Filed Pursuant to Rule 424(b)(3)

Registration No. 333-258075 

 

Prospectus Supplement No. 3

(to prospectus dated March 17, 2022)

 

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Holley Inc.

 

102,566,264 Shares of Common Stock

Up to 6,333,334 Shares of Common Stock Issuable Upon Exercise of the

Warrants

Up to 6,333,334 Warrants  

 


 

This prospectus supplement no. 3 is being filed to update and supplement information contained in the prospectus dated March 17, 2022 (the “Prospectus”) related to: (1) the issuance by us of up to 6,333,334 shares of our common stock, par value $0.0001 per share, that may be issued upon exercise of warrants to purchase common stock at an exercise price of $11.50 per share of common stock; and (2) the offer and sale, from time to time, by the selling securityholders identified in the Prospectus, or their permitted transferees, of (i) up to 102,566,264 shares of common stock and (ii) up to 6,333,334 warrants, with the information contained in our Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2022, filed with the Securities and Exchange Commission (the “Commission”) on August 11, 2022 (the “Quarterly Report”), and in our Current Report on Form 8-K with respect to the event reported under Item 5.02, filed with the Commission on August 11, 2022 (the “Current Report”). Accordingly, we have attached the Quarterly Report and the Current Report to this prospectus supplement. Any document, exhibit or information contained in the Quarterly Report or the Current Report that has been deemed furnished and not filed in accordance with Commission rules shall not be included in this prospectus supplement.

 

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and any prior amendments or supplements thereto, and if there is any inconsistency between the information therein and this prospectus supplement, you should rely on the information in this prospectus supplement.

 

Our common stock and our warrants are listed on the New York Stock Exchange under the symbols “HLLY” and “HLLY WS,” respectively. On August 30, 2022, the closing price of our common stock was $5.71 per share and the closing price of our warrants was $1.13 per warrant.

 

Investing in our securities involves risks. SeeRisk Factorsbeginning on page 12 of the Prospectus and in any applicable prospectus supplement.

 

Neither the Securities and Exchange Commission nor any other regulatory body have approved or disapproved these securities, or passed upon the accuracy or adequacy of this prospectus supplement. Any representation to the contrary is a criminal offense.

 

The date of this prospectus supplement is August 31, 2022.

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended July 3, 2022

 

OR

 

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

 

For the transition period from __________to__________

 

Commission file number: 001-39599

 

HOLLEY INC.

(Exact name of registrant as specified in its charter)

 

Delaware

87-1727560

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

1801 Russellville Road, Bowling Green, KY 42101

(Address of principal executive offices)

 

(270) 782-2900

(Registrants telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report) N/A

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.0001

Warrants to purchase common stock

 

HLLY

HLLY WS

 

New York Stock Exchange

New York Stock Exchange

 

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

 

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

 

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

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

☒ 

 

Smaller reporting company

 

       

Emerging growth company

 

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).
Yes ☐ No ☒

 

There were 118,026,472 shares of Common Stock, including 1,093,750 restricted earn-out shares, par value $0.0001 per share, issued and outstanding as of August 6, 2022.

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for the Company’s business. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or similar expressions. These forward-looking statements are subject to a number of risks and uncertainties and actual results could differ materially due to numerous factors, including but not limited to the Company’s ability to do any of the following:

 

 

anticipate and manage through disruptions and higher costs in manufacturing, supply chain, logistical operations, and shortages of certain company products in distribution channels;

 

 

access, collect and use personal data about consumers;

 

 

execute its business strategy, including monetization of services provided and expansions in and into existing and new lines of business;

 

 

anticipate the impact of the coronavirus disease 2019 (“COVID-19”) pandemic and its effect on business and financial conditions;

 

 

manage risks associated with operational changes in response to the COVID-19 pandemic;

 

 

recognize the anticipated benefits of and successfully deploy the proceeds from the Business Combination (as defined herein), which may be affected by, among other things, competition, the ability to integrate the combined businesses and the ability of the combined business to grow and manage growth profitably;

 

 

anticipate the uncertainties inherent in the development of new business lines and business strategies;

 

 

retain and hire necessary employees;

 

 

increase brand awareness;

 

 

attract, train and retain effective officers, key employees or directors;

 

 

upgrade and maintain information technology systems;

 

 

respond to cyber-attacks, security breaches, or computer viruses;

 

 

comply with privacy and data protection laws, and respond to privacy or data breaches, or the loss of data.

 

 

acquire and protect intellectual property;

 

 

meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness;

 

 

effectively respond to general economic and business conditions (including the impacts of the Russian invasion of Ukraine and its regional and global ramifications);

 

 

maintain proper and effective internal controls;

 

 

maintain the listing on, or the delisting of the Company’s securities from, the NYSE or an inability to have our securities listed on another national securities exchange;

 

 

obtain additional capital, including use of the debt market;

 

 

enhance future operating and financial results;

 

 

anticipate rapid technological changes;

 

 

 

comply with laws and regulations applicable to its business and industry, including laws and regulations related to environmental health and safety;

 

 

stay abreast of modified or new laws and regulations;

 

 

anticipate the impact of, and response to, new accounting standards;

 

 

respond to fluctuations in foreign currency exchange rates and political unrest and regulatory changes in international markets from various events;

 

 

anticipate the rise in interest rates which would increase the cost of capital, as well as responding to inflationary pressures;

 

 

anticipate the significance and timing of contractual obligations;

 

 

maintain key strategic relationships with partners and resellers;

 

 

respond to uncertainties associated with product and service development and market acceptance;

 

 

manage to finance operations on an economically viable basis;

 

 

anticipate the impact of new U.S. federal income tax law, including the impact on deferred tax assets;

 

 

respond to litigation, investigations, complaints, product liability claims and/or adverse publicity;

 

 

anticipate the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012 ("JOBS Act");

 

 

anticipate the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, and demographic trends; and

 

 

other risks and factors, listed under the caption “Risk Factors” included in our Annual Report on 10-K for the year ended December 31, 2021, as filed with the SEC on March 15, 2022, and in any subsequent filings with the SEC.

 

Forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q and our management’s expectations, forecasts and assumptions, and involve a number of judgements, risks and uncertainties, and actual results, developments and business decisions may differ materially from those envisaged by such forward-looking statements. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We undertake no obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as my be required under applicable securities laws.

 

 

PART IFINANCIAL INFORMATION

 

Item 1. Financial Statements

 

HOLLEY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

   

As of

 
   

July 3, 2022

   

December 31, 2021

 

ASSETS

               

Cash and cash equivalents

  $ 30,555     $ 36,325  

Accounts receivable, less allowance for credit losses of $1,269 and $1,387, respectively

    58,222       51,390  

Inventory

    214,867       185,040  

Prepaids and other current assets

    16,881       18,962  

Total current assets

    320,525       291,717  

Property, plant, and equipment, net

    56,009       51,495  

Goodwill

    417,339       411,383  

Other intangibles assets, net

    434,120       438,461  

Right-of-use assets

    32,762        

Total assets

  $ 1,260,755     $ 1,193,056  

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Accounts payable

  $ 39,648     $ 45,708  

Accrued interest

    3,843       3,359  

Accrued liabilities

    41,051       34,853  

Current portion of long-term debt

    6,300       7,875  

Total current liabilities

    90,842       91,795  

Long-term debt, net of current portion

    636,756       637,673  

Warrant liability

    40,352       61,293  

Earn-out liability

    10,054       26,596  

Deferred taxes

    68,955       70,045  

Other noncurrent liabilities

    29,429       1,167  

Total liabilities

    876,388       888,569  

Commitments and contingencies (Refer to Note 16 - Commitments and Contingencies)

               

Stockholders' equity:

               

Preferred stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding as of July 3, 2022 and December 31, 2021

           

