10-Q
0001092796false--04-30Q22024http://fasb.org/us-gaap/2023#OtherAssetsNoncurrenthttp://www.smith-wesson.com/20231031#AccruedExpensesAndDeferredRevenueCurrenthttp://fasb.org/us-gaap/2023#OtherLiabilitiesNoncurrenthttp://fasb.org/us-gaap/2023#PropertyPlantAndEquipmentAndFinanceLeaseRightOfUseAssetAfterAccumulatedDepreciationAndAmortizationhttp://www.smith-wesson.com/20231031#AccruedExpensesAndDeferredRevenueCurrenthttp://fasb.org/us-gaap/2023#FinanceLeaseLiabilityNoncurrenthttp://www.smith-wesson.com/20231031#AccruedExpensesAndDeferredRevenueCurrenthttp://www.smith-wesson.com/20231031#AccruedExpensesAndDeferredRevenueCurrenthttp://www.smith-wesson.com/20231031#AccruedExpensesAndDeferredRevenueCurrenthttp://www.smith-wesson.com/20231031#AccruedExpensesAndDeferredRevenueCurrent0.250001092796us-gaap:CommonStockMemberswbi:ShareRepurchaseTransactionsTwoMember2023-09-190001092796us-gaap:RestrictedStockUnitsRSUMember2022-08-012022-10-310001092796swbi:OfficeRentAndEquipmentMember2023-08-012023-10-310001092796us-gaap:AdditionalPaidInCapitalMember2023-04-300001092796swbi:SeveranceAndEmployeeRelatedsBenefitsMember2023-04-300001092796swbi:ConsultingServicesMember2022-05-012022-10-3100010927962022-07-162022-07-160001092796us-gaap:RestrictedStockUnitsRSUMembersrt:DirectorMember2022-05-012022-10-310001092796us-gaap:AdditionalPaidInCapitalMember2022-07-310001092796us-gaap:RetainedEarningsMember2023-10-310001092796us-gaap:CostOfSalesMember2023-05-012023-10-310001092796us-gaap:AdditionalPaidInCapitalMember2022-10-310001092796swbi:EmployeeRelationsMember2023-05-012023-10-3100010927962018-01-012018-01-310001092796us-gaap:SellingAndMarketingExpenseMember2023-05-012023-10-310001092796swbi:RestrictedStockUnitsAndPerformanceStockUnitsMember2022-10-310001092796us-gaap:RestrictedStockUnitsRSUMembersrt:DirectorMember2023-05-012023-10-310001092796us-gaap:GeneralAndAdministrativeExpenseMember2023-08-012023-10-310001092796us-gaap:AdditionalPaidInCapitalMember2022-05-012022-10-310001092796swbi:RelocationMember2022-05-012022-10-310001092796us-gaap:ResearchAndDevelopmentExpenseMember2023-05-012023-10-3100010927962023-02-020001092796swbi:OfficeRentAndEquipmentMember2023-05-012023-10-310001092796us-gaap:RevolvingCreditFacilityMemberswbi:SelfInsuranceMember2023-10-310001092796swbi:RestrictedStockUnitsAndPerformanceStockUnitsMember2023-05-012023-10-310001092796swbi:UnsecuredRevolvingCreditFacilityMember2020-08-240001092796swbi:PublicRelationsMember2023-05-012023-10-310001092796us-gaap:SellingAndMarketingExpenseMember2022-05-012022-10-310001092796swbi:NationalLogisticsFacilityMember2023-05-012023-10-310001092796swbi:SeveranceAndEmployeeRelatedBenefitsMember2023-05-012023-10-310001092796us-gaap:RestrictedStockUnitsRSUMemberswbi:NonExecutiveEmployeesMember2022-05-012022-10-310001092796us-gaap:AdditionalPaidInCapitalMember2022-04-3000010927962023-10-310001092796swbi:OfficeRentAndEquipmentMember2022-05-012022-10-310001092796us-gaap:ResearchAndDevelopmentExpenseMember2022-05-012022-10-310001092796us-gaap:RevolvingCreditFacilityMember2023-05-012023-10-310001092796us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-10-310001092796us-gaap:GeneralAndAdministrativeExpenseMember2022-05-012022-10-310001092796us-gaap:TreasuryStockCommonMember2023-07-310001092796us-gaap:TreasuryStockCommonMember2022-07-310001092796us-gaap:RestrictedStockUnitsRSUMember2