Fox Factory Annual Report 2016

Plain-text annual report

FOX FACTORY HOLDING CORP FORM 10-K (Annual Report) Filed 03/01/17 for the Period Ending 12/30/16 Address Telephone CIK Symbol SIC Code Industry 915 DISC DRIVE SCOTTS VALLEY, CA 95066 831-274-6500 0001424929 FOXF 3751 - Motorcycles, Bicycles, and Parts Auto, Truck & Motorcycle Parts Sector Consumer Cyclicals Fiscal Year 12/30 http://www.edgar-online.com © Copyright 2017, EDGAR Online, Inc. All Rights Reserved. Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use. Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 30, 2016OR¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-36040 Fox Factory Holding Corp.(Exact name of registrant as specified in its charter) Delaware26-1647258(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.) 915 Disc DriveScotts Valley, CA95066(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 Name of each exchange on which registered Common Stock, par value $0.001 per share The NASDAQ Stock Market LLC(NASDAQ Global Select Market)Table of ContentsSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ýIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ýIndicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) duringthe preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is notcontained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ýIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smallerreporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 ofthe Exchange Act. (Check one):Large accelerated filer¨Accelerated filerxNon-accelerated filer¨ (Do not check if a smaller reporting company)Smaller reporting company¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ýBased upon the closing price of the registrant's common stock on the NASDAQ Global Select Market on July 1, 2016 (the lastbusiness day of the registrant’s most recently completed second fiscal quarter) the approximate aggregate market value of thecommon stock held by non-affiliates of the registrant was approximately $ 363,851,000 . As of February 23, 2017 , there were37,210,918 shares of the Registrant’s common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive Proxy Statement for the 2017 Annual Meeting of Stockholders to be filed with the Securitiesand Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K are incorporated by reference in Part III, Items 10-14 of this Annual Report on Form 10-K. Table of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K includes forward-looking statements, which are subject to the “safe harbor” created by section 27A of the Securities Act of1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. We may make forward-looking statements in our SEC filings, pressreleases, news articles, earnings presentations and when we are speaking on behalf of the Company. Forward-looking statements generally relate to future eventsor our future financial or operating performance which involve substantial risks and uncertainties. In some cases, you can identify forward-looking statementsbecause 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 thatconcern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Annual Report on Form 10-K are subject to numerous risksand 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 ability to improve operating and supply chain efficiencies;•our future financial performance, including our sales, cost of sales, gross profit or gross margins, operating expenses, ability to generate positive cashflow 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 transition of the majority of our mountain bike manufacturing operations to Taiwan and our expectations related to such transition;•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 consumerpreferences;•changes in demand for high-end suspension and ride dynamics products;•our ability to successfully identify, evaluate and manage potential acquisitions and to benefit from such acquisitions;•the outcome of pending litigation;•changes in the relative proportion of profit earned in the numerous jurisdictions in which we do business and in tax legislation, case law and otherauthoritative guidance in those jurisdictions; 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 AnnualReport on Form 10-K primarily on our current expectations and projections about future events and trends that we believe may affect our business, financialcondition, 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 Annual Report on Form 10-K, therisks, uncertainties and other factors expressed or implied discussed in Item 1A, "Risk Factors" of Part I of this Annual Report on Form 10-K could cause orcontribute to actual results differing materially from those set forth in any forward-looking statement. Moreover, we operate in a very competitive and challengingenvironment. 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 onthe forward-looking statements contained in this Annual Report on Form 10-K. We cannot assure you that the results, events, and circumstances reflected in theforward-looking statements will be achieved or occur. Actual results, events, or circumstances could differ materially from those contemplated by, set forth in, orunderlying any forward-looking statements. For all of these forward-looking statements we claim the protection of the safe harbor for forward-looking statementsin Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.The forward-looking statements made in this Annual Report on Form 10-K relate only to events as of the date on which the statements are made. We undertake noobligation to update any forward-looking statements made in this Annual Report on Form 10-K to reflect events or circumstances after the date of this AnnualReport on Form 10-K 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.Fox Factory Holding Corp.FORM 10-KTable of Contents Page PART I. Item 1Business1Item 1ARisk Factors9Item 1BUnresolved Staff Comments26Item 2Properties26Item 3Legal Proceedings26Item 4Mine Safety Disclosures27 PART II. Item 5Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities28Item 6Selected Financial Data30Item 7Management’s Discussion and Analysis of Financial Condition and Results of Operations32Item 7AQuantitative and Qualitative Disclosures About Market Risk50Item 8Financial Statements and Supplementary Data50Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure50Item 9AControls and Procedures50Item 9BOther Information51 PART III. Item 10Directors, Executive Officers and Corporate Governance52Item 11Executive Compensation52Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters52Item 13Certain Relationships and Related Transactions, and Director Independence52Item 14Principal Accountant Fees and Services52 PART IV. Item 15Exhibits, Financial Statement Schedules52 Signatures53 Financial Statements Management’s Report on Internal Control Over Financial Reporting57 Report of Independent Registered Public Accounting Firm58 Consolidated Balance Sheets as of December 30, 2016 and December 31, 201559 Consolidated Statements of Income for the years ended December 30, 2016, December 31, 2015 and December 31, 201460 Consolidated Statements of Comprehensive Income for the years ended December 30, 2016, December 31, 2015 and December 31, 201461 Consolidated Statements of Stockholders' Equity for the years ended December 30, 2016, December 31, 2015 and December 31, 201462 Consolidated Statements of Cash Flows for the years ended December 30, 2016, December 31, 2015 and December 31, 201463 Notes to Consolidated Financial Statements65Table of ContentsPART IITEM 1. BUSINESSOur company, Fox Factory Holding Corp., designs, engineers, manufactures and markets performance ride dynamics products for customers world-wide. FoxFactory Holding Corp. is the holding company of Fox Factory, Inc. As used herein, "Fox Factory," "FOX," the "Company," "we," "our," and similar terms refer toFox Factory Holding Corp. and its subsidiaries, unless the context indicates otherwise. Our premium brand ride dynamics products, are used primarily on bicycles("bikes"), side-by-side vehicles ("Side-by-Sides"), on-road vehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles, or ATVs,snowmobiles, specialty vehicles and applications, and motorcycles. We define ride dynamics as the interplay between the rider, the vehicle and the terrain, and weoffer unique solutions to improve performance and control. Some of our products are specifically designed and marketed to some of the leading action sportsoriginal equipment manufacturers ("OEMs"), while others are distributed directly to consumers through a global network of dealers and distributors.Fox Factory, Inc., our operating subsidiary, was incorporated in California in 1978. Fox Factory Holding Corp. was incorporated in Delaware on December 28,2007. Compass Group Diversified Holdings LLC, ("Compass") purchased a controlling interest in Fox Factory Holding Corp. on January 4, 2008. As ofDecember 30, 2016 , Compass beneficially owned approximately 13.8% of our outstanding common stock.In August 2013, we completed an initial public offering ("IPO") of our common stock. Our common stock is traded on the NASDAQ Global Select Market (the"NASDAQ") under the symbol "FOXF."Description of our businessWe are a designer, manufacturer and marketer of performance ride dynamics products used primarily on bicycles, Side-by-Sides, on-road vehicles with off-roadcapabilities, off-road vehicles and trucks, all-terrain vehicles, or ATVs, snowmobiles, specialty vehicles and applications, and motorcycles. We believe ourproducts offer innovative design, performance, durability and reliability. Our brand is associated with high-performance and technologically advanced products, bywhich we generally mean products that provide users with improved control and a smoother ride while riding over rough terrain in varied environments. Webelieve that the performance of our products has been demonstrated by, and our brand benefits from, the success of professional athletes who use our products inelite competitive events, such as the Union Cycliste Internationale Mountain Bike World Cup and the X Games. We believe the exposure our products receivewhen used by successful professional athletes positively influences the purchasing habits of enthusiasts and other consumers seeking high-performance products.We believe that our strategic focus on the performance and racing segments in our markets influences many aspiring and enthusiast consumers who we believeseek to emulate the performance of professional and other elite athletes. We believe our products are generally sold at premium prices, which to us meansmanufacturer suggested retail sale prices that are generally in the upper quartile of their respective product categories.We design our products for, and market our products to, some of the world’s leading action sports OEMs and to consumers through the aftermarket channel. Manyof our OEM customers, including Giant, Scott, Specialized and Trek in bikes and BRP, Ford, Toyota, Yamaha and Polaris in powered vehicles, are among themarket leaders in their respective product categories, and help shape, as well as respond to, consumer trends in their respective categories. We believe that OEMsoften prominently display and incorporate our products to improve the marketability and consumer demand for their performance models, which reinforces ourbrand image. In addition, consumers select our products in the aftermarket channel where we market through a global network of dealers and distributors.For clarification, we are not affiliated with Fox Head, Inc., an action sports apparel company.IndustryWe participate in large global markets for bikes and powered vehicles used by recreational and professional users. Today, our products for powered vehicles areused primarily on Side-by-Sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialty vehicles and applications,and motorcycles.We focus on premium priced products within each of these categories, which we consider to be the high-end segment because of their higher retail sale prices,where we believe consumers prefer well-designed, performance-oriented equipment. We believe that ride dynamics products, which include suspension systems, aswell as wheels, cranks, and other components, are critical to the performance of the bikes and powered vehicles in the product categories in which we focus andthat technical features, component performance, product design, durability, reliability and brand recognition strongly influence the purchasing decisions ofconsumers. Over the past decade, there have been significant technological advances in materials and features that have increased product functionality andperformance, allowing high-end suspension products to be adapted for use in additional end-markets and bike and powered vehicle categories.1Table of ContentsWe believe the high-end segments in which we participate are well positioned for growth due to several factors, including:•increasing average retail sales prices, which we believe are driven by differentiated and feature-rich products with advanced technologies;•continuing product cycle innovation, which we have observed often motivates consumers to upgrade and purchase new products for enhanced performance; and•increased sales opportunities for high-end bikes and powered vehicles in international markets.As vehicles in our end-markets evolve and grow more capable, ride dynamics products and components have become, and we believe will continue to become,increasingly more important for improved performance and control. Additionally, we believe there are opportunities to continue to leverage our technical know-how in suspension products to provide solutions beyond our current end-markets.Our competitive strengthsBroad offering of performance products across multiple consumer marketsOur ride dynamics products enhance vehicle performance across multiple consumer markets. Through the use of adjustable suspension, position sensitive damping,multiple air spring technologies, lightweight and rigid materials, and other technologies and methods, our products improve the performance and control of thevehicles used by our consumers. We believe our reputation for performance products is reinforced by the successful finishes in world class competitive events byathletes incorporating our products in their vehicles.Premium brand with strong consumer loyaltyWe believe that we have developed a reputation for performance products and that we own and license established trademarks, such as FOX ® , FOX RACINGSHOX ® , and RACE FACE ® which are perceived as premium brands. As such, our ride dynamics products are generally sold at premium prices. We take greateffort to maintain our brands in the eyes of consumers. For instance, our FOX ® logo is prominently displayed on our FOX ® branded products used on bikes andpowered vehicles sold by our OEM customers, which helps further reinforce our brand image. We believe that our brands have achieved strong loyalty from ourconsumers. To support our brands, we introduce new products that we believe feature innovative technologies designed to improve vehicle performance andenhance our brand loyalty with consumers.Track record of innovation and new product introductionsInnovation, including new product development, is a key component of our growth strategy. Due to our experience in suspension engineering and design inmultiple markets and with a variety of vehicles, solutions we develop for use in one market can ultimately be deployed across multiple markets. For example, webelieve that our success in the high-end ATV category led to the widespread adoption of our suspension technology in the Side-by-Side market. Our innovativeproduct development and speed to market are supported by:•our racing culture, including on-site technical race support of professional athletes, which provides us with unique real-time insights as to the evolving ridedynamic needs of those participating in world-class events;•ongoing research and development through a team of full-time engineers and numerous other technicians and employees who spend at least part of their timetesting and using our products and helping develop engineering-based solutions to enhance our product offerings;•feedback from professional athletes, race teams, enthusiasts and other consumers who use our products;•strategic and collaborative relationships with OEM customers, which furthers our ability to extend technologies and applications across end-markets; and•our integrated manufacturing facilities and performance testing center, which allow us to quickly move from concept to product. Over the last three years, we have developed multiple new products, such as the:•34 Factory Series FLOAT FIT4, which reduces overall fork weight, provides external adjustability with our fourth-generation FOX Isolated Technology,closed-cartridge damper, and includes the self-adjusting negative chamber air spring that we developed and proved out with the 36 Factory FLOAT RC2 forquieter operation and ease of adjustment; •X2 technology utilized in our Factory Series FLOAT and DH rear shocks, which allows the rider to tune high and low speed compression and high and lowspeed rebound independently;•PODIUM Internal Bypass, introduced into the side-by-side market, which through its internal bypass technology, allows the vehicle to be plush on small bumpsand deliver excellent chassis control while providing progressive bottoming resistance with each increment of travel used; and2Table of Contents•X2 technology utilized in our 2.5 PODIUM shocks for side-by-sides that feature high and low speed rebound adjustment, high and low speed compressionadjustment, and a dual-rate spring for the rear shocks to allow drivers to tune for many different terrain types and driving styles.Strategic brand for OEMs, dealers and distributorsThrough our strategic relationships, we are often sought out by our OEM customers and work closely with them to develop and design new products and productenhancements. We believe our collaborative approach and product development processes strengthen our relationships with our OEM customers. We believeconsumers value our branded products when selecting performance bikes and powered vehicles, and as a result, OEMs purchase and incorporate our products intheir bikes and powered vehicles in order to increase the sales of their premium priced products. In addition, we believe the inclusion of our products on high-endbikes and powered vehicles reinforces our premium brand image which helps to drive our sales in the aftermarket channel where dealers and distributors sell ourproducts to consumers.Experienced management teamWe have an experienced senior management team led by Larry L. Enterline, our Chief Executive Officer. Many members of our management team and many ofour employees are avid users of our products, which further extends their knowledge of, and expertise in, our products and end-markets. We are able to attract andretain highly trained and specialized employees who enhance our company culture and serve as strong brand advocates.Our strategyOur goal is to expand our leadership position as a designer, manufacturer and marketer of performance products designed to enhance ride dynamics. We intend tofocus on the following key strategies in pursuit of this goal:Continue to develop new and innovative products in current end-marketsWe intend to continue to develop and introduce new and innovative products in our current end-markets to improve ride dynamics for our consumers. For example,our patented position-sensitive damping systems provide terrain optimized ride characteristics across many of our product lines. We believe that performance andcontrol are important to our consumer base, and that our frequent introduction of products with innovative and improved technologies increases both OEM andaftermarket demand as consumers seek out products for their vehicles that can deliver these characteristics. We also believe evolving market trends, such aschanging bike wheel sizes and increasing adoption rates of Side-by-Side vehicles, should increase demand for vehicles in our end-markets, which, in turn, shouldincrease demand for our suspension products.Leverage technology and brand to expand into new categories and end-marketsWe believe that we have developed a reputation as a leader in ride dynamics, and that our reputation combined with our ability to improve the performance ofvehicles by incorporating performance suspension products and other components, results in us frequently being approached by OEM product development teams,athletes and others looking to improve the performance of their vehicles, including in end-markets in which we have not previously offered products. We believethat our ride dynamics technologies have applications in end-markets in which we do not currently participate in a meaningful way, and we intend to selectivelydevelop products for and forge relationships with customers in additional markets. These markets may include military, recreational vehicles (RVs), on-roadmotorcycles, commercial trucks and "performance street" cars.Opportunistically expand our ride dynamics platform through acquisitionsIn the past three years we've completed several acquisitions which we believe enhance our business and strategically expand our product offerings. In the firstquarter of 2014, we acquired the business of Sport Truck, a full-service distributor of aftermarket suspension solutions. Sport Truck designs, markets, anddistributes lift kit solutions primarily through its brands, BDS Suspension and Zone Offroad Products. A lift kit solution is an aftermarket vehicle modification thatlifts either the suspension or the body of a vehicle to raise the ride height of the vehicle. Lift kits are commonly installed to allow for the installation of larger tiresand new suspension systems. In December of 2014, we acquired the businesses of Race Face/Easton. Known for its unique carbon technology, Race Face/Eastondesigns, manufactures, and distributes performance mountain and road bike wheels and other performance cycling components including cranks, bars, stems, andseat posts, globally to OEMs and the aftermarket. In November 2015, we continued to expand our opportunities through the acquisition of certain assets ofMarzocchi’s bike product lines.Our business development group is responsible for identifying and assessing inorganic and organic potential growth opportunities of our ride dynamics platform.Specifically, our business development group: (i) identifies and assesses potential acquisition opportunities; (ii) aids the business in analyzing growth alternatives;and (iii) manages critical projects and programs as determined by senior management.3Table of ContentsIncrease our aftermarket penetrationWe currently have a broad aftermarket distribution network of thousands of retail dealers and distributors worldwide. We intend to further penetrate theaftermarket channel by selectively adding dealers and distributors in certain geographic markets, increasing our internal sales force and strategically expandingaftermarket-specific products and services to existing vehicle platforms.Accelerate international growthWhile a significant percentage of our current sales are to OEMs and dealers and distributors located outside the United States, we believe international expansionrepresents a significant opportunity for us and we have, and intend to continue to, selectively increase infrastructure investments and focus on identified geographicregions. We believe that rising consumer discretionary income in a number of developing markets and increasing consumer preferences for premium, performancebikes and powered vehicles, should contribute to increasing demand for our products. In addition, we believe increasing international viewership of racing andextreme sports and other outdoor events, such as the X Games, is contributing to the growth of international participation in activities in which our products areused. We intend to leverage the recognition of our brands to capitalize on these trends by increasing our sales to both OEMs and dealers and distributors globally,particularly in markets where we perceive significant opportunities.Improve operating and supply chain efficienciesWe intend to improve operating margins by enhancing our design and production processes to increase efficiencies, reducing new product time to market andlowering production costs. During 2015, we completed the process of moving most of the manufacturing of our bike suspension component products to Taiwan.We manufactured approximately 87% and 82% of our complete suspension forks and shocks, respectively, at our Taiwan bike suspension component facility in2016, as well as a significant amount of our subassemblies and other components. This transition has shortened production lead times to our bike OEM customers,and we believe that over time this transition will continue to improve supply chain efficiencies and reduce manufacturing costs.SeasonalityCertain portions of our business are seasonal. In two of the last three fiscal years, our quarterly sales have been the lowest in the first quarter and the highest duringour third quarter of the year. For example, our sales in our first and third quarters of 2016 represented 20% and 27% of our total sales for the year, respectively. Webelieve this seasonality is due to the delivery of new products.CompetitionThe markets for ride dynamics products, including suspension components, wheels, and cranks, are highly competitive. We compete with other companies thatproduce products for sale to OEMs, dealers and distributors, as well as with OEMs which produce their own line of products for their own use. Some of ourcompetitors may have greater financial, research and development or marketing resources than we do. Competition in the high-end segment of the ride dynamicsmarket revolves around technical features, performance, product design, innovation, reliability and durability, brand, time to market, customer service and reliableorder execution. While the pricing of competing products is always a factor, we believe the performance of our products helps justify our premium pricing. Withinour markets, we compete with several large companies and numerous small manufacturers that provide branded and unbranded products across all our productlines. These competitors can be divided into the following categories:BikesWithin the market for bike suspension components, we compete with several companies that manufacture front and rear suspension products, including RockShox(a subsidiary of SRAM Corporation), X-Fusion Shox (a wholly-owned subsidiary of A-Pro), Manitou (a subsidiary of HB Performance Systems), SR Suntour, DTSwiss (a subsidiary of Vereinigte Drahtwerke AG), Cane Creek Cycling, DVO Suspension, Bos-Mountain Bike Suspensions and Öhlins Racing AB. In the marketfor other bike ride dynamics components, we compete with SRAM, Truvativ and Zipp (all subsidiaries of SRAM Corporation), DT Swiss (a subsidiary ofVereinigte Drahtwerke AG), Mavic (a subsidiary of Amer Sports Corporation) and Shimano.Powered vehiclesWithin the market for powered vehicle suspension components, we compete with several companies in different submarkets. We believe a significant competitorfor suspension components in the snowmobile market is KYB (Kayaba Industry Co., Ltd.). Other suppliers of suspension components for snowmobiles includeÖhlins Racing AB, Walker Evans Racing, Works Performance Products, Inc. and Penske Racing Shocks / Custom Axis, Inc. In the ATV and Side-by-Sidemarkets, outside of captive OEM suppliers, we compete with ZF Sachs (ZF Friedrichshafen AG) and Walker Evans Racing for OEM business and Elka SuspensionInc., Öhlins Racing AB, Works Performance Products and Penske Racing Shocks / Custom Axis, Inc. for aftermarket business.4Table of ContentsIn the market for off-road and specialty vehicle suspension components, we believe our two biggest competitors are ThyssenKrupp Bilstein Suspension GmbH(commonly known as Bilstein) and King Shock Technology, Inc. (commonly known as King Shock). Other competitors include Icon Vehicle Dynamics, Sway-A-Way, Pro Comp USA Suspension and Rancho (Tenneco). In the market for suspension systems, or lift kits, we compete with TransAmerican Wholesale /Pro CompUSA, Rough Country Suspension Systems, TeraFlex, ReadyLIFT Suspension, Tuff Country EZ-Ride Suspension, and Rusty’s Off-Road.Our productsWe design and manufacture ride dynamics products, of which a significant portion is suspension products. These products dissipate the energy and force generatedby bikes and powered vehicles while they are in motion. Suspension products allow wheels or skis (in the case of snowmobiles) to move up and down to absorbbumps and shocks while maintaining contact with the ground for better control. Our products use adjustable suspension, position sensitive damping, electronicallycontrollable damping, multiple air spring technologies, low weight and structural rigidity, all of which improve user control for greater performance.We use high-grade materials in our products and have developed a number of sophisticated assembly processes to maintain quality across all product lines. Oursuspension products are assembled according to precise specifications throughout the assembly process to create consistently high performance levels andcustomer satisfaction.BikesAs a result of our acquisitions in recent years, our bike product offerings have expanded and are used on a wide range of performance mountain bikes and roadbikes. In each of the years ended December 30, 2016, December 31, 2015 and December 31, 2014, approximately 56% , 58% and 58% , respectively, of our saleswere attributable to sales of bike-related products. Primarily for the mountain bike market, we offer mid-end and high-end front fork and rear suspension productsdesigned for cross-country, trail, all-mountain, free-ride and downhill riding. Our mountain bike products are sold in three series: (i) our Performance series,designed for demanding, yet value-minded, enthusiasts; (ii) our Performance Elite series, designed for experienced enthusiasts and expert riders; and (iii) ourFactory series, designed for maximum performance at a professional level.We also offer mountain and road bike wheels and other performance cycling components including cranks, bars, stems, and seat posts, utilizing our carbontechnology.Powered vehiclesIn our powered vehicle product category, we offer premium products for Side-by-Sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks,ATVs, snowmobiles, specialty vehicles and applications, and motorcycles. In each of the years ended December 30, 2016, December 31, 2015 and December 31,2014, approximately 44% , 42% and 42% , respectively, of our sales were attributable to sales of products for powered vehicles.Products for these vehicles are designed for trail riding, racing and performance. Our products have also been used on limited quantities of off-road militaryvehicles and other small-scale select military applications. Our suspension component products in the powered vehicle category range from two inch aluminumbolt-on shocks to our patented position sensitive internal bypass shocks. We also offer suspension systems, or lift kits, containing our suspension components, foruse in trucks.Research and developmentResearch and development is at the core of our product innovation and market leadership strategy. We have a growing team of engineers and technicians focusedon designing innovative products and developing engineering-based solutions to enhance our product offerings. In addition, a large number of our other employees,many of whom use our products in their recreational activities, contribute to our research and development and product innovation initiatives. Their involvement inthe development of new products ranges from participating in initial brainstorming sessions to ride testing products in development. Product development alsoincludes collaborating with OEM customers across end-markets, field testing by professional athletes and sponsored race teams and working with enthusiasts andother users of our products. This feedback helps us to develop innovative products which meet our demanding standards as well as the evolving needs ofprofessional and recreational end users and to quickly commercialize these products.Our research and development activities are supported by state-of-the-art engineering software design tools, integrated manufacturing facilities and a performancetesting center equipped to enhance product safety, durability and performance. Our testing center collects data and tests products prior to and after commercialintroduction. Suspension products undergo a variety of rigorous performance and accelerated life tests before they are introduced into the market. Research anddevelopment expense totaled approximately $18.5 million , $17.0 million and $13.6 million in fiscal years 2016, 2015 and 2014 , respectively.5Table of ContentsIntellectual propertyIntellectual property is an important aspect of our business. We rely upon a combination of patents, trademarks, trade names, licensing arrangements, trade secrets,know-how and proprietary technology to secure and protect our intellectual property rights.Our in-house counsel and external intellectual property resources diligently protect our new technologies with patents and trademarks and defend against patentinfringement allegations. We patent our proprietary technologies related to vehicle suspension and other products in the U.S. and various foreign patent offices.Our principal intellectual property also includes our registered trademarks in the U.S. and a number of international jurisdictions, including the marks FOX ® , FOXRACING SHOX ® , RACE FACE ® and REDEFINE YOUR LIMITS ® . Although our intellectual property is important to our business operations and in theaggregate, constitutes a valuable asset, we do not believe that any single patent, trademark or trade secret is critical to the success of our business as a whole. Wecannot be certain that our patent applications will be issued or that any issued patents will provide us with any competitive advantages or will not be challenged bythird parties.In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information using internal and externalcontrols, including contractual protections with employees, OEMs, distributors and others.CustomersOur OEM customers include market leaders in their respective categories, and help define, as well as respond to, consumer trends in their respective industries.These OEM customers include our products on a number of their performance models. We believe OEMs often use our products to improve the marketability anddemand of their own products, which, in turn, strengthens our brand image. In addition, consumers select our performance products in the aftermarket channel,where we market through a global network of dealers and distributors. We currently sell to more than 200 OEMs and distribute our products to more than 5,000retail dealers and distributors worldwide. In 2016 , 60% of our sales resulted from sales to OEM customers and 40% resulted from sales to dealers and distributorsfor resale in the aftermarket channel. No material portion of our business is subject to renegotiation of profit or termination of contracts or subcontracts at theelection of the US government.Sales attributable to our 10 largest OEM customers, which can vary from year-to-year, collectively accounted for approximately 42% , 42% and 47% of our salesin 2016, 2015 and 2014 , respectively. The decrease in the sales to the top 10 OEM customers in 2016 and 2015 as compared to 2014 is primarily attributable toour acquisitions which have further diversified our customer base. Additionally, we experienced a temporary decline in sales to one of our key power vehiclecustomers in 2016 and 2015 due to model year change over.Although we refer to the branded bike OEMs that use our products throughout this document as "our customers," "our OEM customers" or "our bike OEMcustomers," branded bike OEMs often use contract manufacturers to manufacture and assemble their bikes. As a result, even though we typically negotiate priceand volume requirements directly with our bike OEM customers, it is the contract manufacturer that may place the purchase order and therefore assumes theresponsible for paying us. Our sales to Giant Bicycles, or Giant, a branded bike OEM and a contract manufacturer used by certain of our bike OEM customers,accounted for approximately 14% , 12% and 14% of our sales in 2016, 2015 and 2014 , respectively.Our domestic sales totaled $187.5 million , $163.1 million and $128.3 million , or 47% , 44% and 42% of our total sales in 2016, 2015 and 2014 , respectively. Ourinternational sales totaled $215.5 million , $203.7 million and $178.4 million or 53% , 56% and 58% of our total sales in 2016, 2015 and 2014 , respectively. Salesattributable to countries outside the United States are based on shipment location. Our international sales, however, do not necessarily reflect the location of theend users of our products, as many of our products are incorporated into bikes that are assembled at international locations and then shipped back to the UnitedStates. Additional information about our product revenues and certain geographical information is available in Note 14 - Segments and Geographic Areas , of thenotes to consolidated financial statements.Additional information regarding our sales, income, and total assets is available in Item 6. "Selected Financial Information."BikesWe sell our bike suspension products and other components to a broad network of domestic and international bike OEMs, including Giant, Scott, Specialized andTrek. We have long-standing relationships with many of the top bike OEMs. After incorporating our products on their bikes, OEMs typically sell their bikes toindependent dealers, which then sell directly to consumers.In the aftermarket, we typically sell to dealers in the U.S. and through distributors internationally. Our dealers sell directly to aftermarket consumers. Our overseasdistributors sell to independent dealers, which then sell directly to consumers.6Table of ContentsPowered vehiclesWe sell our suspension products for the powered vehicles industry to OEMs, including BRP, Ford, Toyota, Yamaha, and Polaris. We are also currently developingrelationships with new OEMs, as the powered vehicles market continues to grow. After incorporating our products on their powered vehicles, OEMs typically selltheir powered vehicles to independent dealers, which then sell directly to consumers.In the aftermarket, we typically sell to dealers and distributors, both in the U.S. and internationally. Our dealers sell directly to aftermarket consumers. When wesell to our distributors, they sell to independent dealers, which then sell directly to consumers.Our product offerings currently target performance suspension products for Side-by-Sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks,ATVs, snowmobiles, specialty vehicles and applications, and motorcycles. Our products have also been used on limited quantities of off-road military vehicles