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2020-05-01 2020-10-31

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 October 31, 2020

Commission File No. 001-31552

 

 

 

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)

(800331-0852

(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 55,981,347 shares of common stock, par value $0.001, outstanding as of December 1, 2020.

 

 


SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended October 31, 2020 and 2019

 

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

  

21

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

28

 

Item 4. Controls and Procedures

  

28

 

 

 

 

PART II - OTHER INFORMATION

  

30

 

Item 1. Legal Proceedings

  

30

 

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

 

30

 

Item 6. Exhibits

  

30

Signatures

  

32

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®, Chiefs Special®, EZ®, Governor®, Lever Lock®, Magnum®, SW22 Victory®, T/C ®, America’s Master 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®, 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™, C.O.R.E.™, E-Series™, M2.0™, S&W500™, SD™, SDVE™, Sport™, SW1911™, 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 in Gemini’s complaint have no merit and our intention to aggressively defend this action; our belief that the various allegations described in the Litigation section 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; our belief that we have strong defenses to the actions filed against us by John Pidcock, as trustee of the APSC Creditor Trust, and our intention to continue to vigorously defend them; 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 expectation that firearms inventory balances will remain relatively flat throughout our next fiscal quarter; our expectation on spending for capital expenditures in fiscal 2021; factors affecting our future capital requirements; availability of equity or debt financing on acceptable terms, if at all; our belief that our existing capital resources and credit facilities will be adequate to fund our operations, including our outstanding debt and other commitments, for the next 12 months; and our belief that our improved processes and procedures will assist in the remediation of our material weakness, though management is still evaluating the design of these new controls and procedures. 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 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, 2020, filed with the SEC on June 19, 2020.

 

 

 

 


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

As of:

 

 

 

October 31, 2020

 

 

April 30, 2020

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

55,549

 

 

$

125,011

 

Accounts receivable, net of allowances for credit losses of $1,067 on

   October 31, 2020 and $1,038 on April 30, 2020

 

 

68,637

 

 

 

60,879

 

Inventories

 

 

78,889

 

 

 

103,741

 

Prepaid expenses and other current assets

 

 

7,599

 

 

 

7,556

 

Current assets of discontinued operations

 

 

 

 

 

94,673

 

Income tax receivable

 

 

4,713

 

 

 

1,595

 

Total current assets

 

 

215,387

 

 

 

393,455

 

Property, plant, and equipment, net

 

 

147,907

 

 

 

147,739

 

Intangibles, net

 

 

4,458

 

 

 

4,375

 

Goodwill

 

 

19,024

 

 

 

19,024

 

Other assets of discontinued operations

 

 

 

 

 

148,485

 

Other assets

 

 

14,309

 

 

 

16,437

 

 

 

$

401,085

 

 

$

729,515

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

60,985

 

 

$

31,476

 

Accrued expenses and deferred revenue

 

 

41,254

 

 

 

57,678

 

Accrued payroll and incentives

 

 

11,405

 

 

 

12,448

 

Accrued income taxes

 

 

337

 

 

 

5,503

 

Accrued profit sharing

 

 

6,810

 

 

 

2,197

 

Accrued warranty

 

 

4,352

 

 

 

3,297

 

Current liabilities of discontinued operations

 

 

 

 

 

17,372

 

Total current liabilities

 

 

125,143

 

 

 

129,971

 

Deferred income taxes

 

 

457

 

 

 

457

 

Notes and loans payable, net of current portion

 

 

 

 

 

159,171

 

Finance lease payable, net of current portion

 

 

39,343

 

 

 

39,610

 

Other non-current liabilities of discontinued operations

 

 

 

 

 

2,299

 

Other non-current liabilities

 

 

9,264

 

 

 

10,889

 

Total liabilities

 

 

174,207

 

 

 

342,397

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares

   issued or outstanding

 

 

 

 

 

 

Common stock, $.001 par value, 100,000,000 shares authorized, 74,122,674 issued

   and 55,955,812 shares outstanding on October 31, 2020 and 73,526,790 shares

   issued and 55,359,928 shares outstanding on April 30, 2020

 

 

74

 

 

 

74

 

Additional paid-in capital

 

 

269,911

 

 

 

267,630

 

Retained earnings

 

 

179,195

 

 

 

341,716

 

Accumulated other comprehensive income

 

 

73

 

 

 

73

 

Treasury stock, at cost (18,166,862 shares on October 31, 2020 and

   April 30, 2020)

 

 

(222,375

)

 

 

(222,375

)

Total stockholders’ equity

 

 

226,878

 

 

 

387,118

 

 

 

$

401,085

 

 

$

729,515

 

 

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/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)

(Unaudited)

 

 

 

For the Three Months Ended October 31,

 

 

For the Six Months Ended October 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands, except per share data)

 

Net sales

 

$

248,729

 

 

$

113,717

 

 

$

478,614

 

 

$

209,153

 

Cost of sales

 

 

147,656

 

 

 

81,405

 

 

 

285,117

 

 

 

141,254

 

Gross profit

 

 

101,073

 

 

 

