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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended January 31, 2022

Commission File No. 001-31552

 

 

img124942335_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 45,510,515 shares of common stock, par value $0.001, outstanding as of March 1, 2022 .

 


 

SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Nine Months Ended January 31, 2022 and 2021

 

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

 

28

 

Item 4. Controls and Procedures

 

28

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

Item 1. Legal Proceedings

 

29

 

Item 1.A Risk Factors

 

29

 

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

 

30

 

Item 6. Exhibits

 

30

Signatures

 

32

EX-31.1

 

 

EX-31.2

 

 

EX-32.1

 

 

EX-32.2

 

 

 

Smith & Wesson®, S&W®, M&P®, M&P Shield®, Performance Center®, Airlite®, Airweight®, Armornite®, Bodyguard®, Carry Comp®, Chiefs Special®, Competitor®, 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™, C.O.R.E.™, CSX™, Empowering Americans™, GunSmarts™, M2.0™, S&W500™, SD™, SDVE™, Sport™, SW1911™, The S&W Bench™, Volunteer™, 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; our intent to divest our Thompson/Center Arms brand; our belief the sale of our Thompson/Center Arms brand will not have a material impact on our financial statements or results of our operations; 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), the Mexican Government and plaintiffs in a putative class action in three 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, as part of 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; 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, 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 to 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 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 continue to increase as we build to our more normalized stocking levels; our current expectation on spending for capital expenditures in fiscal 2022, including spending 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 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, or the Fiscal 2021 Form 10-K, and our Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2021.

 

 


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

As of:

 

 

 

January 31, 2022

 

 

April 30, 2021

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

107,268

 

 

$

113,017

 

Accounts receivable, net of allowances for credit losses of $25 on
   January 31, 2022 and $
107 on April 30, 2021

 

 

49,386

 

 

 

67,442

 

Inventories

 

 

134,268

 

 

 

78,477

 

Prepaid expenses and other current assets

 

 

7,521

 

 

 

8,408

 

Income tax receivable

 

 

2,233

 

 

 

909

 

Total current assets

 

 

300,676

 

 

 

268,253

 

Property, plant, and equipment, net

 

 

134,540

 

 

 

141,612

 

Intangibles, net

 

 

4,257

 

 

 

4,417

 

Goodwill

 

 

19,024

 

 

 

19,024

 

Other assets

 

 

10,808

 

 

 

13,082

 

Total assets

 

$

469,305

 

 

$

446,388

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

36,060

 

 

$

57,337

 

Accrued expenses and deferred revenue

 

 

26,857

 

 

 

33,136

 

Accrued payroll and incentives

 

 

16,223

 

 

 

17,381

 

Accrued income taxes

 

 

362

 

 

 

1,157

 

Accrued profit sharing

 

 

11,502

 

 

 

14,445

 

Accrued warranty

 

 

2,040

 

 

 

2,199

 

Total current liabilities

 

 

93,044

 

 

 

125,655

 

Deferred income taxes

 

 

904

 

 

 

904

 

Finance lease payable, net of current portion

 

 

37,930

 

 

 

38,786

 

Other non-current liabilities

 

 

11,118

 

 

 

14,659

 

Total liabilities

 

 

142,996

 

 

 

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, 74,550,885 issued
   and
45,510,515 shares outstanding on January 31, 2022 and 74,222,127 shares
   issued and
49,937,329 shares outstanding on April 30, 2021

 

 

75

 

 

 

74

 

Additional paid-in capital

 

 

276,389

 

 

 

273,431

 

Retained earnings

 

 

472,147

 

 

 

325,181

 

Accumulated other comprehensive income

 

 

73

 

 

 

73

 

Treasury stock, at cost (29,040,370 shares on January 31, 2022 and 24,284,798 on
   April 30, 2021)

 

 

(422,375

)

 

 

(332,375

)

Total stockholders’ equity

 

 

326,309

 

 

 

266,384

 

Total liabilities and stockholders' equity

 

$

469,305

 

 

$

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 January 31,

 

 

For the Nine Months Ended January 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

(In thousands, except per share data)

 

Net sales

$

177,738

 

 

$

257,634

 

 

$

682,826

 

 

$

736,247

 

Cost of sales

 

107,339

 

 

 

147,955

 

 

 

380,490

 

 

 

433,073

 

Gross profit

 

70,399

 

 

 

109,679

 

 

 

302,336

 

 

 

303,174

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,716

 

 

 

1,757

 

 

 

5,269

 

 

 

5,518

 

Selling, marketing, and distribution

 

11,518

 

 

 

10,487

 

 

 

33,575

 

 

 

32,095

 

General and administrative

 

17,443

 

 

 

17,054

 

 

 

58,491

 

 

 

62,061

 

Total operating expenses

 

30,677

 

 

 

29,298

 

 

 

97,335

 

 

 

99,674

 

Operating income from continuing operations

 

39,722

 

 

 

80,381

 

 

 

205,001

 

 

 

203,500

 

Other income/(expense), net:

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

751

 

 

 

952

 

 

 

2,244

 

 

 

1,711

 

Interest expense, net

 

(594

)

 

 

(550

)

 

 

(1,605

)

 

 

(3,356

)

Total other income/(expense), net

 

157

 

 

 

402

 

 

