What changed in this filing

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Item 1. Financial Statements

2020-07-29 compared with 2020-05-06 · 174 added, 113 removed, 494 unchanged (37% of the section changed)

3 unchanged sentences

(Dollars in thousands)

March 28, 2020

June 27, 2020

December 31, 2019

17 unchanged sentences

(Dollars in thousands, except per share data)

March 28, 2020

June 27, 2020

December 31, 2019

35 unchanged sentences

Three Months Ended

March 28, 2020

March 30, 2019

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Net firearms sales

27 unchanged sentences

Dividends paid

Unpaid dividends accrued

Recognition of stock-based compensation expense

Balance at March 28, 2020

Balance at June 27, 2020

See notes to condensed consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Three Months Ended

March 28, 2020

March 30, 2019

Six Months Ended

June 27, 2020

June 29, 2019

Operating Activities

2 unchanged sentences

Stock-based compensation

(Gain) loss on sale of assets

Deferred income taxes

10 unchanged sentences

Property, plant and equipment additions

Proceeds from sale of assets

Purchases of short-term investments

5 unchanged sentences

Cash used for financing activities

Increase (decrease) in cash and cash equivalents

Decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

9 unchanged sentences

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of the interim periods.

Operating results for the three months ended March 28, 2020 may not be indicative of the results to be expected for the full year ending December 31, 2020.

Operating results for the six months ended June 27, 2020 may not be indicative of the results to be expected for the full year ending December 31, 2020.

These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

39 unchanged sentences

The Company adopted ASU 2016-02 effective January 1, 2019.

As more fully discussed in Note 5, as a result of adopting ASU 2016-02, the Company recorded right-of-use assets totaling $ 2.5 million and lease liabilities of $ 2.5 million on its Condensed Consolidated Balance Sheets as of March 28, 2020.

As more fully discussed in Note 5, as a result of adopting ASU 2016-02, the Company recorded right-of-use assets totaling $ 2.4 million and lease liabilities of $ 2.4 million on its Condensed Consolidated Balance Sheets as of June 27, 2020.

There was no impact on the Condensed Consolidated Statements of Income, Condensed Consolidated Statements of Stockholders’

12 unchanged sentences

Under the modified retrospective method, results for reporting periods beginning after January 1, 2018 are presented using the guidance of ASC 606.

The impact of the adoption of ASC 606 on revenue recognized during the three months ended March 28, 2020 and March 30, 2019 is as follows:

The impact of the adoption of ASC 606 on revenue recognized during the three and six months ended June 27, 2020 and June 29, 2019 is as follows:

Three Months Ended

March 28, 2020

March 30, 2019

Six Months Ended

Contract liabilities with customers at beginning of period

3 unchanged sentences

As more fully described in the Revenue Recognition section of Note 2, the deferral of revenue and subsequent recognition thereof relates to certain of the Company’s sales promotion programs that include the future shipment of free products.

The Company expects the deferred revenue from this contract liability with customers to be recognized in the second quarter of 2020.

The Company expects the deferred revenue from this contract liability with customers to be recognized in the third quarter of 2020.

Practical Expedients and Exemptions

5 unchanged sentences

Because these are subject to many factors beyond management's control, interim results are subject to the final year-end LIFO inventory valuation.

During the three month period ended March 28, 2020, inventory quantities were reduced.

During the six month period ended June 27, 2020, inventory quantities were reduced.

If this reduction remains through year-end, it will result in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the current cost of purchases.

1 unchanged sentence

Inventories consist of the following:

March 28, 2020

June 27, 2020

December 31, 2019

11 unchanged sentences

The Company adopted the provisions of ASU 2016-02 using the effective date method on January 1, 2019 and recorded right-of-use assets equal to the present value of the contractual liability for future lease payments.

The table below presents the right-of-use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of March 28, 2020:

The table below presents the right-of-use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of June 27, 2020:

Balance Sheet Line Item

March 28, 2020

June 27, 2020

Right-of-use assets

7 unchanged sentences

The Company’s leases generally do not provide an implicit interest rate, and therefore the Company uses its incremental borrowing rate enumerated in its revolving line of credit (see Note 6) to determine the present value of its operating lease liabilities.

The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the Condensed Consolidated Balance Sheet as of March 28, 2020:

The following table reconciles the undiscounted future minimum lease payments to the total operating lease liabilities recognized on the Condensed Consolidated Balance Sheet as of June 27, 2020:

Remainder of 2020

4 unchanged sentences

The Company does not recognize right-of-use assets or lease liabilities for leases of one year or less or for renewal periods unless it is reasonably certain that the Company will exercise the renewal option at the inception of the lease or when a triggering event occurs.

