SEC Comment Letter for FOX FACTORY HOLDING CORP (FOXF) (CIK 0001424929) (FOXF) — Jun 10, 2013
FOX FACTORY HOLDING CORP (FOXF) (CIK 0001424929)
Date: June 10, 2013 · CIK: 0001424929 · Accession: 0000000000-13-031420
AI Filing Summary & Sentiment
Reasoning
Letter
June 7, 2013 Via E -mail Larry L. Enterline Chief Executive Officer Fox Factory Holding Corp. 915 Disc Drive Scotts Valley, CA 95066
Re: Fox Factory Holding Corp. Draft Registration Statement on Form S-1 Submitted May 13, 2013 File No. 377-00186
Dear Mr. Enterline :
We have reviewed your draft registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure.
Please respond to this letter by providing the requested information and either submitting an amended draft registration statement or publicly filing your registration statement on EDGAR . If you do not believ e our comments apply to your facts and circumstances or do not believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments and your amended draft registration statem ent or filed registration statement , we may have additional comments.
General
1. Prior to printing and distribution of the preliminary prospectus, please provide us with mock -ups of any pages that include any pictures or graphics to be presented. Accompanying captions, if any, should also be provided.
2. Please supplementally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you , or anyone authorized to do so on your behalf , present to potenti al investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications. Similarly, please supplementally provide us with any research reports about you that are published or distributed in reliance upon Sec tion 2(a)(3) of the Securities Act of 1933 added by Section 105(a) of the Jumpstart Our Business Startups Act by any broker or dealer that is participating or will participate in your offering .
Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 2
3. Please update your financial statements in accordance with Ru le 3-12 of Regulation S -X.
Prospectus s ummary , page 1
General
4. We note that your summary, in large part, repeats substantial portions of identical information contained in your business section. The summary should be brief and should not merely repeat the text of the prospectus. Please revise the summary to identify those aspects of the offering that are the most significant . Refer to Item 503 (a) of Regulation S-K.
Our c ompany, page 1
5. We note your st atement that you are a “leading designer, manufacturer and marketer ” of suspension products. Please revise here and throughout your prospectus to state such assertions as beliefs of management, or provide a basis for any assertion that you are a, or the, leading company in your industry. Please disclose how you are measuring your market position and the source of the data supporting this assertion. Please also revise to clarify, quantitatively, what is meant by “premium price points.”
6. Please rev ise here and throughout the prospectus to state as a belief that you offer products with “innovative design, performance, durability and reliability” or provide a basis for these statements. Please also clarify what you mean by “technologically advanced p roducts designed to perform under diverse and extreme conditions.”
7. Please provide the basis for your belief that the success of professional athletes who use your products positively influences the purchasing habits of “enthusiasts and other consumers see king high -performance products” and that your strategic focus influences “aspiring and enthusiast consumers.” Additionally, please define “high -performance” as it is used here and throughout the prospectus.
8. We note your statement on page 2 that you “intr oduce new and innovative products that improve vehicle performance and enhance brand loyalty.” Please revise to substantiate this statement, and explain how you measure brand loyalty. Please also substantiate or remove the reference to “loyal . . . and e nthusiastic consumers” in the second paragraph on page 1 and elsewhere in the prospectus .
9. Please revise on page 2 and throughout the prospectus to remove the subjective description s of your customers and employees as “passionate” and other similar terms.
Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 3
Market opportunity, page 2
10. Please revise to explain what you mean by “large and attractive markets for performance bicycles and powered vehicles.”
11. Please revise to define what is meant by “high -end” here and throughout the prospectus. Please also revise to state as a belief that your “consumers have demonstrated a preference for well -designed” equipment, or alternatively, define “well -designed” and provide a basis for this statement.
12. We note your st atement in the second to last bullet point on page 2 that you believe you are well positioned for growth due to “a resilient consumer base . . . driven by higher household incomes and a greater propensity to purchase high -end products.” Please provide a b asis for this belief , and reconcile it with your disclosure in the second risk factor on page 18 that some economies are “still struggling with recession” and consumers may not have the discretionary income to spend on your products.
