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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 October 31, 2021

Commission File No. 001-31552

 

 

https://cdn.kscope.io/e5193a18facdba8a0ce5a3e02126bf8d-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 48,294,677 shares of common stock, par value $0.001, outstanding as of November 30, 2021.

 


 

SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended October 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

 

26

 

Item 4. Controls and Procedures

 

26

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

27

 

Item 1.A Risk Factors

 

27

 

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

 

28

 

Item 6. Exhibits

 

28

Signatures

 

30

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®, 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®, 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.™,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™, 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; 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 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 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:

 

 

 

October 31, 2021

 

 

April 30, 2021

 

 

 

(In thousands, except par value and share data)

 

 ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

159,391

 

 

$

113,017

 

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

 

 

120,277

 

 

 

78,477

 

Prepaid expenses and other current assets

 

 

8,321

 

 

 

8,408

 

Income tax receivable

 

 

1,717

 

 

 

909

 

Total current assets

 

 

333,932

 

 

 

268,253

 

Property, plant, and equipment, net

 

 

136,932

 

 

 

141,612

 

Intangibles, net

 

 

4,322

 

 

 

4,417

 

Goodwill

 

 

19,024

 

 

 

19,024

 

Other assets

 

 

10,966

 

 

 

13,082

 

 

 

$

505,176

 

 

$

446,388

 

 LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

49,070

 

 

$

57,337

 

Accrued expenses and deferred revenue

 

 

31,958

 

 

 

33,136

 

Accrued payroll and incentives

 

 

11,068

 

 

 

17,381

 

Accrued income taxes

 

 

1,722

 

 

 

1,157

 

Accrued profit sharing

 

 

7,777

 

 

 

14,445

 

Accrued warranty

 

 

2,142

 

 

 

2,199

 

Total current liabilities

 

 

103,737

 

 

 

125,655

 

Deferred income taxes

 

 

904

 

 

 

904

 

Finance lease payable, net of current portion

 

 

38,228

 

 

 

38,786

 

Other non-current liabilities

 

 

13,999

 

 

 

14,659

 

Total liabilities

 

 

156,868

 

 

 

180,004

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value, 20,000,000 shares authorized, no 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

 

 

275,229

 

 

 

273,431

 

Retained earnings

 

 

445,306

 

 

 

325,181

 

Accumulated other comprehensive income

 

 

73

 

 

 

73

 

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

 

 

348,308

 

 

 

266,384

 

 

 

$

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 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

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

Total

 

 

 

Stock

 

 

 Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Stockholders’

 

(In thousands)

 

 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

 

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

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,173

)

Dividends issued

 

 —

 

 

 —

 

 

 —

 

 

 

(2,795

)

 

 —

 

 

 —

 

 

 —

 

 

 

(2,795

)

Spin off of outdoor products and accessories
   business

 

 —

 

 

 —

 

 

 —

 

 

 

(260,352

)

 

 —

 

 

 —

 

 

 —

 

 

 

(260,352

)

Net income

 

 

 

 

 

 

 

 —

 

 

 

100,626

 

 

 

 

 

 

 

 

 

 

 

 

100,626

 

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

 

Stock-based compensation

 

 

 

 

 

 

 

 

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

 

 

325

 

 

 

1

 

 

 

(1,399

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,398

)

Repurchase of treasury stock

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 

1,967

 

 

 

(40,000

)

 

 

(40,000

)

Dividends issued

 

 —

 

 

 —

 

 

 —

 

 

 

(7,692

)

 

 —

 

 

 —

 

 

 —

 

 

 

(7,692

)

Net income

 

 

 

 

 

 

 

 —

 

 

 

127,817

 

 

 

 

 

 

 

 

 

 

 

 

127,817

 

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 the Six Months Ended October 31,

 

 

 

2021

 

 

2020