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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 January 31, 2021

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 53,249,177 shares of common stock, par value $0.001, outstanding as of March 2, 2021.

 

 


 

SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Nine Months Ended January 31, 2021 and 2020

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

  

4

 

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 5. Other Information

 

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 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 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 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:

 

 

 

January 31, 2021

 

 

April 30, 2020

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

59,676

 

 

$

125,011

 

Accounts receivable, net of allowances for credit losses of $151 on

   January 31, 2021 and $1,038 on April 30, 2020

 

 

61,564

 

 

 

60,879

 

Inventories

 

 

84,446

 

 

 

103,741

 

Prepaid expenses and other current assets

 

 

8,574

 

 

 

7,556

 

Current assets of discontinued operations

 

 

 

 

 

94,673

 

Income tax receivable

 

 

9,277

 

 

 

1,595

 

Total current assets

 

 

223,537

 

 

 

393,455

 

Property, plant, and equipment, net

 

 

145,398

 

 

 

147,739

 

Intangibles, net

 

 

4,436

 

 

 

4,375

 

Goodwill

 

 

19,024

 

 

 

19,024

 

Other assets of discontinued operations

 

 

 

 

 

148,485

 

Other assets

 

 

13,456

 

 

 

16,437

 

 

 

$

405,851

 

 

$

729,515

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

49,166

 

 

$

31,476

 

Accrued expenses and deferred revenue

 

 

37,805

 

 

 

57,678

 

Accrued payroll and incentives

 

 

14,488

 

 

 

12,448

 

Accrued income taxes

 

 

337

 

 

 

5,503

 

Accrued profit sharing

 

 

10,860

 

 

 

2,197

 

Accrued warranty

 

 

3,718

 

 

 

3,297

 

Current liabilities of discontinued operations

 

 

 

 

 

17,372

 

Total current liabilities

 

 

116,374

 

 

 

129,971

 

Deferred income taxes

 

 

773

 

 

 

457

 

Notes and loans payable, net of current portion

 

 

 

 

 

159,171

 

Finance lease payable, net of current portion

 

 

39,060

 

 

 

39,873

 

Other non-current liabilities of discontinued operations

 

 

 

 

 

2,299

 

Other non-current liabilities

 

 

11,935

 

 

 

10,626

 

Total liabilities

 

 

168,142

 

 

 

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, 74,153,528 issued

   and 53,249,177 shares outstanding on January 31, 2021 and 73,526,790 shares

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

 

 

74

 

 

 

74

 

Additional paid-in capital

 

 

271,222

 

 

 

267,630

 

Retained earnings

 

 

238,715

 

 

 

341,716

 

Accumulated other comprehensive income

 

 

73

 

 

 

73

 

Treasury stock, at cost (20,904,351 shares on January 31, 2021 and 18,166,862 on

   April 30, 2020)

 

 

(272,375

)

 

 

(222,375

)

Total stockholders’ equity

 

 

237,709

 

 

 

387,118

 

 

 

$

405,851

 

 

$

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 January 31,

 

 

For the Nine Months Ended January 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

(In thousands, except per share data)

 

Net sales

 

$

257,634

 

 

$

127,416

 

 

$

736,247

 

 

$

336,575

 

Cost of sales

 

 

147,955

 

 

 

91,729

 

 

 

433,073

 

 

 

232,989

 

Gross profit

 

 

109,679

 

 

 

35,687

 

 

 

303,174

 

 

 

103,586

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,757

 

 

 

1,809

 

 

 

5,518

 

 

 

5,501

 

Selling, marketing, and distribution

 

 

10,487

 

 

 

10,465

 

 

 

32,095

 

 

 

30,839

 

General and administrative

 

 

17,054

 

 

 

14,603

 

 

 

62,061

 

 

 

47,915

 

Total operating expenses

 

 

29,298

 

 

 

26,877

 

 

 

99,674

 

 

 

84,255

 

Operating income from continuing operations

 

 

80,381

 

 

 

8,810

 

 

 

203,500

 

 

 

19,331

 

Other income/(expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

 

952

 

 

 

(10

)

 

 

1,711

 

 

 

80

 

Interest expense, net

 

 

(550

)

 

 

(2,885

)

 

 

(3,356

)

 

 

(8,572

)

Total other income/(expense), net

 

 

402

 

 

 

(2,895

)

 

 

(1,645

)

 

 

(8,492

)

