What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-05 compared with 2020-10-28 · 132 added, 206 removed, 465 unchanged (42% of the section changed)

3 unchanged sentences

(Dollars in thousands)

September 26, 2020

April 3, 2021

December 31, 2020

17 unchanged sentences

(Dollars in thousands, except per share data)

September 26, 2020

April 3, 2021

December 31, 2020

10 unchanged sentences

Lease liability (Note 5)

Deferred income taxes

Contingent liabilities (Note 13)

23 unchanged sentences

Three Months Ended

Nine Months Ended

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

April 3, 2021

March 28, 2020

Net firearms sales

15 unchanged sentences

Diluted earnings per share

Weighted average number of common shares outstanding - Basic

Weighted average number of common shares outstanding - Diluted

Cash dividends per share

12 unchanged sentences

Recognition of stock-based compensation expense

Balance at September 26, 2020

Balance at April 3, 2021

See notes to condensed consolidated financial statements.

2 unchanged sentences

(Dollars in thousands)

Nine Months Ended

September 26, 2020

September 28, 2019

Three Months Ended

April 3, 2021

March 28, 2020

Operating Activities

18 unchanged sentences

Proceeds from maturities of short-term investments

Cash provided by (used for) investing activities

Cash used for investing activities

Financing Activities

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

Repurchase of common stock

Dividends paid

Cash used for financing activities

Decrease in cash and cash equivalents

Increase 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 nine months ended September 26, 2020 may not be indicative of the results to be expected for the full year ending December 31, 2020.

Operating results for the three months ended April 3, 2021 may not be indicative of the results to be expected for the full year ending December 31, 2021.

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, 2020.

27 unchanged sentences

The carrying amounts of financial instruments, including cash, short-term investments, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to the short-term maturity of these items.

Business Combination:

On November 23, 2020, the Company acquired substantially all of the assets used to manufacture Marlin Firearms from the Remington Outdoor Company, Inc.

and each of the subsidiaries of the Remington Outdoor Company, Inc.

for a purchase price of $ 28.3 million in cash.

The transaction was funded by the Company with cash on hand and has been accounted for in accordance with ASC 805 - Business Combinations, which requires, among other things, an assignment of the acquisition consideration transferred to the sellers for the tangible and intangible assets acquired, using the bottom up approach, to estimate their value at acquisition date.

Any excess of the fair value of the purchase consideration over these identified net assets was recorded as goodwill.

Our estimates of fair value are based upon assumptions believed to be reasonable, yet are inherently uncertain and, as a result, may differ from actual performance.

During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the estimated fair values of the assets acquired and liabilities assumed with a corresponding adjustment to goodwill in the period in which such revised estimates are identified.

No such adjustments were recorded in the three months ended April 3, 2021.

Use of Estimates:

3 unchanged sentences

Certain prior period balances have been reclassified to conform to current year presentation.

Recent Accounting Pronouncements:

On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , its final standard on the accounting for leases.

The most significant change in the new lease guidance requires lessees to recognize right-of-use assets and lease liabilities for all leases other than those that meet the definition of short-term leases.

For short-term leases, lessees may elect an accounting policy by class of underlying asset under which these assets and liabilities are not recognized and lease payments are generally recognized over the lease term on a straight-line basis.

This change results in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under legacy U.S.

The new lease guidance was effective in fiscal years beginning after December 15, 2018 and interim periods thereafter.

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 $ 2,253 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’

Equity, or Condensed Consolidated Statements of Cash Flows as a result of this adoption.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments.

The new guidance requires financial instruments measured at amortized cost basis to be presented at the net amount expected to be collected through application of the current expected credit losses model.

The model requires an estimate of the credit losses expected over the life of an exposure or pool of exposures.

The income statement will reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.

This pronouncement was effective for fiscal years beginning after December 15, 2019.

The Company adopted the new guidance effective January 1, 2020.

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

Equity, or Condensed Consolidated Statements of Cash Flows as a result of this adoption.

NOTE 3 —

REVENUE RECOGNITION AND CONTRACTS WITH CUSTOMERS

On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method, applied to those contracts for which all performance obligations were not completed as of that date.

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 nine months ended September 26, 2020 and September 28, 2019 is as follows:

The impact of ASC 606 on revenue recognized during the three months ended April 3, 2021 and March 28, 2020 is as follows:

Three Months Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

April 3, 2021

March 28, 2020

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 fourth quarter of 2020.

The Company was not responsible for the shipment of any free products arising from such sales promotion programs as of April 3, 2021.

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 nine month period ended September 26, 2020, inventory quantities were reduced.

