FOX FACTORY HOLDING CORP. 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 consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year endedJanuary 3, 2020 , as filed with theU.S. Securities and Exchange Commission ("SEC") onMarch 3, 2020 , and our other reports and registration statements that we file with theSEC 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. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the "Risk Factors" section included in Part II, Item 1A. Unless the context otherwise requires, the terms "FOX ," the "Company," "we," "us," and "our" in this Quarterly Report on Form 10-Q refer toFox Factory Holding Corp. and its operating subsidiaries on a consolidated basis. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements, which are subject to the "safe harbor" created by Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We may make forward-looking statements in ourSEC filings, press releases, news articles, earnings presentations and when we are speaking on behalf of the Company. Forward-looking statements generally relate to future events or our future financial or operating performance that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements because they contain words such as "may," "might," "will," "would," "should," "expect," "plan," "anticipate," "could," "intend," "target," "project," "contemplate," "believe," "estimate," "predict," "likely," "potential" or "continue" or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q are subject to numerous risks and uncertainties, including but not limited to risks related to: •the spread of highly infectious or contagious disease, such as COVID-19, could cause severe disruptions in theU.S. 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 develop new and innovative products in our current end-markets; •our ability to leverage our technologies and brand to expand into new categories and end-markets; •our ability to increase our aftermarket penetration; •our ability to accelerate international growth; •our exposure to exchange rate fluctuations; •the loss of key customers; •our ability to improve operating and supply chain efficiencies; •our ability to enforce our intellectual property rights; •our future financial performance, including our sales, cost of sales, gross profit or gross margins, operating expenses, ability to generate positive cash flow and ability to maintain our profitability; •our ability to maintain our premium brand image and high-performance products; •our ability to maintain relationships with the professional athletes and race teams we sponsor; •our ability to selectively add additional dealers and distributors in certain geographic markets; •the growth of the markets in which we compete, our expectations regarding consumer preferences and our ability to respond to changes in consumer preferences; •changes in demand for performance-defining products; •the loss of key personnel, management and skilled engineers; •our ability to successfully identify, evaluate and manage potential or completed acquisitions and to benefit from such acquisitions; •the outcome of pending litigation; 24 -------------------------------------------------------------------------------- Table of Contents •our ability to adapt to the impact of certain changes in tax laws; •changes in the relative proportion of profit earned in the numerous jurisdictions in which we do business and in tax legislation, case law and other authoritative guidance in those jurisdictions; •product recalls and product liability claims; and •future economic or market conditions. You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, and prospects and the outcomes of any of the events described in any forward-looking statements are subject to risks, uncertainties, and other factors. In addition to the risks, uncertainties and other factors discussed above and elsewhere in this Quarterly Report on Form 10-Q, the risks, uncertainties and other factors expressed or implied in Part I, Item 1A. "Risk Factors" of our 2019 Annual Report on Form 10-K, as filed with theSEC onMarch 3, 2020 , could cause or contribute to actual results differing materially from those set forth in any forward-looking statement. Moreover, we operate in a very competitive and challenging environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur. Actual results, events, or circumstances could differ materially from those contemplated by, set forth in, or underlying any forward-looking statements. For all of these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements in Section 27A of the Securities Act and Section 21E of the Exchange Act. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Recent Developments Acquisition ofSCA Performance, Inc. OnMarch 11, 2020 , we, throughFox Factory, Inc. , acquired 100% of the issued and outstanding stock ofSCA Performance Holdings, Inc. ("SCA") fromSouthern Rocky Holdings, LLC for$329.5 million , net of cash acquired and exclusive of vehicle inventory. SCA is a leading OEM authorized specialty vehicle manufacturer for light duty trucks and SUVs with headquarters inTrussville, Alabama . In connection with the acquisition, we also agreed to an additional$10.6 million of contingent retention incentives for key SCA management, to be held in escrow and payable over the next two years in a combination of cash and stock. Additionally, we paid$1.8 million in transaction compensation to key SCA management concurrently with the closing. Secondary Stock Offering InJune 2020 , we completed a secondary offering selling 2.8 million shares of common stock at a price of$76.00 per share for gross proceeds of$209.8 million . The net proceeds to us after underwriters' discounts and commissions of$11.0 million and$0.5 million of offering costs was$198.2 million . The total shares sold included 0.4 million shares that were sold in connection with the underwriters' option to purchase additional shares. This offering was made pursuant to our registration statement on Form S-3. Purchase of Non-controlling Interest OnJuly 22, 2020 , we, pursuant to a stock purchase agreement withFlagship, Inc. , dated as of the same date, purchased the remaining 20% interest ofFF US Holding Corp. for$25.0 million payable in a combination of stock and cash. Refer to Note 9 - Commitments and Contingencies for additional details of this agreement. 25 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates Beginning in the first quarter of fiscal year 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases. See Note 1 - Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies to the accompanying notes to unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details of this update. As a result of the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA" or "Tax Act") inDecember 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 provided a partial valuation allowance of$6.8 million against that tax asset. We reassess our projections and assumptions regarding the realization of our foreign tax credits periodically as changes in our business and tax regulations occur. To the extent such a valuation allowance is established or reduced in a period, we reflect the change with a corresponding increase or decrease of our income tax provision in our consolidated statements of income. There have been no material changes in the valuation allowance for foreign tax credits for the three and nine month periods endedOctober 2, 2020 orSeptember 27, 2019 . There have been no other changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year endedJanuary 3, 2020 , as filed with theSEC onMarch 3, 2020 , that have had a material impact on our condensed consolidated financial statements and related notes. Recent Accounting Pronouncements See Note 1 - Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies to the accompanying notes to unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for further details regarding this topic. 26 -------------------------------------------------------------------------------- Table of Contents Results of Operations The table below summarizes our results of operations: For the three months ended For the nine months ended September 27, September 27, (in thousands) October 2, 2020 2019 October 2, 2020 2019 Sales$ 260,700 $ 211,317 $ 628,163 $ 565,139 Cost of sales 171,226 141,500 422,088 382,045 Gross profit 89,474 69,817 206,075 183,094 Operating expenses: Sales and marketing 13,667 11,660 38,291 32,186 Research and development 8,514 8,376 24,779 23,442 General and administrative 16,463 12,727 53,443 36,065 Amortization of purchased intangibles 5,277 1,694 13,084 4,751 Total operating expenses 43,921 34,457 129,597 96,444 Income from operations 45,553 35,360 76,478 86,650 Other expense, net: Interest expense 2,291 748 7,030 2,582 Other (income) expense (189) (37) (57) 532 Other expense, net 2,102 711 6,973 3,114 Income before income taxes 43,451 34,649 69,505 83,536 Provision for income taxes 5,431 4,473 9,555 11,596 Net income 38,020 30,176 59,950 71,940 Less: net income attributable to non-controlling interest - 689 1,072 1,429 Net income attributable toFOX stockholders$ 38,020 $ 29,487 $ 58,878 $ 70,511 27
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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 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 65.7 67.0 67.2 67.6
Gross profit 34.3 33.0 32.8 32.4
Operating expenses:
Sales and marketing 5.2 5.5 6.1 5.7
Research and development 3.3 4.0 3.9 4.1
General and administrative 6.3 6.0 8.5 6.4
Amortization of purchased intangibles 2.0 0.8 2.1 0.8
Total operating expenses 16.8 16.3 20.6 17.1
Income from operations 17.5 16.7 12.2 15.3
Other expense, net:
Interest expense 0.9 0.4 1.1 0.5
Other (income) expense (0.1) - - 0.1
Other expense, net 0.8 0.3 1.1 0.6
Income before income taxes 16.7 16.4 11.1 14.8
Provision for income taxes 2.1 2.1 1.5 2.1
Net income 14.6 14.3 9.5 12.7
Less: net income attributable to
non-controlling interest - 0.3 0.2 0.3
Net income attributable to FOX
stockholders 14.6 % 14.0 % 9.4 % 12.5 %
*Percentages may not foot due to rounding.