Common stock, $0.0001 par value, 550,000,000 shares authorized, 116,932,722 and 115,805,639 shares issued and outstanding as of July 3, 2022 and December 31, 2021, respectively

    12       12  

Additional paid-in capital

    351,422       329,705  

Accumulated other comprehensive gain (loss)

    486       (256 )

Retained earnings (accumulated deficit)

    32,447       (24,974 )

Total stockholders' equity

    384,367       304,487  

Total liabilities and stockholders' equity

  $ 1,260,755     $ 1,193,056  

 

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

 

 

HOLLEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

Net sales

  $ 179,420     $ 193,041     $ 379,475     $ 353,373  

Cost of goods sold

    104,132       111,841       221,466       206,494  

Gross profit

    75,288       81,200       158,009       146,879  

Selling, general, and administrative

    36,269       26,190       70,611       50,202  

Research and development costs

    8,196       7,065       16,357       13,034  

Amortization of intangible assets

    3,662       3,502       7,323       6,838  

Acquisition and restructuring costs

    1,691       2,676       1,981       21,509  

Related party acquisition and management fee costs

          1,658             2,539  

Other operating expense (income)

    325       47       547       (86 )

Total operating expense

    50,143       41,138       96,819       94,036  

Operating income

    25,145       40,062       61,190       52,843  

Change in fair value of warrant liability

    (23,168 )           (20,941 )      

Change in fair value of earn-out liability

    (4,234 )           (1,853 )      

Interest expense

    8,961       11,174       16,352       21,245  

Total non-operating (income) expense

    (18,441 )     11,174       (6,442 )     21,245  

Income before income taxes

    43,586       28,888       67,632       31,598  

Income tax expense

    3,023       5,790       10,211       10,556  

Net income

  $ 40,563     $ 23,098     $ 57,421     $ 21,042  

Comprehensive income:

                               

Foreign currency translation adjustment

    501       35       742       19  

Total comprehensive income

  $ 41,064     $ 23,133     $ 58,163     $ 21,061  

Common Share Data:

                               

Weighted average common shares outstanding - basic

    116,931,623       67,673,884       116,398,177       67,673,884  

Weighted average common shares outstanding - diluted

    117,114,553       67,673,884       117,343,975       67,673,884  

Basic net income per share

  $ 0.35     $ 0.34     $ 0.49     $ 0.31  

Diluted net income per share

  $ 0.35     $ 0.34     $ 0.31     $ 0.31  

 

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

 

 

HOLLEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except share data)

(unaudited)

 

   

Common Stock

                                 
   

Shares

   

Amount

   

Additional Paid-In Capital

   

Accumulated Other Comprehensive Gain (Loss)

   

Retained Earnings (Accumulated Deficit)

   

Total

 

Balance at December 31, 2020

    100     $     $ 238,890     $ (674 )   $ 2,165     $ 240,381  

Retroactive application of recapitalization

    67,673,784       7       (7 )                  

Adjusted balance at December 31, 2020

    67,673,884       7       238,883       (674 )     2,165       240,381  

Net loss

                            (2,056 )     (2,056 )

Equity compensation

                131                   131  

Foreign currency translation

                      (16 )           (16 )

Balance at March 28, 2021

    67,673,884       7       239,014       (690 )     109       238,440  

Net income

                            23,098       23,098  

Equity compensation

                131                   131  

Foreign currency translation

                      35             35  

Balance at June 27, 2021

    67,673,884     $ 7     $ 239,145     $ (655 )   $ 23,207     $ 261,704  
                                                 

Balance at December 31, 2021

    115,805,639     $ 12     $ 329,705     $ (256 )   $ (24,974 )   $ 304,487  

Net income

                            16,858       16,858  

Equity compensation

                3,162                   3,162  

Foreign currency translation

                      241             241  

Issuance of earn-out shares

    1,093,750             14,689                   14,689  

Balance at April 3, 2022

    116,899,389       12       347,556       (15 )     (8,116 )     339,437  

Net income

                            40,563       40,563  

Equity compensation

                3,483                   3,483  

Warrants exercised

    33,333             383                   383  

Foreign currency translation

                      501             501  

Balance at July 3, 2022

    116,932,722     $ 12     $ 351,422     $ 486     $ 32,447     $ 384,367  

 

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

 

 

HOLLEY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

 

OPERATING ACTIVITIES

               

Net income

  $ 57,421     $ 21,042  

Adjustments to reconcile net income to net cash from operating activities:

               

Depreciation

    4,663       4,453  

Amortization of intangible assets

    7,323       6,838  

Amortization of deferred loan costs

    846       1,955  

Amortization of right of use assets

    2,753        

Gain on termination of leases

    (279 )      

Decrease in warrant liability

    (20,941 )      

Decrease in earn-out liability

    (1,853 )      

Increase in acquisition contingent consideration payable

          17,173  

Equity compensation

    6,645       262  

Change in deferred taxes

    (1,090 )     1,188  

Loss (gain) on disposal of property, plant and equipment

    336       (282 )

Provision for inventory reserves

    2,787       3,173  

Provision for credit losses

    145       410  

Change in operating assets and liabilities:

            -  

Accounts receivable

    (6,343 )     (12,457 )

Inventories

    (29,483 )     (708 )

Prepaids and other current assets

    3,838       (2,295 )

Accounts payable

    (5,778 )     6,038  

Accrued interest

    484       (901 )

Accrued and other liabilities

    (643 )     508  

Net cash provided by operating activities

    20,831       46,397  

INVESTING ACTIVITIES

               

Capital expenditures

    (9,609 )     (7,141 )

Proceeds from the disposal of fixed assets

    244       285  

Cash paid for acquisitions, net

    (14,077 )     (54,011 )

Net cash used in investing activities

    (23,442 )     (60,867 )

FINANCING ACTIVITIES

               

Net change under revolving credit agreement

    (25,000 )      

Proceeds from long-term debt

    27,000        

Principal payments on long-term debt

    (5,099 )     (1,539 )

Proceeds from issuance of common stock in connection with the exercise of warrants

    383        

Net cash used in financing activities

    (2,716 )     (1,539 )

Effect of foreign currency rate fluctuations on cash

    (443 )      

Net change in cash and cash equivalents

    (5,770 )     (16,009 )

Cash and cash equivalents:

               

Beginning of period

    36,325       71,674  

End of period

  $ 30,555     $ 55,665  

Supplemental disclosures of cash flow information:

               

Earn-out shares issued to Empower Sponsor Holdings LLC

  $ 14,689     $  

Cash paid for interest

  $ 16,005     $ 20,191  

Cash paid for income taxes

  $ 4,276     $ 7,182  

 

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

 

 
8

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

1.

Description of the Business, Basis of Presentation, and Summary of Significant Accounting Policies

 

Holley Inc., a Delaware corporation headquartered in Bowling Green, Kentucky (the “Company” or “Holley”), conducts operations through its wholly-owned subsidiaries. These operating subsidiaries are comprised of Holley Performance Products Inc. (“Holley Performance”), Hot Rod Brands, Inc. (“Hot Rod Brands”), Simpson Safety Solutions, Inc., B&M Racing and Performance Products, Inc., and Speedshop.com, Inc. Investment funds managed by Sentinel Capital Partners hold a controlling interest in Holley.

 

On July 16, 2021, (the “Closing” and such date, the “Closing Date”) the Company consummated the business combination (the “Business Combination”) pursuant to that certain Agreement and Plan of Merger dated March 11, 2021 (the “Merger Agreement”), by and among Empower Ltd., (“Empower”), Empower Merger Sub I Inc. (“Merger Sub I”), Empower Merger Sub II LLC (“Merger Sub II”), and Holley Intermediate Holdings, Inc. (“Holley Intermediate”). On the Closing Date, Empower changed its name to Holley Inc. See Note 2, “Business Combination and Acquisitions,” for more information.