023-05-012023-10-310001092796srt:ExecutiveOfficerMemberus-gaap:RestrictedStockUnitsRSUMember2022-05-012022-10-3100010927962023-07-310001092796swbi:PutativeClassMemberswbi:CompensatoryDamagesMember2023-05-012023-10-310001092796us-gaap:CommonStockMember2023-07-310001092796swbi:SeveranceAndEmployeeRelatedBenefitsMember2022-05-012022-10-310001092796us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-10-310001092796srt:MaximumMember2023-05-012023-10-310001092796us-gaap:CommonStockMember2022-07-310001092796us-gaap:RestrictedStockUnitsRSUMember2023-08-012023-10-3100010927962023-05-012023-10-310001092796us-gaap:CommonStockMember2022-05-012022-10-310001092796us-gaap:FairValueInputsLevel2Member2023-10-310001092796us-gaap:GeneralAndAdministrativeExpenseMember2023-05-012023-10-310001092796swbi:RelocationMember2023-04-300001092796us-gaap:CommonStockMember2022-08-012022-10-310001092796swbi:ConsultingServicesMember2022-08-012022-10-310001092796swbi:UnsecuredRevolvingCreditFacilityMember2020-08-242020-08-240001092796us-gaap:RetainedEarningsMember2022-08-012022-10-310001092796us-gaap:ResearchAndDevelopmentExpenseMember2022-08-012022-10-310001092796swbi:RelocationMember2022-08-012022-10-310001092796us-gaap:TreasuryStockCommonMember2022-10-310001092796us-gaap:RetainedEarningsMember2023-07-310001092796us-gaap:ResearchAndDevelopmentExpenseMember2023-08-012023-10-310001092796swbi:SeveranceAndEmployeeRelatedsBenefitsMember2023-05-012023-10-310001092796swbi:OfficeRentAndEquipmentMember2022-08-012022-10-310001092796swbi:ShareRepurchaseTransactionsTwoMemberus-gaap:CommonStockMember2023-08-012023-10-310001092796us-gaap:CommonStockMember2023-08-012023-10-310001092796us-gaap:RevolvingCreditFacilityMember2023-10-310001092796us-gaap:CommonStockMember2023-10-3100010927962022-07-310001092796swbi:FreightMember2022-08-012022-10-310001092796us-gaap:SellingAndMarketingExpenseMember2023-08-012023-10-310001092796swbi:RestrictedStockUnitsAndPerformanceStockUnitsMember2023-10-310001092796us-gaap:InterestExpenseMember2023-05-012023-10-310001092796swbi:EmployeeRelationsMember2022-08-012022-10-310001092796us-gaap:PerformanceSharesMember2022-05-012022-10-310001092796us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-310001092796us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-300001092796swbi:FreightMember2023-05-012023-10-310001092796swbi:RestrictedStockUnitsAndPerformanceStockUnitsMember2023-04-300001092796swbi:FreightMember2023-08-012023-10-310001092796us-gaap:CommonStockMember2022-10-310001092796us-gaap:TreasuryStockCommonMember2023-08-012023-10-310001092796swbi:EmployeeRelationsMember2022-05-012022-10-310001092796swbi:RelocationMember2023-10-3100010927962023-12-050001092796us-gaap:FairValueInputsLevel3Member2023-10-3100010927962022-05-012022-10-310001092796swbi:SeveranceAndEmployeeRelatedsBenefitsMember2023-10-310001092796swbi:PublicRelationsMember2022-08-012022-10-310001092796us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-07-310001092796us-gaap:TreasuryStockCommonMember2023-04-300001092796us-gaap:BridgeLoanMember2020-08-240001092796swbi:RestrictedStockUnitsAndPerformanceStockUnitsMember2022-05-012022-10-310001092796swbi:UnsecuredRevolvingCreditFacilityMember2023-05-012023-10-310001092796us-gaap:RestrictedStockUnitsRSUMember2022-05-012022-10-310001092796us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-04-300001092