The Company’s weighted average remaining lease term for operating leases as of March 28, 2020 is 11.89 years.

The Company’s weighted average remaining lease term for operating leases as of June 27, 2020 is 11.45 years.

NOTE 6 —

2 unchanged sentences

This facility is renewable annually and terminates on September 30, 2020.

Borrowings under this facility bear interest at the one-month LIBOR rate ( 1.016 % at March 28, 2020) plus 150 basis points.

Borrowings under this facility bear interest at the one-month LIBOR rate ( 0.18 % at June 27, 2020) plus 150 basis points.

The Company is charged one-quarter of a percent ( 0.25 %) per year on the unused portion.

At March 28, 2020 and December 31, 2019, the Company was in compliance with the terms and covenants of the credit facility, which remains unused.

The facility includes certain terms and covenants, including the requirement that the Company to maintain a minimum EBITDA for the preceding four quarters in any quarter that the Company draws on the Line of Credit.

During the first quarter of 2020, the Company made a $ 1 million draw from the facility while it was not in compliance with this covenant.

The draw was subsequently repaid prior to the end of the first quarter.

The Company notified the Lender and was granted a waiver on June 30, 2020.

At December 31, 2019, the Company was in compliance with the terms and covenants of the credit facility.

At June 27, 2020, there was no outstanding balance on the line of credit.

NOTE 7 —

2 unchanged sentences

The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code.

Expenses related to these matching contributions totaled $ 0.9 million for the three months ended March 28, 2020, and $ 1.2 million for the three months ended March 30, 2019.

Expenses related to these matching contributions totaled $ 0.8 million and $ 1.7 million for the three and six months ended June 27, 2020, respectively, and $ 0.7 million and $ 1.9 million for the three and six months ended June 29, 2019, respectively.

The Company plans to contribute approximately $ 1.9 million to the plan in matching employee contributions during the remainder of 2020.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 1.5 million for the three months ended March 28, 2020, and $ 1.7 million for the three months ended March 30, 2019.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 1.1 million and $ 2.6 million for the three and six months ended June 27, 2020, respectively, and $ 1.1 million and $ 2.9 million for the three and six months ended June 29, 2019, respectively.

The Company plans to contribute approximately $ 2.9 million in supplemental contributions to the plan during the remainder of 2020.

1 unchanged sentence

The Company’s 2020 and 2019 effective tax rates differ from the statutory federal tax rate due principally to state income taxes.

The Company’s effective income tax rate was 26.3 % and 25.1 % for the three months ended March 28, 2020 and March 30, 2019, respectively.

Income tax payments for the three months ended March 28, 2020 and March 30, 2019 totaled $ 1.6 million and $ 4.0 million, respectively.

The Company’s effective income tax rate was 24.7 % and 25.4 % for the three and six months ended June 27, 2020, respectively.

The Company’s effective income tax rate was 25.9 % and 25.4 % for the three and six months ended June 29, 2019, respectively.

Income tax payments for the three and six months ended June 27, 2020 totaled $ 2.4 million and $ 4.0 million, respectively.

Income tax payments for the three and six months ended June 29, 2019 totaled $ 7.6 million and $ 11.6 million, respectively.

The Company files income tax returns in the U.S.

10 unchanged sentences

Three Months Ended

March 28, 2020

March 30, 2019

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Weighted average number of common shares outstanding –

7 unchanged sentences

Vesting requirements are determined by the Compensation Committee of the Board of Directors .

The Company has reserved 750,000 shares for issuance under the 2017 SIP, of which 461,000 shares remain available for future grants as of March 28, 2020.

The Company has reserved 750,000 shares for issuance under the 2017 SIP, of which 352,000 shares remain available for future grants as of June 27, 2020.

Restricted Stock Units

2 unchanged sentences

The retention-based awards are subject only to the three-year vesting period.

There were no restricted stock units issued during the three months ended March 28, 2020.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.4 million and $ 1.5 million for the three months ended March 28, 2020 and March 30, 2019, respectively.

There were 109,112 restricted stock units issued during the six months ended June 27, 2020.

Total compensation costs related to these restricted stock units are $ 6.5 million.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.3 million and $ 2.7 million for the three and six months ended June 27, 2020, respectively, and $ 1.6 million and $ 3.2 million for the three and six months ended June 29, 2019, respectively.