 

Holley Intermediate, the predecessor to Holley, was incorporated on October 25, 2018 to effect the merger of Driven Performance Brands, Inc. (“Driven”) and the purchase of High Performance Industries, Inc. (“HPI”). The Company designs, manufactures and distributes performance automotive products to customers primarily in the United States, Canada and Europe. The Company is a leading manufacturer of a diversified line of performance automotive products, including carburetors, fuel pumps, fuel injection systems, nitrous oxide injection systems, superchargers, exhaust headers, mufflers, distributors, ignition components, engine tuners and automotive performance plumbing products. The Company is also a leading manufacturer of exhaust products as well as shifters, converters, transmission kits, transmissions, tuners and automotive software. The Company’s products are designed to enhance street, off-road, recreational and competitive vehicle performance through increased horsepower, torque and drivability. The Company has locations in North America, Canada, Italy and China.

 

Emerging Growth Company Status

 

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company is an emerging growth company, and, as such, has elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards.

 

Risks and Uncertainties

 

COVID-19 has adversely impacted global supply chain and general economic conditions. The Company has experienced disruptions and higher costs in manufacturing, supply chain, logistical operations, and shortages of certain Company products in distribution channels. The full extent of the impact of the COVID-19 pandemic on the Company's business and operational and financial performance and condition is currently uncertain and will depend on many factors outside the Company's control, including but not limited to the timing, extent, duration and effects of the virus and any of its mutations, the utilization and effectiveness of treatments and vaccines, the imposition of effective public safety and other protective measures, the further impact of COVID-19 on the global economy and demand for the Company's products and services. Should the ongoing COVID-19 pandemic, including any variants of COVID-19, not improve or worsen, or if the Company's attempt to mitigate its impact on its supply chain, operations and costs is not successful, the Company's business, results of operations, financial condition and prospects may be adversely affected.

 

9

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP" or “GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2021, as filed with the SEC on March 15, 2022 in the Company’s annual report on Form 10-K. In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, that are necessary for a fair presentation of financial results for the interim periods presented. Operating results for any quarter are not necessarily indicative of the results for the full fiscal year.

 

The Company operates on a calendar year that ends on December 31, 2022 and 2021. The three and six month periods ended July 3, 2022 and June 27, 2021 each included 13 weeks and 26 weeks, respectively.

 

Principles of Consolidation

 

These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

 

Summary of Significant Accounting Policies

 

The following are updates to the significant accounting policies described in our audited consolidated financial statements as of and for the year ended December 31, 2021.

 

Leases

 

Operating lease right of use (ROU) assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. The Company's leases may include options to extend or terminate the lease. These options to extend are included in the lease term when it is reasonably certain that the Company will exercise that option. Some leases have variable payments, however, because they are not based on an index or rate, they are not included in the ROU assets and liabilities. Variable payments for real estate leases primarily relate to common area maintenance, insurance, taxes and utilities. Since the Company's leases generally do not provide an implicit rate, the Company applies a portfolio approach using an estimated incremental borrowing rate based on the lease term and other information available at the commencement date in determining the present value of lease payments. The rate applied is based on the currency of the lease. Leases having a lease term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease. In addition, the Company has applied the practical expedient to account for the lease and non-lease components as a single lease component for all of the Company's leases. See Note 14, "Lease Commitments," for further details.

 

Warrants

 

The Company accounts for warrants to purchase its common stock as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

10

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

If a warrant does not meet the conditions for equity classification, it is carried in the consolidated balance sheet as a warrant liability measured at fair value, with subsequent changes in the fair value of the warrant recorded in the consolidated statements of comprehensive income as a non-operating expense. If a warrant meets both conditions for equity classification, the warrant is initially recorded in additional paid-in capital on the consolidated balance sheet, and the amount initially recorded is not subsequently re-measured at fair value. See Note 7, "Common Stock Warrants," and Note 8, "Fair Value Measurements," for further details.

 

Recent Accounting Pronouncements

 

Accounting Standards Recently Adopted

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) which requires lessees to recognize right-of-use assets, representing their right to use the underlying asset for the lease term, and lease liabilities on the balance sheet for all leases with terms greater than 12 months. The Company adopted the provisions of this guidance effective January 1, 2022, using the modified retrospective optional transition method. Therefore, the standard was applied beginning January 1, 2022 and prior periods were not restated. The adoption of the standard did not result in a cumulative-effect adjustment to the opening balance of retained earnings. The Company elected the package of practical expedients and implemented internal controls and executed changes to business processes to enable the preparation of financial information upon adoption. The adoption of the new standard resulted in the recognition of a right of use asset and short-term and long-term liabilities recorded on the Company's consolidated balance sheet related to operating leases. In addition, the adoption of the standard did not have a material impact on the Company's results of operations or cash flows. See Note 14, "Lease Commitments," for further details.

 

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirements Benefits – Defined Benefit Plans – General (Subtopic 715-20). The ASU will update disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. The Company adopted ASU 2019-12 on a retrospective basis as of January 1, 2022. Adoption did not result in a significant change to the Company's consolidated financial statement disclosures.

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) which is intended to simplify various aspects related to accounting for income taxes. The ASU removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 on a prospective basis as of January 1, 2022. Adoption of the ASU did not have a material effect on the Company's consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (Subtopic 470-20). ASU 2020-06 eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. The new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. The Company adopted ASU 2020-06 on January 1, 2022. Adoption of the ASU did not impact the Company's consolidated financial statements.

 

Accounting Standards Not Yet Adopted

 

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires entities to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current U.S. GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. Adoption of the provisions of ASU 2021-08 are effective for the Company's fiscal year beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.

 

11

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022. As of July 3, 2022, the Company did not adopt any expedients or exceptions under ASU 2020-04. The Company will continue to evaluate the impact of ASU 2020-04 and whether it will apply the optional expedients and exceptions.

 

2.

BUSINESS COMBINATION AND ACQUISITIONS

 

BUSINESS COMBINATION

 

On July 16, 2021, Holley consummated the Business Combination pursuant to the terms of the Merger Agreement, whereby (i) Merger Sub I, a direct wholly owned subsidiary of Empower, merged with and into Holley Intermediate, with Holley Intermediate surviving such merger as a wholly owned subsidiary of Holley (“Merger I”) and (ii) Merger Sub II, a direct wholly owned subsidiary of Empower, merged with and into Holley Intermediate, with Merger Sub II surviving such merger as a wholly owned subsidiary of Holley (“Merger II”).

 

Pursuant to the Merger Agreement, at the Closing, all outstanding shares of Holley Intermediate common stock as of immediately prior to the effective time of Merger I were cancelled and Holley Parent Holdings, LLC, the sole stockholder of Holley Intermediate (the “Holley Stockholder” or “Parent”), received $264,718 in cash and 67,673,884 shares of common stock (at a deemed value of $10.00 per share). The Company’s common stock is listed on the New York Stock Exchange (the "NYSE") under the symbol “HLLY.”

 

In connection with the Business Combination, a number of subscribers purchased from the Company an aggregate of 24,000,000 shares of common stock (the “PIPE”), for a purchase price of $10.00 per share, or $240,000 in the aggregate. Per the Merger Agreement, $100,000 of the PIPE proceeds were used to partially pay off Holley’s debt.

 

Pursuant to the Amended and Restated Forward Purchase Agreement (“A&R FPA”), at the Closing, 5,000,000 shares of the Company’s common stock and 1,666,667 warrants were issued to certain investors for an aggregate purchase price of $50,000. Pursuant to the A&R FPA, each warrant entitles the holder to purchase one share of the Company’s common stock at a price of $11.50 per share (the ”Public Warrants”), subject to certain conditions.

