UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

 

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

For the quarterly period ended JulyOctober 31, 2021

Commission File No. 001-31552

 

 

img124047644_0.jpg 

 

Smith & Wesson Brands, Inc.

(Exact name of registrant as specified in its charter)

 

 

Nevada

 

87-0543688

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2100 Roosevelt Avenue

Springfield, Massachusetts

 

01104

(Address of principal executive offices)

 

(Zip Code)

(800) 331-0852

(Registrant’s telephone number, including area code)

 

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

 

Title of each Class

Trading Symbol

Name of exchange on which registered

Common Stock, par value $0.001 per share

SWBI

Nasdaq Global Select Market

 

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

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

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

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

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 Rule 12b-2 of the Exchange Act). Yes ☐ No

The registrant had 48,053,92748,294,677 shares of common stock, par value $0.001, outstanding as of AugustNovember 30, 2021.

 


 

SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended JulyOctober 31, 2021 and 2020

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1. Financial Statements (Unaudited)

 

4

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

2326

 

Item 4. Controls and Procedures

 

2426

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

2527

Item 1.A Risk Factors

27

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

2528

 

Item 6. Exhibits

 

2528

Signatures

 

2730

EX-31.1

 

 

EX-31.2

 

 

EX-32.1

 

 

EX-32.2

 

 

 

Smith & Wesson®, S&W®, M&P®, M&P Shield®, Performance Center®, Airlite®, Airweight®, Armornite®, Bodyguard®, Carry Comp®, Chiefs Special®, E-Series®, EZ®, Governor®, Lever Lock®, Magnum®, SW22 Victory®, T/C ®,C®, America’s Master Gunmaker ®,Gunmaker®, Compass®, Contender®, Dimension®, Encore®, Flextech®, Mag Express®, Maxi-Hunter®, Maxima®, Number 13®, Power Rod®, QLA®, Quick Load Accurizer®, Speed Breech®, Speed Breach XT®, Swing Hammer®, T17®, T/CR22®, Triumph®, U-View®, Weather Shield®, Gemtech®, Arrow®, Aurora®, Aurora-II®, Blast Jacket®, Dagger®, G-Core®, GM®, GMT-Halo®, Halo®, Integra®, Lunar®, Mist-22®, Quickmount®, Shield®, Silencer Subsonic®, The Professional’s Choice for Decades®, Trek®, Viper®, World Class Silencers®, Smith & Wesson Precision Components®, and Put A Legend On Your Line®, are some of the registered U.S. trademarks of our company or one of our subsidiaries. 460XVR™, American Guardians™, Competitor™, C.O.R.E.™, E-Series™Empowering Americans™, GunSmarts™, M2.0™, S&W500™, SD™, SDVE™, Sport™, SW1911™, The S&W Bench™, Thompson/Center Arms™, Cheap Shot™, Impact!™, Impact!SB™, Katahdin™, Maxi-Ball™, Natural Lube 1000 Plus™, Pro Hunter™, Pro Hunter FX™, Pro Hunter XT™, Quickshot™, Speed Shot™, Strike™, Super Glide™, Venture™, Alpine™, GMT-Halo™, One™, Patrolman™, and Tracker™, are some of the unregistered trademarks of our company or one of our subsidiaries. This report also may contain trademarks and trade names of other companies.

 


 

Statement Regarding Forward-Looking Information

 

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are 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. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “will,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding the impact, if any, of recently issued accounting standards on our consolidated financial statements; the features of our outstanding debt; lease payments for future periods; estimated amortization expense of intangible assets for future periods; the outcome of the lawsuits to which we are subject and their effect on us; our belief that the claims asserted by Gemini (as defined herein) and the Mexican Government in separate actions against us have no merit and that we intend to aggressively defend these actions; our belief with respect to the various matters described in the Litigation section, that the allegations are unfounded and the claims asserted against us have no merit; our intention to aggressively defend these actions; our belief that any incident and any results from them or any injuries were due to negligence or misuse of the firearm by the claimant or a third party; our belief that we have strong defenses; our belief that our accruals for product liability cases and claims are a reasonable quantitative measure of the cost to us of product liability cases and claims; our belief that we have provided adequate accruals for defense costs; our intention in connection with the Project Agreement (as defined herein) to incur, or cause to be incurred, no less than $120.0 million in aggregate capital expenditures on or before December 31, 2025, create no less than 620 new jobs, and sustain an average hourly wage of at least $25.97 at the facility; our intention in connection with the Relocation (as defined herein) to vacate and sublease our Missouri distribution facility; our belief that we will not incur an impairment associated with the lease associated with our Missouri distribution facility; our intention, with respect to assets associated with our assembly operations in Massachusetts and distribution operations in Missouri, to either move those assets to Tennessee at the appropriate time or sell or sublease those assets that will not be moved; our intention, at or near the conclusion of our Connecticut building lease in May 2024, to relocate a portion of the plastic injection molding operations to Tennessee and evaluate selling the remaining molding operations utilized in our Connecticut operations to a third party; our expectation that we will incur capital expenditures in connection with the construction and equipping of the new facility in Maryville, Tennessee in an aggregate amount of no less than $120.0 million on or before December 31, 2025; our belief that growth in inventory in the long gun channel during the quarter reflects a combination of increased competition and lower levels of consumer demand; our expectation on spending for capital expenditures in fiscal 2022; factors affecting our future capital requirements; availability of equity or debt financing on acceptable terms, if at all; our expectation that finished goods inventory will continue to increase in the next quarter as we restock in anticipation of providing our customers with a more robust selection of inventory and prepare for the next increase in consumer demand; and our belief that our existing capital resources and credit facilities will be adequate to fund our operations, including our finance leases and other commitments, for the next 12 months. All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements. A number of factors could cause actual results to differ materially from those indicated by the forward-looking statements. Such factors include, among other, economic, social, political, legislative, and regulatory factors; the potential for increased regulation of firearms and firearm-related products; actions of social activists that could have an adverse effect on our business; the impact of lawsuits; the demand for our products; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; our competitive environment; the supply, availability, and costs of raw materials and components; speculation surrounding fears of terrorism and crime; our anticipated growth and growth opportunities; our ability to effectively manage and execute the Relocation; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; our penetration rates in new and existing markets; our strategies; our ability to maintain and enhance brand recognition and reputation; our ability to introduce new products; the success of new products; our ability to expand our markets; our ability to integrate acquired businesses in a successful manner; the potential for cancellation of orders from our backlog; and other factors detailed from time to time in our reports filed with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2021, filed with the SEC on June 17, 2021.

 


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

As of:

 

 

As of:

 

 

July 31, 2021

 

 

April 30, 2021

 

 

October 31, 2021

 

 

April 30, 2021

 

 

(In thousands, except par value and share data)

 

 

(In thousands, except par value and share data)

 

ASSETS

ASSETS

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

171,413

 

 

$

113,017

 

 

$

159,391

 

 

$

113,017

 

Accounts receivable, net of allowances for credit losses of $52 on
July 31, 2021 and $
107 on April 30, 2021

 

41,198

 

 

 

67,442

 

Accounts receivable, net of allowances for credit losses of $38 on
October 31, 2021 and $
107 on April 30, 2021

 

44,226

 

 

 

67,442

 

Inventories

 

97,140

 

 

 

78,477

 

 

120,277

 

 

 

78,477

 

Prepaid expenses and other current assets

 

8,504

 

 

 

8,408

 

 

8,321

 

 

 

8,408

 

Income tax receivable

 

 

 

 

 

909

 

 

 

1,717

 

 

 

909

 

Total current assets

 

 

318,255

 

 

 

268,253

 

 

 

333,932

 

 

 

268,253

 

Property, plant, and equipment, net

 

139,626

 

 

 

141,612

 

 

136,932

 

 

 

141,612

 

Intangibles, net

 

4,360

 

 

 

4,417

 

 

4,322

 

 

 

4,417

 

Goodwill

 

19,024

 

 

 

19,024

 

 

19,024

 

 

 

19,024

 

Other assets

 

 

11,405

 

 

 

13,082

 

 

 

10,966

 

 

 

13,082

 

 

$

492,670

 

 

$

446,388

 

 

$

505,176

 

 

$

446,388

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

54,583

 

 

$

57,337

 

 

$

49,070

 

 

$

57,337

 

Accrued expenses and deferred revenue

 

33,554

 

 

 

33,136

 

 

31,958

 

 

 

33,136

 

Accrued payroll and incentives

 

8,267

 

 

 

17,381

 

 

11,068

 

 

 

17,381

 

Accrued income taxes

 

22,236

 

 

 

1,157

 

 

1,722

 

 

 

1,157

 

Accrued profit sharing

 

18,279

 

 

 

14,445

 

 

7,777

 

 

 

14,445

 

Accrued warranty

 

 

1,902

 

 

 

2,199

 

 

2,142

 

 

 

2,199

 

Total current liabilities

 

138,821

 

 

 

125,655

 

 

 

103,737

 

 

 

125,655

 

Deferred income taxes

 

904

 

 

 

904

 

 

904

 

 

 

904

 

Finance lease payable, net of current portion

 

38,509

 

 

 

38,786

 

 

38,228

 

 

 

38,786

 

Other non-current liabilities

 

 

14,377

 

 

 

14,659

 

 

 

13,999

 

 

 

14,659

 

Total liabilities

 

 

192,611

 

 

 

180,004

 

 

 

156,868

 

 

 

180,004

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 20,000,000 shares authorized, 0 shares
issued or outstanding

 

 

 

 

 

Common stock, $.001 par value, 100,000,000 shares authorized, 74,298,308 issued
and
48,046,090 shares outstanding on July 31, 2021 and 74,222,127 shares
issued and
49,937,329 shares outstanding on April 30, 2021

 

74

 

 

 

74

 

Preferred stock, $0.001 par value, 20,000,000 shares authorized, 0 shares
issued or outstanding

 

 

 

 

 

Common stock, $0.001 par value, 100,000,000 shares authorized, 74,546,592 issued
and
48,294,374 shares outstanding on October 31, 2021 and 74,222,127 shares
issued and
49,937,329 shares outstanding on April 30, 2021

 

75

 

 

 

74

 

Additional paid-in capital

 

274,068

 

 

 

273,431

 

 

275,229

 

 

 

273,431

 

Retained earnings

 

398,219

 

 

 

325,181

 

 

445,306

 

 

 

325,181

 

Accumulated other comprehensive income

 

73

 

 

 

73

 

 

73

 

 

 

73

 

Treasury stock, at cost (26,252,218 shares on July 31, 2021 and 24,284,798 on
April 30, 2021)

 

 

(372,375

)

 

 

(332,375

)

Treasury stock, at cost (26,252,218 shares on October 31, 2021 and 24,284,798 on
April 30, 2021)

 

 

(372,375

)

 

 

(332,375

)

Total stockholders’ equity

 

 

300,059

 

 

 

266,384

 

 

 

348,308

 

 

 

266,384

 

 

$

492,670

 

 

$

446,388

 

 

$

505,176

 

 

$

446,388

 

 

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

4


 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

 

For the Three Months Ended July 31,

 

 

2021

 

 

2020

 

 

(In thousands, except per share data)

 

Net sales

$

274,609

 

 

$

229,885

 

Cost of sales

 

144,667

 

 

 

137,461

 

Gross profit

 

129,942

 

 

 

92,424

 

Operating expenses:

 

 

 

 

 

Research and development

 

1,808

 

 

 

1,906

 

Selling, marketing, and distribution

 

10,634

 

 

 

9,995

 

General and administrative

 

17,614

 

 

 

21,780

 

Total operating expenses

 

30,056

 

 

 

33,681

 

Operating income from continuing operations

 

99,886

 

 

 

58,743

 

Other income/(expense), net:

 

 

 

 

 

Other income/(expense), net

 

660

 

 

 

67

 

Interest expense, net

 

(544

)

 

 

(1,316

)

Total other income/(expense), net

 

116

 

 

 

(1,249

)

Income from continuing operations before income taxes

 

100,002

 

 

 

57,494

 

Income tax expense

 

23,120

 

 

 

14,193

 

Income from continuing operations

 

76,882

 

 

 

43,301

 

Discontinued operations:

 

 

 

 

 

Income from discontinued operations, net of tax

 

 

 

 

5,084

 

Net income

 

76,882

 

 

 

48,385

 

Net income per share:

 

 

 

 

 

Basic - continuing operations

$

1.59

 

 

$

0.78

 

Basic - net income

$

1.59

 

 

$

0.87

 

Diluted - continuing operations

$

1.57

 

 

$

0.77

 

Diluted - net income

$

1.57

 

 

$

0.86

 

Weighted average number of common shares outstanding:

 

 

 

 

 

Basic

 

48,394

 

 

 

55,494

 

Diluted

 

49,050

 

 

 

56,277

 

 

For the Three Months Ended October 31,

 

 

For the Six Months Ended October 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

(In thousands, except per share data)

 

Net sales

$

230,479

 

 

$

248,729

 

 

$

505,088

 

 

$

478,614

 

Cost of sales

 

128,484

 

 

 

147,656

 

 

 

273,151

 

 

 

285,117

 

Gross profit

 

101,995

 

 

 

101,073

 

 

 

231,937

 