andother select small-scale military applications. We also offer suspension systems, or lift kits, for trucks.Sales and marketingWe employ specialized and dedicated sales professionals. Each sales professional is fully committed to servicing either OEM or aftermarket customers within ourproduct categories, which ensures that our customers are in contact with capable and knowledgeable sales professionals to address their specific needs. We stronglybelieve that providing a high level of service to our end customers is essential to maintaining our reputational excellence in the marketplace. Our salesprofessionals receive training on the brands' latest products and technologies and attend trade shows to increase their market knowledge.Our marketing strategy focuses on strengthening and promoting our brands in the marketplace. We strategically focus our marketing efforts on enthusiasts seekinghigh-end ride dynamics systems through promotions at destination riding locations and individual and team sponsorships. We believe that the performance of ourproducts has been demonstrated by, and our brand benefits from, the success of professional athletes who use our products in elite competitive events, such as theUnion Cycliste Internationale Mountain Bike World Cup and the X Games. We also believe these successes positively influence the purchasing habits ofenthusiasts and other consumers seeking performance products. We believe that our strategic focus on the performance and racing segments in our markets,including our sponsorships of a number of professional athletes and race teams, influences many aspiring and enthusiast consumers and enables our products to besold at premium price points. In order to continue to enhance our brand image, we will need to maintain our position in the suspension products industry and tocontinue to provide high quality products and services. We have also been able to develop long-term strategic relationships with leading OEMs. Our reputation forperformance suspension products plays a critical role in our aftermarket sales to consumers.In addition to our website and traditional marketing channels, such as print advertising and tradeshows, we maintain an active social media presence, including anInstagram feed, Facebook page, YouTube channel, Vimeo channel and Twitter feed to increase brand awareness, foster loyalty and build a community of users. Asstrategies and marketing plans are developed for our products, our internal marketing and communications group work to ensure brand cohesion and consistency.Manufacturing and backlogWe manufacture and complete final assembly on most of our products. By controlling the manufacturing process of our products, we can maintain our strict qualitystandards, customize our machines and processes for the specific requirements of our products, and quickly respond to feedback we receive on our products indevelopment and otherwise. Furthermore, manufacturing our own products enables us to adjust our labor and production inputs to meet seasonal demands and thecustomized requirements of some of our customers.During 2015, we completed the process of moving a majority of the manufacturing of our bike suspension component products to our facility in Taichung, Taiwan.In connection with our transition, we are utilizing, and expect to continue to utilize, suppliers who are located closer to our facility in Taichung, Taiwan for anumber of materials and components. In certain cases, we may retain the ability to manufacture bike suspension components in our facility in Watsonville,California thereby providing us with dual manufacturing facilities and reducing the risk of interruptions in our production chain. Now that the transition of themajority of our bike suspension component manufacturing operations is complete, we have converted the Watsonville facility primarily to the manufacturing ofpowered vehicle suspension products.We have expanded our El Cajon, California facility to create an Automotive Ride Dynamics Center of Excellence. Our plans include developing an ISO9001certified campus to support our current military and automotive business by producing direct bolt-on suspension upgrades for on-road trucks with off-roadcapabilities. We also expect that the expanded El Cajon campus will enable us to efficiently support future growth and demand.We had approximately $36.0 million and $31.7 million in firm backlog orders at December 30, 2016 and December 31, 2015 , respectively. The increase in 2016backlog, as compared to 2015, was due to normal growth in the business and changes in the seasonality of order placement.7Table of ContentsSuppliersThe primary raw materials used in the production of our products are aluminum, magnesium, carbon and steel. We generally use multiple suppliers for our rawmaterials and believe that our raw materials are in adequate supply and available from many suppliers at competitive prices. Prices for our raw materials fluctuatefrom time to time, but historically, price fluctuations have not had a material impact on our business.We work closely with our supply base, and depend upon certain suppliers to provide raw inputs, such as forgings, castings and molded polymers that have beenoptimized for weight, structural integrity, wear and cost. In certain circumstances, we depend upon a limited number of suppliers for such raw inputs. We typicallyhave no firm contractual sourcing agreements with our suppliers other than purchase orders.Miyaki is the exclusive producer of the Kashima coating for our suspension component tubes. As part of our agreement with Miyaki, which we entered into in2009, or the Kashima Agreement, we have been granted the exclusive right to use the trademark "KASHIMACOAT" on products comprising the aluminumfinished parts for suspension components (e.g., tubes) and on related sales and marketing material worldwide, subject to a minimum model year order and certainother exclusions. The Kashima Agreement does not contain minimum purchase obligations.EmployeesAs of December 30, 2016 , we had approximately 1,700 full-time employees in the United States, Canada, Europe and Taiwan. We also use part-time employees atour manufacturing facilities to help us meet seasonal demands. None of our employees are subject to collective bargaining agreements.Practices related to working capital itemsThe Company does not believe that it or the industry in general, has any special practices or special conditions affecting working capital items that are material tounderstanding our business. Information about the Company’s working capital is incorporated herein by reference to "Management’s Discussion and Analysis ofFinancial Condition" and "Results of Operations" in Part II, Item 7 and the "Consolidated Statement of Cash Flows" in Part II, Item 8 of this Form 10-K.Government regulationEnvironmentalOur manufacturing operations, facilities and properties in the United States, Canada and Taiwan are subject to evolving foreign, international, federal, state andlocal environmental and occupational health and safety laws and regulations, including those governing air emissions, wastewater discharge and the storage andhandling of chemicals and hazardous substances. If we fail to comply with such laws and regulations, we could be subject to significant fines, penalties, costs,liabilities or restrictions on operations, which could negatively affect our financial condition.We believe that our operations are in compliance, in all material respects, with applicable environmental and occupational health and safety laws and regulations,and our compliance with such laws and regulations has not had, nor is it expected to have, a material impact on our earnings or competitive position. However,new requirements, more stringent application of existing requirements or the discovery of previously unknown environmental conditions could result in materialenvironmental related expenditures in the future.EmploymentWe are subject to numerous foreign, federal, state and local government laws and regulations governing our relationships with our employees, including thoserelating to minimum wage, overtime, working conditions, hiring and firing, non-discrimination, work permits and employee benefits. We believe that ouroperations are conducted in compliance, in all material respects, with such laws and regulations. We have never experienced a material work stoppage or disruptionto our business relating to employee matters. We believe that our relationship with our employees is good.Consumer safetyWe are subject to the jurisdiction of the United States Consumer Product Safety Commission, or the CPSC, and other federal, state and foreign regulatory bodiesincluding the National Highway Traffic Safety Administration, who enforces the Federal Motor Vehicle Safety Standards. Under CPSC regulations, amanufacturer of consumer goods is obligated to notify the CPSC, if, among other things, the manufacturer becomes aware that one of its products has a defect thatcould create a substantial risk of injury. If the manufacturer has not already undertaken to do so, the CPSC may require a manufacturer to recall a product, whichmay involve product repair, replacement or refund. During the past three years, we initiated one voluntary product recall. For additional information, see " Riskfactors ."8Table of ContentsLegal proceedingsFrom time to time we are involved in legal proceedings incidental to our business, in particular intellectual property related disputes, product liability claims, aswell as other litigation of a non-material nature in the ordinary course of business. In connection with the Financial Accounting Standard Board ("FASB")Accounting Standard Codification ("ASC") 450, Contingencies , we have not accrued for material loss contingencies relating to any legal proceedings because webelieve that, although unfavorable outcomes in proceedings may be possible, they are not considered by our management to be probable and reasonably estimable.We believe that the outcome of any such pending matters, either individually or in the aggregate, will not have a material impact on our business or financialcondition.Government contractsNo material portion of the business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government.Financial information about segments and geographic AreasWe operate in one reportable segment, performance ride dynamics products. Additional information about our product segment and certain geographic informationis available in Note 14 - Segments and Geographic Areas of the "Notes to Consolidated Financial Statements" in this Annual Report on Form 10-K.Corporate and available informationOur principal executive offices are located at 915 Disc Drive, Scotts Valley, CA 95066, and our telephone number is (831) 274-6500. Our website address iswww.ridefox.com.We file reports with the U.S. Securities and Exchange Commission ("SEC"), including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, CurrentReports on Form 8-K and any other filings required by the SEC. We make available on our Investor Relations website, free of charge, our Annual Reports on Form10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after weelectronically file such material with, or furnish it to, the SEC. The information on our website is not incorporated by reference into this Annual Report on Form10-K or in any other report or document we file with the SEC.The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The publicmay obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site(http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.ITEM 1A. RISK FACTORSOur business, financial condition, operating results and prospects could be materially and adversely affected by various risks and uncertainties. In addition to therisks and uncertainties discussed elsewhere in this Form 10-K, you should carefully consider the risks and uncertainties described below. If any of the risksactually occur, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the trading price of ourcommon stock could decline.Risks related to our businessIf we are unable to continue to enhance existing products and develop, manufacture market new products that respond to consumer needs and preferences andachieve market acceptance, we may experience a decrease in demand for our products, and our business and financial results could suffer.Our growth strategy involves the continuous development of innovative performance products. We may not be able to compete as effectively with our competitors,and ultimately satisfy the needs and preferences of our customers and the end users of our products, unless we can continue to enhance existing products anddevelop new, innovative products in the global markets in which we compete. In addition, we must continuously compete not only for end users who purchase ourproducts through the dealers and distributors who are our customers, but also for the OEMs, which incorporate our products into their bikes and powered vehicles.These OEMs regularly evaluate our products against those of our competitors to determine if they are allowing the OEMs to achieve higher sales and market shareon a cost-effective basis. Should one or more of our OEM customers determine that they could achieve overall better financial results by incorporating acompetitor’s new or existing product, they would likely do so, which could harm our business, financial condition or results of operations.Product development requires significant financial, technological and other resources. While we expended approximately $18.5 million , $17.0 million and $13.6million for our research and development efforts in 2016, 2015 and 2014 , respectively, there can be no assurance that this level of investment in research anddevelopment will be sufficient in the future to maintain our competitive advantage in product innovation, which could cause our business, financial condition orresults of operations to suffer.9Table of ContentsProduct improvements and new product introductions require significant planning, design, development and testing at the technological, product andmanufacturing process levels, and we may experience unanticipated delays in our introduction of product improvements or new products. Our competitors’ newproducts may beat our products to market, be more effective and/or less expensive than our products, obtain better market acceptance or render our productsobsolete. Any new products that we develop may not receive market acceptance or otherwise generate any meaningful sales or profits for us relative to ourexpectations. In addition, one of our competitors could develop an unforeseen and entirely new product or technology that renders our products less desirable orobsolete, which could negatively affect our business, financial condition or results of operations.We face intense competition in all product lines, including from some competitors that may have greater financial and marketing resources. Failure tocompete effectively against competitors would negatively impact our business and operating results.The ride dynamics industry is highly competitive. We compete with a number of other manufacturers that produce and sell ride dynamics products to OEMs andaftermarket dealers and distributors, including OEMs that produce their own lines of products for their own use. Our continued success depends on our ability tocontinue to compete effectively against our competitors, some of which have significantly greater financial, marketing and other resources than we have. Also,several of our competitors offer broader product lines to OEMs, which they may sell in connection with suspension products as part of a package offering. In thefuture, our competitors may be able to maintain and grow brand strength and market share more effectively or quickly than we do by anticipating the course ofmarket developments more accurately than we do, developing products that are superior to our products, creating manufacturing or distribution capabilities that aresuperior to ours, producing similar products at a lower cost than we can or adapting more quickly than we do to new technologies or evolving regulatory, industryor customer requirements, among other possibilities. In addition, we may encounter increased competition if our current competitors broaden their productofferings by beginning to produce additional types of ride dynamics products or through competitor consolidations. We could also face competition from well-capitalized entrants into the performance suspension and ride dynamics product market, as well as aggressive pricing tactics by other manufacturers trying to gainmarket share. As a result, our products may not be able to compete successfully with our competitors’ products, which could negatively affect our business,financial condition or results of operations.Our business is sensitive to economic conditions that impact consumer spending. Our suspension and ride dynamics products, and the bike and poweredvehicles into which they are incorporated, are discretionary purchases and may be adversely impacted by changes in the economy.Our business depends substantially on global economic and market conditions. In particular, we believe that currently a significant majority of the end users of ourproducts live in the United States and countries in Europe. These areas are either in the process of recovering from recession or, in some cases, are still strugglingwith recession, disruption in banking and/or financial systems, economic weakness and uncertainty. In addition, our products are recreational in nature and aregenerally discretionary purchases by consumers. Consumers are usually more willing to make discretionary purchases during periods of favorable generaleconomic conditions and high consumer confidence. Discretionary spending may also be affected by many other factors, including interest rates, the availability ofconsumer credit, taxes and consumer confidence in future economic conditions. During periods of unfavorable economic conditions, or periods when othernegative market factors exist, consumer discretionary spending is typically reduced, which in turn could reduce our product sales and have a negative effect on ourbusiness, financial condition or results of operations.There could also be a number of secondary effects resulting from an economic downturn, such as insolvency of our suppliers resulting in product delays, aninability of our OEM and distributor and dealer customers to obtain credit to finance purchases of our products, customers delaying payment to us for the purchaseof our products due to financial hardship or an increase in bad debt expense. Any of these effects could negatively affect our business, financial condition or resultsof operations.If we are unable to maintain our premium brand image, our business may suffer.Our products are selected by both OEMs and dealers and distributors in part because of the premium brand reputation we hold with them and our end users.Therefore, our success depends on our ability to maintain and build the image of our brands. We have focused on building our brands through producing productsor acquiring businesses that produce products that we believe are innovative, high in performance and highly reliable. In addition, our brands benefits from ourstrong relationships with our OEM customers and dealers and distributors and through marketing programs aimed at bike and powered vehicle enthusiasts invarious media and other channels. For example, we sponsor a number of professional athletes and professional race teams. In order to continue to enhance ourbrand image, we will need to maintain our position in the suspension and ride dynamics products industry and continue to provide high quality products andservices. Also, we will need to continue to invest in sponsorships, marketing and public relations.There can be no assurance, however, that we will be able to maintain or enhance the strength of our brands in the future. Our brands could be adversely impactedby, among other things:• failure to develop new products that are innovative, performance and reliable;• internal product quality control issues;10Table of Contents• product quality issues on the bikes and powered vehicles on which our products are installed;• product recalls;• high profile component failures (such as a component failure during a race on a mountain bike ridden by an athlete that we sponsor);• negative publicity regarding our sponsored athletes;• high profile injury or death to one of our sponsored athletes;• inconsistent uses of our brand and our other intellectual property assets, as well as failure to protect our intellectual property; and• changes in consumer trends and perceptions.Any adverse impact on our brand could in turn negatively affect our business, financial condition or results of operations.A significant portion of our sales are highly dependent on the demand for high-end bikes and a material decline in the demand for these bikes or theirsuspension components could have a material adverse effect on our business or results of operations.During 2016 , approximately 56% of our sales were generated from the sale of bike products. Part of our success has been attributable to the growth in the high-endbike industry, including increases in average retail sales prices, as better-performing product designs and technologies have been incorporated into these products.If the popularity of high-end or premium-priced bikes does not increase or declines, the number of bike enthusiasts seeking such bikes or premium pricedsuspension products, wheels, cranks and other specialty components for their bikes does not increase or declines, or the average price point of these bikes declines,we may fail to achieve future growth or our sales could decrease, and our business, financial condition or results of operations could be negatively affected. Inaddition, if current bike enthusiasts stop purchasing our products due to changes in preferences, we may fail to achieve future growth or our sales could bedecreased, and our business, financial condition or results of operations could be negatively affected.Our growth in the powered vehicle category is dependent upon our continued ability to expand our product sales into powered vehicles that requireperformance suspension and the continued expansion of the market for these powered vehicles.Our growth in the powered vehicle category is in part attributable to the expansion of the market for powered vehicles that require performance suspensionproducts. Such market growth includes the creation of new classes of vehicles that need our products, such as Side-by-Sides, and our ability to create products forthese vehicles. In the event these markets stopped expanding or contracted, or we are unsuccessful in creating new products for these markets or other competitorssuccessfully enter into these markets, we may fail to achieve future growth or our sales could decrease, and our business, financial condition or results ofoperations could be negatively affected.A disruption in the operations of our manufacturing facilities could have a negative effect on our business, financial condition or results of operations.Over the last several years, we transitioned the majority of our bike suspension component product manufacturing to our bike suspension component facility inTaichung, Taiwan. As a result of the transition, we have and may continue to incur costs associated with some duplication of facilities, equipment and personnel,the amount of which could vary materially from our projections. In addition, we could encounter unforeseen difficulties resulting from the distance and time zonedifferences between our main operations in California and our Taiwan manufacturing facilities.Equipment failures, delays in deliveries or catastrophic loss at any of our facilities could lead to production or service disruptions, curtailments or shutdowns. Inthe event of a stoppage in production or a slowdown in production due to high employee turnover or a labor dispute at any of our facilities, even if only temporary,or if we experience delays as a result of events that are beyond our control, delivery times to our customers could be severely affected. If there was a manufacturingdisruption in any of our manufacturing facilities, we might be unable to meet product delivery requirements and our business, financial condition or results ofoperations could be negatively affected, even if the disruption was covered in whole or in part by our business interruption insurance. Any significant delay indeliveries to our customers could lead to increased returns or cancellations, expose us to damage claims from our customers or damage our brand and, in turn,negatively affect our business, financial condition or results of operations.11Table of ContentsWork stoppages or other disruptions at seaports could adversely affect our operating results.A significant portion of our goods move through ports on the Western Coast of the United States. We have a global supply chain and we import products from ourthird-party vendors as well as our Fox Taiwan facility into the U.S. largely through ports on the West Coast. Freight arriving at West Coast ports must be offloadedfrom ships by longshoremen, none of whom are our employees. We do not control the activities of these employees or seaports and we could suffer supply chaindisruptions due to any disputes, capacity shortages, slowdowns or shutdowns which may occur, as was experienced in February, 2015, in relation to certain WestCoast ports. While such West Coast ports labor dispute ended with a five-year agreement, it lasted longer than we forecasted, and any similar labor dispute in thefuture could potentially have a negative effect on both our financial condition and results of operations.Our business depends substantially on the continuing efforts of our senior management, and our business may be severely disrupted if we lose their services.We are heavily dependent upon the contributions, talent and leadership of our senior management team, particularly our Chief Executive Officer, Larry L.Enterline. We do not have a "key person" life insurance policy on Mr. Enterline or any other key employees. We believe that the top twelve members of our seniormanagement team are key to establishing our focus and executing our corporate strategies as they have extensive knowledge of our systems and processes. Givenour senior management team’s knowledge of the suspension products industry and the limited number of direct competitors in the industry, we believe that it couldbe difficult to find replacements should any of the members of our senior management team leave. Our inability to find suitable replacements for any of themembers of our senior management team could negatively affect our business, financial condition or results of operations.We depend on skilled engineers to develop and create our products, and the failure to attract and retain such individuals could adversely affect our business.We rely on skilled and well-trained engineers for the design and production of our products, as well as in our research and development functions. Competition forsuch individuals is intense, particularly in Silicon Valley near where our headquarters are located. Our inability to attract or retain qualified employees in ourdesign, production or research and development functions or elsewhere in our company could result in diminished quality of our products and delinquentproduction schedules, impede our ability to develop new products and harm our business, financial condition or results of operations.We may not be able to sustain our past growth or successfully implement our growth strategy, which may have a negative effect on our business, financialcondition or results of operations.We grew our sales from approximately $366.8 million in 2015 to approximately $403.1 million in 2016 . This growth rate may be unsustainable. Our future growthwill depend upon various factors, including the strength of the image of our brands, our ability to continue to produce innovative suspension and ride dynamicsproducts, consumer acceptance of our products, competitive conditions in the marketplace, our ability to make strategic acquisitions, the growth in emergingmarkets for products requiring high-end suspension products and, in general, the continued growth of the high-end bike and powered vehicle markets into whichwe sell our products. Our beliefs regarding the future growth of markets for high-end suspension products are based largely on qualitative judgments and limitedsources and may not be reliable. If we are unable to sustain our past growth or successfully implement our growth strategy, our business, financial condition orresults of operations could be negatively affected.The professional athletes and race teams who use our products are an important aspect of the image of our brands. The loss of the support of professionalathletes for our products or the inability to attract new professional athletes may harm our business.If our products are not used by current or future professional athletes and race teams, our brands could lose value and our sales could decline. While oursponsorship agreements typically restrict our sponsored athletes and race teams from promoting, endorsing or using competitors’ products that compete directlywithin our product categories during the term of the sponsorship agreements, we do not typically have long-term contracts with any of the athletes or race teamswhom we sponsor.If we are unable to maintain our current relationships with these professional athletes and race teams, if these professional athletes and race teams are no longerpopular, if our sponsored athletes and race teams fail to have success or if we are unable to continue to attract the endorsement of new professional athletes andrace teams in the future, the value of our brands and our sales could decline.12Table of ContentsWe depend on our relationships with dealers and distributors and their ability to sell and service our products. Any disruption in these relationships couldharm our sales.We sell our aftermarket products to dealers and distributors, and we depend on their willingness and ability to market and sell our products to consumers andprovide customer and product service as needed. We also rely on our dealers and distributors to be knowledgeable about our products and their features. If we arenot able to educate our dealers and distributors so that they may effectively sell our products as part of a positive buying experience, or if they fail to implementeffective retail sales initiatives, focus selling efforts on our competitors’ products, reduce the quantity of our products that they sell or reduce their operations dueto financial difficulties or otherwise, our brand and business could suffer.We do not control our dealers or distributors and many of our contracts allow these entities to offer our competitors’ products. Our competitors may incentivize ourdealers and distributors to favor their products. In addition, we do not have long-term contracts with a majority of our dealers and distributors, and our dealers anddistributors are not obligated to purchase specified amounts of our products. In fact, the majority of our dealers and distributors buy from us on a purchase orderbasis. Consequently, with little or no notice, many of these dealers and distributors may terminate their relationships with us or materially reduce their purchases ofour products. If we were to lose one or more of our dealers or distributors, we would need to obtain a new dealer or distributor to cover the particular location orproduct line, which may not be possible on favorable terms or at all.Alternatively, we could use our own sales force to replace such a dealer or distributor, but expanding our sales force into new locations takes a significant amountof time and resources and may not be successful. Further, many of our international distribution contracts contain exclusivity arrangements, which may prevent usfrom replacing or supplementing our current distributors under certain circumstances.We are a supplier in the high-end bike and powered vehicles markets, and our business is dependent in large part on the orders we receive from our OEMcustomers and from their success.As a supplier to OEM customers, we are dependent in large part on the success of the business of our OEM customers. Model year changes by our OEM customersmay adversely impact our sales or cause our sales to vary from quarter to quarter. In addition, losses in market share individually or a decline in the overall marketof our OEM customers or the discontinuance by our OEM customers of their products which incorporate our products could negatively impact our business,financial condition or results of operations. For example, if our bike producing OEM customers reduce production of their high-end bikes, their orders to us for ourproducts would in turn be reduced, which could negatively affect our business, financial condition or results of operations.A relatively small number of customers account for a substantial portion of our sales. The loss of all or a substantial portion of our sales to any of thesecustomers, whether through the temporary or permanent discontinuation of their products which incorporate our products or otherwise, or the loss of marketshare by these customers could have a material adverse impact on us and our results of operations.Sales attributable to our five largest OEM customers, which can vary from year to year, collectively accounted for approximately 30% , 32% and 34% of our salesin fiscal years 2016, 2015 and 2014 , respectively. The loss of all or a substantial portion of our sales to any of these OEM customers, whether through thetemporary or permanent discontinuation of their products which incorporate our products or otherwise, or the loss of market share by these customers could have amaterial adverse impact on our business, financial condition or results of operations.In particular, sales to Giant, an OEM and contract manufacturer used by certain of our bike OEM customers, accounted for approximately 14% , 12% and 14% ofour sales in 2016, 2015 and 2014 , respectively. In the event Giant were to experience manufacturing or other problems, or were to fail to pay us, it could have amaterial adverse impact on our business, financial condition or results of operations.Currency exchange rate fluctuations could impact gross margins and expenses.Foreign currency fluctuations could in the future have an adverse effect on our business, financial condition or results of operations. We sell our products insideand outside of the United States primarily in U.S. Dollars. However, some of the OEMs purchasing products from us sell their products in Europe and other foreignmarkets using the Euro and other foreign currencies. As a result, as the U.S. Dollar appreciates against these foreign currencies, our products will become relativelymore expensive for these OEMs. Accordingly, competitive products that our OEM customers can purchase in other currencies may become more attractive and wecould lose sales as these OEMs seek to replace our products with cheaper alternatives. In addition, should the U.S. Dollar depreciate significantly, this could havethe effect of decreasing our gross margins and adversely impact our business, financial condition or results of operations.With a majority of our manufacturing operations for our bike products occurring in Taiwan, a percentage of our sales and expenses are denominated in the NewTaiwan Dollar. Should the New Taiwan Dollar appreciate against the U.S. Dollar, this could have the effect of decreasing our sales, increasing our expenses, anddecreasing our profitability.13Table of ContentsAdditionally, with the acquisition of Race Face/Easton in 2014, certain of our operations take place in Canada and a percentage of our sales and expenses aredenominated in Canadian Dollars. Furthermore, pursuant to the acquisition agreement and subsequent amendments we are obligated to pay $10.5 million CanadianDollars of earn-out compensation (equivalent to approximately $7.8 million U.S. Dollars at the December 30, 2016 rate) in 2017. Our operating profitability couldbe negatively impacted as a result of changes in the exchange rate between the U.S. Dollar and the Canadian Dollar.Our international operations are exposed to risks associated with conducting business globally.As a result of our international presence, we are exposed to increased risks inherent in conducting business outside of the United States. In addition to foreigncurrency risks, these risks include:• difficulty in transporting materials internationally, including labor disputes at West Coast ports, which handle a large amount of our products;• increased difficulty in protecting our intellectual property rights and trade secrets;• changes in tax laws and the interpretation of those laws;• exposure to local economic conditions;• unexpected government action or changes in legal or regulatory requirements;• geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war and other political uncertainty;• changes in tariffs, quotas, trade barriers and other similar restrictions on sales;• the effects of any anti-American sentiments on our brands or sales of our products;• increased difficulty in ensuring compliance by employees, agents and contractors with our policies as well as with the laws of multiplejurisdictions, including but not limited to the U.S. Foreign Corrupt Practices Act, local international environmental, health and safety laws, andincreasingly complex regulations relating to the conduct of international commerce;• increased difficulty in controlling and monitoring foreign operations from the United States, including increased difficulty in identifying andrecruiting qualified personnel for our foreign operations; and• increased difficulty in staffing and managing foreign operations or international sales.An adverse change in any of these conditions could have a negative effect upon our business, financial condition or results of operations.Our sales could be adversely impacted by the disruption or cessation of sales by other bike component manufacturers or if other bike componentmanufacturers enter into the specialty bike component market.Most of the bikes incorporating our suspension products also utilize products and components manufactured by other bike component manufacturers. If suchcomponent manufacturers were to cease selling their products and components on a stand-alone basis, their sales are disrupted, or their competitive market positionor reputation is diminished, customers could migrate to competitors that sell complementary bike products which we do not sell. Moreover, such bike componentmanufacturers could begin manufacturing bike suspension products, wheels, or cranks, or bundle their bike components with suspension products, wheels or cranksmanufactured by competitors. If any of the foregoing were to occur, our sales could decrease and our business, financial condition or results of operations couldsuffer.14Table of ContentsWe have been and may become subject to intellectual