796swbi:EmployeeRelationsMember2023-08-012023-10-310001092796swbi:ConsultingServicesMember2023-08-012023-10-310001092796srt:ExecutiveOfficerMemberus-gaap:RestrictedStockUnitsRSUMember2023-05-012023-10-310001092796us-gaap:AdditionalPaidInCapitalMember2022-08-012022-10-310001092796us-gaap:PerformanceSharesMemberswbi:ExcecutiveAndFormerExecutiveOfficerMember2022-05-012022-10-310001092796us-gaap:RetainedEarningsMember2023-05-012023-10-310001092796swbi:RelocationMember2023-05-012023-10-310001092796swbi:ServiceBasedPerformanceSharesMember2023-05-012023-10-310001092796us-gaap:RetainedEarningsMember2022-04-300001092796swbi:PutativeClassMember2023-05-012023-10-310001092796swbi:RelocationMember2023-08-012023-10-310001092796us-gaap:BridgeLoanMember2023-05-012023-10-310001092796us-gaap:CommonStockMember2023-05-012023-10-310001092796us-gaap:EquipmentMember2023-05-012023-10-310001092796us-gaap:RetainedEarningsMember2022-10-310001092796us-gaap:RetainedEarningsMember2023-04-300001092796srt:MinimumMember2023-05-012023-10-310001092796us-gaap:RetainedEarningsMember2023-08-012023-10-310001092796swbi:PutativeClassMemberswbi:GeneralDamagesMember2023-05-012023-10-310001092796us-gaap:RestrictedStockUnitsRSUMemberswbi:NonExecutiveEmployeesMember2023-05-012023-10-3100010927962023-08-012023-10-310001092796srt:ExecutiveOfficerMemberus-gaap:PerformanceSharesMember2022-05-012022-10-310001092796us-gaap:CommonStockMember2022-04-300001092796swbi:RestrictedStockUnitsAndPerformanceStockUnitsMember2022-04-300001092796us-gaap:TreasuryStockCommonMember2023-05-012023-10-310001092796us-gaap:AdditionalPaidInCapitalMember2023-07-310001092796us-gaap:TreasuryStockCommonMember2023-10-310001092796us-gaap:AdditionalPaidInCapitalMember2023-10-3100010927962022-03-312022-03-310001092796us-gaap:CostOfSalesMember2022-05-012022-10-310001092796us-gaap:CostOfSalesMember2023-08-012023-10-310001092796swbi:IdbMember2023-05-012023-10-310001092796us-gaap:SellingAndMarketingExpenseMember2022-08-012022-10-310001092796swbi:PublicRelationsMember2022-05-012022-10-310001092796srt:MaximumMember2020-08-240001092796us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-10-310001092796swbi:ConsultingServicesMember2023-05-012023-10-310001092796us-gaap:CostOfSalesMember2022-08-012022-10-310001092796us-gaap:AdditionalPaidInCapitalMember2023-08-012023-10-3100010927962023-04-300001092796swbi:PublicRelationsMember2023-08-012023-10-310001092796srt:ExecutiveOfficerMemberus-gaap:PerformanceSharesMember2023-05-012023-10-310001092796swbi:FreightMember2022-05-012022-10-3100010927962022-04-300001092796swbi:SeveranceAndEmployeeRelatedBenefitsMember2023-08-012023-10-310001092796us-gaap:GeneralAndAdministrativeExpenseMember2022-08-012022-10-310001092796us-gaap:RetainedEarningsMember2022-05-012022-10-310001092796us-gaap:CommonStockMember2023-04-300001092796us-gaap:RevolvingCreditFacilityMemberswbi:LondonInterbankOfferedRateMember2023-05-012023-10-310001092796us-gaap:TreasuryStockCommonMember2022-04-300001092796swbi:SeveranceAndEmployeeRelatedBenefitsMember2022-08-012022-10-3100010927962022-08-012022-10-310001092796us-gaap:RetainedEarningsMember2022-07-310001092796us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-04-3000010927962022-10-310001092796us-gaap:AdditionalPaidInCapitalMember2023-05-012023-10-31xbrli:purexbrli:sharesswbi:Plaintiffswbi:Claimiso4217:USDiso4217:USDxbrli:shares

