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Section 1: 10-Q (10-Q)

Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-36040

Fox Factory Holding Corp.

(Exact Name of Registrant as Specified in Its Charter)



Delaware			26-1647258
(State or Other Jurisdiction of Incorporation)			(I.R.S. Employer Identification No.)



6634 Hwy 53	Braselton	GA	30517
(Address of Principal Executive Offices)			(Zip Code)

(831) 274-6500

(Registrant’s Telephone Number, Including Area Code)



Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	FOXF	The NASDAQ Stock Market LLC
		(NASDAQ Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 28, 2019, there were 38,425,119 shares of the registrant’s common stock outstanding.

Fox Factory Holding Corp.

FORM 10-Q

Table of Contents



		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of June 28, 2019 and December 28, 2018	1
	Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 28, 2019 and June 29, 2018	2
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 28, 2019 and June 29, 2018	3
	Unaudited Condensed Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest for the Three and Six Months Ended June 28, 2019 and June 29, 2018	4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 28, 2019 and June 29, 2018	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
Signatures		54

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FOX FACTORY HOLDING CORP.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)



	As of			As of
	June 28,			December 28,
	2019			2018

	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	39,021		$	27,958
Accounts receivable (net of allowances of $404 and $600 at June 28, 2019 and December 28, 2018, respectively)	95,738			78,882
Inventory	136,005			107,140
Prepaids and other current assets	18,742			17,967
Total current assets	289,506			231,947
Property, plant and equipment, net	95,097			64,788
Deferred tax assets	16,083			15,328
Goodwill	91,661			88,850
Intangibles, net	86,924			83,974
Other assets	502			367
Total assets	$	579,773		$	485,254
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	70,602		$	55,086
Accrued expenses	34,302			33,607
Reserve for uncertain tax positions	1,120			1,169
Current portion of long-term debt	—			6,923
Total current liabilities	106,024			96,785
Line of credit	77,553			—
Long-term debt, less current portion	—			52,503
Other liabilities	11,994			479
Total liabilities	195,571			149,767
Commitments and contingencies (Refer to Note 8 - Commitments and Contingencies)
Redeemable non-controlling interest	15,022			14,282
Stockholders’ equity
Preferred stock, $0.001 par value — 10,000 authorized and no shares issued or outstanding as of June 28, 2019 and December 28, 2018	—			—
Common stock, $0.001 par value — 90,000 authorized; 39,274 shares issued and 38,384 outstanding as of June 28, 2019; 38,881 shares issued and 37,991 outstanding as of December 28, 2018	38			38
Additional paid-in capital	123,043			116,019
Treasury stock, at cost; 890 common shares as of June 28, 2019 and December 28, 2018	(13,754		)	(13,754		)
Accumulated other comprehensive loss	(629		)	(784		)
Retained earnings	260,482			219,686
Total stockholders’ equity	369,180			321,205
Total liabilities, redeemable non-controlling interest and stockholders’ equity	$	579,773		$	485,254

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

Table of Contents

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)



	For the three months ended					For the six months ended
	June 28,		June 29,			June 28,		June 29,
	2019		2018			2019		2018
Sales	$	192,122	$	156,825		$	353,822	$	286,617
Cost of sales	129,902		104,412			240,545		192,561
Gross profit	62,220		52,413			113,277		94,056
Operating expenses:
Sales and marketing	11,264		9,802			20,526		18,535
Research and development	7,763		6,058			15,066		12,254
General and administrative	12,158		10,779			23,338		19,973
Amortization of purchased intangibles	1,564		1,499			3,057		3,068
Total operating expenses	32,749		28,138			61,987		53,830
Income from operations	29,471		24,275			51,290		40,226
Other expense, net:
Interest expense	1,005		832			1,834		1,631
Other expense (income)	582		(81		)	569		200
Other expense, net	1,587		751			2,403		1,831
Income before income taxes	27,884		23,524			48,887		38,395
Provision for (benefit of) income taxes	4,522		4,711			7,123		(1,868		)
Net income	23,362		18,813			41,764		40,263
Less: net income attributable to non-controlling interest	441		444			740		670
Net income attributable to FOX stockholders	$	22,921	$	18,369		$	41,024	$	39,593
Earnings per share:
Basic	$	0.60	$	0.49		$	1.07	$	1.05
Diluted	$	0.59	$	0.47		$	1.05	$	1.02
Weighted average shares used to compute earnings per share:
Basic	38,286		37,722			38,164		37,674
Diluted	39,181		38,856			39,140		38,846