 

 

193,497

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,744

 

 

 

1,855

 

 

 

3,552

 

 

 

3,761

 

Selling, marketing, and distribution

 

11,423

 

 

 

11,614

 

 

 

22,057

 

 

 

21,609

 

General and administrative

 

23,436

 

 

 

23,224

 

 

 

41,049

 

 

 

45,007

 

Total operating expenses

 

36,603

 

 

 

36,693

 

 

 

66,658

 

 

 

70,377

 

Operating income from continuing operations

 

65,392

 

 

 

64,380

 

 

 

165,279

 

 

 

123,120

 

Other income/(expense), net:

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

833

 

 

 

693

 

 

 

1,493

 

 

 

760

 

Interest expense, net

 

(466

)

 

 

(1,490

)

 

 

(1,011

)

 

 

(2,806

)

Total other income/(expense), net

 

367

 

 

 

(797

)

 

 

482

 

 

 

(2,046

)

Income from continuing operations before income taxes

 

65,759

 

 

 

63,583

 

 

 

165,761

 

 

 

121,074

 

Income tax expense

 

14,824

 

 

 

14,465

 

 

 

37,944

 

 

 

28,657

 

Income from continuing operations

 

50,935

 

 

 

49,118

 

 

 

127,817

 

 

 

92,417

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

 

 

 

 

3,123

 

 

 

 

 

 

8,209

 

Net income

 

50,935

 

 

 

52,241

 

 

 

127,817

 

 

 

100,626

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic - continuing operations

$

1.06

 

 

$

0.88

 

 

$

2.65

 

 

$

1.66

 

Basic - net income

$

1.06

 

 

$

0.93

 

 

$

2.65

 

 

$

1.81

 

Diluted - continuing operations

$

1.05

 

 

$

0.87

 

 

$

2.63

 

 

$

1.64

 

Diluted - net income

$

1.05

 

 

$

0.92

 

 

$

2.63

 

 

$

1.78

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

48,147

 

 

 

55,914

 

 

 

48,270

 

 

 

55,691

 

Diluted

 

48,692

 

 

 

56,531

 

 

 

48,524

 

 

 

56,475

 

 

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

5


 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

Common

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

Stock

 

 

 Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Stockholders’

 

 

Stock

 

 

 Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Stockholders’

 

(In thousands)

 

 Shares

 

 

 Amount

 

 

 Capital

 

 

Earnings

 

 

 Income

 

 

 Shares

 

 

Amount

 

 

Equity

 

 

 Shares

 

 

 Amount

 

 

 Capital

 

 

Earnings

 

 

 Income

 

 

 Shares

 

 

Amount

 

 

Equity

 

Balance at July 31, 2020

 

73,865

 

 

$

74

 

 

$

269,192

 

 

$

390,101

 

 

$

73

 

 

 

18,167

 

 

$

(222,375

)

 

$

437,065

 

Stock-based compensation

 

 

 

 

 

 

 

1,218

 

 

 

 

 

 

 

 

 

 

 

1,218

 

Shares issued under employee stock purchase plan

 

 

 

677

 

 

 

 

 

677

 

Issuance of common stock under restricted
stock unit awards, net of shares
surrendered

 

258

 

 

 

 

 

 

(1,176

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,176

)

Dividends issued

 

 

 

 

 

 

 

 

 

 

(2,795

)

 

 

 

 

 

 

 

 

 

 

 

(2,795

)

Spin off of outdoor products and accessories
business

 

 

 

 

 

 

 

 

 

 

(260,352

)

 

 

 

 

 

 

 

 

 

 

 

(260,352

)

Net income

 

 

 

 

 

 

 

 —

 

 

52,241

 

 

 

 

 

 

 

 

 

 

 

 

52,241

 

Balance at October 31, 2020

 

 

74,123

 

 

 

74

 

 

 

269,911

 

 

 

179,195

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

226,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2020

 

 

73,527

 

 

 

74

 

 

$

267,630

 

 

$

341,716

 

 

 

73

 

 

 

18,167

 

 

$

(222,375

)

 

$

387,118

 

 

73,527

 

 

 

74

 

 

 

267,630

 

 

 

341,716

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

387,118

 

Proceeds from exercise of employee stock
options

 

 

191

 

 

 

 

 

 

1,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,518

 

 

191

 

 

 

 

 

 

1,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,518

 

Stock-based compensation - continuing
operations

 

 

 

 

 

 

 

 

884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

884

 

 

 

 

 

 

 

 

2,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,075

 

Stock-based compensation - discontinued
operations

 

 —

 

 —

 

 

157

 

 

 —

 

 —

 

 —

 

 —

 

 

157

 

 

 —

 

 —

 

 

184

 

 

 —

 

 —

 

 —

 

 —

 

 

184

 

Shares issued under employee stock purchase plan

 

136

 

 

 

 

 

 

677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

677

 

Issuance of common stock under restricted
stock unit awards, net of shares
surrendered

 

 

147

 

 

 

 

 

 

(997

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(997

)

 

269

 

 

 

 

 

 

(2,173

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,173

)

Dividends issued

 

 —

 

 —

 

 —

 

 

(2,795

)

 

 —

 

 —

 

 —

 

 

(2,795

)

Spin off of outdoor products and accessories
business

 

 —

 

 —

 

 —

 

 

(260,352

)

 

 —

 

 —

 

 —

 

 

(260,352

)

Net income

 

 

 

 

 

 

 

 —

 

 

48,385

 

 

 

 

 

 

 

 

 

 

 

 

48,385

 

 

 

 

 

 

 

 

 —

 

 

100,626

 

 

 

 

 

 

 

 

 

 

 

 

100,626

 

Balance at July 31, 2020

 

 

73,865

 

 

 

74

 

 

 

269,192

 

 

 

390,101

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

437,065

 

Balance at October 31, 2020

 

 

74,123

 

 

 

74

 

 

 

269,911

 

 

 

179,195

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

226,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2021

 

74,298

 

 

 

74

 

 

 

274,068

 

 

 

398,219

 

 

 

73

 

 

 

26,252

 

 

 

(372,375

)

 

 

300,059

 

Stock-based compensation

 

 

 

 

 

 

 

914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

914

 

Shares issued under employee stock purchase plan

 

 

 

 

 

 

 

831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

831

 

Issuance of common stock under restricted
stock unit awards, net of shares
surrendered

 

249

 

 

 

1

 

 

 

(584

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(583

)

Dividends issued

 

 —

 

 —

 

 —

 

 

(3,848

)

 

 —

 

 —

 

 —

 

 

(3,848

)

Net income

 

 

 

 

 

 

 

 —

 

 

50,935

 

 

 

 

 

 

 

 

 

 

 

 

50,935

 

Balance at October 31, 2021

 

 

74,547

 

 

 

75

 

 

 

275,229

 

 

 

445,306

 

 

 

73

 

 

 

26,252

 

 

 

(372,375

)

 

 

348,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2021

 

 

74,222

 

 

 

74

 

 

 

273,431

 

 

 

325,181

 

 

 

73

 

 

 

24,285

 

 

 

(332,375

)

 

 

266,384

 

 

74,222

 

 

 

74

 

 

 

273,431

 

 

 

325,181

 

 

 

73

 

 

 

24,285

 

 

 

(332,375

)

 

 

266,384

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,452

 

 

 

 

 

 

 

 

2,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,366

 

Shares issued under employee stock purchase plan

 

 

 

 

 

 

 

831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

831

 

Issuance of common stock under restricted
stock unit awards, net of shares
surrendered

 

 

76

 

 

 

 

 

 

(815

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(815

)

 

325

 

 

 

1

 

 

 

(1,399

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,398

)

Repurchase of treasury stock

 

 —

 

 —

 

 —

 

 —

 

 —

 

 

1,967

 

 

 

(40,000

)

 

 

(40,000

)

 

 —

 

 —

 

 —

 

 —

 

 —

 

 

1,967

 

 

 

(40,000

)

 

 

(40,000

)

Dividends issued

 

 —

 

 —

 

 —

 

 

(3,844

)

 

 —

 

 —

 

 —

 

 

(3,844

)

 

 —

 

 —

 

 —

 

 

(7,692

)

 

 —

 

 —

 

 —

 

 

(7,692

)

Net income

 

 

 

 

 

 

 

 —

 

 

76,882

 

 

 

 

 

 

 

 

 

 

 

 

76,882

 

 

 

 

 

 

 

 

 —

 

 

127,817

 

 

 

 

 

 

 

 

 

 

 

 

127,817

 

Balance at July 31, 2021

 

 

74,298

 

 

$

74

 

 

$

274,068

 

 

$

398,219

 

 

$

73

 

 

 

26,252

 

 

$

(372,375

)

 

$

300,059

 

Balance at October 31, 2021

 

 

74,547

 

 

$

75

 

 

$

275,229

 

 

$

445,306

 

 

$

73

 

 

 

26,252

 

 

$

(372,375

)

 

$

348,308

 

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

6


 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

For Three Months Ended July 31,

 

 

For the Six Months Ended October 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

(In thousands)

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

76,882

 

 

$

43,301

 

 

$

127,817

 

$

92,417

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

7,466

 

 

 

8,244

 

 

 

15,210

 

17,129

 

Loss on sale/disposition of assets

 

 

57

 

 

 

3

 

 

 

57

 

3

 

Provision for losses on notes and accounts receivable

 

 

(56

)

 

 

38

 

 

 

781

 

29

 

Impairment of long-lived tangible assets

 

 

86

 

0

 

Stock-based compensation expense

 

 

1,452

 

 

 

884

 

 

 

2,366

 

2,075

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

26,300

 

 

 

1,851

 

 

 

22,435

 

(7,787

)

Inventories

 

 

(18,663

)

 

 

23,767

 

 

 

(41,800

)

 

24,852

 

Prepaid expenses and other current assets

 

 

(96

)

 

 

(973

)

 

 

87

 

(43

)

Income taxes

 

 

21,988

 

 

 

14,340

 

 

 

(243

)

 

(8,267

)

Accounts payable

 

 

(2,443

)

 

 

7,769

 

 

 

(8,514

)

 

28,331

 

Accrued payroll and incentives

 

 

(9,114

)

 

 

(1,664

)

 

 

(6,313

)

 

(1,043

)

Accrued profit sharing

 

 

3,834

 

 

 

3,405

 

 

 

(6,668

)

 

4,613

 

Accrued expenses and deferred revenue

 

 

405

 

 

 

(18,638

)

 

 

(1,205

)

 

(16,212

)

Accrued warranty

 

 

(297

)

 

 

(175

)

 

 

(57

)

 

1,055

 

Other assets

 

 

1,677

 

 

 

796

 

 

 

2,030

 

2,561

 

Other non-current liabilities

 

 

(305

)

 

 

(1,225

)

 

 

(705

)

 

 

(1,625

)

Cash provided by operating activities - continuing operations

 

 

109,087

 

 

 

81,723

 

 

 

105,364

 

138,088

 

Cash provided by operating activities - discontinued operations

 

 

0

 

 

 

2,507

 

Cash used in operating activities - discontinued operations

 

 

0

 

 

(2,225

)

Net cash provided by operating activities

 

 

109,087

 

 

 

84,230

 

 

 

105,364

 

 

135,863

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

Payments to acquire patents and software

 

 

(69

)

 

 

(187

)

 

 

(156

)

 

(350

)

Proceeds from sale of property and equipment

 

 

70

 

 

 

0

 

 

 

70

 

0

 

Payments to acquire property and equipment

 

 

(5,769

)

 

 

(6,465

)

 

 

(10,113

)

 

 

(14,964

)

Cash used by investing activities - continuing operations

 

 

(5,768

)

 

 

(6,652

)

Cash used by investing activities - discontinued operations

 

 

0

 

 

 

(995

)

Cash used in investing activities - continuing operations

 

 

(10,199

)

 

(15,314

)

Cash used in investing activities - discontinued operations

 

 

0

 

 

(1,143

)

Net cash used in investing activities

 

 

(5,768

)

 

 

(7,647

)

 

 

(10,199

)

 

 

(16,457

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from loans and notes payable

 

 

0

 

25,000

 

Cash paid for debt issuance costs

 

 

0

 

(450

)

Payments on finance lease obligation

 

 

(264

)

 

 

(238

)

 

 

(531

)

 

(479

)

Payments on notes and loans payable

 

 

0

 

 

 

(135,000

)

 

 

0

 

(185,000

)

Distribution to discontinued operations

 

 

0

 

(25,000

)

Payments to acquire treasury stock

 

 

(40,000

)

 

 

0

 

 

 

(40,000

)

 

0

 

Dividend distribution

 

 

(3,844

)

 

 

0

 

 

 

(7,692

)

 

(2,795

)

Proceeds from exercise of options to acquire common stock

 

 

0

 

 

 

268

 

Proceeds from exercise of options to acquire common stock, including employee
stock purchase plan

 

 

831

 

2,195

 

Payment of employee withholding tax related to restricted stock units

 

 

(815

)

 

 

(997

)

 

 

(1,399

)

 

 

(2,173

)

Cash used in by financing activities - continuing operations

 

 

(44,923

)

 

 

(135,967

)

Cash used in financing activities - continuing operations

 

 

(48,791

)

 

