward, in our 2023 Annual Report on Form 10-K.

The Company expects to adopt the annual rollforward requirement in our 2024 Annual Report on Form 10-K.

Refer to the "Bailment Pool Arrangements" section within Note 9 - Commitments and Contingencies for further details of this adoption.

The following table summarizes total sales by product category:

For the three months ended For the nine months ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

Powered Vehicles $ 280,964 $ 208,107

2 unchanged sentences

The following table summarizes total sales by sales channel:

For the three months ended For the nine months ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

OEM $ 217,661 $ 201,265

1 unchanged sentence

Total sales $ 399,851 $ 377,977

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

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

For the three months ended For the nine months ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

North America $ 291,910 $ 233,959

3 unchanged sentences

Total sales $ 399,851 $ 377,977

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 September 30, 2022 for contracts with a duration of more than one year was approximately $743, all of which is expected to be recognized during fiscal years 2023 to 2025.

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Inventory consisted of the following:

September 30, December 31,

March 31, December 30,

Raw materials $ 259,346 $ 247,441

4 unchanged sentences

Prepaids and other current assets consisted of the following:

September 30, December 31,

March 31, December 30,

Prepaid chassis deposits $ 178,421 $ 74,013

7 unchanged sentences

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

September 30, December 31,

March 31, December 30,

Building and building improvements $ 74,061 $ 73,594

5 unchanged sentences

Transportation equipment 14,065 12,450

Total 285,823 271,274

Total property, plant and equipment 310,652 295,308

accumulated depreciation and amortization ( 100,348 ) ( 93,093 )

Property, plant and equipment, net $ 199,568 $ 192,003

At the end of March 2022, the Company retired approximately $6,717 in assets that were fully depreciated in response to the shutdown of our Watsonville, California facility.

Total property, plant and equipment, net $ 210,304 $ 202,215

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

September 30, December 31,

March 31, December 30,

United States $ 174,901 $ 166,544

5 unchanged sentences

The Company has operating lease agreements for administrative, research and development, manufacturing, and sales and marketing facilities.

These leases have remaining lease terms ranging from one to ten years , some of which include options to extend the lease term for up to ten years , and some of which include options to terminate the leases within one year .

These leases have remaining lease terms ranging from one to eleven years , some of which include options to extend the lease term for up to eleven years , and some of which include options to terminate the leases within one year .

Certain leases are subject to annual escalations as specified in the lease agreements.

2 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 5.12 years and the weighted-average incremental borrowing rate was 2.15 % as of September 30, 2022.

The weighted-average remaining lease term for the Company's operating leases was 6 years and the weighted-average incremental borrowing rate was 2.67 % as of March 31, 2023.

Operating lease costs consisted of the following:

For the three months ended For the nine months ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

Operating lease cost $ 3,098 $ 2,823

Other lease costs (1) 1,055 718

Total $ 3,488 $ 2,726 $ 11,133 $ 7,401

Total lease costs $ 4,153 $ 3,541

(1) Includes short-term leases and variable lease costs.

1 unchanged sentence

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

Balance Sheet Classification September 30, 2022

Balance Sheet Classification March 31, 2023

Operating lease right-of-use assets Lease right-of-use assets $ 58,029

3 unchanged sentences

For fiscal year Total future payments

2022 (remaining three months) $ 2,636

2023 (remaining nine months) $ 10,015

Thereafter 16,060

9 unchanged sentences

Accrued expenses consisted of the following:

September 30, December 31,

March 31, December 30,

Payroll and related expenses $ 26,037 $ 38,193

3 unchanged sentences

Accrued sales rebate 10,225 8,693

Current portion of non-controlling interest buyout liability — 2,700

Other accrued expenses 15,093 12,757

1 unchanged sentence

Activity related to warranties is as follows:

For the three months ended For the nine months ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

Beginning warranty liability $ 17,071 $ 15,510

24 unchanged sentences

Base rate revolving loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the highest of (i) Federal Funds Rate plus 0.50 %, (ii) the rate of interest in effect for such day as publicly announced from time to time by the lender as its “prime rate”, and (iii) Adjusted Term SOFR rate for a one-month tenor plus 1.00 %, subject to the interest rate floors set forth therein, plus a margin ranging from 0.00 % to 1.00 %.

At September 30, 2022, the one-month SOFR and three-month SOFR rates were 2.47 % and 2.13%, respectively.

At September 30, 2022, our weighted-average interest rate on outstanding borrowing was 3.72 %.

At March 31, 2023, the one-month SOFR and three-month SOFR rates were 4.63 % and 4.51 %, respectively.

At March 31, 2023, our weighted-average interest rate on outstanding borrowing was 5.38 %.

The 2022 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 September 30, 2022.