13. Please also explain what is meant in the last bullet point on page 2 and throughout the prospectus by the term “premium.” Please also provide a basis for your belief that you have a premium brand.
14. Please revise here and throughout your prospectus to provide quantifiable support and the sources, if applicable, for your assertions regarding the growth of your segments and other trends that you anticipate will positively influence your business. Please also balance the disclosure in this section with a brief discussion of t he factors that may negatively affect your business, including you r outstanding indebtedness and that your expectations for growth in your respective industries may not materialize.
Our c ompetitive strengths, page 3
15. Please re vise to substantiate the stat ement on page 4 that you have “extensive experience, ” and on page 5 that you have a “proven senior management team” and “highly -skilled and motivated employees.” Please also clarify what is meant by “deep - rooted culture” on page 5.
Our s trategy, page 5
16. Please revise to substantiate or state as a belief of management , here and throughout the prospectus , that “high -performance and control are important to a large portion of our consumer base” and that you have a “reputatio n as a leader in ride dynamics, ” and “strong global brand recognition.”
17. You state that you intend to develop products for end -markets in which you do not currently participate. Please identify the markets you intend to penetrate .
Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 4
18. You also state that you intend to increase infrastructur e investments and focus on identified geographic regions. Please identify the regions on which you intend to focus. We note that China is the only market specified in this section.
Recapitalization , page 8
19. We note your statement that you recently “incr eased the revolver commitment under that facility b y $2.0 million.” Please revise to disclose the total of the revolver commitment here and in the Management’s discussion and a nalysis section on page s 50 and 62 .
Summary consolidated financial data, page 13
20. We note from your disclosure on page 8 that, as part of the recapitalization, you paid a $67 million dividend to shareholders in June 2012. Your attention is invited to SAB Topic 1 -B-3. Please note that a dividend declared in the latest year would be deemed to be in contemplation of the offering with the intention of repayment out of offering proceeds to the extent that the dividend exceeded earnings during the previous twelve months. As such, it appears this dividend was declared in contemplation of the offering. Please revise your presentation, here and in Selected Consolidated Financial Data on page 47, to present pro forma EPS giving effect to the number of shares whose proceeds would be necessary to pay this dividend to the extent the dividend i s in excess of current year’s earnings.
21. Reference is made to Footnote (3) of your reconciliation of net income to Adjusted EBITDA on page 16. We note that your management agreement will terminate upon consummation of the offering. Please disclose wheth er or not you are required to pay a fee of any kind in connection with the termination of the agreement. Quantify any such fee, if applicable.
Risk f actors, page 17
22. We note your statement in the first paragraph that “[t]he risks and uncertainties described below may not be the only ones we face.” Please revise to clarify that you have disclosed all known material risks.
23. Please revise to include a risk factor discussing your move to production facilities in Taiwan and certain risks related thereto that are not already addressed in your current risk factor disclosures . Specifically, please address the potential negative effect that this move could have on your brand image and customer loyal ty. For example, it is possible that some customers will b e unwilling to purchase products that are manufactured overseas .
Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 5
Our corporate culture is important to us, page 21
24. Please revise to provide additional detail regarding why you think your corporate culture could disappear. To the extent material to an understanding of your business, p lease also disclose in greater detail the values of your corporate culture in the business section .
Use of p roceeds, page 41
25. We note your statement that you intend to use the proceeds of this offering to repay “a majori ty of the then outstanding indebtedness under our Existing Credit Facility.” Please revise to disclose the amount of outstanding indebtedness under your Existing Credit Facility. Please also disclose that your Existing Credit Facility is with your Sponso r, who will therefore receive the proceeds of the offering.
26. The first sentence of the third paragraph of this section implies that you intend to use all of the net proceeds of this offering to repay outstanding indebtedness. The last sentence of that p aragraph, however, implies that not all proceeds will be used to repay outstanding indebtedness. Please reconcile the inconsistency.