(188,702

)

Cash used in financing activities - discontinued operations

 

 

0

 

 

(166

)

Net cash used in by financing activities

 

 

(44,923

)

 

 

(135,967

)

 

 

(48,791

)

 

 

(188,868

)

Net increase/(decrease) in cash and cash equivalents

 

 

58,396

 

 

 

(59,384

)

 

 

46,374

 

(69,462

)

Cash and cash equivalents, beginning of period

 

 

113,017

 

 

 

125,011

 

 

 

113,017

 

 

 

125,011

 

Cash and cash equivalents, end of period

 

$

171,413

 

 

$

65,627

 

 

$

159,391

 

$

55,549

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

 

 

Interest

 

$

538

 

 

$

1,556

 

 

$

1,116

 

$

2,188

 

Income taxes

 

$

1,131

 

 

$

1,689

 

 

$

38,186

 

$

40,888

 

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

7


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(Unaudited)

 

Supplemental Disclosure of Non-cash Investing and Financing Activities:

 

 

 

For the Three Months Ended July 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Purchases of property and equipment included in accounts payable

 

$

435

 

 

$

986

 

Receivable for exercise of options to acquire common stock

 

0

 

 

 

1,250

 

 

 

For the Six Months Ended October 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Purchases of property and equipment included in accounts payable

 

$

993

 

 

$

1,604

 

 

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

8


 

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended JulyOctober 31, 2021 and 2020

 

(1) Organization:

We are one of the world’s leading manufacturers and designers of firearms. We manufacture a wide array of handguns (including revolvers and pistols), long guns (including modern sporting rifles, bolt action rifles, and muzzleloaders), handcuffs, suppressors, and other firearm-related products for sale to a wide variety of customers, including firearm enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and throughout the world. We sell our products under the Smith & Wesson, M&P, Thompson/Center Arms, and Gemtech brands. We manufacture our products at our facilities in Springfield, Massachusetts; Houlton, Maine; and Deep River, Connecticut. We also sell our manufacturing services to other businesses to level-load our factories. We sell those services under our Smith & Wesson and Smith & Wesson Precision Components brands.

 

On November 13, 2019, we announced that we were proceeding with a plan to spin-off our outdoor products and accessories business and create an independent publicly traded company to conduct that business, or the Separation. On August 24, 2020, or the Distribution Date, we completed the Separation. See also Note 3 — Discontinued Operations, for more information.

(2) Basis of Presentation:

Interim Financial Information – The condensed consolidated balance sheet as of JulyOctober 31, 2021, the condensed consolidated statements of income for the three and six months ended JulyOctober 31, 2021 and 2020, the condensed consolidated statements of changes in stockholders’ equity for the three and six months ended JulyOctober 31, 2021 and 2020, and the condensed consolidated statements of cash flows for the threesix months ended JulyOctober 31, 2021 and 2020 have been prepared by us without audit. In our opinion, all adjustments, which include only normal recurring adjustments necessary to fairly present the financial position, results of operations, changes in stockholders’ equity, and cash flows for the three and six months ended JulyOctober 31, 2021 and for the periods presented, have been included. All intercompany transactions have been eliminated in consolidation. The consolidated balance sheet as of April 30, 2021 has been derived from our audited consolidated financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021. The results of operations for the three and six months ended JulyOctober 31, 2021 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2022, or any other period.

In December 2019, the FASBFinancial Accounting Standards Board issued Accounting Standards Update, or ASU, No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," an update that amends and simplifies the accounting for income taxes by removing certain exceptions in the existing guidance and providing new guidance to reduce complexity in certain areas. The guidance went into effect at the start of this fiscal year ending April 30, 2022 with early adoption permitted. We have reviewed the amendments in this update and determined that there were no material changes or impacts on our condensed consolidated financial statements.

 

(3) Discontinued Operations:

 

On November 13, 2019, we announced the Separation. On the Distribution Date, at 12:01 a.m. Eastern Time, the Separation of our wholly owned subsidiary, American Outdoor Brands, Inc., a Delaware corporation, or AOUT, from our company was completed. The Separation was treated as tax free for U.S federal income tax purposes and was achieved through the transfer of all the assets and legal entities, subject to any related liabilities, associated with our outdoor products and accessories business to AOUT, or the Transfer, and the distribution of 100% of the AOUT outstanding capital stock to holders of our common stock, or the Distribution, as of the close of business on August 10, 2020, or the Record Date. In connection with the Distribution, our stockholders received one share of AOUT common stock for every four shares of our common stock held as of the close of business on the Record Date. Following the Distribution, AOUT became an independent, publicly traded company, and we retain 0 ownership interest in AOUT. For the threesix months ended JulyOctober 31, 2020, we recorded $3.68.4 million in general and administrative expenses related to the Separation and there was 0 gain/(loss) recognized for the Separation. In connection with the Separation, we distributed $25.0 million in cash to AOUT.

 

Our common stock continues to trade on the Nasdaq Global Select Market under the ticker symbol “SWBI,” and AOUT is now trading shares of common stock listed on the Nasdaq Global Select Market under the ticker symbol “AOUT.” The outdoor products and accessories business historical financial data is recorded as discontinued operations. Please refer toSee our Current Report on Form 8-K filed on August

9


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2021 and 2020

26, 2020 for more information regarding the Separation. As a result of the Separation, we divested net assets of $260.4 million, which includes the $25.0 million cash distribution to AOUT, in the prior fiscal year.

9


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2021 and 2020

 

The results of AOUT were previously reported in our Outdoor Products & Accessories segment. The historical financial data of the outdoor products and accessories business through August 23, 2020 is recorded as discontinued operations in income from discontinued operations in the condensed consolidated financial statements. For the three and six months ended JulyOctober 31, 2020, income from discontinued operations, net of tax was $5.13.1 million.million and $8.2 million, respectively.

 

In connection with the Separation, we entered into several agreements with AOUT that govern the relationship of the parties following the Separation, including a Separation and Distribution Agreement, a Tax Matters Agreement, a Transition Services Agreement, and an Employee Matters Agreement. Under the terms of the Transition Services Agreement, both companies agreed to provide each other certain transitional services, including information technology, information management, human resources, employee benefits administration, facilities, and other limited finance and accounting related services, for periods up to 24 months. Payments and operating expense reimbursements for transition services are recorded accordingly in our condensed consolidated financial statements based on the service provided.

 

The following table summarizes the major line items for the outdoor products and accessories business that are included in income from discontinued operations, net of tax, in the condensed consolidated statements of income:

 

 

For the Three Months Ended July 31,

 

 

For the Three Months Ended October 31,

 

 

For the Six Months Ended October 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 (In thousands)

 

 

 (In thousands)

 

Net revenues

 

$

0

 

 

$

48,080

 

 

$

0

 

 

$

13,168

 

 

$

0

 

 

$

61,249

 

Cost of sales

 

 

0

 

 

 

23,738

 

 

 

0

 

 

 

3,409

 

 

 

0

 

 

 

27,147

 

Operating expenses

 

 

0

 

 

 

17,633

 

 

0

 

 

 

5,825

 

 

 

0

 

 

 

23,458

 

Other income, net

 

 

0

 

 

 

84

 

 

 

0

 

 

 

34

 

 

 

0

 

 

 

118

 

Income from discontinued operations before
income taxes

 

 

0

 

 

 

6,793

 

 

 

0

 

 

 

3,968

 

 

 

0

 

 

$

10,762

 

Income tax expense

 

 

0

 

 

 

1,709

 

 

 

0

 

 

 

845

 

 

 

0

 

 

 

2,553

 

Income from discontinued operations, net of tax

 

$

0

 

 

$

5,084

 

 

$

0

 

 

$

3,123

 

 

$

0

 

 

$

8,209

 

 

(4) Leases:

We lease certain of our real estate, machinery, equipment, and vehicles under non-cancelable operating lease agreements.

We recognize expenses under our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease term. Our leases do not provide an implicit interest rate. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease agreements do not require material variable lease payments, residual value guarantees, or restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. We record tenant improvement allowances as an offsetting adjustment included in our calculation of the respective right-of-use asset.

Many of our leases include renewal options that enable us to extend the lease term. The execution of those renewal options is at our sole discretion and are reflected in the lease term when they are reasonably certain to be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

10


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended JulyOctober 31, 2021 and 2020

 

The amounts of assets and liabilities related to our operating and financing leases as of JulyOctober 31, 2021 were as follows (in thousands):

 

 

Balance Sheet Caption

 

July 31, 2021

 

 

Balance Sheet Caption

 

October 31, 2021

 

Operating Leases

 

 

 

 

 

 

 

 

 

 

Right-of-use assets

 

 

 

$

7,154

 

 

 

 

$

7,010

 

Accumulated amortization

 

 

 

 

(2,631

)

 

 

 

 

(2,956

)

Right-of-use assets, net

 

Other assets

 

$

4,523

 

 

Other assets

 

$

4,054

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

Accrued expenses and deferred revenue

 

$

1,349

 

 

Accrued expenses and deferred revenue

 

$

1,360

 

Non-current liabilities

 

Other non-current liabilities

 

 

3,344

 

 

Other non-current liabilities

 

 

2,962

 

Total operating lease liabilities

 

 

 

$

4,693

 

 

 

 

$

4,322

 

Finance Leases

 

 

 

 

 

 

 

 

 

 

Right-of-use assets

 

 

 

$

40,986

 

 

 

 

$

40,986

 

Accumulated depreciation

 

 

 

 

(4,757

)

 

 

 

 

(5,282

)

Right-of-use assets, net

 

Property, plant, and equipment, net

 

$

36,229

 

 

Property, plant, and equipment, net

 

$

35,704

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

Accrued expenses and deferred revenue

 

$

1,101

 

 

Accrued expenses and deferred revenue

 

$

1,116

 

Non-current liabilities

 

Finance lease payable, net of current portion

 

 

38,509

 

 

Finance lease payable, net of current portion

 

 

38,228

 

Total finance lease liabilities

 

 

 

$

39,610

 

 

 

 

$

39,344

 

 

For the three months ended JulyOctober 31, 2021, we recorded $371,000454,000 of operating lease costs, of which $33,00038,000 related to short-term leases that were not recorded as right-of-use assets. We recorded $525,000 of financing lease amortization and $497,000494,000 of financing lease interest expense for the three months ended JulyOctober 31, 2021. For the six months ended October 31, 2021, we recorded $825,000 of operating lease costs, of which $70,000 related to short-term leases that were not recorded as right-of-use assets. We recorded $1.1 million of financing lease amortization and $991,000 of financing lease interest expense for the six months ended October 31, 2021. As of JulyOctober 31, 2021, our weighted average lease term and weighted average discount rate for our operating leases waswere 3.92.5 years and 4.5%, respectively. As of JulyOctober 31, 2021, our weighted average lease term and weighted average discount rate for our financing leases were 17.217.0 years and 5.0%, respectively, and consisted primarily of our national logistics facility located in Columbia, Missouri. The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight-line basis over the life of the lease.

 

With the completion of the Separation, we entered into a sublease whereby AOUT subleases from us 59.0% of our national logistics facility under the same terms as the master lease. For the threesix months ended JulyOctober 31, 2021, we recorded $501,0001.1 million of income related to this sublease agreement, which iswas recorded in other income in our condensed consolidated statements of income.

 

The following table represents future expected undiscounted cashflows, based on the sublease agreement towith AOUT, to be received on an annual basis for the next five years and thereafter, as of JulyOctober 31, 2021 (in thousands):

 

Fiscal

 

 Amount

 

 

 Amount

 

2022

 

$

1,401

 

 

$

939

 

2023

 

1,897

 

 

1,897

 

2024

 

1,930

 

 

1,930

 

2025

 

1,964

 

 

1,964

 

2026

 

1,998

 

 

1,998

 

Thereafter

 

 

26,514

 

 

 

28,547

 

Total future sublease receipts

 

 

35,704

 

 

 

37,275

 

Less amounts representing interest

 

 

(13,024

)

 

 

(12,715

)

Present value of sublease receipts

 

$

22,680

 

 

$

24,560

 

 

11


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended JulyOctober 31, 2021 and 2020

 

Future lease payments for all our operating and finance leases for succeeding fiscal years is as follows (in thousands):

 

 

 

 

Operating

 

 

Financing

 

 

Total

 

 

 

 

Operating

 

 

Financing

 

 

Total

 

2022

 

 

$

1,179

 

 

$

2,295

 

$

3,474

 

 

 

$

782

 

 

$

1,547

 

$

2,329

 

2023

 

 

 

1,584

 

 

 

3,071

 

4,655

 

 

 

 

1,575

 

 

 

3,071

 

4,646

 

2024

 

 

 

1,576

 

 

 

3,125

 

4,701

 

 

 

 

1,566

 

 

 

3,125

 

4,691

 

2025

 

 

 

334

 

 

 

3,180

 

3,514

 

 

 

 

324

 

 

 

3,180

 

3,504

 

2026

 

 

 

311

 

 

 

3,235

 

3,546

 

 

 

 

301

 

 

 

3,235

 

3,536

 

Thereafter

 

 

 

404

 

 

 

45,548

 

 

45,952

 

 

 

 

397

 

 

 

45,548

 

 

45,945

 

Total future lease payments

 

 

 

5,388

 

 

 

60,454

 

 

65,842

 

 

 

 

4,945

 

 

 

59,706

 

 

64,651

 

Less amounts representing interest

 

 

 

(695

)

 

 

(20,844

)

 

 

(21,539

)

 

 

 

(623

)

 

 

(20,362

)

 

 

(20,985

)

Present value of lease payments

 

 

 

4,693

 

 

 

39,610

 

44,303

 

 

 

 

4,322

 

 

 

39,344

 

43,666

 

Less current maturities of lease liabilities

 

 

 

(1,349

)

 

 

(1,101

)

 

 

(2,450

)

 

 

 

(1,360

)

 

 

(1,116

)

 

 

(2,476

)

Long-term maturities of lease liabilities

 

 

$

3,344

 

 

$

38,509

 

$

41,853

 

 

 

$

2,962

 

 

$

38,228

 

$

41,190

 

 

For the three and six months ended JulyOctober 31, 2021, the cash paid for amounts included in the measurement of the liabilities and the operating cash flows was $1.1 million.million and $2.2 million, respectively.