NOTE 11 —

6 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

March 28, 2020

March 30, 2019

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Income (Loss) Before Income Taxes

March 28, 2020

June 27, 2020

December 31, 2019

3 unchanged sentences

The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities.

Payments made to the NRA were de minimis in the three months ended March 28, 2020 and March 30, 2019.

Payments made to the NRA in the three and six months ended June 27, 2020 totaled $ 0.1 million and $ 0.2 million, respectively.

Payments made to the NRA in the three and six months ended June 29, 2019 totaled $ 0.2 million and $ 0.3 million, respectively.

One of the Company’s Directors also serves as a Director on the Board of the NRA.

1 unchanged sentence

CONTINGENT LIABILITIES

As of March 28, 2020, the Company was a defendant in four (4) lawsuits and is aware of certain other such claims.

As of June 27, 2020, the Company was a defendant in four (4) lawsuits and is aware of certain other such claims.

The lawsuits fall into three categories:

traditional product liability litigation, non-product litigation, and municipal litigation, discussed in turn below.

traditional product liability litigation, non-product litigation, and municipal litigation.

Each is discussed in turn below.

Traditional Product Liability Litigation

One lawsuit mentioned above involves a claim for damages related to an allegedly defective product due to its design and/or manufacture.

This lawsuit stems from a specific incident of personal injury and is based on traditional product liability theories such as strict liability, negligence and/or breach of warranty.

The Company management believes that the allegations in this case are unfounded, that the incident is unrelated to the design or manufacture of the firearm involved, and that there should be no recovery against the Company.

The lawsuit stems from a specific incident of personal injury and is based on traditional product liability theories such as strict liability, negligence, and/or breach of warranty.

The Company management believes that the allegations in this case is unfounded, that the incident is unrelated to the design or manufacture of the firearms involved, and that there should be no recovery against the Company.

Non-Product Litigation

10 unchanged sentences

Plaintiff’s subsequent motion to hold the appeal in abeyance was granted, though the court also ordered plaintiff to file periodic status reports.

Plaintiff filed such a report on April 14, 2020, and claimed that it expected to be in a position to reactivate or dismiss the appeal within 60 days.

Plaintiff filed such a report on June 17, 2020, and claimed that it expected to be in a position to reactivate or dismiss the appeal within 30 days.

FN Herstal S.A.

11 unchanged sentences

The suit alleges, among other claims, negligence in the design of products, public nuisance, negligent distribution and marketing, negligence per se and deceptive advertising.

The case does not allege a specific injury to a specific individual as a result of the misuse or use of any of the Company’s products.

The case does not allege a specific injury to a specific individual as a result of the misuse or use of any of the Company's products.

After a long procedural history, the case was scheduled for trial on June 15, 2009.

23 unchanged sentences

However, the court reversed dismissal of the City’s negligent sale and distribution and related public nuisance counts for damages and injunctive relief.

Defendants filed a Petition to Transfer the case to the Indiana Supreme Court on July 8, 2019.

The Manufacturer Defendants filed a Petition to Transfer the case to the Indiana Supreme Court on July 8, 2019.

The Petition was denied on November 26, 2019.

4 unchanged sentences

For product liability claims made after July 10, 2000, coverage is provided on an annual basis for losses exceeding $ 5 million per claim, or an aggregate maximum loss of $ 10 million annually, except for certain new claims which might be brought by governments or municipalities after July 10, 2000, which are excluded from coverage.

Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims.

While it is not possible to forecast the outcome of litigation or the timing of costs, in the opinion of management, after consultation with special and corporate counsel, it is not probable and is unlikely that litigation, including punitive damage claims, will have a material adverse effect on the financial position of the Company, but may have a material impact on the Company’s financial results and cash flows for a particular period.

The Company management monitors the status of known claims and the product liability accrual, which includes amounts for asserted and unasserted claims.

Product liability claim payments are made when appropriate if, as, and when claimants and the Company reach agreement upon an amount to finally resolve all claims.

2 unchanged sentences

Provision is made for product liability claims based upon many factors related to the severity of the alleged injury and potential liability exposure, based upon prior claim experience.

Because the Company’s experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs.

Because the Company's experience in defending these lawsuits and claims is that unfavorable outcomes are typically not probable or estimable, only in rare cases is an accrual established for such costs.

In most cases, an accrual is established only for estimated legal defense costs.

Product liability accruals are periodically reviewed to reflect then-current estimates of possible liabilities and expenses incurred to date and reasonably anticipated in the future.

Threatened product liability claims are reflected in the Company’s product liability accrual on the same basis as actual claims;

, an accrual is made for reasonably anticipated possible liability and claims handling expenses on an ongoing basis.