 

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, 2023

Commission File No. 001-31552

 

https://cdn.kscope.io/e18f42c52c16d9b9fbfd5bd2089b77e4-img125894686_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 45,639,351 shares of common stock, par value $0.001, outstanding as of December 5, 2023.

 


 

SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended October 31, 2023 and 2022

 

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

20

 

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 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

27

 

Item 5. Other Information

 

27

 

Item 6. Exhibits

27

Signatures

29

EX-10.137

 

 

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®, American Guardians®, America’s Master Gunmaker®, Armornite®, Arrow®, Aurora®, Aurora-II®, Blast Jacket®, Bodyguard®, Carry Comp®, Chiefs Special®, Club 1852®, Compass®, Competitor®, Contender®, CSX®, Dagger®, Encore®, E-Series®, EZ®, Flextech®, G-Core®, Gemtech®, Gemtech Suppressors®, Gemtech World-Class Silencers®, GM®, GM-S1®, GMT-Halo®, Governor®, Integra®, Lady Smith®, Lever Lock®, Lunar®, M&P FPC®, M2.0®, Mag Express®, Magnum®, Maxi-Hunter®, Mist-22®, Mountain Gun®, Number 13®, PC®, Power Rod®, Protected by Smith & Wesson®, Put A Legend On Your Line®, QLA®, Quick Load Accurizor®, Quickmount®, Shield®, Smith & Wesson Collectors Association®, Smith & Wesson Performance Center®, Smith & Wesson Precision Components®, Speed Breech®, Speed Breach XT®, SW Equalizer®, SW22 Victory®, Swing Hammer®, T/C®, T/CR22®, T17®, The S&W Bench®, The Sigma Series®, Thompson/Center®, Trek®, Triumph®, U-View®, Volunteer®, and Weather Shield® are some of the registered U.S. 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 our intention to terminate the Missouri Sublease (as defined herein) on or around the effective date of the Assignment and Assumption Agreement (as defined herein); our intention to occupy our Connecticut facility at least through May 4, 2024, the end of the current lease term; that we may seek to extend the lease for the Connecticut facility through the end of calendar 2024; our belief that there are no indications of impairment relating to right-of-use assets; expected undiscounted cashflows, based on the Missouri Sublease, for future periods; lease payments for all our operating and finance leases for future periods; the outcome of the lawsuits to which we are subject and their effect on us; our belief that the remaining claims asserted by Gemini (as defined herein) and plaintiffs in a putative class action against us have no merit and that we intend to aggressively defend these actions; our belief with respect to certain matters described in the Commitments and Contingencies – 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 our new facility in Maryville, Tennessee, 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 expectation, when adding the cost of machinery and equipment, to spend between $160.0 million and $170.0 million through the end of fiscal 2024; our intention, with respect to assets associated with our assembly operations in Massachusetts, to either move those assets to the Tennessee facility at the appropriate time or sell or sublease those assets that will not be moved; our expectation that subsequent to the Relocation, our Massachusetts facility will continue to remain an important part of our manufacturing activities with significant portions of the operations being unaffected by the Relocation; our intention to relocate a portion of our plastic injection molding operations to the Tennessee facility and evaluate selling the remaining molding operations utilized in our Connecticut facility to a third party; our intention to continue to evaluate possible losses associated with any impairment of the Connecticut facility assets as we determine which assets may be sold; our belief that inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results; our expectation that our inventory levels will decline by the end of the fiscal year due to the completion of a significant portion of the operational transition to the new Tennessee facility combined with alignment of production capacity to channel inventory and consumer demand; our expectation for capital expenditures in fiscal 2024, excluding payments related to the Relocation; factors affecting our future capital requirements; availability of equity or debt financing on acceptable terms, if at all; the record date and payment date for our dividend; 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 hereof 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 others, economic, political, social, legislative, regulatory, inflationary, and health 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; 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, 2023, or the Fiscal 2023 Form 10-K.

 


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

As of:

 

 

 

October 31, 2023

 

 

April 30, 2023

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

44,192

 

 

$

53,556

 

Accounts receivable, net of allowances for credit losses of $22 on
   October 31, 2023 and $
23 on April 30, 2023

 

 

59,773

 

 

 

55,153

 

Inventories

 

 

163,291

 

 

 

177,118

 

Prepaid expenses and other current assets

 

 

9,870

 

 

 

4,917

 

Income tax receivable

 

 

4,713

 

 

 

1,176

 

Total current assets

 

 

281,839

 

 

 

291,920

 

Property, plant, and equipment, net

 

 

253,253

 

 

 

210,330

 

Intangibles, net

 

 

2,823

 

 

 

3,588

 

Goodwill

 

 

19,024

 

 

 

19,024

 

Deferred income taxes

 

 

8,085

 

 

 

8,085

 

Other assets

 

 

7,949

 

 

 

8,347

 

Total assets

 

$

572,973

 

 

$

541,294

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

44,536

 

 

$

36,795

 

Accrued expenses and deferred revenue

 

 

23,197

 

 

 

20,149

 

Accrued payroll and incentives

 

 

19,889

 

 

 

18,565

 

Accrued income taxes

 

 

190

 

 

 

1,831

 

Accrued profit sharing

 