The Company was in compliance with the covenants as of March 31, 2023.

The following table summarizes the line of credit under the 2022 Credit Facility:

September 30,

March 31, December 30,

Amount outstanding $ 360,000 $ 200,000

Standby letters of credit —

Available borrowing capacity 290,000 $ 450,000

4 unchanged sentences

Through the 2022 Swap Agreement, the Company hedges the variability of cash flows in interest payments associated with $ 100,000 of its variable rate debt.

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

Refer to Note 10 - Derivatives and Hedging for further details of the 2022 Swap Agreement.

FOX FACTORY HOLDING CORP.

6 unchanged sentences

Legal Proceedings - From time to time, the Company is involved in legal proceedings that arise in the ordinary course of business.

Although the Company cannot assure the outcome of any such legal proceedings, based on information currently available, management does not believe that the ultimate resolution of any pending matters will have a material adverse effect on the Company's financial condition, results of operations or cash flows.

Although the Company cannot assure the outcome of any such legal proceedings, based on information currently available, management does not believe that the ultimate resolution of any pending matters, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition, results of operations or cash flows.

Bailment Pool Arrangements - The Company has relationships with several OEM partners, including General Motors ("GM"), Ford Motor Company ("Ford"), and Chrysler to obtain truck chassis.

For Chrysler chassis purchases, the Company pays a cash deposit upon transfer of the chassis to the Company’s premises, and records the chassis within prepaids and other current assets on the Consolidated Balance Sheet until the chassis is transferred to the dealer customer’s floorplan, at which time the cash deposit is returned to the Company.

For GM and Ford, the Company has entered into floorplan financing agreements with the OEM.

The Company receives an allocation of chassis and pays interest expense on the allocated value of trucks based on the duration of time they are on the Company’s premises.

Bailment ends when the vehicle is sold to an authorized dealer, or upon authorized return of the vehicle to the manufacturer.

The Company does not pay a cash deposit to obtain GM and Ford chassis, and accordingly it does not recognize an asset or a liability related to these chassis.

Interest payments made to manufacturer-affiliated finance companies are classified as operating activities in the Consolidated Statements of Cash Flows.

At March 31, 2023, the Company had utilized $ 10,470 out of a maximum of $ 26,200 of Ford allocation and $ 37,881 out of a maximum of $ 100,000 GM allocation.

The company paid $ 1,401 of interest expense related to chassis on hand, and received interest credits from Chrysler of $ 426 resulting in net floorplan interest expense of $ 975 .

Other Commitments - On November 30, 2017, the Company through FF US Holding Corp., acquired the assets of Flagship, Inc.

6 unchanged sentences

The cash portion was settled in quarterly installment payments beginning in July 2020 through July 2022, which amounted to $ 6,556 , $ 4,550 and $ 2,700 in 2020, 2021 and 2022, respectively.

The Company paid $ 900 and $2,700 during the three and nine months ended September 30, 2022 and $ 900 and $3,650 during the three and nine months ended October 1, 2021, respectively.

The Company had no remaining liability as of September 30, 2022.

The Company paid $ 900 during the three months ended April 1, 2022.

The Company had no remaining liability as of March 31, 2023.

The stock portion of 136 shares were released from escrow on a quarterly basis starting January 2021 through July 2022.

The Company released 19 and 58 shares of stock during the three and nine months ended September 30, 2022 and 19 and 58 shares of stock during the three and nine months ended October 1, 2021, respectively.

The Company had no remaining shares to be released as of September 30, 2022.

The Company released 19 shares of stock during the three months ended April 1, 2022.

The Company had no remaining shares to be released as of March 31, 2023.

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

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Derivatives and Hedging

3 unchanged sentences

Interest rate swaps involve the receipt of floating-rate amounts in exchange for fixed-rate interest payments based on the one-month London Interbank Offered Rate ("LIBOR") or SOFR over the lives of the agreements without an exchange of the underlying principal amounts.

As of September 30, 2022 and December 31, 2021, the Company had the following interest rate swap contracts:

September 30, 2022 December 31, 2021

As of March 31, 2023 and December 30, 2022, the Company had the following interest rate swap contracts:

March 31, 2023 December 30, 2022

Effective Date Termination Date Notional Amount Unrealized Gain in AOCI Unrealized Gain in AOCI

3 unchanged sentences

Total $ 11,965 $ 14,456

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

On June 11, 2021, the Company terminated its existing swap agreement (the "2020 Swap Agreement") and entered into an interest rate swap agreement (the "2021 Swap Agreement") with a notional amount of $ 200,000 .

6 unchanged sentences

As required under ASC 815, the interest rate swap contracts’ effectiveness will be assessed on a quarterly basis using a quantitative regression analysis.

