What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-10-28 compared with 2020-07-29 · 151 added, 148 removed, 520 unchanged (37% of the section changed)

3 unchanged sentences

(Dollars in thousands)

June 27, 2020

September 26, 2020

December 31, 2019

17 unchanged sentences

(Dollars in thousands, except per share data)

June 27, 2020

September 26, 2020

December 31, 2019

35 unchanged sentences

Three Months Ended

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Nine Months Ended

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Net firearms sales

29 unchanged sentences

Recognition of stock-based compensation expense

Balance at June 27, 2020

Balance at September 26, 2020

See notes to condensed consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Six Months Ended

June 27, 2020

June 29, 2019

Nine Months Ended

September 26, 2020

September 28, 2019

Operating Activities

12 unchanged sentences

Income taxes payable

Cash provided by (used for) operating activities

Cash provided by operating activities

Investing Activities

3 unchanged sentences

Proceeds from maturities of short-term investments

Cash (used for) provided by investing activities

Cash provided by (used for) investing activities

Financing Activities

Remittance of taxes withheld from employees related to share-based compensation

Repurchase of common stock

Dividends paid

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

Operating results for the nine months ended September 26, 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 $ 2.4 million and lease liabilities of $ 2.4 million on its Condensed Consolidated Balance Sheets as of June 27, 2020.

As more fully discussed in Note 5, as a result of adopting ASU 2016-02, the Company recorded right-of-use assets totaling $ 2,253 million and lease liabilities of $ 2,285 million on its Condensed Consolidated Balance Sheets as of September 26, 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 and six months ended June 27, 2020 and June 29, 2019 is as follows:

The impact of the adoption of ASC 606 on revenue recognized during the three and nine months ended September 26, 2020 and September 28, 2019 is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

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 third quarter of 2020.

The Company expects the deferred revenue from this contract liability with customers to be recognized in the fourth 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 six month period ended June 27, 2020, inventory quantities were reduced.

During the nine month period ended September 26, 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:

June 27, 2020

September 26, 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 June 27, 2020:

The table below presents the right-of-use assets and related lease liabilities recognized on the Condensed Consolidated Balance Sheet as of September 26, 2020:

Balance Sheet Line Item

June 27, 2020

September 26, 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 June 27, 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 September 26, 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 June 27, 2020 is 11.45 years.

The Company’s weighted average remaining lease term for operating leases as of September 26, 2020 is 11.48 years.

NOTE 6 —

2 unchanged sentences

This facility is renewable annually and terminates on September 30, 2021.

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

Borrowings under this facility bear interest at the one-month LIBOR rate ( 0.15 % at September 26, 2020) plus 150 basis points.

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

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.

The facility includes certain terms and covenants, including the requirement that the Company to maintain a minimum earnings before interest, taxes, depreciation and amortization (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.

1 unchanged sentence

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.

At September 26, 2020 and December 31, 2019, the Company was in compliance with the terms and covenants of the credit facility.

At September 26, 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 $ 0.8 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.

Expenses related to these matching contributions totaled $ 0.8 million and $ 2.4 million for the three and nine months ended September 26, 2020, respectively, and $ 0.7 million and $ 2.6 million for the three and nine months ended September 28, 2019, respectively.

The Company plans to contribute approximately $ 0.8 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 $ 1.1 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.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 1.2 million and $ 3.9 million for the three and nine months ended September 26, 2020, respectively, and $ 1.0 million and $ 3.9 million for the three and nine months ended September 28, 2019, respectively.

The Company plans to contribute approximately $ 1.2 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 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’s effective income tax rate was 24.7 % and 25.2 % for the three and nine months ended September 26, 2020, respectively.

The Company’s effective income tax rate was 24.4 % and 25.2 % for the three and nine months ended September 28, 2019, respectively.

Income tax payments for the three and nine months ended September 26, 2020 totaled $ 18.2 million and $ 22.3 million, respectively.

Income tax payments for the three and nine months ended September 28, 2019 totaled $ 0.3 million and $ 11.8 million, respectively.

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

10 unchanged sentences

Three Months Ended

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

Nine Months Ended

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 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 352,000 shares remain available for future grants as of June 27, 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 September 26, 2020.