Threatened product liability claims are reflected in the Company's product liability accrual on the same basis as actual claims;

i.e., an accrual is made for reasonably anticipated possible liability and claims handling expenses on an ongoing basis.

A range of reasonably possible losses relating to unfavorable outcomes cannot be made.

2 unchanged sentences

SUBSEQUENT EVENTS

On May 1, 2020, the Board of Directors authorized a dividend of 35 ¢

per share, for shareholders of record as of May 18, 2020, payable on June 1, 2020.

The Company has evaluated events and transactions occurring subsequent to March 28, 2020 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

On July 28, 2020, the Board of Directors authorized two dividends for shareholders:

a quarterly dividend of 42 ¢

per share based on the results of the second quarter, and

a special dividend of $ 5.00  per share.

Both dividends are for shareholders of record as of August 14, 2020, and are payable on August 28, 2020.

The Company has evaluated events and transactions occurring subsequent to June 27, 2020 and determined that there were no other unreported events or transactions that would have a material impact on the Company’s results of operations or financial position.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

11 unchanged sentences

Impact of Covid-19

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

The global outbreak of the coronavirus disease 2019 (“COVID-19”) was declared a pandemic by the World Health Organization and a national emergency by the U.S.

Government in March 2020.

The COVID-19 pandemic has created significant uncertainty and adversely impacted many industries throughout the global economy.

In the first quarter of 2020, the Company did not experience a significant adverse impact on its business resulting from government restrictions on the movement of people, goods, and services.

In the first six months of 2020, the Company did not experience a significant adverse impact on its business resulting from government restrictions on the movement of people, goods, and services.

The impact of the COVID-19 pandemic is fluid and continues to evolve, and, therefore, the Company cannot predict the extent to which its business, results of operations, financial condition, or cash flows will ultimately be impacted.

1 unchanged sentence

From a liquidity perspective, the Company believes it is currently well positioned to manage through this global crisis.

At the end of the first quarter of 2020, the Company was debt-free, and had cash and short-term investments totaling $187.6 million and an unused $40.0 million revolving credit facility.

In the first quarter of 2020, the Company did not experience a significant adverse impact on its business as a result of COVID-19.

While the adverse effects of COVID-19 on the Company increased in April 2020, the Company has taken many proactive steps to maintain the health and safety of its employees and to mitigate the impact on its business.

At the end of the second quarter of 2020, the Company was debt-free, and had cash and short-term investments totaling $226.6 million and an unused $40.0 million revolving credit facility.

In fact, in addition to its quarterly dividend related to the results of the second quarter, the Company declared a special dividend of $5.00 per share on July 29, 2020.

The Company has taken many proactive steps to maintain the health and safety of its employees and to mitigate the impact on its business.

These actions include:

4 unchanged sentences

Implementing additional cleaning, sanitizing and other health and safety processes to maintain a clean and safe workplace, and

Manufacturing and donating personal protective equipment to hospitals, health care facilities, and police and fire departments in its local communities.

The costs of these actions are expected to total approximately $2.5 million in 2020, of which approximately $0.4 million was recognized during the first quarter of 2020.

The Company has been able to keep all of its facilities safe and open with only limited restrictions on production.

Manufacturing and donating personal protective equipment to local hospitals, health care facilities, and police and fire departments in its local communities.

The costs of these actions are expected to total approximately $3 million in 2020, of which approximately $1.2 million and $1.6 million was recognized during the three and six months ended June 27, 2020, respectively.

The Company has also experienced expense reductions and deferrals in certain areas of our business, including reductions or delays in sponsorships and advertising, reduced conference and trade show participation costs, and reduced travel expenditures.

These expense reductions and deferrals, which approximate $1.0 million, occurred almost entirely during the three months ended June 27, 2020.

The Company has been able to keep all of its facilities safe and open with only limited restrictions on operations.

While certain parts of the economy have begun to reopen as restrictions have been lifted, it is possible that additional restrictions will be put in place in the future which could adversely impact the Company’s business for an indeterminate period.

Since the latter stages of the first quarter of 2020, there has been a significant increase in consumer demand for firearms, as evidenced by the increase in adjusted National Instant Criminal Background Check System (“NICS”) checks.

This increased demand may be attributable to COVID-19.

This increased demand may be attributable, in part, to COVID-19.

The sustainability of this increased consumer demand, and the ultimate impact of COVID-19 on consumer demand, cannot be predicted at this time.

3 unchanged sentences

Results of Operations

The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 37% in the first quarter of 2020 compared to the prior year period.