The gains and losses, net of tax, related to the derivative instruments designated as cash flow hedges recognized in accumulated other comprehensive income for the three and nine months ended September 30, 2022 were a gain of $ 2,563 and $ 9,296 , respectively;

and for the three and nine months ended October 1, 2021 were a loss of $ 45 and a gain of $ 1,575 , respectively.

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 months ended March 31, 2023 and April 1, 2022 were a loss of $ 3,063 and a gain of $ 5,811 , respectively.

Over the next twelve months, the Company expects to recognize $ 3,256 of the $ 11,965 of unrealized gains included in accumulated other comprehensive income related to the interest rate swap contracts.

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

Fair Value Measurements and Financial Instruments

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:

September 30, 2022 December 31, 2021

March 31, 2023 December 30, 2022

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

1 unchanged sentence

Total assets measured at fair value $ — $ 3,659 $ — $ 3,659 $ — $ 5,087 $ — $ 5,087

Prior Credit Facility $ — $ — $ — $ — $ — $ 378,453 $ — $ 378,453

Total liabilities measured at fair value $ — $ — $ — $ — $ — $ 378,453 $ — $ 378,453

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 nine month period ended September 30, 2022.

As of December 31, 2021, the carrying amount of the principal under the Company’s Prior Credit Facility approximated fair value because it had a variable interest rate that reflected market changes in interest rates and changes in the Company’s net leverage ratio.

The Prior Credit Facility was terminated on April 5, 2022 and replaced with the revolving 2022 Credit Facility.

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 March 31, 2023.

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

9 unchanged sentences

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 nine months ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

Cost of sales $ 242 $ 178

3 unchanged sentences

Total $ 5,701 $ 3,029

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 nine months ended October 1, 2021 upon the issuance of the underlying restricted stock units ("RSUs").

The following table summarizes the activity for the Company's unvested RSUs for the nine months ended September 30, 2022:

The following table summarizes the activity for the Company's unvested RSUs for the three months ended March 31, 2023:

Unvested RSUs

4 unchanged sentences

Vested ( 26 ) $ 120.82

Unvested at September 30, 2022 302 $ 86.88

As of September 30, 2022, the Company had approximately $ 20,719 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 1.96 years.

During the nine months ended September 30, 2022, the Company issued performance share units (“PSUs”) to certain executives that represent shares potentially issuable in the future.

Unvested at March 31, 2023 304 $ 88.44

As of March 31, 2023, the Company had approximately $ 18,712 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 1.91 years.

During the three months ended March 31, 2023, 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 3 year performance period, on certain measures including return on invested capital and free cash flow.

1 unchanged sentence

The Company considered it probable that the performance goals would be achieved, therefore the fair value of PSUs is calculated based on the stock price on the date of grant.

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

The following table summarizes the activity for the Company's unvested PSUs for the nine months ended September 30, 2022:

The following table summarizes the activity for the Company's unvested PSUs for the three months ended March 31, 2023:

Unvested PSUs

2 unchanged sentences

Granted 38 $ 119.02

Canceled (4) $ 126.73

Unvested at September 30, 2022 62 $ 130.14

Unvested at March 31, 2023 86 $ 123.29

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.

1 unchanged sentence

The unrecognized stock-based compensation expense is expected to be recognized over a weighted average period of 2.08 years.

For the nine months ended September 30, 2022, the Company had 153 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 nine months ended September 30, 2022, 33 shares of common stock were issued due to the exercise of stock options.

As of September 30, 2022, stock-based compensation expense related to stock options has been fully recognized and there are no outstanding options to purchase common stock.

FOX FACTORY HOLDING CORP.

1 unchanged sentence

(in thousands, except per share amounts)

For the three months ended For the nine months ended

September 30, 2022 October 1, 2021 September 30, 2022 October 1, 2021

For the three months ended

March 31, 2023 April 1, 2022

Provision for income taxes $ 9,378 $ 2,436

Effective tax rates 18.3 % 4.8 %

For the three months ended September 30, 2022, the difference between the Company's effective tax rate of 20.8 % and the 21 % federal statutory rate resulted primarily from a lower tax rate on foreign derived intangible income, partially offset by withholding and state taxes.

For the nine months ended September 30, 2022, 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, and the impact of the recently finalized U.S.

For the three months ended March 31, 2023, the difference between the Company's effective tax rate of 18.3 % and the 21 % federal statutory rate resulted primarily due to a lower tax rate on foreign derived intangible income.

This benefit was partially offset by state and foreign withholding taxes.

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 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.

These benefits were partially offset by withholding and state taxes.

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 excess benefits related to stock-based compensation and a lower tax rate on foreign derived intangible income.

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

For the nine months ended October 1, 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 a benefit resulting from 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.

These regulations limited 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.

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.

On August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law in the U.S.