 

(5) Notes, Loans Payable, and Financing Arrangements:

 

Credit Facilities — On August 24, 2020, we and certain of our subsidiaries entered into an amended and restated credit agreement, or the Amended and Restated Credit Agreement, with certain lenders;lenders, including TD Bank, N.A., as administrative agent; TD Securities (USA) LLC and Regions Bank, as joint lead arrangers and joint bookrunners; and Regions Bank, as syndication agent. The Amended and Restated Credit Agreement amended and restated our former credit agreement dated as of June 15, 2015. The Amended and Restated Credit Agreement is currently unsecured; however, should any Springing Lien Trigger Event (as defined in the Amended and Restated Credit Agreement) occur, we and certain of our subsidiaries would be required to enter intoexecute certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents would have a legal, valid, and enforceable ‎first priority Lien on the Collateral described therein.

The Amended and Restated Credit Agreement provides for a revolving line of credit of $100.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate (as defined in the Amended and Restated Credit Agreement) or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio. The Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan (as defined in the Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. Subject to the satisfaction of certain terms and conditions described in the Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any Permitted Notes (as defined in the Amended and Restated Credit Agreement) under the Amended and Restated Credit Agreement.

As of JulyOctober 31, 2021, we did 0t have any borrowings outstanding on the Revolving Line. Had there been borrowings, they would have borne an interest rate of 1.59%, which is equal to the LIBOR rate plus an applicable margin.

The Amended and Restated Credit Agreement contains customary limitations, including limitations on indebtedness, liens, fundamental changes to business or organizational structure, investments, loans, advances, guarantees, and acquisitions, asset sales, dividends, stock repurchases, stock redemptions, and the redemption or prepayment of other debt, and transactions with affiliates. We are also subject to financial covenants, including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio.

Letters of Credit – At JulyOctober 31, 2021, we had outstanding letters of credit aggregating $2.7 million, which included a $1.5 million letter of credit to collateralize our captive insurance company.

(6) Fair Value Measurement:

We follow the provisions of Accounting Standards Codification, or ASC, 820-10, Fair Value Measurements and Disclosures Topic, or ASC 820-10, for our financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures

12


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended JulyOctober 31, 2021 and 2020

 

and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

Financial assets and liabilities recorded on the accompanying condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).

Our cash and cash equivalents, which are measured at fair value on a recurring basis, totaled $171.4159.4 million and $113.0 million as of JulyOctober 31, 2021 and April 30, 2021, respectively. We utilized Level 1 of the value hierarchy to determine the fair values of these assets.

Level 2 — Financial assets and liabilities whose values are based on quoted prices in markets in which trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

quoted prices for identical or similar assets or liabilities in non-active markets (such as corporate and municipal bonds which trade infrequently);
inputs other than quoted prices that are observable for substantially the full term of the asset or liability (such as interest rate and currency swaps); and
inputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability (such as certain securities and derivatives).

Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our judgments about the assumptions a market participant would use in pricing the asset or liability.

We do 0t have any Level 2 or Level 3 financial assets or liabilities as of JulyOctober 31, 2021.

(7) Inventories:

The following table sets forth a summary of inventories, net of reserves, stated at lower of cost or net realizable value, as of JulyOctober 31, 2021 and April 30, 2021 (in thousands):

 

 

July 31, 2021

 

April 30, 2021

 

 

October 31, 2021

 

April 30, 2021

 

Finished goods

 

$

28,419

 

 

$

21,528

 

 

$

41,605

 

$

21,528

 

Finished parts

 

53,289

 

 

 

41,738

 

 

60,446

 

41,738

 

Work in process

 

6,878

 

 

 

7,918

 

 

7,464

 

7,918

 

Raw material

 

 

8,554

 

 

 

7,293

 

 

 

10,762

 

 

7,293

 

Total inventories

 

$

97,140

 

 

$

78,477

 

 

$

120,277

 

$

78,477

 

 

13


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended JulyOctober 31, 2021 and 2020

 

(8) Accrued Expenses and Deferred Revenue:

The following table sets forth other accrued expenses as of JulyOctober 31, 2021 and April 30, 2021 (in thousands):

 

 

July 31, 2021

 

 

April 30, 2021

 

 

October 31, 2021

 

 

April 30, 2021

 

Accrued taxes other than income

 

$

10,722

 

$

12,210

 

 

$

10,867

 

$

12,210

 

Accrued distributor incentives

 

 

3,875

 

2,414

 

Accrued employee benefits

 

5,386

 

4,780

 

 

3,773

 

4,780

 

Accrued other

 

3,494

 

3,451

 

 

3,673

 

3,451

 

Accrued distributor incentives

 

 

3,446

 

2,414

 

Accrued rebates and promotions

 

3,458

 

2,174

 

Accrued professional fees

 

3,011

 

2,804

 

 

3,161

 

2,804

 

Accrued rebates and promotions

 

2,681

 

2,174

 

Deferred revenue

 

2,364

 

2,907

 

Current portion of operating lease obligation

 

1,349

 

1,309

 

 

1,360

 

1,309

 

Current portion of finance lease obligation

 

 

1,101

 

 

1,087

 

 

1,116

 

1,087

 

Deferred revenue

 

675

 

2,907

 

Total accrued expenses and deferred revenue

 

$

33,554

 

$

33,136

 

 

$

31,958

 

$

33,136

 

 

 

 

 

 

 

 

 

 

 

 

 

(9) Stockholders’ Equity:

Treasury Stock

On March 2, 2021, our boardBoard of directorsDirectors authorized the repurchase of up to $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions. During fiscal 2021, we repurchased 3,380,447 shares of our common stock for $60.0 million under this authorization. During the threesix months ended JulyOctober 31, 2021, we completed this stock repurchase program by repurchasing 1,967,420 shares of our common stock for $40.0 million, utilizing cash on hand. On June 15, 2021, our boardBoard of directorsDirectors authorized the repurchase of an additional $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions, which authorization is valid through August 2022. As of JulyOctober 31, 2021, there werewe had 0t made any purchases under this authorization.

Earnings per Share

The following table provides a reconciliation of the net income amounts and weighted average number of common and common equivalent shares used to determine basic and diluted earnings per share for the three and six months ended JulyOctober 31, 2021 and 2020 (in thousands, except per share data):

 

For the Three Months Ended
July 31,

 

For the Three Months Ended
October 31,

 

 

For the Six Months Ended
October 31,

 

2021

 

2020

 

2021

 

2020

 

2020

 

 

 

2020

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

76,882

 

 

$

43,301

 

$

50,935

 

 

$

49,118

 

 

$

127,817

 

 

$

92,417

 

Income from discontinued operations

 

 

 

 

5,084

 

 

 

 

 

3,123

 

 

 

 

 

 

8,209

 

Net income

$

76,882

 

 

$

48,385

 

$

50,935

 

 

$

52,241

 

 

$

127,817

 

 

$

100,626

 

Weighted average shares outstanding — Basic

 

48,394

 

 

 

55,494

 

 

48,147

 

 

 

55,914

 

 

 

48,270

 

 

 

55,691

 

Effect of dilutive stock awards

 

656

 

 

783

 

 

545

 

 

 

617

 

 

 

254

 

 

 

784

 

Weighted average shares outstanding — Diluted

 

49,050

 

 

 

56,277

 

 

48,692

 

 

 

56,531

 

 

 

48,524

 

 

 

56,475

 

Earnings per share — Basic

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

1.59

 

 

$

0.78

 

$

1.06

 

 

$

0.88

 

 

$

2.65

 

 

$

1.66

 

Income from discontinued operations

 

 

$

0.09

 

 

 

$

0.05

 

 

 

 

 

$

0.15

 

Net income

$

1.59

 

 

$

0.87

 

$

1.06

 

 

$

0.93

 

 

$

2.65

 

 

$

1.81

 

Earnings per share — Diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

$

1.57

 

 

$

0.77

 

$

1.05

 

 

$

0.87

 

 

$

2.63

 

 

$

1.64

 

Income from discontinued operations

 

 

$

0.09

 

 

 

$

0.05

 

 

 

 

 

$

0.14

 

Net income

$

1.57

 

 

$

0.86

 

$

1.05

 

 

$

0.92

 

 

$

2.63

 

 

$

1.78

 

 

 

AllFor the three months ended October 31, 2021 and 2020, the amount of our outstanding restricted stock units, or RSUs, were included inshares excluded from the computation of diluted earnings per share forwas 17,815 and 9,052, respectively, because the threeeffect would be antidilutive. For the six months ended JulyOctober 31, 2021 and 2020.2020, the amount of shares excluded from the computation of diluted earnings per share was 25,036 and 9,472, respectively, because the effect would be antidilutive.

14


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended JulyOctober 31, 2021 and 2020

 

Incentive Stock and Employee Stock Purchase Plans

In September 2013, our boardBoard of directorsDirectors approved the 2013 Incentive Stock Plan under which employees and non-employees may be granted stock options, restricted stock awards, restricted stock units, stock appreciation rights, and bonus stock and awards in lieu of obligations, performance awards, and dividend equivalents.awards.

We have an Employee Stock Purchase Plan, or the ESPP, inunder which each participant is granted an option to purchase our common stock at a discount on each subsequent exercise date during the offering period (as such terms are defined in the ESPP) in accordance with the terms of the ESPP.

The total stock-based compensation expense, including stock options, purchases under our ESPP, service-based restricted stock units, or RSUs, and performance-based RSUs, or PSUs, was $1.52.4 million and $884,0002.1 million for the threesix months ended JulyOctober 31, 2021 and 2020, respectively. Stock-basedWe include stock-based compensation expense is included in cost of sales, sales and marketing, research and development, and general and administrative expenses.

We grant RSUs to employees and non-employee members of our Board of Directors. The awards are made at no cost to the recipient. An RSU represents the right to receive one share of our common stock and does not carry voting or dividend rights. Except in specific circumstances, RSU grants to employees vest over a period of four years with one-fourth of the units vesting on each anniversary of the grant date. We amortize the aggregate fair value of our RSU grants to compensation expense over the vesting period.

We grant PSUs to our executive officers and certain management employees who are not executive officers. The PSUs vest, and the fair value of such PSUs will be recognized, over the corresponding three-year performance period.

During the threesix months ended JulyOctober 31, 2021, we granted an aggregate of 126,430158,420 RSUs, including49,277 RSUs to certain of our executive officers, 10,712 RSUs to our directors, and 66,441 RSUs to non-executive officer employees.employees, 49,277 RSUs to our executive officers, and 42,702 RSUs to our directors. During the threesix months ended JulyOctober 31, 2021, we granted 73,913 PSUs to certain of our executive officers. Compensation expense related to grants of RSUs and PSUs was $1.32.0 million for the threesix months ended JulyOctober 31, 2021. During the threesix months ended JulyOctober 31, 2021, we cancelled 1,50240,869 PSUs, and 37,051 RSUs as a result of the service conditionconditions not being met. In connection with the vesting of RSUs, during the threesix months ended JulyOctober 31, 2021, we delivered common stock to our employees and directors, including our executive officers, with a total market value of $2.26.9 million. In addition, in connection with a 2018 grant, we vested 86,400 market-condition PSUs vested to certain of our executive officers and a former executive officer, which resulted from achieving the maximum performance of 200.0% of target for the original 43,200 PSUs granted.

During the threesix months ended JulyOctober 31, 2020, we granted an aggregate of 27,130234,007 RSUs, including 159,485 RSUs to non-executive officer employees.employees, 48,952 RSUs to our executive officers, and 25,570 RSUs to our directors. During the six months ended October 31, 2020, we granted 36,308 PSUs to certain of our executive officers. Compensation expense related to grants of RSUs and PSUs was $766,0001.2 million for the threesix months ended JulyOctober 31, 2020. During the threesix months ended JulyOctober 31, 2020, we canceledcancelled 63,70092,500 PSUs as a result of the failure to satisfy the performance metric and 8,06285,741 RSUs as a result of the service conditionconditions not being met. In connection with the vesting of RSUs, during the threesix months ended JulyOctober 31, 2020, we delivered common stock to our employeeemployees and directors, including our executive officers, with a total market value of $2.96.6 million.