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

Table of Contents

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)



	For the three months ended					For the six months ended
	June 28,		June 29,			June 28,		June 29,
	2019		2018			2019		2018
Net income	$	23,362	$	18,813		$	41,764	$	40,263
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax effects	314		(1,328		)	155		(853		)
Other comprehensive income (loss)	314		(1,328		)	155		(853		)
Comprehensive income	23,676		17,485			41,919		39,410
Less: comprehensive income attributable to non-controlling interest	441		444			740		670
Comprehensive income attributable to FOX stockholders	$	23,235	$	17,041		$	41,179	$	38,740

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

Table of Contents

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest

(in thousands, except per share data)

(unaudited)



	Common Stock			Treasury				Additional paid-in capital			Accumulated other comprehensive (loss) income			Retained earnings			Total stockholders' equity				Redeemable non-controlling interest
	Shares	Amount		Shares	Amount			Additional paid-in capital			Accumulated other comprehensive (loss) income			Retained earnings			Total stockholders' equity				Redeemable non-controlling interest

Balance - December 29, 2017	38,497	$	38	890	$	(13,754	)	$	112,793		$	(168	)	$	135,926		$	234,835			$	12,955
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding	49	—		—	—			(1,375		)	—			—			(1,375		)		—
Redeemable non-controlling interest	—	—		—	—			—			—			(1,011		)	(1,011		)		1,011
Stock-based compensation expense	—	—		—	—			2,046			—			—			2,046				—
Foreign currency translation adjustment	—	—		—	—			—			475			—			475				—
Adoption of new accounting standard, net of taxes	—	—		—	—			—			—			(281		)	(281		)		—
Net Income	—	—		—	—			—			—			21,224			21,224				226
Balance - March 30, 2018	38,546	$	38	890	$	(13,754	)	$	113,464		$	307		$	155,858		$	255,913		—	$	14,192
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding	103	—		—	—			(2,657		)	—			—			(2,657		)		—
Redeemable non-controlling interest	—	—		—	—			—			—			448			448				(448		)
Stock-based compensation expense	—	—		—	—			1,785			—			—			1,785				—
Foreign currency translation adjustment	—	—		—	—			—			(1,328		)	—			(1,328		)		—
Net Income	—	—		—	—			—			—			18,369			18,369				444
Balance - June 29, 2018	38,649	$	38	890	$	(13,754	)	$	112,592		$	(1,021	)	$	174,675		$	272,530			$	14,188

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

Table of Contents

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Stockholders' Equity and Redeemable Non-controlling Interest

(in thousands, except per share data)

(unaudited)



	Common Stock			Treasury				Additional paid-in capital			Accumulated other comprehensive (loss) income			Retained earnings			Total stockholders' equity			Redeemable non-controlling interest
	Shares	Amount		Shares	Amount			Additional paid-in capital			Accumulated other comprehensive (loss) income			Retained earnings			Total stockholders' equity			Redeemable non-controlling interest

Balance - December 28, 2018	38,881	$	38	890	$	(13,754	)	$	116,019		$	(784	)	$	219,686		$	321,205		$	14,282
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding	180	—		—	—			(1,229		)	—			—			(1,229		)	—
Stock-based compensation expense	—	—		—	—			1,729			—			—			1,729			—
Foreign currency translation adjustment	—	—		—	—			—			(159		)	—			(159		)	—
Adoption of new accounting standard, net of taxes	—	—		—	—			—			—			(228		)	(228		)	—
Net Income	—	—		—	—			—			—			18,103			18,103			299
Balance - March 29, 2019	39,061	$	38	890	$	(13,754	)	$	116,519		$	(943	)	$	237,561		$	339,421		$	14,581
Issuance of common stock under equity compensation plans, net of shares repurchased for income tax withholding	115	—		—	—			(2,264		)	—			—			(2,264		)	—
Issuance of stock for business acquisition	98	—		—	—			7,167			—			—			7,167			—
Stock-based compensation expense	—	—		—	—			1,621			—			—			1,621			—
Foreign currency translation adjustment	—	—		—	—			—			314			—			314			—
Net Income	—			—	—			—			—			22,921			22,921			441
Balance - June 28, 2019	39,274	$	38	890	$	(13,754	)	$	123,043		$	(629	)	$	260,482		$	369,180		$	15,022

