10-Q 1 swbi-20240131.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 January 31, 2024

Commission File No. 001-31552

 

img126789377_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 45,516,776 shares of common stock, par value $0.001, outstanding as of March 5, 2024.

 


 

SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

For the Three and Nine Months Ended January 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

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-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®, 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 occupy our Connecticut facility through January 4, 2025; our belief that there are no indications of impairment relating to right-of-use assets; 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; 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 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 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; 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 remain relatively flat during our fourth fiscal quarter; our expectation for capital expenditures in fiscal 2024; 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:

 

 

 

January 31, 2024

 

 

April 30, 2023

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

47,367

 

 

$

53,556

 

Accounts receivable, net of allowances for credit losses of $0 on
   January 31, 2024 and $
23 on April 30, 2023

 

 

60,647

 

 

 

55,153

 

Inventories

 

 

153,529

 

 

 

177,118

 

Prepaid expenses and other current assets

 

 

9,020

 

 

 

4,917

 

Income tax receivable

 

 

5,613

 

 

 

1,176

 

Total current assets

 

 

276,176

 

 

 

291,920

 

Property, plant, and equipment, net

 

 

256,830

 

 

 

210,330

 

Intangibles, net

 

 

2,670

 

 

 

3,588

 

Goodwill

 

 

19,024

 

 

 

19,024

 

Deferred income taxes

 

 

8,085

 

 

 

8,085

 

Other assets

 

 

7,781

 

 

 

8,347

 

Total assets

 

$

570,566

 

 

$

541,294

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

36,141

 

 

$

36,795

 

Accrued expenses and deferred revenue

 

 

24,333

 

 

 

20,149

 

Accrued payroll and incentives

 

 

19,897

 

 

 

18,565

 

Accrued income taxes

 

 

190

 

 

 

1,831

 

Accrued profit sharing

 

 

3,473

 

 

 

8,203

 

Accrued warranty

 

 

2,110

 

 

 

1,670

 

Total current liabilities

 

 

86,144

 

 

 

87,213

 

Notes and loans payable (Note 4)

 

 

64,858

 

 

 

24,790

 

Finance lease payable, net of current portion

 

 

35,809

 

 

 

36,961

 

Other non-current liabilities

 

 

7,324

 

 

 

7,707

 

Total liabilities

 

 

194,135

 

 

 

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, 75,325,789 shares
   issued and
45,568,550 shares outstanding on January 31, 2024 and 75,029,300
   shares issued and
45,988,930 shares outstanding on April 30, 2023

 

 

75

 

 

 

75

 

Additional paid-in capital

 

 

287,827

 

 

 

283,666

 

Retained earnings

 

 

520,050

 

 

 

523,184

 

Accumulated other comprehensive income

 

 

73

 

 

 

73

 

Treasury stock, at cost (29,757,239 shares on January 31, 2024 and
   
29,040,370 shares on April 30, 2023)

 

 

(431,594

)

 

 

(422,375

)

Total stockholders’ equity

 

 

376,431

 

 

 

384,623

 

Total liabilities and stockholders' equity

 

$

570,566

 

 

$

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 January 31,

 

 

For the Nine Months Ended January 31,

 

2024

 

 

2023

 

 

2024

 

 

2023

 

 

 

(In thousands, except per share data)

Net sales

$

137,484

 

 

$

129,036

 

 

$

376,686

 

 

$

334,465

 

 

Cost of sales

 

98,060

 

 

 

87,195

 

 

 

275,094

 

 

 

221,890

 

 

Gross profit

 

39,424

 

 

 

41,841

 

 

 

101,592

 

 

 

112,575

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

1,969

 

 

 

2,133

 

 

 

5,492

 

 

 

5,675

 

 

Selling, marketing, and distribution

 

10,108

 

 

 

9,996

 

 

 

31,101

 

 

 

27,454

 

 

General and administrative

 

16,065

 

 

 

15,576

 

 

 

45,599

 

 

 

48,867

 

 

Total operating expenses

 

28,142

 

 

 

27,705

 

 

 

82,192

 

 

 

81,996

 

 

Operating income

 

11,282

 

 

 

14,136

 

 

 

19,400

 

 

 

30,579

 

 

Other income/(expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense)/income, net

 

(11

)

 

 

840

 

 

 

176

 

 

 

2,304

 

 

Interest (expense)/income, net

 

(955

)

 

 

(508

)

 

 

(1,448

)

 

 

(1,361

)

 

Total other (expense)/income, net

 

(966

)

 

 

332

 

 

 