 

The Company also assumed 8,333,310 Public Warrants and 4,666,667 private placement warrants (the “Private Warrants”, and together with the Public Warrants, the “Warrants”) upon the Business Combination, all of which were issued in connection with Empower’s initial public offering. Each Warrant represents the right to purchase one share of the Company’s common stock at a price of $11.50 per share, subject to certain conditions. The Warrants became exercisable on October 9, 2021 (the one-year anniversary of Empower’s initial public offering) and expire on July 16, 2026 (five years after the Closing Date). The Public Warrants are listed on the NYSE under the symbol “HLLY WS.”

 

Additionally, Empower Sponsor Holdings LLC (the "Sponsor") received 2,187,500 shares of the Company’s common stock, which vest in two equal tranches upon achieving certain market share price milestones as outlined in the Merger Agreement during the earn-out period (“the “Earn-Out Shares”). The first tranche of Earn-Out Shares vested during the first quarter of 2022. Upon vesting, the first tranche of the Earn-Out Shares, or 1,093,750 shares, were issued and a liability of $14,689, representing the fair value of the shares on the date of vesting, was reclassified from liabilities to equity. The remaining tranche of Earn-Out Shares will be forfeited if the applicable conditions are not satisfied before July 16, 2028 (seven years after the Closing Date). The remaining Earn-Out Shares are classified as a liability on the condensed consolidated balance sheet and are remeasured at fair value with changes in the post-Business Combination fair value recognized in the Company’s condensed consolidated statement of comprehensive income as non-operating expense.

 

12

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

The Business Combination was accounted for as a reverse recapitalization in accordance with U.S. GAAP. This determination was primarily based on current shareholders of Holley having a relative majority of the voting power of the Company, the operations of Holley prior to the acquisition comprising the only ongoing operations of the Company, and senior management of Holley comprising the majority of the senior management of the Company. Under this method of accounting, Empower was treated as the acquired company for financial reporting. Accordingly, the Business Combination was accounted for as the equivalent of Holley issuing stock for the net assets of Empower, accompanied by a recapitalization. The net assets of Empower are stated at historical cost, with no goodwill or other intangible assets recorded. Reported amounts from operations included herein prior to the Business Combination are those of Holley Intermediate. The shares and corresponding capital amounts and earnings per share, prior to the Business Combination, have been retroactively restated based on shares received by the Holley Stockholder.

 

ACQUISITIONS

 

During the 26-weeks ended July 3, 2022, the Company has completed three acquisitions, and during the year ended December 31, 2021, the Company completed eight acquisitions. These acquisitions are expected to enhance the Company's portfolio of products and services in the automotive aftermarket and automotive safety solutions market.

 

The Company accounts for acquisitions using the acquisition method, and accordingly, the purchase price has been allocated based upon the fair value of the assets acquired and liabilities assumed. The valuation of the assets acquired and liabilities assumed is subject to revision. If additional information becomes available, the Company may further revise the purchase price allocation as soon as practical, but no later than one year from the acquisition date; however, material changes are not expected. Goodwill generated by the acquisitions is primarily attributable to the strong market position of the entities acquired.

 

Purchase price consideration for all acquisitions was paid primarily in cash. All acquisitions were for 100 percent of the acquired business and are reported in the Consolidated Statements of Cash Flows, net of acquired cash and cash equivalents. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are typically expensed in the periods in which the costs are incurred and are recorded in acquisition and restructuring costs. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

 

During the twenty-six weeks ended July 3, 2022, the Company acquired substantially all the assets of John's Ind., Inc. ("John's"), Southern Kentucky Classics ("SKC"), and Vesta Motorsports USA, Inc., doing business as RaceQuip ("RaceQuip"). These acquisitions were immaterial business combinations. Cash paid for the three acquisitions, net of cash acquired, was $13,778, and was funded with borrowings from the Company's credit facility and cash on hand. The acquisitions resulted in both amortizable and nonamortizable intangibles and goodwill totaling $9,059. The goodwill and intangibles generated as a result of these acquisitions are deductible for income tax purposes. The final allocation of the purchase price to specific assets acquired and liabilities assumed may change in future periods as the fair value estimates of inventory and intangibles are completed.

 

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

 

   

2022

 

Accounts receivable

  $ 959  

Inventory

    3,481  

Property, plant and equipment

    275  

Other assets

    1,132  

Tradenames

    1,689  

Customer relationships

    1,512  

Goodwill

    5,858  

Accounts payable

    (25 )

Accrued liabilities

    (1,103 )
    $ 13,778  

 

13

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

 

In 2021, the Company acquired substantially all the assets of Finspeed, LLC ("Finspeed"), Classic Instruments LLC, ADS Precision Machining, Inc., doing business as Arizona Desert Shocks, Rocket Performance Machine, Inc., doing business as Rocket Racing Wheels, and Speartech Fuel Injections Systems, Inc. These five acquisitions were individually immaterial business combinations that are material in the aggregate. Cash paid for the five immaterial acquisitions, net of cash acquired, was $19,685, and was funded with borrowings from the Company's credit facility and cash on hand. The acquisitions resulted in both amortizable and nonamortizable intangibles and goodwill totaling $13,023. The goodwill and intangibles generated as a result of these acquisitions are deductible for income tax purposes. The final allocation of the purchase price to specific assets acquired and liabilities assumed may change in future periods as the fair value estimates of inventory and intangibles are completed. However, for Finspeed, the measurement period has ended and the final fair value estimates of acquired assets and liabilities is reflected below.

 

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

 

   

2021
(as initially reported)

   

Measurement
Period
Adjustments

   

2021
(as adjusted)

 

Cash

  $ 122             $ 122  

Accounts receivable

    618               618  

Inventory

    3,975               3,975  

Property, plant and equipment

    2,274               2,274  

Other assets

    23               23  

Tradenames

    2,608               2,608  

Customer relationships

    2,450               2,450  

Goodwill

    8,087       (122 )     7,965  

Accounts payable

    (343 )             (343 )

Accrued liabilities

    (129 )     122       (7 )
    $ 19,685     $     $ 19,685  

 

The fair value of the acquired customer relationship intangible assets were estimated using the excess earnings approach. The customer relationship intangible assets are being amortized based on the attrition rate of customers which have an estimated weighted average life of 18 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

 

The remaining three acquisitions completed during 2021 are described below.

 

Baer, Inc.

 

On December 23, 2021, the Company acquired substantially all the assets and liabilities of Baer, Inc., doing business as Baer Brakes. Consideration for the assets acquired was cash payments of $22,170. The acquisition resulted in both amortizable and non-amortizable intangibles and goodwill totaling $18,989. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded with borrowings from the Company's credit facility and cash on hand. The determination of the final purchase price allocation to specific assets acquired and liabilities assumed may change in future periods as the fair value estimates of inventory and intangibles are completed.

 

14

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

 

   

December 23, 2021 (as initially reported)

   

Measurement Period Adjustments

   

December 23, 2021 (as adjusted)

 

Accounts receivable

  $ 627             $ 627  

Inventory

    1,813               1,813  

Property, plant and equipment

    695               695  

Other assets

    76               76  

Tradenames

    4,630               4,630  

Customer relationships

    6,075               6,075  

Goodwill

    8,363       (79 )     8,284  

Accounts payable

    (81 )     79       (2 )

Accrued liabilities

    (28 )             (28 )
    $ 22,170     $     $ 22,170  

 

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

 

The contractual value of the accounts receivable acquired was $800.

 

Brothers Mail Order Industries, Inc.

 

On December 16, 2021, the Company acquired substantially all the assets and liabilities of Brothers Mail Order Industries, Inc., doing business as Brothers Trucks. Consideration for the assets acquired was cash payments of $26,135. The acquisition resulted in non-amortizable intangibles and goodwill totaling $24,835. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded with borrowings from the Company's credit facility and cash on hand. The determination of the final purchase price allocation to specific assets acquired and liabilities assumed may change in future periods as the fair value estimates of inventory and intangibles are completed.