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Three months ended October 2, 2020 compared to three months ended September 27,
2019
Sales
For the three months ended
September 27,
(in millions) October 2, 2020 2019 Change ($) Change (%)Powered Vehicle products$ 153.0 $ 130.0 $ 23.0 17.7 % Specialty Sports products 107.7 81.3 26.4 32.4 Total sales$ 260.7 $ 211.3 $ 49.4 23.4 % Total sales for the three months endedOctober 2, 2020 increased approximately$49.4 million , or 23.4%, compared to the three months endedSeptember 27, 2019 . Powered Vehicle product sales increased by$23.0 million , or 17.7%, primarily due to the impact of our SCA subsidiary, which was acquired inMarch 2020 . Additionally,Specialty Sports product sales increased by$26.4 million , or 32.4%, primarily due to increased demand in both the OEM and aftermarket channels. Cost of sales For the three months ended September 27, (in millions) October 2, 2020 2019 Change ($) Change (%) Cost of sales$ 171.2 $ 141.5 $ 29.7 21.0 % Cost of sales for the three months endedOctober 2, 2020 increased approximately$29.7 million , or 21.0%, compared to the three months endedSeptember 27, 2019 . The increase in cost of sales was primarily due to the 23.4% increase in sales in the same period, as well as certain business factors affecting gross margin which are discussed below. For the three months endedOctober 2, 2020 , our gross margin increased 130 basis points to 34.3% compared to 33.0% for the three months endedSeptember 27, 2019 . The increase in gross margin was primarily due to favorable product and channel mix including the impact of the SCA acquisition. Operating expenses For the three months ended September 27, (in millions) October 2, 2020 2019 Change ($) Change (%) Operating expenses: Sales and marketing $ 13.7$ 11.7 $ 2.0 17.1 % Research and development 8.5 8.4 0.1 1.2 General and administrative 16.4 12.7 3.7 29.1 Amortization of purchased intangibles 5.3 1.7 3.6 211.8 Total operating expenses $ 43.9$ 34.5 $ 9.4 27.2 % Total operating expenses for the three months endedOctober 2, 2020 were$43.9 million compared to$34.5 million for the three months endedSeptember 27, 2019 . When expressed as a percentage of total sales, total operating expenses increased to 16.8% of total sales for the three months endedOctober 2, 2020 compared to 16.3% of total sales in the three months endedSeptember 27, 2019 . The increase in operating expenses is primarily due to SCA related costs, including acquisition costs, operating costs and amortization expense. 29 -------------------------------------------------------------------------------- Table of Contents Within operating expenses, our sales and marketing expenses increased approximately$2.0 million primarily due to$2.4 million of costs associated with our SCA subsidiary, partially offset by reduced spending on trade shows and race events. Research and development costs increased approximately$0.1 million . General and administrative expenses increased by approximately$3.7 million resulting from various factors including SCA acquisition-related compensation costs of approximately$1.3 million and the inclusion of SCA operating costs of$1.9 million as well as higher headcount costs as we expand our administrative support functions. These increases were partially offset by decreases in various other costs. Amortization of purchased intangibles for the three months endedOctober 2, 2020 increased by approximately$3.6 million as compared to the three months endedSeptember 27, 2019 . The increase is primarily due to the amortization of intangible assets obtained through our acquisition of SCA. Income from operations For the three months ended September 27, (in millions) October 2, 2020 2019 Change ($) Change (%) Income from operations $ 45.6$ 35.4 $ 10.2 28.8 % As a result of the factors discussed above, income from operations for the three months endedOctober 2, 2020 increased approximately$10.2 million , or 28.8%, compared to income from operations for the three months endedSeptember 27, 2019 . Other expense, net For the three months ended September 27, (in millions) October 2, 2020 2019 Change ($) Change (%) Other expense, net: Interest expense $ 2.3$ 0.7 $ 1.6 228.6 % Other (income) expense (0.2) - (0.2) NA Other expense, net $ 2.1$ 0.7 $ 1.4 200.0 %
Other expense, net for the three months ended
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Income taxes
For the three months ended
September 27,
(in millions) October 2, 2020 2019 Change ($) Change (%)
Provision for income taxes $ 5.4 $ 4.5 $ 0.9 20.0 %
The effective tax rates were 12.5% and 12.9% for the three months ended
October 2, 2020 and September 27, 2019 , respectively.
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 $3.1
million of excess tax benefit related to stock based compensation. These
benefits were partially offset by state taxes, global low-tax intangible income
tax and non-deductible expenses.