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

Table of Contents

FOX FACTORY HOLDING CORP.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)



	For the six months ended
	June 28, 2019			June 29, 2018
OPERATING ACTIVITIES:
Net income	$	41,764		$	40,263
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,304			7,144
Stock-based compensation	3,350			3,831
Deferred taxes and uncertain tax positions	(816		)	(12,269		)
Loss on extinguishment of debt	516			—
Changes in operating assets and liabilities, net of effects of acquisition of business:
Accounts receivable	(17,115		)	(17,762		)
Inventory	(24,977		)	(10,945		)
Income taxes	(3,411		)	(1,037		)
Prepaids and other assets	(379		)	4,217
Accounts payable	15,671			18,373
Accrued expenses and other liabilities	(2,483		)	1,040
Net cash provided by operating activities	20,424			32,855
INVESTING ACTIVITIES:
Purchases of property and equipment	(16,377		)	(9,046		)
Acquisition of businesses	(6,804		)	—
Net cash used in investing activities	(23,181		)	(9,046		)
FINANCING ACTIVITIES:
Proceeds from line of credit	45,000			—
Payments on line of credit	(25,000		)	(30,476		)
Repayment of debt	(2,813		)	(2,344		)
Repurchases from stock compensation program, net	(3,494		)	(4,033		)
Net cash provided by (used in) financing activities	13,693			(36,853		)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS	127			(217		)

CHANGE IN CASH AND CASH EQUIVALENTS	11,063			(13,261		)
CASH AND CASH EQUIVALENTS—Beginning of period	27,958			35,947
CASH AND CASH EQUIVALENTS—End of period	$	39,021		$	22,686
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	14,847		$	11,681
Cash paid for interest, net of capitalized interest	$	1,442		$	1,627
Cash paid for amounts included in the measurement of lease liabilities	$	2,929		$	—
Non-cash operating activities:
Right-of-use assets obtained in exchange for lease obligations	$	6,131		$	—
Acquisition of business in exchange for equity	$	7,167		$	—

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

Table of Contents

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements

(in thousands, except per share amounts)

(unaudited)

1. Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies - Fox Factory Holding Corp. (the "Company") designs and manufactures performance-defining products primarily for bicycles ("bikes"), side-by-side vehicles ("Side-by-Sides"), on-road and off-road vehicles and trucks, all-terrain vehicles or ATVs, snowmobiles, specialty vehicles and applications, motorcycles and commercial trucks. The Company is a direct supplier to leading power vehicle original equipment manufacturers ("OEMs") and provides aftermarket products to retailers, dealerships, and distributors. Additionally, the Company supplies top bicycle OEMs and their current contract manufacturers, and provides aftermarket products to retailers and distributors.

Throughout this Form 10-Q, unless stated otherwise or as the context otherwise requires, the "Company," "FOX," "Fox Factory," "we," "us," "our," and "ours" refer to Fox Factory Holding Corp. and its operating subsidiaries on a consolidated basis.

Basis of Presentation - The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States of America ("U.S." or "United States") and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the fiscal year ended December 28, 2018 included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 26, 2019. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.

The Company operates on a 52-53 week fiscal calendar. For 2019 and 2018, the Company's fiscal year will end or has ended on January 3, 2020 and December 28, 2018, respectively. The twelve month periods ended January 3, 2020 and December 28, 2018, will include or have included 53 and 52 weeks, respectively. The three and six month periods ended June 28, 2019 and June 29, 2018 each included 13 weeks and 26 weeks, respectively.

Principles of Consolidation - These condensed consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Summary of Significant Accounting Policies - Beginning the first quarter of fiscal year 2019, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, Leases ("ASU 2016-02"). There have been no other changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 28, 2018, as filed with the SEC on February 26, 2019, that have had a material impact on our condensed consolidated financial statements and related notes.

Revenue Recognition - Revenues are generated from the sale of performance-defining products and systems to customers worldwide. The Company’s performance-defining products and systems are solutions that improve performance of powered vehicles and bikes. Powered vehicles include Side-by-Sides, on-road and off-road vehicles and trucks, all-terrain vehicles or ATVs, snowmobiles, specialty vehicles and applications, motorcycles and commercial trucks.

Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer, generally at the time of shipment. Contracts are generally in the form of purchase orders and are governed by standard terms and conditions. For larger OEMs, the Company may also enter into master agreements.