 

The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

 

   

December 16, 2021 (as initially reported)

   

Measurement Period Adjustments

   

December 16, 2021 (as adjusted)

 

Accounts receivable

  $ 22             $ 22  

Inventory

    1,682               1,682  

Property, plant and equipment

    20               20  

Other assets

    13               13  

Tradenames

    4,975               4,975  

Goodwill

    19,561       299       19,860  

Accounts payable

    (34 )             (34 )

Accrued liabilities

    (403 )             (403 )
    $ 25,836     $ 299     $ 26,135  

 

The fair value of the acquired tradenames intangible asset was estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life.

 

The contractual value of the accounts receivable acquired was $22.

 

15

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

Advance Engine Management Inc.

 

On April 14, 2021, the Company acquired substantially all the assets and liabilities of Advance Engine Management Inc. doing business as AEM Performance Electronics. Consideration for the assets acquired was cash payments of $51,243. The acquisition resulted in both amortizable and non-amortizable intangibles and goodwill, totaling $44,486. The goodwill and intangibles generated as a result of this acquisition are deductible for income tax purposes. The purchase price was funded from cash on hand.

 

The determination of the final purchase price allocation to specific assets acquired and liabilities assumed was adjusted to reflect the final fair value estimate of acquired assets and liabilities, as noted below. The allocation of the purchase price to the assets acquired and liabilities assumed was based on estimates of the fair value of the net assets as follows:

 

   

April 14, 2021
(as initially reported)

   

Measurement
Period
Adjustments

   

April 14, 2021
(as adjusted)

 

Accounts receivable

  $ 3,454     $ (61 )   $ 3,393  

Inventory

    3,892             3,892  

Property, plant and equipment

    1,342             1,342  

Other assets

    493       (91 )     402  

Tradenames

    10,760             10,760  

Customer relationships

    14,640             14,640  

Patents

    1,970             1,970  

Technology intangibles

    110             110  

Goodwill

    17,426       (420 )     17,006  

Accounts payable

    (2,032 )     110       (1,922 )

Accrued liabilities

    (489 )     139       (350 )
    $ 51,566     $ (323 )   $ 51,243  

 

The fair value of the acquired customer relationship intangible asset was estimated using the excess earnings approach. The customer relationship intangible asset is being amortized based on the attrition rate of customers which was determined to be 20 years. The fair value of the acquired tradenames and patents intangible assets were estimated using the relief from royalty method, a form of the income approach. The tradenames were determined to have an indefinite life. The patents are being amortized over 13 years based on the weighted average remaining life of the patent portfolio.

 

The contractual value of the accounts receivable acquired was $3,454.

 

3.

INVENTORY

 

Inventories of the Company consisted of the following:

 

   

July 3,

   

December 31,

 
   

2022

   

2021

 

Raw materials

  $ 61,146     $ 54,818  

Work-in-process

    26,334       21,728  

Finished goods

    127,387       108,494  
    $ 214,867     $ 185,040  

 

16

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

4.

PROPERTY, PLANT AND EQUIPMENT, NET

 

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

 

   

July 3,

   

December 31,

 
   

2022

   

2021

 

Land

  $ 3,426     $ 1,330  

Buildings and improvements

    10,935       10,623  

Machinery and equipment

    63,367       56,824  

Construction in process

    12,076       12,859  

Total property, plant and equipment

    89,804       81,636  

Less: accumulated depreciation

    33,795       30,141  

Property, plant and equipment, net

  $ 56,009     $ 51,495  

 

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

 

   

July 3,

   

December 31,

 
   

2022

   

2021

 

United States

  $ 54,260     $ 49,547  

International

    1,749       1,948  

Total property, plant and equipment, net

  $ 56,009     $ 51,495  

 

5.

GOODWILL AND OTHER INTANGIBLE ASSETS

 

The following presents changes to goodwill for the period indicated:

 

   

For the twenty-six weeks ended July 3, 2022

 

Balance at December 31, 2021

  $ 411,383  

John's acquisition

    240  

SKC acquisition

    1,270  

RaceQuip acquisition

    4,348  

Measurement period adjustments*

    98  

Balance at July 3, 2022

  $ 417,339  

* See Note 2, "Business Combination and Acquisitions - Acquisitions," for further details."

 

Goodwill represents the premium paid over the fair value of the net tangible and identifiable intangible assets acquired in the Company's business combinations. The measurement period for the valuation of assets acquired and liabilities assumed ends as soon as information on the facts and circumstances that existed as of the acquisition date becomes available, not to exceed 12 months. Adjustments in purchase price allocations may require a change in the amounts allocated to goodwill during the periods in which the adjustments are determined.

 

17

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

Intangible assets consisted of the following:

 

   

July 3, 2022

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Value

 

Finite-lived intangible assets:

                       

Customer relationships

  $ 269,950     $ (38,401 )   $ 231,549  

Tradenames

    13,775       (4,481 )     9,294  

Technology

    26,676       (10,302 )     16,374  

Total finite-lived intangible assets

  $ 310,401     $ (53,184 )   $ 257,217  
                         

Indefinite-lived intangible assets:

                       

Tradenames

  $ 176,903           $ 176,903  

 

   

December 31, 2021

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Value

 

Finite-lived intangible assets:

                       

Customer relationships

  $ 268,438     $ (32,662 )   $ 235,776  

Tradenames

    13,775       (4,119 )     9,656  

Technology

    26,675       (9,080 )     17,595  

Total finite-lived intangible assets

  $ 308,888     $ (45,861 )   $ 263,027  
                         

Indefinite-lived intangible assets:

                       

Tradenames

  $ 175,434           $ 175,434  

 

The following outlines the estimated future amortization expense related to intangible assets held as of July 3, 2022:

 

2022 (excluding the twenty-six weeks ended July 3, 2022)

  $ 7,372  

2023

    14,582  

2024

    13,769  

2025

    13,739  

2026

    13,633  

Thereafter

    194,122  

Total

  $ 257,217  

 

6.

DEBT

 

Debt of the Company consisted of the following:

 

   

July 3,

   

December 31,

 
   

2022

   

2021

 

First lien term loan due November 17, 2028

  $ 652,350     $ 630,000  

Revolver

          25,000  

Other

    3,124       3,812  

Less unamortized debt issuance costs

    (12,418 )     (13,264 )
      643,056       645,548  

Less current portion of long-term debt

    (6,300 )     (7,875 )
    $ 636,756     $ 637,673  

 

On November 18, 2021, the Company entered into a new credit facility with a syndicate of lenders and Wells Fargo Bank, N.A., as administrative agent for the lenders, letter of credit issuer and swing line lender (the "Credit Agreement"). The financing consisted of a seven-year $600,000 first lien term loan, a five-year $125,000 revolving credit facility, and a $100,000 delayed draw term loan. 

 

18

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

The proceeds of any delayed draw loans made after closing were available to the Company to finance acquisitions. As of July 3, 2022, the Company had drawn $57,000 under the delayed draw term loan. Availability under the delayed draw term loan expired in May 2022.

 

The revolving credit facility includes a letter of credit facility in the amount of $10,000, pursuant to which letters of credit may be issued as long as revolving loans may be advanced and subject to availability under the revolving credit facility. The Company had $1,236 in outstanding letters of credit at July 3, 2022.

 

Proceeds from the new credit facility were used to repay in full the Company’s obligations under its existing first lien and second lien notes and to pay $13,413 in original issue discount and issuance costs related to the refinancing.