For the three months ended September 27, 2019 , the difference between our
effective tax rate of 12.9% and the 21% federal statutory rate resulted
primarily from lower foreign tax rates, lower effective federal rates on foreign
derived intangible income, research and development credits, and $1.9 million of
excess benefits related to stock-based compensation. These benefits were
partially offset by state taxes, foreign withholding taxes and the impact of
non-deductible expenses.
The effective tax rate for the three months ended October 2, 2020 decreased as
compared to the same period in 2019 primarily as a result of excess stock based
compensation deductions, an increase in foreign derived intangible income, and
realization of foreign tax credit, partially offset by an increase in global
low-tax intangible income tax and nondeductible expenses.
Net income
For the three months ended
September 27,
(in millions) October 2, 2020 2019 Change ($) Change (%)
Net income $ 38.0 $ 30.2 $ 7.8 25.8 %
As a result of the factors described above, our net income increased
Nine months endedOctober 2, 2020 compared to nine months endedSeptember 27, 2019 Sales For the nine months ended September 27, (in millions) October 2, 2020 2019 Change ($) Change (%) Powered Vehicle products$ 372.1 $ 342.0 $ 30.1 8.8 % Specialty Sports products 256.1 223.1 33.0 14.8 Total sales$ 628.2 $ 565.1 $ 63.1 11.2 % Total sales for the nine months endedOctober 2, 2020 increased approximately$63.1 million , or 11.2%, compared to the nine months endedSeptember 27, 2019 . Powered Vehicle product sales increased by$30.1 million , or 8.8%, primarily due to the SCA acquisition and strength in the aftermarket channel, partially offset by impacts of the COVID-19 pandemic on our OEM customers. Additionally,Specialty Sports product sales increased by$33.0 million , or 14.8%, primarily due to increased demand in both the OEM and aftermarket channels. 31 -------------------------------------------------------------------------------- Table of Contents Cost of sales For the nine months ended (in millions) October 2, 2020 September 27, 2019 Change ($) Change (%) Cost of sales$ 422.1 $ 382.0$ 40.1 10.5 % Cost of sales for the nine months endedOctober 2, 2020 increased approximately$40.1 million , or 10.5%, compared to the nine months endedSeptember 27, 2019 . The increase in cost of sales was primarily due to the 11.2% increase in sales during the same period. For the nine months endedOctober 2, 2020 , our gross margin increased 40 basis points to 32.8% compared to 32.4% for the nine months endedSeptember 27, 2019 . The increase in year-to-date gross margin was primarily due to the impact of the SCA acquisition and a change in product and channel mix partially offset by incremental cost due to government mandated closures in response to the COVID-19 pandemic. Operating expenses For the nine months ended September 27, (in millions) October 2, 2020 2019 Change ($) Change (%) Operating expenses: Sales and marketing $ 38.3$ 32.2 $ 6.1 18.9 % Research and development 24.8 23.4 1.4 6.0 General and administrative 53.4 36.1 17.3 47.9 Amortization of purchased intangibles 13.1 4.7 8.4 178.7 Total operating expenses$ 129.6 $ 96.4 $ 33.2 34.4 % Total operating expenses for the nine months endedOctober 2, 2020 were$129.6 million compared to$96.4 million for the nine months endedSeptember 27, 2019 . When expressed as a percentage of total sales, total operating expenses increased to 20.6% of total sales for the nine months endedOctober 2, 2020 compared to 17.1% of total sales in the nine months endedSeptember 27, 2019 . The increase in operating expenses is primarily due to SCA related costs, including acquisition-related costs, operating costs and amortization expense, partially offset by reductions in various other expenses. Within operating expenses, our sales and marketing expenses increased approximately$6.1 million primarily due to costs related to SCA of$5.8 million and higher personnel and commission expenses of$2.5 million , which were partially offset by reduced spending on trade shows and race events. Research and development costs increased approximately$1.4 million primarily due to personnel investments and facility-related expense related to the Company's expanding Technology Center inGeorgia , partially offset by reductions in other various expenses. General and administrative expenses increased by approximately$17.3 million resulting from various factors including acquisition-related costs of approximately$12.9 million and the inclusion of SCA operating costs of$4.0 million , as well as increases in various other costs as the Company expands its administrative support functions. Amortization of purchased intangibles for the nine months endedOctober 2, 2020 increased by approximately$8.4 million as compared to the nine months endedSeptember 27, 2019 . The increase is primarily due to the amortization of intangible assets obtained through our acquisition of SCA. Income from operations For the nine months ended September 27, (in millions) October 2, 2020 2019 Change ($) Change (%) Income from operations $ 76.5$ 86.7 $ (10.2) (11.8) % As a result of the factors discussed above, income from operations for the nine months endedOctober 2, 2020 decreased approximately$10.2 million , or 11.8%, compared to income from operations for the nine months endedSeptember 27, 2019 . 32 --------------------------------------------------------------------------------
