SMITH & WESSON BRANDS, INC. [SWBI] Filings

10-Q 1 swbi-20231031.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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


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

For the quarterly period ended October 31, 2023

Commission File No. 001-31552

Smith & Wesson Brands, Inc.

(Exact name of registrant as specified in its charter)

    Nevada

    87-0543688

    (State or other jurisdiction of
incorporation or organization)

    (I.R.S. Employer
Identification No.)

    2100 Roosevelt Avenue
Springfield, Massachusetts

    01104

    (Address of principal executive offices)

    (Zip Code)

(800) 331-0852

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class	Trading Symbol	Name of exchange on which registered
Common Stock, par value $0.001 per share	SWBI	Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant had 45,639,351 shares of common stock, par value $0.001, outstanding as of December 5, 2023.

SMITH & WESSON BRANDS, INC.

Quarterly Report on Form 10-Q

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

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements (Unaudited)	4
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	26
	Item 4. Controls and Procedures	26

PART II - OTHER INFORMATION
	Item 1. Legal Proceedings	27
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27
	Item 5. Other Information	27
	Item 6. Exhibits	27
Signatures		29
EX-10.137
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Smith & Wesson®, S&W®, M&P®, M&P Shield®, Performance Center®, Airlite®, Airweight®, American Guardians®, America’s Master Gunmaker®, Armornite®, Arrow®, Aurora®, Aurora-II®, Blast Jacket®, Bodyguard®, Carry Comp®, Chiefs Special®, Club 1852®, Compass®, Competitor®, Contender®, CSX®, Dagger®, Encore®, E-Series®, EZ®, Flextech®, G-Core®, Gemtech®, Gemtech Suppressors®, Gemtech World-Class Silencers®, GM®, GM-S1®, GMT-Halo®, Governor®, Integra®, Lady Smith®, Lever Lock®, Lunar®, M&P FPC®, M2.0®, Mag Express®, Magnum®, Maxi-Hunter®, Mist-22®, Mountain Gun®, Number 13®, PC®, Power Rod®, Protected by Smith & Wesson®, Put A Legend On Your Line®, QLA®, Quick Load Accurizor®, Quickmount®, Shield®, Smith & Wesson Collectors Association®, Smith & Wesson Performance Center®, Smith & Wesson Precision Components®, Speed Breech®, Speed Breach XT®, SW Equalizer®, SW22 Victory®, Swing Hammer®, T/C®, T/CR22®, T17®, The S&W Bench®, The Sigma Series®, Thompson/Center®, Trek®, Triumph®, U-View®, Volunteer®, and Weather Shield® are some of the registered U.S. trademarks of our company or one of our subsidiaries. This report also may contain trademarks and trade names of other companies.