A summary of activity for unvested RSUs and PSUs for the threesix months ended JulyOctober 31, 2021 and 2020 is as follows:

 

For the Three Months Ended July 31,

 

 

For the Six Months Ended October 31,

 

 

2021

 

2020

 

 

2021

 

2020

 

 

 

 

 

Weighted

 

 

 

Weighted

 

 

 

 

 

Weighted

 

 

 

Weighted

 

 

Total # of

 

Average

 

Total # of

 

Average

 

 

Total # of

 

Average

 

Total # of

 

Average

 

 

Restricted

 

Grant Date

 

Restricted

 

Grant Date

 

 

Restricted

 

Grant Date

 

Restricted

 

Grant Date

 

 

Stock Units

 

Fair Value

 

Stock Units

 

Fair Value

 

 

Stock Units

 

Fair Value

 

Stock Units

 

Fair Value

 

RSUs and PSUs outstanding, beginning of period

 

995,879

 

 

$

10.65

 

 

 

1,313,974

 

 

$

11.54

 

 

995,879

 

 

$

10.65

 

 

 

1,313,974

 

 

$

11.54

 

Awarded

 

243,543

 

(a)

 

16.45

 

 

 

27,130

 

 

 

21.02

 

 

275,533

 

(a)

 

17.08

 

 

 

270,315

 

 

 

13.93

 

Vested

 

(115,763

)

 

 

13.42

 

 

 

(212,232

)

 

 

15.76

 

 

(329,726

)

 

 

12.42

 

 

 

(381,946

)

 

 

14.89

 

Forfeited

 

 

(1,502

)

 

 

12.07

 

 

 

(71,762

)

 

 

21.64

 

 

 

(77,920

)

 

 

11.49

 

 

 

(178,241

)

 

 

15.27

 

RSUs and PSUs outstanding, end of period

 

 

1,122,157

 

 

$

11.62

 

 

 

1,057,110

 

 

$

10.25

 

 

 

863,766

 

 

$

11.96

 

 

 

1,024,102

 

 

$

15.27

 

——————————

(a)
Includes 43,200 PSUs vested in connection with achieving maximum performance targets for the 2018 grant.

15


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2021 and 2020

As of JulyOctober 31, 2021, there was $4.74.0 million of unrecognized compensation expense related to unvested RSUs and PSUs. This expense is expected to be recognized over a weighted average remaining contractual term of 1.61.5 years.

15


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2021 and 2020

(10) Commitments and Contingencies:

Litigation

In January 2018, Gemini Technologies, Incorporated, or Gemini, commenced an action against us in the U.S. District Court for the District of Idaho, or the District Court. The complaint alleges, among other things, that we breached the earn-out and other provisions of the Asset Purchase Agreementasset purchase agreement and ancillary agreements between the parties in connection with our acquisition of the Gemtech business from Gemini. The complaint seeks a declaratory judgment interpreting various terms of the Asset Purchase Agreementasset purchase agreement and damages in the sum of $18.6 million. In May 2018, the District Court dismissed the complaint on the grounds of forum non conveniens. In June 2018, Gemini appealed the decision dismissing its complaint to the U.S. Court of Appeals for the Ninth Circuit, or the Ninth Circuit. On July 24, 2019, the Ninth Circuit reversed the dismissal and remanded the case to the District Court to perform a traditional forum non conveniens analysis. On September 6, 2019, the parties stipulated that they do not contest that the venue is proper in the District of Idaho. On November 4, 2019, we filed an answer to Gemini’s complaint and a counterclaim against Gemini and its stockholders at the time of the signing of the Asset Purchase Agreement.asset purchase agreement. Plaintiffs amended their complaint to add a claim of fraud in the inducement. On September 24, 2021, Gemini filed a motion for summary judgment seeking to dismiss our counterclaim. On October 25, 2021, we filed our opposition to Gemini’s motion. No decision has issued to date. We believe the claims asserted in the complaint have no merit, and we intend to aggressively defend this action.

We are a defendant in 56 product liability cases and are aware of 32 other product liability claims, primarily alleging defective product design, defective manufacturing, or failure to provide adequate warnings. In addition, we are a co-defendant in a case filed onin August 27, 1999 by the city of Gary, Indiana, or the City, against numerous firearm manufacturers, distributors, and dealers seeking to recover monetary damages, as well as injunctive relief, allegedly arising out of the misuse of firearms by third parties. In January 2018, the trial courtLake Superior Court, County of Lake, Indiana granted defendants’ Motion for Judgment on the Pleadings, dismissing the case in its entirety. In February 2018, plaintiffs appealed the dismissal to the Indiana Court of Appeals. OnIn May 23, 2019, the Indiana Court of Appeals issued a decision, which affirmed in part and reversed in part and remanded for further proceedings, the trial court’s dismissal of the City’s complaint. OnIn July 8, 2019, defendants filed a Petition to Transfer jurisdiction to the Indiana Supreme Court. Briefing was completed in the Indiana Supreme Court on August 5, 2019. OnIn November 26, 2019, the Indiana Supreme Court denied our petition to transfer. Thetransfer and the case was returned to the trial court. The trial court granted defendants’ motion to sequence discovery, requiring the City to respond to defendants’ discovery requests by December 31, 2021. All discovery requests against the defendants are stayed until 90 days after the City responds to defendants’ discovery requests.

In May 2018, we were named in an action related to the Parkland, Florida shooting that was filed in the Circuit Court, Broward County, Florida seeking a declaratory judgment that a Florida statute that provides firearm manufacturers and dealers immunity from liability when their legally manufactured and lawfully sold firearms are later used in criminal acts applies only applies to civil actions commenced by governmental agencies, not private litigants. In August 2018, we moved to dismiss the complaint on the grounds that it seeks an impermissible advisory opinion. OnIn December 6, 2018, the court granted defendants’ motion to dismiss without prejudice and granted plaintiffs leave to amend their complaint. OnLater in December 10, 2018, plaintiffs filed a Second Amended Complaint for Declaratory Relief. On December 13, 2018,Relief and defendants filed a Motion to Dismiss Plaintiffs’ Second Amended Complaint. OnIn November 21, 2019, the court granted defendants’ motion to dismiss plaintiffs’ second amended complaint, with prejudice. On June 15, 2021, upon plaintiffs’ motion, the Fourth District Court of Appeal of the State of Florida, or the Court of Appeal, ruled that the Circuit Court’s November 21, 2019 order dismissing the case was not “final and appealable,” and ordered the Circuit Court to enter a final order of dismissal. On July 30, 2021, plaintiffs Frederic and Jennifer Guttenberg filed a notice of appeal to the Court of Appeal. Plaintiffs’ filed their initial brief on November 17, 2021.

We are a defendant in a putative class proceeding before the Ontario Superior Court of Justice in Toronto, Canada. The actionCanada that was filed onin December 16, 2019. The action claims CAD$50 million in aggregate general damages, CAD$100 million in aggregate punitive damages, special damages in an unspecified amount, together with interest and legal costs. The named plaintiffs are 2two victims of a shooting that took place in Toronto onin July 22, 2018 and their family members. One victim was shot and injured during the shooting. The other suffered unspecified injuries while fleeing the shooting. The plaintiffs are seeking to certify a claim on behalf of classes that include all persons who were killed or injured in the shooting and their immediate family members. The plaintiffs allege negligent design and public nuisance. The case has not been certified as a class action. OnIn July 13, 2020, we filed a Notice of Motion for an order striking the claim and dismissing the action in its entirety. On February 11, 2021, the court granted our motion in part, and dismissed the plaintiffs’ claims in public nuisance and strict liability. The court declined to strike the negligent design claim, and ordered that the claim proceed to a certification motion. The certification motion, which is scheduled to be heard in March of 2022. On March 2, 2021, we filed a motion for leave to appeal the court’s refusal to strike the negligent design claim with the Divisional Court, Ontario Superior Court of Justice. No hearing dateOn July 30, 2021, plaintiffs

16


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2021 and 2020

filed a motion to stay our motion for leave to appeal with the Divisional Court, on grounds that appeal is premature. On November 19, 2021, the Divisional Court granted plaintiffs' motion, has yet been set.staying our motion for leave to appeal until 30 days after the decision on the balance of plaintiffs' certification motion.

In May 2020, we were named in an action related to the Chabad of Poway synagogue shooting that took place onin April 27, 2019. The complaint was filed in the Superior Court of the State of California, for the County of San Diego – Central, and asserts claims against us for product liability, unfair competition, negligence, and public nuisance. The plaintiffs allege they were present at the synagogue on the day of the incident and suffered physical and/or emotional injury. The plaintiffs seek compensatory and punitive damages, attorneys’ fees, and injunctive relief. OnIn September 3, 2020, we filed a demurrer and motion to strike, seeking to dismiss

16


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2021 and 2020

plaintiffs’ complaint. The plaintiffs filed an opposition to our motion onin December 18, 2020. Our reply to plaintiffs’ opposition was filed on January 15, 2021. On February 16, 2021, several law professors with First Amendment expertise filed an amicus brief in support of our demurrer. Plaintiffs responded to the law professors’ brief on March 8, 2021. On March 23, 2021, Public Citizen, a consumer advocacy organization, filed an amicus brief in response to the law professors’ amicus brief. We responded to Public Citizen’s brief on May 10, 2021. The hearing on our motion was held on June 8, 2021. On July 2, 2021, the court granted our motion in part, and reversed it in part, ruling that: (1) the PLCAA barred plaintiffs’ product liability action; (2) plaintiffs did not have standing to maintain an action under the Unfair Competition Law for personal injury related damages, but giving plaintiffs leave to amend to plead an economic injury; and (3) the PLCAA did not bar plaintiffs’ ordinary negligence and public nuisance actions because plaintiffs had alleged that we violated 18 U.S.C Section 922(b)(4), which generally prohibits the sale of fully automatic “machineguns.” On August 13, 2021, we filed a Petition for Writ of Mandate in the Court of Appeal of the Statestate of California, Fourth Appellate District, Division One. On September 14, 2021, the Court of Appeal denied our appeal. Discovery is ongoing.

We are a defendant in an action filed in the United StatesU.S. District Court for the District of Massachusetts. On August 4, 2021, the Mexican Government filed an action against several U.S.-based firearms manufacturers and a firearms distributor, claiming defendants design, market, distribute, and sell firearms in ways they know routinely arm the drug cartels in Mexico. Plaintiff alleges, among other claims, negligence, public nuisance, design defect, unjust enrichment and restitution against all defendants and violation of the Massachusetts Consumer Protection Act against us alone, and is seeking monetary damages and injunctive relief. We believe the claims asserted in the complaint have no merit, and we intend to aggressively defend this action. On November 22, 2021, defendants filed motions to dismiss plaintiff's complaint.

We believe that the various allegations as described above are unfounded, and, in addition, that any incident and any results from them or any injuries were due to negligence or misuse of the firearm by the claimant or a third party.

John Pidcock, as trustee of the ASPC Creditor Trust (appointed under the plan of reorganization of AcuSport Corp., or AcuSport, as debtor in possession under chapter 11 of the U.S. Bankruptcy Code), is the plaintiff in 2 separate actions against us in the U.S. Bankruptcy Court for the Southern District of Ohio. The first seeks recovery of alleged preferential transfers received by us from AcuSport in the aggregate amount of $4.2 million. The second seeks turnover of goods allegedly owed to AcuSport by us under one or more of our promotional programs in the amount of $1.5 million. We have filed answers to both complaints denying all material allegations and asserting affirmative defenses. Mediation was held on December 10, 2020, and was unsuccessful in resolving these cases. A second mediation was held on June 23, 2021 and resulted in the settlement of all actions against us by the plaintiff. The final settlement agreement was signed by all parties in August 2021.

We believe that the various allegations as described above are unfounded.

In addition, from time to time, we are involved in lawsuits, claims, investigations, and proceedings, including commercial, environmental, premises, and employment matters, which arise in the ordinary course of business.

The relief sought in individual cases primarily includes compensatory and, sometimes, punitive damages. Certain of the cases and claims seek unspecified compensatory or punitive damages. In others, compensatory damages sought may range from less than $75,000 to approximately $50.0 million. In our experience, initial demands do not generally bear a reasonable relationship to the facts and circumstances of a particular matter. We believe that our accruals for product liability cases and claims are a reasonable quantitative measure of the cost to us of product liability cases and claims.

We are vigorously defending ourselves in the lawsuits to which we are subject. An unfavorable outcome or prolonged litigation could harm our business. Litigation of this nature also is expensive, time consuming, and diverts the time and attention of our management.

We monitor the status of known claims and the related product liability accrual, which includes amounts for defense costs for asserted and unasserted claims. After consultation with litigation counsel and a review of the merit of each claim, we have concluded that we are unable to reasonably estimate the probability or the estimated range of reasonably possible losses related to material adverse judgments related to such claims and, therefore, we have not accrued for any such judgments. In the future, should we determine that a loss (or an additional loss in excess of our accrual) is at least reasonably possible and material, we would then disclose an estimate of the possible loss or range of loss, if such estimate could be made, or disclose that an estimate could not be made. We believe that we have provided adequate accruals for defense costs.