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Other expense, net
For the nine months ended
September 27,
(in millions) October 2, 2020 2019 Change ($) Change (%)
Other expense, net:
Interest expense $ 7.0 $ 2.6 $ 4.4 169.2 %
Other (income) expense (0.1) 0.5 (0.6) (120.0)
Other expense, net $ 6.9 $ 3.1 $ 3.8 122.6 %
Other expense, net for the nine months ended October 2, 2020 increased by $3.8
million to $6.9 million compared to $3.1 million for the nine months ended
September 27, 2019 . The increase in other expense, net is primarily due to
additional interest expense incurred on additional borrowings in connection with
the Company's acquisition of SCA in March 2020 .
Income taxes
For the nine months ended
September 27,
(in millions) October 2, 2020 2019 Change ($) Change (%)
Provision for income taxes $ 9.6 $ 11.6 $ (2.0) (17.2) %
The effective tax rates were 13.7% and 13.9% for the nine months ended
October 2, 2020 and September 27, 2019 , respectively.
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
lower foreign tax rates, a lower tax rate on foreign derived intangible income,
research and development credits, a negotiated reduction of Switzerland
withholding tax on prior year earnings, realization of foreign tax credits, and
$3.8 million from excess tax benefits related to stock-based compensation. These
benefits were partially offset by state taxes, global low-tax intangible income
tax and non-deductible expenses.
For the nine months ended September 27, 2019 , the difference between our
effective tax rate of 13.9% and the 21% federal statutory rate resulted
primarily from lower foreign tax rates, lower effective federal rates on foreign
derived intangible income, research and development credits, and $5.5 million of
excess benefits related to stock-based compensation. These benefits were
partially offset by state taxes, foreign withholding taxes and the impact of
non-deductible expenses.
The effective tax rate for the nine months ended October 2, 2020 decreased as
compared to the same period in 2019 primarily as a result of an increase in
foreign derived intangible income, realization of foreign tax credits, and a
negotiated reduction of Switzerland withholding tax on prior year earnings
partially offset by a decrease in excess stock based compensation deductions and
increase in nondeductible expenses.
Net income
For the nine months ended
September 27,
(in millions) October 2, 2020 2019 Change ($) Change (%)
Net income $ 60.0 $ 71.9 $ (11.9) (16.6) %
As a result of the factors described above, our net income decreased
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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
facilities 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. A summary of our operating, investing
and financing activities are shown in the following table:
For the nine months ended
September 27,
(in thousands) October 2, 2020 2019
Net cash provided by operating activities $ 99,801 $ 30,924
Net cash used in investing activities (375,409) (32,707)
Net cash provided by financing activities 510,019 5,841
Effect of exchange rate changes on cash and cash equivalents 99 (37)
Change in cash and cash equivalents $
234,510
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, and net cash invested in working capital. In the nine months endedOctober 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 . Non-cash items and other adjustments consisted of depreciation and amortization of$24.8 million , stock-based compensation of$6.4 million , and amortization of loan fees of$1.1 million , offset by a$11.9 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 , increases in 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 recently acquired SCA subsidiary. The changes in inventory, accounts receivable, and accounts payable reflect seasonality as well as timing of vendor payments. The changes in accrued expenses and income taxes are primarily attributable to the timing of rebate payments and the timing of tax payments, respectively. In the nine months endedSeptember 27, 2019 , net cash provided by operating activities was$30.9 million and consisted of net income of$71.9 million , plus non-cash items totaling$13.0 million and less changes in operating assets and liabilities totaling$54.0 million . Non-cash items and other adjustments consisted of depreciation and amortization of$13.0 million , stock-based compensation of$5.0 million , and loss on the extinguishment of debt of$0.5 million , offset by a$5.5 million change in deferred taxes and uncertain tax positions. Our investment in operating assets and liabilities is a result of increases in accounts receivable of$28.3 million , inventory of$20.3 million , and prepaids and other assets of$7.6 million , and decreases in accrued expenses of$0.2 million and income taxes of$7.4 million , partially offset by an increase in accounts payable of$9.8 million . The changes in inventory, accounts payable, accrued expenses, accounts receivable and prepaids and other assets are primarily due to seasonal impacts on working capital. The decrease in income taxes payable is primarily due to the timing of estimated tax payments and refunds. 