Statement Regarding Forward-Looking Information

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “will,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding our intention to terminate the Missouri Sublease (as defined herein) on or around the effective date of the Assignment and Assumption Agreement (as defined herein); our intention to occupy our Connecticut facility at least through May 4, 2024, the end of the current lease term; that we may seek to extend the lease for the Connecticut facility through the end of calendar 2024; our belief that there are no indications of impairment relating to right-of-use assets; expected undiscounted cashflows, based on the Missouri Sublease, for future periods; lease payments for all our operating and finance leases for future periods; the outcome of the lawsuits to which we are subject and their effect on us; our belief that the remaining claims asserted by Gemini (as defined herein) and plaintiffs in a putative class action against us have no merit and that we intend to aggressively defend these actions; our belief with respect to certain matters described in the Commitments and Contingencies – Litigation section, that the allegations are unfounded and that any incident and any results from them or any injuries were due to negligence or misuse of the firearm by the claimant or a third party; our belief that our accruals for product liability cases and claims are a reasonable quantitative measure of the cost to us of product liability cases and claims; our belief that we have provided adequate accruals for defense costs; our intention, in connection with our new facility in Maryville, Tennessee, to incur, or cause to be incurred, no less than $120.0 million in aggregate capital expenditures on or before December 31, 2025, create no less than 620 new jobs, and sustain an average hourly wage of at least $25.97 at the facility; our expectation, when adding the cost of machinery and equipment, to spend between $160.0 million and $170.0 million through the end of fiscal 2024; our intention, with respect to assets associated with our assembly operations in Massachusetts, to either move those assets to the Tennessee facility at the appropriate time or sell or sublease those assets that will not be moved; our expectation that subsequent to the Relocation, our Massachusetts facility will continue to remain an important part of our manufacturing activities with significant portions of the operations being unaffected by the Relocation; our intention to relocate a portion of our plastic injection molding operations to the Tennessee facility and evaluate selling the remaining molding operations utilized in our Connecticut facility to a third party; our intention to continue to evaluate possible losses associated with any impairment of the Connecticut facility assets as we determine which assets may be sold; our belief that inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results; our expectation that our inventory levels will decline by the end of the fiscal year due to the completion of a significant portion of the operational transition to the new Tennessee facility combined with alignment of production capacity to channel inventory and consumer demand; our expectation for capital expenditures in fiscal 2024, excluding payments related to the Relocation; factors affecting our future capital requirements; availability of equity or debt financing on acceptable terms, if at all; the record date and payment date for our dividend; and our belief that our existing capital resources and credit facilities will be adequate to fund our operations, including our finance leases and other commitments, for the next 12 months. All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date hereof about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements. A number of factors could cause actual results to differ materially from those indicated by the forward-looking statements. Such factors include, among others, economic, political, social, legislative, regulatory, inflationary, and health factors; the potential for increased regulation of firearms and firearm-related products; actions of social activists that could have an adverse effect on our business; the impact of lawsuits; the demand for our products; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; our competitive environment; the supply, availability, and costs of raw materials and components; speculation surrounding fears of terrorism and crime; our anticipated growth and growth opportunities; our ability to effectively manage and execute the Relocation; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; our penetration rates in new and existing markets; our strategies; our ability to maintain and enhance brand recognition and reputation; our ability to introduce new products; the success of new products; our ability to expand our markets; the potential for cancellation of orders from our backlog; and other factors detailed from time to time in our reports filed with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2023, or the Fiscal 2023 Form 10-K.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	As of:
	October 31, 2023			April 30, 2023
	(In thousands, except par value and share data)
ASSETS
Current assets:
Cash and cash equivalents	$	44,192		$	53,556
Accounts receivable, net of allowances for credit losses of $22 on October 31, 2023 and $23 on April 30, 2023		59,773			55,153
Inventories		163,291			177,118
Prepaid expenses and other current assets		9,870			4,917
Income tax receivable		4,713			1,176
Total current assets		281,839			291,920
Property, plant, and equipment, net		253,253			210,330
Intangibles, net		2,823			3,588
Goodwill		19,024			19,024
Deferred income taxes		8,085			8,085
Other assets		7,949			8,347
Total assets	$	572,973		$	541,294
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	44,536		$	36,795
Accrued expenses and deferred revenue		23,197			20,149
Accrued payroll and incentives		19,889			18,565
Accrued income taxes		190			1,831
Accrued profit sharing		1,504			8,203
Accrued warranty		1,578			1,670
Total current liabilities		90,894			87,213
Notes and loans payable (Note 4)		64,836			24,790
Finance lease payable, net of current portion		36,209			36,961
Other non-current liabilities		7,532			7,707
Total liabilities		199,471			156,671
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.001 par value, 100,000,000 shares authorized, 75,322,622 shares issued and 45,636,482 shares outstanding on October 31, 2023 and 75,029,300 shares issued and 45,988,930 shares outstanding on April 30, 2023		75			75
Additional paid-in capital		286,341			283,666
Retained earnings		517,682			523,184
Accumulated other comprehensive income		73			73
Treasury stock, at cost (29,686,140 shares on October 31, 2023 and 29,040,370 shares on April 30, 2023)		(430,669	)		(422,375	)
Total stockholders’ equity		373,502			384,623
Total liabilities and stockholders' equity	$	572,973		$	541,294

The accompanying notes are an integral part of these condensed consolidated financial statements.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	For the Three Months Ended October 31,						For the Six Months Ended October 31,
	2023			2022			2023			2022
	(In thousands, except per share data)
Net sales	$	124,958		$	121,035		$	239,201		$	205,429
Cost of sales		93,192			81,773			177,034			134,696
Gross profit		31,766			39,262			62,167			70,733
Operating expenses:
Research and development		1,724			1,869			3,522			3,542
Selling, marketing, and distribution		10,952			9,431			20,993			17,458
General and administrative		15,322			15,435			29,536			33,288
Total operating expenses		27,998			26,735			54,051			54,288
Operating income		3,768			12,527			8,116			16,445
Other income/(expense), net:
Other income/(expense), net		141			790			188			1,463
Interest (expense)/income, net		(646	)		(420	)		(492	)		(854	)
Total other (expense)/income, net		(505	)		370			(304	)		609
Income from operations before income taxes		3,263			12,897			7,812			17,054
Income tax expense		765			3,249			2,196			4,094
Net income	$	2,498		$	9,648		$	5,616		$	12,960
Net income per share:
Basic - net income	$	0.05		$	0.21		$	0.12		$	0.28
Diluted - net income	$	0.05		$	0.21		$	0.12		$	0.28
Weighted average number of common shares outstanding:
Basic		45,977			45,815			46,042			45,777
Diluted		46,361			46,106			46,458			46,104