 

The first lien term loan is to be repaid in quarterly payments of $1,575 through September 30, 2028 with the balance due upon maturity on November 17, 2028. Beginning with the fiscal year ending on December 31, 2022, the Company is required to make a payment based on its available free cash flow (as defined in the Credit Agreement). Any such payments offset future mandatory quarterly payments.

 

Amounts outstanding under the new credit facility will accrue interest at a rate equal to either the London Interbank Offering Rate ("LIBOR") or base rate, at the Company's election, plus a specified margin. In the case of revolving credit loans and letter of credit fees, the specified margin is based on the Company's Total Leverage Ratio, as defined in the Credit Agreement. Commitment fees payable under the revolving credit facility are based on the Company's Total Leverage Ratio. At July 3, 2022, the weighted average interest rate on the Company's borrowings under the credit facility was 5.2%.

 

Obligations under the Credit Agreement are secured by substantially all of the Company’s assets. The Credit Agreement includes representations and warranties and affirmative and negative covenants customary for financings of this type, including, but not limited to, limitations on restricted payments, additional borrowings, additional investments, and asset sales. The Credit Agreement also requires that Holley maintain on the last day of each quarter, a Total Leverage Ratio not to exceed a maximum amount. At July 3, 2022, the Company was in compliance with all financial covenants.

 

Some of the lenders that are parties to the Credit Agreement, and their respective affiliates, have various relationships with the Company in the ordinary course of business involving the provision of financial services, including cash management, commercial banking, investment banking or other services.

 

Future maturities of long-term debt and amortization of debt issuance costs as of July 3, 2022 are as follows:

 

2022 (excluding the twenty-six weeks ended July 3, 2022)

  $ 3,563     $ 867  

2023

    7,132       1,782  

2024

    7,140       1,690  

2025

    7,335       1,909  

2026

    6,300       1,980  

Thereafter

    624,004       4,190  
    $ 655,474     $ 12,418  

 

19

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

7.

COMMON STOCK WARRANTS

 

Upon the Closing, there were 14,666,644 Warrants, consisting of 9,999,977 Public Warrants and 4,666,667 Private Warrants, outstanding to purchase shares of the Company's common stock that were issued by Empower prior to the Business Combination. Each warrant entitles the registered holder to purchase one share of the Company's common stock at a price of $11.50 per share, subject to adjustments, commencing on October 9, 2021 (the one-year anniversary of Empower’s initial public offering), provided that the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities laws of the state of residence of the holder. The Warrants may be exercised only for a whole number of shares of the Company’s common stock. The Warrants expire on July 16, 2026, the date that is five years after the Closing date, or earlier upon redemption or liquidation. Additionally, the Private Warrants will be non-redeemable and are exercisable on a cashless basis so long as they are held by the Sponsor or any of its permitted transferees. If the Private Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

 

The Company may redeem the Public Warrants at a price of $0.01 per warrant upon 30 days' notice if the closing price of the Company’s common stock equals or exceeds $18.00 per share, subject to adjustments, on the trading day prior to the date on which notice of redemption is given, provided there is an effective registration statement and current prospectus in effect with respect to the ordinary shares underlying such Warrants throughout the 30-day redemption period. If the foregoing conditions are satisfied and the Company issues a notice of redemption of the Warrants, the Warrant holder is entitled to exercise his, her or its Warrant prior to the scheduled redemption date. Any such exercise requires the Warrant holder to pay the exercise price for each Warrant being exercised.

 

Further, the Company may redeem the Public Warrants at a price of $0.10 per warrant upon 30 days' notice if the closing price of the Company’s common stock equals or exceeds $10.00 per share, subject to adjustments, on the trading day prior to the date on which notice of redemption is given. Beginning on the date the notice of redemption is given until the Warrants are redeemed or exercised, holders may elect to exercise their Warrants on a cashless basis and receive that number of shares of the Company’s common stock as determined by reference to a table in the warrant agreement.

 

During any period when the Company has failed to maintain an effective registration statement, warrant holders may exercise warrants on a cashless basis in accordance with Section 3(a)(9) of the Securities Act or another exemption, but the Company will use its commercially reasonable best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.

 

In April 2022, the Company issued 33,333 shares of common stock in connection with the exercise of Public Warrants assumed in the Business Combination.

 

The Company’s Warrants are accounted for as a liability in accordance with ASC 815-40 and are presented as a warrant liability on the balance sheet. The warrant liability was measured at fair value at inception and on a recurring basis, with changes in fair value recognized as non-operating expense. As of July 3, 2022, a warrant liability with a fair value of $40,352 was reflected as a long-term liability in the condensed consolidated balance sheet, and a $23,168 and $20,941 decrease in the fair value of the warrant liability was reflected as change in fair value of warrant liability in the condensed consolidated statements of comprehensive income for the 13-week and 26-week periods ended July 3, 2022, respectively.

 

20

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

8.

FAIR VALUE MEASUREMENTS

 

The Company’s financial liabilities subject to fair value measurement on a recurring basis and the level of inputs used for such measurements were as follows:

 

   

Fair Value Measured as of July 3, 2022

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

Liabilities included in:

                               

Warrant liability (Public)

  $ 26,212     $     $     $ 26,212  

Warrant liability (Private)

                14,140       14,140  

Earn-out liability

                10,054       10,054  

Total fair value

  $ 26,212     $     $ 24,194     $ 50,406  

 

   

Fair Value Measured as of December 31, 2021

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 

Liabilities included in:

                               

Warrant liability (Public)

  $ 39,500     $     $     $ 39,500  

Warrant liability (Private)

                21,793       21,793  

Earn-out liability

                26,596       26,596  

Total fair value

  $ 39,500     $     $ 48,389     $ 87,889  

 

As of July 3, 2022, the Company's derivative liabilities for its private and public warrants and the earn-out liability (see Note 2, “Business Combination and Acquisitions,” for more details) are measured at fair value on a recurring basis. The fair value for the private warrants and earn-out liability are determined based on significant inputs not observable in the market (Level 3). The valuation of the Level 3 liabilities uses assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates are obtained. The Company uses a Monte Carlo simulation model to estimate the fair value of its private warrants and earn-out liability. The fair value of the public warrants is determined using publicly traded prices (Level 1). Changes in the fair value of the derivative liabilities related to warrants and the earn-out liability are recognized as non-operating expense in the condensed consolidated statements of comprehensive income.

 

The fair value of private warrants was estimated as of the measurement date using the Monte Carlo simulation model with the following assumptions:

 

   

July 3,

   

December 31,

 
   

2022

   

2021

 

Valuation date price

  $ 10.98     $ 12.99  

Strike price

  $ 11.50     $ 11.50  

Remaining life (in years)

    4.04       4.54  

Expected dividend

  $     $  

Risk-free interest rate

    2.83 %     1.19 %

Price threshold

  $ 18.00     $ 18.00  

 

The fair value of the earn-out liability was estimated as of the measurement date using the Monte Carlo simulation model with the following assumptions:

 

   

July 3,

   

December 31,

 
   

2022

   

2021

 

Valuation date price

  $ 10.98     $ 12.99  

Expected term (in years)

    6.04       6.54  

Expected volatility

    39.78 %     40.59 %

Risk-free interest rate

    2.86 %     1.40 %

Price hurdle 1

 

not applicable

    $ 13.00  

Price hurdle 2

  $ 15.00     $ 15.00  

 

21

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

As of July 3, 2022 and December 31, 2021, the Company has accounts receivable, accounts payable and accrued expenses for which the carrying value approximates fair value due to the short-term nature of these instruments. The carrying value of the Company’s long-term debt approximates fair value as the rates used approximate the market rates currently available to the Company. Fair value measurements used in the impairment reviews of goodwill and intangible assets are Level 3 measurements.