Table of Contents

FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

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. Certain pricing provisions that provide the customer with future discounts are considered a material right. Such material rights result in the deferral of revenue that are subsequently recognized in the period that the customer utilizes the future discount. Measuring the material rights requires judgments including forecasts of future sales and product mix. At June 28, 2019, the balance of deferred revenue related to pricing provisions was $162. These amounts are expected to be recognized over the next 12 months. Revenues exclude sales tax.

Segments - The Company has determined that it has a single operating and reportable segment. The Company considers operating segments to be components of the Company for which separate financial information is available, that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Use of Estimates - The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from management’s estimates.

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 and the impact of government regulations including tariffs, and the possibility of not being able to obtain additional financing when needed.

Fair Value Measurements and Financial Instruments - The Company uses the fair value hierarchy established in ASC Topic 820, Fair Value Measurements and Disclosures, which requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed by the Company in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The carrying amount of the Company's financial instruments, including cash, receivables, accounts payable, and accrued liabilities approximate their fair values due to their short-term nature. The carrying amount of the Company's Credit Facility (as defined below) approximates its fair value, as the interest rate is set based on the movement of the underlying market rates.

Recent Accounting Pronouncements - In May 2014, the FASB and International Accounting Standards Board issued their converged standard on revenue recognition, ASU 2014-09, which was updated in December 2016 with the release of ASU 2016-20. This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

The Company adopted this guidance as of the beginning of the first quarter of fiscal year 2018, using the modified retrospective implementation method. The Company applied the guidance to all open contracts at the date of initial application. The primary impact of adopting the standard resulted from certain pricing provisions within contracts that provide the customer with a material right. Under the new standard, revenue attributed to such pricing provisions is deferred and recognized when the right is exercised by the customer. During Q1 2018, the Company recorded a cumulative effect adjustment of $368 gross and $281 net of taxes, to the opening balance of retained earnings to reflect the cumulative effect of the adoption of the standard.

In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes the existing guidance for lease accounting. To meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases, this ASU requires lessees to recognize most leases on the balance sheet as right-of-use assets and lease liabilities.

The Company adopted this guidance as of the beginning of the first quarter of fiscal year 2019, with a cumulative effect adjustment to the opening balance of retained earnings at December 28, 2018 with no restatement of comparative periods’ financial information ("current-period adjustment method"). Additionally, the Company adopted this guidance using practical expedients with respect to the assessment of embedded leases, lease classification, and initial indirect costs for expired and existing leases. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all of its leases and elected a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the right-of-use assets and lease liabilities. The Company did not use the hindsight practical expedient to adopt this guidance. The Company recorded a cumulative effect adjustment of $13,637 to operating lease right-of-use assets, $13,937 to operating lease liabilities, and $300 gross ($228 net of taxes) to the opening balance of the Company's retained earnings to reflect the cumulative effect of the adoption of the standard. This standard did not have a material impact on our consolidated income statements.

In June 2016, the FASB issue ASU 2016-13, Financial Instruments: Credit Losses, which adds an impairment model that is based on expected losses rather than incurred losses. Under this standard, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. This standard is effective for public companies for fiscal years beginning after December 15, 2019, including interim reporting periods within those years and early adoption is permitted. The Company is currently assessing the impact of this guidance.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation of certain transactions, including but not limited to contingent consideration payments made after a business combination and debt prepayment and extinguishment costs in the cash flow statement. The Company adopted ASU 2016-16 effective in the first quarter of fiscal year 2019. The adoption of ASU 2016-15 did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other: Internal-Use Software, which helps simplify how entities evaluate the accounting for costs paid by a customer in a cloud computing arrangement that is a service contract. This standard will be effective for fiscal years beginning after December 15, 2019 and early adoption is permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

2. Revenues

The following table summarizes total sales by product category:



	For the three months ended				For the six months ended
	June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
Powered Vehicles	$	115,245	$	82,247	$	211,954	$	154,381
Specialty Sports	76,877		74,578		141,868		132,236
Total sales	$	192,122	$	156,825	$	353,822	$	286,617

The following table summarizes total sales by sales channel:



	For the three months ended				For the six months ended
	June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
OEM	$	117,321	$	86,994	$	217,826	$	160,052
Aftermarket	74,801		69,831		135,996		126,565
Total sales	$	192,122	$	156,825	$	353,822	$	286,617