(1,272

)

 

 

943

 

 

Income from operations before income taxes

 

10,316

 

 

 

14,468

 

 

 

18,128

 

 

 

31,522

 

 

Income tax expense

 

2,434

 

 

 

3,389

 

 

 

4,629

 

 

 

7,483

 

 

Net income

$

7,882

 

 

$

11,079

 

 

$

13,499

 

 

$

24,039

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic - net income

$

0.17

 

 

$

0.24

 

 

$

0.29

 

 

$

0.52

 

 

Diluted - net income

$

0.17

 

 

$

0.24

 

 

$

0.29

 

 

$

0.52

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

45,618

 

 

 

45,897

 

 

 

45,901

 

 

 

45,817

 

 

Diluted

 

46,028

 

 

 

46,166

 

 

 

46,315

 

 

 

46,133

 

 

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, 2022

 

 

74,935

 

 

$

75

 

 

$

280,420

 

 

$

508,447

 

 

$

73

 

 

 

29,040

 

 

$

(422,375

)

 

$

366,640

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,253

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,253

 

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

 

 

3

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14

)

Dividends issued

 

 

 

 

 

 

 

 

 

 

 

(4,590

)

 

 

 

 

 

 

 

 

 

 

 

(4,590

)

Net income

 

 

 

 

 

 

 

 

 

 

11,079

 

 

 

 

 

 

 

 

 

 

 

 

11,079

 

Balance at January 31, 2023

 

 

74,938

 

$

75

 

$

281,659

 

$

514,936

 

$

73

 

 

29,040

 

$

(422,375

)

$

374,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2022

 

 

74,641

 

$

75

 

$

278,101

 

$

504,640

 

$

73

 

 

29,040

 

$

(422,375

)

$

360,514

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,859

 

Shares issued under employee
  stock purchase plan

 

 

85

 

 

 

 

 

 

753

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

753

 

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

 

 

212

 

 

 

 

 

 

(1,054

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,054

)

Dividends issued

 

 

 

 

 

 

 

 

(13,744

)

 

 

 

 

 

 

 

 

(13,744

)

Net income

 

 

 

 

 

 

 

 

 

 

24,039

 

 

 

 

 

 

 

 

 

 

 

 

24,039

 

Balance at January 31, 2023

 

 

74,938

 

$

75

 

$

281,659

 

$

514,936

 

$

73

 

 

29,040

 

$

(422,375

)

$

374,368

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at October 31, 2023

 

 

75,323

 

$

75

 

$

286,341

 

$

517,682

 

$

73

 

 

29,686

 

$

(430,669

)

$

373,502

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,504

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,504

 

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

 

 

3

 

 

 

 

 

 

(18

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

71

 

 

 

(925

)

 

 

(925

)

Unpaid dividends accrued

 

 

 

 

 

 

 

 

 

 

 

(37

)

 

 

 

 

 

 

 

 

 

 

 

(37

)

Dividends issued

 

 

 

 

 

 

 

 

 

(5,477

)

 

 

 

 

 

 

 

 

(5,477

)

Net income

 

 

 

 

 

 

 

 

 

 

7,882

 

 

 

 

 

 

 

 

 

 

 

 

7,882

 

Balance at January 31, 2024

 

 

75,326

 

$

75

 

$

287,827

 

$

520,050

 

$

73

 

 

29,757

 

$

(431,594

)

$

376,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2023

 

 

75,029

 

$

75

 

$

283,666

 

$

523,184

 

$

73

 

 

29,040

 

$

(422,375

)

$

384,623

 

Stock-based compensation

 

 

 

 

 

 

 

 

4,264

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,264

 

Shares issued under employee
  stock purchase plan

 

 

83

 

 

 

 

 

 

722

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

722

 

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

 

 

214

 

 

 

 

 

 

(825

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(825

)

Repurchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

717

 

 

 

(9,219

)

 

 

(9,219

)

Unpaid dividends accrued

 

 

 

 

 

 

 

 

 

 

 

(76

)

 

 

 

 

 

 

 

 

 

 

 

(76

)

Dividends issued

 

 

 

 

 

 

 

 

(16,557

)

 

 

 

 

 

 

 

 

(16,557

)

Net income

 

 

 

 

 

 

 

 

 

 

13,499

 

 

 

 

 

 

 

 

 

 

 

 

13,499

 

Balance at January 31, 2024

 

 

75,326

 

$

75

 

$

287,827

 

$

520,050

 

$

73

 

 

29,757

 

$

(431,594

)

$

376,431

 

 

