10-Q 1 swbi-20241031.htm 10-Q 10-Q
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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, 2024

Commission File No. 001-31552

 

img126818207_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.)

1852 Proffitt Springs Road

Maryville, Tennessee

37801

(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 44,002,703 shares of common stock, par value $0.001, outstanding as of December 3, 2024.

 


 

SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Six Months Ended October 31, 2024 and 2023

 

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

25

 

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

28

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®, Armornite®, Arrow®, Aurora®, Aurora-II®, Blast Jacket®, Bodyguard®, Carry Comp®, Chiefs Special®, Club 1852®, Competitor®, CSX®, Dagger®, E-Series®, EZ®, Flexmag®, G-Core®, Gemtech®, Gemtech Suppressors®, GM®, GM-S1®, GMT-Halo®, Governor®, GVAC®, Integra®, Lady Smith®, Lever Lock®, Lunar®, M&P FPC®, M2.0®, Magnum®, Mist-22®, Mountain Gun®, Protected by Smith & Wesson®, Put A Legend On Your Line®, Quickmount®, Shield®, Silence is Golden®, Smith & Wesson Collectors Association®, Smith & Wesson Performance Center®, Smith & Wesson Precision Components®, Smith & Wesson Response®, SW Equalizer®, SW22 Victory®, TEMPO®, The S&W Bench®, The Sigma Series®, Trek®, 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, or the Exchange Act. 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 plans to vacate the Deep River, Connecticut facility in December 2024 our current belief that there are no indications of impairment relating to assets being utilized at the Deep River facility; expected undiscounted cashflows, based on the Assignment and Assumption Agreement (as defined herein), for future periods; lease payments for all our operating and finance leases for future periods; our expectation that the unrecognized compensation expense related to unvested RSUs and PSUs will be recognized over a weighted average remaining contractual term of 1.6 years; our belief that the remaining claims asserted by Gemini (as defined herein) against us have no merit and our intention to aggressively defend against this action; our belief with respect to certain matters described in the Commitments and Contingencies - Litigation section that the allegations are unfounded and, in addition, that any incident and any results from them or any injuries were due to negligence or misuse of the firearm by the claimant or a third party; our belief that 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 an unfavorable outcome or prolonged litigation could harm our business; our belief that we are vigorously defending ourselves in lawsuits to which we are subject; our conclusion that we are unable to reasonably estimate the probability or the estimated range of reasonably possible losses related to material adverse judgments related to such lawsuits and our determination not to accrue for and judgments in such lawsuits; 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 $165.0 million and $170.0 million through the end of fiscal 2025; 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 during the remainder of the fiscal year; our expectation for capital expenditures in fiscal 2025; 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 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 results of the 2024 elections; 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, 2024, or the Fiscal 2024 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, 2024

 

 

April 30, 2024

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

39,093

 

 

$

60,839

 

Accounts receivable, net of allowances for credit losses of $5 on
   October 31, 2024 and $
0 on April 30, 2024

 

 

52,707

 

 

 

59,071

 

Inventories

 

 

196,035

 

 

 

160,500

 

Prepaid expenses and other current assets

 

 

10,112

 

 

 

4,973

 

Income tax receivable

 

 

8,120

 

 

 

2,495

 

Total current assets

 

 

306,067

 

 

 

287,878

 

Property, plant, and equipment, net

 

 

244,452

 

 

 

252,633

 

Intangibles, net

 

 

2,523

 

 

 

2,598

 

Goodwill

 

 

19,024

 

 

 

19,024

 

Deferred income taxes

 

 

7,249

 

 

 

7,249

 

Other assets

 

 

8,128

 

 

 

8,614

 

Total assets

 

$

587,443

 

 

$

577,996

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

31,627

 

 

$

41,831

 

Accrued expenses and deferred revenue

 

 

29,979

 

 

 

26,811

 

Accrued payroll and incentives

 

 

13,198

 

 

 

17,147

 

Accrued profit sharing

 

 

892

 

 

 

9,098

 

Accrued warranty

 

 

1,485

 

 

 

1,813

 

Total current liabilities

 

 

77,181

 

 

 

96,700

 

Notes and loans payable (Note 3)

 

 

98,994

 

 

 

39,880

 

Finance lease payable, net of current portion

 

 

34,578

 

 

 

35,404

 

Other non-current liabilities

 

 

7,625

 

 

 

7,852

 

Total liabilities

 

 

218,378

 

 

 