 

639

 

 

 

(1,645

)

Income from continuing operations before income taxes

 

39,879

 

 

 

80,783

 

 

 

205,640

 

 

 

201,855

 

Income tax expense

 

9,337

 

 

 

18,520

 

 

 

47,281

 

 

 

47,176

 

Income from continuing operations

 

30,542

 

 

 

62,263

 

 

 

158,359

 

 

 

154,679

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

 

 

 

 

127

 

 

 

 

 

 

8,334

 

Net income

 

30,542

 

 

 

62,390

 

 

 

158,359

 

 

 

163,013

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic - continuing operations

$

0.65

 

 

$

1.13

 

 

$

3.32

 

 

$

2.79

 

Basic - net income

$

0.65

 

 

$

1.13

 

 

$

3.32

 

 

$

2.94

 

Diluted - continuing operations

$

0.65

 

 

$

1.12

 

 

$

3.28

 

 

$

2.75

 

Diluted - net income

$

0.65

 

 

$

1.12

 

 

$

3.28

 

 

$

2.90

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

46,763

 

 

 

55,137

 

 

 

47,769

 

 

 

55,515

 

Diluted

 

47,175

 

 

 

55,702

 

 

 

48,307

 

 

 

56,258

 

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 October 31, 2020

 

 

74,123

 

 

$

74

 

 

$

269,911

 

 

$

179,195

 

 

$

73

 

 

 

18,167

 

 

$

(222,375

)

 

$

226,878

 

Proceeds from exercise of employee stock
  options

 

 

10

 

 

 

 

 

$

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

22

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,317

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,317

 

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

 

 

20

 

 

 

 

 

 

(28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,737

 

 

 

(50,000

)

 

 

(50,000

)

Dividends issued

 

 

 

 

 

 

 

 

 

 

 

(2,799

)

 

 

 

 

 

 

 

 

 

 

 

(2,799

)

Spin off of outdoor products and accessories
  business

 

 

 

 

 

 

 

 

 

 

 

(69

)

 

 

 

 

 

 

 

 

 

 

 

(69

)

Other

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

(2

)

Net income

 

 

 

 

 

 

 

 

 

 

62,390

 

 

 

 

 

 

 

 

 

 

 

 

62,390

 

Balance at January 31, 2021

 

 

74,153

 

 

 

74

 

 

 

271,222

 

 

 

238,715

 

 

 

73

 

 

 

20,904

 

 

 

(272,375

)

 

 

237,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2020

 

 

73,527

 

 

 

74

 

 

 

267,630

 

 

 

341,716

 

 

 

73

 

 

 

18,167

 

 

 

(222,375

)

 

 

387,118

 

Proceeds from exercise of employee stock
  options

 

 

201

 

 

 

 

 

 

1,540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,540

 

Stock-based compensation - continuing
  operations

 

 

 

 

 

 

 

 

3,392

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,392

 

Stock-based compensation - discontinued
  operations

 

 

 

 

 

 

184

 

 

 

 

 

 

 

 

 

 

 

184

 

Shares issued under employee
  stock purchase plan

 

 

136

 

 

 

 

 

 

677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

677

 

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

 

 

289

 

 

 

 

 

 

(2,201

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,201

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,737

 

 

 

(50,000

)

 

 

(50,000

)

Dividends issued

 

 

 

 

 

 

 

 

(5,594

)

 

 

 

 

 

 

 

 

(5,594

)

Spin off of outdoor products and accessories
   business

 

 

 

 

 

 

 

 

(260,420

)

 

 

 

 

 

 

 

 

(260,420

)

Net income

 

 

 

 

 

 

 

 

 

 

163,013

 

 

 

 

 

 

 

 

 

 

 

 

163,013

 

Balance at January 31, 2021

 

 

74,153

 

 

 

74

 

 

 

271,222

 

 

 

238,715

 

 

 

73

 

 

 

20,904

 

 

 

(272,375

)

 

 

237,709

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2021

 

 

74,547

 

 

 

75

 

 

 

275,229

 

 

 

445,306

 

 

 

73

 

 

 

26,252

 

 

 

(372,375

)

 

 

348,308

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,199

 

Shares issued under employee
  stock purchase plan

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

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

 

 

3

 

 

 

 

 

 

(54

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

2,788

 

 

 

(50,000

)

 

 

(50,000

)

Dividends issued

 

 

 

 

 

 

 

 

 

(3,701

)

 

 

 

 

 

 

 

 

(3,701

)

Net income

 

 

 

 

 

 

 

 

 

 

30,542

 

 

 

 

 

 

 

 

 

 

 

 

30,542

 

Balance at January 31, 2022

 

 

74,550

 

 

 

75

 

 

 

276,389

 

 

 

472,147

 

 

 

73

 

 

 

29,040

 

 

 

(422,375

)

 

 

326,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2021

 

 

74,222

 

 

 

74

 

 

 

273,431

 

 

 

325,181

 

 

 

73

 

 

 

24,285

 

 

 

(332,375

)

 

 

266,384

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,565

 

Shares issued under employee
  stock purchase plan

 

 

 

 

 

 

 

 

846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

846

 

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

 

 

328

 

 

 

1

 

 

 

(1,453

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,452

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

4,755

 

 

 

(90,000

)