Restricted Stock Units

2 unchanged sentences

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

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

There were 109,112 restricted stock units issued during the nine months ended September 26, 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.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 1.7 million and $ 4.4 million for the three and nine months ended September 26, 2020, respectively, and $ 1.6 million and $ 4.8 million for the three and nine months ended September 28, 2019, respectively.

NOTE 11 —

6 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

June 27, 2020

June 29, 2019

June 27, 2020

June 29, 2019

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Income (Loss) Before Income Taxes

June 27, 2020

September 26, 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 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.

Payments made to the NRA in the three and nine months ended September 26, 2020 totaled $ 0.2 million and $ 0.4 million, respectively.

Payments made to the NRA in the three and nine months ended September 28, 2019 totaled $ 0.4 million and $ 0.7 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 June 27, 2020, the Company was a defendant in four (4) lawsuits and is aware of certain other such claims.

As of September 26, 2020, the Company was a defendant in five (5) lawsuits and is aware of certain other such claims.

The lawsuits fall into three categories:

2 unchanged sentences

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.

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.

Two lawsuits mentioned above involve a claim for damages related to an allegedly defective product due to its design and/or manufacture.

The lawsuits stem from specific incidents of personal injury and are based on traditional product liability theories such as strict liability, negligence, and/or breach of warranty.

The Company management believes that the allegations in these cases are unfounded, that the incidents are 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 June 17, 2020, and claimed that it expected to be in a position to reactivate or dismiss the appeal within 30 days.

Plaintiff filed a series of status reports and eventually requested that the appeal be reactivated.

Pursuant to the scheduling order in place currently, the matter should be briefed fully by December 9, 2020.

FN Herstal S.A.

2 unchanged sentences

The Complaint alleges injury and economic loss based upon alleged federal and state trademark infringement and unfair competition.

These allegations arise from the Company’s use and efforts to seek registration of the mark “Ruger-57”

in connection with a recently launched pistol.

These allegations arise from the Company’s use and efforts to seek registration of “Ruger-57”

in connection with the launch of a pistol bearing that mark.

The Company believes that the suit lacks any merit and has filed an Answer denying all material allegations and Counterclaims seeking cancellation of certain of Plaintiff’s registered trademarks.

Discovery has been initiated and is ongoing.

Municipal Litigation

32 unchanged sentences

The Petition was denied on November 26, 2019.

The case was been remanded to the trial court for further proceedings, though there has been no activity since then.

The case was remanded to the trial court for further proceedings, though there has been no activity since then.

Summary of Claimed Damages and Explanation of Product Liability Accruals

17 unchanged sentences

SUBSEQUENT EVENTS

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.

On September 29, 2020, the United States Bankruptcy Court for the Northern District of Alabama approved the Company’s offer to purchase certain of the assets used to manufacture Marlin firearms from Remington Outdoor Company, Inc.

for $ 30 million in cash.

On September 30, 2020, the Company entered into the Second Amendment to Credit Agreement its bank, which extended the termination date of the Company’s line of credit agreement to September 30, 2021 and modified a financial covenant.

October 23, 2020, the Board of Directors authorized a dividend of 56 ¢

per share, for shareholders of record as of November 13, 2020, payable on November 27, 2020.

The Company has evaluated events and transactions occurring subsequent to September 26, 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

14 unchanged sentences

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

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.

In the first nine 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.

Management continues to monitor and assess the situation and to prepare for implications to the Company’s business, supply chain and customer demand.

Management continues to monitor and assess the situation and to prepare for potential implications for the Company’s business, supply chain and customer demand.

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

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.

At the end of the third quarter of 2020, the Company was debt-free, and had cash and short-term investments totaling $133.6 million and an unused $40.0 million revolving credit facility.

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

6 unchanged sentences

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 costs of these actions are expected to total approximately $3.5 million in 2020, of which approximately $0.9 million and $2.4 million was recognized during the three and nine months ended September 26, 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.

These expense reductions and deferrals approximate $1.1 million and $2.2 million for the three and nine months ended September 26, 2020, respectively.

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

7 unchanged sentences

Results of Operations

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.

The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 50% in the first nine months 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 68%.

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

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

Recent protests, demonstrations, and civil unrest in many cities throughout the United States, and

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.