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



	For the three months ended				For the six months ended
	June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
North America	$	131,158	$	98,565	$	240,790	$	181,734
Asia	27,981		30,968		51,367		52,171
Europe	30,515		25,493		58,050		49,408
Rest of the world	2,468		1,799		3,615		3,304
Total sales	$	192,122	$	156,825	$	353,822	$	286,617

3. Inventory

Inventory consisted of the following:



	June 28,		December 28,
	2019		2018
Raw materials	$	89,049	$	75,652
Work-in-process	13,035		5,880
Finished goods	33,921		25,608
Total inventory	$	136,005	$	107,140

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

4. Property, Plant and Equipment, net

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



	June 28,			December 28,
	2019			2018
Machinery and manufacturing equipment	$	51,008		$	41,332
Leasehold improvements	11,051			10,386
Internal-use computer software	15,626			14,416
Lease right of use assets	17,652			—
Building and land	22,921			18,978
Information systems, office equipment and furniture	8,603			7,262
Transportation equipment	4,403			3,932
Total	131,264			96,306
Less: accumulated depreciation and amortization	(36,167		)	(31,518		)
Property, plant and equipment, net	$	95,097		$	64,788

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



	June 28,		December 28,
	2019		2018
United States	$	84,211	$	59,056
International	10,886		5,732
Total long-lived assets	$	95,097	$	64,788

5. Leases

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 1 to 8 years, some of which include options to extend the lease term for up to 5 years, and some of which include options to terminate the leases within 1 year. Certain leases are subject to annual escalations as specified in the lease agreements. The Company considered these options in determining the lease term used to establish its right-of-use assets and lease liabilities. These lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company's leases do not provide an interest rate, the Company used the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted-average remaining lease term for the Company's operating leases was 4.69 years and the weighted-average incremental borrowing rate was 3.75% as of June 28, 2019.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

Operating lease costs consisted of the following:



	For the three months ended		For the six months ended
	June 28, 2019		June 28, 2019
Operating lease cost	$	1,549	$	2,969
Other lease costs ⁽¹⁾	242		425
Total	$	1,791	$	3,394

(1) Includes short-term leases and variable lease costs. The Company elected a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the right-of-use assets and lease liabilities.

Lease costs for the three and six months ended June 29, 2018 were $1,630 and $3,326, respectively.

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



	Balance Sheet Classification	June 28, 2019
Operating lease right-of-use assets	Property, plant and equipment	$	17,652
Current lease liabilities	Accrued expenses	$	5,990
Non-current lease liabilities	Other liabilities	$	11,994

Maturities of lease liabilities by fiscal year for the Company's operating leases are as follows:



For fiscal year	Total future payments
2019 (excluding the six months ended June 28, 2019)	$	2,979
2020	5,372
2021	3,779
2022	2,179
2023	2,194
Thereafter	3,151
Total lease payments	19,654
Less: imputed interest	(1,670		)
Present value of lease liabilities	17,984
Less: current portion	(5,990		)
Lease liabilities less current portion	$	11,994

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

6. Accrued Expenses

Accrued expenses consisted of the following:



	June 28,		December 28,
	2019		2018
Payroll and related expenses	$	12,392	$	15,870
Current portion of lease liabilities	5,990		—
Warranty	6,208		6,433
Income tax payable	3,601		6,691
Other accrued expenses	6,111		4,613
Total	$	34,302	$	33,607

Activity related to warranties is as follows:



	For the three months ended						For the six months ended
	June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Beginning warranty liability	$	5,740		$	6,596		$	6,433		$	6,481
Charge to cost of sales	1,558			503			2,133			1,797
Fair value of warranty assumed in acquisition	100			—			100			—
Costs incurred	(1,190		)	(957		)	(2,458		)	(2,136		)
Ending warranty liability	$	6,208		$	6,142		$	6,208		$	6,142

7. Debt

Former Second Amended and Restated Credit Facility

In August 2013, the Company entered into a credit facility with SunTrust Bank, N.A. and other named lenders, periodically was amended and restated, (the "Second Amended and Restated Credit Facility"). The Company paid off the Second Amended and Restated Credit Facility in June 2019 upon entering into the new Credit Facility with Bank of America, N.A. ("Bank of America"). The Company expensed $516 of remaining debt issuance costs, which are included in other expense, net on the Condensed Consolidated Statements of Income.

