We estimate that our net proceeds from the sale of the common stock that we
are offering will be approximately $88.2 million, assuming an initial public
offering price of $14.00 per share, which is the midpoint of the range of the
initial public offering price listed on the cover page of this prospectus, and
after deducting assumed underwriting discounts and commissions and estimated
offering expenses payable by us. A $1.00 increase or decrease in the assumed
initial public offering price of $14.00 per share would increase or decrease
the net proceeds to us from this offering (after deducting assumed
underwriting discounts and commissions) by $6.6 million, assuming the number
of shares offered by us, as set forth on the cover page of this prospectus,
remains the same. An increase or decrease of 100,000 shares in the number of
shares sold in this offering by us would increase or decrease the net proceeds
to us from this offering (after deducting assumed underwriting discounts and
commissions) by $1.3 million, assuming an initial public offering price of
$14.00 per share. We will not receive any proceeds from the sale of shares
of common stock by the selling stockholder.
We intend to use the net proceeds to us from this offering to repay a portion
of the amount outstanding under the term loan portion of our senior secured
credit facility. As of April 1, 2012, the interest rate on the term loan
portion of our senior secured credit facility, which is scheduled to mature
in June 2014, was 2.50%. We have used borrowings under our credit facility
for working capital purposes, capital expenditures and to fund acquisitions
of businesses and assets, including the acquisition of KMC.
The musical instruments industry is highly fragmented and is served by a
variety of companies, including independent instrument makers, large
multinational corporations, technology-based electronics manufacturers and
print publishers. We also compete with online sellers of new and used
products, the market for which we believe has grown with the increasing
popularity of websites such as eBay. In addition, from time to time,
national music retailers as well as mass merchants have carried their
own private-label products that compete with ours. Companies compete
based on price, style of instrument, sound and sound quality, features
and brand recognition. In the markets for fretted instruments and guitar
amplifiers, we and our significant competitors are each associated with
particular musicians and groups. We believe that our brands’ strong
recognition, innovative products and associations with leading musicians
and groups provide us with significant competitive advantages. We believe
our primary competitors within the electric guitar and bass guitar markets
include Gibson Guitar Corp. and its Epiphone subsidiary and Ibanez, a
subsidiary of Hoshino USA. In the acoustic guitar market, our primary
competitors include Martin & Co., Taylor Guitars and Yamaha Corporation.
In guitar amplifiers, our primary competitors include Line 6, Inc. and
Marshall Amplification PLC.
brands such as
Squier, Jackson, Guild, Ovation and Latin Percussion, which we own, and
Gretsch, EVH (Eddie Van Halen) and Takamine, for which we are the licensee.
We believe that the Fender brand in particular is closely associated with
the birth of rock ‘n roll and has a strong legacy in music and in popular
culture. We believe our brands benefit from the fact that numerous current
and historical musicians and groups use or have used our products. While a
number of our brands, including Fender, have broad appeal, other brands in
our portfolio offer products with distinct sounds or styles targeted at
musicians in particular genres, including rock ‘n roll, country, jazz, heavy
metal, blues and world music.
Our broad product portfolio includes fretted instruments (comprised of
electric, acoustic and bass guitars, banjos, ukuleles, mandolins and resonator
guitars), guitar amplifiers, percussion instruments and accessories. We
believe our guitars and guitar amplifiers revolutionized the way music is
written, played and heard. We design and market our products to a variety
of musicians from beginners to professionals across a broad range of
prices.
In 2011, we had the #1 market share by revenue in the United States in
electric, acoustic and bass guitars and electric and bass guitar amplifiers,
according to data provided by MI Sales Trak as of December 2011. In addition,
since the acquisition of Kaman Music Corporation (now known as KMC Musicorp),
or KMC, in 2007, we believe we have been one of the largest independent
distributors of musical instrument accessories in the United States. To
support our brands and product leadership, we continue to bring new and
innovative products to market that inspire our consumers and enhance brand
loyalty.
We distribute our products globally in over 85 countries through what we
believe to be one of the largest direct-to-retail sales forces in the musical
instruments industry in the United States, Canada, Europe and Mexico, as well
as through a network of distributors in selected international markets. We
sell our products through independent and national music retailers, mass
merchants, online and catalog retailers and third-party distributors. In
fiscal 2011, we generated 58.7% of our gross sales before discounts and
allowances from the independent channel (representing over 13,000
independently-owned music stores), 23.5% collectively from the national
channel, mass merchants and online and catalog retailers, and 17.8% from
third-party distributors. Gross sales before discounts and allowances is
comprised of our product sales but, unlike net sales, does not include
licensing income and dealer freight collection, and is not net of cash
discounts, sales return allowances and rebates.
Our strategically managed global supply chain is comprised of a network
of our own manufacturing facilities in the United States and Mexico,
distribution and warehouse facilities in North America (the United States
and Canada) and Europe, and established sourcing relationships with original
equipment manufacturers, or OEMs, and suppliers in Asia, Europe, North
America and Mexico. We primarily manufacture our products that are sold
at higher price points in the United States.
Our brand portfolio, broad selection of products, longstanding culture
of ongoing innovation and new product introductions, global supply chain
and distribution network and strong consumer loyalty have been key drivers
of our financial performance. Our net sales were $612.5 million in fiscal
2009, $617.8 million in fiscal 2010 and $700.6 million in fiscal 2011; our
net income was $10.8 million in fiscal 2009, a net loss of $1.7 million in
fiscal 2010 and net income of $19.0 million in fiscal 2011; and our adjusted
EBITDA was $43.8 million in fiscal 2009, $23.6 million in fiscal 2010 and
$52.9 million in fiscal 2011. For the first quarter of fiscal 2012, our net
sales were $173.8 million, our net income was $1.9 million and our adjusted
EBITDA was $10.7 million, compared to net sales of $170.1 million, net
income of $6.9 million and adjusted EBITDA of $11.6 million for the first
quarter of fiscal 2011.
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We were incorporated in Delaware in January 1985. Our principal executive
offices are located at 17600 North Perimeter Drive, Suite 100, Scottsdale,
Arizona 85255. Our telephone number is (480) 596-9690. Our website address
is www.fender.com.