During the three month period ended April 3, 2021, 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:

September 26, 2020

April 3, 2021

December 31, 2020

8 unchanged sentences

The Company leases certain of its real estate and equipment.

The Company has evaluated all its leases and determined that all are operating leases under the definitions of the guidance of ASU 2016-02.

The Company has evaluated all its leases and determined that all are operating leases under the definitions of the guidance of ASU 2016-02 Leases (Topic 842) .

The Company’s lease agreements generally do not require material variable lease payments, residual value guarantees or restrictive covenants.

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 September 26, 2020:

Under the provisions of ASU 2016-02, the Company records 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 April 3, 2021:

Balance Sheet Line Item

September 26, 2020

April 3, 2021

Right-of-use assets

6 unchanged sentences

The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight line basis over the life of the lease.

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 September 26, 2020:

The Company’s leases generally do not provide an implicit interest rate, and therefore the Company calculates an incremental borrowing rate 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 April 3, 2021:

Remainder of 2021

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 September 26, 2020 is 11.48 years.

The Company’s weighted average remaining lease term for operating leases as of April 3, 2021 is 11.61 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 ( 0.15 % at September 26, 2020) plus 150 basis points.

Borrowings under this facility bear interest at the one-month LIBOR rate ( 0.11 % at April 3, 2021) 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 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.

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 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.

At April 3, 2021 and December 31, 2020, the Company was in compliance with the terms and covenants of the credit facility.

At April 3, 2021, 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 $ 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.

Expenses related to these matching contributions totaled $ 1.3 million for the three months ended April 3, 2021, and $ 0.9 million for the three months ended March 28, 2020.

The Company plans to contribute approximately $ 2.7 million to the plan in matching employee contributions during the remainder of 2021.

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.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $ 2.4 million for the three months ended April 3, 2021, and $ 1.5 million for the three months ended March 28, 2020.

The Company plans to contribute approximately $ 4.0 million in supplemental contributions to the plan during the remainder of 2021.

NOTE 8 —

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 25.2 % 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's 2021 and 2020 effective tax rates differ from the statutory federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 27.1 % and 26.3 % for the three months ended April 3, 2021 and March 28, 2020, respectively.

Income tax payments for the three months ended April 3, 2021 and March 28, 2020 totaled $ 0.2 million and $ 1.6 million, respectively.

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

10 unchanged sentences

Three Months Ended

Nine Months Ended

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

April 3, 2021

March 28, 2020

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 September 26, 2020.

The Company reserved 750,000 shares for issuance under the 2017 SIP, of which 230,000 shares remain available for future grants as of April 3, 2021.

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 nine months ended September 26, 2020.

There were 40,792 restricted stock units issued during the three months ended April 3, 2021.

Total compensation costs related to these restricted stock units are $ 5.6 million.

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.

Compensation costs related to all outstanding restricted stock units recognized in the statements of income aggregated $ 3.4 million and $ 1.4 million for the three months ended April 3, 2021 and March 28, 2020, respectively.

NOTE 11 —

6 unchanged sentences

Three Months Ended

Nine Months Ended

(in thousands)

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

April 3, 2021

March 28, 2020

Income (Loss) Before Income Taxes

September 26, 2020

April 3, 2021

December 31, 2020

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 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.

Payments made to the NRA in the three months ended April 3, 2021 totaled $ 0.1 million and were de minimis in the three months ended March 28, 2020.

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

1 unchanged sentence

CONTINGENT LIABILITIES

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

As of April 3, 2021, the Company was a defendant in five (5) lawsuits and is aware of certain other such claims.

The lawsuits fall into three categories:

3 unchanged sentences

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 lawsuits stem from a specific incident 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.

9 unchanged sentences

On October 9, 2019, the court dismissed plaintiff’s Amended Complaint, with prejudice.

Plaintiff filed a Notice of Appeal on October 15, 2019 and sought two extensions of time to file its initial brief.

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 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.

Plaintiff filed a Notice of Appeal on October 15, 2019.

The parties fully briefed the appeal and the Court of Appeals for the Sixth Circuit entered an order affirming the dismissal on February 8, 2021.

Plaintiff has 90 days from that date to file a Writ of Certiorari with the United States Supreme Court.

FN Herstal S.A.

5 unchanged sentences

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.

Discovery was set to close on March 9, 2021.

During the quarter ended April 3.

2021, the parties engaged in settlement discussions, which are ongoing.

The District Court has extended discovery deadlines to accommodate the parties’

Municipal Litigation

12 unchanged sentences

decision holding the Protection of Lawful Commerce in Arms Act inapplicable to the City's claims.

The motion was fully briefed by the parties.

On September 29, 2016, the court entered an order staying the case pending a decision by the Indiana Supreme Court in KS&E Sports v.