property disputes that could cause us to incur significant costs or pay significant damages or that couldprohibit us from selling our products.As we develop new products or attempt to utilize our brands in connection with new products, we seek to avoid infringing the valid patents and other intellectualproperty rights of our competitors. However, from time to time, third parties have alleged, or may allege in the future, that our products and/or trademarks infringeupon their proprietary rights. We will evaluate any such claims and, where appropriate, may obtain or seek to obtain licenses or other business arrangements. Todate, there have been no significant interruptions in our business as a result of any claims of infringement, and we do not hold patent infringement insurance. Anyclaim, regardless of its merit, could be expensive, time consuming to defend and distract management from our business. Moreover, if our products or brands arefound to infringe third-party intellectual property rights, we may be unable to obtain a license to use such technology or associated intellectual property rights onacceptable terms. A court determination that our brands, products or manufacturing processes infringe the intellectual property rights of others could result insignificant liability and/or require us to make material changes to our products and/or manufacturing processes or preclude our ability to use certain brands. In mostcircumstances, we are not indemnified for our use of a licensor’s intellectual property, if such intellectual property is found to be infringing. Any of the foregoingresults could cause us to, and we could incur substantial costs to, redesign our products or defend legal actions, and such costs could negatively affect our business,financial condition or results of operations.If we are unable to enforce our intellectual property rights, our reputation and sales could be adversely affected.Intellectual property is an important component of our business. We patent our proprietary technologies related to vehicle suspension and other products in the U.S.and various foreign patent offices. Additionally, we have registered or have applied for trademarks and service marks with the United States Patent and TrademarkOffice and a number of foreign countries, including the marks FOX ® , FOX RACING SHOX ® , RACE FACE ® and REDEFINE YOUR LIMITS ® , to be utilizedwith certain goods and services. When appropriate, we may from time to time assert our rights against those who infringe on our patents, trademarks, trade dress,or other intellectual property. We may not, however, be successful in enforcing our patents or asserting trademark, trade name or trade dress protection with respectto our brand names and our product designs, and third parties may seek to oppose or challenge our patents or trademark registrations. Further, these legal effortsmay not be successful in reducing sales of suspension products by those infringing. In addition, our pending patent applications may not result in the issuance ofpatents, and even issued patents may be contested, circumvented or invalidated and may not provide us with proprietary protection or competitive advantages. Ifour efforts to develop and enforce our intellectual property are unsuccessful, or if a third party misappropriates our rights, this may adversely affect our business,financial condition or results of operations. Additionally, intellectual property protection may be unavailable or limited in some foreign countries where laws orlaw enforcement practices may not protect our proprietary rights as fully as in the United States, and it may be more difficult for us to successfully challenge theuse of our proprietary rights by other parties in these countries. Furthermore, other competitors may be able to successfully produce products which imitate certainof our products without infringing upon any of our patents, trademarks or trade dress. The failure to prevent or limit infringements and imitations, could have apermanent negative impact on the pricing of our products or reduce our product sales and product margins, even if we are ultimately successful in limiting thedistribution of a product that infringes our rights, which in turn may affect our business, financial condition or results of operations.Although we enter into non-disclosure agreements with employees, OEMs, distributors and others to protect our confidential information and trade secrets, we maybe unable to prevent such parties from breaching these agreements with us and using our intellectual property in an unauthorized manner. If our efforts to protectour intellectual property are unsuccessful, or if a third party misappropriates our rights this may adversely affect our business. Defending our intellectual propertyrights can be very expensive and time consuming, and there is no assurance that we will be successful.If we inaccurately forecast demand for our products, we may manufacture insufficient or excess quantities or our manufacturing costs could increase, whichcould adversely affect our business.We plan our manufacturing capacity based upon the forecasted demand for our products. In the OEM channel, our forecasts are based in large part on the numberof our product specifications for new bikes and powered vehicles and on projections from our OEM customers. In the aftermarket channel, our forecasts are basedpartially on discussions with our dealers and distributors as well as our own assessment of markets. If we incorrectly forecast demand we may incur capacity issuesin our manufacturing plant and supply chain, increased material costs, increased freight costs, additional overtime, and costs associated with excess inventory, allof which in turn adversely impact our cost of sales and our gross margin. Economic weakness and uncertainty in the United States, Europe and other countries maymake accurate forecasting particularly challenging.In the future, if actual demand for our products exceeds forecasted demand, the margins on our incremental sales in excess of anticipated sales may be lower due totemporary higher costs, which could result in a decrease in our overall margins. While we generally manufacture our products upon receipt of customer orders, ifactual demand is less than the forecasted demand for our products and we have already manufactured the products or committed to purchase materials in support offorecasted demand, we could be forced to hold excess inventories. In short, either excess or insufficient production due to inaccurate forecasting could have anegative effect on our business, financial condition or results of operations.15Table of ContentsProduct recalls, and significant product repair and/or replacement due to product warranty costs and claims have had, and in the future, could have, amaterial adverse impact on our business.Unless otherwise required by law, we generally provide a limited warranty for our products for a one or two-year period beginning on: (i) in the case of OEM sales,the date the bike or powered vehicle is purchased from an authorized OEM where our product is incorporated as original equipment on the purchased bike orpowered vehicle; or (ii) in the case of aftermarket sales, the date the product is originally purchased from an authorized dealer. From time to time, our customersmay negotiate for longer or different warranty coverage. In the ordinary course of business, we incur warranty costs and reserve against such costs in our financialstatements. However, there is a risk that we could experience higher than expected warranty costs if we become aware of an underperforming product. Forexample, in 2012 we increased our reserve and included additional costs of approximately $1.8 million to reflect the costs of repairing or replacing certain dampersin our suspension products and experienced other related costs of approximately $1.0 million. We may in the future encounter similar situations and be forced tomake other adjustments to our warranty reserves or incur costs in excess of these reserves which could adversely affect our results of operations.Our products and items where our product is incorporated as original equipment on the purchased item are subject to regulation by the U. S. Consumer ProductSafety Commission and similar state and international regulatory authorities. We have had in the past, and may have in the future, recalls (both voluntary andinvoluntary) of our products or of items that incorporate our products. For example, on October 12, 2016, we initiated a voluntary recall of certain bicycle Float X2shock absorber products shipped before September 9, 2016. In addition to the direct costs related to this or other recalls we may be forced to undertake in thefuture, such recalls could adversely affect our aftermarket and OEM sales if we or our OEM customer do not have a replacement for such recalled product ready ina timely manner. Such recall events could also adversely affect our brand image and have a negative effect on our relationships with our OEMs, sponsored athletesand race teams, or otherwise have a negative effect on our business, financial condition and results of operations.An adverse determination in any material product liability claim against us could adversely affect our operating results or financial condition.The use of our products by consumers, often under extreme conditions, exposes us to risks associated with product liability claims. If our products are defective orused incorrectly by our customers, bodily injury, property damage or other injury, including death, may result and could give rise to product liability claims againstus, which could adversely affect our brand image or reputation. We have encountered product liability claims in the past and carry product liability insurance tohelp protect us against the costs of such claims, although our insurance may not be sufficient to cover all losses. Any losses that we may suffer from any liabilityclaims, and the effect that any product liability litigation may have upon the reputation and marketability of our products, may have a negative impact on ourbusiness, financial condition or results of operations.Our Second Amended and Restated Credit Facility places operating restrictions on us and creates default risks.The Second Amended and Restated Credit Facility contains covenants that place restrictions on our operating activities. These covenants, among other things, limitour ability to:• pay dividends or make distributions to our stockholders or redeem our stock;• incur additional indebtedness or permit additional encumbrances on our assets; and• make acquisitions or complete mergers or sales of assets, or engage in new businesses.These restrictions may interfere with our ability to obtain financing or to engage in other business activities, which may have a material adverse effect on ourbusiness, financial condition or results of operations.If we are unable to comply with the covenants contained in our Amended and Restated 2013 Credit Facility, it could constitute an event of default and our lenderscould declare all borrowings outstanding, together with accrued and unpaid interest, to be immediately due and payable. If we are unable to repay or otherwiserefinance these borrowings when due, our lenders could sell the collateral securing our credit facilities, which constitutes substantially all our assets.We will continue to have the ability to incur debt and our levels of debt may affect our operations and our ability to pay the principal of and interest on ourdebt.We and our subsidiaries may be able to incur substantial additional debt in the future from further amendments to the Second Amended and Restated CreditFacility, additional lending sources subject to the restrictions contained in the Second Amended and Restated Credit Facility, or as a result of certain debtinstruments described in our Shelf Registration Statement on Form S-3 which was filed with the SEC in March 2015.16Table of ContentsAs of December 30, 2016 , we had $66.7 million of indebtedness and $100.0 million available to borrow under the Second Amended and Restated Credit Facility.Our ability to borrow under the Second Amended and Restated Credit Facility fluctuates from time to time due to, among other factors, our borrowings under thefacility. Our indebtedness could be costly or have adverse consequences, such as:•requiring us to dedicate a substantial portion of our cash flows from operations to payments on our debt;•limiting our ability to obtain future financing for working capital, capital expenditures, acquisitions, debt obligations and other general corporaterequirements;•making us more vulnerable to adverse conditions in the general economy or our industry and to fluctuations in our operating results, including affectingour ability to comply with and maintain any financial tests and ratios required under our indebtedness;•limiting our flexibility to engage in certain transactions or to plan for, or react to, changes in our business and industry;•putting us at a disadvantage compared to competitors that have less relative and/or less restrictive debt; and•subjecting us to additional restrictive financial and other covenants.If we incur substantial additional indebtedness in the future, these higher levels of indebtedness may affect our ability to pay the principal of and interest onexisting indebtedness and our creditworthiness generally.Our outstanding indebtedness under the Amended and Restated Credit Facility bears interest at a variable rate, which makes us more vulnerable to increasesin interest rates and could cause our interest expense to increase and decrease cash available for operations and other purposes.Borrowings under our Second Amended and Restated Credit Facility bear interest on a variable rate which increases and decreases based upon changes in theunderlying interest rate and/or our leverage ratio. Any such increases in the interest rate or increases of our borrowings under the Second Amended and RestatedCredit Facility will increase our interest expense.As of December 30, 2016 , we had $66.7 million of indebtedness, bearing interest at a variable rate, outstanding under the Amended and Restated 2013 CreditFacility. Recent interest rates in the United States have been at historically low levels, and any increase in these rates would increase our interest expense andreduce our funds available for operations and other purposes. Although from time to time we may enter into agreements to hedge a portion of our interest rateexposure, these agreements may be costly and may not protect against all interest rate fluctuations. Accordingly, we may experience material increases in ourinterest expense as a result of increases in interest rate levels generally. Based on the $66.7 million of variable interest rate indebtedness that was outstanding as ofDecember 30, 2016 , a hypothetical 100 basis point increase or decrease in the interest rate would have resulted in an approximately $0.7 million change to ourinterest expense for the year ended December 30, 2016 .Unanticipated changes in our tax provisions, the adoption of new tax legislation or exposure to additional tax liabilities could affect our financialperformance.We are subject to income and other taxes in the United States and numerous foreign jurisdictions. Our tax liabilities are affected by the amounts we charge inintercompany transactions for inventory, services, licenses, funding and other items. We are subject to ongoing tax audits in various jurisdictions. Tax authoritiesmay disagree with our intercompany charges, cross-jurisdictional transfer pricing or other matters, and may assess additional taxes as a result. We regularly assessthe likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accuratelypredict the outcomes of these audits, and the amounts ultimately paid upon resolution of audits could be materially different from the amounts previously includedin our income tax expense and therefore could have a material impact on our tax provision, net income and cash flows.In addition, our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries withdiffering statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws, expiration of favorable tax holidays in foreignjurisdictions, and the discovery of new information in the course of our tax return preparation process. Beginning in 2016, we are asserting permanent reinvestmentof the earning of certain of our foreign subsidiaries. If circumstances change such that we are unable to indefinitely reinvest our foreign earnings outside the UnitedStates, future income tax expense and payments may differ significantly from historical amounts and could materially adversely affect our results of operations.There are proposals for tax legislation that have been introduced or that are being considered that could have a significant adverse effect on our tax rate, thecarrying value of deferred tax assets, or our deferred tax liabilities. Any of these changes could affect our financial performance.17Table of ContentsWe are subject to certain risks in our manufacturing and in the testing of our products.As of December 30, 2016 , we employed approximately 1,700 full-time employees worldwide, a large percentage of which work at our manufacturing facilities.Our business involves complex manufacturing processes that can be inherently dangerous. Although we employ safety procedures in the design and operation ofour facilities, there is a risk that an accident or death could occur in one of our facilities. Also, prior to the introduction of new products, our employees test theproducts under rigorous conditions, which involve the risk of injury or death. Any accident could result in manufacturing or product delays, which could negativelyaffect our business, financial condition or results of operations. The outcome of litigation is difficult to assess or quantify and the cost to defend litigation can besignificant. As a result, the costs to defend any action or the potential liability resulting from any such accident or death or arising out of any other litigation, andany negative publicity associated therewith, could have a negative effect on our business, financial condition or results of operations.We are subject to extensive United States federal and state, foreign and international safety, environmental, employment practices and other governmentregulations that may require us to incur expenses or modify product offerings in order to maintain compliance with such regulation, which could have anegative effect on our business and results of operations.We are subject to extensive laws and regulations relating to safety, environmental, and other laws and regulations promulgated by the United States federal andstate governments, as well as foreign and international regulatory authorities. Although we believe that our products, policies and processes comply with applicablesafety, environmental, and other standards and related regulations, future regulations may require additional safety standards that would require additional expensesand/or modification of product offerings in order to maintain such compliance. Failure to comply with applicable regulations could result in fines, increasedexpenses to modify our products and harm to our reputation, all of which could have an adverse effect on our business, financial condition or results of operations.Moreover, certain of our customer contracts require us to comply with the standards of voluntary standard-setting organizations, such as the United StatesConsumer Product Safety Commission, the National Highway Safety Administration, and European Committee for Standardization (CEN). Failure to comply withthe voluntary requirements of such organizations could result in the loss of certain customer contracts, which could have an adverse effect on our business,financial condition or results of operations.We are subject to employment practice laws and regulations and as such are exposed to litigation risks.We are subject to extensive laws and regulations relating employment practices, including wage and hour, wrongful termination and discrimination. Complyingwith such laws and regulations, and defending against allegations of our failure to comply (including meritless allegations), can be expensive and time consuming.We believe that our policies and processes comply with applicable employment standards and related regulations, however, we are subject to risks of litigation byemployees and others which might involve allegations of illegal, unfair or inconsistent employment practices, including wage and hour violations and employmentdiscrimination, misclassification of independent contractors as employees, wrongful termination and other concerns, which could require additional expenditures.We are subject to environmental laws and regulation and potential exposure for environmental costs and liabilities.Our operations, facilities and properties are subject to a variety of foreign, federal, state and local laws and regulations relating to health, safety and the protectionof the environment. These environmental laws and regulations include those relating to the use, generation, storage, handling, transportation, treatment anddisposal of solid and hazardous materials and wastes, emissions to air, discharges to waters and the investigation and remediation of contamination. Many of theselaws impose strict, retroactive, joint and several liability upon owners and operators of properties, including with respect to environmental matters that occurredprior to the time the party became an owner or operator. In addition, we may have liability with respect to third party sites to which we send waste for disposal.Failure to comply with such laws and regulations can result in significant fines, penalties, costs, liabilities or restrictions on operations that could negatively affectour business, financial condition or results of operations. From time to time, we have been involved in administrative or legal proceedings relating toenvironmental, health or safety matters and have in the past incurred expenditures relating to such matters.We believe that our operations are in substantial compliance with applicable environmental laws and regulations. However, additional environmental issuesrelating to presently known or unknown matters could give rise to currently unanticipated investigation, assessment or expenditures. Compliance with morestringent laws or regulations, as well as different interpretations of existing laws, more vigorous enforcement by regulators or unanticipated events, could requireadditional expenditures that may materially affect our business, financial condition or results of operations.18Table of ContentsFederal, state, local, foreign and international laws and regulations relating to land-use, noise and air pollution may have a negative impact on our futuresales and results of operations.The products in our powered vehicles line are used in vehicles which are subject to numerous federal, state, local, foreign and international laws and regulationsrelating to noise and air-pollution. Powered vehicles, and even bikes, have become subject to laws and regulations prohibiting their use on certain lands and trails.For example, in San Mateo County, California, mountain bikes are not allowed on county trails, and ATV and Side-by-Side riding is not allowed in Zion NationalPark, among many other national and state parks. In addition, recreational snowmobiling has been restricted in some national parks and federal lands in Canada,the United States and other countries. If more of these laws and regulations are passed and the users of our products lose convenient locations to ride theirmountain bikes and powered vehicles, our sales could decrease and our business, financial condition or results of operations could suffer.Fuel shortages, or high prices for fuel, could have a negative effect on the use of powered vehicles that use our products.Gasoline or diesel fuel is required for the operation of the powered vehicles that use our products. There can be no assurance that the supply of these fuels willcontinue uninterrupted, that rationing will not be imposed or that the price of or tax on these petroleum products will not significantly increase in the future.Shortages of gasoline and diesel fuel and substantial increases in the price of fuel could have a material adverse effect on our powered vehicle product category inthe future, which could have a negative effect on our business, financial condition or results of operations.We do not control our suppliers or OEMs, or require them to comply with a formal code of conduct, and actions that they might take could harm ourreputation and sales.We do not control our suppliers or OEMs or their labor, environmental or other practices. A violation of labor, environmental, intellectual property or other lawsby our suppliers or OEMs, or a failure of these parties to follow generally accepted ethical business practices, could create negative publicity and harm ourreputation. In addition, we may be required to seek alternative suppliers or OEMs if these violations or failures were to occur. We do not inspect or auditcompliance by our suppliers or OEMs with these laws or practices, and we do not require our suppliers or OEMs or licensees to comply with a formal code ofconduct. Any conduct or actions that our suppliers could take could reduce demand for our products, harm our ability to meet demand or harm our reputation,brand image, business, financial condition or results of operations.We depend on a limited number of suppliers for our materials and component parts for some of our products, and the loss of any of these suppliers or anincrease in cost of raw materials could harm our business.We depend on a limited number of suppliers for certain components. If our current suppliers, in particular the minority of those which are "single-source"suppliers, are unable to timely fulfill orders, or if we are required to transition to other suppliers, we could experience significant production delays or disruption toour business. We define a single-source supplier as a supplier from which we purchase all of a particular raw material or input used in our manufacturingoperations, although other suppliers are available from which to purchase the same raw material or input or an equivalent substitute. We do not maintain long termsupply contracts with any of our suppliers and instead purchase these components on a purchase order basis. As a result, we cannot force any supplier to sell us thenecessary components we use in creating our products and we could face significant supply disruptions should they refuse to do so. As the majority of our bikecomponent manufacturing occurs in Taiwan, we could experience difficulties locating qualified suppliers geographically located closer to these facilities.Furthermore, such suppliers could experience difficulties in providing us with some or all of the materials we require, which could result in disruptions in ourmanufacturing operations. If we experience difficulties with our suppliers or manufacturing delays caused by our suppliers, whether in connection with ourmanufacturing operations in the United States or in Taiwan, our business, financial condition and results of operations could be materially and adversely impacted.In addition, we purchase various raw materials in order to manufacture our products. The main commodity items purchased for production include aluminum,magnesium, steel and carbon. Historically, price fluctuations for these components and raw materials have not had a material impact on our business. In the future,however, if we experience material increases in the price of components or raw materials and are unable to pass on those increases to our customers, or there areshortages in the availability of such component parts or raw materials, it could negatively affect our business, financial condition or results of operations.In addition to our various single-source suppliers, we also rely on one "sole-source" supplier, Miyaki Corporation, or Miyaki. We define a sole-source supplier as asupplier of a raw material or input for which there is no other supplier of the same product or an equivalent substitute. Miyaki is the exclusive producer of theKashima coating for our suspension component tubes. As part of our agreement with Miyaki, we have been granted the exclusive right to use the trademark"KASHIMACOAT" on products comprising the aluminum finished parts for suspension components (e.g., tubes) and on related sales and marketing materialworldwide, subject to certain exclusions. Although we believe we could obtain other coatings of comparable utility from other sources if necessary, we could nolonger obtain this specific Kashima coating or use the trademark "KASHIMACOAT" if Miyaki were to stop supplying us with this coating. The need to replace theKashima coating could temporarily disrupt our business and harm our business, financial condition or results of operations.19Table of ContentsRegulations related to conflict minerals may force us to incur additional expenses and otherwise adversely impact our business.The SEC rules regarding disclosure of the use of tin, tantalum, tungsten and gold, known as conflict minerals, in products manufactured by public companiesrequire ongoing due diligence to determine whether such minerals originated from the Democratic Republic of Congo, or the DRC, or an adjoining country andwhether such minerals helped finance the armed conflict in the DRC. As a public company, we are required to comply with the reporting obligations annually.There are costs associated with complying with these disclosure requirements, including costs to determine the origin of conflict minerals in our products. Theeffect of such rules on customer, supplier and/or consumer behavior could adversely affect the sourcing, supply and pricing of materials used in our products. As aresult, we may also incur costs with respect to potential changes to products, processes or sources of supply. We may face disqualification as a supplier forcustomers and reputational challenges if our due diligence procedures do not enable us to verify the origins for all conflict minerals used in our products or todetermine if such conflict minerals are conflict-free. Accordingly, these rules could have a material adverse effect on our business, results of operations and/orfinancial condition.The transition of a majority of the manufacturing of our bike suspension component products to our facility in Taiwan may negatively impact our brand imageand consumer loyalty, which in turn could have a material adverse impact on our business and results of operations.During 2015, we transitioned the majority of the manufacturing of our bike suspension component products to our facility in Taiwan. No assurances can be giventhat consumers will not be adversely influenced by the fact that such products will no longer be manufactured in the United States or that consumers and OEMcustomers may not otherwise perceive that the quality of our products is lowered as a result of the fact that the majority are manufactured overseas. Suchperceptions could adversely impact our business, financial condition or results of operations.We may incur higher employee costs in the future.We are subject to government mandated wage and benefit laws and regulations. For example, the State of California, where a substantial number of our employeesare located, has passed regulations increasing minimum wage rates from $9.00 per hour to $10.00 per hour, effective January 1, 2016. Additionally, on March 31,2016, the California Legislature passed legislation which was designed to raise the statewide minimum wage gradually until it reaches $15.00 per hour in 2022 andit was signed into law on April 4, 2016. Under the new California law, the minimum wage would increase to $10.50 per hour in 2017, $11.00 in 2018 and thenincrease by an additional dollar each calendar year through 2022 when it reaches $15.00 per hour. We maintain a self-insured healthcare plan for our US based employees. We have insurance coverage in place for individual claims above a specified amount inany year. Inflation in healthcare costs, as well as additional costs we may incur as a result of current or future federal or state healthcare legislation and regulations,including the Affordable Care Act, could significantly increase our employee healthcare costs in the future. Continued increases in our employee costs couldadversely affect our earnings, financial condition and liquidity.We rely on increasingly complex information systems for management of our manufacturing, distribution, sales and other functions. If our informationsystems fail to perform these functions adequately or if we experience an interruption in our operations, our business could suffer.All of our major operations, including manufacturing, distribution, sales and accounting, are dependent upon our complex information systems. Our informationsystems are vulnerable to damage or interruption from, among other things:• earthquake, fire, flood, hurricane and other natural disasters;• power loss, computer systems failure, internet and telecommunications or data network failure; and• hackers, computer viruses, software bugs or glitches.Any damage or significant disruption in the operation of such systems or the failure of our information systems to perform as expected could disrupt ouroperations, reduce our efficiency, delay our fulfillment of customer orders or require significant unanticipated expenditures to correct, and thereby have a negativeeffect on our business, financial condition or results of operations.In May 2015, we began the process of implementing a global enterprise resource planning system (ERP). The pilot phase of the new ERP was completed in fiscal2016. Remaining operations will be phased in over the next few fiscal years. ERP implementations are complex and time consuming projects that involvesubstantial expenditures on system software and implementation activities. ERP implementations also require transformation of business and financial processes inorder to reap the benefits of the ERP system. Any such transformation involves risks inherent in the conversion to a new computer system, including loss ofinformation and potential disruption to our normal operations. Our business and results of operations may be adversely affected if we experience operatingproblems or cost overruns during the ERP implementation process, or if the ERP system and the associated process changes do not give rise to the benefits that weexpect.20Table of ContentsAdditionally, if we do not effectively implement the ERP system as planned or the system does not operate as intended, the effectiveness of our internal controlover financial reporting could be adversely affected.We could be negatively impacted by cyber security attacks.We use a variety of information technology systems in the ordinary course of business, which are potentially vulnerable to unauthorized access, computer virusesand cyber-attacks, including cyber-attacks to our information technology infrastructure and attempts by others to gain access to our propriety or sensitiveinformation, and ranging from individual attempts to advanced persistent threats. The procedures and controls we use to monitor these threats and mitigate ourexposure may not be sufficient to prevent cyber security incidents. The results of these incidents could include misstated financial data, theft of trade secrets orother intellectual property, liability for disclosure of confidential customer, supplier or employee information, increased costs arising from the implementation ofadditional security protective measures, litigation and reputational damage, which could materially adversely affect our financial condition, business and results ofoperations. Any remedial costs or other liabilities related to cybersecurity incidents may not be fully insured or indemnified by other means.Our operations may be impaired if our information technology systems fail to perform adequately or if they are the subject of a data breach or cyber attack.Information technology systems are critically important to operating our business. We rely on information technology systems to manage business data,communications, supply chain, order entry and fulfillment, and other business processes. The failure of any of the information technology systems to perform asanticipated could disrupt our business and could result in transaction errors, processing inefficiencies and the loss of sales and customers, which could materiallyadversely affect our financial condition, business and results of operations.We have grown and may continue to grow in the future through acquisitions. Growth by acquisitions involves risks and we may not be able to effectivelyintegrate businesses we acquire or we may not be able to identify or consummate any future acquisitions on favorable terms, or at all.We intend to selectively evaluate additional acquisitions in the future. Any acquisitions that we might make are subject to various risks and uncertainties and couldhave a negative impact on our business, financial condition or results of operations. These risks include the inability to integrate effectively the operations,products, technologies and personnel of the acquired companies (some of which may be spread out in different geographic regions), the inability to achieveanticipated cost savings or operating synergies, the earn-outs we may contractually obligate ourselves to pay, and the risk we may not be able to effectively manageour operations at an increased scale of operations resulting from such acquisitions. In the event we do complete acquisitions in the future, such acquisitions couldaffect our cash flows and net income as we expend funds, increase indebtedness and incur additional expenses in connection with pursuing acquisitions. We mayalso issue shares of our common stock or other securities from time to time as consideration for future acquisitions and investments. We may not be able to identifyor consummate any future acquisitions on favorable terms, or at all.We have significant earn-out payment obligations relating to the acquisitions of the businesses of Sport Truck and Race Face/Easton, which may adverselyaffect our liquidity and financial condition and results of operations.In March 2014, we acquired the business of Sport Truck for approximately $40.8 million , including contingent consideration with an estimated acquisition datefair value of $19.0 million . As of December 30, 2016, $14.7 million of contingent consideration has been paid under this arrangement and $5.5 million is expectedto be paid in 2017, based on actual fiscal 2016 financial performance. The payment of the amount due could adversely impact our liquidity and financial condition.On December 12, 2014, we acquired the businesses of Race Face/Easton for approximately $29.9 million U.S. Dollars. The terms of the asset purchase agreementincluded a potential earn-out opportunity of up to a maximum of approximately $19.5 million Canadian Dollars earn-out compensation, of which $10.5 millionremains due (equivalent to approximately $7.8 million U.S. Dollars at the December 30, 2016 rate). In November 2015, the Company entered into an amendmentto the purchase agreement to remove the performance-based financial targets associated with the earn-out and guarantee the maximum earn-out amount payable in2016 and 2017, subject to conditions including continued employment by the Race Face/Easton Chief Executive. In accounting for the acquisition of RaceFace/Easton, the earn-out payments have been excluded from the consideration paid. We recognize the estimated value of the earn-out liability on a ratable basis asservices are performed under the employment obligation. Our recognition of the earn-out liability and the payment of amounts due could adversely impact ourliquidity, financial condition and results of operations.Our operating results are subject to quarterly variations in our sales, which could make our operating results difficult to predict and could adversely affect theprice of our common stock.We have experienced, and expect to continue to experience, substantial quarterly variations in our sales and net income. Our quarterly results of operationsfluctuate, in some cases significantly, as a result of a variety of other factors, including, among other things:21Table of Contents• the timing of new product releases or other significant announcements by us or our competitors;• new advertising initiatives;• fluctuations in raw materials and component costs; and• changes in our practices with respect to building inventory.As a result of these quarterly fluctuations, comparisons of our operating results between different quarters within a single year are not necessarily meaningful andmay not be accurate indicators of our future performance. Any quarterly fluctuations that we report in the future may differ from the expectations of marketanalysts and investors, which could cause the price of our common stock to fluctuate significantly. We also believe that the seasonal nature of our business mayhave been overshadowed over each of the past few years due to the rapid growth in sales we have experienced during the same period.Our beliefs regarding the future growth of the performance suspension and ride dynamics product market are supported by qualitative data and limitedsources and may not be reliable. A reduction or lack of continued growth in the popularity of high-end bikes, bikes or powered vehicles or in the number ofconsumers who are willing to pay premium prices for well-designed performance-oriented equipment in the markets in which we sell our products couldadversely affect our product sales and profits, financial condition or results of operations.We generate virtually all of our revenues from sales of performance suspension and ride dynamics products. Our beliefs regarding the outlook of the performancesuspension product market come from qualitative data and limited sources, which may not be reliable. If our beliefs regarding the opportunities in the market forour products are incorrect or the number of consumers who we believe are willing to pay premium prices for well-designed performance-oriented equipment in themarkets in which we sell our products does not increase, or declines, we may fail to achieve future growth and our business, financial condition or results ofoperations could be negatively affected.The obligations associated with being a public company require significant resources and management attention.Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes Oxley Act, requires annual management assessments of the effectiveness of our internal controlover financial reporting and generally requires a report by our independent registered public accounting firm on the effectiveness of our internal control overfinancial reporting. However, under the JOBS Act, our independent registered public accounting firm has not been required to attest to the effectiveness of ourinternal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act because we are an "emerging growth company." We will remain anemerging growth company until the earliest of (i) the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more; (ii) the lastday of our fiscal year 2018, the year end which follows the fifth anniversary of the completion of our IPO; (iii) the date on which we have, during the previousthree-year period, issued more than $1 billion in non-convertible debt; or (iv) the date on which we are deemed to be a “large accelerated filer” under the ExchangeAct. We may become a large accelerated filer as early as 2017 fiscal year end.The rules governing the standards that have been met by our management to assess our internal control over financial reporting are complex and require significantdocumentation, testing and possible remediation. We may encounter problems or delays in completing the implementation of any improvements necessitated byacquisitions, system implementations, or growth in the volume or nature of our business activities. Additionally, we may encounter difficulties in receiving anunqualified opinion on the effectiveness of the internal controls over financial reporting in connection with the attestation provided by our independent registeredpublic accounting firm. If we cannot favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered publicaccounting firm is unable to provide an unqualified attestation report on our internal controls, investors could lose confidence in our financial information and theprice of our common stock could decline.As we transition from our status as “an emerging growth company,” we may need to upgrade our systems or create new systems, implement additional financialand management controls, reporting systems and procedures, create or outsource an internal audit function, and hire additional accounting and finance staff, whichwill increase our administrative costs. If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with the financialreporting requirements and other rules that apply to reporting companies could be impaired. Any failure to maintain effective internal control over financialreporting could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.22Table of ContentsFailure of our internal control over financial reporting could adversely affect our business and financial results.Our management is responsible for establishing and maintaining effective internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act.Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes inaccordance with GAAP. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that we wouldprevent or detect a misstatement of our financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting couldlimit our ability to report our financial results accurately and timely or to detect and prevent fraud. The identification of a material weakness could indicate a lackof controls adequate to generate accurate financial statements that, in turn, could cause a loss of investor confidence and decline in the market price of our commonstock. We cannot assure you that we will be able to timely remediate any material weaknesses that may be identified in future periods or maintain all of thecontrols necessary for continued compliance. Likewise, we cannot assure you that we will be able to retain sufficient skilled finance and accounting personnel,especially in light of the increased demand for such personnel among publicly traded companies.Risks related to ownership of our common stockThe trading price of our common stock may be volatile, and you might not be able to sell your shares at or above the price you pay for the shares.The trading price of our common stock could be volatile, and you could lose all or part of your investment in our common stock. Since our IPO in 2013, our stockprice has fluctuated between $28.25 and $13.35 per share and such volatility may continue in the future. Factors affecting the trading price of our common stockcould include:• variations in our operating results or those of our competitors;• new product or other significant announcements by us or our competitors;• changes in our product mix;• changes in consumer preferences;• fluctuations in currency exchange rates;• the gain or loss of significant customers;• recruitment or departure of key personnel;• changes in the estimates of our operating results or changes in recommendations by any securities analysts that elect to follow our common stock;• changes in general economic conditions as well as conditions affecting our industry in particular; and• sales of our common stock by us, our significant stockholders or our directors or executive officers.In addition, in recent years, the stock market has experienced significant price fluctuations. Fluctuations in the stock market generally or with respect to companiesin our industry could cause the trading price of our common stock to fluctuate for reasons unrelated to our business, operating results or financial condition. Somecompanies that have had volatile market prices for their securities have had securities class actions filed against them. A suit filed against us, regardless of itsmerits or outcome, could cause us to incur substantial costs and could divert management’s attention.Future sales of our shares, or the perception that such sales may occur, could cause our stock price to decline.If our existing stockholders sell substantial amounts of our common stock in the public market, or are perceived by the public market as intending to sell, thetrading price of our common stock could decline. As of December 30, 2016 , we had 36,890,872 shares of common stock outstanding of which 27,788,174 arefreely tradable in the public market. As of December 30, 2016 , 9,102,699 shares of common stock outstanding were held by directors, executive officers and otheraffiliates and are subject to volume and manner of sale limitations under Rule 144 under the Securities Act.After our IPO, we filed a registration statement under the Securities Act to register shares of our common stock that we may issue under our equity plans. As aresult, all such shares can be freely sold in the public market upon issuance, subject to any vesting or contractual lock-up agreements.In March, 2015 we filed a Shelf Registration Statement on Form S-3 with the SEC to enable us, and certain of our stockholders, to quickly go to market should we,or certain of our stockholders, wish to sell our common stock, or additionally, in our case, certain other debt instruments. In March 2016, pursuant to the Form S-3,Compass sold 2,500,000 shares of the Company's common stock at $15.895 per share in an underwritten transaction, and Mr. Fox granted the underwriter, JefferiesLLC, an over-allotment option to purchase up to 375,000 shares of the Company's common stock owned by Mr. Fox, which expired unexercised.23Table of ContentsConcurrently, the Company repurchased 500,000 shares of its common stock held by Compass for a total of $7.9 million, pursuant to a stock repurchase programthat was authorized by our board of directors in February 2016.On August 12, 2016, the Company completed another underwritten secondary offering, whereby Compass and Mr. Fox sold 4,025,000 shares of the Company'scommon stock, $0.001 par value per share, in the aggregate to Merrill Lynch, Pierce, Fenner & Smith Incorporated at $18.00 per share.On November 16, 2016, the Company completed an additional underwritten secondary offering, whereby Compass and Mr. Fox sold 4,025,000 shares of theCompany's common stock, $0.001 par value per share, in the aggregate to Robert W. Baird & Co. Incorporated and William Blair & Company, L.L.C. at $20.51per share.In addition, our Amended and Restated Certificate of Incorporation authorizes us to issue 90,000,000 shares of common stock, of which 36,890,872 shares wereoutstanding as of December 30, 2016 . In the future, we may issue additional shares of common stock or other equity or debt securities convertible into commonstock in connection with a financing, acquisition or otherwise. If any of these additional shares described are sold, or if it is perceived that they will be sold, in thepublic market, the trading price of our common stock could decline.We are an "emerging growth company," and the reduced disclosure requirements applicable to emerging growth companies could make our common stockless attractive to investors.We are an "emerging growth company," as defined in the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certainexemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limitedto, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, reduced disclosure obligationsregarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding advisory "say-on-pay" and "say-when-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation.We cannot predict if investors will find our common stock less attractive to the extent we continue to rely on these exemptions. If some investors find our commonstock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.Our inability to successfully recruit and appoint a new independent member to our Board of Directors may result in our failure to regain compliance withNASDAQ listing rules and our common stock may be delisted from the Nasdaq Global Select Market, which may reduce the price of our common stock andlevels of liquidity available to our stockholders.On January 12, 2017, Joseph Hagin resigned from our Board of Directors (the “Board”). Mr. Hagin was an independent director of the Company and, as a result ofhis resignation, the Board no longer comprises a majority of independent directors (as defined by NASDAQ Listing Rule 5605(a)(2)), as required by NASDAQListing Rule 5605(b)(1). On January 12, 2017, in accordance with the NASDAQ Listing Rules, the Company notified NASDAQ of the effectiveness of Mr.Hagin’s resignation, the resulting noncompliance with NASDAQ Listing Rule 5605(b)(1) and its desire to use the cure period provided by NASDAQ Listing Rule5605(b)(1)(A). Later on January 12, 2017, the Company received a notice from NASDAQ acknowledging the Company’s non-compliance and confirming thatNASDAQ will provide the Company with the requisite cure period. In accordance with NASDAQ Listing Rule 5605(b)(1)(A), the Company has until the earlier ofthe Company’s next annual shareholders’ meeting or January 12, 2018, or if the Company’s next annual shareholders’ meeting is held before July 12, 2017, thenthe Company has until July 12, 2017 to regain compliance with NASDAQ Listing Rule 5605(b)(1). The Board is currently reviewing candidates to replace Mr.Hagin on the Board. If we fail to regain compliance with NASDAQ Listing Rules, our common stock may be delisted from the Nasdaq Global Select Market.Therefore, there can be no assurance that the Listing Council will determine to continue the listing of our common stock on the Nasdaq Global Select Market. Ifour common stock is delisted, it may become more difficult for our stockholders to sell our stock in the public market and the price of our common stock may beadversely affected. Delisting from the Nasdaq Global Select Market could also result in other negative implications including the potential loss or reduction ofconfidence by customers, creditors, suppliers and employees, the potential loss or reduction of investor interest, and fewer business development opportunities, anyof which could materially adversely affect our results of operations and financial condition.If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume coulddecline.The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If one ormore of the analysts who covers us downgrades our stock or publishes unfavorable research about our business or our industry, our stock price would likelydecline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, whichcould cause our stock price and trading volume to decline.24Table of ContentsCompass and our directors and officers and insiders will be able to influence corporate matters.As of December 30, 2016 , Compass beneficially owns approximately 13.8% of our outstanding common stock. Compass, our directors and executive officers, andtheir affiliates beneficially own, in the aggregate, approximately 24.7% of our outstanding common stock. As a result, these stockholders are able to exerciseinfluence over all matters requiring stockholder approval, including the election of directors, amendment of our Amended and Restated Certificate ofIncorporation, and approval of any merger, consolidation, or sale of all, or substantially all, of our assets or other significant corporate transactions. In addition,Compass continues to have input on all matters before our board of directors because our director Elias Sabo is affiliated with Compass. So long as Compass orany of its affiliates continue to indirectly own a significant amount of our outstanding common stock, they will continue to be able to influence our decisions.In addition, Compass is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that may competedirectly or indirectly with us. Compass may also pursue acquisition opportunities that are complementary to our business and, as a result, those acquisitionopportunities may not be available to us.Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company.Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, or our Charter Documents, as well as Delaware law, containprovisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Among other things,these provisions:• authorize the issuance of "blank check" preferred stock that could be issued by our board of directors to discourage a takeover attempt;• establish a classified board of directors, as a result of which the successors to the directors whose terms have expired will be elected to serve from thetime of election and qualification until the third annual meeting following their election;• require that directors be removed from office only for cause;• provide that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors then in office;• from and after the date that Compass and its affiliates no longer collectively beneficially own (as determined pursuant to Rule 13d-3 under the ExchangeAct), directly or indirectly, at least a majority of the voting power of all then outstanding shares of our capital stock entitled to vote generally in the election ofdirectors, or the Trigger Date, prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders;• provide that special meetings of our stockholders may be called only by our board of directors, our Chairperson of the board of directors, our LeadDirector (if we do not have a Chairperson or the Chairperson is disabled), our Chief Executive Officer or our President (in the absence of a Chief ExecutiveOfficer) or, until the Trigger Date, Compass;• from and after the Trigger Date, require supermajority stockholder voting for our stockholders to effect certain amendments to our Charter Documents;and• establish advance notice requirements for nominations for elections to our board of directors or for proposing other matters that can be acted upon bystockholders at stockholder meetings.In addition, we are subject to Section 203 of the General Corporation Law of the State of Delaware, or DGCL, which generally prohibits a Delaware corporationfrom engaging in any broad range of business combinations with a stockholder owning 15% or more of such corporation’s outstanding voting stock for a period ofthree years following the date on which such stockholder became an "interested" stockholder. In order for us to consummate a business combination with aninterested stockholder within three years of the date on which the stockholder became interested, either (i) the business combination or the transaction that resultedin the stockholder becoming interested must be approved by our board of directors prior to the date the stockholder became interested, (ii) the interestedstockholder must own at least 85% of our outstanding voting stock at the time the transaction commences (excluding voting stock owned by directors who are alsoofficers and certain employee stock plans) or (iii) the business combination must be approved by our board of directors and authorized by at least two-thirds of ourstockholders (excluding the interested stockholder) at a special or annual meeting (not by written consent). This provision could have the effect of delaying orpreventing a change in control, whether or not it is desired by or beneficial to our stockholders. Any delay or prevention of a change in control transaction orchanges in our board of directors and management could deter potential acquirers or prevent the completion of a transaction in which our stockholders couldreceive a substantial premium over the then-current market price for their shares of our common stock.25Table of ContentsOur Amended and Restated Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certaintypes of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum fordisputes with us or our directors, officers or other employees.Our Amended and Restated Certificate of Incorporation provides that, with certain limited exceptions, unless we consent in writing to the selection of analternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on ourbehalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of our company owed to us or our stockholders,(iii) any action asserting a claim against us arising pursuant to any provision of the DGCL or our Charter Documents, (iv) any action to interpret, apply, enforce ordetermine the validity of our Charter Documents, or (v) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing orotherwise acquiring any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing provisions. This choice of forumprovision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or otheremployees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find this choice of forumprovision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associatedwith resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.ITEM 2. PROPERTIESAt December 30, 2016 , we occupy the following square footage by location: United States Other Countries TotalLeased facilities 411,000 263,000 674,000Owned facilities 146,000 — 146,000Total 557,000 263,000 820,000Our headquarters as well as certain research and development and manufacturing operations are located in California. We also manufacture in the US state ofMichigan and internationally in Taiwan and Canada, and maintain sales and service offices in the US and Europe.We believe that our properties are generally suitable to meet our needs for the foreseeable future. In addition, to the extent we require additional space in the future,we believe that it would be readily available on commercially reasonable terms.ITEM 3. LEGAL PROCEEDINGSA lawsuit was filed on December 17, 2015 by SRAM Corporation (“SRAM”) in the U.S. District Court, Northern District of Illinois, against the Company’swholly-owned subsidiary, RFE Canada Holding Corp. (“RFE Canada”). The suit alleges patent infringement of U.S. Patent number 9,182,027 and violation of theLanham Act. SRAM filed a second lawsuit in the same court against RFE Canada on May 16, 2016. That suit alleges patent infringement of U.S patent number9,291,250. The Company believes the lawsuits are without merit and intends to vigorously defend itself. As such, the Company has filed, before the U. S. Patentand Trademark Appeals Board ("PTAB"), for an Inter-parties Review of the US Patent 9,182,027 and for a Post Grant Review of the U. S. Patent 9,291,250.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 suit allegesSRAM’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 theCompany on July 1, 2016 in the U.S. District Court, Northern District of California against SRAM. That suit alleges SRAM’s infringement of the Company’s U.S.Patent numbers 8,226,172 and 8,974,009.26Table of ContentsThe Company and SRAM have been in discussions and mediation regarding these matters. The SRAM lawsuits against the Company have been stayedby the Court in Illinois pending a PTAB determination in the Company filed SRAM patent reviews. Meanwhile the Company filed lawsuits havemoved forward as scheduled by the courts. Due to the early stage of this lawsuit and the inherent uncertainties of litigation, the Company is not able to predicteither the outcome or a range of reasonably possible losses, if any, at this time. Accordingly, no amounts have been recorded in the consolidated financialstatements for the settlement of these matters. Were an unfavorable ruling to occur, or if factors indicate that a loss is probable and reasonably estimable, theCompany'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 notbelieve 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.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.27Table of ContentsPART IIITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES.Market InformationOur common stock has been listed on the NASDAQ Global Select Market under the symbol "FOXF" since August 8, 2013. Our IPO was priced at $15.00 pershare on August 8, 2013. Prior to that date, there was no public trading market for our common stock.The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported on the NASDAQ Global SelectMarket. High LowYear Ending December 31, 2015 Quarter ended March 31, 2015$16.28 $14.67Quarter ended June 30, 201517.14 14.99Quarter ended September 30, 201516.86 14.92Quarter ended December 31, 201519.38 16.50Year Ending December 30, 2016 Quarter ended April 1, 2016$17.67 $14.14Quarter ended July 1, 201618.37 15.46Quarter ended September 30, 201622.97 17.26Quarter ended December 30, 201627.75 20.20On February 23, 2017 , the closing price per share of our common stock as reported on the NASDAQ Global Select Market was $27.50 per share.StockholdersAs of February 23, 2017 , there were approximately 10 holders of record of our common stock. The actual number of stockholders is greater than this number ofrecord holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number ofholders of record also does not include stockholders whose shares may be held in trust by other entities.Dividend PolicyWe did not declare or pay any dividends in the years ended December 30, 2016 and December 31, 2015. In addition, our Second Amended and Restated CreditFacility contains covenants limiting our ability to pay dividends to our stockholders. See "Management’s Discussion and Analysis of Financial Condition andResults of Operations-Second Amended and Restated Credit Facility." Any future determination to declare cash dividends will be made at the discretion of ourboard of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements,contractual restrictions, general business conditions and any other factors that our board of directors may deem relevant.Equity Compensation Plan InformationFor equity compensation plan information refer to Item 12 in Part III of this Annual Report on Form 10-K.28Table of ContentsPerformance GraphThe following graph shows a comparison from August 8, 2013 (the date our common stock commenced trading on the NASDAQ) through December 30, 2016 ofthe total cumulative return of our common stock with the total cumulative return of the NASDAQ Composite Index (the "NASDAQ Composite"), and S&P 500Index ("S&P 500"). The figures represented below assume an investment of $100 in our common stock at the closing price of $18.61 on August 8, 2013 and in theNASDAQ Composite and S&P 500. Data for the NASDAQ Composite and S&P 500 assume reinvestment of dividends. The comparisons in the graph arehistorical and are not intended to forecast or be indicative of possible future performance of our common stock.This performance graph shall not be deemed to be "soliciting material" or "filed" or incorporated by reference in future filings with the SEC, or subject to theliabilities of Section 18 of the Exchange Act except as shall be expressly set forth by specific reference in such filing.Issuer Purchases of Equity SecuritiesThe table below sets forth information regarding repurchases of our common stock by us during the three months ended December 30, 2016 .Period Total Number ofShares Purchased (1) Average PricePaid per Share Total Number of Share Purchased asPart of Publicly Announced Plans orPrograms Approximate Dollar Value of Sharesthat May Yet Be Purchased Underthe Plans or Programs (2)10/1 - 11/4 707 $20.20 — $32,052,50011/5 - 12/2 — $— — $32,052,50012/3 - 12/30 — $— — $32,052,500Total 707 $20.20 — $32,052,500 (1) Includes shares acquired from holders of restricted stock unit awards to satisfy tax withholding obligations.(2) On February 25, 2016, the Company's Board of Directors authorized a share repurchase program for up to $40 million of the Company’s common sharesoutstanding. The repurchase program will expire on December 31, 2017.29Table of ContentsITEM 6. SELECTED FINANCIAL DATAThe following selected consolidated financial and other data should be read in conjunction with, and are qualified by reference to, Item 7, "Management’sDiscussion and Analysis of Financial Condition and Results of Operations," and our audited consolidated financial statements and the accompanying notesincluded elsewhere in this Annual Report. The consolidated statements of income data for the years ended December 30, 2016, December 31, 2015 and December31, 2014, and the consolidated balance sheet data as of December 30, 2016 and December 31, 2015 are derived from the audited consolidated financial statementsthat are included elsewhere in this Annual Report. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that weconsider necessary for a fair presentation of the financial information set forth in those statements. The consolidated statements of income data for the years endedDecember 31, 2013 and 2012 as well as the consolidated balance sheet data as of December 31, 2014 , 2013 and 2012 , are derived from audited consolidatedfinancial statements that are not included in this Annual Report. Our historical results are not necessarily indicative of the results to be expected in the future. Consolidated Statement of Income Data : For the fiscal years ended(in thousands, except per share data) 2016 2015 2014 2013 2012Sales$403,077 $366,798 $306,734 $272,746 $235,869Cost of sales (1)276,689 254,756 212,314 192,617 173,040Gross profit126,388 112,042 94,420 80,129 62,829Operating expenses: Sales and marketing (1)25,796 23,182 19,192 14,153 12,570Research and development (1)18,459 17,001 13,642 10,409 9,727General and administrative (1)27,693 21,053 17,683 11,408 9,063Amortization of purchased intangibles2,988 8,525 6,424 5,378 5,315Fair value adjustment of contingent consideration and acquisition relatedcompensation5,911 6,937 2,856 — —Total operating expenses80,847 76,698 59,797 41,348 36,675Income from operations45,541 35,344 34,623 38,781 26,154Other expense, net: Interest expense2,088 1,549 999 4,125 3,486Other (income) expense, net363 (449) (693) (12) 277Total other expense, net2,451 1,100 306 4,113 3,763Income before income taxes43,090 34,244 34,317 34,668 22,391Provision for income taxes7,415 9,290 6,631 10,566 8,181Net income$35,675 $24,954 $27,686 $24,102 $14,210Earnings per share: Basic$0.97 $0.67 $0.75 $0.70 $0.44Diluted$0.94 $0.66 $0.73 $0.68 $0.44Weighted average shares used to compute earnings per share: Basic36,799 36,989 36,756 34,571 32,059Diluted37,801 37,894 37,807 35,705 32,515Dividends per share$— $— $— $— $2.0030Table of Contents(1) Includes stock-based compensation as follows: For the fiscal years ended (in thousands)2016 2015 2014 2013 2012 Cost of sales$139 $82 $43 $23 $— Sales and marketing598 430 279 158 160 Research and development357 178 88 53 29 General and administrative5,129 4,217 3,634 2,266 1,959 Total$6,223 $4,907 $4,044 $2,500 $2,148Consolidated Balance Sheet Data: For the fiscal years ended(in thousands) 2016 2015 2014 2013 2012 Cash and cash equivalents $35,280 $6,944 $4,212 $1,683 $15Inventory 71,243 68,202 59,191 42,783 34,255Working capital 95,876 57,971 48,056 39,884 25,142Property, plant and equipment, net 32,262 26,094 19,759 13,418 11,789Total assets 335,600 277,716 258,437 157,729 142,120Total debt, including current portion (1) 66,683 47,881 50,000 8,000 59,250Total stockholders’ equity (2) 184,937 152,260 128,806 92,292 29,584(1)In June 2012, we completed a recapitalization (the "2012 Recapitalization"). In connection with the 2012 Recapitalization, we amended our debt.Concurrently with the closing of our IPO in August 2013, we used the net proceeds that we received from the IPO to repay our then outstanding indebtedness.In 2014, in connection with our acquisitions, we entered into amendments to our credit facility, borrowing $80.0 million under a secured term loan. In 2016,we entered into the Second Amended and Restated Credit Facility, with a refinanced term loan principal balance of $75.0 million. The principal balance of theterm loan was $66.7 million at December 30, 2016 .(2)In connection with the 2012 Recapitalization, we paid a $67.0 million cash dividend, repurchased shares, and restructured certain stock-based compensationawards.31Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled "Selected FinancialData" and the consolidated financial statements and related notes thereto included elsewhere in this Annual Report. This discussion contains forward-lookingstatements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. You should review the "Risk Factors" and"Special Note Regarding Forward-Looking Statements" sections of this Annual Report for a discussion of important factors that could cause actual results to differmaterially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.OverviewWe are a designer, manufacturer and marketer of ride dynamics component products used primarily on bicycles, side-by-side vehicles, or Side-by-Sides, on-roadvehicles with off-road capabilities, off-road vehicles and trucks, all-terrain vehicles, or ATVs, snowmobiles, specialty vehicles and applications, and motorcyclesas well as suspension systems, or lift kits, used on trucks. Virtually all of our revenues were from our product sales; miscellaneous sources of revenue such asroyalty income and service related repair work and the associated sale of components represented less than 1% of our sales in each of the years endedDecember 30, 2016 , December 31, 2015 and December 31, 2014 .We have determined that we operate in one reportable segment, which is the manufacturing, sale and service of ride dynamics products. Our products fall into thefollowing two categories:• bikes; and•powered vehicles, including Side-by-Sides, on-road vehicles with off-road capabilities, off-road vehicles and trucks, ATVs, snowmobiles, specialtyvehicles and applications, and motorcycles.A significant portion of our sales are dependent on the demand for high-end or premium-priced bikes and products. In each of the years ended December 30, 2016 ,December 31, 2015 and December 31, 2014 , approximately 56% , 58% and 58% , respectively, of our sales were attributable to sales of bike-related products andapproximately 44% , 42% and 42% , respectively, of our sales were attributable to sales of products for powered vehicles.Our domestic sales totaled $187.5 million , $163.1 million and $128.3 million , or 47% , 44% and 42% of our total sales in fiscal years 2016, 2015 and 2014 ,respectively. Our international sales totaled $215.5 million , $203.7 million and $178.4 million , or 53% , 56% and 58% of our total sales in fiscal years 2016, 2015and 2014 , respectively. Sales attributable to countries outside the United States are based on shipment location. Our international sales, however, do notnecessarily reflect the location of the end users of our products as many of our products are incorporated into bikes that are assembled at international locations andthen shipped back to the United States. We estimate, based on our internal projections, that approximately one-third of the end users of our products are locatedoutside the United States.Opportunities, challenges and risksWe intend to focus on generating sales of our performance ride dynamics products through OEMs and in the aftermarket channel. To do this, we intend to continueto develop and introduce new and innovative products in our current end-markets and we intend to selectively develop products for applications and end-markets inwhich we do not currently participate. Currently, the majority of our sales are dependent on the demand for performance suspension products.Our aftermarket distribution network currently consists of more than 5,000 retail dealers and distributors worldwide. To further penetrate the aftermarket channel,we intend to selectively add additional dealers and distributors in certain geographic markets, expand our internal sales force and strategically increase the numberof aftermarket specific products and services which we offer for existing vehicle platforms. In addition, we believe international expansion represents a significantopportunity for us and we intend to selectively increase infrastructure investments and focus on identified geographic regions.As a supplier to OEM customers, we are largely dependent on the success of the business of our OEM customers. Model year changes by our OEM customers mayadversely impact our sales or cause our sales to vary from quarter to quarter. Losses in market share or a decline in the overall market of our OEM customers or thediscontinuance by our OEM customers of their products which incorporate our products could negatively impact our business and our results of operations.During 2015, we completed the process of moving a majority of the manufacturing of our bike suspension component products to our facility in Taichung, Taiwan.We anticipate that this transition will enable us to shorten production lead times to our bike OEM customers, improve supply chain efficiencies and reduce ourmanufacturing costs. The transition has had a positive impact on our operating margins and we expect continued benefits from the transition over time.32Table of ContentsFrom time to time we have experienced, and may continue to experience, warranty costs and claims relating to our products. In the ordinary course of business, wereserve against such costs and claims in our financial statements. There is a risk, however, that in the future we will experience higher than expected warranty costsand claims, as well as other related costs.We intend to evaluate selective potential acquisition opportunities for performance products and technologies that we believe will help us extend our ride dynamicsproduct platform. Any acquisitions that we might make are subject to various risks and uncertainties and could have a negative impact on our results of operations.In addition, we may contractually obligate ourselves to contingent consideration or acquisition related compensation payments in conjunction with suchacquisitions, which could have a negative impact on our cash flow and results of operations. See "Management’s discussion and analysis of financial condition andresults of operations-Contractual obligations and commitments."Basis of presentationSales are primarily comprised of:Sales from:• Product sales: consists of sales of products sold primarily to our OEM and aftermarket customers. We recognize revenue when products