The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 47% in the first half of 2020 compared to the prior year period.

For the same period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) increased 65%.

These substantial increases are attributable to increased consumer demand for firearms in the first quarter of 2020, especially the latter stages.

Sales of new products, including the Wrangler, the Ruger-57, the LCP II in .22 LR, the PC Charger, and the AR-556 pistol, represented $23.0 million or 20% of firearm sales in the first quarter of 2020.

These substantial increases may be attributable to increased public concern about personal protection and home defense in reaction to:

The continuing COVID-19 pandemic,

Some political and public leaders calling for a reduction in funding and limitations on law enforcement activities, and

Protests, demonstrations, and civil unrest in many cities throughout the United States.

Sales of new products, including the Wrangler, the Ruger-57, the LCP II in .22 LR, the PC Charger, and the AR-556 pistol, represented $48 million or 21% of firearm sales in the first half of 2020.

New product sales include only major new products that were introduced in the past two years.

Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing five quarters follow:

Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing six quarters follow:

Estimated Units Sold from Distributors to Retailers (1)

13 unchanged sentences

The Company generally does not use the orders received or ending backlog for planning production levels.

The units ordered, value of orders received, average sales price of units ordered, and ending backlog for the trailing five quarters are as follows (dollars in millions, except average sales price):

The units ordered, value of orders received, average sales price of units ordered, and ending backlog for the trailing six quarters are as follows (dollars in millions, except average sales price):

(All amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns.)

5 unchanged sentences

The Company reviews the estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company, semi-monthly to plan production levels.

The Company increased overall production in the first quarter of 2020 2% from the fourth quarter of 2019, the second consecutive quarterly increase in production .

The COVID-19 pandemic had only a minimal negative impact on production in the first quarter of 2020.

The COVID-19 pandemic may have a more significant adverse impact on production in the second quarter of 2020.

The Company increased overall production in the first half of 2020 by 10% from the first half of 2019.

Reduced hiring to help maintain the health and safety of employees and the cleanliness of our facilities during the COVID-19 pandemic negatively impacted production in the first half of 2020.

Summary Unit Data

Firearms unit data for the trailing five quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns):

Firearms unit data for the trailing six quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns):

Units Ordered

3 unchanged sentences

Ending Unit Backlog

During the first quarter of 2020, the Company’s finished goods inventory decreased by 35,500 units and distributor inventories of the Company’s products decreased by 77,900 units.

In the aggregate, total Company and distributor inventories decreased 113,400 units from the end of the first quarter of 2019.

Inventory data for the trailing five quarters follows:

During the second quarter of 2020, the Company’s finished goods inventory decreased by 20,800 units and distributor inventories of the Company’s products decreased by 106,500 units.

In the aggregate, total Company and distributor inventories decreased 291,500 units from the end of the second quarter of 2019.

Inventory data for the trailing six quarters follows:

Units —

8 unchanged sentences

The Company does not have access to data on retailer inventories of the Company’s products.

Consolidated net sales were $123.6 million for the three months ended March 28, 2020, an increase of 8.4% from $114.0 million in the comparable prior year period.

Firearms net sales were $122.8 million for the three months ended March 28, 2020, an increase of 8.7% from $112.9 million in the comparable prior year period.

Firearms unit shipments increased 23.9% for the three months ended March 28, 2020, relative to the comparable prior year period.

Castings net sales were $0.9 million for the three months ended March 28, 2020, a decrease of 21.0% from $1.1 million in the comparable prior year period.

Consolidated net sales were $130.3 million for the three months ended June 27, 2020, an increase of 35.2% from $96.3 million in the comparable prior year period.

For the six months ended June 27, 2020, consolidated net sales were $253.9 million, an increase of 20.7% from $210.4 million in the comparable prior year period.

Firearms net sales were $129.4 million for the three months ended June 27, 2020, an increase of 36.3% from $95.0 million in the comparable prior year period.

For the six months ended June 27, 2020 firearms net sales were $252.2 million, an increase of 21.3% from $207.9 million in the comparable prior year period.

Firearms unit shipments increased 37.1% and 30.1% for the three and six months ended June 27, 2020, respectively, from the comparable prior year periods.

Castings net sales were $0.9 million for the three months ended June 27, 2020, a decrease of 37.3% from $1.4 million in the comparable prior year period.

For the six months ended June 27, 2020, castings net sales were $1.7 million, a decrease of 30.0% from $2.5 million in the comparable prior year period.