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 $87.9 million or 24% of firearm sales in the first nine months 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 six quarters follow:

Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing seven 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 six 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 seven 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 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.

The Company increased overall production in the first nine months of 2020 by 22% from the first nine months 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 2020.

Summary Unit Data

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):

Firearms unit data for the trailing seven 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 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:

During the third quarter of 2020, the Company’s finished goods inventory decreased by 400 units and distributor inventories of the Company’s products decreased by 26,700 units.

In the aggregate, total Company and distributor inventories decreased 310,000 units from the end of the third quarter of 2019.

Inventory data for the trailing seven 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 $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.

Consolidated net sales were $145.7 million for the three months ended September 26, 2020, an increase of 53.4% from $95.0 million in the comparable prior year period.

For the nine months ended September 26, 2020, consolidated net sales were $399.6 million, an increase of 30.9% from $305.4 million in the comparable prior year period.

Firearms net sales were $145.2 million for the three months ended September 26, 2020, an increase of 54.3% from $94.1 million in the comparable prior year period.

For the nine months ended September 26, 2020 firearms net sales were $397.3 million, an increase of 31.6% from $302.0 million in the comparable prior year period.

Firearms unit shipments increased 31.2% and 30.5% for the three and nine months ended September 26, 2020, respectively, from the comparable prior year periods.

Castings net sales were $0.5 million for the three months ended September 26, 2020, a decrease of 41.5% from $0.9 million in the comparable prior year period.

For the nine months ended September 26, 2020, castings net sales were $2.3 million, a decrease of 33.2% from $3.4 million in the comparable prior year period.

Cost of Products Sold and Gross Profit

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):

Consolidated cost of products sold was $94.6 million for the three months ended September 26, 2020, an increase of 25.9% from $75.1 million in the comparable prior year period.

Consolidated cost of products sold was $272.4 million for the nine months ended September 26, 2020, an increase of 18.1% from $230.6 million in the comparable prior year period.

Gross margin was 35.1% and 31.8% for the three and nine months ended September 26, 2020, respectively, compared to 20.9% and 24.5% in the comparable prior year periods.

Gross margin for the three and nine months ended September 26, 2020 and September 28, 2019 are illustrated below (in thousands):

Three 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

September 26, 2020

September 28, 2019

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

LIFO (income) expense

Overhead rate adjustments to inventory

1 unchanged sentence

Product liability

Product safety bulletins and recalls

Total cost of products sold

Six Months Ended

June 27, 2020

June 29, 2019

Nine Months Ended

September 26, 2020

September 28, 2019

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

5 unchanged sentences

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 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.

During the three and nine months ended September 26, 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 16.9% and 8.4%, respectively, compared with the corresponding 2019 periods, 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 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.

For the three and nine months ended September 26, 2020, the impact of LIFO was insignificant.

In the comparable 2019 periods, the Company recognized LIFO expense resulting in increased cost of products sold of $0.6 million and $1.8 million, respectively.

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 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.

During the three and nine months ended September 26, 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 $0.3 million and $1.2 million, respectively, and corresponding increases to cost of products sold.

During the three and nine months ended September 28, 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 $2.3 million and $3.5 million, respectively, and a corresponding decrease 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 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.

During the three and nine months ended September 26, 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 $0.1 million and $0.4 million, respectively, and corresponding increases to cost of products sold in both periods.

During the three and nine months ended September 28, 2019 the Company became less efficient in direct labor utilization and the labor rates used to absorb labor expenses into inventory decreased, resulting in increases in inventory value of $0.3 million and $0.4, respectively, 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 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.

During the three and nine months ended September 26, 2020, product liability expense was $0.4 million and $0.9 million, respectively.

During the three months ended September 28, 2019, product liability expense was de minimis.

During the nine months ended September 28, 2019, product liability expense was $0.6 million.

Product Safety Bulletins and Recalls —

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.

During the nine months ended September 26, 2020 the estimated costs remaining for product safety bulletins and recalls was reduced, which reduced cost of sales $0.9 million for the period.

There was no impact in the three months ended September 26, 2020.

During the nine months ended September 28, 2019, the estimated costs remaining for the product safety bulletin was reduced, which reduced cost of sales by $0.2 million for the period.

There was no impact in the three months ended September 28, 2019.