are shipped,title has transferred, collection of the receivable is probable, persuasive evidence of an arrangement exists, and the sales price to our customers is fixed ordeterminable;• Shipping and handling fees: we include shipping and handling fees billed to customers in sales.Net of:• Rebates: consists of incentives we provide to customers based on sales of eligible products; and• Sales returns allowances: consists of an estimate of our sales returns. This allowance is based upon estimates of the projected returns in future periodsbased on our experience with returns recorded in previous periods. Sales returns have not been significant to date.We attribute our past growth in sales predominantly to increases in the number of units sold to our OEM customers in both our bike and powered vehicle productcategories and to a lesser degree increases in our aftermarket sales in the powered vehicle product categories.Cost of salesThe cost of sales includes the cost of purchased parts and manufactured products (raw materials consumed, the cost to procure materials, labor costs, includingwages, and employee benefits, and factory overhead to produce finished good products), including:• the cost to inspect and repair products;•shipping costs associated with inbound freight. These costs are capitalized as part of inventory and included in cost of sales as the inventory is sold;• royalty expenses, including payments to certain parties for our use of licensed technology incorporated into our products;• freight expense incurred for certain shipments to customers, excluding customers who pay for their own freight;• warranty costs associated with the repair or replacement of products under warranty; and•reductions in the cost of inventory to its net realizable value, if required, for estimated excess, obsolescence or impaired balances.Gross profit/gross marginOur gross profit equals our sales minus cost of sales. Our gross margin measures our gross profit as a percentage of sales.Our gross margins fluctuate based on production volumes, product, customer and channel mix and overall supply chain and manufacturing efficiencies. Generally,we earn higher gross margins on our products sold to the aftermarket channel. We are working on various efficiency initiatives designed to improve our grossmargin, however we anticipate that our savings will be partially offset by lower gross margins resulting from a higher proportion of OEM sales in 2017.Operating expensesOur operating expenses consist of the following:• sales and marketing;• research and development;• general and administrative;33Table of Contents• amortization of purchased intangibles; and• fair value adjustment of contingent consideration and acquisition related compensation.Our sales and marketing expenses include costs related to our sales, customer service and marketing personnel, including their wages, employee benefits andrelated stock-based compensation, and occupancy related expenses. Other significant sales and marketing expenses include race support and sponsorships of eventsand athletes, advertising and promotions related to trade shows, travel and entertainment, promotional materials and products and our sales office costs.Our research and development expenses consist primarily of salaries and personnel costs, including wages, employee benefits and related stock-basedcompensation for our engineering, research and development teams, occupancy related expenses, fees for third party consultants, service fees, and expenses forprototype tooling and materials, travel, and supplies. We expense research and development costs as incurred and such costs are included as research anddevelopment expenses on our consolidated statements of income.Our general and administrative expenses include costs related to our executive, finance, information technology, business development, human resources andadministrative personnel, including wages, employee benefits and related stock-based compensation expenses. We record professional and contract serviceexpenses, occupancy related expenses associated with corporate locations and equipment, and legal expenses in general and administrative expenses.Our amortization of intangibles includes amortization over their respective useful lives of our purchased intangible assets, such as customer lists and our coretechnology. Our intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may notbe fully recoverable. No impairments of intangible assets were identified in the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 .Our fair value adjustments of contingent consideration and acquisition related compensation relates primarily to adjustments to our contingent considerationliability arising from the acquisition of Sport Truck as well as accruals for earn-outs related to our acquisition of Race Face/Easton. The Sport Truck liability ismeasured at fair value at each balance sheet date by considering actual results and applying a Black-Scholes model to the Company's financial projections forfuture periods. We expect our contingent consideration and acquisition related compensation for the Sport Truck and Race Face/Easton acquisitions to cease afterthe first quarter of 2017.Income from operationsWe define income from operations as gross profit less our operating expenses. We use income from operations as an indicator of the profitability of our businessand our ability to manage costs.Other expense, netOther expense, net consists of interest expense and other (income) expense, net. Interest expense consists of interest charged to us under our credit facilities.Other (income) expense, net consists of foreign currency transaction gains and losses, gains and losses on the disposal of fixed assets, and other miscellaneousitems. Income taxesWe are subject to income taxes in the United States and various other foreign jurisdictions in which we do business. These foreign jurisdictions have statutory taxrates than differ from those in the United States, although certain of our international earnings are also taxable in the United States. Effective in 2016, werestructured the majority of our international operations to allow for deferral of taxes on indefinitely reinvested international earnings. Accordingly, our effectivetax rates will vary depending on the relative proportion of foreign to U.S. income and the further apportionment of that income to state and local jurisdictions.Additionally, in future periods, our effective tax rate may vary depending on changes in tax laws in the various jurisdictions in which we do business.Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between thefinancial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxableincome. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of December 30, 2016 , wedid not have any valuation allowances recorded as we expect to fully utilize all of our deferred tax assets. As of December 30, 2016 , our deferred tax assetsinclude foreign tax credits and foreign net operating loss carryforwards of approximately $2,128 and $252, respectively, which begin to expire in 2025 and 2034,respectively, unless previously utilized. We also have federal and state research credits of approximately $455 and $1,496. The federal research credits begin toexpire in 2036 unless previously utilized, and the state research credits do not expire. In the future, our effective tax rate could vary if we determine that there is aneed to record a valuation allowance for our deferred tax assets, including those associated with credit carryforwards.34Table of ContentsStock-based compensation gives rise to deferred tax assets to the extent of the compensation expense recognized on non-qualified stock options that have not beenexercised or expired and restricted stock awards that have not vested. As of December 30, 2016 , our deferred tax assets include $2.0 million associated with stock-based compensation expense. We adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting in 2016, and as a result, will be requiredto record the difference between the deferred tax asset and the actual tax deduction for stock-based compensation as a component of our income tax expense. Priorto adoption, such differences were recorded as a component of equity. In 2016 and in future periods, our effective tax rate will vary based on such differences.We are subject to examination of our income tax returns by the U.S. Internal Revenue Service, or IRS, and other tax authorities. We regularly assess the likelihoodof adverse outcomes resulting from these examinations to determine the adequacy of our income tax liabilities and expense. Should actual events or results differfrom our current expectations, charges or credits to our income tax liabilities and income tax expense may become necessary. Any such adjustments could have asignificant impact on our effective tax rate.Under U.S. generally accepted accounting principles, or GAAP, an uncertain income tax position will not be recognized unless it has a greater than 50% likelihood(i.e., more-likely-than-not) of being sustained and then, measured only to the largest amount of benefit that is greater than 50% likely to be realized upon ultimatesettlement. We established liabilities for uncertain tax positions and deferred taxes associated with the deductibility of certain amortization and depreciationexpenses. The liability for uncertain income tax positions represents the amount of tax we would be required to pay if certain tax deductions previously claimed ontax returns were not allowed upon examination by the taxing authorities. The liability for deferred taxes represents additional taxes that would be payable in futureperiods because of the potential non-deductibility of future amortization and depreciation expenses.As of December 30, 2016 , our balance sheet reflected a liability for unrecognized tax benefits of $7.4 million , inclusive of amounts presented as contra to ourdeferred tax asset. The unrecognized tax benefits are primarily due to the uncertainty of the deductibility of amortization and depreciation expenses which wereincurred as a result of Compass’s acquisition of us in 2008. We expect to decrease our liability for unrecognized tax benefits and recognize a reduction in incometax expense (and an increase in net income) because of the expiration of statutes of limitations in the amount of approximately $1.3 million in the third quarter of2017. We generally expect to recognize a reduction in income tax expense (and an increase in net income) through the expiration of statutes of limitations in theamount of approximately $1.3 million in each third quarter from 2016 through 2026, and approximately $0.2 to $0.6 million in each fourth quarter from 2018through 2028. These annual reductions in our income tax expense will cease if it is determined upon examination of the tax authorities that the deductions are notvalid and the liabilities for the uncertain income tax position and the associated deferred tax liability will have to be settled for cash. If we subsequently determinethat we have met the more-likely-than-not threshold that these deductions will be sustained, the balance of the liability for unrecognized tax benefits would berecognized as a reduction of income tax expense, except for approximately $0.9 million , which would increase the deferred tax liability for taxes associated withamortization of intangibles with indeterminate lives.For the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 , we had effective tax rates of 17.2% , 27.1% and 19.3% , respectively. Weanticipate that in the near to medium term our effective annual tax rates should be approximately 18% to 23%, subject to the inherent variability resulting fromchanges in the relative proportion of our profits earned in the jurisdictions in which we do business, tax reform in those jurisdictions, changes in our stock pricethat impact stock-based compensation tax deductions, and potential unfavorable outcomes on our uncertain tax positions.35Table of ContentsResults of operationsThe table below summarizes our results of operations for the years ended December 30, 2016 , December 31, 2015 , and December 31, 2014 For the years ended December 30, December 31, December 31,(in thousands) 2016 2015 2014Sales $403,077 $366,798 $306,734Cost of sales 276,689 254,756 212,314Gross profit 126,388 112,042 94,420Operating expenses: Sales and marketing 25,796 23,182 19,192Research and development 18,459 17,001 13,642General and administrative 27,693 21,053 17,683Amortization of purchased intangibles 2,988 8,525 6,424Fair value adjustment of contingent consideration and acquisition related compensation 5,911 6,937 2,856Total operating expenses 80,847 76,698 59,797Income from operations 45,541 35,344 34,623Other expense, net: Interest expense 2,088 1,549 999Other income (expense), net 363 (449) (693)Other expense, net 2,451 1,100 306Income before income taxes 43,090 34,244 34,317Provision for income taxes 7,415 9,290 6,631Net income $35,675 $24,954 $27,686The following table sets forth statement of income data as a percentage of sales for the years indicated.36Table of Contents For the years ended December 30, December 31, December 31, 2016 2015 2014Sales 100.0% 100.0 % 100.0 %Cost of sales 68.6 69.5 69.2Gross profit 31.4 30.5 30.8Operating expenses: Sales and marketing 6.4 6.3 6.3Research and development 4.6 4.6 4.4General and administrative 6.9 5.7 5.8Amortization of purchased intangibles 0.7 2.3 2.1Fair value adjustment of contingent consideration and acquisition related compensation 1.5 1.9 0.9Total operating expenses 20.1 20.8 19.5Income from operations 11.3 9.7 11.3Other expense, net: Interest expense 0.5 0.4 0.3Other income (expense), net 0.1 (0.1) (0.2)Other expense, net 0.6 0.3 0.1Income before income taxes 10.7 9.4 11.2Provision for income taxes 1.8 2.5 2.2Net income 8.9% 6.9 % 9.0 %Year ended December 30, 2016 compared to year ended December 31, 2015Sales(in millions)2016 2015 Change ($)Change (%)Sales$403.1 $366.8 $36.39.9%37Table of ContentsSales for the year ended December 30, 2016 increase d approximately $36.3 million , or 9.9% , compared to the year ended December 31, 2015 . The sales increasereflects 13.7% growth in powered vehicle products as well as a 7.1% increase in mountain bike products for the year ended December 30, 2016 compared to theprior year. The increase in bike product sales is due to the success of our current bike product lines including new products within those lines. The increase in salesof powered vehicle products was primarily due to continued higher demand for on and off-road suspension products.Cost of sales(in millions)2016 2015 Change ($)Change (%)Cost of sales$276.7 $254.8 $21.98.6%Cost of sales for the year ended December 30, 2016 increase d approximately $21.9 million , or 8.6% , compared to the year ended December 31, 2015 . Theincrease in cost of sales was driven primarily by an increase in product sales, as well as certain business factors affecting gross margin which are discussed below.For the year ended December 30, 2016 our gross margin was 31.4% compared to 30.5% for the year ended December 31, 2015 . The increase in our gross profitmargin was attributable primarily to cost improvements as we completed the transition of the majority of our bike manufacturing to Taiwan. The West Coast portslowdown resulted in increased shipping and handling costs in 2015. Additionally, acquisition related finished goods inventory valuation adjustments in connectionwith the Race/Face Easton acquisition and inventory write-downs associated with the Marzocchi acquisition had a negative impact on our 2015 gross margin .Operating expenses(in millions)2016 2015 Change ($)Change (%)Operating expenses: Sales and marketing$25.8 $23.2 $2.611.2 %Research and development18.5 17.0 1.58.8 %General and administrative27.7 21.1 6.631.3 %Amortization of purchased intangibles3.0 8.5 (5.5)(64.7)%Fair value adjustment of contingent consideration andacquisition related compensation5.9 6.9 (1.0)(14.5)%Total operating expenses$80.8 $76.7 $4.15.3 %38Table of ContentsTotal operating expenses for the year ended December 30, 2016 increase d approximately $4.1 million , or 5.3% over 2015 . When expressed as a percentage ofsales, operating expenses decreased to 20.1% of sales for the year ended December 30, 2016 compared to 20.8% of sales in 2015 .Within operating expenses, our sales and marketing expense increased by approximately $2.6 million primarily due to a $1.3 million increase in wages and relatedexpenses, a $0.3 million increase in travel, a $0.3 million increase in equipment and a $0.2 increase in promotional expenses to support the growth of our productsand brands. Research and development increased approximately $1.5 million due to investments in our product lines aimed at producing new products andtechnologies to maintain our premium position in the marketplace and to pursue new markets. General and administrative expenses increased approximately $6.6million primarily as a result of a $2.9 million increase in stock compensation and wages, $2.7 million of expense associated with patent litigation activitiesinvolving an industry competitor, and a $0.5 million increase in professional fees associated with our ERP implementation. Additionally, we incurred $0.6 millionin costs associated with secondary public offerings which closed on March, August and November 2016.Amortization of purchased intangible assets in the year ended December 30, 2016 decreased approximately $5.5 million as compared to the year endedDecember 31, 2015 . The decrease is primarily due to technology and customer relationship assets from Compass' acquisition of the Company becoming fullamortized as of December 31, 2015.During the year ended December 30, 2016 , we incurred $5.9 million in acquisition related compensation in connection with management earn-out arrangements.Income from operations(in millions)2016 2015 Change ($)Change (%)Income from operations$45.5 $35.3 $10.228.9%As a result of the factors discussed above, income from operations for the year ended December 30, 2016 increase d approximately $10.2 million , or 28.9%compared to income from operations in the same period in 2015 .Other expense, net(in millions)2016 2015 Change ($)Change (%)Other expense, net: Interest expense$2.1 $1.5 $0.640.0 %Other expense (income), net0.4 (0.4) 0.8(200.0)%Other expense, net$2.5 $1.1 $1.4127.3 %Other expense, net for the year ended December 30, 2016 increase d by approximately $1.4 million to $2.5 million compared to $1.1 million for the year endedDecember 31, 2015 . Interest expense increased in the year ended December 30, 2016 by $0.6 million due to additional borrowings and higher interest rates ascompared to the year ended December 31, 2015 . Other expense, net, increased by $0.8 million due to foreign currency transaction losses, $0.5 million of whichresulted from the settlement of Canadian Dollar denominated acquisition related compensation liability resulting from the acquisition of RaceFace/Easton. Income taxes(in millions)2016 2015 Change ($)Change (%)Income tax expenses$7.4 $9.3 $(1.9)(20.4)%Income tax expense for the year ended December 30, 2016 decrease d by approximately $1.9 million to $7.4 million compared to income tax expense of $9.3million in the same period in 2015 . The decrease in expense resulted primarily from the previously described reorganization of foreign entities and indefinitereinvestment of foreign earnings in jurisdictions with lower tax rates.The effective tax rates were 17.2% and 27.1% for the years ended December 30, 2016 and December 31, 2015 , respectively.39Table of ContentsFor the year ended December 30, 2016 , the difference between our effective tax rate and the 35% federal statutory rate resulted primarily from the lower rates onforeign earnings and the reversal of our liability for uncertain tax positions as a result of (i) the conclusion of the Company's 2011 and 2012 California FranchiseTax Board audits and (ii) the expiration of the statute of limitations for certain tax filings. Ad ditionally, our effective tax rate benefited as a result of the researchand development tax credits, California business development tax credits, and the benefit of excess deductions on stock-based compensation. These income taxbenefits were partially offset by 2016 state taxes and the impact of non-deductible costs.For the year ended December 31, 2015 , the difference between our effective tax rate and the 35% federal statutory rate resulted primarily the expiration of thestatute of limitations that allowed us to release approximately $1.3 million of our liability for unrecognized tax benefits. Additionally, our effective tax rate wasbenefited as a result of the research and development tax credit, domestic production activity deduction, and other adjustments. These income tax benefits werepartially offset by 2015 state taxes.Net income(in millions)2016 2015 Change ($)Change (%)Net income$35.7 $25.0 $10.742.8%As a result of the factors described above, our net income increased $10.7 million , or 42.8% , to $35.7 million in the year ended December 30, 2016 from $25.0million for the same period in 2015 .Year ended December 31, 2015 compared to year ended December 31, 2014Sales(in millions)2015 2014 Change ($)Change (%)Sales$366.8 $306.7 $60.119.6%Sales for the year ended December 31, 2015 increased approximately $60.1 million, or 19.6%, compared to the year ended December 31, 2014. The sales increasereflects 21.6% growth in powered vehicle products as well as an 18.1% increase in mountain bike products for the year ended December 31, 2015 compared to theprior year.The increase in sales of powered vehicle products was primarily due to the acquisition of Sport Truck, partially offset by decreases due to a temporary decline insales to one of our key power vehicle customers in 2015 due to model year change over. The increase in bike product sales was primarily attributable to theinclusion of Race Face/Easton's sales.Cost of sales(in millions)2015 2014 Change ($)Change (%)Cost of sales$254.8 $212.3 $42.520.0%Cost of sales for the year ended December 31, 2015 increased approximately $42.5 million, or 20.0%, compared to the year ended December 31, 2014. Theincrease in cost of sales was driven primarily by an increase in product sales, as well as certain business factors affecting gross margin which are discussed below.For the year ended December 31, 2015 our gross margin was 30.5% compared to 30.8% for 2014. The slight decline in our gross margin was attributable primarilyto costs incurred in the first quarter of 2015 related to the West Coast port slowdown and excess inventory write-downs associated with the strategic alignment ofFox products with a newly acquired product line in the fourth quarter of 2015.Operating expenses40Table of Contents(in millions)2015 2014 Change ($)Change (%)Operating expenses: Sales and marketing$23.2 $19.2 $4.020.8%Research and development17.0 13.6 3.425.0%General and administrative21.1 17.7 3.419.2%Amortization of purchased intangibles8.5 6.4 2.132.8%Fair value adjustment of contingent consideration andacquisition related compensation6.9 2.9 4.0137.9%Total operating expenses$76.7 $59.8 $16.928.3%Total operating expenses for the year ended December 31, 2015 increased approximately $16.9 million, or 28.3% over 2014. When expressed as a percentage ofsales, operating expenses increased to 20.8% of sales for the year ended December 31, 2015 compared to 19.5% of sales in 2014. Approximately $14.1 million ofthe increase was due to the inclusion of Race Face/Easton's operating expenses which includes $6.9 million in higher acquisition related compensation. Theremainder of the increase was largely due to our expanding global infrastructure and investments in our mountain bike and power vehicle product lines aimed atnew products and technologies to maintain our premium position in the marketplace and pursue new markets.Within operating expenses, our sales and marketing expense increases were primarily due to the inclusion of $3.0 million of Sport Truck's and Race Face/Easton'sexpenses, with the balance attributable primarily to increases in race support, events, and sponsorships to promote our brand. Our research and developmentexpense increased in the year ended December 31, 2015 due to $1.5 million of expense incurred at Sport Truck and Race Face/Easton, as well as investments of$1.5 million in research and development for our existing mountain bike and power vehicle product lines. Our general and administrative expense increased in theyear ended December 31, 2015 by $3.4 million compared to the previous year due to $2.5 million of expense incurred at Sport Truck and Race Face/Easton, $1.7million in payroll and related expenses to support our global growth, $0.6 million in higher stock compensation expense, $0.5 million related to our ERP initiative,and nominal increases in various other general administrative expenses. The aforementioned increases were partially offset by reductions of $1.1 million and $0.2million in acquisition costs and offering expenses, respectively.Amortization of purchased intangible assets in the year ended December 31, 2015 increased approximately $2.1 million, primarily as a result of the acquisition ofSport Truck and Race Face/Easton.During the year ended December 31, 2015, acquisition related compensation expense increased by $4.0 million, which consists of $7.0 million in highermanagement earn-outs primarily related to Race Face/Easton, partially offset by $3.0 million reduction in the fair value of our contingent consideration liabilitywhich arose from the acquisition of Sport Truck. Income from operations(in millions)2015 2014 Change ($)Change (%)Income from operations$35.3 $34.6 $0.72.0%As a result of the factors discussed above, income from operations for the year ended December 31, 2015 increased approximately $0.7 million, or 2.0% comparedto income from operations in the same period in 2014.Other expense, net(in millions)2015 2014 Change ($)Change (%)Other expense, net: Interest expense$1.5 $1.0 $0.550.0 %Other expense (income), net(0.4) (0.7) 0.3(42.9)%Other expense, net$1.1 $0.3 $0.8266.7 %Other expense, net for the year ended December 31, 2015 increased by approximately $0.8 million to $1.1 million compared to $0.3 million in the same period in2014. Within other expense, net, interest expense increased for the year ended December 31, 2015 by $0.5 million due to higher average debt balances as comparedto the previous year. Other income, net for the year ended December 31, 2015 increased $0.3 million primarily due to a gain on bargain purchase arising from anasset purchase in the fourth quarter of 2015.Income tax expense41Table of Contents(in millions)2015 2014 Change ($)Change (%)Income tax expenses$9.3 $6.6 $2.740.9%Income tax expense for the year ended December 31, 2015 increased by approximately $2.7 million to $9.3 million compared to income tax expense of $6.6million in the same period in 2014. The increase in expense resulted primarily from a nonrecurring reapportionment benefit of $4.1 million recognized in 2014.The effective tax rates were 27.1% and 19.3% for the years ended December 31, 2015 and 2014, respectively.Net income(in millions)2015 2014 Change ($)Change (%)Net income$25.0 $27.7 $(2.7)(9.7)%As a result of the factors described above, our net income decreased $2.7 million, or 9.7%, to $25.0 million in the year ended December 31, 2015 from $27.7million for the same period in 2014.Liquidity and Capital ResourcesOur primary cash needs are to support working capital, capital expenditures, acquisitions and acquisition-related compensation, debt repayments and sharerepurchases. We have generally financed our historical needs with operating cash flows and borrowings under our credit facilities. These sources of liquidity maybe impacted by various factors, including demand for our products, investments made by us in acquired businesses, our plant and equipment and other capitalexpenditures, 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 years ended December 30, December 31, December 31,(in thousands)2016 2015 2014Net cash provided by operating activities$38,845 $30,022 $32,905Net cash used in investing activities(12,222) (13,163) (76,829)Net cash provided by (used in) financing activities1,830 (14,052) 46,731Effect of exchange rate changes on cash(117) (75) (278)Increase in cash and cash equivalents$28,336 $2,732 $2,52942Table of ContentsWe expect that cash on hand, cash flow from operations and availability under our credit facilities will be sufficient to fund our operations during the next 12months from the date of this Annual Report.Operating activitiesCash provided by operating activities primarily consists of net income, adjusted for certain non-cash items primarily, depreciation and amortization, stock-basedcompensation including related excess tax benefits, deferred income taxes, and changes in fair value of contingent consideration, offset by net cash invested inworking capital.In the year ended December 30, 2016 , cash provided by operating activities was $38.8 million and consisted of net income of $35.7 million plus non-cash itemstotaling $12.3 million less changes in operating assets and liabilities and other adjustments totaling $9.1 million . Non-cash items and other adjustments consistedprimarily of depreciation and amortization of $8.8 million , and stock-based compensation of $6.2 million , offset by a $3.0 million change in deferred taxes. Cashinvested in operating assets and liabilities is primarily the result of increases in accounts receivable of $17.9 million , inventory of $3.0 million , and prepaids andother assets of $2.1 million , partially offset by increases in accounts payable of $9.6 million , accrued expenses of $2.9 million , and income taxes net payable of$1.5 million . The increase in accounts receivable, inventory, accounts payable and accrued expenses reflects the growth of our business, change in customer mix,and the expansion of our manufacturing facilities. The increase in prepaid and other assets is a result of advanced payments to vendors and the timing of insuranceand benefits payments. The change in net current income tax accounts is primarily due to timing of estimated tax payments and refunds.In the year ended December 31, 2015, cash provided by operating activities was $30.0 million and consisted of net income of $25.0 million plus non-cash itemstotaling $13.1 million less changes in operating assets and liabilities and other adjustments totaling $8.1 million. Non-cash items and other adjustments consistedprimarily of depreciation and amortization of $13.1 million, stock-based compensation of $4.9 million, and cost of goods on acquired inventory step up of $0.8million, offset by a $4.4 million change in deferred taxes and change in fair value of contingent consideration of $0.7 million. Cash invested in operating assets andliabilities is primarily the result of increases in inventory of $11.1 million, accounts receivable of $5.5 million, income taxes of $2.4 million, and prepaids and otherassets of $1.9 million, partially offset by an increase in accrued expenses of $10.7 million and accounts payable of $2.1 million. The increase in inventory andaccounts receivable reflects the growth of our business and the expansion of our manufacturing facilities. Changes in prepaid and other assets and income taxes areprimarily due to timing of tax related payments and refunds. The increase in accrued expenses is attributable to accruals for management earn-outs and othercompensation.In the year ended December 31, 2014, cash provided by operating activities was $32.9 million and consisted of net income of $27.7 million plus non-cash itemstotaling $7.1 million less changes in operating assets and liabilities and other adjustments totaling $1.9 million. Non-cash items and other adjustments consistedprimarily of depreciation and amortization of $9.7 million, stock-based compensation of $4.0 million, and change in fair value of contingent consideration of $2.2million, offset by a $5.4 million change in deferred taxes, an excess tax benefit from the exercise of stock options of $2.7 million, and tax benefit from equityissuance costs of $1.0 million. Cash invested in operating assets and liabilities is primarily the result of increases in prepaids and other assets of $3.0 million andinventory of $1.2 million and a decrease in accrued expenses of $0.8 million, partially offset by an increase in income taxes and accounts payable of $2.6 millionand $1.4 million, respectively.Investing activitiesCash used in investing activities primarily relates to strategic acquisitions of businesses and other assets, and investments in our manufacturing and generalinfrastructure through the acquisition of property and equipment.In the year ended December 30, 2016 , cash used in investing activities was $12.2 million which consisted primarily of $12.0 million in property and equipmentadditions. Additionally, we invested $0.2 million in acquisitions.In the year ended December 31, 2015, cash used in investing activities was $13.2 million which consisted primarily of $10.9 million in property and equipmentadditions. Additionally, we invested $2.4 million in acquisitions.In the year ended December 31, 2014, cash used in investing activities was $76.8 million, which consisted primarily of $70.9 million in cash consideration paid forthe acquisitions of Sport Truck and Race Face/Easton. Additionally, we invested $4.6 million in property and equipment.Financing activitiesCash used in or provided by financing activities primarily relates to changes in our capital structure, including the various forms of debt and equity instrumentsused to finance our business.43Table of ContentsIn the year ended December 30, 2016 , net cash provided by financing activities was $1.8 million , which consisted primarily of $17.7 million in net proceeds fromour credit facility, partially offset by $7.9 million to repurchase our common stock under a buyback plan authorized in 2016, a payment of $6.9 million incontingent consideration related to our 2014 acquisition of Sport Truck, and $1.0 million in payments to repurchase shares to cover tax withholding related to thevesting of restricted stock awards, net of proceeds from the exercise of stock options.In the year ended December 31, 2015, net cash used in financing activities was $14.1 million, which consisted primarily of a payment of $7.9 million in contingentconsideration related to our 2014 acquisition of Sport Truck and $5.2 million to repurchase our common stock under a buyback program authorized in 2014.In the year ended December 31, 2014, net cash provided by financing activities was $46.7 million, which consisted primarily of proceeds from issuance of termdebt of $79.6 million net of origination fees, partially offset by repayments of $30.0 million on term debt and net repayments of $8.0 million on revolving credit,respectively, all under the 2013 Amended and Restated Credit Facility. Additionally, $4.8 million was provided by the exercise of stock options.Second Amended and Restated 2013 Credit FacilityIn August 2013, we entered into the 2013 Credit Facility with Sun Trust Bank and other named lenders. The 2013 Credit Facility provided a revolving line ofcredit. On March 31, 2014, in connection with our asset purchase of Sport Truck, we amended and restated the 2013 Credit Facility. The Amended and Restated2013 Credit Facility provided a maturing secured Term Loan in the principal amount of $50.0 million , subject to quarterly amortization payments, and extendedthe term of the 2013 Credit Facility through March 31, 2019. The proceeds of the Term Loan were used, in part, to fund the acquisition of Sport Truck and to paydown the revolving line of credit provided under the 2013 Credit Facility. On December 12, 2014, we amended the existing Amended and Restated 2013 CreditFacility. The First Amendment increased the Term Loan by the principal amount of $30.0 million to a total of $56.8 million, subject to quarterly amortizationpayments, and extend the maturity of the Amended and Restated 2013 Credit Facility through December 12, 2019. The additional proceeds of the Term Loan madeavailable through the First Amendment were used to partially fund the acquisition of Race Face/Easton. Additional amendments entered into on May 29, 2015 andMarch 31, 2016 respectively, made minor technical changes to the Amended and Restated 2013 Credit Facility. On May 11, 2016, we amended and restated theexisting Amended and Restated 2013 Credit Facility. A further technical amendment was made on August 11, 2016. The Second Amended and Restated CreditFacility provided a maturing secured Term Loan in the principal amount by of $75.0 million, subject to quarterly amortization payments, increased the availabilityon the line of credit to $100.0 million, and extended the maturity of the Second Amended and Restated Credit Facility through May 11, 2021.In the year ended December 30, 2016 , we made principal payments of $8.5 million on the Term Loan. The Second Amended and Restated Credit Facility issecured by substantially all of our assets, restricts our ability to make certain payments and engage in certain transactions, and also requires that we satisfycustomary financial ratios, including a fixed charge coverage ratio of not less than 1.5:1.0 and a leverage ratio of not greater than 3.0:1.0, both ratios calculated asdefined in the Second Amended and Restated Credit Facility. We were in compliance with the covenants as of December 30, 2016 .Contractual obligations and commitmentsAs of December 30, 2016 , we had the following contractual obligations (in thousands):Payments due by periodTotal Less than 1year 1-3 years 4-5 years After 5 yearsLong-term borrowings$67,187 $3,750 $10,781 $52,656 $—Operating lease obligations16,796 4,899 10,915 982 —Management earn out payments13,329 13,329 — — —Purchase obligations and other2,641 2,361 280 — —Total$99,953 $24,339 $21,976 $53,638 $—The table above includes management earn-out payments associated with our acquisition of Race Face/Easton and Sport Truck. See Note 12 - Fair ValueMeasurements and Note 15 - Acquisitions in our Notes to Consolidated Financial Statements.As of December 30, 2016 , we had a liability of approximately $7.2 million associated with uncertain tax positions, which is classified as a current liability in ourconsolidated balance sheet because it is reasonably possible that certain federal, foreign, and state tax matters could be concluded in the next twelve months.However, our liability for uncertain tax positions has been excluded from our summary of contractual obligations as we cannot make a reliable estimate of theperiod of cash settlement with the respective taxing authorities, nor the amount of the final cash settlement. See Note 11 - Income Taxes in our Notes toConsolidated Financial Statements.44Table of ContentsSeasonalityCertain portions of our business are seasonal. In two of the last three fiscal years, our quarterly sales have been the lowest in the first quarter and the highest duringour third quarter of the year. We believe this seasonality is due to productions cycles of our OEM customers driven by consumer peak purchasing patterns.Off-Balance Sheet ArrangementsWe have no material off-balance sheet arrangements.InflationHistorically, inflation has not had a material effect on our results of operations. However, significant increases in inflation, particularly those related to wages andincreases in the cost of raw materials could have an adverse impact on our business, financial condition and results of operations.Critical Accounting Policies and EstimatesOur consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to makeestimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures. We evaluate our estimates,judgments, and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonableunder the circumstances. Our actual results could differ from these estimates.We believe that the assumptions, judgments, and estimates associated with the following have the greatest potential impact on, and are critical to the understandingof, our results of operations: revenue recognition, provision for doubtful accounts receivable, inventory, goodwill and intangible assets, earn-out arrangements,warranty, income taxes and stock-based compensation. For further information see Note 1 - Description of Business, Basis of Presentation and Summary ofSignificant Accounting Policies of the accompanying notes to our Consolidated Financial Statements.We are an "emerging growth company" within the meaning of the rules under the Securities Act, and we will utilize certain exemptions from various reportingrequirements that are applicable to public companies that are not emerging growth companies. For example, we do not have to provide an auditor’s attestationreport on our internal controls in our annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act. In addition, Section 107 ofthe JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act forcomplying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until thosestandards would otherwise apply to private companies. We have irrevocably elected to opt out of the extended transition period for complying with new or revisedaccounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates onwhich adoption of such standards is required for non-emerging growth companies.Critical Accounting PoliciesRevenue recognitionWe recognize sales when persuasive evidence of an arrangement exists, title has transferred, the sales price is fixed or determinable, and collectability of thereceivable is reasonably assured. Provisions for discounts, rebates, sales incentives, returns, and other adjustments are provided for in the period the related salesare recorded based on management’s assessment of historical trends and projection of future results. Sales are recorded net of sales tax.Allowance for doubtful accountsWe record a provision for doubtful accounts deemed not collectable based on historical experience and a detailed assessment of the collectability of our accountsreceivable. In estimating the allowance for doubtful accounts, we consider, among other factors, the aging of the accounts receivable, historical write-offs, and thecredit-worthiness of each customer. If circumstances change, such as higher-than-expected defaults or an unexpected material adverse change in a majorcustomer’s ability to meet its financial obligations, we estimate if the recoverability of the amounts due could be reduced by a material amount.Inventories45Table of ContentsInventories are stated at the lower of actual cost (or standard cost which generally approximates actual costs on a first-in first-out basis) or market value. Costincludes raw materials, as well as direct labor and manufacturing overhead for products we manufacture. Market value is based on current replacement cost for rawmaterials and on a net realizable value for finished goods. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimatedexcess, obsolete or impaired balances.We regularly monitor inventory quantities on hand and on order and record write-downs for excess and obsolete inventories based on our estimate of the demandfor our products, potential obsolescence of technology, product life cycles, and when pricing trends or forecasts indicate that the carrying value of inventoryexceeds our estimated selling price. These factors are affected by market and economic conditions, technology changes, and new product introductions and requireestimates that may include elements that are uncertain. Actual demand may differ from forecasted demand and may have a material effect on our gross margin. Ifinventory is written down, a new cost basis will be established that cannot be increased in future periods.Goodwill, intangible assets and long-lived assetsGoodwillGoodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. Annually, we either make a qualitative assessmentprior to proceeding to step one of the annual goodwill impairment test or perform a two-step impairment test. If we make a qualitative assessment and determinethat the fair value of the reporting unit is less than its carrying amount, we would perform step one of the annual goodwill impairment test and, if necessary,proceed to step two. Otherwise, no further evaluation is necessary. For the two-step impairment test, in the first step, we compare the fair value of the reporting unitto its carrying value, including goodwill. We determine the fair value of the reporting unit based on a weighting of income and market approaches. If the fair valueof the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and no further testing is performed. If the carryingvalue of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we perform the second step of the impairment test in order todetermine the implied fair value of the reporting unit’s goodwill. Impairments, if any, are charged directly to earnings. We completed our most recent annualimpairment test in the third quarter of 2016 at which time we had a single reporting unit for purposes of assessing goodwill impairment. No impairment chargeshave been incurred to date.Indefinite-lived intangible assetsTrademarks are considered to be indefinite life intangibles, and are not amortized but are subject to testing for impairment annually.Finite-lived intangible assetsWe assess the impairment of identifiable finite-lived intangible assets whenever events or changes in circumstances indicate that an asset group’s carrying amountmay not be recoverable. Recoverability of certain finite-lived intangible assets, particularly customer relationships and core technology, would be measured by acomparison of the carrying amount of the asset group to which the assets are assigned to the sum of the undiscounted estimated future cash flows the asset group isexpected to generate. If the asset is considered to be impaired, the amount of such impairment would be measured by the difference between the carrying amountof the asset and its fair value. Recoverability and impairment of other finite-lived intangible assets, particularly developed technology and patents, would bemeasured by the comparison of the carrying amount of the asset to the sum of undiscounted estimated future product revenues offset by estimated future costs todispose of the product to which the asset relates. No impairment charges have been incurred to date.WarrantyUnless otherwise required by law, we generally provide limited warranties on our products for one to two years. We accrue estimated costs related to warrantyactivities as a component of cost of sales upon product shipment or when information becomes available indicating that an adjustment to the warranty reserves isappropriate. Management estimates are based upon historical and projected product failure rates and historical costs incurred in correcting product failures. Thewarranty reserve is assessed from time to time for adequacy and adjusted as necessary for specifically identified warranty exposures. Actual warranty expenses arecharged against our estimated warranty liability when incurred. Factors that affect our liability include the number of units, historical and anticipated rates ofwarranty claims, and the cost per claim. An increase in warranty claims or the related costs associated with satisfying these warranty obligations could increase ourcost of sales and negatively affect our operating results.Income taxesWe record our income tax expenses or benefits in each federal, state and foreign jurisdiction in which we operate using an asset and liability approach. This processrequires that we compute the current tax expense or benefit and deferred tax expense or benefit, which result from changes in temporary differences between theaccounting and tax treatment of assets and liabilities, including items such as accruals and allowances, which are recorded in different periods for financialstatement and income tax return46Table of Contentspurposes. The income tax effects of these differences we identify are classified as long-term deferred tax assets and liabilities in our consolidated balance sheets.Our provision for income tax expense also considers our assertions regarding the indefinite reinvestment of earnings of our foreign subsidiaries. We consider thefollowing matters, among others, in evaluating our plans for indefinite reinvestment: (i) the financial requirements of both the Company and its foreign operations,both for the long term and for the short term; (ii) the ability to manage cash globally through royalty remittances and intercompany loans; (iii) the tax consequencesof any decision to reinvest the earnings of foreign subsidiaries, including any changes in US tax law relating to the treatment of these unremitted earnings; and (iv)any US and foreign government programs or regulations relating to the repatriation of these unremitted earnings. If unremitted earnings are no longer permanentlyreinvested, we would need to adjust the income tax provision in the period we make such determination, which could have a material impact on our results ofoperations.Additionally, our judgments, assumptions, and estimates relative to the provision for income taxes take into account enacted tax laws, our interpretation of enactedtax laws, and possible outcomes of current and future audits conducted by tax authorities. Changes in tax laws or our interpretation of tax laws and the resolution ofcurrent and future tax audits could significantly impact the amounts provided for income taxes in our consolidated balance sheets and consolidated statements ofincome. Interest and penalties associated with income taxes are recorded as income tax expense in our consolidated statements of income.We account for uncertain tax positions on a two-step approach to recognize and measure those positions taken or expected to be taken in a tax return. The first stepis to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit, including resolution ofany related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized uponultimate settlement. We adjust liabilities for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, expiration of astatute of limitations for assessment of income tax, the refinement of estimates, or the realization of earnings or deductions that differ from our estimates. To theextent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our consolidated statementsof income in the period in which such determination is made.We must also assess the likelihood that deferred tax assets will be realized from future taxable income and, based on this assessment establish a valuationallowance, if required. The determination of our valuation allowance involves assumptions, judgments, and estimates, including forecasted earnings, future taxableincome of a character necessary to realize the deferred asset, and the relative proportions of revenue and income before taxes in the various domestic andinternational jurisdictions in which we operate. To the extent we establish a valuation allowance or change the valuation allowance in a period, we reflect thechange with a corresponding increase or decrease of our income tax provision in our consolidated statements of income.Stock-based compensationThe Company measures stock-based compensation for all stock-based awards, including stock options and restricted stock units ("RSUs"), based on their estimatedfair values on the date of the grant and recognizes the stock-based compensation cost for time-vested awards on a straight-line basis over the requisite serviceperiod. For performance-based RSUs, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectationsregarding the relevant performance criteria. To the extent shares are expected to vest, the stock-based compensation cost is recognized on a straight-line basis overthe requisite service period. The fair value of each stock option granted is estimated using the Black-Scholes option pricing model, net of estimated forfeitures.The determination of the grant date fair value of options using an option pricing model is affected by our common stock fair value as well as assumptions includingour expected stock price volatility over the expected term of the options, stock option exercise and cancellation behaviors, risk-free interest rates and expecteddividends.Prior to our IPO in August of 2013, our board of directors considered numerous objective and subjective factors to determine the fair market value of our commonstock at each meeting at which stock options were granted and approved.Stock-based compensation expenses are classified in the statements of income based on the department to which the related employee reports. Our stock-basedawards subsequent to our IPO have been comprised principally of restricted stock unit awards.Fair value of financial instrumentsASC 820, Fair Value Measurements and Disclosures , requires the valuation of assets and liabilities required or permitted to be either recorded or disclosed at fairvalue based on hierarchy of available inputs as follows:Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;47Table of ContentsLevel 2: Quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, orinputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;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 orno market activity).We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in thefinancial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to berecorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptionsthat market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk.As of December 30, 2016 , we used Level 2 inputs to determine the fair value of our Second Amended and Restated 2013 Credit Facility because it has a variableinterest rate that reflects market changes in interest rates and changes in the Company’s net leverage ratio. We measured our contingent consideration liabilityarising from our acquisition of Sport Truck using Level 3 unobservable inputs. The fair value of the contingent consideration liability associated with theachievement of adjusted EBITDA targets is estimated at each balance sheet date by considering actual results for completed measurement periods or applying aBlack-Scholes model to our most recent financial projection. The unobservable inputs to the valuation model that have the most significant effect on the estimatedfair value of our contingent consideration liability are the projected results, the probabilities that actual results will exceed the projection and the volatilitysurrounding the expected results. Changes in estimatesIn the second quarter of 2014, we concluded an analysis of legal developments and business practices relative to the apportionment of income for state tax purposesthat resulted in a change in estimate regarding income taxes. As a result, we recorded a discrete tax benefit in the year ended December 31, 2014 of $4.1 million ,or $0.11 per basic and fully diluted share, related to the reapportionment of 2009 to 2013 income amongst the jurisdictions where the Company does business.48Table of ContentsRecent Accounting PronouncementsRevenue from Contracts with CustomersIn May 2014, the FASB and International Accounting Standards Board issued their converged standard on revenue recognition, Accounting Standards Update No.2014-09, Revenue from Contracts with Customers, updated in December 2016 with the release of ASU 2016-20. This standard outlines a single comprehensivemodel for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, includingindustry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service in anamount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. A customer obtains control when it hasthe ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it isconsidered in current guidance. The Company will also need to apply new guidance to determine whether revenue should be recognized over time or at a point intime. In addition, the new standard requires that reporting companies disclose the nature, amount, timing and uncertainty of revenue and cash flows arising fromcontracts with customers. This standard will be effective for fiscal years, and interim periods within those years, beginning the first quarter of fiscal 2018. TheCompany can choose to apply this standard retrospectively for each prior reporting period presented or retrospectively with the cumulative effect of initiallyapplying the standard recognized at the date of the initial application in retained earnings. The Company has not yet selected a transition method nor have wedetermined the impact of the new standard on our consolidated financial statements.In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires the presentation of debt issuance costsin the balance sheet as a reduction from the related debt liability rather than as an asset. Amortization of such costs will continue to be reported as interestexpense. The Company adopted ASU 2015-03 effective January 1, 2016 on a retrospective basis. As a result, debt issuance costs of $781 have been reclassifiedfrom other assets to long-term debt in the December 31, 2015 consolidated balance sheet.In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The guidance applies to inventory that is measured using first-in, first-out (“FIFO”) or average cost. Under the guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is theestimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This standard will beeffective for fiscal years, and interim periods within those years, beginning the first quarter of fiscal 2017. The Company does not expect this guidance to have asignificant impact on its consolidated financial statements.In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede the existing guidance for lease accounting. This ASU will require lessees torecognize leases with durations greater than twelve months on the balance sheet. This standard will be effective for fiscal years, and interim periods within thoseyears, beginning the first quarter of fiscal 2019. Early adoption is permitted. The Company is currently assessing the impact this guidance will have on itsconsolidated financial statements.In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which modifies the accounting for certain aspectsof share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest orare settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for taxwithholding purposes without triggering liability accounting. The Company early adopted the guidance effective January 1, 2016. As provided in the guidance, theCompany made a policy election to account for forfeitures as they occur rather than on an estimated basis. The policy election and amendments related to thetiming of when excess tax benefits are recognized and their recognition in the income tax provision were applied utilizing the modified retrospective transitionmethod. The impact of the forfeiture policy election on the results of operations and opening equity was immaterial. The Company elected to adopt theamendments related to the presentation of excess tax benefits on the statement of cash flows using a prospective transition method.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies thepresentation of certain transactions, including but not limited to contingent consideration payments made after a business combination and debt prepayment andextinguishment costs in the cash flow statement. This standard will be effective for fiscal years, and interim periods within those years, beginning the first quarterof 2019. Early adoption is permitted. The Company is currently assessing the impact this guidance will have on its consolidated statement of cash flows.In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfer of Assets Other Than Inventory, which improves the accounting for theincome tax consequences of intra-entity transfers of assets other than inventory. This standard will be effective for fiscal years, and interim periods within thoseyears, beginning the first quarter of 2018. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.49Table of ContentsIn January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which provides more guidance to an entity whenthey are assessing if transactions should be accounted for as acquisitions of assets or businesses. The clarification of the definition of a business impacts variousareas of accounting such as acquisitions, disposals, goodwill, and consolidations. This standard will be effective for fiscal years, and interim periods within thoseyears, beginning the first quarter of 2018. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.Other accounting standards updates effective after December 30, 2016, are not expected to have a material effect on the Company’s financial position, results ofoperations or cash flows.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate sensitivityWe are exposed to market risk in the normal course of our business operations due to our ongoing investing and financing activities. The risk of loss can beassessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies and procedures governing ourmanagement of market risks and the use of financial instruments to manage exposure to such risks. We generally do not hedge our interest rate exposure. We had$66.7 million of debt, bearing interest at a variable rate, outstanding under our credit facilities as of December 30, 2016 . A hypothetical 100 basis point increase ordecrease in the interest rate on our variable debt would have resulted in an approximately $0.7 million change to our interest expense for the year endedDecember 30, 2016 .Exchange rate sensitivityAs of December 30, 2016 , we are exposed to changes in foreign currency exchange rates. While historically this exposure to changes in foreign currency exchangerates has not had a material effect on our financial condition or results of operations, foreign currency fluctuations could in the future have an adverse effect on ourbusiness and results of operations. Historically, our primary exposure has been related to transactions denominated in the Euro, New Taiwanese Dollar, andCanadian Dollar. The majority of our sales, both domestically and internationally, are denominated in U.S. Dollars. Historically, the majority of our expenses havealso been in U.S. Dollars and we have been somewhat insulated from currency fluctuations. As a growing percentage of our activities are expected to bedenominated in foreign currencies, we may be exposed to greater exchange rate sensitivity in the future. Currently, we do not hedge our foreign currency exposure,however we may consider strategies to mitigate our foreign currency exposure in the future if deemed necessary.Credit and other risksWe are exposed to credit risk associated with cash and cash equivalents and trade receivables. As of December 30, 2016 , the majority of our cash and cashequivalents consisted of cash balances in non-interest bearing checking accounts which significantly exceed the insurance coverage provided on such deposits. Wedo not believe that our cash equivalents present significant credit risks because the counterparties to the instruments consist of major financial institutions.Substantially all trade receivable balances of our businesses are unsecured. The credit risk with respect to trade receivables is concentrated by the number ofsignificant customers that we have in our customer base and a prolonged economic downturn could increase our exposure to credit risk on our trade receivables.We perform ongoing credit evaluations of our customers and maintain an allowance for potential credit losses.We do not currently hedge our exposure to increases in the prices for our primary raw materials.ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAOur financial statements and the report of our independent registered public accounting firm are included in this Annual Report beginning on page 58. The index tothese reports and our financial statements is included in Part IV, Item 15 below.ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.50Table of ContentsITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe maintain "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within thetime periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensurethat information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to thecompany’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.Our management, under the direction and with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of ourdisclosure controls and procedures as of December 30, 2016 . Based on the evaluation of our disclosure controls and procedures as of December 30, 2016 , ourChief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonableassurance level.Management’s Report on Internal Control Over Financial ReportingThe "Management’s Report on Internal Control over Financial Reporting" is contained on page 57 of this Annual Report on Form 10-K and is incorporated hereinby reference.Attestation Report of Independent Registered Public Accounting FirmBecause we are an "emerging growth company" as defined in the JOBS Act, we are not currently required to comply with the auditor attestation requirementsrelated to internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. A "Report of Independent Registered Public AccountingFirm" is contained on page 58 of this Annual Report on Form 10-K.Changes in Internal Control over Financial ReportingThere was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) identified in connectionwith the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended December 30, 2016 that hasmaterially affected, or is reasonably likely to materially affect, our internal control over financial reporting.Inherent Limitations on Effectiveness of ControlsOur management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control overfinancial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, ourmanagement does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matterhow well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of acontrol system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of theinherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have beendetected. These inherent limitations include, but are not limited to, the realities that judgments in decision making can be faulty, and that breakdowns can occurbecause of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or bymanagement override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, andthere can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may becomeinadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occur and not be detected.ITEM 9B. OTHER INFORMATION.None.51Table of ContentsPART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEInformation required by this Item regarding our directors and executive officers is incorporated by reference to the sections of our proxy statement to be filed withthe SEC in connection with our 2016 annual meeting of stockholders (the "Proxy Statement") entitled "Election of Class III Directors" and "CorporateGovernance."Information required by this Item regarding our corporate governance, including our audit committee and code of business conduct and ethics, is incorporated byreference to the sections of the Proxy Statement entitled "Corporate Governance" and "Board of Directors."Information required by this Item regarding compliance with Section 16(a) of the Exchange Act required by this Item is incorporated by reference to the section ofthe Proxy Statement entitled "Section 16(a) Beneficial Ownership Reporting Compliance."ITEM 11. EXECUTIVE COMPENSATIONInformation required by this item regarding executive compensation is incorporated by reference to the information set forth under the captions "ExecutiveCompensation," "Director Compensation" and "Corporate Governance" in our Proxy Statement.ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSInformation regarding security ownership of certain beneficial owners and management is incorporated by reference to the section of the Proxy Statement entitled"Security Ownership of Certain Beneficial Owners and Management."Information required by this item regarding securities authorized for issuance under our equity compensation plans is incorporated by reference to the informationset forth under the caption "Executive Compensation" in our Proxy Statement.ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCEInformation required by this Item is incorporated by reference to the sections of the Proxy Statement entitled "Certain Relationships and Related Party Transactionsand Director Independence."ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESInformation required by this Item is incorporated by reference to the section of the Proxy Statement entitled "Ratification of Appointment of IndependentRegistered Public Accounting Firm."PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a)(1) Financial Statements Management’s Report on Internal Control Over Financial Reporting57Report of Independent Registered Public Accounting Firm58Consolidated Balance Sheets at December 30, 2016 and December 31, 201559Consolidated Statements of Income for the years ended December 30, 2016, December 31, 2015 and December 31,201460Consolidated Statements of Comprehensive Income for the years ended December 30, 2016, December 31, 2015 and December 31,201461Consolidated Statements of Stockholders' Equity for the years ended December 30, 2016, December 31, 2015 and December 31,201462Consolidated Statements of Cash Flows for the years ended December 30, 2016, December 31, 2015 and December 31,201463Notes to Consolidated Financial Statements65 (2) Exhibits See " Index to Exhibits "5452Table of ContentsSIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized. FOX FACTORY HOLDING CORP. By:/s/ Zvi GlasmanMarch 1, 2017 Zvi Glasman, Chief Financial Officer (Principal Financial and Accounting Officer & DulyAuthorized Signatory)POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Zvi Glasman and Larry L. Enterline,and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name in any and allcapacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connectiontherewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do andperform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might or could do in person,hereby ratifying and confirming all that said attorneys-in-fact and agents, and either of them, his or her substitute or substitutes, may lawfully do or cause to bedone by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the dates indicated.Signature Title Date /s/ Larry L. Enterline Chief Executive Officer and Director March 1, 2017Larry L. Enterline ( Principal Executive Officer ) /s/ Zvi Glasman Chief Financial Officer March 1, 2017Zvi Glasman ( Principal Financial and Accounting Officer) /s/ Elias Sabo Chairman March 1, 2017Elias Sabo /s/ Robert C. Fox, Jr. Director March 1, 2017Robert C. Fox, Jr. /s/ Dudley Mendenhall Director March 1, 2017Dudley Mendenhall /s/ Carl Nichols Director March 1, 2017Carl Nichols /s/ Ted Waitman Director March 1, 2017Ted Waitman 53Table of ContentsIndex to Exhibits Incorporated by Reference Exhibit NumberExhibit DescriptionFormFile No.Filing DateFiledHerewith 3.1Amended and Restated Certificate of Incorporation10-Q001-36040September 19,20133.2Amended and Restated Bylaws10-Q001-36040September 19,20134.1Form of Common Stock Certificate.S-1333-189841July 8, 20134.2Amended and Restated Registration Rights Agreement,dated May 12, 2013, by and among Fox Factory HoldingCorp., Compass Group Diversified Holdings LLC, MadisonCapital Funding Co-Investment Fund LP and certain otherstockholders listed on the signature page thereto.S-1333-189841July 8, 20134.3Form of Indenture dated March 31, 2015S-3333-203146March 31,2015 10.1†Employment Agreement, dated July 22, 2013, by andbetween Fox Factory Holding Corp. and Larry L. Enterline.S-1333-189841July 25, 2013 10.2†Employment Agreement, dated July 22, 2013, by andbetween Fox Factory Holding Corp. and Zvi Glasman.S-1333-189841July 25, 2013 10.3†Employment Agreement, dated February 20, 2014, by andbetween Fox Factory Holding Corp. and Bill Katherman.8-K/A001-36040June 17, 2014 10.4†Employment Agreement, dated July 22, 2013, by andbetween Fox Factory Holding Corp. and Wes Allinger 10-Q001-36040May 4, 2016 10.5†Employment Agreement, dated January 26, 2015, by andbetween Fox Factory Holding Corp. and Tom Wittenschlaeger 10-Q001-36040May 4, 2016 10.6†Amendment, dated May 2, 2016, to the EmploymentAgreement, dated July 22, 2013, by and between FoxFactory Holding Corp. and Larry Enterline 10-Q001-36040August 3,2016 10.7†Amendment, dated May 2, 2016, to the EmploymentAgreement, dated July 22, 2013, by and between FoxFactory Holding Corp. and Zvi Glasman 10-Q001-36040August 3,2016 10.8†Amendment, dated May 2, 2016, to the EmploymentAgreement, dated February 20, 2014, by and between FoxFactory Holding Corp. and Bill Katherman 10-Q001-36040August 3,2016 10.9†Amendment, dated May 2, 2016, to the EmploymentAgreement, dated August 29, 2013, by and between FoxFactory Holding Corp. and Wes Allinger 10-Q001-36040August 3,2016 10.10†Amendment, dated May 2, 2016, to the EmploymentAgreement, dated January 26, 2015, by and between FoxFactory Holding Corp. and Tom Wittenschlaeger 10-Q001-36040August 3,2016 54Table of Contents 10.11†Amendment, dated October 19, 2016, to the EmploymentAgreement, dated February 20, 2014, by and between Fox Factory Holding Corp. and BillKatherman 8-K001-36040October 25,2016 10.12†Information Sharing and Cooperation Agreement datedAugust 13, 2013 by and between Compass DiversifiedHoldings, on its behalf and on behalf of its wholly-ownedsubsidiary, Compass Group Diversified Holdings LLC,and Fox Factory Holding Corp., on its behalf and on behalfof its wholly-owned subsidiary, Fox Factory, Inc.10-Q001-36040November6, 2013 10.13†Non-Employee Director Compensation Policy.S-1333-189841July 25,2013 10.14†Form of Indemnification Agreement between Fox FactoryHolding Corp. and certain of its directors and officers.S-1333-189841July 8, 2013 10.15†Form of Indemnification Agreement between Fox FactoryHolding Corp. and Elias Sabo and certain advisors.S-1333-189841July 8, 2013 10.16†2008 Stock Option Plan, as amended.S-1333-189841July 8, 2013 10.17†2008 Non-Statutory Stock Option Plan, as amended.S-1333-189841July 29,2013 10.18†2013 Omnibus Plan.S-1333-189841July 29,201310.19†Form of Restricted Stock Unit Award Agreement under2013 Omnibus Plan.S-1333-189841July 25,201310.20Air Commercial Real Estate Association StandardIndustrial / Commercial Single-Tenant Lease – Gross,dated October 31, 2011, by and between Fox Factory, Inc.and Sammie Rae Abitbol, LLC.S-1333-189841July 8, 201310.21Air Commercial Real Estate Association StandardIndustrial / Commercial Single-Tenant-Gross, March 24,2010, by and between Fox Factory, Inc. and ScarboroughGilbert Partners, and related addenda.S-1333-189841July 8, 201310.22Lease Agreement, dated July 1, 2003, by and between FoxFactory, Inc. and Robert C. Fox, Jr.S-1333-189841July 8, 201310.23Amendment dated May 2, 2016 to the Lease Agreement,dated July 1, 2003, by and between Fox Factory, Inc. and Robert C. Fox, Jr. 10-Q001-36040May 4, 201610.24Sublease, dated January 1, 2012, by and between FoxFactory, Inc. and Robert C. Fox, Jr., and relatedaddendum.S-1333-189841July 8, 201310.25Air Commercial Real Estate Association StandardIndustrial/Commercial Multi-Tenant Lease - Net, datedApril 19, 2012, by and between Fox Factory, Inc. andNorth Johnson Vernon Property, LLC, and relatedaddendum.S-1333-189841July 8, 201310.26Land and Factory Lease Agreement, dated April 2, 2012,by and among Fox Factory, Inc., Hong-Ming Lee, Zhi-Ming Lee, Qing-Yu Lee, Fu-Zhong Lu, Yu-Wei Lu andGuan-Lun Lu.S-1333-189841July 8, 201310.27Asset Purchase Agreement, by and between ST USAHolding Corp. and Sport Truck USA, Inc., dated March 5,2014.8-K001-36040March 6,201410.28Asset Purchase Agreement, by and between Fox Factory,Inc., RFE Holding (US) Corp., RFE Holding (Canada)Corp., Fox Factory IP Holding Corp., 1021039 B.C. Ltd.and Easton Cycling (USA), Inc. dated December 5, 2014.8-K001-36040December 8,201455Table of Contents10.28.1Side Letter Agreement to the Asset Purchase Agreement,by and between Fox Factory, Inc., RFE Holding (US)Corp., RFE Holding (Canada) Corp., Fox Factory IPHolding Corp., 1021039 B.C. Ltd. and Easton Cycling(USA), Inc.dated December 12, 2014. 8-K001-36040December 15,201410.28.2Second Amendment to Asset Purchase Agreement by andbetween Fox Factory, Inc., RFE Holding (US) Corp.,RFE Holding (Canada) Corp., Fox Factory IP HoldingCorp., 1021039 B.C. Ltd. and Easton Cycling (USA),Inc., dated November 13, 2015.10-Q001-36040November 16,201510.29Stock Repurchase Agreement, by and between FoxFactory Holding Corp., and Compass Group DiversifiedHoldings, LLC, dated March 9, 20168-K001-36040March 15,2016 10.30Second Amended and Restated Revolving Credit andTerm Loan Agreement, dated May 11, 20168-K001-36040May 16, 2016 10.30.1First Amendment to Second Amended and RestatedRevolving Credit and Term Loan Agreement, datedAugust 11, 201610-Q001-36040November 2,2016 21.1List of SubsidiariesX23.1Consent of Independent Registered Public AccountingFirmX24.1Power of Attorney (contained in signature page to thisAnnual Report on Form 10-K)X31.1Certification of Principal Executive Officer pursuant toRule 13a-14(a) and 15d-14(a) of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002, as amended.X31.2Certification of Principal Financial Officer pursuant toRule 13a-14(a) and 15d-14(a) of the Securities ExchangeAct of 1934, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002, as amended.X32.1*Certification of Principal Executive Officer pursuant to18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002, as amended.X32.2*Certification of Principal Financial Officer pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002, as amended.X101.INSXBRL Instance Document.X101.SCHXBRL Taxonomy Extension Schema.X101.CALXBRL Taxonomy Extension Calculation Linkbase.X101.DEFXBRL Taxonomy Extension Definition Linkbase.X101.LABXBRL Taxonomy Extension Label Linkbase.X101.PREXBRL Taxonomy Extension Presentation Linkbase.X† Management contract or compensatory plan.