 

1,504

 

 

 

8,203

 

Accrued warranty

 

 

1,578

 

 

 

1,670

 

Total current liabilities

 

 

90,894

 

 

 

87,213

 

Notes and loans payable (Note 4)

 

 

64,836

 

 

 

24,790

 

Finance lease payable, net of current portion

 

 

36,209

 

 

 

36,961

 

Other non-current liabilities

 

 

7,532

 

 

 

7,707

 

Total liabilities

 

 

199,471

 

 

 

156,671

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

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, 75,322,622 shares
   issued and
45,636,482 shares outstanding on October 31, 2023 and 75,029,300
   shares issued and
45,988,930 shares outstanding on April 30, 2023

 

 

75

 

 

 

75

 

Additional paid-in capital

 

 

286,341

 

 

 

283,666

 

Retained earnings

 

 

517,682

 

 

 

523,184

 

Accumulated other comprehensive income

 

 

73

 

 

 

73

 

Treasury stock, at cost (29,686,140 shares on October 31, 2023 and
   
29,040,370 shares on April 30, 2023)

 

 

(430,669

)

 

 

(422,375

)

Total stockholders’ equity

 

 

373,502

 

 

 

384,623

 

Total liabilities and stockholders' equity

 

$

572,973

 

 

$

541,294

 

 

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,

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In thousands, except per share data)

Net sales

$

124,958

 

 

$

121,035

 

 

$

239,201

 

 

$

205,429

 

 

Cost of sales

 

93,192

 

 

 

81,773

 

 

 

177,034

 

 

 

134,696

 

 

Gross profit

 

31,766

 

 

 

39,262

 

 

 

62,167

 

 

 

70,733

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,724

 

 

 

1,869

 

 

 

3,522

 

 

 

3,542

 

 

Selling, marketing, and distribution

 

10,952

 

 

 

9,431

 

 

 

20,993

 

 

 

17,458

 

 

General and administrative

 

15,322

 

 

 

15,435

 

 

 

29,536

 

 

 

33,288

 

 

Total operating expenses

 

27,998

 

 

 

26,735

 

 

 

54,051

 

 

 

54,288

 

 

Operating income

 

3,768

 

 

 

12,527

 

 

 

8,116

 

 

 

16,445

 

 

Other income/(expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

141

 

 

 

790

 

 

 

188

 

 

 

1,463

 

 

Interest (expense)/income, net

 

(646

)

 

 

(420

)

 

 

(492

)

 

 

(854

)

 

Total other (expense)/income, net

 

(505

)

 

 

370

 

 

 

(304

)

 

 

609

 

 

Income from operations before income taxes

 

3,263

 

 

 

12,897

 

 

 

7,812

 

 

 

17,054

 

 

Income tax expense

 

765

 

 

 

3,249

 

 

 

2,196

 

 

 

4,094

 

 

Net income

$

2,498

 

 

$

9,648

 

 

$

5,616

 

 

$

12,960

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic - net income

$

0.05

 

 

$

0.21

 

 

$

0.12

 

 

$

0.28

 

 

Diluted - net income

$

0.05

 

 

$

0.21

 

 

$

0.12

 

 

$

0.28

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

45,977

 

 

 

45,815

 

 

 

46,042

 

 

 

45,777

 

 

Diluted

 

46,361

 

 

 

46,106

 

 

 

46,458

 

 

 

46,104

 

 

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, 2022

 

 

74,811

 

 

$

75

 

 

$

278,297

 

 

$

503,376

 

 

$

73

 

 

 

29,040

 

 

$

(422,375

)

 

$

359,446

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,428

 

Shares issued under employee stock purchase plan

 

 

85

 

 

 

 

 

 

753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

753

 

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

 

 

39

 

 

 

 

 

 

(58

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(58

)

Dividends issued

 

 

 

 

 

 

 

 

 

 

 

(4,577

)

 

 

 

 

 

 

 

 

 

 

 

(4,577

)

Net income

 

 

 

 

 

 

 

 

 

 

9,648

 

 

 

 

 

 

 

 

 

 

 

 

9,648

 

Balance at October 31, 2022

 

 

74,935

 

$

75

 

$

280,420

 

$

508,447

 

$

73

 

 

29,040

 

$

(422,375

)

$

366,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2022

 

 

74,641

 

$

75

 

$

278,101

 

$

504,640

 

$

73

 

 

29,040

 

$

(422,375

)

$

360,514

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,605

 