179,836

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

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, 75,677,848
   issued and
44,219,627 shares outstanding on October 31, 2024 and 75,395,490
   shares issued and
45,561,569 shares outstanding on April 30, 2024

 

 

76

 

 

 

75

 

Additional paid-in capital

 

 

293,362

 

 

 

289,994

 

Retained earnings

 

 

531,000

 

 

 

540,660

 

Accumulated other comprehensive income

 

 

73

 

 

 

73

 

Treasury stock, at cost (31,458,221 shares on October 31, 2024 and
29,833,921 shares on April 30, 2024)

 

 

(455,446

)

 

 

(432,642

)

Total stockholders’ equity

 

 

369,065

 

 

 

398,160

 

Total liabilities and stockholders' equity

 

$

587,443

 

 

$

577,996

 

 

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,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

(In thousands, except per share data)

 

Net sales

$

129,679

 

 

$

124,958

 

 

$

218,013

 

 

$

239,201

 

Cost of sales

 

95,133

 

 

 

93,192

 

 

 

159,276

 

 

 

177,034

 

Gross profit

 

34,546

 

 

 

31,766

 

 

 

58,737

 

 

 

62,167

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

2,221

 

 

 

1,724

 

 

 

4,736

 

 

 

3,522

 

Selling, marketing, and distribution

 

9,574

 

 

 

10,952

 

 

 

19,411

 

 

 

20,993

 

General and administrative

 

15,779

 

 

 

15,322

 

 

 

29,480

 

 

 

29,536

 

Total operating expenses

 

27,574

 

 

 

27,998

 

 

 

53,627

 

 

 

54,051

 

Operating income

 

6,972

 

 

 

3,768

 

 

 

5,110

 

 

 

8,116

 

Other (expense)/income, net:

 

 

 

 

 

 

 

 

 

 

 

Other (expense)/income, net

 

(5

)

 

 

141

 

 

 

(11

)

 

 

188

 

Interest expense, net

 

(1,419

)

 

 

(646

)

 

 

(2,152

)

 

 

(492

)

Total other expense, net

 

(1,424

)

 

 

(505

)

 

 

(2,163

)

 

 

(304

)

Income from operations before income taxes

 

5,548

 

 

 

3,263

 

 

 

2,947

 

 

 

7,812

 

Income tax expense

 

1,414

 

 

 

765

 

 

 

921

 

 

 

2,196

 

Net income

$

4,134

 

 

$

2,498

 

 

$

2,026

 

 

$

5,616

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic - net income

$

0.09

 

 

$

0.05

 

 

$

0.05

 

 

$

0.12

 

Diluted - net income

$

0.09

 

 

$

0.05

 

 

$

0.04

 

 

$

0.12

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

44,523

 

 

 

45,977

 

 

 

44,922

 

 

 

46,042

 

Diluted

 

44,935

 

 

 

46,361

 

 

 

45,404

 

 

 

46,458

 

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, 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 dividend accrued

 

 

 

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

 

 

 

 

 

 

(38

)

Dividends issued ($0.12 per common share)

 

 

 

 

 

 

 

 

 

 

 

(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 dividend accrued

 

 

 

 

 

 

 

 

(38

)

 

 

 

 

 

 

 

 

(38

)

Dividends issued ($0.24 per common share)

 

 

 

 

 

 

 

 

(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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2024

 

 

75,552

 

$

76

 

$

290,790

 

$

532,647

 

$

73

 

 

30,705

 

$

(445,600

)

$

377,986

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,869

 

Shares issued under employee
  stock purchase plan

 

 

68

 

 

 

 

 

 

749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

749

 

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

 

 

58

 

 

 

 

 

 

(46

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

753

 

 

 

(9,846

)

 

 

(9,846

)

Unpaid dividend accrued

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

(14

)

Dividends issued ($0.13 per common share)

 

 

 

 

 

 

 

 

 

(5,767

)

 

 

 

 

 

 

 

 

(5,767

)

Net income

 

 

 

 

 

 

 

 

 

 

4,134

 

 

 

 

 

 

 

 

 

 

 

 

4,134

 

Balance at October 31, 2024

 

 

75,678

 

$

76

 

$

293,362

 

$

531,000

 

$

73

 

 

31,458

 

$

(455,446

)

$

369,065

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2024

 

 

75,395

 

$

75

 

$

289,994

 

$

540,660

 

$

73

 

 

29,834

 

$

(432,642

)

$

398,160

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,722

 

Shares issued under employee
  stock purchase plan

 

 

68

 

 

 

 

 

 

749

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

749

 

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

 

 

215

 

 

 

1

 