We have recorded our liability for defense costs before consideration for reimbursement from insurance carriers. We have also recorded the amount due as reimbursement under existing policies from the insurance carriers as a receivable shown in other current assets and other assets.

At this time, an estimated range of reasonably possible additional losses relating to unfavorable outcomes cannot be made.

Commitments

On September 30, 2021, we announced our plan to move our headquarters and significant elements of our operations to Maryville, Tennessee in 2023, or the Relocation. In connection with the Relocation, we entered into a project agreement, or the Project Agreement,

17


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended JulyOctober 31, 2021 and 2020

 

with The Industrial Development Board of Blount County and the Cities of Alcoa and Maryville, Tennessee, a public, nonprofit corporation organized and existing under the laws of the state of Tennessee, or the IDB. Pursuant to the Project Agreement, we represented to the IDB that we intend to incur, or cause to be incurred, no less than $120.0 million in aggregate capital expenditures on or before December 31, 2025, create no less than 620 new jobs, and sustain an average hourly wage of at least $25.97 at the facility. Further, pursuant to the Project Agreement, we are required to, among other things, (A) execute a facility lease and an equipment lease with the IDB; (B) cause the construction of the new facility at our sole cost and expense to commence on or before May 31, 2022; (C) incur, or cause to be incurred, aggregate capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of not less than $120.0 million on or before December 31, 2025; (D) cause the construction of the new facility to be substantially completed and for a certificate of occupancy to be issued therefore on or before December 31, 2023; (E) provide the IDB with a written report certified by one of our authorized officers, not later than January 31 of each year during the period between January 31, 2024 and January 31, 2031; and (F) make certain payments to IDB in the event that our actual capital expenditures, number of employees, or average hourly wage of such employees are less than our projections.

As part of the Relocation, we intend to vacate and sublease our Missouri distribution facility. As of October 31, 2021, we had received indications of interest from potential third-party sublessees and believe that we will not incur an impairment associated with this lease. Assets associated with our assembly operations in Massachusetts and distribution operations in Missouri continue to be fully utilized and we intend to either move those assets to Tennessee at the appropriate time or sell or sublease those assets that will not be moved. Consequently, as of October 31, 2021, we could not determine a range of potential losses associated with any possible impairment of such assets.

In addition, at or near the conclusion of our Connecticut building lease in May 2024, we intend to relocate a portion of our plastic injection molding operations to Tennessee and will evaluate selling the remaining molding operations utilized in our Connecticut operations to a third party. As of October 31, 2021, all plastic injection molding machinery and equipment was being utilized and therefore, we could not determine an estimated range of reasonably possible losses associated with any impairment of such assets because we have not yet determined which assets will be sold.

(11) Subsequent Events:

Dividends

 

OnIn August 30,June 2021, our Board of Directors authorized a regular quarterly dividend for stockholders of $0.08 per share. The dividend will be for stockholders of record as of market close on September 14,December 16, 2021 and is payable on September 28, 2021January 3, 2022.

18


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Please refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021 and our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. This section sets forth key objectives and performance indicators used by us as well as key industry data tracked by us.

 

The results of AOUT, our former outdoor products and accessories business, which were previously reported in the Outdoor Products & Accessories segment, are being presented as discontinued operations in the condensed consolidated statements of income for all periods presented following the Separation as described above. See Note 3 - Discontinued Operations in the notes to condensed consolidated financial statements for additional information regarding these discontinued operations. Unless otherwise indicated, any reference to income statement items in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations.

FirstSecond Quarter Fiscal 2022 Highlights

Our operating results for the three months ended JulyOctober 31, 2021 included the following:

Net sales were $274.6$230.5 million, an increasea decrease of $44.7$18.3 million, or 19.5%7.3%, overfrom the comparable quarter last year.
Gross margin was 47.3%44.3%, compared with gross margin of 40.2%40.6% for the comparable quarter last year.
Income from continuing operations was $76.9$50.9 million, or $1.57$1.05 per diluted share, compared with income from continuing operations of $43.3$49.1 million, or $0.77$0.87 per diluted share, for the comparable quarter last year.

Our operating results for the six months ended October 31, 2021 included the following:

Net sales were $505.1 million, an increase of $26.5 million, or 5.5%, over the prior year comparable period.
Gross margin was 45.9%, an increase of 550 basis points over the prior year comparable period.
Income from continuing operations was $127.8 million, or $2.63 per diluted share, compared with income from continuing operations of $92.4 million, or $1.64 per diluted share, for the prior year comparable period.
On September 30, 2021, we announced the Relocation. In connection with the Relocation, we will build a new facility in Maryville, Tennessee and our corporate headquarters, some of our Springfield manufacturing operations, a portion of our Deep River, Connecticut plastic injection molding facility, and our Columbia, Missouri distribution operations will be relocated to Maryville, Tennessee. We expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of no less than $120.0 million on or before December 31, 2025. Through October 31, 2021, we have incurred $5.5 million of restructuring charges related to the Relocation.

 

Results of Operations

Net Sales and Gross Profit – For the Three Months Ended JulyOctober 31, 2021

The following table sets forth certain information regarding net sales and gross profit for the three months ended JulyOctober 31, 2021 and 2020 (dollars in thousands):

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Handguns

$

197,856

 

 

$

165,169

 

 

$

32,687

 

 

 

19.8

%

$

157,525

 

 

$

161,034

 

 

$

(3,509

)

 

 

-2.2

%

Long Guns

 

67,691

 

 

 

53,847

 

 

 

13,844

 

 

 

25.7

%

 

60,320

 

 

 

75,987

 

 

 

(15,667

)

 

 

-20.6

%

Other Products & Services

 

9,062

 

 

 

10,869

 

 

 

(1,807

)

 

 

-16.6

%

 

12,634

 

 

 

11,708

 

 

 

926

 

 

 

7.9

%

Total sales

$

274,609

 

 

$

229,885

 

 

$

44,724

 

 

 

19.5

%

$

230,479

 

 

$

248,729

 

 

$

(18,250

)

 

 

-7.3

%

Cost of sales

 

144,667

 

 

 

137,461

 

 

 

7,206

 

 

 

5.2

%

 

128,484

 

 

 

147,656

 

 

 

(19,172

)

 

 

-13.0

%

Gross profit

$

129,942

 

 

$

92,424

 

 

$

37,518

 

 

 

40.6

%

$

101,995

 

 

$

101,073

 

 

$

922

 

0.9

%

% of net sales (gross margin)

 

47.3

%

 

 

40.2

%

 

 

 

 

 

 

44.3

%

 

 

40.6

%

 

 

 

 

 

 

19


 

The following table sets forth certain information regarding firearm units shipped by trade channel for the three months ended JulyOctober 31, 2021 and 2020 (units in thousands):

 

Total Units Shipped

 

2021

 

 

2020

 

 

# Change

 

 

% Change

 

2021

 

 

2020

 

 

# Change

 

 

% Change

Handguns

 

507

 

 

 

472

 

 

 

35

 

7.4%

 

383

 

 

 

455

 

 

 

(72

)

 

-15.8%

Long Guns

 

137

 

 

 

112

 

 

 

25

 

22.3%

 

109

 

 

 

171

 

 

 

(62

)

 

-36.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sporting Goods Channel Units Shipped

 

2021

 

 

2020

 

 

# Change

 

 

% Change

 

2021

 

 

2020

 

 

# Change

 

 

% Change

Handguns

 

474

 

 

 

441

 

 

 

33

 

7.5%

 

360

 

 

 

420

 

 

 

(60

)

 

-14.3%

Long Guns

 

131

 

 

 

108

 

 

 

23

 

21.3%

 

104

 

 

 

166

 

 

 

(62

)

 

-37.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Professional Channel Units Shipped

 

2021

 

 

2020

 

 

# Change

 

 

% Change

 

2021

 

 

2020

 

 

# Change

 

 

% Change

Handguns

 

33

 

 

 

31

 

 

 

2

 

6.5%

 

23

 

 

 

35

 

 

 

(12

)

 

-34.3%

Long Guns

 

6

 

 

 

4

 

 

 

2

 

50.0%

 

5

 

 

 

5

 

 

                —

 

 

                —

Sales of our handguns decreased $3.5 million, or 2.2%, from the comparable quarter last year. The decrease in sales was primarily because of decreased shipments of our M&P branded polymer pistols, partially offset by increased shipments of revolvers and two price increases, one in November 2020 and one in June 2021. Handgun unit shipments into the sporting goods channel decreased by 14.3% from the comparable quarter last year while overall consumer demand decreased 24.2% (as indicated by adjusted background checks reported in the National Instant Criminal Background Check System, or NICS). However, based on data we track internally on distributor and strategic retailer inventory levels in the channel in certain of our handgun products, we believe that a significant portion of our unit shipments were used to replenish inventories in the distribution and retail channels, and after adjusting for this, we believe our market share likely declined in the quarter as compared to NICS. We believe this is due to the significant market share gains we achieved as a result of the historic demand levels during the pandemic, and with demand levels now easing, competitor offerings are more available at retail, which likely resulted in a market share decline for us from our peak levels, although we believe we still maintain our leadership position.

19


Sales forof our handguns increased $32.7 long guns decreased $15.7million, or 19.8%20.6%, from the comparable quarter last year. The decrease in sales was primarily because of decreased shipments of our hunting rifles as a result of the planned divestiture of that product line combined with lower shipments of our M&P modern sporting rifles, partially offset by increased shipments of a newly introduced product in the quarter and two price increases. Long gun unit shipments into our sporting goods channel decreased 37.3% from the comparable quarter last year. Excluding shipments of Thompson/Center branded products, long gun units decreased 12.7% as compared with a 16.2% decrease in reported NICS checks. However, based on data we track internally on distributor and strategic retailer inventory levels in the channel in certain of our long gun products, we believe that a significant portion of our unit shipments were used to replenish inventories in the distribution and retail channels, and after adjusting for this, we believe our market share likely declined in the quarter as compared to NICS. We believe this is due to the significant market share gains we achieved as a result of the historic demand levels during the pandemic, and with demand levels now easing, competitor offerings are more available at retail, which likely resulted in a market share decline for us from our peak levels, although we believe we still maintain our leadership position.

Other products and services revenue increased $926,000, or 7.9%, over the comparable quarter last year.year, primarily because of increased business-to-business services, increased sales of component parts, and increased sales of handcuffs.

New products, defined as any new SKU not shipped in the comparable quarter last year, represented 12.8% of sales for the three months ended October 31, 2021 and included a new M&P branded long gun and many new M&P product line extensions.

Gross margin for the three months ended October 31, 2021 was 44.3%, compared with gross margin of 40.6% for the comparable quarter last year, primarily because of price increases, combined with a shift in mix to higher margin products, and favorable manufacturing fixed-cost absorption, partially offset by expenses recorded related to employee severance and relocation costs associated with the Relocation.

As expected, our inventory balances increased $41.8 million between April 30, 2021 and October 31, 2021, as we replenished stock to provide our customers with a more robust selection of inventory and prepared for the next increase in consumer demand. We increased our finished parts inventory by $18.7 million in an effort to reduce the risk of potential supply chain issues. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect finished goods inventory will continue to increase in the next quarter as we bring our stock to a more desired level in anticipation of future consumer demand.

20


Net Sales and Gross Profit – For the Six Months Ended October 31, 2021

The following table sets forth certain information regarding net sales and gross profit for the six months ended October 31, 2021 and 2020 (dollars in thousands):

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Handguns

 

$

355,381

 

 

$

326,211

 

 

$

29,170

 

 

 

8.9

%

Long Guns

 

 

128,012

 

 

 

129,834

 

 

 

(1,822

)

 

 

-1.4

%

Other Products & Services

 

 

21,695

 

 

 

22,569

 

 

 

(874

)

 

 

-3.9

%

Total Revenue

 

$

505,088

 

 

$

478,614

 

 

$

26,474

 

 

 

5.5

%

Cost of sales

 

 

273,151

 

 

 

285,117

 

 

 

(11,966

)

 

 

-4.2

%

Gross profit

 

$

231,937

 

 

$

193,497

 

 

$

38,440

 

 

 

19.9

%

% of net sales (gross margin)

 

 

45.9

%

 

 

40.4

%

 

 

 

 

 

 

The following table sets forth certain information regarding firearm units shipped by trade channel for the six months ended October 31, 2021 and 2020 (units in thousands):

Total Units Shipped

 

2021

 

 

2020

 

 

# Change

 

 

% Change

Handguns

 

 

890

 

 

 

927

 

 

 

(37

)

 

-4.0%

Long Guns

 

 

246

 

 

 

283

 

 

 

(37

)

 

-13.1%

 

 

 

 

 

 

 

 

 

 

 

 

Sporting Goods Channel Units Shipped

 

2021

 

 

2020

 

 

# Change

 

 

% Change

Handguns

 

 

834

 

 

 

861

 

 

 

(27

)

 

-3.1%

Long Guns

 

 

235

 

 

 

274

 

 

 

(39

)

 

-14.2%

 

 

 

 

 

 

 

 

 

 

 

 

Professional Channel Units Shipped

 

2021

 

 

2020

 

 

# Change

 

 

% Change

Handguns

 

 

56

 

 

 

66

 

 

 

(10

)

 

-15.2%

Long Guns

 

 

11

 

 

 

9

 

 

 

2

 

 

22.2%

Sales of our handguns increased $29.2 million, or 8.9%, over the prior year comparable period. The increase in revenue was primarily due to increased shipments of our M&P branded polymer pistols, including increased shipments of a new concealed carry polymer pistol introduced in the fourth quarter of fiscal 2021 andcombined with two priceprices increases, one in November 2020 and one in June 2021. As compared with the prior year, revolver sales were lower due to inventory on hand at the start of the prior fiscal year. During the current fiscal quarter,period, we did not offer any promotional programs and fulfilled very few older promotional orders, which resulted in an increase in average selling prices compared with the prior fiscal year quarterperiod when we fulfilled numerous promotional orders that were offered prior to the increase in demand in March 2020. As compared with the first quarter of fiscal 2020, revolver sales were lower due to lower inventory on hand at the start of the quarter. Handgun unitUnit shipments into the sporting goods channel increaseddecreased by 7.5% over3.1% from the comparable quarterperiod last year while overall consumer demand decreased 35.5% (as30.4% as indicated by adjusted background checks reportedNICS, however, we believe that a significant portion of our unit shipments were used to replenish inventories in the National Instant Criminal Background Check System, or NICS).distribution and retail channels, and after adjusting for this, we believe our market share likely declined as compared to NICS. We believe that our outperformance over NICS wasthis is due to the replenishmentsignificant market share gains we achieved as a result of channel inventorythe historic demand levels during the quarterpandemic, and with demand levels now easing, competitor offerings are more available at retail, which likely resulted in certain high production capacity products as consumer demand began to moderate at the start of the summer.a market share decline for us from our peak levels, although we believe we still maintain our leadership position.