32,312

 

 

 

193,497

 

 

 

67,899

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,855

 

 

 

1,795

 

 

 

3,761

 

 

 

3,692

 

Selling, marketing, and distribution

 

 

11,614

 

 

 

10,841

 

 

 

21,609

 

 

 

20,374

 

General and administrative

 

 

23,224

 

 

 

16,103

 

 

 

45,007

 

 

 

33,312

 

Total operating expenses

 

 

36,693

 

 

 

28,739

 

 

 

70,377

 

 

 

57,378

 

Operating income from continuing operations

 

 

64,380

 

 

 

3,573

 

 

 

123,120

 

 

 

10,521

 

Other (expense)/income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

 

693

 

 

 

83

 

 

 

760

 

 

 

90

 

Interest expense, net

 

 

(1,490

)

 

 

(3,046

)

 

 

(2,806

)

 

 

(5,687

)

Total other (expense)/income, net

 

 

(797

)

 

 

(2,963

)

 

 

(2,046

)

 

 

(5,597

)

Income from continuing operations before income taxes

 

 

63,583

 

 

 

610

 

 

 

121,074

 

 

 

4,924

 

Income tax expense

 

 

14,465

 

 

 

267

 

 

 

28,657

 

 

 

2,396

 

Income from continuing operations

 

 

49,118

 

 

 

343

 

 

 

92,417

 

 

 

2,528

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income/(loss) from discontinued operations, net of tax

 

 

3,123

 

 

 

950

 

 

 

8,209

 

 

 

(3,343

)

Net income/(loss)

 

 

52,241

 

 

 

1,293

 

 

 

100,626

 

 

 

(815

)

Comprehensive income/(loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

 

(153

)

 

 

 

 

(481

)

Comprehensive income/(loss):

 

$

52,241

 

 

$

1,140

 

 

$

100,626

 

 

$

(1,296

)

Net income/(loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic - continuing operations

 

$

0.88

 

 

$

0.01

 

 

$

1.66

 

 

$

0.05

 

Basic - net income/(loss)

 

$

0.93

 

 

$

0.02

 

 

$

1.81

 

 

$

(0.01

)

Diluted - continuing operations

 

$

0.87

 

 

$

0.01

 

 

$

1.64

 

 

$

0.05

 

Diluted - net income/(loss)

 

$

0.92

 

 

$

0.02

 

 

$

1.78

 

 

$

(0.01

)

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

55,914

 

 

 

54,912

 

 

 

55,691

 

 

 

54,847

 

Diluted

 

 

56,531

 

 

 

55,424

 

 

 

56,475

 

 

 

54,847

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Stockholders’

 

(In thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income/(Loss)

 

 

Shares

 

 

Amount

 

 

Equity

 

Balance at July 31, 2019

 

 

72,988

 

 

$

73

 

 

$

264,230

 

 

$

400,838

 

 

$

292

 

 

 

18,167

 

 

$

(222,375

)

 

$

443,058

 

Proceeds from exercise of employee stock options

 

 

15

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

1,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,428

 

Shares issued under employee stock purchase plan

 

 

173

 

 

 

 

 

 

862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Change in unrealized loss on interest rate swap,

   net of tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

 

 

 

 

 

 

(153

)

Issuance of common stock under restricted stock

   unit awards, net of shares surrendered

 

 

50

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

Net income

 

 

 

 

 

 

 

 

 

 

1,293

 

 

 

 

 

 

 

 

 

 

 

 

1,293

 

Balance at October 31, 2019

 

 

73,226

 

 

 

73

 

 

 

266,582

 

 

 

402,131

 

 

 

139

 

 

 

18,167

 

 

 

(222,375

)

 

 

446,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2019

 

 

72,864

 

 

 

73

 

 

 

263,180

 

 

 

402,946

 

 

 

620

 

 

 

18,167

 

 

 

(222,375

)

 

 

444,444

 

Proceeds from exercise of employee stock options

 

 

15

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,016

 

Shares issued under employee stock purchase plan

 

 

173

 

 

 

 

 

 

862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Change in unrealized loss on interest rate swap,

   net of tax effect

 

 

 

 

 

 

 

 

 

 

 

(481

)

 

 

 

 

 

 

 

 

(481

)

Issuance of common stock under restricted stock

   unit awards, net of shares surrendered

 

 

174

 

 

 

 

 

 

(550

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(550

)

Net loss

 

 

 

 

 

 

 

 

 

 

(815

)

 

 

 

 

 

 

 

 

 

 

 

(815

)

Balance at October 31, 2019

 

 

73,226

 

 

 

73

 

 

 

266,582

 

 

 

402,131

 

 

 

139

 

 

 

18,167

 

 

 

(222,375

)

 

 

446,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Proceeds from exercise of employee stock options

 

 

191

 

 

 

 

 

 

1,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,518

 

Stock-based compensation - continuing operations

 

 

 

 

 

 

 

 

2,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,075

 

Stock-based compensation - discontinued

   operations

 

 

 

 

 

 

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

 

 

269

 

 

 

 

 

 

(2,173

)