Cost of Products Sold and Gross Profit

Consolidated cost of products sold was $87.6 million for the three months ended March 28, 2020, an increase of 7.6% from $81.4 million in the comparable prior year period.

Gross margin was 29.1% for the three months ended Months 28, 2020, compared to 28.6% in the comparable prior year period.

Gross margin for the three months ended March 28, 2020 and March 30, 2019 is illustrated below (in thousands):

Consolidated cost of products sold was $90.2 million for the three months ended June 27, 2020, an increase of 21.8% from $74.0 million in the comparable prior year period.

Consolidated cost of products sold was $177.8 million for the six months ended June 27, 2020, an increase of 14.4% from $155.5 million in the comparable prior year period.

Gross margin was 30.8% and 30.0% for the three and six months ended June 27, 2020, respectively, compared to 23.2% and 26.1% in the comparable prior year periods.

Gross margin for the three and six months ended June 27, 2020 and June 29, 2019 are illustrated below (in thousands):

Three Months Ended

March 28, 2020

March 30, 2019

June 27, 2020

June 29, 2019

Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls

4 unchanged sentences

Total cost of products sold

Six Months Ended

June 27, 2020

June 29, 2019

Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls

Overhead rate adjustments to inventory

Labor rate adjustments to inventory

Product liability

Product safety bulletins and recalls

Total cost of products sold

Cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls —

During the three months ended March 28, 2020, cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls decreased as a percentage of sales by 0.7%, compared with the corresponding 2019 period, due primarily to the increase in sales and production which resulted in favorable leveraging of fixed costs.

During the three months ended June 27, 2020, cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls decreased as a percentage of sales by 8.0%, compared with the corresponding 2019 period, due primarily to the increase in sales and production which resulted in favorable leveraging of fixed costs and a reduction in promotional activities.

For the six months ended June 27, 2020, cost of products sold, before LIFO, overhead and labor rate adjustments to inventory, product liability, and product safety bulletins and recalls decreased as a percentage of sales by 4.1% compared with the corresponding 2019 period due primarily to the increase in sales and production which resulted in favorable leveraging of fixed costs and a reduction in promotional activities.

LIFO —

For the three months ended March 28, 2020, the Company recognized LIFO expense resulting in increased cost of products sold of $0.3 million.

For the three months ended June 27, 2020, the Company recognized LIFO expense that was de minimis.

In the comparable 2019 period, the Company recognized LIFO expense resulting in increased cost of products sold of $0.6 million.

For the six months ended June 27, 2020, the Company recognized LIFO expense resulting in increased cost of products sold of $0.4 million.

In the comparable 2019 period, the Company recognized LIFO expense resulting in increased cost of products sold of $1.2 million.

Overhead Rate Adjustments —

The Company uses actual overhead expenses incurred as a percentage of sales-value-of-production over a trailing six month period to absorb overhead expense into inventory.

During the three months ended March 28, 2020, the Company became more efficient in overhead spending and the overhead rates used to absorb overhead expenses into inventory decreased, resulting in an decrease in inventory values of $0.7 million, and a corresponding increase to cost of products sold.

During the three months ended March 30, 2019, the Company became less efficient in overhead spending and the overhead rates used to absorb overhead expenses into inventory increased, resulting in an increase in inventory values of $0.2 million, and a corresponding decrease to cost of products sold.

During the three and six months ended June 27, 2020, the Company became more efficient in overhead spending and the overhead rates used to absorb overhead expenses into inventory decreased, resulting in decreases in inventory values of $0.1 million and $0.8 million, respectively, and corresponding increases to cost of products sold.

During the three and six months ended June 29, 2019, the Company became less efficient in overhead spending and the overhead rates used to absorb overhead expenses into inventory increased, resulting in a increases in inventory values of $1.0 million and $1.2 million, respectively, and corresponding decreases to cost of products sold.

Labor Rate Adjustments —

The Company uses actual direct labor expense incurred as a percentage of sales-value-of-production over a trailing six month period to absorb direct labor expense into inventory.

During the three months ended March 28, 2020 and March 30, 2019, the Company became slightly more efficient in direct labor utilization and the labor rates used to absorb labor expenses into inventory decreased, resulting in decreases in inventory value of $0.1 million and corresponding increases to cost of products sold in both periods.

During the three and six months ended June 27, 2020, the Company became more efficient in direct labor utilization and the labor rates used to absorb labor expenses into inventory decreased, resulting in decreases in inventory value of $0.2 million and $0.3 million, respectively, and corresponding increases to cost of products sold in both periods.