17 unchanged sentences

The Petition was denied on November 26, 2019.

The case was 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.

During the quarter ended April 3, 2021, the City initiated discovery and the Manufacturer Defendants reciprocated.

Discovery is ongoing.

Summary of Claimed Damages and Explanation of Product Liability Accruals

17 unchanged sentences

SUBSEQUENT EVENTS

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.

On April 30, 2021, the Board of Directors authorized a dividend of 86 ¢

per share, for shareholders of record as of May 17, 2021, payable on May 28, 2021.

The Company has evaluated events and transactions occurring subsequent to April 3, 2021 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 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.

In the first quarter of 2021, 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 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.

At the end of the first quarter of 2021, the Company was debt-free, and had cash and short-term investments totaling $146.1 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.

These actions include:

Providing all hourly employees with an additional two weeks of paid time off,

Providing all hourly employees with an additional two weeks of paid time off in 2020 and one week of paid time off in 2021,

Providing cash incentives for employees to become fully vaccinated,

Reducing hiring from the outset to the latter half of 2020 to help maintain the health and safety of employees and the cleanliness of our facilities,

Encouraging employees to work remotely, wherever possible, and implementing social distancing throughout each manufacturing facility, including in every manufacturing cell,

3 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 $3.5 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 approximate $1.1 million and $2.2 million for the three and nine months ended September 26, 2020, respectively.

The costs of these actions are expected to total approximately $1.5 million in 2021 and totaled approximately $3.6 million in 2020, of which approximately $0.4 million and $0.4 million was recognized during the three months ended April 3, 2021 and March 28, 2020, respectively.

The Company has also experienced expense reductions and deferrals in certain areas of its 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 approximate $0.9 million for the three months April 3, 2021.

There were minimal expense reductions or deferrals identified in the three months ended March 28, 2020.

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

4 unchanged sentences

The ultimate impact of COVID-19 on the Company’s business, results of operations, financial condition and cash flows is dependent on future developments, including the duration of the pandemic and the related length of its impact on the global economy, which are uncertain and cannot be predicted at this time.

See Part II, Item 1A.

Risk Factors, for an additional discussion of risk related to COVID-19.

Results of Operations

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.

The estimated unit sell-through of the Company’s products from the independent distributors to retailers increased 9% in the first quarter of 2021 compared to the prior year period.

For the same period, NICS background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) increased 13%.

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

These 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

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

Concern about possible legislation that could curtail or limit gun ownership rights by both state and Federal governments, and

The continuing COVID-19 pandemic.

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.

Sales of new products, including the Wrangler, the Ruger-57, the LCP II in .22 LR, the PC Charger, and the Max-9 pistol, represented $34.8 million or 21% of firearm sales in the first quarter of 2021.

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 seven quarters follow:

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

The Company increased overall production in the first quarter of 2021 by 49% from the first quarter of 2020.

Summary Unit Data

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):

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):

Units Ordered

3 unchanged sentences

Ending Unit Backlog

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:

During the first quarter of 2021, the Company’s finished goods inventory and distributor inventories of the Company’s products increased slightly.

However, in the aggregate, total Company and distributor inventories decreased 153,400 units from the end of the first quarter of 2020.

Inventory data for the trailing five quarters follows:

Units —

5 unchanged sentences

These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors.

Distributor ending inventory for the second and third quarter of 2019 does not include any potential inventory remaining at a distributor that filed for bankruptcy protection in June 2019 and did not provide inventory data.

This total does not include inventory at retailers.

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

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.

Consolidated net sales were $184.4 million for the three months ended April 3, 2021, an increase of 49.1% from $123.6 million in the comparable prior year period.

Firearms net sales were $183.6 million for the three months ended April 3, 2021, an increase of 49.6% from $122.8 million in the comparable prior year period.

Firearms unit shipments increased 34.1% for the three months ended April 3, 2021, from the comparable prior year period.

Castings net sales were $0.8 million for the three months ended April 3, 2021, a decrease of 11.4% from $0.9 million in the comparable prior year period.

Cost of Products Sold and Gross Profit

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

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

Labor rate adjustments to inventory

Product liability

Total cost of products sold

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

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 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 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 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 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 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 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 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.

Consolidated cost of products sold was $111.8 million for the three months ended April 3, 2021, an increase of 27.6% from $87.6 million in the comparable prior year period.

Gross profit for the three months ended April 3, 2021 was $72.6 million, an increase of $36.6 million from $36.0 million in the comparable prior year period.

As a percentage of sales, gross profit increased to 39.4% in the three months ended April 3, 2021, from 29.1% in the comparable prior year period.