New Credit Facility

In June 2019, the Company entered into a credit facility with Bank of America and other named lenders (the "The Credit Facility"). The Credit Facility, which matures on June 3, 2024, provides a senior secured revolving line of credit with a maximum borrowing capacity of $250,000. The Company paid $510 in loan costs that will be deferred and amortized on a straight-line basis over the term of the Credit Facility.

The Credit Facility provides for interest at a rate either based on the London Interbank Offered Rate, or LIBOR, plus a margin ranging from 1.00% to 1.50%, or based on the base rate offered by Bank of America plus a margin ranging from 0.00% to 0.50%. At June 28, 2019, the one-month LIBOR and prime rates were 2.40% and 5.50%, respectively. At June 28, 2019, our weighted average interest rate on outstanding borrowing was 3.64%. The Credit Facility is secured by substantially all of the Company’s assets, restricts the Company's ability to make certain payments and engage in certain transactions, and requires that the Company satisfy customary financial ratios. The Company was in compliance with the covenants as of June 28, 2019.

The Credit Facility permits up to $15,000 of the aggregate revolving commitment to be used by the Company for issuance of letters of credit, of which $5,000 was outstanding at June 28, 2019.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

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



	June 28,
	2019
Amount outstanding	$	77,553
Standby letter of credit	5,000
Available borrowing capacity	167,447
Total borrowing capacity	$	250,000
Maturity date	June 3, 2024

8. Commitments and Contingencies

Indemnification Agreements - In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise due to their status or service as directors, officers or employees. While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on the Company’s results of operations, financial position or liquidity.

Legal Proceedings - A lawsuit was filed on December 17, 2015 by SRAM Corporation (“SRAM”) in the U.S. District Court, Northern District of Illinois, against the Company’s wholly-owned subsidiary, RFE Canada Holding Corp. (“RFE Canada”). The lawsuit alleges patent infringement of U.S. Patent number 9,182,027 ("'027 Patent") and violation of the Lanham Act. SRAM filed a second lawsuit in the same court against RFE Canada on May 16, 2016, alleging patent infringement of U.S Patent number 9,291,250 ("'250 Patent"). The Company believes that the lawsuits are without merit and intends to vigorously defend itself. As such, the Company has filed, before the U. S. Patent and Trademark Appeals Board ("PTAB"), for Interparties Reviews ("IPR") of the '027 Patent and separately the same for the '250 Patent. In April 2018, the PTAB issued opinions in the ‘027 Patent petition cases stating that the Company has not shown the claims of the ‘027 Patent to be obvious. Regarding the PTAB ‘027 opinions, the Company has filed an Appeal to the Court of Appeals for the Federal Circuit. Regarding that appeal the Company has further moved the CAFC for remand of the ‘027 IPR to the PTAB. The PTAB has issued an opinion in the ‘250 Patent petition case stating that the Company has not shown the claims of the ‘250 Patent to be obvious.

In a separate action the Company filed a lawsuit on January 29, 2016 in the U.S. District Court, Northern District of California against SRAM. That lawsuit alleges SRAM’s infringement of two separate Company owned patents, specifically U.S. Patent numbers 6,135,434 and 6,557,674. A second lawsuit was filed by the Company on July 1, 2016 in the U.S. District Court, Northern District of California against SRAM alleging infringement of the Company’s U.S. Patent numbers 8,226,172 and 8,974,009. These lawsuits have been moved to U.S. District Court, District of Colorado and are otherwise proceeding. The stay of the SRAM lawsuits against the Company have been lifted by the U.S. District Court, Northern District of Illinois. The Company filed and SRAM filed lawsuits are now moving forward in the respective courts.

Due to the inherent uncertainties of litigation, the Company is not able to predict either the outcome or a range of reasonably possible losses, if any, at this time. Accordingly, no amounts have been recorded in the consolidated financial statements for the settlement of these matters. Were an unfavorable ruling to occur, or if factors indicate that a loss is probable and reasonably estimable, the Company's business, financial condition or results of operations could be materially and adversely affected. The Company is involved in other legal matters that arise in the ordinary course of business. Based on information currently available, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's financial condition, results of operations or cash flows.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

Other Commitments - On November 30, 2017, the Company through FF US Holding Corp. acquired an 80% interest in the business of Flagship, Inc. ("Tuscany"). The stockholders' agreement provides the Company with a call option (the "Call Option") to acquire the remaining 20% of Tuscany any time from November 30, 2019 through November 30, 2024 at a value that approximates fair market value. In addition, if the Call Option has not been exercised as of November 30, 2024, the non-controlling owners shall be entitled to exercise a put option on November 30, 2024 and for a 180 day period thereafter, which would require the Company to purchase all of the remaining shares held by the non-controlling owners at a price that approximates fair market value.