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 Nine Months Ended January 31,

 

 

 

2024

 

 

2023

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

13,499

 

 

$

24,039

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

24,291

 

 

 

21,795

 

Loss/(gain) on sale/disposition of assets

 

 

785

 

 

 

(43

)

Provision for recoveries on notes and accounts receivable

 

 

(23

)

 

 

(1

)

Stock-based compensation expense

 

 

4,264

 

 

 

3,859

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(5,471

)

 

 

4,444

 

Inventories

 

 

23,589

 

 

 

(56,767

)

Prepaid expenses and other current assets

 

 

(4,103

)

 

 

(384

)

Income taxes

 

 

(6,079

)

 

 

(8,220

)

Accounts payable

 

 

11,230

 

 

 

134

 

Accrued payroll and incentives

 

 

1,332

 

 

 

1,073

 

Accrued profit sharing

 

 

(4,730

)

 

 

(5,737

)

Accrued expenses and deferred revenue

 

 

3,917

 

 

 

(4,078

)

Accrued warranty

 

 

440

 

 

 

(156

)

Other assets

 

 

565

 

 

 

1,158

 

Other non-current liabilities

 

 

(383

)

 

 

(2,364

)

Net cash provided by/(used in) operating activities

 

 

63,123

 

 

 

(21,248

)

Cash flows from investing activities:

 

 

 

 

 

 

Payments to acquire patents and software

 

 

(164

)

 

 

(251

)

Proceeds from sale of property and equipment

 

 

2,877

 

 

 

85

 

Payments to acquire property and equipment

 

 

(85,188

)

 

 

(64,586

)

Net cash used in investing activities

 

 

(82,475

)

 

 

(64,752

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from loans and notes payable

 

 

50,000

 

 

 

25,000

 

Payments on notes and loans payable

 

 

(10,000

)

 

 

(231

)

Payments on finance lease obligation

 

 

(1,049

)

 

 

(856

)

Payments to acquire treasury stock

 

 

(9,128

)

 

 

 

Dividend distribution

 

 

(16,557

)

 

 

(13,744

)

Proceeds to acquire common stock from employee stock purchase plan

 

 

722

 

 

 

753

 

Payment of employee withholding tax related to
   restricted stock units

 

 

(825

)

 

 

(1,054

)

Net cash provided by financing activities

 

 

13,163

 

 

 

9,868

 

Net decrease in cash and cash equivalents

 

 

(6,189

)

 

 

(76,132

)

Cash and cash equivalents, beginning of period

 

 

53,556

 

 

120,728

 

Cash and cash equivalents, end of period

 

$

47,367

 

 

$

44,596

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

Interest, net of amounts capitalized

 

$

3,317

 

 

$

1,743

 

Income taxes

 

$

10,687

 

 

$

15,775

 

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 Nine Months Ended January 31,

 

 

 

2024

 

 

2023

 

 

 

(In thousands)

 

Purchases of property and equipment included in accounts payable

 

$

3,883

 

 

$

7,994

 

Capital lease included in accrued expenses and finance lease payable

 

$

653

 

 

 

 

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 Nine Months Ended January 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), 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 nine months ended January 31, 2024, 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 January 31, 2024, the condensed consolidated statements of income for the three and nine months ended January 31, 2024 and 2023, the condensed consolidated statements of changes in stockholders’ equity for the three and nine months ended January 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the nine months ended January 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 nine months ended January 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, 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 nine months ended January 31, 2024 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 Nine Months Ended January 31, 2024 and 2023

 

The amounts of assets and liabilities related to our operating and financing leases as of January 31, 2024 were as follows (in thousands):

 

 

 

Balance Sheet Caption

 

January 31, 2024

 

Operating Leases

 

 

 

 

 

Right-of-use assets

 

 

 

$

5,994

 

Accumulated amortization

 

 

 

 

(5,068

)

Right-of-use assets, net

 

Other assets

 

$

926

 

 

 

 

 

 

 

Current liabilities

 

Accrued expenses and deferred revenue

 

$

488

 

Non-current liabilities

 

Other non-current liabilities

 

 

616

 

Total operating lease liabilities

 

 

 

$

1,104

 

Finance Leases

 

 

 

 

 

Right-of-use assets

 

 

 

$

41,631

 

Accumulated depreciation

 

 

 

 

(11,147

)

Right-of-use assets, net

 

Property, plant, and equipment, net

 

$

30,484

 

 

 

 

 

 

 

Current liabilities

 

Accrued expenses and deferred revenue

 

$

1,531

 

Non-current liabilities

 