 

 

(1,103

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,102

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

1,624

 

 

 

(22,804

)

 

 

(22,804

)

Unpaid dividend accrued

 

 

 

 

 

 

 

 

 

 

 

(34

)

 

 

 

 

 

 

 

 

 

 

 

(34

)

Dividends issued ($0.26 per common share)

 

 

 

 

 

 

 

 

(11,652

)

 

 

 

 

 

 

 

 

(11,652

)

Net income

 

 

 

 

 

 

 

 

 

 

2,026

 

 

 

 

 

 

 

 

 

 

 

 

2,026

 

Balance at October 31, 2024

 

 

75,678

 

$

76

 

$

293,362

 

$

531,000

 

$

73

 

 

31,458

 

$

(455,446

)

$

369,065

 

 

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,

 

 

 

2024

 

 

2023

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

2,026

 

 

$

5,616

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

16,261

 

 

 

17,327

 

(Gain)/loss on sale/disposition of assets

 

 

(139

)

 

 

682

 

Provision for losses/(recoveries) on notes and accounts receivable

 

 

 

 

 

(1

)

Stock-based compensation expense

 

 

3,722

 

 

 

2,759

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

6,364

 

 

 

(4,619

)

Inventories

 

 

(35,535

)

 

 

13,827

 

Prepaid expenses and other current assets

 

 

(5,139

)

 

 

(4,953

)

Income taxes

 

 

(5,625

)

 

 

(5,178

)

Accounts payable

 

 

(10,135

)

 

 

14,682

 

Accrued payroll and incentives

 

 

(3,949

)

 

 

1,324

 

Accrued profit sharing

 

 

(8,206

)

 

 

(6,699

)

Accrued expenses and deferred revenue

 

 

2,212

 

 

 

2,859

 

Accrued warranty

 

 

(328

)

 

 

(92

)

Other assets

 

 

486

 

 

 

397

 

Other non-current liabilities

 

 

(227

)

 

 

(175

)

Net cash (used in)/provided by operating activities

 

 

(38,212

)

 

 

37,756

 

Cash flows from investing activities:

 

 

 

 

 

 

Payments to acquire patents and software

 

 

(112

)

 

 

(125

)

Proceeds from sale of property and equipment

 

 

237

 

 

 

45

 

Payments to acquire property and equipment

 

 

(8,004

)

 

 

(66,983

)

Net cash used in investing activities

 

 

(7,879

)

 

 

(67,063

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from loans and notes payable

 

 

60,000

 

 

 

50,000

 

Cash paid for debt issuance costs

 

 

(941

)

 

 

 

Payments on finance lease obligation

 

 

(89

)

 

 

(681

)

Payments on notes and loans payable

 

 

 

 

 

(10,000

)

Payments to acquire treasury stock

 

 

(22,620

)

 

 

(8,212

)

Dividend distribution

 

 

(11,652

)

 

 

(11,080

)

Proceeds to acquire common stock from employee stock purchase plan

 

 

749

 

 

 

722

 

Payment of employee withholding tax related to
   restricted stock units

 

 

(1,102

)

 

 

(806

)

Net cash provided by financing activities

 

 

24,345

 

 

 

19,943

 

Net decrease in cash and cash equivalents

 

 

(21,746

)

 

 

(9,364

)

Cash and cash equivalents, beginning of period

 

 

60,839

 

 

53,556

 

Cash and cash equivalents, end of period

 

$

39,093

 

 

$

44,192

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

2,353

 

 

$

1,725

 

Income taxes

 

$

6,785

 

 

$

7,353

 

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,

 

 

 

2024

 

 

2023

 

 

 

(In thousands)

 

Purchases of property and equipment included in accounts payable

 

$

2,394

 

 

$

8,826

 

Capital lease included in accrued expenses and finance lease payable

 

 

528

 

 

 

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, 2024 and 2023

 

(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, pistol caliber carbines, and lever action 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 fiscal 2024, we began manufacturing and distribution activities from our new Maryville facility. During the quarter ended October 31, 2024, we discontinued operations at our Connecticut facility in anticipation of vacating the premises in December 2024. See Note 8 — Commitments and Contingencies and Note 9 — Restructuring for more information.

(2) Basis of Presentation:

Interim Financial Information – The condensed consolidated balance sheet as of October 31, 2024, the condensed consolidated statements of income for the three and six months ended October 31, 2024 and 2023, the condensed consolidated statements of changes in stockholders’ equity for the three and six months ended October 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the six months ended October 31, 2024 and 2023 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, 2024 and for the periods presented, have been included. All intercompany transactions have been eliminated in consolidation. The consolidated balance sheet as of April 30, 2024 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 2024 Form 10-K. The results of operations for the three and six months ended October 31, 2024 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2025, or any other period.