*In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management's Reports on InternalControl Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 hereto aredeemed to accompany this Form 10-K and will not be deemed "filed" for purposes of Section 18 of the Exchange Act. Such certifications will not bedeemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specificallyincorporates it by reference.56Table of ContentsManagement’s Report on Internal Control Over Financial ReportingThe management of Fox is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Fox’s internal controls over financial reporting is a process designed to provide reasonable assurances regarding the reliability offinancial reporting and the preparation and fair presentation of financial statements issued for external purposes in accordance with accounting principles generallyaccepted in the United States of America (US GAAP). Under the supervision of our management, including our Chief Executive Officer and Chief FinancialOfficer, Fox conducted an evaluation of the effectiveness of our internal controls over financial reporting.Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.In making its assessment of internal controls over financial reporting, management used criteria issued by the Committee of Sponsoring Organizations of theTreadway Commission (COSO) in Internal Control- Integrated Framework (2013). Based on the evaluation, our management concluded that its internal controlsover financial reporting were effective as of December 30, 2016 .March 1, 2017/s/ Larry L. EnterlineLarry L. Enterline /s/ Zvi GlasmanZvi Glasman57Table of ContentsReport of Independent Registered Public Accounting FirmTo the Board of Directors and Stockholders ofFox Factory Holding Corp.Scotts Valley, CaliforniaWe have audited the accompanying consolidated balance sheets of Fox Factory Holding Corp. (a Delaware corporation) and subsidiaries (the "Company") as ofDecember 30, 2016 and December 31, 2015 , and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows foreach of the three years in the period ended December 30, 2016 . These consolidated financial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’sinternal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fox Factory Holding Corp.and subsidiaries as of December 30, 2016 and December 31, 2015 , and the results of their operations and their cash flows for each of the three years in the periodended December 30, 2016 , in conformity with accounting principles generally accepted in the United States of America./s/ GRANT THORNTON LLPSan Francisco, CaliforniaMarch 1, 201758Table of ContentsFOX FACTORY HOLDING CORP.Consolidated Balance Sheets(in thousands, except par value) December 30, December 31, 2016 2015 Assets Current assets: Cash and cash equivalents$35,280 $6,944Accounts receivable (net of allowances of $397 and $407 at December 30, 2016 and December 31, 2015,respectively)61,617 43,660Inventory71,243 68,202Prepaids and other current assets14,772 13,135Total current assets182,912 131,941Property, plant and equipment, net32,262 26,094Deferred tax assets4,082 1,065Goodwill57,781 57,653Intangibles, net57,855 60,849Other assets708 114Total assets$335,600 $277,716Liabilities and stockholders’ equity Current liabilities: Accounts payable$42,063 $32,072Accrued expenses28,612 23,234Reserve for uncertain tax positions7,204 8,924Current portion of long-term debt3,625 2,790Current portion of contingent consideration5,532 6,950Total current liabilities87,036 73,970Line of credit— 1,500Long-term debt, less current portion63,058 43,591Deferred rent569 695Contingent consideration, less current portion— 5,700Total liabilities150,663 125,456Commitments and contingencies (Note 8) Stockholders’ equity Preferred stock, $0.001 par value — 10,000 authorized and no shares issued or outstanding as of December30, 2016 and December 31, 2015— —Common stock, $0.001 par value — 90,000 authorized; 37,781 shares issued and 36,891 outstanding as ofDecember 30, 2016; 37,415 shares issued and 37,025 outstanding as of December 31, 201537 37Additional paid-in capital108,049 102,860Treasury stock, at cost; 890 common shares as of December 30, 2016 and 390 common shares as of December31, 2015(13,754) (5,807)Accumulated other comprehensive loss(2,193) (1,953)Retained earnings92,798 57,123Total stockholders’ equity184,937 152,260Total liabilities and stockholders’ equity$335,600 $277,716The accompanying notes are an integral part of these consolidated financial statements.59Table of ContentsFOX FACTORY HOLDING CORP.Consolidated Statements of Income(in thousands, except per share data) For the years ended December 30,December 31,December 31, 2016 2015 2014Sales $403,077 $366,798 $306,734Cost of sales 276,689 254,756 212,314Gross profit 126,388 112,042 94,420Operating expenses: Sales and marketing 25,796 23,182 19,192Research and development 18,459 17,001 13,642General and administrative 27,693 21,053 17,683Amortization of purchased intangibles 2,988 8,525 6,424Fair value adjustment of contingent consideration and acquisition related compensation 5,911 6,937 2,856Total operating expenses 80,847 76,698 59,797Income from operations 45,541 35,344 34,623Other expense, net: Interest expense 2,088 1,549 999Other expense (income), net 363 (449) (693)Other expense, net 2,451 1,100 306Income before income taxes 43,090 34,244 34,317Provision for income taxes 7,415 9,290 6,631Net income $35,675 $24,954 $27,686Earnings per share: Basic $0.97 $0.67 $0.75Diluted $0.94 $0.66 $0.73Weighted average shares used to compute earnings per share: Basic 36,799 36,989 36,756Diluted 37,801 37,894 37,807The accompanying notes are an integral part of these consolidated financial statements.60Table of ContentsFOX FACTORY HOLDING CORP.Consolidated Statements of Comprehensive Income(in thousands) For the years ended December 30, December 31, December 31, 2016 2015 2014Net income $35,675 $24,954 $27,686Other comprehensive loss Foreign currency translation adjustments, net of tax effects (240) (1,547) (391)Other comprehensive loss (240) (1,547) (391)Comprehensive income $35,435 $23,407 $27,295The accompanying notes are an integral part of these consolidated financial statements.61Table of ContentsFOX FACTORY HOLDING CORP.Consolidated Statements of Stockholders' Equity(in thousands, except per share amounts) Common Stock Treasury Additional paid-in capitalAccumulated othercomprehensive (loss)income Retainedearnings Totalstockholders'equity Shares Amount Shares Amount Balance- December 31, 201336,317 $36 — $— $87,788$(15) $4,483 $92,292Issuance of common stock underequity compensation plans, net ofshares repurchased for income taxwithholding800 1 — — 2,107— — 2,108Excess tax benefit from exercise ofstock options— — — — 2,680— — 2,680Tax benefit from equity issuancecosts— — — — 958— — 958Repurchases of common stock— — 39 (571) —— — (571)Stock-based compensation expense— — — — 4,044— — 4,044Foreign currency translationadjustment— — — — —(391) — (391)Net income— — — — —— 27,686 27,686Balance- December 31, 201437,117 37 39 $(571) $97,577$(406) $32,169 $128,806Issuance of common stock underequity compensation plans, net ofshares repurchased for income taxwithholding298 — — — (163)— — (163)Excess tax benefit from exercise ofstock options— — — — 539— — 539Repurchases of common stock— — 351 (5,236) —— — (5,236)Stock-based compensation expense— — — — 4,907— — 4,907Foreign currency translationadjustment— — — — —(1,547) — (1,547)Net income— — — — —— 24,954 24,954Balance- December 31, 201537,415 $37 390 $(5,807) $102,860$(1,953) $57,123 $152,260Issuance of common stock underequity compensation plans, net ofshares repurchased for income taxwithholding366 — — — (1,034)— — (1,034)Repurchases of common stock— — 500 (7,947) —— — (7,947)Stock-based compensation expense— — — — 6,223— — 6,223Foreign currency translationadjustment— — — — —(240) — (240)Net income— — — — —— 35,675 35,675Balance- December 30, 201637,781 $37 890 $(13,754) $108,049$(2,193) $92,798 $184,937The accompanying notes are an integral part of these consolidated statements.62Table of ContentsFOX FACTORY HOLDING CORP.Consolidated Statements of Cash Flows(in thousands) For the years ended December 30, December 31, December 31, 2016 2015 2014 OPERATING ACTIVITIES: Net income$35,675 $24,954 $27,686Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization8,754 13,063 9,730Cost of goods on acquired inventory step up212 812 953Provision for doubtful accounts53 75 (18)Stock-based compensation6,223 4,907 4,044Excess tax benefit from exercise of stock options— (539) (2,680)Tax benefit from equity issuance costs— — (958)Loss (gain) on disposal of property and equipment13 54 (27)Deferred taxes(3,016) (4,364) (5,399)Amortization of loan fees258 198 182Gain on bargain purchase, net of deferred taxes— (315) —Change in fair value of contingent consideration(229) (748) 2,217Changes in operating assets and liabilities: Accounts receivable(17,915) (5,510) (635)Inventory(2,991) (11,128) (2,157)Income taxes1,467 (2,389) 2,563Prepaids and other assets(2,089) (1,909) (2,988)Accounts payable9,610 2,138 1,406Accrued expenses2,946 10,709 (764)Deferred rent(126) 14 (250)Net cash provided by operating activities38,845 30,022 32,905INVESTING ACTIVITIES: Acquisition of businesses(198) (2,414) (70,938)Purchases of property and equipment(12,024) (10,894) (4,625)Acquisition of other assets— — (1,401)Proceeds from sale of property and equipment— 145 135Net cash used in investing activities(12,222) (13,163) (76,829)FINANCING ACTIVITIES: Proceeds from line of credit29,500 37,000 18,600Payments on line of credit(12,500) (35,500) (26,600)Payment of contingent consideration liability(6,889) (7,854) —Proceeds from issuance of debt, net of origination fees of $2869,222 — 79,556Repayment of debt(8,522) (2,838) (30,000)Tax benefit from equity issuance costs— — 958(Repurchases) proceeds from stock compensation, net(1,034) (163) 2,108Excess tax benefit from exercise of stock options— 539 2,680Repurchase of common stock(7,947) (5,236) (571)63Table of ContentsNet cash provided by (used in) financing activities1,830 (14,052) 46,731 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(117) (75) (278)CHANGE IN CASH AND CASH EQUIVALENTS28,336 2,732 2,529CASH AND CASH EQUIVALENTS—Beginning of year6,944 4,212 1,683CASH AND CASH EQUIVALENTS—End of year$35,280 $6,944 $4,212SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Income taxes$8,880 $15,928 $9,338Interest$1,786 $1,338 $809Non-cash investing and financing activities: Refinancing of line of credit to term debt$18,500 $— $—Contingent consideration - acquisition of Sport Truck USA, Inc.$— $— $19,035The accompanying notes are an integral part of these consolidated financial statements.64Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial StatementsDecember 30, 2016(in thousands, except per share amounts)1. Description of the Business, Basis of Presentation and Summary of Significant Accounting PoliciesFox Factory Holding Corp. (the "Company") designs and manufactures performance ride dynamics products primarily for bicycles, side-by-side vehicles, on-roadand off-road vehicles and trucks, all-terrain vehicles, snowmobiles, specialty vehicles and applications, and motorcycles. The Company acts both as a tier onesupplier to leading action sports original equipment manufacturers and provides aftermarket products to retailers and distributors.Throughout this Form 10-K, 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 wholly owned operating subsidiaries on a consolidated basis.Change in Fiscal Year - For fiscal year 2016, the Company has changed from a calendar year ending on December 31 to a 52-53 week fiscal year ending on theFriday nearest to December 31, effective beginning with the first quarter of 2016. Therefore, the financial results of certain future fiscal years and quarters, whichwill contain 53 and 14 weeks, respectively, will not be exactly comparable to the prior and subsequent fiscal years and quarters, which contain 52 and 13 weeks,respectively. The adoption of a 52-53 week year was not deemed a change in fiscal year for purposes of reporting subject to Rule 13a-10 or 15d-10; hence, notransition reports are required. The Company has made the change in fiscal years on a prospective basis and thus will not revise the Company’s previously reportedfinancial statements as of and for the years ended December 31, 2015 and 2014 or any interim period therein.This change in fiscal year was identified as a best practice in connection with the Company’s previously disclosed global enterprise resource planning system,which the Company began implementing in May 2015. The Company believes this change will provide numerous benefits, including but not limited to, betteralignment with manufacturing scheduling and improved comparability between periods.Basis of Presentation - The accompanying consolidated financial statements have been prepared in accordance with United States of America ("U.S.") generallyaccepted accounting principles ("GAAP").Principles of Consolidation - The consolidated financial statements include the Company and its wholly owned subsidiaries. All intercompany transactions andbalances have been eliminated in consolidation.Use of Estimates - The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and thereported 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.In the second quarter of 2014, the Company concluded an analysis of legal developments and business practices relative to the apportionment of income for statetax purposes that resulted in a change in estimate regarding income taxes. See Note 11 - Income Taxes .Foreign Currency Translation and Transaction - The functional currency of the Company’s non-U.S. entities is the local currency of the respective operations.The Company translates the financial statements of its non-U.S. entities into U.S. Dollars each reporting period for purposes of consolidation. Assets and liabilitiesof the Company’s foreign subsidiaries are translated at the period-end currency exchange rates while sales and expenses are translated at the average currencyexchange rates in effect for the period. The effects of these translation adjustments are a component of other comprehensive income.Foreign currency transaction losses (gains) of $340 , $(187) , and $ (649) for the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 ,respectively, are included as a component of other income or expense.Cash and Cash Equivalents - Cash consists of cash maintained in a checking account. All highly liquid investments purchased with an original maturity date of90 days or less at the date of purchase are considered to be cash equivalents.65Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)Accounts Receivable - Accounts receivable are unsecured customer obligations which generally require payment within various terms from the invoice date. Thereceivables are stated at the invoice amount. Financing terms vary by customer. Payments of accounts receivable are applied to the specific invoices identified onthe customer’s remittance advice or if unspecified, generally to the earliest unpaid invoices.The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management’s best estimate of amounts that may not be collected. Allaccounts or portions thereof deemed to be uncollectible or that may require an excessive collection cost are written off to the allowance for doubtful accounts.Concentration of Credit Risk - Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cashand accounts receivable. The Company’s cash is held at several U.S. and non-U.S. financial institutions. The account balances may significantly exceed theinsurance coverage provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions withreputable credit and therefore bear minimal credit risk. The Company has not experienced any losses in its uninsured accounts. The Company mitigates its credit risk with respect to accounts receivable by performing ongoing credit evaluations and monitoring of its customers’ accountsreceivable balances. The following customers accounted for 10% or more of the Company’s accounts receivable balance: December 30, December 31, 2016 2015Customer A17% 16%Customer B14% 8%During the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 , Customer A from the table above represented 14% , 12% , and 14% ofsales, respectively. No other customers were individually significant in any of these periods.The Company depends on a limited number of vendors to supply component parts for its products. The Company purchased 34% , 37% , and 44% of its productcomponents for the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 , respectively, from ten vendors. As of December 30, 2016 andDecember 31, 2015 , amounts due to these vendors represented 19% and 27% of accounts payable, respectively.Allowance for Doubtful Accounts - The Company records a provision for doubtful accounts based on historical experience and a detailed assessment of thecollectability of its accounts receivable. In estimating the allowance for doubtful accounts, management considers, among other factors, the aging of the accountsreceivable, historical write-offs, and the credit-worthiness of each customer. If circumstances change, such as higher-than-expected defaults or an unexpectedmaterial adverse change in a major customer’s ability to meet its financial obligations, the Company’s estimate of the recoverability of the amounts due could bereduced by a material amount.The following table presents the activity in the allowance for doubtful accounts: For the years endedAllowance for doubtful accounts:2016 2015 2014Balance, beginning of year$407 $348 $366Add: bad debt expense (benefit)53 75 (10)Less: write-offs, net of recoveries(63) (16) (8)Balance, end of year$397 $407 $348Inventories - Inventories are stated at the lower of actual cost (or standard cost which generally approximates actual costs on a first-in first-out basis) or marketvalue. Cost includes raw materials, as well as direct labor and manufacturing overhead for products we manufacture. Market value is based on current replacementcost for raw materials and on a net realizable value for finished goods. Adjustments to reduce the cost of inventory to its net realizable value are made, if required,for estimated excess, obsolescence or impaired balances.66Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)Property and Equipment - Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method overthe estimated useful lives of the related assets. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized.When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the balance sheet and any resultinggain or loss is reflected in operations in the period realized.Leasehold improvements are amortized on a straight-line basis over the terms of the lease, or the useful lives of the assets, whichever is shorter. The value assignedto land associated with buildings we own, which is not material, is not amortized. Depreciation and amortization periods for the Company’s property andequipment are as follows:Asset Classification Estimateduseful life Machine shop equipment 10-15 yearsManufacturing equipment 5-10 yearsInformation systems, office equipment and furniture 3-5 yearsInternal use computer software 10 yearsTransportation equipment 5 yearsBuildings 39 yearsInternal Use Computer Software Costs - Costs incurred to purchase and develop computer software for internal use are capitalized during the applicationdevelopment and implementation stages. These software costs have been for enterprise-level business and finance software that is customized to meet theCompany’s operational needs. Capitalized costs are included in property and equipment and are amortized on a straight-line basis over the estimated useful life ofthe software beginning when the software project is substantially complete and placed in service. Costs incurred during the preliminary project stage and costs fortraining, data conversion, and maintenance are expensed as incurred.Impairment of Long-lived Assets -The Company periodically reviews property and equipment for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset is impaired or the estimated useful lives are no longer appropriate. If indicators of impairment exist and theundiscounted projected cash flows associated with such assets are less than the carrying amount of the assets, an impairment loss is recorded to write the assetsdown to their estimated fair values. Fair value is estimated based on discounted future cash flows. No impairment charges were recorded during the years endedyears ended December 30, 2016 , December 31, 2015 and December 31, 2014 .Business Combinations - The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs as businesscombinations. The Company allocates the purchase price of the acquisition to the tangible assets acquired, liabilities assumed and identifiable intangible assetsacquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expenses andrestructuring costs are expensed as incurred. During the measurement period, the Company records adjustments to provisional amounts recorded for assetsacquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, which could be up to one year after the transaction date,subsequent adjustments are recorded to the Company’s consolidated statements of income.Goodwill and Intangible Assets - Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. Annually theCompany either makes a qualitative assessment prior to proceeding to step 1 of the annual goodwill impairment test or performs a two-step impairment test. If theCompany makes a qualitative assessment and it determines that the fair value of the reporting unit is less than its carrying amount, the Company would performstep 1 of the annual goodwill impairment test and, if necessary, proceed to step 2. Otherwise, no further evaluation is necessary. For the two-step impairment test,in the first step, the Company compares the fair value of the reporting unit to its carrying value, including goodwill. The Company determines the fair value of thereporting unit based on a weighting of income and market approaches. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned tothat unit, goodwill is not impaired and no further testing is performed. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value ofthe reporting unit, then the Company performs the second step of the impairment test in order to determine the implied fair value of the reporting unit’s goodwill.Impairments, if any, are charged directly to earnings. The Company has a single reporting unit for purposes of assessing goodwill impairment. No impairmentcharges have been incurred to date.67Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)Intangible assets include customer relationships and the Company’s core technology, are subject to amortization over their respective useful lives, and areclassified in intangibles, net in the accompanying consolidated balance sheet. These intangibles are evaluated for impairment whenever events or changes incircumstances indicate that the carrying value of the assets may not be fully recoverable. If facts and circumstances indicate that the carrying value might not berecoverable, projected undiscounted net cash flows associated with the related asset or group of assets over their estimated remaining useful lives is comparedagainst their respective carrying amounts. Trademarks and brands are considered to be indefinite life intangibles, and are not amortized but are subject to testingfor impairment annually. No impairments of intangible assets were identified in the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 .Self-Insurance - Since January 2015, the Company has been partially self-insured for its U.S. employee health and welfare benefits. The Company’s liability forself-insurance is based on claims filed and an estimate of claims incurred but not yet reported. The Company considers a number of factors, including historicalclaims information, when determining the amount of the accrual. Costs related to the administration of the plan and related claims are expensed as incurred. TheCompany has third-party insurance coverage to limit exposure for individually significant claims. The estimates for unpaid claims incurred as of December 30,2016 and December 31, 2015 are $1,101 and $454 respectively, and are recorded within accrued expenses on the consolidated balance sheets.Revenue Recognition - The Company recognizes sales when persuasive evidence of an arrangement exists, title has transferred, the sales price is fixed ordeterminable, and collectability of the receivable is reasonably assured. Provisions for discounts, rebates, sales incentives, returns, and other adjustments areprovided for in the period the related sales are recorded based on an assessment of historical trends and current projection of future results. Sales are recorded netof sales tax.Cost of Sales - Cost of sales primarily consists of materials and labor expense in the manufacturing of the Company’s products. Cost of sales also includesprovisions for excess and obsolete inventory, warranty costs, certain allocated costs for facilities, depreciation and other manufacturing overhead. Additionally, itincludes stock-based compensation for personnel directly involved with manufacturing the Company’s product offerings.Shipping and Handling Fees and Costs - The Company includes shipping and handling fees billed to customers in sales. Shipping costs associated with inboundfreight are capitalized as part of inventory and included in cost of sales as products are sold.Sales and Marketing - Sales and marketing expenses include costs related to sales, customer service and marketing personnel, including their wages, employeebenefits and related stock-based compensation, and occupancy related expenses. Other significant sales and marketing expenses include race support andsponsorships of events and athletes, advertising and promotions related to trade shows, travel and entertainment, and promotional materials, products and salesoffices costs.Research and Development - Research and development expenses consist primarily of salaries and personnel costs, including wages, employee benefits andrelated stock-based compensation for the Company’s engineering, research and development teams, occupancy related expenses, fees for third party consultants,service fees, and expenses for prototype tooling and materials, travel, and supplies. The Company expenses research and development costs as incurred.General and Administrative - General and administrative expenses include costs related to executive, finance, information technology, human resources andadministrative personnel, including wages, employee benefits and related stock-based compensation expenses. The Company records professional and contractservice expenses, occupancy related expenses associated with corporate locations and equipment, and legal expenses in general and administrative expenses.Stock-Based Compensation - The Company measures stock-based compensation for all stock-based awards, including stock options and restricted stock units(“RSUs”), based on their estimated fair values on the date of the grant and recognizes the stock-based compensation cost for time-vested awards on a straight-linebasis over the requisite service period. For performance-based RSUs, the number of shares ultimately expected to vest is estimated at each reporting date based onmanagement’s expectations regarding the relevant performance criteria. To the extent shares are expected to vest, the stock-based compensation cost is recognizedon a straight-line basis over the requisite service period. The fair value of each stock option granted is estimated using the Black-Scholes option pricing model. TheCompany does not estimate forfeitures in recognizing stock based compensation expense. The fair value of the RSU’s is equal to the fair value of the Company’scommon stock on the grant date of the award.Income Taxes - The Company accounts for income taxes using an asset and liability approach. Deferred income taxes reflect the net tax effects of temporarydifferences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Operating lossand tax credit carryforwards are measured by applying currently enacted tax laws. Valuation allowances are provided when necessary to reduce net deferred taxassets to an amount that is more likely than not to be realized.68Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)The Company recognizes the tax effects of an uncertain tax position only if it is more likely than not to be sustained based solely on its technical merits as of thereporting date and then only in an amount more likely than not to be sustained upon review by the tax authorities. The Company considers many factors whenevaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.Advertising - Advertising costs are expensed as incurred. Costs incurred for advertising totaled $1,242 , $1,532 , and $1,012 for the years ended December 30,2016 , December 31, 2015 and December 31, 2014 , respectively.Warranties - The Company offers limited warranties on its products for one to two years . The Company recognizes estimated costs related to warranty activitiesas a component of cost of sales upon product shipment. The estimates are based upon historical product failure rates and historical costs incurred in correctingproduct failures. The recorded amount is adjusted from time to time for specifically identified warranty exposures. Actual warranty expenses are charged againstthe Company’s estimated warranty liability when incurred. Factors that affect the Company’s liability include the number of units, historical and anticipated ratesof warranty claims, and the cost per claim.Fair Value of Financial Instruments - The Financial Accounting Standards Board ("FASB") has issued Accounting Standards Codification 820, Fair ValueMeasurements and Disclosures , that requires the valuation of assets and liabilities required or permitted to be either recorded or disclosed at fair value based onhierarchy of available inputs as follows: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, orinputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; andLevel 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little orno market activity).The carrying amounts of the Company’s financial instruments, including cash, receivables, accounts payable, and accrued liabilities approximate their fair valuesdue to their short-term nature. Amounts owed under the Company's credit facility approximate fair value due to the variable interest rate features embedded in boththe line of credit and term debt. 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 withgovernment regulations, and the possibility of not being able to obtain additional financing when needed.Recent Accounting Pronouncements - In May 2014, the FASB and International Accounting Standards Board issued their converged standard on revenuerecognition, Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, 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 mostcurrent revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customerobtains control of a good or service in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same astransfer of risks and rewards, as it is considered in current guidance. The Company will also need to apply new guidance to determine whether revenue should berecognized over time or at a point in time. In addition, the new standard requires that reporting companies disclose the nature, amount, timing and uncertainty ofrevenue and cash flows arising from contracts with customers. This standard will be effective for fiscal years, and interim periods within those years, beginning thefirst quarter of fiscal 2018. The Company can choose to apply this standard retrospectively for each prior reporting period presented or retrospectively with thecumulative effect of initially applying the standard recognized at the date of the initial application in retained earnings. The Company has not yet selected atransition method nor have we determined the impact of the new standard on our consolidated financial statements.69Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires the presentation of debt issuance costsin the balance sheet as a reduction from the related debt liability rather than as an asset. Amortization of such costs will continue to be reported as interestexpense. The Company adopted ASU 2015-03 effective January 1, 2016 on a retrospective basis. As a result, debt issuance costs of $781 have been reclassifiedfrom other assets to long-term debt in the December 31, 2015 consolidated balance sheet.In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The guidance applies to inventory that is measured using first-in, first-out (“FIFO”) or average cost. Under the guidance, an entity should measure inventory that is within scope at the lower of cost and net realizable value, which is theestimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This standard will beeffective for fiscal years, and interim periods within those years, beginning the first quarter of fiscal 2017. The Company does not expect this guidance to have asignificant impact on the consolidated financial statements.In February 2016, the FASB issued ASU 2016-02, Leases, which will supersede the existing guidance for lease accounting. This ASU will require lessees torecognize leases with durations greater than twelve months on the balance sheet. This standard will be effective for fiscal years, and interim periods within thoseyears, beginning the first quarter of 2019. Early adoption is permitted. The Company is currently assessing the impact this guidance will have on its consolidatedfinancial statements.In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which modifies the accounting for certain aspectsof share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest orare settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for taxwithholding purposes without triggering liability accounting. The Company early adopted the guidance effective January 1, 2016. As provided in the guidance, theCompany made a policy election to account for forfeitures as they occur rather than on an estimated basis. The policy election and amendments related to thetiming of when excess tax benefits are recognized and their recognition in the income tax provision were applied utilizing the modified retrospective transitionmethod. The impact of the forfeiture policy election on the results of operations and opening equity was immaterial. The Company elected to adopt theamendments related to the presentation of excess tax benefits on the statement of cash flows using a prospective transition method. Accordingly, cash flows for theyears December 31, 2015 and 2014 have not been adjusted.In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which clarifies thepresentation of certain transactions, including but not limited to contingent consideration payments made after a business combination and debt prepayment andextinguishment costs in the cash flow statement. This standard will be effective for fiscal years, and interim periods within those years, beginning the first quarterof 2019. Early adoption is permitted. The Company is currently assessing the impact this guidance will have on its consolidated statement of cash flows.In October 2016, the FASB issued ASU 2016-16, Income Taxes: Intra-Entity Transfer of Assets Other Than Inventory, which improves the accounting for theincome tax consequences of intra-entity transfers of assets other than inventory. This standard will be effective for fiscal years, and interim periods within thoseyears, beginning the first quarter of 2018. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.In January 2017, the FASB issued ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, which provides more guidance to an entity whenthey are assessing if transactions should be accounted for as acquisitions of assets or businesses. The clarification of the definition of a business impacts variousareas of accounting such as acquisitions, disposals, goodwill, and consolidations. This standard will be effective for fiscal years, and interim periods within thoseyears, beginning the first quarter of 2018. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.Other accounting standards updates effective after December 30, 2016, are not expected to have a material effect on the Company’s financial position, annualresults of operations or cash flows.Reclassifications - As a result of the Company's adoption of ASU 2015-03, debt issuance costs have been reclassified from other assets to long-term debt in theDecember 31, 2015 consolidated balance sheet. Additionally, income taxes receivable have been reclassified from other current assets to income taxes in thestatement of cash flows for the year ended December 31, 2015. There was no impact on net cash provided by operating activities.70Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)2. InventoryInventory consisted of the following: December 30, December 31, 2016 2015Raw materials$46,679 $43,468Work-in-process1,929 1,921Finished goods22,635 22,813Total inventory$71,243 $68,2023. Property, Plant and Equipment, netProperty, plant and equipment consisted of the following: December 30, December 31, 2016 2015Machinery and manufacturing equipment$28,752 $22,488Information systems, office equipment and furniture7,449 7,128Internal use computer software5,337 2,701Transportation equipment2,531 2,243Building and land4,358 3,469Leasehold improvements8,083 6,970Total56,510 44,999Less: accumulated depreciation and amortization(24,248) (18,905)Property, plant and equipment, net$32,262 $26,094Depreciation expense was $5,766 , $4,538 , and $ 3,306 for the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 , respectively,including $254 , $0 , and $0 of internal use software amortization for the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 ,respectively.71Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)4. Goodwill and Intangible AssetsIntangible assets, excluding goodwill, are comprised of the following: Grosscarryingamount Accumulatedamortization Netcarryingamount Weightedaverage life(years)December 30, 2016: Customer relationships$38,990 $(15,548) $23,442 12Core technology33,400 (32,717) 683 8Patents1,335 (1,176) 159 4Total$73,725 $(49,441) 24,284 Trademarks and brands, not subject to amortization 33,571 Total $57,855 December 31, 2015: Customer relationships$39,004 $(13,013) $25,991 13Core technology33,400 (32,559) 841 8Patents1,335 (889) 446 4Total$73,739 $(46,461) 27,278 Trademarks and brands, not subject to amortization 33,571 Total $60,849 For the years ended 2016 2015 2014Amortization of intangibles $2,988 $8,525 $6,424The Company acquired intangible assets in conjunction with acquisitions. The company recorded valuation adjustments during the year ended December 30, 2016 ,as more fully described in Note 15 - Acquisitions . The acquired definite lived assets will be amortized on a straight-line basis.Goodwill activity consisted of the following: Balance as of December 31, 2015$57,653Acquisitions - Refer to Note 15, Acquisitions148Currency translation and other adjustments(20)Balance as of December 30, 2016$57,781Future amortization expense for finite-lived intangibles as of December 30, 2016 is as follows:For fiscal year:AmortizationExpense2017$2,77020182,77020192,69920202,01520211,913Thereafter12,117Total expected future amortization$24,284 72Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)5. Accrued ExpensesAccrued expenses consisted of the following: December 30, December 31, 2016 2015Payroll and related expenses$10,717 $8,143Management earn-out related to Race Face/Easton (Note 8)6,421 7,242Warranty4,593 3,914Income tax payable4,490 1,949Other accrued expenses2,391 1,986Total$28,612 $23,234Activity related to warranties is as follows: For the years ended 2016 2015 2014Beginning warranty liability$3,914 $4,215 $3,857Charge to cost of sales4,833 3,616 4,381Fair value of warranty assumed in acquisition— — 382Costs incurred(4,154) (3,917) (4,405)Ending warranty liability$4,593 $3,914 $4,2156. Related Party TransactionsIn September 2014, the Company entered into an agreement with Compass to assist with compliance requirements pursuant to the Sarbanes-Oxley Act of 2002, asamended. Fees paid for services provided for compliance associated with our fiscal 2015 financial statements were approximately $135 , including $72 expensed inthe twelve months ended December 30, 2016. This agreement expired upon completion of the services related to fiscal 2015.Fox Factory, Inc. has a triple-net building lease for its manufacturing and office facilities in Watsonville, California. The building is owned by Mr. Fox. Rentexpense under this lease was $837 , $1,203 and $1,186 for the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 , respectively. Thelease was amended effective April 2016 to extend the term through June 30, 2020 , with monthly rental payments of $60 , which are adjusted annually for a cost-of-living increase based upon the consumer price index. See Note 8 - Commitments and Contingencies for a summary of the future minimum lease payments underthis operating lease.7. DebtSecond Amended and Restated Credit FacilityIn August 2013, the Company entered into a credit facility with Sun Trust Bank and other named lenders which has been periodically amended and restated; thelast restatement occurring on May 11, 2016 and further amended on August 11, 2016 (as most recently amended and restated, the “Second Amended and RestatedCredit Facility”). The Second Amended and Restated Credit Facility, which matures on May 11, 2021, provides a revolving line of credit and a maturing securedterm loan with a refinanced principal balance of $75,000 , as a result of a May 2016 amendment and restatement. The term loan is subject to quarterly amortizationpayments.73Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)The Second Amended and Restated Credit Facility provides for interest at either a rate based on the London Interbank Offered Rate, or LIBOR, plus a marginranging from 1.50% to 2.50% , or based on the prime rate offered by SunTrust Bank plus a margin ranging from 0.50% to 1.50% . At December 30, 2016 , the onemonth LIBOR and prime rates were 0.77% and 3.75% , respectively. The Second Amended and Restated Credit Facility is secured by substantially all of theCompany’s assets, restricts the Company's ability to make certain payments and engage in certain transactions, and also requires that the Company satisfycustomary financial ratios. The Company was in compliance with the covenants as of December 30, 2016 .The following table summarizes the line of credit under the Amended and Restated 2013 Credit Facility and the 2013 Credit Facility: December 30, December 31, 2016 2015Amount outstanding$— $1,500Available borrowing capacity$100,000 $58,500Maximum borrowing capacity$100,000 $60,000Maturity dateMay 11, 2021As of December 30, 2016 , future principal payments for the Term Loan, including the current portion, are summarized as follows:For fiscal year: 2017$3,75020185,15620195,62520207,031202145,625Total67,187Debt issuance cost(504)Long-term debt, net of issuance cost66,683Less: current portion(3,625)Long-term debt less current portion$63,0588. Commitments and ContingenciesOperating Leases - The Company has operating lease agreements for administrative, research and development, manufacturing and sales and marketing facilitiesand equipment that expire at various dates. The Company recognizes rent expense on a straight-line basis over the lease term and records the difference betweencash rent payments and the recognition of rent expense as a deferred rent liability. Rent expense was $4,819 , $4,611 , and $3,214 for the years endedDecember 30, 2016 , December 31, 2015 and December 31, 2014 , respectively. See Note 6 - Related Party Transactions for additional information on related partyoperating leases.74Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)Approximate remaining future minimum lease payments under these operating leases as of December 30, 2016 , are as follows:For fiscal year:Third partyfuture payments Related partyfuture payments Total futurepayments2017 $4,184 $715 $4,8992018 3,874 715 4,5892019 2,891 715 3,6062020 2,362 358 2,7202021982 — 982 $14,293 $2,503 $16,796Indemnification 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 tobe provided by the Company or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnificationagreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities thatmay arise by reason of their status or service as directors, officers or employees. While the outcome of these matters cannot be predicted with certainty, theCompany 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, againstthe Company’s wholly-owned subsidiary, RFE Canada Holding Corp. (“RFE Canada”). The suit alleges patent infringement of U.S. Patent number 9,182,027 andviolation of the Lanham Act. SRAM filed a second lawsuit in the same court against RFE Canada on May 16, 2016. That suit alleges patent infringement of U.Spatent number 9,291,250. The Company believes the lawsuits are without merit and intends to vigorously defend itself. As such, the Company has filed, before theU. S. Patent and Trademark Appeals Board ("PTAB"), for an Inter-parties Review of the US Patent 9,182,027 and for a Post Grant Review of the U. S. Patent9,291,250.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 suit allegesSRAM’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 theCompany on July 1, 2016 in the U.S. District Court, Northern District of California against SRAM. That suit alleges SRAM’s infringement of the Company’s U.S.Patent numbers 8,226,172 and 8,974,009.The Company and SRAM have been in discussions and mediation regarding these matters. The SRAM lawsuits against the Company have been stayedby the Court in Illinois pending a PTAB determination in the Company filed SRAM patent reviews. Meanwhile the Company filed lawsuits havemoved forward as scheduled by the courts. Due to the early stage of this lawsuit and the inherent uncertainties of litigation, the Company is not able to predicteither the outcome or a range of reasonably possible losses, if any, at this time. Accordingly, no amounts have been recorded in the consolidated financialstatements for the settlement of these matters. Were an unfavorable ruling to occur, or if factors indicate that a loss is probable and reasonably estimable, theCompany'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 notbelieve 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.Other Commitments - In connection with the acquisition of a business, the Company is committed to make additional consideration payments in 2017 ofapproximately $5,532 , based upon the achievement of certain 2016 financial performance goals. See Note 12 - Fair Value Measurements . Additionally, inconnection with another business acquisition, the Company is committed to pay $7,797 in Canadian dollar denominated acquisition related compensation in 2017,contingent upon continued employment. The compensation obligation is recognized in the accompanying consolidated statements of income as acquisition relatedcompensation expense as services are performed.75Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)9. Stockholders' EquitySecondary Stock Offerings and Share Repurchase ProgramIn July 2014, selling stockholders, including Compass, sold 5,750 shares of the Company's common stock at a price of $15.50 per share, less underwritingdiscounts and commissions, in a secondary public offering. The total shares sold include 750 shares, which were also sold by certain selling stockholders, inconnection with the underwriters' option to purchase additional shares. The Company did not sell shares or receive any proceeds from the sales of shares by theselling stockholders.In February, 2016, the Company's Board of Directors authorized the Company's 2016 stock repurchase program (the "2016 Repurchase Program"), permittingrepurchases of up to an aggregate of $40,000 in shares of common stock. The plan expires on December 31, 2017, unless extended by the Company's Board ofDirectors. Shares of common stock repurchased under this program are accounted for as treasury stock under the cost method.In March 2016, Compass sold 2,500 shares of the Company's common stock at a price of $15.895 per share, less underwriting discounts and commissions, in asecondary public offering. The Company did not sell shares or receive any proceeds from the sales of shares by the selling stockholders. Concurrently, pursuant tothe 2016 Repurchase Program and a stock repurchase agreement between Compass and the Company, the Company repurchased 500 shares of its common stockheld by Compass for a total of $7,947 .In August 2016, selling stockholders, including Compass, sold 4,025 shares of the Company's common stock at a price of $18.00 per share, less underwritingdiscounts and commissions, in a secondary public offering. The total shares sold include 525 shares, which were also sold by certain selling stockholders, inconnection with the underwriters' option to purchase additional shares. The Company did not sell shares or receive any proceeds from the sales of shares by theselling stockholders.In November, 2016, the Company closed another secondary offering, whereby the selling stockholders, including Compass, sold an additional 4,025 shares of theCompany's common stock at a price of $20.51 per share, less underwriting discounts and commissions. The total shares sold include 525 shares, which were alsosold by certain selling stockholders, in connection with the underwriters' option to purchase additional shares. The Company did not sell shares or receive anyproceeds from the sales of shares by the selling stockholders.The Company incurred approximately $617 , $225 , and $469 of expenses in connection with the secondary offerings during the fiscal years ended December 30,2016 , December 31, 2015 and December 31, 2014 , respectively, including costs incurred in connection with its 2015 shelf registration statement on Form S-3.At December 30, 2016 , $32,052 remains available for repurchase under the 2016 Repurchase Program. The Company has repurchased 890 shares for a total of$13,754 under both the 2016 Repurchase Program and the prior repurchase program of the Company, which expired on December 31, 2015.Equity Incentive PlansThe Company has outstanding awards under the following equity incentive plans: the 2008 Stock Option Plan (the "2008 Plan"), the 2008 Non-Statutory StockOption Plan (the "2008 Non-Statutory Plan") and the 2013 Omnibus Plan (the "2013 Plan"). No further awards will be granted pursuant to the 2008 Plan or the2008 Non-Statutory Plan. Under the 2013 Plan, the Company has the ability to issue incentive stock options, non-statutory stock options, stock appreciation rights,restricted stock awards, RSUs, performance units and/or performance shares.The equity incentive plans are administered by the Compensation Committee of the board of directors of the Company, which has the authority to determine thetype of incentive award, as well as the terms and conditions of the awards. Options granted under the plans have vesting periods ranging from one to five years andexpire no later than 10 years from the date of grant. RSUs generally vest over a four -year period with 25% vesting at the end of one year and the remaining vestingannually thereafter. In addition to time-based vesting criteria, certain of our RSUs include performance-based vesting criteria. As of December 30, 2016 , therewere 4,484 shares reserved for issuance under the Company's equity incentive plans and 2,223 shares available for grant under the 2013 Plan. The Companygenerally issues new shares in connection with awards under its equity incentive plans.76Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)Stock-Based CompensationCompensation expense related to the Company's share-based awards for the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 was$6,223 , $4,907 and $4,044 , respectively, of which $5,977 , $4,576 and $3,401 , respectively, related to RSUs and $246 , $331 and $643 , respectively, related tostock options.The following table summarizes the allocation of stock-based compensation in the accompanying consolidated statements of income: For the fiscal years ended 2016 2015 2014Cost of sales $139 $82 $43Sales and marketing 598 430 279Research and development 357 178 88General and administrative 5,129 4,217 3,634Total $6,223 $4,907 $4,044Stock-based compensation expense capitalized to inventory was not material for the years ended December 30, 2016 , December 31, 2015 and December 31, 2014. Tax benefits related to stock-based compensation were approximately $2,178 , $1,717 , and $1,401 for the years ended December 30, 2016 , December 31, 2015and December 31, 2014 , respectively. Excess tax benefits of $935 were recognized as a component of income tax expense for the year ended December 30, 2016 .Excess tax benefits of $539 and $2,680 were recognized as a credit to additional paid-in-capital for the years ended December 31, 2015 and December 31, 2014 ,respectively.Restricted Stock UnitsThe Company grants both time-based and performance-based stock awards which also include a time-based vesting feature. Compensation expense for time-basedstock awards is measured at the grant date based on the closing market price of the Company's common stock, and recognized ratably over the vesting period.On September 2, 2014, the Company and certain of its officers agreed to amend certain existing award agreements, thereby canceling the 15 existing RSU time-based awards and reissuing such awards in tranches that are subject to both time and performance-based vesting conditions, allowing the Company to ensure thetax deductibility of the RSU expense as 162(m) performance-based compensation. The cancellation and replacement was accounted for as a modification.Compensation expense for the modified awards is based on the original grant-date closing market price of the Company's common stock. For purposes ofmeasuring compensation expense, the number of shares ultimately expected to vest is estimated at each reporting date based on management’s expectationsregarding the relevant performance criteria. Assuming performance goals are achieved, the Company does not expect to record incremental stock-basedcompensation expense as a result of the modification. The recognition of compensation expense associated with performance-based stock awards requires definedcriteria for assessing achievement and judgment in assessing the probability of meeting the performance goals.77Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)The following table summarizes RSU activity: Unvested RSUs Number of sharesoutstanding Weighted-averagegrant date fair valueUnvested at December 31, 2013516 $17.53Granted783 17.30Canceled(386) 17.52Vested(133) 17.53Unvested at December 31, 2014780 17.30Granted246 16.60Canceled(19) 16.93Vested(234) 17.36Unvested at December 31, 2015773 17.07Granted341 15.84Canceled(15) 17.83Vested(288) 17.16Unvested at December 30, 2016811 $16.53The fair value of vested RSUs was $5,122 , $3,731 and $2,020 for the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 , respectively.As of December 30, 2016 , the Company had approximately $9,936 of unrecognized stock-based compensation expense related to RSUs, which will be recognizedover the remaining weighted-average vesting period of approximately 2.29 years.Stock OptionsThe following table summarizes stock option activity: Number ofsharesoutstanding Weighted-averageexercise price Weighted-averageremainingcontractual life(years) Aggregateintrinsic valueBalance at December 31, 20132,511 $4.88 8 $32,001Options exercised(711) 3.90 8,963Options forfeited(58) 5.75 Balance at December 31, 20141,742 5.25 7 19,136Options exercised(99) 3.99 1,332Balance at December 31, 20151,643 5.32 6 18,414Options exercised(193) 5.30 2,767Balance at December 30, 20161,450 5.33 5 32,528Options vested and expected to vest - December 30, 20161,450 5.33 5 32,528Options exercisable - December 30, 20161,337 $5.29 5 $30,025 Aggregate intrinsic value represents the difference between the closing price of the Company's common stock on Nasdaq and the exercise price of outstanding, in-the-money options. The fair value of options vested during the year ended December 30, 2016 was $295 . As of December 30, 2016 , the Company hadapproximately $116 of unrecognized stock-based compensation expense related to stock options, which will be recognized over the remaining weighted-averagevesting period of approximately 0.70 years.78Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)During the years ended December 30, 2016 , December 31, 2015 and December 31, 2014 , 193 , 99 , and 711 shares of common stock, respectively, were issueddue to the exercise of stock options, resulting in proceeds to the Company of approximately $1,000 , $396 , and $2,770 respectively.10. Earnings Per ShareBasic earnings per share ("EPS") amounts are computed by dividing net income for the period by the weighted average number of common shares outstandingduring the period. Diluted EPS amounts are computed by dividing net income for the period by the weighted average number of shares of common stock andpotentially dilutive common stock outstanding during the period. Potentially dilutive common shares include shares issuable upon the exercise of outstanding stockoptions and vesting of restricted stock units, which are reflected in diluted earnings per share by application of the treasury stock method.The following table presents the calculation of basic and diluted earnings per share: For the years ended 2016 2015 2014Net income$35,675 $24,954 $27,686 Weighted average shares used to compute basic earnings per share36,799 36,989 36,756Dilutive effect of employee stock plans1,002 905 1,051Weighted average shares used to compute diluted earnings per share37,801 37,894 37,807Earnings per share: Basic$0.97 $0.67 $0.75Diluted$0.94 $0.66 $0.73The Company did not exclude any potentially dilutive shares from the calculation of diluted earnings per share for the years ended December 30, 2016 ,December 31, 2015 and December 31, 2014 , as none of these shares would have been antidilutive.11. Income TaxesThe components of income tax expense are as follows: For the years ended 2016 2015 2014Current: Federal$5,710 $11,468 $15,122State(1,287) (22) (3,772)Foreign6,008 2,208 680Total10,431 13,654 12,030Deferred: Federal(1,729) (3,751) (5,016)State(1,156) (613) (383)Foreign(131) — —Total(3,016) (4,364) (5,399)Total provision$7,415 $9,290 $6,63179Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)The Company's income before provision for income taxes was subject to taxes in the following jurisdictions for the following periods: For the years ended 2016 2015 2014United States$22,348 $24,308 $27,162Foreign20,742 9,936 7,155 $43,090 $34,244 $34,317The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate for the periods presented: For the years ended 2016 2015 2014Tax at federal statutory rate35.0 % 35.0 % 35.0 %State taxes, net of federal benefit1.0 2.2 1.5Foreign rate differential(9.4) — —Change in liability for unrecognized tax benefits(4.9) (2.8) (4.0)Research and development tax credit(2.0) (2.9) (0.8)Stock-based compensation(2.0) (0.1) (0.1)California business development tax credit(1.1) — —Reapportionment benefit— (0.1) (11.8)Manufacturing deduction— (2.0) (2.7)Other0.6 (2.2) 2.2Total provision17.2 % 27.1 % 19.3 %Effective January 1, 2016, the Company sold the net assets of its Taiwan branch operations and its shares of Fox Factory IP Holding Corp. to Fox FactorySwitzerland GmbH (“Fox Switzerland”). The Company’s Taiwan operations were as a result, organized as a branch of Fox Switzerland. Fox Switzerland and itsTaiwan branch own a portion and license the remainder of the Company’s non-US intangible property and generate earnings that are not subject to US incometaxes so long as they are permanently invested outside the US. Under ASC 740-30, the Company has not recorded a deferred tax liability of approximately $3,748related to the US federal and state income taxes on approximately $20,821 of permanently reinvested unremitted earnings of Fox Switzerland. The Companyconsiders the following matters, among others, in evaluating its plans for indefinite reinvestment: (i) the financial requirements of both the Company and itsforeign operations, both for the long term and for the short term; (ii) the ability to manage cash globally through royalty remittances and intercompany loanscreated in the licensing and transfer of assets to Fox Switzerland; (iii) the tax consequences of any decision to reinvest the earnings of Fox Switzerland, includingany changes in US tax law relating to the treatment of these unremitted earnings; and (iv) any US and foreign government programs or regulations relating to therepatriation of these unremitted earnings. If unremitted earnings are no longer permanently reinvested, the Company would need to adjust the income tax provisionin the period management makes such determination.The Company has obtained tax incentives in Switzerland that are effective through March 2019 that result in a rate reduction provided that the Company meetsspecified criteria. Upon expiration, the Company may renew the arrangement on demand, as long as the applicable law and operating criteria remain in place. Theeffect of the tax incentive was not material to the Company's income tax provision for the year ended December 30, 2016.On February 3, 2015, the Company announced that it had been awarded a four -year, $1,700 tax credit from the State of California, subject to certain in-stategrowth requirements. The Company will evaluate the requirements in each of the eligible years and realize the benefits of the credit if conditions are met. For theyear ended December 30, 2016, the Company met requirements to recognize a benefit of $750 , or $488 net of federal income tax.80Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)For the year ended December 31, 2014, the Company's recognized a tax benefit of $4,063 , or $0.11 per basic and fully diluted share, related to thereapportionment of income amongst the jurisdictions where the Company does business. The Company periodically evaluates opportunities to enhance taxefficiencies and to minimize tax liabilities through operating, legal and administrative strategies. The reapportionment benefit relates to tax years 2009 through2013 and resulted from the Company's examination of evolving laws, existing court cases, and its business practices. The tax benefit includes the impact of areduction in the rate used to measure the Company's net deferred tax liability and unrecognized tax benefit. The benefit has been accounted for as a change inestimate.The following table presents the significant components of the Company’s deferred tax assets and liabilities: December 30, December 31, 2016 2015Deferred tax assets: Inventory$3,174 $3,615Accrued liabilities2,384 2,022Stock-based compensation2,043 1,732Foreign tax credits2,128 —Research and development tax credits1,244 —Allowance for doubtful accounts212 182Other529 828Total deferred tax asset11,714 8,379Deferred tax liabilities: Depreciation(5,707) (3,856)Intangible assets(1,769) (2,033)State income taxes(41) (1,312)Prepaid expenses(115) (113)Total deferred tax liability(7,632) (7,314)Net deferred tax asset$4,082 $1,065As of December 30, 2016, the Company had foreign tax credit of $2,182 which begins to expire in 2025, unless previously utilized, and a foreign net operating losscarryforward of $252 which does not expire. The Company also had federal and state research credits of approximately $455 and $1,496 . The federal researchcredits begin to expire in 2036 unless previously utilized, and the state research credits do not expire.The following table summarizes the activity related to the Company's unrecognized tax benefits: For the years ended 2016 2015 2014Balance - beginning of period$8,924 $7,785 $7,796Increase related to current year tax positions1,828 1,878 1,988(Decrease) increase related to prior year tax positions(1,193) 584 —Decrease due to expiration of statute of limitations(2,119) (1,323) (1,489)Decrease due to change in estimated state tax rate— — (510)Balance - end of period$7,440 $8,924 $7,78581Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)As of December 30, 2016 , the Company had $7,440 of unrecognized tax benefits, of which approximately $6,011 , if recognized, would favorably impact theeffective tax rate. The Company regularly engages in discussions and negotiations with tax authorities regarding tax matters in various jurisdictions. The Companybelieves it is reasonably possible that certain federal, foreign, and state tax matters may be concluded in the next 12 months due to statute expiration. Specificpositions that may be resolved include issues involving the deductibility of amortization and depreciation deductions which were incurred as a result of theacquisition of the Company in 2008. As a result, unrecognized tax benefits at December 30, 2016 could be reduced by approximately $1,516 in the next twelvemonths.As of December 30, 2016 and December 31, 2015 , the Company had approximately $193 and $267 , respectively, of cumulative interest and penalties related tothe uncertain tax positions, and has elected to treat interest and penalties as a component of income tax expense.The Company's federal tax returns for 2013 and forward, state tax returns for 2012 and forward, and foreign tax returns from 2014 and forward are subject toexamination by tax authorities.12. Fair Value MeasurementsThe FASB's Accounting Standards Codification 820, "Fair Value Measurements and Disclosures" requires the valuation of assets and liabilities required orpermitted to be either recorded or disclosed at fair value based on hierarchy of available inputs as follows: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, orinputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; andLevel 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little orno market activity).As of December 30, 2016 and December 31, 2015 , the carrying amount of the principal under the Company’s Second Amended and Restated Credit Facilityapproximates fair value because it has a variable interest rate that reflects market changes in interest rates and changes in the Company’s net leverage ratio. As ofDecember 30, 2016 the Company used Level 2 inputs to determine the fair value of its Second Amended and Restated Credit Facility.The Company measures its contingent consideration liability arising from the acquisition of Sport Truck using Level 3 unobservable inputs (see Note 15 -Acquisitions ). The contingent consideration liability is associated with the achievement of adjusted EBITDA targets, and is estimated at each balance sheet date byconsidering among other factors, results of completed periods and the Company's most recent financial projection for future periods subject to earn-out payments. The change in fair value is recorded as a component of fair value adjustment of contingent consideration and acquisition related compensation in theaccompanying consolidated statement of income for the year ended December 30, 2016 .The following table provides a reconciliation of the beginning and ending balances for the Company's contingent consideration liability measured at fair valueusing Level 3 inputs: Contingent considerationliability (level 3measurement)Balance at December 31, 2015$12,650Change in fair value(229)Payment of contingent liability(6,889)Balance at December 30, 2016$5,532There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 categories of the fair value hierarchy during the years ended December 30,2016 , December 31, 2015 and December 31, 2014 .82Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)13. Retirement PlanThe Company established a 401(k) plan to provide tax deferred salary deductions for all eligible employees. Participants may make voluntary contributions to the401(k) plan, limited by certain Internal Revenue Service restrictions. The Company made matching contributions of $373 , $298 , and $233 for each of the yearsended December 30, 2016 , December 31, 2015 and December 31, 2014 , respectively.14. Segments and Geographic AreasThe Company has determined that it has a single operating and reportable segment. The Company considers operating segments to be components of the Companyin which separate financial information is available that is evaluated regularly by the Company’s chief operating decision maker in deciding how to allocateresources and in assessing performance. The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviewsfinancial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.The following table summarizes total sales generated by geographic location of the customer: For the years ended 2016 2015 2014United States $187,539 $163,126 $128,297Asia 100,999 101,947 88,069Europe 76,999 71,941 66,876Rest of the World 37,540 29,784 23,492Total sales $403,077 $366,798 $306,734The Company’s long-lived assets by geographic location are as follows: December 30, December 31, 2016 2015United States$29,344 $23,241International2,918 2,853Total long-lived assets$32,262 $26,094The following table summarizes total sales by product category: For the years ended 2016 2015 2014Bikes$226,686 $211,704 $179,192Power vehicles176,391 155,094 127,542Total sales$403,077 $366,798 $306,73483Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)15. AcquisitionsSport Truck USA, Inc.On March 31, 2014, the Company acquired certain assets and assumed certain liabilities of Sport Truck. The transaction was accounted for as a businesscombination. In connection with the acquisition, the Company paid cash of $40,770 , after certain working capital adjustments, in accordance with the assetpurchase agreement. Certain members of Sport Truck’s executive management team agreed to refund up to $1,432 of the proceeds from the sale, on a graduatedbasis, if they terminate employment prior to March 31, 2017. As a result, such payments have been excluded from the acquisition consideration, and are recognizedas compensation expense over the expected three year service period. The total consideration was increased by the effective settlement of trade receivables in theamount of $473 , which represented the recorded amount and as a result, no gain or loss was recorded upon settlement.The Company agreed to total contingent consideration of up to $29,295 upon achievement of adjusted earnings before interest, taxes, depreciation and amortization("EBITDA") targets of the acquired business through 2016, subject to adjustments defined in the asset purchase agreement. The estimated acquisition date fairvalue of the contingent consideration was $19,035 . As of December 30, 2016, $14,743 of contingent consideration has been paid under this arrangement and$5,532 is expected to be paid in 2017. See Note 12 - Fair Value Measurements . Total purchase consideration was $60,278 , of which $13,046 , $35,270 and$11,962 was allocated to net tangible assets, intangible assets and goodwill, respectively. The goodwill is deductible for income tax purposes.The Company incurred $1,402 of transaction costs in conjunction with the Sport Truck acquisition for the year ended December 31, 2014, which is included ingeneral and administrative expense in the accompanying consolidated statement of income. Additional costs of $278 were incurred in the year ended December 31,2014 associated with financing the transaction and are included in loan fees. See Note 7 - Debt .The results of operations for Sport Truck have been included in the Company's consolidated statement of income since the date of acquisition. Revenue and incomefrom operations included since the date of acquisition through December 31, 2014 amount to $33,162 and $2,974 , inclusive of adjustments to the fair value ofcontingent consideration of $2,217 . See Note 12 - Fair Value Measurements .Race Face Performance and Easton Cycling BusinessesOn December 12, 2014, the Company acquired certain assets and assumed certain liabilities of Race Face/Easton. In connection with the acquisition, the Companypaid approximately $29,857 . The acquisition was financed with debt and included an earn-out opportunity of up to $19.5 million Canadian Dollars, contingentupon continued employment and the achievement of certain performance-based financial targets through October 2016. In November 2015, the Company enteredinto a Second Amendment to Asset Purchase Agreement for Race Face/Easton, which guaranteed the earn-out payable in 2016 and 2017, subject to conditionsincluding continued employment.The Company incurred $1,142 of transaction costs in conjunction with the Race Face/Easton acquisition, which is included in general and administrative expensein the accompanying consolidated statement of income for the year ended December 31, 2014. Additional costs of $166 were incurred in association with financingthe transaction and are included in loan fees. See Note 7 - Debt . Goodwill acquired is expected to be deductible for income tax purposes.Other AcquisitionsThe Company completed the following business acquisitions in the years ended December 30, 2016 and December 31, 2015 , none of which were material to theCompany's financial statements:In January 2015, the Company, through certain of its subsidiaries, acquired certain specified assets of a machine shop in Spring Arbor, Michigan. The Companypaid cash of $765 . Based on the allocation of the purchase price to the assets acquired and liabilities assumed, the Company recorded goodwill of $567 whichrepresents the strategic fit with the Company's operations.In November 2015, the Company, through certain of its subsidiaries, acquired certain specified assets of Marzocchi’s mountain bike product lines. The Companypaid cash of $1,649 . Based on the allocation of the purchase price to the assets acquired and liabilities assumed, the Company recorded a gain of $315 , net of tax,to reflect the excess of the fair value acquired over the consideration paid which is included in other expense (income), net, in the statement of income for theperiod ended December 31, 2015 .84Table of ContentsFOX FACTORY HOLDING CORP.Notes to Consolidated Financial Statements - continuedDecember 30, 2016(in thousands, except per share amounts)In 2016, the Company acquired certain specified assets of two businesses for cash consideration of $198 , of which $48 and $148 were allocated to net tangibleassets and goodwill, respectively.16. Selected Quarterly Financial Data (Unaudited)Selected summarized quarterly financial information for 2016 and 2015 is as follows: Quarter Ended Dec 30, Sep 30, Ju1 1, Apr 1, Dec 31, Sep 30, Jun 30, Mar 31, 2016 2016 2016 2016 2015 2015 2015 2015 Sales $111,555 $109,011 $102,294 $80,217 $95,668 $106,171 $97,171 $67,788 Gross profit 34,057 34,886 32,327 25,118 28,605 34,786 29,868 18,783 Income from operations 13,483 15,086 11,278 5,694 9,447 13,821 10,537 1,539 Net income 9,812 13,684 8,917 3,262 6,830 10,591 6,763 770 Earnings per share: Basic $0.27 $0.37 $0.24 $0.09 $0.18 $0.29 $0.18 $0.02 Diluted $0.26 $0.36 $0.24 $0.09 $0.18 $0.28 $0.18 $0.02 85Exhibit 21.1Fox Factory Holding Corp.List of SubsidiariesCompany Name State or Other Jurisdiction of Incorporation orOrganization Name under Business isConducted Fox Factory, Inc. California Fox Factory, Inc.Fox Factory GmbH Germany Fox Factory GmbHST USA Holding Corp. Delaware Sport Truck, USARFE Holding (Canada) Corp. British Columbia, Canada Race Face / EastonRFE Holding (US) Corp. Delaware Race Face / EastonFox Factory IP Holding Corp. Cayman Islands Fox Factory IP Holding Corp.Fox Factory Austria GmbH Austria Fox Factory Austria GmbH Fox Factory SwitzerlandGmbH Switzerland Fox Factory SwitzerlandGmbH Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our report dated March 1, 2017 , with respect to the consolidated financial statements included in the Annual Report of Fox Factory Holding Corp.on Form 10-K for the year ended December 30, 2016 . We consent to the incorporation by reference of said report in the Registration Statements of Fox FactoryHolding Corp. on Form S-8 (File No. 333-192238) and Form S-3 (File No. 333-203146)./s/ GRANT THORNTON LLPSan Francisco, CaliforniaMarch 1, 2017EXHIBIT 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002I, Larry L. Enterline, certify that:1. I have reviewed this report on Form 10-K of Fox Factory Holding Corp.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting./s/ Larry L. EnterlineLarry L. EnterlineChief Executive OfficerDate: March 1, 2017EXHIBIT 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002I, Zvi Glasman, certify that:1. I have reviewed this report on Form 10-K of Fox Factory Holding Corp.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during theperiod in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internalcontrol over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting./s/ Zvi GlasmanZvi GlasmanChief Financial OfficerDate: March 1, 2017EXHIBIT 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the fiscal year ended December 30, 2016 of Fox Factory Holding Corp. (the "Company") as filed withthe Securities and Exchange Commission on the date hereof (the "Report"), I, Larry L. Enterline, Chief Executive Officer of the Company, certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Larry L. Enterline Larry L. Enterline Chief Executive Officer (Principal Executive Officer) Date: March 1, 2017This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporatedby reference into any filing of Fox Factory Holding Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended(whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.EXHIBIT 32.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 906OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K for the fiscal year ended December 30, 2016 of Fox Factory Holding Corp. (the "Company") as filedwith the Securities and Exchange Commission on the date hereof (the "Report"), I, Zvi Glasman, Chief Financial Officer of the Company, certify, pursuant to 18U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Zvi Glasman Zvi Glasman Chief Financial Officer (Principal Financial Officer) Date: March 1, 2017This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporatedby reference into any filing of Fox Factory Holding Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended(whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

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