Other Contingencies - On June 21, 2018, the U.S. Supreme Court (the “Court”) decided South Dakota v. Wayfair, Inc., et al., holding that internet retailers do not have to maintain a physical presence in a state in order to be required to collect the state’s sales and use tax. Ultimately, the Court remanded the case to the South Dakota Supreme Court on the question of “whether some other principle in the Court’s Commerce Clause doctrine might invalidate the Act,” which may delay federal legislation on the issue. However, as a result of the Court’s decision, additional states may now begin requiring all remote sellers, primarily those engaged in e-commerce, to register, collect and remit sales and use taxes on transactions with in-state customers. Numerous states have either enacted legislation or informally indicated that they will not assert liability for uncollected taxes on a retroactive basis. Nevertheless, the Company believes that it is possible that it will incur a liability for uncollected sales tax on some portion of its e-commerce sales through June 28, 2019. Any retroactively imposed liability is not expected to be material to the Company’s results of operations or financial position because direct end-user sales in states where the Company is not registered comprise a small portion of total revenues.

9. Fair Value Measurements and Financial Instruments

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



	June 28, 2019								December 28, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Liabilities:
Second Amended and Restated Credit facility	$	—	$	—	$	—	$	—	$	—	$	59,426	$	—	$	59,426
Non-controlling interest subject to put provisions	—		—		15,022		15,022		—		—		14,282		14,282
Total liabilities measured at fair value	$	—	$	—	$	15,022	$	15,022	$	—	$	59,426	$	14,282	$	73,708

There were no transfers of assets or liabilities between Level 1, Level 2, and Level 3 categories of the fair value hierarchy during the three and six month period ended June 28, 2019.

The Company used Level 2 inputs to determine the fair value of its Second Amended and Restated Credit Facility. As of December 28, 2018, the carrying amount of the principal under the Company’s Second Amended and Restated 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 Company paid off the Second Amended and Restated Credit Facility in June 2019 upon entering into the new revolving Credit Facility with Bank of America.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

The Company has potential obligations to purchase the non-controlling interests held by third parties in the Tuscany subsidiary. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within the specified periods outlined in the put provision within the Tuscany stockholders' agreement. If these put provisions were exercised, the Company would be required to purchase the third-party owners' non-controlling interests at the appraised fair value. The initial non-controlling interest value was implicit in the purchase price and is revalued each quarter, with the adjustment being recorded directly as a component of retained earnings. The methodology the Company uses to estimate the fair value of the non-controlling interests subject to these put provisions is based on an average multiple of earnings before income taxes, depreciation and amortization ("EBITDA"), taking into consideration historical earnings and other factors. The carrying value of the non-controlling interest as of June 28, 2019 has been adjusted to reflect the valuation floor, which represents the sum of the initial valuation and the cumulative net earnings attributable to the non-controlling interest. The estimated fair values of the non-controlling interests subject to put provisions can fluctuate and the implicit multiple of earnings at which these non-controlling interest obligations may ultimately be settled could vary significantly from our future estimates depending upon market conditions.

The following table provides a reconciliation of the beginning and ending balances for the Company's redeemable non-controlling interest measured at fair value using Level 3 inputs:



	Redeemable Non-Controlling Interest (level 3 measurement)
Balance at December 28, 2018	$	14,282
Net income attributable to non-controlling interest	740
Balance at June 28, 2019	$	15,022

10. Stockholders' Equity

Equity Incentive Plans

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



	For the three months ended				For the six months ended
	June 28, 2019		June 29, 2018		June 28, 2019		June 29, 2018
Cost of sales	$	114	$	131	$	243	$	233
Sales and marketing	113		139		239		299
Research and development	155		154		320		296
General and administrative	1,239		1,361		2,548		3,003
Total	$	1,621	$	1,785	$	3,350	$	3,831

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

The following table summarizes the activity for the Company's unvested restricted stock units ("RSU") for the six months ended June 28, 2019.