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 endedOctober 2, 2020 andSeptember 27, 2019 , net cash used in investing activities was$375.4 million and$32.7 million , respectively. Investing activities for the nine months endedOctober 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. Our investing activities for the nine months endedSeptember 27, 2019 consisted of$25.9 million of property and equipment additions and$6.8 million of cash consideration for our acquisition of Ridetech. 34 -------------------------------------------------------------------------------- Table of Contents Financing activities Cash provided by financing activities primarily relates to various forms of debt and equity instruments used to finance our business. In the nine months endedOctober 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 First Amended and Restated 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 ourJune 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 theTuscany non-controlling interest. Refer to Note 9 - Commitments and Contingencies for additional details. In the nine months endedSeptember 27, 2019 , net cash provided by financing activities was$5.8 million , which consisted of$67.5 million in proceeds from our line of credit, partially offset by$52.1 million paid on our line of credit and$2.8 million paid on our term debt. In addition, we paid$6.8 million to repurchase shares of our common stock, net of proceeds from the exercise of stock options, as part of our stock-based compensation program. Former Second Amended and Restated Credit Facility InAugust 2013 , the Company entered into a credit facility withSunTrust Bank, N.A. and other named lenders, which was periodically amended and restated (the "Second Amended and Restated Credit Facility"). The Company paid off the Second Amended and Restated Credit Facility inJune 2019 upon entering into the new credit facility withBank of America, N.A . ("Bank of America "). First Amended and Restated Credit Facility InJune 2019 , the Company entered into a credit facility withBank of America and other named lenders, which was amended and restated onMarch 11, 2020 andJune 19, 2020 (as most recently amended and restated as the "First Amended and Restated Credit Facility"). The First Amended and Restated Credit Facility, which matures onMarch 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. 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 other expense, net on the condensed consolidated statements of income for the six months endedOctober 2, 2020 and 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 First Amended and Restated Credit Facility. The First Amended and Restated Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.00% to 2.25%, or based on the base rate offered byBank of America plus a margin ranging from 0.00% to 1.25% with a floor rate of 0.50%. AtOctober 2, 2020 , the one-month LIBOR and prime rates were 0.14% and 3.25%, respectively. AtOctober 2, 2020 , our weighted-average interest rate on outstanding borrowing was 1.87%. The First Amended and Restated Credit Facility is secured by substantially all of the Company's assets, restricts the Company's ability to make certain payments and engage in certain transactions, and requires that the Company satisfy customary financial ratios. The Company was in compliance with the covenants as ofOctober 2, 2020 .Hall County, Georgia Project - Phase 1 As previously announced onOctober 31, 2018 , the Company is expanding its manufacturing and operations capacity and relocating the Company's headquarters toHall County, Georgia . The Company plans to invest approximately$55.9 million in capital expenditures and employ up to 800 personnel over the next five years, dependent on market and general economic conditions inGeorgia . The first phase of the project was completed inAugust 2020 at a cost of approximately$47.3 million . The Company currently estimates that the second phase of the project will be completed in late 2021. The amount of any such capital expenditures is subject to change depending on the circumstances and the scope of the project. 35
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Table of Contents Off-Balance Sheet Arrangements We have no material off-balance sheet arrangements. Inflation Historically, inflation has not had a material effect on our results of operations. However, significant increases in inflation, particularly those related to wages and increases in the cost of raw materials, could have an adverse impact on our business, financial condition and results of operations.
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