Recently Issued Accounting Standards – In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update ("ASU") No. 2023-07, Improvements to Reportable Segment Disclosures, which requires incremental disclosures about an entity’s reportable segments but does not change the definition of a segment or the guidance for determining reportable segments. The new guidance requires disclosure of significant segment expenses that are (1) regularly provided to (or easily computed from information regularly provided to) the chief operating decision maker and (2) included in the reported measure of segment profit or loss. The new standard also allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess performance and allocate resources. This update is effective for fiscal years beginning after December 15, 2023, and should be adopted retrospectively unless impracticable. This update will be effective for us, beginning with our Annual Report on Form 10-K for the fiscal year ending April 30, 2025 and interim periods thereafter. We are currently evaluating the impact, if any, that the adoption of this standard will have on financial disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures, which requires entities to disclose in their rate reconciliation table additional categories of information about federal, state, and foreign income taxes and provide more details about the reconciling items in some categories if items meet a quantitative threshold. Entities would have to provide qualitative disclosures about the new categories. The guidance will require all entities to disclose income taxes paid, net of refunds, disaggregated by federal (national), state, and foreign taxes for annual periods, and to disaggregate the information by jurisdiction based on a quantitative threshold. The guidance makes several other changes to the disclosure requirements. Entities are required to apply the guidance prospectively, with the option to apply it retrospectively. The guidance is effective for annual periods beginning after December 15, 2024, or fiscal 2026 for us. We are currently evaluating the impact, if any, that the adoption of this standard will have on financial disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Disaggregation of Income Statement Expenses, which requires entities to disclose, in the notes to financial statements, specified information about certain costs and expenses included in each relevant expense caption presented on the face of the income statement. Entities will also be required to disclose qualitative descriptions of the amounts

9


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2024 and 2023

 

remaining in relevant expense captions that are not separately disaggregated quantitatively. Entities will need to disclose the total amount of selling expenses and, in annual reporting periods, an entity's definition of selling expenses. Entities are required to apply the guidance prospectively, with the option to apply it retrospectively. The guidance is effective for annual periods beginning after December 15, 2026, or fiscal 2028 for us. We are currently evaluating the impact that the adoption of this standard will have on financial disclosures.

(3) Notes and Loans Payable:

Credit FacilitiesOn 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 provided for a revolving line of credit of $100.0 million at any one time. On April 28, 2023, we entered into an amendment to the Amended and Restated 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. The revolving line bore 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.

On October 3, 2024, we and certain of our subsidiaries entered into an amended and restated credit agreement, or the Second 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 Second Amended and Restated Credit Agreement amended and restated the Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement is currently unsecured; however, should any Springing Lien Trigger Event (as defined in the Second 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 Second Amended and Restated Credit Agreement provides for a revolving line of credit of $175.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate (as defined in the Second Amended and Restated Credit Agreement) or the SOFR rate, plus an applicable margin based on our consolidated leverage ratio. The Second 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 Second 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 Second Amended and Restated Credit Agreement). Subject to the satisfaction of certain terms and conditions described in the Second 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 October 3, 2029 or the date that is six months in advance of the earliest maturity of any Permitted Notes (as defined in the Second Amended and Restated Credit Agreement) under the Second Amended and Restated Credit Agreement.

As of October 31, 2024, we had $100.0 million of borrowings outstanding on the Revolving Line, bearing interest at a weighted average rate of 6.92%, which is equal to the SOFR rate plus an applicable margin.

The Second 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, 2024, we were compliant with all required financial covenants.

Letters of Credit — At October 31, 2024, 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.

10


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Six Months Ended October 31, 2024 and 2023

 

(4) 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 $39.1 million and $60.8 million as of October 31, 2024 and April 30, 2024, respectively. The carrying value of our revolving line of credit approximated the fair value as of October 31, 2024. We utilized Level 1 of the value hierarchy to determine the fair values of these assets and liabilities.

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

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

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

We did not have any Level 2 or Level 3 financial assets or liabilities as of October 31, 2024.

(5) Inventories:

The following table sets forth a summary of inventories, stated at lower of cost or net realizable value, as of October 31, 2024 and April 30, 2024 (in thousands):

 

 

 

October 31, 2024

 

 

April 30, 2024

 

Finished goods

 

$

119,225