	Unvested RSUs
	Number of shares outstanding		Weighted-average grant date fair value
Unvested at December 28, 2018	655		$	29.34
Granted	19		$	71.94
Canceled	(9	)	$	30.97
Vested	(169	)	$	26.45
Unvested at June 28, 2019	496		$	31.91

As of June 28, 2019, the Company had approximately $11,208 of unrecognized stock-based compensation expense related to RSUs, which will be recognized over the remaining weighted-average vesting period of approximately 2.46 years.

During the six months ended June 28, 2019, 190 shares of common stock were issued due to the exercise of stock options, resulting in proceeds of $966. No options to purchase common stock expired or were forfeited during the six months ended June 28, 2019. As of June 28, 2019, stock-based compensation expense related to stock options has been fully recognized.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

11. Income Taxes



	For the three months ended						For the six months ended
	June 28, 2019			June 29, 2018			June 28, 2019			June 29, 2018
Provision for (benefit of) income taxes	$	4,522		$	4,711		$	7,123		$	(1,868	)
Effective tax rates	16.2		%	20.0		%	14.6		%	(4.9		)%

For the three and six months ended June 28, 2019, and the three months ended June 29, 2018, the difference between the Company's effective tax rate 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 $1,808, $3,635, and $880 from 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.

For the six months ended June 29, 2018, the difference between the Company's effective tax benefit of 4.9% and the 21% federal statutory rate resulted primarily from a $9,838 one-time impact of the favorable conclusion of the 2015 U.S. Internal Revenue Service ("IRS") audit and the recognition of related tax positions with respect to the deductibility of amortization and depreciation expense resulting from the acquisition of the Company in 2008. The benefit of the deductions was not recognized in accounting for the acquisition due to uncertainty about whether the tax position would withstand audit. The results of the closing agreement with the IRS provided basis for the Company to conclude that the amortization and depreciation will be deductible for all open tax years. In addition, the effective tax rate benefited from lower foreign tax rates, lower effective federal rates on foreign derived intangible income, research and development credits, and $1,117 from 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 Company's federal tax returns for 2016 and forward, state tax returns for 2014 forward, and foreign tax returns from 2016 forward are subject to examination by tax authorities. The Company is currently under examination by the California state tax authority for 2015 and 2016.

The Company has obtained tax incentives in Switzerland that are effective on a formal basis through March 2019, and indefinitely on a statutory basis, as long as the Company's operations meet specified criteria. The effect of the tax incentive was not material to the Company's income tax provision for the three and six months ended June 28, 2019 and June 29, 2018.

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FOX FACTORY HOLDING CORP.

Notes to Condensed Consolidated Financial Statements - continued

(in thousands, except per share amounts)

(unaudited)

12. Related Party Agreements

Fox Factory, Inc. has a triple-net building lease for its manufacturing and office facilities in Watsonville, California. The building is owned by a former member of our Board of Directors who retired on August 28, 2018. Rent expense under this lease was $179 and $358 for the three and six months ended June 29, 2018, respectively.

On September 28, 2018, the Company purchased Tuscany's facilities from certain non-controlling interest stockholders who are also employees of the Company. The total purchase price was $3,750. The Company leased these properties prior to purchasing them. Rent expense under these leases was $86 and $171 for the three and six months ended June 29, 2018, respectively.

13. Acquisition

On May 3, 2019, the Company acquired substantially all assets of Air Ride Technologies, Inc. dba RideTech, a manufacturer of suspension systems that enhance the handling and ride quality of muscle cars, trucks, sports cars and hot rods. In connection with the acquisition, the Company paid approximately $13,971, of which $6,804 was cash on hand and $7,167 was from newly issued unregistered shares of common stock. The allocation of the purchase price to the assets acquired and liabilities assumed, including $5,156 in net working capital and $6,000 in identifiable intangible assets, is preliminary and subject to the completion of the Company's validation of working capital and its intangible valuation procedures, with the assistance of specialists. Goodwill acquired of $2,815, is expected to be deductible for income tax purposes. The acquisition was not material to the Company's financial statements.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2018, as filed with the U.S. Securities and Exchange Commission ("SEC") on February 26, 2019, and our other reports and registration statements that we file with the SEC from time to time. In addition to historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. 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 to Fox 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 our SEC 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:


•	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;


•	future disruptions in the operations of our manufacturing facilities;

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•	our ability to adapt our business model to mitigate the impact of certain changes in tax laws including those enacted in the U.S. in December 2017;


•	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