The accompanying notes are an integral part of these condensed consolidated financial statements.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


											Accumulated
	Common				Additional						Other							Total
	Stock				Paid-In			Retained			Comprehensive		Treasury Stock					Stockholders’
(In thousands)	Shares		Amount		Capital			Earnings			Income		Shares		Amount			Equity
Balance at July 31, 2022		74,811	$	75	$	278,297		$	503,376		$	73		29,040	$	(422,375	)	$	359,446
Stock-based compensation		—		—		1,428			—			—		—		—			1,428
Shares issued under employee stock purchase plan		85		—		753			—			—		—		—			753
Issuance of common stock under restricted stock unit awards, net of shares surrendered		39		—		(58	)		—			—		—		—			(58	)
Dividends issued		—		—		—			(4,577	)		—		—		—			(4,577	)
Net income		—		—	—				9,648			—		—		—			9,648
Balance at October 31, 2022		74,935	$	75	$	280,420		$	508,447		$	73		29,040	$	(422,375	)	$	366,640

Balance at April 30, 2022		74,641	$	75	$	278,101		$	504,640		$	73		29,040	$	(422,375	)	$	360,514
Stock-based compensation		—		—		2,605			—			—		—		—			2,605
Shares issued under employee stock purchase plan		85		—		753			—			—		—		—			753
Issuance of common stock under restricted stock unit awards, net of shares surrendered		209		—		(1,039	)		—			—		—		—			(1,039	)
Dividends issued	—		—		—				(9,153	)	—		—		—				(9,153	)
Net income		—		—	—				12,960			—		—		—			12,960
Balance at October 31, 2022		74,935	$	75	$	280,420		$	508,447		$	73		29,040	$	(422,375	)	$	366,640

Balance at July 31, 2023		75,184	$	75	$	284,176		$	520,766		$	73		29,040	$	(422,375	)	$	382,715
Stock-based compensation		—		—		1,484			—			—		—		—			1,484
Shares issued under employee stock purchase plan		83		—		722			—			—		—		—			722
Issuance of common stock under restricted stock unit awards, net of shares surrendered		56		—		(41	)		—			—		—		—			(41	)
Repurchase of treasury stock	—		—		—			—			—			646		(8,294	)		(8,294	)
Unpaid dividends accrued		—		—		—			(38	)		—		—		—			(38	)
Dividends issued	—		—			—			(5,544	)	—		—		—				(5,544	)
Net income		—		—	—				2,498			—		—		—			2,498
Balance at October 31, 2023		75,323	$	75	$	286,341		$	517,682		$	73		29,686	$	(430,669	)	$	373,502

Balance at April 30, 2023		75,029	$	75	$	283,666		$	523,184		$	73		29,040	$	(422,375	)	$	384,623
Stock-based compensation		—		—		2,759			—			—		—		—			2,759
Shares issued under employee stock purchase plan		83				722			—			—		—		—			722
Issuance of common stock under restricted stock unit awards, net of shares surrendered		211		—		(806	)		—			—		—		—			(806	)
Repurchase of treasury stock	—		—		—			—			—			646		(8,294	)		(8,294	)
Unpaid dividends accrued		—		—		—			(38	)		—		—		—			(38	)
Dividends issued	—		—		—				(11,080	)	—		—		—				(11,080	)
Net income		—		—	—				5,616			—		—		—			5,616
Balance at October 31, 2023		75,323	$	75	$	286,341		$	517,682		$	73		29,686	$	(430,669	)	$	373,502