27. Based on your disclosure on page 62, it appears that you intend to repay any remaining balance under the Existing Credit Facility with proceeds from the New Credit Facility. If this additional repayment amount is material, please revise this section in accordance with Instruction 3 to Item 504 of Regulation S -K.
Selected consolidated financial data, page 47
28. Please expand to also disclose cash dividends declared per common share, as contemplated by Item 2 to the Instructions to Item 301 of Regulation S -X.
Management’s discussion and analysis of financial condition and results of operations, page 49
Results of operations, page 56
29. Please tell us why you have included the loss on disposal of assets as a non -operating item.
Sales, page 57
30. Please tell us, with a view towards revised disclosure, if the change in sales from period to period was impacted by any material changes in either your mountain bike or powered vehicle product sales.
Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 6
Liquidity and capital resources, page 60
31. We note your disclosure on page 62 under the heading “Net cash used in investing activities ,” that in 2012 you acquired “an intangibl e asset of $0.8 million.” Please tell us, with a view towards revise d disclosure, what you acquired in this transaction .
Business, page 73
Overview, page 73
Our company, page 73
32. Please revise to explain how your products “enhance ride dynamics” by improving performance and control.
33. Please revise to substantiate the statement th at in the aftermarket “consumers seeking high-performance select our suspension products . . . .”
Our c ompetitive strengths, page 75
34. Please revise to explain what you mean by “diverse end -markets.”
Our products, page 78
35. We note the chart of selected products on page 79. Please tell us if these products and their price ranges are representative of your products more generally. If so, please explain why. Otherwise, p lease be sure to provide enough information about the products you sell for investors to understand the nature of your business and operations.
Intellectual Property, page 80
36. We note the reference in the third full paragraph on page 81 to certain “licens ing agreements.” However, you do not appear to include any details regarding the nature of these agreements, incl uding the terms of any material agreements . Please revise accordingly.
Customers, page 81
37. We note your disclosure of international sales figures on p age 82. Please revise to include domestic sales both quantitatively and as a percentage of total sales.
Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 7
Suppliers, page 83
38. To the extent material to an understanding of your transition of the majority of your mountain bike products manufacturing operati ons to Taiwan, p lease include an expanded discussion concerning the geographic sources of your s upplie rs and supplie s.
39. We note the risk factor disclosure on page 31 in which you reference your single -source suppliers. Please revise this section to identify the materials used in your products that come from single -source suppliers. To the extent the loss of any of these single -source suppliers may have a material impact on your operations, please identify those particular supplier s.
40. Please revise to discuss the material terms of your agreement with Miyaki.
Manufacturing and backlog, page 84
41. We note your disclosure that you plan on moving bike manufacturing to your facility in Taiwan. Please revise to explain how you will maintain your current produ ction levels , as it appears that your Taiwan facility is much smaller than your California facilities.
42. We note your disclosure on page 85 that many OEMs are in Taiwan. Please revise to disclose the percentage of OEMs that you do business with that are located in Taiwan.
Competition, page 85
43. Please provide a basis for the statement that you “believe customers consider our products to be among the highest -performing and most innovative products of their type, which helps justify our premium pricing.”
Equity -based incentive plans, page 98
44. Reference is made to your 2013 Omnibus Plan on page 100. We note that the plan will become effective on the closing of this offering and that you have reserved shares for issuance under this plan. If you intend to make any awards in connection with the offering, please quantify and describe these awards in detail .