Income from continuing operations before income taxes

 

 

80,783

 

 

 

5,915

 

 

 

201,855

 

 

 

10,839

 

Income tax expense

 

 

18,520

 

 

 

1,688

 

 

 

47,176

 

 

 

4,084

 

Income from continuing operations

 

 

62,263

 

 

 

4,227

 

 

 

154,679

 

 

 

6,755

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

127

 

 

 

1,504

 

 

 

8,334

 

 

 

(1,839

)

Net income

 

 

62,390

 

 

 

5,731

 

 

 

163,013

 

 

 

4,916

 

Comprehensive income/(loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

 

(66

)

 

 

 

 

(547

)

Comprehensive income:

 

$

62,390

 

 

$

5,665

 

 

$

163,013

 

 

$

4,369

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic - continuing operations

 

$

1.13

 

 

$

0.08

 

 

$

2.79

 

 

$

0.12

 

Basic - net income

 

$

1.13

 

 

$

0.10

 

 

$

2.94

 

 

$

0.09

 

Diluted - continuing operations

 

$

1.12

 

 

$

0.08

 

 

$

2.75

 

 

$

0.12

 

Diluted - net income

 

$

1.12

 

 

$

0.10

 

 

$

2.90

 

 

$

0.09

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

55,137

 

 

 

55,064

 

 

 

55,515

 

 

 

54,919

 

Diluted

 

 

55,702

 

 

 

55,744

 

 

 

56,258

 

 

 

55,641

 

 

 

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

 

 

(Loss)/Income

 

 

Shares

 

 

Amount

 

 

Equity

 

Balance at October 31, 2019

 

 

73,226

 

 

$

73

 

 

$

266,582

 

 

$

402,131

 

 

$

139

 

 

 

18,167

 

 

$

(222,375

)

 

$

446,550

 

Stock-based compensation

 

 

 

 

 

 

 

 

(1,672

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,672

)

Change in unrealized loss on interest rate swap,

   net of tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(66

)

 

 

 

 

 

 

 

 

(66

)

Issuance of common stock under restricted stock

   unit awards, net of shares surrendered

 

 

9

 

 

 

 

 

 

(44

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

Net income

 

 

 

 

 

 

 

 

 

 

5,731

 

 

 

 

 

 

 

 

 

 

 

 

5,731

 

Balance at January 31, 2020

 

 

73,235

 

 

 

73

 

 

 

264,866

 

 

 

407,862

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

450,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

1,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,344

 

Shares issued under employee stock purchase plan

 

 

173

 

 

 

 

 

 

862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Change in unrealized loss on interest rate swap,

   net of tax effect

 

 

 

 

 

 

 

 

 

 

 

(547

)

 

 

 

 

 

 

 

 

(547

)

Issuance of common stock under restricted stock

   unit awards, net of shares surrendered

 

 

183

 

 

 

 

 

 

(594

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(594

)

Net income

 

 

 

 

 

 

 

 

 

 

4,916

 

 

 

 

 

 

 

 

 

 

 

 

4,916

 

Balance at January 31, 2020

 

 

73,235

 

 

 

73

 

 

 

264,866

 

 

 

407,862

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

450,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2020

 

 

74,123

 

 

 

74

 

 

 

269,911

 

 

 

179,195

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

226,878

 

Proceeds from exercise of employee stock options

 

 

10

 

 

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

22

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,317

 

Issuance of common stock under restricted stock

   unit awards, net of shares surrendered

 

 

20

 

 

 

 

 

 

(28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,737

 

 

 

(50,000

)

 

 

(50,000

)

Dividends issued

 

 

 

 

 

 

 

 

(2,799

)

 

 

 

 

 

 

 

 

(2,799

)

Spin off of outdoor products and accessories

   business

 

 

 

 

 

 

 

 

(69

)

 

 

 

 

 

 

 

 

(69

)

Other

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

Net income

 

 

 

 

 

 

 

 

 

 

62,390

 

 

 

 

 

 

 

 

 

 

 

 

62,390

 

Balance at January 31, 2021

 

 

74,153

 

 

 

74

 

 

 

271,222

 

 

 

238,715

 

 

 

73

 

 

 

20,904

 

 

 

(272,375

)

 

 

237,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

201

 

 

 

 

 

 

1,540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,540

 

Stock-based compensation - continuing operations

 

 

 

 

 

 

 

 

3,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,392

 

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

 

 

289