 

The reconciliation of changes in Level 3 during the 26-week period ended July 3, 2022 is as follows:

 

   

For the twenty-six weeks ended July 3, 2022

 
   

Private Warrants

   

Earn-Out Liability

   

Total

 

Balance at December 31, 2021

  $ 21,793     $ 26,596     $ 48,389  

Liabilities reclassed to equity

          (14,689 )     (14,689 )

Losses included in earnings

    (7,653 )     (1,853 )     (9,506 )

Balance at July 3, 2022

  $ 14,140     $ 10,054     $ 24,194  

 

9.

REVENUE

 

The principal activity from which the Company generates its revenue is the manufacturing and distribution of after-market automotive parts for its customers, comprised of resellers and end users. The Company recognizes revenue at a point in time, rather than over time, as the performance obligation is satisfied when customer obtains control of the product upon title transfer and not as the product is manufactured or developed. The amount of revenue recognized is based on the purchase order price and adjusted for revenue allocated to variable consideration (i.e., estimated rebates, co-op advertising, etc.).

 

The Company collects sales tax and other taxes concurrent with revenue-producing activities which are excluded from revenue. Shipping and handling costs incurred after control of the product is transferred to our customers are treated as fulfillment costs and not a separate performance obligation.

 

The Company allows customers to return products when certain Company-established criteria are met. These sales returns are recorded as a charge against gross sales in the period in which the related sales are recognized, net of returns to stock. Returned products, which are recorded as inventories, are valued at the lower of cost or net realizable value. The physical condition and marketability of the returned products are the major factors considered in estimating realizable value. The Company also estimates expected sales returns and records the necessary adjustment as a charge against gross sales.

 

The Company’s payment terms with customers are customary and vary by customer and geography but typically range from 30 to 365 days. The Company elected the practical expedient to disregard the possible existence of a significant financing component related to payment on contracts, as the Company expects that customers will pay for the products within one year. The Company has evaluated the terms of our arrangements and determined that they do not contain significant financing components. Additionally, as all contracts with customers have an expected duration of one year or less, the Company has elected the practical expedient to exclude disclosure of information regarding the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period. The Company provides limited warranties on most of its products against certain manufacturing and other defects. Provisions for estimated expenses related to product warranty are made at the time products are sold. Refer to Note 16 for more information.

 

22

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

The following table summarizes total revenue by product category. The Company's product category definitions have been revised by management in 2022. The prior-year period has been revised to conform with the current presentation. There is no change to total sales.

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

Electronic systems

  $ 71,060     $ 87,195     $ 157,206     $ 157,934  

Mechanical systems

    44,206       42,042       90,048       78,131  

Exhaust

    18,037       23,042       37,369       43,342  

Accessories

    28,353       22,508       57,099       39,941  

Safety

    17,764       18,254       37,753       34,025  

Total sales

  $ 179,420     $ 193,041     $ 379,475     $ 353,373  

 

The following table summarizes total revenue based on geographic location from which the product is shipped:

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

United States

  $ 173,514     $ 187,993     $ 369,573     $ 345,570  

Italy

    5,906       5,048       9,902       7,803  

Total sales

  $ 179,420     $ 193,041     $ 379,475     $ 353,373  

 

10.

INCOME TAXES

 

The Company's effective income tax rate is based on expected income, statutory rates and tax planning opportunities available in the various jurisdictions in which it operates. For interim financial reporting, the Company estimates the annual income tax rate based on projected taxable income for the full year and records a quarterly income tax provision or benefit in accordance with the anticipated annual rate. The Company refines the estimates of the year's taxable income as new information becomes available, including actual year-to-date financial results. This continual estimation process often results in a change to the expected effective income tax rate for the year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected income tax rate. Significant judgment is required in determining the effective tax rate and in evaluating tax positions.

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

Income tax expense

  $ 3,023     $ 5,790     $ 10,211     $ 10,556  

Effective tax rates

    6.9 %     20.0 %     15.1 %     33.4 %

 

For the 13-week period ended July 3, 2022, the Company's effective tax rate of 6.9% differed from the 21% federal statutory rate primarily due to permanent differences related to changes in fair value of the Private Warrants and the earn-out liability recognized during the period. For the 13-week period ended June 27, 2021, the Company’s effective tax rate was 20.0%.

 

For the 26-week period ended July 3, 2022, the Company's effective tax rate of 15.1% differed from the 21% federal statutory rate primarily due to permanent differences related to changes in fair value of the Private Warrants and the earn-out liability recognized during the period. For the 26-week period ended June 27, 2021, the Company’s effective tax rate of 33.4% differed from the 21% federal statutory rate primarily due a permanent difference resulting from the change in fair value of an earn-out liability related to the 2020 acquisition of Simpson Performance Products ("Simpson") recognized during the period.

 

23

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

11.

EARNINGS PER SHARE

 

The following table sets forth the calculation of basic and diluted earnings per share:

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

Numerator:

                               

Net income - basic

  $ 40,563     $ 23,098     $ 57,421     $ 21,042  

Less: fair value adjustment for warrants

                (20,941 )      

Net income - diluted

  $ 40,563     $ 23,098     $ 36,480     $ 21,042  

Denominator:

                               

Weighted average common shares outstanding - basic

    116,931,623       67,673,884       116,398,177       67,673,884  

Dilutive effect of potential common shares from RSUs

    182,930             177,642        

Dilutive effect of potential common shares from warrants

                768,156        

Weighted average common shares outstanding - diluted

    117,114,553       67,673,884       117,343,975       67,673,884  

Earnings per share:

                               

Basic

  $ 0.35     $ 0.34     $ 0.49     $ 0.31  

Diluted

  $ 0.35     $ 0.34     $ 0.31     $ 0.31  

 

The following outstanding shares of common stock equivalents were excluded from the calculation of diluted earnings per share because their effect would have been anti-dilutive. Warrants to purchase shares of common stock having an exercise price greater than the average share market price for the thirteen weeks ended July 3, 2022 are excluded from the calculation of diluted earnings per share. 

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

Anti-dilutive shares excluded from calculation of diluted EPS:

                               

Warrants

    14,633,311                    

Stock options

    1,960,708             1,960,708        

Restricted stock units

    220,051             220,051        

Earn-out shares

    1,093,750             1,093,750        

Total anti-dilutive shares

    17,907,820             3,274,509        

 

12.

BENEFIT PLANS

 

The Company has a defined benefit pension plan (the “Plan”) for its employees. On January 28, 2022, the Company approved the termination of the Plan, effective March 31, 2022. Distribution of the Plan's assets, pursuant to the termination, will not be made until the Plan termination satisfies all regulatory requirements, which is expected to be completed by the fourth quarter of 2022. Plan participants will receive their full accrued benefits from the Plan's assets by electing either lump sum distributions or annuity contracts with a qualifying third-party annuity provider. The resulting settlement effect of the Plan termination will be determined based on prevailing market conditions, the lump sum offer participation rate of eligible participants, the actual lump sum distributions, and annuity purchase rates at the date of distribution. The Company estimates that the settlement charge will be in the range of $400 - $550.

 

The following summarizes the components of net periodic benefit cost for the Plan:

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

Components of expense:

                               

Service cost

  $ 27     $ 36     $ 54     $ 36  

Interest cost

    32       38       64       38  

Expected return on plan assets

    (52 )     (61 )     (104 )     (61 )

Amortization of net loss

          5             5  

Net periodic benefit cost

  $ 7     $ 18     $ 14     $ 18  

 

24

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

The Company made matching contributions totaling $1,156 and $526 to our 401(k) plan during the 13-week periods ended July 3, 2022 and June 27, 2021, respectively. The Company made matching contributions totaling $1,844 and $1,000 to our 401(k) plan during the 26-week periods ended July 3, 2022 and June 27, 2021, respectively.

 

The Company made no contributions and contributions of $98 to the Plan during the 13-week periods ended July 3, 2022 and June 27, 2021, respectively. The Company made contributions of $150 and $117 to the Plan during the 26-week periods ended July 3, 2022 and June 27, 2021, respectively.