Shares issued under employee
  stock purchase plan

 

 

85

 

 

 

 

 

 

753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

753

 

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

 

 

209

 

 

 

 

 

 

(1,039

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,039

)

Dividends issued

 

 

 

 

 

 

 

 

(9,153

)

 

 

 

 

 

 

 

 

(9,153

)

Net income

 

 

 

 

 

 

 

 

 

 

12,960

 

 

 

 

 

 

 

 

 

 

 

 

12,960

 

Balance at October 31, 2022

 

 

74,935

 

$

75

 

$

280,420

 

$

508,447

 

$

73

 

 

29,040

 

$

(422,375

)

$

366,640

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2023

 

 

75,184

 

$

75

 

$

284,176

 

$

520,766

 

$

73

 

 

29,040

 

$

(422,375

)

$

382,715

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,484

 

Shares issued under employee
  stock purchase plan

 

 

83

 

 

 

 

 

 

722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

722

 

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

 

 

56

 

 

 

 

 

 

(41

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(41

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

646

 

 

 

(8,294

)

 

 

(8,294

)

Unpaid dividends accrued

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

 

 

 

 

 

 

(38

)

Dividends issued

 

 

 

 

 

 

 

 

 

(5,544

)

 

 

 

 

 

 

 

 

(5,544

)

Net income

 

 

 

 

 

 

 

 

 

 

2,498

 

 

 

 

 

 

 

 

 

 

 

 

2,498

 

Balance at October 31, 2023

 

 

75,323

 

$

75

 

$

286,341

 

$

517,682

 

$

73

 

 

29,686

 

$

(430,669

)

$

373,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2023

 

 

75,029

 

$

75

 

$

283,666

 

$

523,184

 

$

73

 

 

29,040

 

$

(422,375

)

$

384,623

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,759

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,759

 

Shares issued under employee
  stock purchase plan

 

 

83

 

 

 

 

 

 

722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

722

 

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

 

 

211

 

 

 

 

 

 

(806

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(806

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

646

 

 

 

(8,294

)

 

 

(8,294

)

Unpaid dividends accrued

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

 

 

 

 

 

 

(38

)

Dividends issued

 

 

 

 

 

 

 

 

(11,080

)

 

 

 

 

 

 

 

 

(11,080

)

Net income

 

 

 

 

 

 

 

 

 

 

5,616

 

 

 

 

 

 

 

 

 

 

 

 

5,616

 

Balance at October 31, 2023

 

 

75,323

 

$

75

 

$

286,341

 

$

517,682

 

$

73

 

 

29,686

 

$

(430,669

)

$

373,502

 

 

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,

 

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

5,616

 

 

$

12,960

 

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

17,327

 

 

 

15,171

 

Loss/(gain) on sale/disposition of assets

 

 

682

 

 

 

(43

)

Provision for recoveries on notes and accounts receivable

 

 

(1

)

 

 

(13

)

Stock-based compensation expense

 

 

2,759

 

 

 

2,605

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(4,619

)

 

 

18,324

 

Inventories

 

 

13,827

 

 

 

(59,814

)

Prepaid expenses and other current assets

 

 

(4,953

)

 

 

(2,493

)

Income taxes

 

 

(5,178

)

 

 

(11,555

)

Accounts payable

 

 

14,682

 

 

 

5,889

 

Accrued payroll and incentives

 

 

1,324

 

 

 

(329

)

Accrued profit sharing

 

 

(6,699

)

 

 

(7,915

)

Accrued expenses and deferred revenue

 

 

2,859

 

 

 

307

 

Accrued warranty

 

 

(92

)

 

 

(130

)

Other assets

 

 

397

 

 

 

521

 

Other non-current liabilities

 

 

(175

)

 

 

(1,650

)

Net cash provided by/(used in) operating activities

 

 

37,756

 

 

 

(28,165

)

Cash flows from investing activities:

 

 

 

 

 

 

Payments to acquire patents and software

 

 

(125

)

 

 

(256

)

Proceeds from sale of property and equipment

 

 

45

 

 

 

85

 

Payments to acquire property and equipment

 

 

(66,983

)

 

 

(39,419

)

Net cash used in investing activities

 

 

(67,063

)

 

 

(39,590

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from loans and notes payable

 

 

50,000

 

 

 

 

Payments on notes and loans payable

 

 

(10,000

)

 

 

 

Payments on finance lease obligation

 

 

(681

)

 

 

(559

)

Payments to acquire treasury stock

 