Among other changes, the IRA introduced a corporate minimum tax on certain corporations with average adjusted financial statement income over a three-tax year period in excess of $1.0 billion and an excise tax on certain stock repurchases by certain covered corporations for taxable years beginning after December 31, 2022 and several tax incentives to promote clean energy.

Based on our current analysis and pending future guidance to be issued by the U.S.

Treasury and Internal Revenue Service, we do not believe these provisions will have a material impact on our consolidated financial statements.

Related Party Transactions

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 $ 469 and $1,089 of parts and vehicles and sold approximately $ 130 and $840 of upfit packages to the dealership during the three and nine months ended September 30, 2022, respectively.

The Company purchased approximately $ 392 and $856 of parts and vehicles and sold approximately $ 217 and $467 of upfit packages to the dealership during the three and nine months ended October 1, 2021, respectively.

The Company had $ 24 and $ 49 in accounts payable and accounts receivable as of September 30, 2022, respectively, and $ 123 and $ 57 in accounts payable and accounts receivable as of October 1, 2021, respectively, related to this dealership.

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

The Company purchased approximately $ 211 and $ 281 of parts and vehicles and sold approximately $ 132 and $ 457 of upfit packages to the dealership during the three months ended March 31, 2023 and April 1, 2022, respectively.

The Company had $ 54 and $ 17 in accounts payable and $ 78 and $ 27 in accounts receivable as of March 31, 2023 and April 1, 2022 respectively, related to this dealership.

As of March 31, 2023, the employee is no longer employed with the Company.

On July 22, 2020, the Company, pursuant to a stock purchase agreement with Flagship, Inc., purchased the remaining 20 % interest of FF US Holding Corp.

5 unchanged sentences

(in thousands, except per share amounts)

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.

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, d/b/a Outside Van ("Outside Van") a custom van conversion company.

The total purchase price of $ 15,275 , net of cash acquired, was allocated to the net liabilities assumed of $ 1,057 , identifiable intangible assets of $ 5,560 and goodwill acquired of $ 10,772 , based on their respective fair values as of May 25, 2021, with the excess purchase price allocated to goodwill.

The Company will amortize the acquired customer relationship and trade name assets over their expected useful lives of one and ten years, respectively.

This purchase was accounted for as a business combination and was not material to the Company's financial statements.

On December 30, 2021, the Company, through its wholly owned subsidiary, Shock Therapy Suspension, Inc., acquired substantially all the assets of Shock Therapy LLC ("STS"), for $ 36,834 , net of cash acquired.

STS is a premier suspension tuning company in the off-road industry, with headquarters in Phoenix, Arizona.

The purchase price of STS is allocated to the net assets assumed of $ 5,244 , identifiable intangible assets of $ 7,086 and goodwill acquired of $ 24,504 , based on their respective fair values as of December 30, 2021.

The Company will amortize the acquired non-compete and trade name assets over their expected useful lives of five and ten years, respectively.

The acquired goodwill represents the value of combining operations of STS and the company and is expected to be deductible for tax purposes.

This purchase was accounted for as a business combination and was not material to the Company's financial statements.

On February 17, 2023 the Company entered into a Securities Purchase Agreement with CWH Holdco, LLC (“CWH”), CWH Blocker Corp., (“Blocker”), Thompson Street Capital Partners V, L.P., and each other member of CWH to purchase all of the outstanding equity of Blocker, and thereafter Blocker acquired all of the outstanding equity interest of CWH.

CWH is the parent company of Custom Wheel House, LLC ("Custom Wheel House").

Custom Wheel House is a designer, marketer, and distributor of high-performance wheels, performance off-road tires, and accessories, including the premier flagship brand Method Race Wheels.

The Company believes that this acquisition will be complementary to its upfitting businesses and will help to expand its product offerings.

The total purchase price of $ 130,918 , net of cash acquired, was allocated to net assets of $ 21,001 , identified intangible assets of $ 53,000 , and goodwill of $ 56,917 .

This acquisition was financed through a combination of cash on hand and the Company's existing 2022 Credit Facility.

The Company's valuation is preliminary and subject to the Company's validation of the valuation of intangible assets, related deferred taxes, and finalization of working capital adjustments.

The Company expects to amortize the acquired trade name, customer relationship and core technology assets over their expected useful lives that range between two and seven years.

The acquired goodwill represents the value of combining operations of Custom Wheel House and the Company, and is expected to be partially deductible for tax purposes.

The results of operations for Custom Wheel House have been included in the Company's Consolidated Statements of Income since the closing date of the acquisition on March 3, 2023.

The total revenue and net loss from operations included since the date of acquisition through March 31, 2023 amounted to $ 6,937 and $ 2,039 , respectively.

This purchase was accounted for as a business combination.

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