13.

EQUITY-BASED COMPENSATION PLANS

 

In 2021, the Company adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”), which provides for the grant of restricted stock awards, incentive and nonqualified stock options, and other share based awards to employees, directors and non-employees. The 2021 Plan authorized 8,850,000 shares of the Company’s common stock to be available for award grants. As of July 3, 2022, 5,951,568 shares of common stock remained available for future issuance under the 2021 Plan.

 

Equity-based compensation expense included the following components:

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

Stock options

  $ 652     $     $ 1,205     $  

Restricted stock units

    1,350             2,533        

Profit interest units

    1,481       131       2,907       262  

 

All equity-based compensation expense is recorded in selling, general and administrative costs in the condensed consolidated statements of comprehensive income.

 

Stock Options

 

Stock option grants have an exercise price at least equal to the market value of the underlying common stock on the date of grant, have ten-year terms, and vest ratably over three years of continued employment. In general, vested options expire if not exercised at termination of service. On February 15, 2022 and May 6, 2022, the Company granted 548,001 and 44,055 options to purchase shares of the Company’s common stock to key employees, respectively. These stock options had weighted-average grant date fair values of $4.68 per share and $4.32 per share, respectively, which values were estimated as of their respective grant dates using a Black-Scholes option pricing model with the following assumptions:

 

   

Granted Feb. 15, 2022

   

Granted May 6, 2022

 

Weighted-average expected term

    6.0       6.0  

Expected volatility

    36.0 %     40.0 %

Expected dividend

  $     $  

Risk-free interest rate

    1.98 %     3.06 %

 

The expected term has been estimated using a simplified method, which calculates the expected term as the mid-point between the vesting date and the contractual life of the awards since the Company does not have an extended history of actual exercises. The expected dividend yield is assumed to be zero since the Company has never paid dividends and does not have current plans to pay any dividends. The risk-free interest rate is based on yields of U.S. Treasury securities with maturities similar to the expected term of the options. Expected volatility is based on an evenly weighted blend of implied volatility and historical volatility of publicly-traded peer companies since the Company has limited historical volatility.

 

Compensation expense for stock options is recorded based on straight-line amortization of the grant date fair value over the requisite service period. As of July 3, 2022, there was $5,986 of unrecognized compensation cost related to unvested stock options that is expected to be recognized over a remaining weighted-average period of 2.3 years.

 

25

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

Restricted Stock Units

 

Restricted stock units (“RSUs”) vest ratably over one to three years of continued employment. The fair value of a RSU at the grant date is equal to the market price of the Company’s common stock on the grant date. On February 15, 2022 and May 6, 2022, the Company granted 228,180 and 16,767 RSUs, respectively to key employees with grant date fair values of $12.29 per unit and $9.95 per unit, respectively. Additionally, on May 11, 2022, 55,920 RSUs were granted to members of Holley's Board of Directors with a grant date fair value of $8.53 per unit. Compensation expense for RSUs is recorded based on amortization of the grant date fair market value over the period the restrictions lapse. As of July 3, 2022, there was $7,630 of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a remaining weighted average period of 2.2 years.

 

Profit Interest Units

 

The Holley Stockholder has authorized an incentive pool of 41.4 million units of Parent, which are designated as PIUs, that its management has the right to grant to certain employees of the Company. As of July 3, 2022, no units are available for grant. The PIU's are a special type of limited liability company equity unit that allows the recipient to potentially participate in a future increase in the value of the Company. PIUs are issued for no consideration and generally provide for vesting over the requisite service period, subject to the recipient remaining an employee of the Company through each vesting date.

 

As of July 3, 2022, there was $6,578 of unrecognized compensation cost related to unvested time-based PIUs that is expected to be recognized over a remaining weighted-average period of 1.2 years.

 

14.

LEASE COMMITMENTS

 

On January 1, 2022, the Company adopted ASC 842 using the modified retrospective optional transition method provided by ASU 2018-11. The effect of applying this guidance resulted in an increase in noncurrent assets for right-of-use assets of $33.9 million and an increase in liabilities for associated lease obligations of $34.6 million, most of which were classified as noncurrent. The adoption of the standard did not result in a cumulative-effect adjustment to the opening balance of retained earnings.

 

Under the transition option elected by the Company, ASC 842 is applied only to the most current period and reporting for comparative periods presented in the financial statements continues to be in accordance with Topic 840, including disclosures. Upon adoption, the Company elected the following practical expedients related to ASC 842:

 

 

not reassess whether any expired or existing contracts are or contain leases, not reassess the lease classification for any expired or existing leases, and not reassess initial direct costs for any existing leases;

 

 

to account for the lease and non-lease components as a single lease component for all of the Company's leases; and

 

 

to apply accounting similar to Topic 840 to leases that meet the definition of short-term leases.

 

The Company leases retail stores, manufacturing, distribution, engineering, and research and development facilities, office space, equipment, and automobiles under operating lease agreements. Leases have remaining lease terms of one to 14 years, inclusive of renewal options that the Company is reasonably certain to exercise.

 

The following table summarizes operating lease assets and obligations:

 

   

July 3, 2022

 

Assets:

       

Operating right of use assets

  $ 32,762  

Liabilities:

       

Current operating lease liabilities

  $ 5,006  

Long-term lease liabilities

    28,225  

Total lease liabilities

  $ 33,231  

 

26

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

The following summarizes the components of operating lease expense and provides supplemental cash flow information for operating leases:

 

   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

July 3, 2022

 

Components of lease expense:

               

Operating lease expense

  $ 1,482     $ 3,901  

Short-term lease expense

    642       1,250  

Variable lease expense

    327       414  

Total lease expense

  $ 2,451     $ 5,565  

Supplemental cash flow information related to leases:

               

Cash paid for amounts included in measurement of operating lease liabilities

  $ 1,821     $ 3,581  

Right of use assets obtained in exchange for new operating lease liabilities

    13,491       13,769  

Decapitalization of right-of-use assets upon lease termination and/or modification

    12,178       12,178  

 

Information associated with the measurement of operating lease obligations as of July 3, 2022 is as follows:

 

Weighted average remaining lease term (in years)

    8.0  

Weighted average discount rate

    5.67 %

 

The following table summarizes the maturities of the Company's operating lease liabilities as of July 3, 2022:

 

2022 (excluding the twenty-six weeks ended July 3, 2022)

  $ 3,718  

2023

    6,830  

2024

    5,583  

2025

    3,867  

2026

    3,660  

Thereafter

    18,318  

Total lease payments

    41,976  

Less imputed interest

    (8,745 )

Present value of lease liabilities

  $ 33,231  

 

For the 13-week and 26-week periods ended June 27, 2021, total rent expense under operating leases approximated $1,979 and $3,672.

 

In accordance with ASC 840, Leases, the aggregate minimum non-cancelable annual lease payments under operating leases in effect on December 31, 2021 were as follows:

 

2022

  $ 8,517  

2023

    6,320  

2024

    4,766  

2025

    2,995  

2026

    2,813  

Thereafter

    8,546  

Total minimum lease commitments

  $ 33,957  

 

27

HOLLEY INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
(unaudited)

 

15.

ACQUISITION, RESTRUCTURING AND MANAGEMENT FEE COSTS

 

The following table summarizes the Company's total acquisition, restructuring and management fee costs:

 

<
   

For the thirteen weeks ended

   

For the twenty-six weeks ended

 
   

July 3, 2022

   

June 27, 2021

   

July 3, 2022

   

June 27, 2021

 

Acquisitions (1)

  $ 1,372     $ 2,172     $ 1,621     $ 3,211  

Restructuring (2)

    319       504       360       1,125  

Management fees (3)