 

(8,212

)

 

 

 

Dividend distribution

 

 

(11,080

)

 

 

(9,153

)

Proceeds to acquire common stock from employee stock purchase plan

 

 

722

 

 

 

753

 

Payment of employee withholding tax related to
   restricted stock units

 

 

(806

)

 

 

(1,039

)

Net cash provided by/(used in) financing activities

 

 

19,943

 

 

 

(9,998

)

Net decrease in cash and cash equivalents

 

 

(9,364

)

 

 

(77,753

)

Cash and cash equivalents, beginning of period

 

 

53,556

 

 

120,728

 

Cash and cash equivalents, end of period

 

$

44,192

 

 

$

42,975

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

1,725

 

 

$

1,089

 

Income taxes

 

$

7,353

 

 

$

15,721

 

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 Activities:

 

 

 

For the Six Months Ended October 31,

 

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

Purchases of property and equipment included in accounts payable

 

$

8,826

 

 

$

9,655

 

Capital lease included in accrued expenses and finance lease payable

 

 

694

 

 

 

 

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 October 31, 2023 and 2022

 

(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), handcuffs, firearm 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 and Gemtech brands. We manufacture our products at our facilities in Springfield, Massachusetts; Houlton, Maine; Deep River, Connecticut; and Maryville, Tennessee. We also sell our manufacturing services to other businesses to attempt to level-load our factories. We sell those services under our Smith & Wesson and Smith & Wesson Precision Components brands. During the quarter ended October 31, 2023, we began manufacturing and distribution activities from our new Maryville, Tennessee facility. See Note 9 — Commitments and Contingencies and Note 10 — Restructuring for more information regarding this plan.

(2) Basis of Presentation:

Interim Financial Information – The condensed consolidated balance sheet as of October 31, 2023, the condensed consolidated statements of income for the three and six months ended October 31, 2023 and 2022, the condensed consolidated statements of changes in stockholders’ equity for the three and six months ended October 31, 2023 and 2022, and the condensed consolidated statements of cash flows for the six months ended October 31, 2023 and 2022 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 October 31, 2023 and for the periods presented, have been included. All intercompany transactions have been eliminated in consolidation. The consolidated balance sheet as of April 30, 2023 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 Fiscal 2023 Form 10-K. The results of operations for the three and six months ended October 31, 2023 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2024, or any other period.

(3) Leases:

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

We recognize expenses for 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 or residual value guarantees, nor do they include restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. Tenant improvement allowances are recorded 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 renewals 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.

9


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

The amounts of assets and liabilities related to our operating and financing leases as of October 31, 2023 were as follows (in thousands):

 

 

 

Balance Sheet Caption

 

October 31, 2023

 

Operating Leases

 

 

 

 

 

Right-of-use assets

 

 

 

$

5,994

 

Accumulated amortization

 

 

 

 

(4,787

)

Right-of-use assets, net

 

Other assets

 

$

1,207

 

 

 

 

 

 

 

Current liabilities

 

Accrued expenses and deferred revenue

 

$

727

 

Non-current liabilities

 

Other non-current liabilities

 

 

678

 

Total operating lease liabilities

 

 

 

$

1,405

 

Finance Leases

 

 

 

 

 

Right-of-use assets

 

 

 

$

41,631

 

Accumulated depreciation

 

 

 

 

(10,580

)

Right-of-use assets, net

 

Property, plant, and equipment, net

 

$

31,051

 

 

 

 

 

 

 

Current liabilities

 

Accrued expenses and deferred revenue

 

$

1,498

 

Non-current liabilities

 

Finance lease payable, net of current portion

 

 

36,209

 

Total finance lease liabilities

 

 

 

$

37,707

 

During the three months ended October 31, 2023, we recorded $411,000 of operating lease costs, of which $41,000 related to short-term leases that were not recorded as right-of-use assets. We recorded $566,000 of finance lease amortization and $475,000 of financing lease interest expense for the three months ended October 31, 2023. As of October 31, 2023, the weighted average lease term and weighted average discount rate for our operating leases was 2.8 years and 4.4%, respectively. As of October 31, 2023, the weighted average lease term and weighted average discount rate for our financing leases were 14.8 years and 5.0%, respectively, and consisted primarily of our Missouri facility. The building is pledged to secure the amounts outstanding. 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.