This significant increased profitability was due primarily to:

the increase in sales and production, resulting in favorable leveraging of fixed costs, including depreciation, engineering and other indirect labor,

a significant reduction in sales promotional activities, and

improved labor efficiencies.

Selling, General and Administrative Expenses

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.

Selling, general and administrative expenses were $20.6 million for the three months ended April 3, 2021, an increase of $4.8 million or 30.1% from $15.8 million in the comparable prior year period.

As a percentage of sales, selling, general, and administrative expenses decreased to 11.2% in the three months ended April 3, 2021 from 12.8% in the prior period.

The increase in these expenses was primarily attributable to increased sales and incentive compensation expenses and the decrease of such expenses as a percentage of sales was attributable to the significant increase in sales.

Other income, net

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.

Other income, net was $0.4 million in the three months ended April 3, 2021, a decrease of $0.2 million from $0.6 million in the three months ended March 28, 2020 as a result of decreased interest income on short-term investments due to decreased interest rates in the three months ended April 3, 2021.

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 25.2% 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.

The Company's 2021 and 2020 effective tax rates differ from the statutory federal tax rate due principally to state income taxes and the nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 27.1% and 26.3% for the three months ended April 3, 2021 and March 28, 2020, respectively.

As a result of the foregoing factors, consolidated net income was $38.2 million for the three months ended April 3, 2021.

This represents an increase of 149.0% from $15.3 million in the comparable prior year period.

Non-GAAP Financial Measure

7 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 $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.

EBITDA was $59.9 million for the three months ended April 3, 2021, an increase of 118.0% from $27.5 million in the comparable prior year period.

Non-GAAP Reconciliation —

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 26, 2020

September 28, 2019

September 26, 2020

September 28, 2019

April 3, 2021

March 28, 2020

Income tax expense

3 unchanged sentences

Financial Condition

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

At the end of the first quarter of 2021, the Company’s cash and short-term investments totaled $146.1 million.

Pre-LIFO working capital of $227.7 million, less the LIFO reserve of $48.5 million, resulted in working capital of $179.2 million and a current ratio of 3.5 to 1.

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.

Cash provided by operating activities was $27.8 million for the three months ended April 3, 2021, compared to $31.1 million for the comparable prior year period.

The decrease in cash provided in the three months ended April 3, 2021 is primarily attributable to the increase in accounts receivable and the payment of annual incentive compensation in the three months ended April 3, 2021 and the decrease in inventories in the prior 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.

There is a limited supply of these materials in the marketplace at any given time, which can cause the purchase prices to vary based upon numerous market factors.

The Company believes that it has adequate quantities of raw materials in inventory or on order to provide sufficient time to locate and obtain additional items at then-current market cost without interruption of its manufacturing operations.

However, if market conditions, including the impact of tariffs, result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

If the Company’s suppliers are negatively impacted by the COVID-19 pandemic, and their ability to produce raw materials or component parts is compromised, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

If market conditions result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

Investing and Financing

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.

Capital expenditures for the three months ended April 3, 2021 totaled $5.5 million, an increase from $4.1 million in the comparable prior year period.

In 2021, 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 $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.

On November 23, 2020, the Company acquired substantially all of the Marlin Firearms assets, consisting of inventory, machinery and equipment, and intangibles.

The agreement to purchase these assets emanated from the Remington Outdoor Company, Inc.

bankruptcy and was approved by the United States Bankruptcy Court for the Northern District of Alabama on September 30, 2020.

The purchase price of approximately $28.3 million was paid with available cash on hand.

These assets have been moved to the Company’s facilities where manufacturing cells that will produce Marlin rifles will be established.

Shipments of Marlin rifles are anticipated to begin in the fourth quarter of 2021.

Dividends of $12.5 million were paid during the three months ended April 3, 2021.

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

On April 30, 2021, the Company’s Board of Directors authorized a dividend of 86¢

per share to shareholders of record on May 17, 2021, payable on May 28, 2021.

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

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.

At April 3, 2021, the Company’s investment in these instruments totaled $122.0 million.

The Company did not purchase any shares of its common stock in the three months ended April 3, 2021 and March 28, 2020.

As of April 3, 2021, $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, 2021, was unused at September 26, 2020 and the Company has no debt.

The Company’s unsecured $40 million credit facility, which expires on September 30, 2021, was unused at April 3, 2021 and the Company has no debt.

Other Operational Matters

4 unchanged sentences

Additionally, three of the Company’s smaller domestic distributors discontinued their firearms distribution operations in 2019.

The Company currently has 14 active domestic distributors.

Currently there are 14 domestic distributors.

Additionally, the Company has 41 and 26 distributors servicing the export and law enforcement markets, respectively.

11 unchanged sentences

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