Certain relationships and related party transactions, page 104
Credit facility and dividends, page 105
45. Please revise to disclose your dividend payment in greater detail, including how much was paid to whom.
Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 8
Loan, page 107
46. We note from the disclosure here that, in April 2013, Mr. Boulton received a bonus of approximately $251,095, the net proceeds of which were used to repay Mr. Boulton’s outstanding lo an of $150,000 plus interest of $380. We note, from the disclosure on page 96, that Mr. Boulton’s base salary was $250,000, and that his bonus was stated at 40 -60% of base. Please tell us how you calculated Mr. Boulton’s bonus, whether it was granted under the 2012 employment agreement, the purpose of the $150,000 loan, and how the interest rate was deter
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June 7, 2013 Via E -mail Larry L. Enterline Chief Executive Officer Fox Factory Holding Corp. 915 Disc Drive Scotts Valley, CA 95066 Re: Fox Factory Holding Corp. Draft Registration Statement on Form S-1 Submitted May 13, 2013 File No. 377-00186 Dear Mr. Enterline : We have reviewed your draft registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. Please respond to this letter by providing the requested information and either submitting an amended draft registration statement or publicly filing your registration statement on EDGAR . If you do not believ e our comments apply to your facts and circumstances or do not believe an amendment is appropriate, please tell us why in your response. After reviewing the information you provide in response to these comments and your amended draft registration statem ent or filed registration statement , we may have additional comments. General 1. Prior to printing and distribution of the preliminary prospectus, please provide us with mock -ups of any pages that include any pictures or graphics to be presented. Accompanying captions, if any, should also be provided. 2. Please supplementally provide us with copies of all written communications, as defined in Rule 405 under the Securities Act, that you , or anyone authorized to do so on your behalf , present to potenti al investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications. Similarly, please supplementally provide us with any research reports about you that are published or distributed in reliance upon Sec tion 2(a)(3) of the Securities Act of 1933 added by Section 105(a) of the Jumpstart Our Business Startups Act by any broker or dealer that is participating or will participate in your offering . Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 2 3. Please update your financial statements in accordance with Ru le 3-12 of Regulation S -X. Prospectus s ummary , page 1 General 4. We note that your summary, in large part, repeats substantial portions of identical information contained in your business section. The summary should be brief and should not merely repeat the text of the prospectus. Please revise the summary to identify those aspects of the offering that are the most significant . Refer to Item 503 (a) of Regulation S-K. Our c ompany, page 1 5. We note your st atement that you are a “leading designer, manufacturer and marketer ” of suspension products. Please revise here and throughout your prospectus to state such assertions as beliefs of management, or provide a basis for any assertion that you are a, or the, leading company in your industry. Please disclose how you are measuring your market position and the source of the data supporting this assertion. Please also revise to clarify, quantitatively, what is meant by “premium price points.” 6. Please rev ise here and throughout the prospectus to state as a belief that you offer products with “innovative design, performance, durability and reliability” or provide a basis for these statements. Please also clarify what you mean by “technologically advanced p roducts designed to perform under diverse and extreme conditions.” 7. Please provide the basis for your belief that the success of professional athletes who use your products positively influences the purchasing habits of “enthusiasts and other consumers see king high -performance products” and that your strategic focus influences “aspiring and enthusiast consumers.” Additionally, please define “high -performance” as it is used here and throughout the prospectus. 8. We note your statement on page 2 that you “intr oduce new and innovative products that improve vehicle performance and enhance brand loyalty.” Please revise to substantiate this statement, and explain how you measure brand loyalty. Please also substantiate or remove the reference to “loyal . . . and e nthusiastic consumers” in the second paragraph on page 1 and elsewhere in the prospectus . 9. Please revise on page 2 and throughout the prospectus to remove the subjective description s of your customers and employees as “passionate” and other similar terms. Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 3 Market opportunity, page 2 10. Please revise to explain what you mean by “large and attractive markets for performance bicycles and powered vehicles.” 11. Please revise to define what is meant by “high -end” here and throughout the prospectus. Please also revise to state as a belief that your “consumers have demonstrated a preference for well -designed” equipment, or alternatively, define “well -designed” and provide a basis for this statement. 