Finance lease payable, net of current portion

 

 

35,809

 

Total finance lease liabilities

 

 

 

$

37,340

 

During the three months ended January 31, 2024, we recorded $375,000 of operating lease costs, of which $28,000 related to short-term leases that were not recorded as right-of-use assets. We recorded $566,000 of finance lease amortization and $470,000 of financing lease interest expense for the three months ended January 31, 2024. As of January 31, 2024, our weighted average lease term and weighted average discount rate for our operating leases was 2.9 years and 4.4%, respectively. As of January 31, 2024, our weighted average lease term and weighted average discount rate for our financing leases were 14.6 years and 5.0%, respectively, and consisted primarily of the facility in Missouri from which we previously operated a distribution center, or the Missouri Distribution Center. The building associated with the Missouri Distribution Center 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 the Missouri 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, subleased from us 59.0% of the 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 Missouri Distribution Center 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, on January 1, 2024 AOUT assumed all of our rights, entitlement, and obligations in, to, and under the Missouri Lease, 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 terminated the Missouri Sublease as of January 1, 2024. As of January 31, 2024, income related to the Missouri Sublease was $1.9 million, of which $944,000 was recorded in general and administrative expenses and $924,000 was recorded in interest expense, net, in our condensed consolidated statements of income.

On January 5, 2024, we entered into an amendment to the lease for our Connecticut facility, pursuant to which we extended its term from May 4, 2024 to January 4, 2025. We intend to occupy the facility through the amended lease termination date. 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 Nine Months Ended January 31, 2024 and 2023

 

The following table represents future expected undiscounted cashflows, based on the Assignment and Assumption Agreement with AOUT, to be received on an annual basis for the next five years and thereafter, as of January 31, 2024 (in thousands):

 

Fiscal

 

Amount

 

2024

 

$

788

 

2025

 

 

3,180

 

2026

 

 

3,235

 

2027

 

 

3,292

 

2028

 

 

3,350

 

Thereafter

 

 

38,906

 

Total future receipts

 

 

52,751

 

Less amounts representing interest

 

 

(16,065

)

Present value of sublease receipts

 

$

36,686

 

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

 

 

 

Operating

 

 

Financing

 

 

Total

 

2024

 

 

 

$

325

 

 

$

838

 

 

$

1,163

 

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

 

 

 

 

1,347

 

 

 

53,469

 

 

 

54,816

 

Less amounts representing interest

 

 

 

 

(243

)

 

 

(16,129

)

 

 

(16,372

)

Present value of lease payments

 

 

 

 

1,104

 

 

 

37,340

 

 

 

38,444

 

Less current maturities of lease liabilities

 

 

 

 

(488

)

 

 

(1,531

)

 

 

(2,019

)

Long-term maturities of lease liabilities

 

 

 

$

616

 

 

$

35,809

 

 

$

36,425

 

 

During the three and nine months ended January 31, 2024, the cash paid for amounts included in the measurement of liabilities and operating cash flows was $1.1 million and $3.5 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 Nine Months Ended January 31, 2024 and 2023

 

As of January 31, 2024, we had $65.0 million of borrowings outstanding on the Revolving Line, bearing interest at an average rate of 7.20%, which is equal to the SOFR rate plus an applicable margin. As a result of the construction associated with the Relocation, $759,000 of interest has been capitalized for the nine months ended January 31, 2024.

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 January 31, 2024, we were compliant with all required financial covenants.

Letters of Credit — At January 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.

(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 $47.4 million and $53.6 million as of January 31, 2024 and April 30, 2023, respectively. The carrying value of our revolving line of credit approximated the fair value as of January 31, 2024. We utilized Level 1 of the value hierarchy to determine the fair values of these assets.

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 January 31, 2024.

12


SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three and Nine Months Ended January 31, 2024 and 2023

 

(6) Inventories:

The following table sets forth a summary of inventories, net of reserves, stated at lower of cost or net realizable value, as of January 31, 2024 and April 30, 2023 (in thousands):

 

 

 

January 31, 2024

 

 

April 30, 2023

 

Finished goods

 

$

80,238

 

 

$

93,705

 

Finished parts

 

 

53,544

 

 

 

65,460

 

Work in process

 

 

7,668

 

 

 

6,821

 

Raw material

 

 

12,079

 

 

 

11,132

 

Total inventories

 

$

153,529

 

 

$

177,118

 

 

(7) Accrued Expenses and Deferred Revenue:

The following table sets forth other accrued expenses as of January 31, 2024 and April 30, 2023 (in thousands):