The accompanying notes are an integral part of these condensed consolidated financial statements.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Six Months Ended October 31,
	2023			2022
	(In thousands)
Cash flows from operating activities:
Net income	$	5,616		$	12,960
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Depreciation and amortization		17,327			15,171
Loss/(gain) on sale/disposition of assets		682			(43	)
Provision for recoveries on notes and accounts receivable		(1	)		(13	)
Stock-based compensation expense		2,759			2,605
Changes in operating assets and liabilities:
Accounts receivable		(4,619	)		18,324
Inventories		13,827			(59,814	)
Prepaid expenses and other current assets		(4,953	)		(2,493	)
Income taxes		(5,178	)		(11,555	)
Accounts payable		14,682			5,889
Accrued payroll and incentives		1,324			(329	)
Accrued profit sharing		(6,699	)		(7,915	)
Accrued expenses and deferred revenue		2,859			307
Accrued warranty		(92	)		(130	)
Other assets		397			521
Other non-current liabilities		(175	)		(1,650	)
Net cash provided by/(used in) operating activities		37,756			(28,165	)
Cash flows from investing activities:
Payments to acquire patents and software		(125	)		(256	)
Proceeds from sale of property and equipment		45			85
Payments to acquire property and equipment		(66,983	)		(39,419	)
Net cash used in investing activities		(67,063	)		(39,590	)
Cash flows from financing activities:
Proceeds from loans and notes payable		50,000			—
Payments on notes and loans payable		(10,000	)		—
Payments on finance lease obligation		(681	)		(559	)
Payments to acquire treasury stock		(8,212	)		—
Dividend distribution		(11,080	)		(9,153	)
Proceeds to acquire common stock from employee stock purchase plan		722			753
Payment of employee withholding tax related to restricted stock units		(806	)		(1,039	)
Net cash provided by/(used in) financing activities		19,943			(9,998	)
Net decrease in cash and cash equivalents		(9,364	)		(77,753	)
Cash and cash equivalents, beginning of period		53,556			120,728
Cash and cash equivalents, end of period	$	44,192		$	42,975
Supplemental disclosure of cash flow information
Cash paid for:
Interest, net of amounts capitalized	$	1,725		$	1,089
Income taxes	$	7,353		$	15,721

The accompanying notes are an integral part of these condensed consolidated financial statements.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(Unaudited)

Supplemental Disclosure of Non-cash Investing Activities:


	For the Six Months Ended October 31,
	2023		2022
	(In thousands)
Purchases of property and equipment included in accounts payable	$	8,826	$	9,655
Capital lease included in accrued expenses and finance lease payable		694	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

(1) Organization:

We are one of the world’s leading manufacturers and designers of firearms. We manufacture a wide array of handguns (including revolvers and pistols), long guns (including modern sporting rifles), handcuffs, firearm suppressors, and other firearm-related products for sale to a wide variety of customers, including firearm enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and throughout the world. We sell our products under the Smith & Wesson and Gemtech brands. We manufacture our products at our facilities in Springfield, Massachusetts; Houlton, Maine; Deep River, Connecticut; and Maryville, Tennessee. We also sell our manufacturing services to other businesses to attempt to level-load our factories. We sell those services under our Smith & Wesson and Smith & Wesson Precision Components brands. During the quarter ended October 31, 2023, we began manufacturing and distribution activities from our new Maryville, Tennessee facility. See Note 9 — Commitments and Contingencies and Note 10 — Restructuring for more information regarding this plan.

(2) Basis of Presentation:

Interim Financial Information – The condensed consolidated balance sheet as of October 31, 2023, the condensed consolidated statements of income for the three and six months ended October 31, 2023 and 2022, the condensed consolidated statements of changes in stockholders’ equity for the three and six months ended October 31, 2023 and 2022, and the condensed consolidated statements of cash flows for the six months ended October 31, 2023 and 2022 have been prepared by us without audit. In our opinion, all adjustments, which include only normal recurring adjustments necessary to fairly present the financial position, results of operations, changes in stockholders’ equity, and cash flows for the three and six months ended October 31, 2023 and for the periods presented, have been included. All intercompany transactions have been eliminated in consolidation. The consolidated balance sheet as of April 30, 2023 has been derived from our audited consolidated financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Fiscal 2023 Form 10-K. The results of operations for the three and six months ended October 31, 2023 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2024, or any other period.

(3) Leases:

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

We recognize expenses for our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease term. Our leases do not provide an implicit interest rate. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease agreements do not require material variable lease payments or residual value guarantees, nor do they include restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. Tenant improvement allowances are recorded as an offsetting adjustment included in our calculation of the respective right-of-use asset.