12. We note your st atement in the second to last bullet point on page 2 that you believe you are well positioned for growth due to “a resilient consumer base . . . driven by higher household incomes and a greater propensity to purchase high -end products.” Please provide a b asis for this belief , and reconcile it with your disclosure in the second risk factor on page 18 that some economies are “still struggling with recession” and consumers may not have the discretionary income to spend on your products. 13. Please also explain what is meant in the last bullet point on page 2 and throughout the prospectus by the term “premium.” Please also provide a basis for your belief that you have a premium brand. 14. Please revise here and throughout your prospectus to provide quantifiable support and the sources, if applicable, for your assertions regarding the growth of your segments and other trends that you anticipate will positively influence your business. Please also balance the disclosure in this section with a brief discussion of t he factors that may negatively affect your business, including you r outstanding indebtedness and that your expectations for growth in your respective industries may not materialize. Our c ompetitive strengths, page 3 15. Please re vise to substantiate the stat ement on page 4 that you have “extensive experience, ” and on page 5 that you have a “proven senior management team” and “highly -skilled and motivated employees.” Please also clarify what is meant by “deep - rooted culture” on page 5. Our s trategy, page 5 16. Please revise to substantiate or state as a belief of management , here and throughout the prospectus , that “high -performance and control are important to a large portion of our consumer base” and that you have a “reputatio n as a leader in ride dynamics, ” and “strong global brand recognition.” 17. You state that you intend to develop products for end -markets in which you do not currently participate. Please identify the markets you intend to penetrate . Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 4 18. You also state that you intend to increase infrastructur e investments and focus on identified geographic regions. Please identify the regions on which you intend to focus. We note that China is the only market specified in this section. Recapitalization , page 8 19. We note your statement that you recently “incr eased the revolver commitment under that facility b y $2.0 million.” Please revise to disclose the total of the revolver commitment here and in the Management’s discussion and a nalysis section on page s 50 and 62 . Summary consolidated financial data, page 13 20. We note from your disclosure on page 8 that, as part of the recapitalization, you paid a $67 million dividend to shareholders in June 2012. Your attention is invited to SAB Topic 1 -B-3. Please note that a dividend declared in the latest year would be deemed to be in contemplation of the offering with the intention of repayment out of offering proceeds to the extent that the dividend exceeded earnings during the previous twelve months. As such, it appears this dividend was declared in contemplation of the offering. Please revise your presentation, here and in Selected Consolidated Financial Data on page 47, to present pro forma EPS giving effect to the number of shares whose proceeds would be necessary to pay this dividend to the extent the dividend i s in excess of current year’s earnings. 21. Reference is made to Footnote (3) of your reconciliation of net income to Adjusted EBITDA on page 16. We note that your management agreement will terminate upon consummation of the offering. Please disclose wheth er or not you are required to pay a fee of any kind in connection with the termination of the agreement. Quantify any such fee, if applicable. Risk f actors, page 17 22. We note your statement in the first paragraph that “[t]he risks and uncertainties described below may not be the only ones we face.” Please revise to clarify that you have disclosed all known material risks. 23. Please revise to include a risk factor discussing your move to production facilities in Taiwan and certain risks related thereto that are not already addressed in your current risk factor disclosures . Specifically, please address the potential negative effect that this move could have on your brand image and customer loyal ty. For example, it is possible that some customers will b e unwilling to purchase products that are manufactured overseas . Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 5 Our corporate culture is important to us, page 21 24. Please revise to provide additional detail regarding why you think your corporate culture could disappear. To the extent material to an understanding of your business, p lease also disclose in greater detail the values of your corporate culture in the business section . Use of p roceeds, page 41 25. We note your statement that you intend to use the proceeds of this offering to repay “a majori ty of the then outstanding indebtedness under our Existing Credit Facility.” Please revise to disclose the amount of outstanding indebtedness under your Existing Credit Facility. Please also disclose that your Existing Credit Facility is with your Sponso r, who will therefore receive the proceeds of the offering. 