On October 26, 2017, we entered into (a) a lease agreement with Ryan Boone County, LLC, or the Original Missouri Landlord, concerning certain real property located in Boone County, Missouri on which we had, until recently, been operating a distribution center, or the Missouri Lease, and (b) a guaranty in favor of the Original Missouri Landlord, or the Guaranty. With the completion of the spin-off of our outdoor products and accessories business on August 24, 2020, or the Separation, we entered into a sublease whereby American Outdoor Brands, Inc., our former wholly owned subsidiary, or AOUT, subleases from us 59.0% of our Missouri distribution center under the same terms as the Missouri Lease, or the Missouri Sublease. On July 16, 2022, we entered into an amendment to the Missouri Sublease, increasing the leased space to 64.7% of the facility under the same terms as the Missouri Lease. On January 31, 2023, we entered into (i) an assignment and assumption agreement with AOUT, pursuant to which AOUT will assume all of our rights, entitlement, and obligations in, to, and under the Missouri Lease, in each case effective on January 1, 2024, subject to a number of conditions precedent, or the Assignment and Assumption Agreement, and (ii) an amended and restated guaranty in favor of RCS-S&W Facility, LLC, as successor in interest to the Original Missouri Landlord, pursuant to which Smith & Wesson Sales Company was added as a guarantor, or the Amended and Restated Guaranty. We intend to terminate the Missouri Sublease on or around the effective date of the Assignment and Assumption Agreement. As of October 31, 2023, income related to the Missouri Sublease was $1.3 million, of which $722,000 was recorded in general and administrative expenses and $581,000 was recorded in interest expense, net, in our condensed consolidated statements of income. In addition, we intend to occupy our Connecticut facility at least through May 4, 2024, the end of the current lease term and may seek to extend the lease through the end of calendar 2024. We do not currently believe there are any indications of impairment relating to these right-of-use assets.

10


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

The following table represents future expected undiscounted cashflows, based on the sublease agreement with AOUT, to be received on an annual basis for the next five years and thereafter, as of October 31, 2023 (in thousands):

 

Fiscal

 

Amount

 

2024

 

$

1,399

 

2025

 

 

3,180

 

2026

 

 

3,235

 

2027

 

 

3,292

 

2028

 

 

3,350

 

Thereafter

 

 

38,906

 

Total future sublease receipts

 

 

53,362

 

Less amounts representing interest

 

 

(16,408

)

Present value of sublease receipts

 

$

36,954

 

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

 

 

 

Operating

 

 

Financing

 

 

Total

 

2024

 

 

 

$

650

 

 

$

1,675

 

 

$

2,325

 

2025

 

 

 

 

324

 

 

 

3,378

 

 

 

3,702

 

2026

 

 

 

 

301

 

 

 

3,433

 

 

 

3,734

 

2027

 

 

 

 

272

 

 

 

3,490

 

 

 

3,762

 

2028

 

 

 

 

125

 

 

 

3,424

 

 

 

3,549

 

Thereafter

 

 

 

 

 

 

 

38,906

 

 

 

38,906

 

Total future lease payments

 

 

 

 

1,672

 

 

 

54,306

 

 

 

55,978

 

Less amounts representing interest

 

 

 

 

(267

)

 

 

(16,599

)

 

 

(16,866

)

Present value of lease payments

 

 

 

 

1,405

 

 

 

37,707

 

 

 

39,112

 

Less current maturities of lease liabilities

 

 

 

 

(727

)

 

 

(1,498

)

 

 

(2,225

)

Long-term maturities of lease liabilities

 

 

 

$

678

 

 

$

36,209

 

 

$

36,887

 

 

During the three and six months ended October 31, 2023, the cash paid for amounts included in the measurement of liabilities and operating cash flows was $1.2 million and $2.3 million, respectively.

(4) 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, 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 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 execute certain documents 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 the SOFR 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 Adjusted Consolidated Leverage Ratio (as defined in the Amended and Restated Credit Agreement). 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. On April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of “Consolidated Fixed Charge Coverage Ratio” to exclude unfinanced capital expenditures in connection with the Relocation.

11


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2023 and 2022

 

As of October 31, 2023, we had $65.0 million of borrowings outstanding on the Revolving Line, bearing interest at an average rate of 7.17%, which is equal to the SOFR rate plus an applicable margin. As a result of the construction associated with the Relocation, $665,000 of interest has been capitalized for the six months ended October 31, 2023.

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. As of October 31, 2023, we were compliant with all required financial covenants.

Letters of Credit — At October 31, 2023, 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.

(5) 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 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 (e.g., 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 $