Many of our leases include renewal options that enable us to extend the lease term. The execution of those renewal options is at our sole discretion and renewals are reflected in the lease term when they are reasonably certain to be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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


	Balance Sheet Caption	October 31, 2023
Operating Leases
Right-of-use assets		$	5,994
Accumulated amortization			(4,787	)
Right-of-use assets, net	Other assets	$	1,207

Current liabilities	Accrued expenses and deferred revenue	$	727
Non-current liabilities	Other non-current liabilities		678
Total operating lease liabilities		$	1,405
Finance Leases
Right-of-use assets		$	41,631
Accumulated depreciation			(10,580	)
Right-of-use assets, net	Property, plant, and equipment, net	$	31,051

Current liabilities	Accrued expenses and deferred revenue	$	1,498
Non-current liabilities	Finance lease payable, net of current portion		36,209
Total finance lease liabilities		$	37,707

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

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

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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


Fiscal	Amount
2024	$	1,399
2025		3,180
2026		3,235
2027		3,292
2028		3,350
Thereafter		38,906
Total future sublease receipts		53,362
Less amounts representing interest		(16,408	)
Present value of sublease receipts	$	36,954

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


	Operating			Financing			Total
2024	$	650		$	1,675		$	2,325
2025		324			3,378			3,702
2026		301			3,433			3,734
2027		272			3,490			3,762
2028		125			3,424			3,549
Thereafter		—			38,906			38,906
Total future lease payments		1,672			54,306			55,978
Less amounts representing interest		(267	)		(16,599	)		(16,866	)
Present value of lease payments		1,405			37,707			39,112
Less current maturities of lease liabilities		(727	)		(1,498	)		(2,225	)
Long-term maturities of lease liabilities	$	678		$	36,209		$	36,887

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

(4) Notes, Loans Payable, and Financing Arrangements:

Credit Facilities — On August 24, 2020, we and certain of our subsidiaries entered into an amended and restated credit agreement, or the Amended and Restated Credit Agreement, with certain lenders, including TD Bank, N.A., as administrative agent; TD Securities (USA) LLC, and Regions Bank, as joint lead arrangers and joint bookrunners; and Regions Bank, as syndication agent. The Amended and Restated Credit Agreement is currently unsecured; however, should any Springing Lien Trigger Event (as defined in the Amended and Restated Credit Agreement) occur, we and certain of our subsidiaries would be required to execute certain documents in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents would have a legal, valid, and enforceable ‎first priority lien on the collateral described therein.

The Amended and Restated Credit Agreement provides for a revolving line of credit of $100.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate (as defined in the Amended and Restated Credit Agreement) or the SOFR rate, plus an applicable margin based on our consolidated leverage ratio. The Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan (as defined in the Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our Adjusted Consolidated Leverage Ratio (as defined in the Amended and Restated Credit Agreement). Subject to the satisfaction of certain terms and conditions described in the Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of August 24, 2025 or the date that is six months in advance of the earliest maturity of any Permitted Notes (as defined in the Amended and Restated Credit Agreement) under the Amended and Restated Credit Agreement. On April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of “Consolidated Fixed Charge Coverage Ratio” to exclude unfinanced capital expenditures in connection with the Relocation.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

The Amended and Restated Credit Agreement contains customary limitations, including limitations on indebtedness, liens, fundamental changes to business or organizational structure, investments, loans, advances, guarantees, and acquisitions, asset sales, dividends, stock repurchases, stock redemptions, and the redemption or prepayment of other debt, and transactions with affiliates. We are also subject to financial covenants, including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio. As of October 31, 2023, we were compliant with all required financial covenants.

Letters of Credit — At October 31, 2023, we had outstanding letters of credit aggregating $2.7 million, which included a $1.5 million letter of credit to collateralize our captive insurance company.

(5) Fair Value Measurement:

We follow the provisions of Accounting Standards Codification, or ASC, 820-10, Fair Value Measurements and Disclosures Topic, or ASC 820-10, for our financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

Financial assets and liabilities recorded on the accompanying condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access at the measurement date (e.g., active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).

Our cash and cash equivalents, which are measured at fair value on a recurring basis, totaled $44.2 million and $53.6 million as of October 31, 2023 and April 30, 2023, respectively. The carrying value of our revolving line of credit approximated the fair value as of October 31, 2023. 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 October 31, 2023.

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

(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 October 31, 2023 and April 30, 2023 (in thousands):


		October 31, 2023				April 30, 2023