Sales forfrom our long guns increased $13.8decreased $1.8 million, or 25.7%1.4%, overfrom the prior year comparable quarter last year. The increase in revenue wasperiod primarily because of increasedlower shipments of our M&P modern sporting rifles and two price increases, one in November 2020 and one in June 2021, partially offset by a decrease in hunting rifles as a result of the planned divestiture of that product line. Long gun unitline and decreased shipments of our M&P modern sporting rifles, partially offset by increased shipments of a newly introduced product in the quarter and two price increases. Unit shipments into our sporting goods channel increased 21.3%decreased 14.2% compared with a 25.9%20.8% decrease in reported NICS checks versus the prior year comparable quarter last year.period, however, we believe that a significant portion of our unit shipments were used to replenish inventories in the distribution and retail channels, and after adjusting for this, we believe our market share likely declined as compared to NICS. We believe that our outperformance over NICS wasthis is due to boththe significant market share gains we achieved as a continued consumer preference for our productsresult of the historic demand levels during the pandemic, and with demand levels now easing, competitor offerings are more available at retail, as well as the replenishment of channel inventory as consumer demand returned to more summer seasonal levels.which likely resulted in a market share decline for us from our peak levels, although we believe we still maintain our leadership position.

Other products and services revenue decreased $1.8 million,$874,000, or 16.6%3.9%, from the prior year comparable quarter last year,period, primarily because of decreased sales of component parts due to the use of these parts in production of completed firearms, as well as decreased sales inand handcuffs, partially offset by increasedan increase in sales for business-to-business services.

New products defined as any new SKU not shipped in the comparable quarter last year, represented 18.6%16.0% of revenuesales for the threesix months ended JulyOctober 31, 2021 and included a new M&P branded long gun and many new M&P product line extensions.

Gross margin for the threesix months ended JulyOctober 31, 2021 was 47.3%, compared with gross margin of 40.2% forincreased 550 basis points over the prior year comparable quarter last year,period primarily because of lower promotional product spending, favorable manufacturing fixed cost absorption, dueprice increases, a shift in mix to effective cost control strategies,higher margin products, and favorable price increases.lower

21


promotional product spending. These increases were partially offset by increased volume-related spending.

Inventory balances increased $18.7 million between April 30, 2021manufacturing spending and July 31, 2021. The $11.6 million increase in finished parts was due to receipts from vendors during our first week of shutdownemployee severance and a planned inventory build in preparation for a new product launch. Our finished goods inventory increased $6.9 million as inventory inrelocation costs associated with the channel began to be replenished in certain of our higher volume product lines. We expect finished goods inventory will continue to increase in the next quarter as we restock in anticipation of providing our customers with a more robust selection of inventory and to prepare for the next increase in consumer demand.Relocation.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the three months ended JulyOctober 31, 2021 and 2020 (dollars in thousands):

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Research and development

$

1,808

 

 

$

1,906

 

 

$

(98

)

 

 

-5.1

%

$

1,744

 

 

$

1,855

 

 

$

(111

)

 

-6.0

%

Selling, marketing, and distribution

 

10,634

 

 

 

9,995

 

 

 

639

 

 

 

6.4

%

 

11,423

 

 

 

11,614

 

 

 

(191

)

 

-1.6

%

General and administrative

 

17,614

 

 

 

21,780

 

 

 

(4,166

)

 

 

-19.1

%

 

23,436

 

 

 

23,224

 

 

 

212

 

 

0.9

%

Total operating expenses

$

30,056

 

 

$

33,681

 

 

$

(3,625

)

 

 

-10.8

%

$

36,603

 

 

$

36,693

 

 

$

(90

)

 

-0.2

%

% of net sales

 

10.9

%

 

 

14.7

%

 

 

 

 

 

 

15.9

%

 

 

14.8

%

 

 

 

 

 

 

Selling, marketing,Research and distributiondevelopment expenses were relatively flat compared withdecreased $111,000 from the comparable quarter last year, primarily as a result of decreased compensation-related expenses. Selling, marketing, and distribution expenses decreased $191,000, primarily as a result of decreased compensation-related expenses and lower spending on targeted customer promotions, partially offset by increased marketing campaign related expenses, increased compensation expenses and increased travel and entertainment costs. General and administrative expenses increased $212,000, primarily because of $4.2 million in costs associated with the Relocation and $2.9 million of increased legal costs, partially offset by $4.8 million of decreased expenses related to the Separation and $1.6 million of decreased compensation-related costs due to synergy savings realized from the Separation.

The following table sets forth certain information regarding operating expenses for the six months ended October 31, 2021 and 2020 (dollars in thousands):

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Research and development

 

$

3,552

 

 

$

3,761

 

 

$

(209

)

 

 

-5.6

%

Selling, marketing, and distribution

 

 

22,057

 

 

 

21,609

 

 

 

448

 

 

 

2.1

%

General and administrative

 

 

41,049

 

 

 

45,007

 

 

 

(3,958

)

 

 

-8.8

%

Total operating expenses

 

$

66,658

 

 

$

70,377

 

 

$

(3,719

)

 

 

-5.3

%

% of net sales

 

 

13.2

%

 

 

14.7

%

 

 

 

 

 

 

Research and development expenses decreased $209,000 from the prior year comparable period, primarily as a result of decreased depreciation and compensation-related costs. Selling, marketing, and distribution expenses increased $448,000 over the prior year comparable period, primarily because of increased marketing costs, increased compensation-related expense, and increased travel and entertainment expenses, partially offset by decreased spending in targeted customer promotions. General and administrative expenses decreased $4.2$4.0 million primarily because of $3.6a decrease of $8.4 million of decreased expenses related to the Separation and $1.4$2.8 million of decreased compensationlower compensation-related expenses due to synergy savings realized from the Separation, partially offset by an increase in profit-sharing expense.

20


of $4.2 million of costs associated with the Relocation and $3.1 million of increased legal related expenses.

Operating Income from Continuing Operations

The following table sets forth certain information regarding operating income for the three months ended JulyOctober 31, 2021 and 2020 (dollars in thousands):

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Operating income from continuing operations

$

99,886

 

 

$

58,743

 

 

$

41,143

 

 

 

70.0

%

$

65,392

 

 

$

64,380

 

 

$

1,012

 

1.6

%

% of net sales (operating margin)

 

36.4

%

 

 

25.6

%

 

 

 

 

 

 

28.4

%

 

 

25.9

%

 

 

 

 

 

 

 

Operating income from continuing operations for the three months ended JulyOctober 31, 2021 increased $41.1$1.0 million over the comparable quarter last year, primarily because of increased revenue and the resulting improvementsa 370 basis point improvement in gross margins.margin. Operating income from continuing operations was also favorablypositively impacted by favorable manufacturing fixed-cost absorption, lower promotional product spending, favorable manufacturing fixed-cost absorption, lower spending related to the Separation, and decreased co-op advertising costs. These favorable impacts were partially offset by increased volume-related manufacturing spending, increased costs associated with the Relocation, and increased legal costs.

22


The following table sets forth certain information regarding operating income for the six months ended October 31, 2021 and 2020 (dollars in thousands):

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Operating income from continuing operations

 

$

165,279

 

 

$

123,120

 

 

$

42,159

 

 

 

34.2

%

% of net sales (operating margin)

 

 

32.7

%

 

 

25.7

%

 

 

 

 

 

 

Operating income from continuing operations for the six months ended October 31, 2021 increased $42.2 million over the prior year comparable period, primarily because increased revenue and a 550 basis point improvement in gross margin. Operating income from continuing operations was also positively impacted by favorable manufacturing fixed-cost absorption, lower promotional product spending, a decrease in expenses related to the Separation, and a decrease in compensation-related expenses. These increases were partially offset by costs associated with the Relocation, increased legal costs, increased manufacturing spending, and increased profit-sharing expense.

Interest Expense

The following table sets forth certain information regarding interest expense for the three months ended JulyOctober 31, 2021 and 2020 (dollars in thousands):

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Interest expense

$

(544

)

 

$

(1,316

)

 

$

(772

)

 

 

-58.7

%

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Interest expense

$

(466

)

 

$

(1,490

)

 

$

(1,024

)

 

 

-68.7

%

 

For the three months ended JulyOctober 31, 2021, interest expense decreased by $772,000$1.0 million from the comparable quarter last year as a result of the repayment of all amounts outstanding on our revolving line of credit during the second quarter of fiscal 2021.

The following table sets forth certain information regarding interest expense for the six months ended October 31, 2021 and 2020 (dollars in thousands):

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Interest expense

 

$

(1,011

)

 

$

(2,806

)

 

$

(1,795

)

 

 

-64.0

%

During the six months ended October 31, 2021, interest expense decreased by $1.8 million from the prior year comparable period as a result of the repayment of all amounts outstanding on our revolving line of credit during the second quarter of fiscal 2021.

Income Taxes

The following table sets forth certain information regarding income tax expense for the three months ended JulyOctober 31, 2021 and 2020 (dollars in thousands):

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Income tax expense

$

23,120

 

 

$

14,193

 

 

$

8,927

 

 

 

62.9

%

$

14,824

 

 

$

14,465

 

 

$

359

 

 

 

2.5

%

% of income from operations (effective tax rate)

 

23.1

%

 

 

24.7

%

 

 

 

 

-1.6

%

 

22.5

%

 

 

22.7

%

 

 

 

 

-0.2

%

 

Income tax expense increased $8.9$359,000 over the comparable quarter last year as a result of higher operating income for the reasons mentioned above.

The following table sets forth certain information regarding income tax expense for the six months ended October 31, 2021 and 2020 (dollars in thousands):

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Income tax expense

 

$

37,944

 

 

$

28,657

 

 

$

9,287

 

 

 

32.4

%

% of income from operations (effective tax rate)

 

 

22.9

%

 

 

23.7

%

 

 

 

 

 

-0.8

%

23


Income tax expense increased $9.3 million over the comparable quarter last year as a result of slightly higher operating income for the reasons mentioned above.

 

Income from Continuing Operations

The following table sets forth certain information regarding income from continuing operations and the related per share data for the three months ended JulyOctober 31, 2021 and 2020 (dollars in thousands, except per share data):

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Income from continuing operations

$

76,882

 

 

$

43,301

 

 

$

33,581

 

 

 

77.6

%

$

50,935

 

 

$

49,118

 

 

$

1,817

 

3.7

%

Net income per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic - continuing

$

1.59

 

 

$

0.78

 

 

$

0.81

 

 

 

103.8

%

$

1.06

 

$

0.88

 

$

0.18

 

 

20.5

%

Diluted - continuing

$

1.57

 

 

$

0.77

 

 

$

0.80

 

 

 

103.9

%

$

1.05

 

$

0.87

 

$

0.18

 

20.7

%

 

Income from continuing operations for the three months ended JulyOctober 31, 2021 was $76.9$50.9 million compared with $43.3$49.1 million for the comparable quarter last year for the reasons outlined above.

The following table sets forth certain information regarding income from continuing operations and the related per share data for the six months ended October 31, 2021 and 2020 (dollars in thousands, except per share data):

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Income from continuing operations

 

$

127,817

 

 

$

92,417

 

 

$

35,400

 

 

 

38.3

%

Net income per share

 

 

 

 

 

 

 

 

 

 

 

 

Basic - continuing

 

$

2.65

 

 

$

1.66

 

 

$

0.99

 

 

 

59.6

%

Diluted - continuing

 

$

2.63

 

 

$

1.64

 

 

$

0.99

 

 

 

60.4

%

Income from continuing operations for the six months ended October 31, 2021 was $127.8 million compared with $92.4 million for the comparable quarter last year for the reasons outlined above.