26. The first sentence of the third paragraph of this section implies that you intend to use all of the net proceeds of this offering to repay outstanding indebtedness. The last sentence of that p aragraph, however, implies that not all proceeds will be used to repay outstanding indebtedness. Please reconcile the inconsistency. 27. Based on your disclosure on page 62, it appears that you intend to repay any remaining balance under the Existing Credit Facility with proceeds from the New Credit Facility. If this additional repayment amount is material, please revise this section in accordance with Instruction 3 to Item 504 of Regulation S -K. Selected consolidated financial data, page 47 28. Please expand to also disclose cash dividends declared per common share, as contemplated by Item 2 to the Instructions to Item 301 of Regulation S -X. Management’s discussion and analysis of financial condition and results of operations, page 49 Results of operations, page 56 29. Please tell us why you have included the loss on disposal of assets as a non -operating item. Sales, page 57 30. Please tell us, with a view towards revised disclosure, if the change in sales from period to period was impacted by any material changes in either your mountain bike or powered vehicle product sales. Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 6 Liquidity and capital resources, page 60 31. We note your disclosure on page 62 under the heading “Net cash used in investing activities ,” that in 2012 you acquired “an intangibl e asset of $0.8 million.” Please tell us, with a view towards revise d disclosure, what you acquired in this transaction . Business, page 73 Overview, page 73 Our company, page 73 32. Please revise to explain how your products “enhance ride dynamics” by improving performance and control. 33. Please revise to substantiate the statement th at in the aftermarket “consumers seeking high-performance select our suspension products . . . .” Our c ompetitive strengths, page 75 34. Please revise to explain what you mean by “diverse end -markets.” Our products, page 78 35. We note the chart of selected products on page 79. Please tell us if these products and their price ranges are representative of your products more generally. If so, please explain why. Otherwise, p lease be sure to provide enough information about the products you sell for investors to understand the nature of your business and operations. Intellectual Property, page 80 36. We note the reference in the third full paragraph on page 81 to certain “licens ing agreements.” However, you do not appear to include any details regarding the nature of these agreements, incl uding the terms of any material agreements . Please revise accordingly. Customers, page 81 37. We note your disclosure of international sales figures on p age 82. Please revise to include domestic sales both quantitatively and as a percentage of total sales. Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 7 Suppliers, page 83 38. To the extent material to an understanding of your transition of the majority of your mountain bike products manufacturing operati ons to Taiwan, p lease include an expanded discussion concerning the geographic sources of your s upplie rs and supplie s. 39. We note the risk factor disclosure on page 31 in which you reference your single -source suppliers. Please revise this section to identify the materials used in your products that come from single -source suppliers. To the extent the loss of any of these single -source suppliers may have a material impact on your operations, please identify those particular supplier s. 40. Please revise to discuss the material terms of your agreement with Miyaki. Manufacturing and backlog, page 84 41. We note your disclosure that you plan on moving bike manufacturing to your facility in Taiwan. Please revise to explain how you will maintain your current produ ction levels , as it appears that your Taiwan facility is much smaller than your California facilities. 42. We note your disclosure on page 85 that many OEMs are in Taiwan. Please revise to disclose the percentage of OEMs that you do business with that are located in Taiwan. Competition, page 85 43. Please provide a basis for the statement that you “believe customers consider our products to be among the highest -performing and most innovative products of their type, which helps justify our premium pricing.” Equity -based incentive plans, page 98 44. Reference is made to your 2013 Omnibus Plan on page 100. We note that the plan will become effective on the closing of this offering and that you have reserved shares for issuance under this plan. If you intend to make any awards in connection with the offering, please quantify and describe these awards in detail . Certain relationships and related party transactions, page 104 Credit facility and dividends, page 105 45. Please revise to disclose your dividend payment in greater detail, including how much was paid to whom. Larry L. Enterline Fox Factory Holding Corp . June 7, 2013 Page 8 Loan, page 107 46. We note from the disclosure here that, in April 2013, Mr. Boulton received a bonus of approximately $251,095, the net proceeds of which were used to repay Mr. Boulton’s outstanding lo an of $150,000 plus interest of $380. We note, from the disclosure on page 96, that Mr. Boulton’s base salary was $250,000, and that his bonus was stated at 40 -60% of base. Please tell us how you calculated Mr. Boulton’s bonus, whether it was granted under the 2012 employment agreement, the purpose of the $150,000 loan, and how the interest rate was deter