During the three and six months ended June 29, 2019 the Company became less efficient in direct labor utilization and the labor rates used to absorb labor expenses into inventory increased, resulting in increases in inventory value of $0.1 million and corresponding decreases to cost of products sold in both periods.

Product Liability —

This expense includes the cost of outside legal fees, insurance, and other expenses incurred in the management and defense of product liability matters.

During the three months ended March 28, 2020 and March 30, 2019, product liability expense was $0.2 million and $0.7 million, respectively.

During the three and six months ended June 27, 2020, product liability expense was $0.2 million and $0.4 million, respectively.

During the three months ended June 29, 2019, product liability expense was de minimis.

During the six months ended June 29, 2019, product liability expense was $0.7 million.

Product Safety Bulletins and Recalls —

There were no costs incurred due to product safety bulletins and recalls during the three months ended March 28, 2020.

During the three months ended March 30, 2019, the estimated costs remaining for a product safety bulletin issued in 2018 was reduced, which reduced cost of sales by $0.2 million for the three months ended March 30, 2019.

During the three and six months ended June 27, 2020, the estimated costs remaining for product safety bulletins and recalls was reduced, which reduced cost of sales $0.9 million.

There were no costs incurred due to product safety bulletins and recalls during the three months ended June 29, 2019.

During the six months ended June 29, 2019, the estimated costs remaining for product safety bulletins and recalls was reduced, which reduced cost of sales $0.2 million.

Gross Profit —

As a result of the foregoing factors, for the three months ended March 28, 2020, gross profit was $36.0 million, an increase of $3.4 million from $32.6 million in the comparable prior year period.

Gross profit as a percentage of sales increased to 29.1% in the three months ended March 28, 2020, from 28.6% in the comparable prior year period.

As a result of the foregoing factors, for the three and six months ended June 29, 2020, gross profit was $40.1 million and $76.1 million, respectively, an increase of $17.8 million and $21.2 million, respectively, from $22.3 million and $54.9 million, respectively, in the comparable prior year periods.

Gross profit as a percentage of sales increased to 30.8% and 30.0% in the three and six months ended June 27, 2020, respectively, from 23.2% and 26.1% in the comparable prior year periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $15.8 million for the three months ended March 28, 2020, a decrease of $0.3 million or 1.9% from $16.1 million in the comparable prior year period.

These decreases were primarily attributable to reduced sales promotion expenses in the three months ended March 28, 2020.

Selling, general and administrative expenses were $16.1 million for the three months ended June 27, 2020, an increase of $1.3 million or 8.2% from $14.8 million in the comparable prior year period.

Selling, general and administrative expenses were $31.9 million for the six months ended June 27, 2020, an increase of $0.9 million or 3.0% from $31.0 million in the comparable prior year period.

These increases were primarily attributable to increased sales and compensation expenses.

Other income, net

Other income, net was $0.6 million in the three months ended March 28, 2020, a decrease of $0.3 million from $0.9 million in the three months ended March 30, 2019 as a result of decreased interest income on short-term investments due to decreased interest rates in the three months ended March 28, 2020.

Other income, net of $0.7 million and $1.3 million for the three and six months ended June 27, 2020, respectively, decreased from $0.9 million and $1.9 million for the three and six months ended June 29, 2019 as a result of reduced interest rates earned on short-term investments in 2020 compared to 2019.

Income Taxes and Net Income

The Company’s 2020 and 2019 effective tax rates differ from the statutory federal tax rate due principally to state income taxes.

The Company’s effective income tax rate was 26.3% and 25.1% for the three months ended March 28, 2020 and March 30, 2019, respectively.

As a result of the foregoing factors, consolidated net income was $15.3 million for the three months ended March 28, 2020.

This represents an increase of 17.7% from $13.0 million in the comparable prior year period.

The Company's 2020 and 2019 effective tax rates differ from the statutory federal tax rate due principally to state income taxes.

The Company’s effective income tax rate was 24.7% and 25.4% the three and six months ended June 27, 2020, respectively.

The Company’s effective income tax rate was 25.9% and 25.4% for the three and six months ended June 29, 2019, respectively.

As a result of the foregoing factors, consolidated net income was $18.6 million and $33.9 million for the three and six months ended June 27, 2020, respectively.

This represents an increase of 198.3% and 76.1% from $6.2 million and $19.3 million in the comparable prior year periods.

Non-GAAP Financial Measure

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The Company calculates its EBITDA by adding the amount of interest expense, income tax expense, and depreciation and amortization expenses that have been deducted from net income back into net income, and subtracting the amount of interest income that was included in net income from net income.