 

Liquidity and Capital Resources

Our principal cash requirements are to (1) finance the growth of our operations, including working capital and capital expenditures, (2) fund the Relocation, and (2)(3) return capital to stockholders. Capital expenditures for the Relocation, new product development, additional manufacturing capacity, and repair and replacement of equipment represent important cash needs.

21


The following table sets forth certain cash flow information for the threesix months ended JulyOctober 31, 2021 and 2020 (dollars in thousands):

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

 

2021

 

 

2020

 

 

$ Change

 

 

% Change

 

Operating activities

 

$

109,087

 

 

$

81,723

 

 

$

27,364

 

 

 

33.5

%

 

$

105,364

 

$

138,088

 

$

(32,724

)

 

-23.7

%

Investing activities

 

(5,768

)

 

 

(6,652

)

 

 

884

 

 

 

13.3

%

 

(10,199

)

 

(15,314

)

 

5,115

 

33.4

%

Financing activities

 

 

(44,923

)

 

 

(135,967

)

 

 

91,044

 

 

 

67.0

%

 

 

(48,791

)

 

 

(188,702

)

 

 

139,911

 

 

74.1

%

Total cash flow

 

$

58,396

 

 

$

(60,896

)

 

$

119,292

 

 

 

195.9

%

 

$

46,374

 

$

(65,928

)

 

$

112,302

 

 

170.3

%

 

Operating Activities

On an annual basis, operating activities generally represent the principal source of our cash flow. Cash provided by operating activities was $109.1$105.4 million for the threesix months ended JulyOctober 31, 2021 compared with $81.7$138.1 million of cash generated for the threesix months ended JulyOctober 31, 2020. Cash generatedprovided by operating activities from continuing operations for the quartersix months ended October 31, 2021 was favorably impacted by income of $84.3$143.0 million before depreciation and amortization, a $24.4$30.2 million incremental decrease in accounts receivable due to increasedtiming of shipments during the second half of our fourth quarter of fiscal 2021,and customer payments, a $19.0$15.0 million incremental increase in accrued expenses as a result of the payment of deferred federal excise tax liabilities during the first quarter of fiscal 2021, and the fulfillment of performance obligations relating to sales promotions in the prior year. These favorable impacts were partially offset by an incremental $42.4$66.7 million increase in inventory due to increased production capacity offset by reduced consumer demand, an incremental $10.2$36.8 million decrease in accounts payable, and an incremental $7.5$5.3 million reduction in accrued payroll and incentive accruals due to the payment of management incentive bonuses in the first quarter.

24


Investing Activities

Cash used in investing activities decreased $884,000$5.1 million for the threesix months ended JulyOctober 31, 2021 compared with the prior year comparable period. We recorded capital expenditures of $5.8$10.1 million for the threesix months ended JulyOctober 31, 2021, $696,000$4.9 million lower than the prior year comparable period. Weperiod, which included machinery and equipment utilized to increase capacity. Excluding spending related to the Relocation, we currently expect to spend between $25.0$20.0 million and $30.0$25.0 million on capital expenditures in fiscal 2022, a decrease of $2.1 million to an increase of $2.9 million to $7.9 million, as compared with $22.1 million in capital expenditures in fiscal 2021. The increase in capital expenditures over the prior fiscal yearThis is primarily due to lower spending on capacity increases offset by new product development and repair and replacement of equipment.

Additionally, as it relates to the Relocation, we expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of not less than $120.0 million on or before December 31, 2025. We currently expect to spend between $25.0 million and $35.0 million on capital expenditures in fiscal 2022, of which $15.0 million to $20.0 million is expected for the construction of the facility. This spending will be recorded in construction in progress throughout the building construction. Through the six months ended October 31, 2021, we have had no capital expenditures in connection with the Relocation.

Financing Activities

Cash used in financing activities was $44.9$48.8 million for the threesix months ended JulyOctober 31, 2021 compared with $136.0$188.7 million for the threesix months ended JulyOctober 31, 2020. Cash used in financing activities during the threesix months ended JulyOctober 31, 2021 was primarily the result of a $40.0 million treasury stock repurchase and a $3.8$7.7 million dividend distribution. For the threesix months ended JulyOctober 31, 2020, the cash used in financing activities was almost entirely due to theprimarily a result of a net repayment of $135.0$160.0 million in revolving debt.of borrowings on our credit facility and funding a distribution of $25.0 million to our discontinued operations.

 

Finance Lease – We are a party to a $46.2 million lease for our national logistics facility in Columbia, Missouri, which has an effective interest rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During the threesix months ending JulyOctober 31, 2021, we paid $251,200$505,500 in principal payments relating to this finance lease. With the completion of the Separation on August 24, 2020, we entered into a sublease for 59.0% of this facility under the same terms as the master lease. We have recorded $501,000$1.1 million of income related to this sublease agreement, which is recorded in other income/(expense) in our condensed consolidated statements of income.

 

22


Credit Facilities — As of JulyOctober 31, 2021, we had no outstanding indebtedness. However, we maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time. The revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of JulyOctober 31, 2021. The credit agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the revolving line). Each swingline loan bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. In response to a Springing Lien Triggering Event (as defined in the credit agreement), we would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents as legal, valid, and enforceable first priority lien on the collateral described therein. Subject to the satisfaction of certain terms and conditions described in the credit agreement, we have an option to increase the revolving line by an aggregate amount not exceeding $50.0 million. The revolving line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notesPermitted Notes under the credit agreement.

The credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. We were in compliance with all debt covenants as of JulyOctober 31, 2021.

Share Repurchase Programs - On March 2, 2021, our board of directors authorized the repurchase of up to $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions. During fiscal 2021, we repurchased 3,380,447 shares of our common stock for $60.0 million under this authorization. During the threesix months ended JulyOctober 31, 2021, we completed this stock repurchase program by repurchasing 1,967,420 shares of our common stock for $40.0 million utilizing cash on hand. On June 15, 2021, our board of directors authorized the repurchase of an additional $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions, which authorization is valid through August 2022. As of JulyOctober 31, 2021, there were nowe had not made any purchases under this authorization.

 

Dividends — On August 30,In June 2021, our Board of Directors authorized a regular quarterly dividend for stockholders of $0.08 per share. The dividend will be for stockholders of record as of market close on September 14,December 16, 2021 and is payable on September 28, 2021.January 3, 2022.

Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and

25


enhancements to existing products, the costs to ensure access to adequate manufacturing capacity, and costs related to enhance the equipment and software at our logistics facility.Relocation. Further equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.

As of JulyOctober 31, 2021, we had $171.4$159.4 million in cash and cash equivalents on hand. Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations, including our finance leases and other commitments, for the next 12 months.

Other Matters

Critical Accounting Policies

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant accounting policies are disclosed in Note 2 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021. The most significant areas involving our judgments and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended April 30, 2021, to which there have been no material changes. Actual results could differ from our estimates.

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements, if any, is discussed in Note 2—Basis of Presentation to our condensed consolidated financial statements included elsewhere in this report, which is incorporated herein by reference.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the period ended JulyOctober 31, 2021, we did not enter into or transact any forward option contracts nor did we have any forward contracts outstanding.

23


 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of JulyOctober 31, 2021, our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

2426


 

PART II — OTHER INFORMATION

The nature of legal proceedings against us is discussed in Note 10—Commitments and Contingencies to our condensed consolidated financial statements included elsewhere in this report, which is incorporated herein by reference.

Item 1.A. Risk Factors

We are subject to risks associated with the relocation of our principal offices.

On September 30, 2021, we announced our plan to relocate our headquarters and significant elements of our operations to Maryville, Tennessee in 2023, or the Relocation. In connection with the Relocation, we will build a new facility in Maryville, Tennessee and our corporate headquarters, some of our Springfield manufacturing operations, a portion of our Deep River, Connecticut plastic injection molding facility, and our Columbia, Missouri distribution operations will be relocated to Maryville, Tennessee. There are a number of risks associated with the Relocation, including the following:

we may not complete the Relocation during the expected timeframe or within our anticipated budget;
we may not have adequate cash resources, borrowing capacity, or other forms of available consideration at favorable pricing that would enable us to pay for the Relocation;
a portion of our cash flows from operations will be dedicated to funding the Relocation and will not be available for other purposes;
we may not meet the spending, headcount and wage commitments that we are required to meet in order to receive certain incentives associated with the Relocation;
we may experience changes in federal, state, and local laws and regulations that prevent the Relocation from proceeding or increase the costs of the Relocation;
we may incur capital expenditures for the Relocation in excess of our expected capital expenditures; and
we may not effectively transition our workforce as part of the Relocation, in which case we could experience business disruption as a result of a loss of historical knowledge and a lack of business continuity. The market for both hourly workers and professional workers is very competitive and we have experienced, and expect to continue to experience, increased turnover and challenges in recruiting and retaining our employees, which challenges may be exasperated by the Relocation.

Any one or more of these risks could cause us to fail to realize the expected benefits of the Relocation. In addition, we anticipate that the Relocation will require a substantial commitment of our management’s time and attention, which may adversely affect our day-to-day business activities.

The Emergency Temporary Standard for COVID-19 Vaccinations and Testing (the ETS) could have a material adverse impact on our business and results of operations.

On November 5, 2021, the U.S. Department of Labor’s Occupational Safety and Health Administration, or OSHA issued the ETS, which mandates either full vaccination or at least weekly testing of employees for employers with 100 or more employees. On November 12, 2021, the U.S. Court of Appeals for the Fifth Circuit issued an order staying enforcement and implementation of the ETS. We are assessing the anticipated requirements and monitoring future developments. While we cannot currently assess the impact, if any, that the ETS will have on our business or results of operations, it may adversely impact our ability to retain employees and our operations and the cost of compliance may be substantial.

27


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The following table sets forth certain information relating to the purchases of our common stock by us and any affiliated purchasers within the meaning of Rule 10b-18(a)(3) under the Exchange Act during the threesix months ended JulyOctober 31, 2021 (dollars in thousands, except per share data):

 

 

 

 

 

 

 

 

 

Total # of Shares

 

 

Maximum Dollar

 

 

 

 

 

 

 

 

 

Purchased as

 

 

Value of Shares

 

 

 

 

 

 

 

 

 

Part of Publicly

 

 

that May Yet Be

 

 

 

Total # of

 

 

Average

 

 

Announced

 

 

Purchased

 

 

 

Shares

 

 

Price Paid

 

 

Plans or

 

 

Under the Plans

 

Period

 

Purchased

 

 

Per Share

 

 

Programs (1)

 

 

or Programs

 

May 1 to May 31, 2021

 

 

1,054,550

 

 

$

18.95

 

 

 

1,054,550

 

 

$

20,000

 

June 1 to June 30, 2021

 

 

912,870

 

 

 

21.93

 

 

 

912,870

 

 

 

50,000

 

Total

 

 

1,967,420

 

 

$

20.31

 

 

 

1,967,420

 

 

$

50,000

 

—————————

(1) On March 2, 2021, our board of directors authorized the repurchase of up to $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions. During fiscal 2021, we repurchased 3,380,447 shares of our common stock for $60.0 million. During the threesix months ended JulyOctober 31, 2021, we completed this stock repurchase program by repurchasing 1,967,420 shares of our common stock for $40.0 million utilizing cash on hand. On June 15, 2021, our board of directors authorized the repurchase of an additional $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions, which authorization is valid through August 2022. As of JulyOctober 31, 2021, there were nowe had not made any purchases under this authorization.

 

Item 6. Exhibits

The exhibits listed on the Index to Exhibits (immediately preceding the signatures section of this Quarterly Report on Form 10-Q) are included herewith or incorporated herein by reference.

 

 

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INDEX TO EXHIBITS

 

 

10.129*10.130*

 

Separation and ReleaseProject Agreement, dated as of May 24,September 30, 2021, by and between Robert J. Ciceroamong by and among The Industrial Development Board of Blount County and the Cities of Alcoa and Maryville, Tennessee, a public, nonprofit corporation organized and existing under the laws of the State of Tennessee and the Registrant (1)(incorporated by reference to Exhibit 10.130 of the Registrant’s Form 8-K filed with the SEC on September 30, 2021).

 

 

 

  31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

 

 

 

  31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

 

 

 

  32.1

 

Section 1350 Certification of Principal Executive Officer

 

 

 

  32.2

 

Section 1350 Certification of Principal Financial Officer

 

 

 

101.INS

 

Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

104

 

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

 

 

 

——————

 

 

*

 

Management contract or compensatory arrangement

 

 

(1)

 

Incorporated by reference to the Registrant's Form 8-K filed with the SEC on May 24, 2021.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2629


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

SMITH & WESSON BRANDS, INC.

a Nevada corporation

 

 

 

Date: September 1,December 2, 2021

 

By:

 

/s/ Mark P. Smith

 

 

 

 

Mark P. Smith

 

 

 

 

President and Chief Executive Officer

 

Date: September 1,December 2, 2021

 

By:

 

/s/ Deana L. McPherson

 

 

 

 

Deana L. McPherson

 

 

 

 

Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary

 

 

2730