Gross Profit —

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.

As a result of the foregoing factors, for the three and nine months ended September 26, 2020, gross profit was $51.2 million and $127.2 million, respectively, an increase of $31.3 million and $52.4 million, respectively, from $19.9 million and $74.8 million, respectively, in the comparable prior year periods.

Gross profit as a percentage of sales increased to 35.1% and 31.8% in the three and nine months ended September 26, 2020, respectively, from 20.9% and 24.5% in the comparable prior year periods.

Selling, General and Administrative Expenses

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.

Selling, general and administrative expenses were $18.3 million for the three months ended September 26, 2020, an increase of $4.0 million or 28.0% from $14.3 million in the comparable prior year period.

Selling, general and administrative expenses were $50.2 million for the nine months ended September 26, 2020, an increase of $4.9 million or 10.9% from $45.3 million in the comparable prior year period.

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

Other income, net

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.

Other income, net was de minimis for the three months and $1.4 million for the nine months ended September 26, 2020, respectively, which was a decrease from $0.8 million and $2.7 million for the three and nine months ended September 28, 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 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.

The Company’s effective income tax rate was 24.7% and 25.2% for the three and nine months ended September 26, 2020, respectively.

The Company’s effective income tax rate was 24.4% and 25.2% for the three and nine months ended September 28, 2019, respectively.

As a result of the foregoing factors, consolidated net income was $24.8 million and $58.7 million for the three and nine months ended September 26, 2020, respectively.

This represents an increase of 413.9% and 143.7% from $4.8 million and $24.1 million in the comparable prior year periods.

8 unchanged sentences

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 $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.

EBITDA was $40.1 million for the three months ended September 26, 2020, an increase of 200.7% from $13.3 million in the comparable prior year period.

For the nine months ended September 26, 2020 EBITDA was $99.1 million, an increase of 87.7% from $52.8 million in the comparable prior year period.

Non-GAAP Reconciliation —

1 unchanged sentence

Three Months Ended

Six Months Ended

June 27, 2020

June 29, 2019

June 27, 2019

June 29, 2019

Nine Months Ended

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

Income tax expense

3 unchanged sentences

Financial Condition

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

At the end of the third quarter of 2020, the Company’s cash and short-term investments totaled $133.6 million.

Pre-LIFO working capital of $192.9 million, less the LIFO reserve of $47.3 million, resulted in working capital of $145.6 million and a current ratio of 3.2 to 1.

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.

Cash provided by operating activities was $82.0 million for the nine months ended September 26, 2020, compared to $8.9 million for the comparable prior year period.

The increase in cash provided in the nine months ended September 26, 2020 is primarily attributable to the increased net income and the significant decrease in inventory in the current period.

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.

4 unchanged sentences

Investing and Financing

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.

Capital expenditures for the nine months ended September 26, 2020 totaled $8.0 million, a decrease from $9.2 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.

1 unchanged sentence

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

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.

Dividends of $104.1 million were paid during the nine months ended September 26, 2020, reflecting the quarterly dividends and a $5.00 per share special dividend paid in August 2020.

On October 22, 2020, the Board of Directors authorized a 56¢

dividend for shareholders of record as of November 13, 2020, payable on November 27, 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.

1 unchanged sentence

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.

At September 26, 2020, the Company’s investment in these instruments totaled $104.0 million.

No shares were repurchased in the nine months ended September 26, 2020.

During the nine months ended September 28, 2019, the Company repurchased 44,500 shares of its common stock for $2.0 million in the open market.

The average price per share purchased was $44.83.

These purchases were funded with cash on hand.

As of September 26, 2020, $86.7 million remained authorized for future stock repurchases.

On September 29, 2020, the United States Bankruptcy Court for the Northern District of Alabama approved the Company’s offer to purchase certain of the assets used to manufacture Marlin firearms from Remington Outdoor Company, Inc.

The Company will pay the $30 million purchase price from cash on hand at the time of closing, which is expected to occur in the fourth quarter of 2020.

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 June 27, 2020 and the Company has no debt.

The Company’s unsecured $40 million credit facility, which expires on September 30, 2021, was unused at September 26, 2020 and the Company has no debt.

Other Operational Matters

17 unchanged sentences

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