EBITDA was $27.5 million for the three months ended March 28, 2020, an increase of 13.5% from $24.2 million in the comparable prior year period.

EBITDA was $31.5 million for the three months ended June 27, 2020, an increase of 107.0% from $15.2 million in the comparable prior year period.

For the six months ended June 27, 2020 EBITDA was $59.0 million, an increase of 49.6% from $39.5 million in the comparable prior year period.

Non-GAAP Reconciliation —

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Three Months Ended

March 28, 2020

March 30, 2019

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2019

June 29, 2019

Income tax expense

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Financial Condition

At the end of the first quarter of 2020, the Company’s cash and short-term investments totaled $187.6 million.

At the end of the second quarter of 2020, the Company’s cash and short-term investments totaled $226.6 million.

Pre-LIFO working capital of $266.1 million, less the LIFO reserve of $47.5 million, resulted in working capital of $218.6 million and a current ratio of 3.9 to 1.

Cash provided by operating activities was $31.1 million for the three months ended March 28, 2020, compared to cash used by operating activities of $10.3 million for the comparable prior year period.

The increase in cash provided in the three months ended March 28, 2020 is primarily attributable to the increased net income in the current period, the significant decrease in inventory in the current period compared to a significant increase in the prior year period, the slight increase in employee compensation and benefits payable in the current period compared to a significant reduction in the prior year period, and other balance sheet fluctuations.

Cash provided by operating activities was $78.1 million for the six months ended June 27, 2020, compared to cash used for operating activities of $6.4 million for the comparable prior year period.

The increase in cash provided in the six months ended June 27, 2020 is primarily attributable to the increased net income in the current period, the significant decrease in inventory in the current period compared to a significant increase in the prior year period, the significant increase in employee compensation and benefits payable in the current period compared to a significant reduction in the prior year period, the significant increase in trade accounts payable and accrued expenses compared to a significant reduction in the prior year period, and other balance sheet fluctuations.

Third parties supply the Company with various raw materials for its firearms and castings, such as steel, fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle stocks, wax, ceramic material, metal alloys, various synthetic products and other component parts.

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Investing and Financing

Capital expenditures for the three months ended March 28, 2020 totaled $4.1 million, an increase from $2.7 million in the comparable prior year period.

Capital expenditures for the six months ended June 27, 2020 totaled $5.9 million, an increase from $3.9 million in the comparable prior year period.

In 2020, the Company expects to spend approximately $20 million on capital expenditures, much of which will relate to tooling and fixtures for new product introductions and to upgrade and modernize manufacturing equipment.

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The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash.

Dividends of $3.0 million were paid during the three months ended March 28, 2020.

On May 1, 2020, the Board of Directors authorized a dividend of 35¢

per share, for shareholders of record as of May 18, 2020, payable on June 1, 2020.

Dividends of $9.3 million were paid during the six months ended June 27, 2020.

On July 28, 2020, the Board of Directors authorized two dividends for shareholders:

a quarterly dividend of 42¢

per share based on the results of the second quarter, and

a special dividend of $5.00 per share.

Both dividends are for shareholders of record as of August 14, 2020, and are payable on August 28, 2020.

The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company’s need for funds.

The Company has financed its dividends with cash provided by operations and current cash.

In 2018, the Company began to purchase United States Treasury instruments which mature within one year with available cash.

At March 28, 2020, the Company’s investment in these instruments totaled $149.6 million.

No shares were repurchased in the three months ended March 28, 2020 and March 30, 2019.

As of March 28, 2020, $86.7 million remained authorized for future stock repurchases.

The Company purchases United States Treasury instruments which mature within one year with available cash.

At June 27, 2020, the Company’s investment in these instruments totaled $208.9 million.

No shares were repurchased in the six months ended June 27, 2020 and June 29, 2019.

As of June 27, 2020, $86.7 million remained authorized for future stock repurchases.

Based on its unencumbered assets, the Company believes it has the ability to raise cash through the issuance of short-term or long-term debt.

The Company’s unsecured $40 million credit facility, which expires on September 30, 2020, was unused at March 28, 2020 and the Company has no debt.

The Company’s unsecured $40 million credit facility, which expires on September 30, 2020, was unused at June 27, 2020 and the Company has no debt.

Other Operational Matters

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The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of subsequent unanticipated events.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The interest rate market risk implicit to the Company at any given time is typically low, as the Company does not have significant exposure to changing interest rates on invested cash.

There has been no material change in the Company’s exposure to interest rate risks during the six months ended June 27, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements