What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-03 · 125 added, 103 removed, 177 unchanged (56% of the section changed)

5 unchanged sentences

99% of sales are from firearms.

Export sales typically represent no more than 5% of total sales, although they did account for 7% of total

sales for the three month period ended April 1, 2023.

Export sales accounted for 5% of total sales for the three month period ended April

The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic.

The Company’s firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting

Export sales accounted for approximately 7% of total sales for the six month periods ended July 1, 2023

and July 2, 2022.

The Company’s design and manufacturing operations are located in the United States and almost all product content

The Company’s firearms are sold through a select number of independent wholesale distributors, principally to the commercial

sporting market.

The Company also manufactures

5 unchanged sentences

is due in part to the timing of the distributor show season, which occurs during the first quarter.

Impact of Covid-19

The global outbreak of the coronavirus

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

in March 2020.

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

During the three month period ended April 1, 2023, the Company did not experience a significant adverse impact on its business from COVID-19

or related government restrictions.

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 potential implications for the Company’s business, supply

chain and customer demand.

The Company has taken many proactive

steps to maintain the health and safety of its employees and to mitigate the impact on its business and believes it remains well positioned

to continue to manage through this global crisis.

At the end of the first quarter of 2023, the Company was debt-free, and had cash and

short-term investments totaling $130 million.

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.

Results of Operations

The estimated unit sell-through

of the Company’s products from the independent distributors to retailers decreased 5% in the first quarter of 2023 compared to the

of the Company’s products from the independent distributors to retailers decreased 7% in the first half of 2023 compared to the

prior year period.

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

trailing five quarters follow:

trailing six quarters follow:

Estimated Units Sold from Distributors to Retailers (1)

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NICS background checks are also performed for permit applications, permit renewals, and other administrative

The adjusted NICS data

presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including

The adjusted NICS

data presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including

checks used for concealed carry (“CCW”) permit application checks as well as checks on active CCW permit databases.

9 unchanged sentences

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,

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):

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Average Sales Price of Ending Unit Backlog

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’s overall production in the first quarter of 2023 decreased by 27% from the

first quarter of 2022 .

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.

Consequently, the Company’s overall production in the first half

of 2023 decreased by 19% from the first half of 2022 .

Summary Unit Data

Firearms unit data for the trailing

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

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

Units Ordered

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Ending Unit Backlog

During the first quarter of 2023,

the Company’s finished goods inventory decreased by 3,900 units and distributor inventories of the Company’s products decreased

During the second quarter of 2023,

the Company’s finished goods inventory increased by 51,100 units and distributor inventories of the Company’s products increased

by 13,400 units.

Inventory data for the trailing five quarters follows:

Units – Company Inventory

Units – Distributor Inventory (1)

Inventory unit data for the trailing six quarters follows:

Company Inventory

Distributor Inventory (1)

Total Inventory (2)

8 unchanged sentences

and gross profit data for the three months ended (dollars in millions):

April 1, 2023

April 2, 2022

Net firearms sales

2 unchanged sentences

Cost of products sold

Sales of new products, including

the LCP MAX pistol, Marlin lever-action rifles, LC Carbine, Small-Frame Autoloading Rifle, Super Wrangler revolver, and the Security-380

pistol, represented $33.3 million or 24.4% of firearm sales in the three months ended July 1, 2023.

New product sales include only major

new products that were introduced in the past two years.

The decreased gross profit for

the three months ended July 1, 2023 is attributable to the inflationary cost increases in materials, commodities, services, energy, fuel

and transportation, as well as increased promotional costs.

The decrease in gross margin for

the three months ended July 1, 2023 is attributable to a product mix shift toward products with relatively lower margins that remain in

relatively stronger demand.

In addition to the shift in product mix, the aforementioned promotional and inflationary cost increases, partially

offset by increased pricing, resulted in lower margins.

Net sales, cost of products sold,

and gross profit data for the six months ended (dollars in millions):

Net firearms sales

Net castings sales

Total net sales

Cost of products sold

The decrease in total consolidated

net sales and net firearms sales for the three months ended April 1, 2023 is attributable to decreased consumer demand for firearms.

of new products, including the Security-380 pistol, MAX-9 pistol, LCP MAX pistol, Super Wrangler revolver, Marlin 1895 lever-action rifles,

LC Carbine, and Small-Frame Autoloading Rifle represented $30.0 million or 21% of firearm sales in the first quarter of 2023.

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

net sales and net firearms sales for the three and six months ended July 1, 2023 is attributable to decreased consumer demand for firearms.

Sales of new products, including the MAX-9 pistol (during the first quarter only), LCP MAX pistol, Marlin lever-action rifles, LC Carbine,

Small-Frame Autoloading Rifle, Super Wrangler revolver, and the Security-380 pistol, represented $63.3 million or 22.6% of firearm sales

in the first half of 2023.

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

The decreased gross profit for

the three months ended April 1, 2023 is attributable to the decrease in sales and inflationary cost increases in materials, commodities,

the six months ended July 1, 2023 is attributable to the decrease in sales and inflationary cost increases in materials, commodities,

services, energy, fuel and transportation, as well as increased promotional costs.

The decrease in gross margin for

the three months ended April 1, 2023 is attributable to unfavorable deleveraging of fixed costs, including depreciation, engineering and

other indirect labor, resulting from decreased sales and production and decreased labor efficiencies, as well as a product mix shift

toward products with relatively lower margins, for many of which the Company had significantly underserved the market demand since early

In addition to the unfavorable deleveraging of fixed costs and the shift in product mix, the aforementioned promotional and inflationary

cost increases, partially offset by increased pricing, resulted in lower margins.

Selling, General and Administrative Expenses

Selling, general and administrative

expenses were $21.5 million for the three months ended April 1, 2023, an increase of $2.1 million or 10.8% from $19.4 million in the comparable

prior year period.

As a percentage of sales, selling, general, and administrative expenses increased to 14.4% in the three months ended

April 1, 2023 from 11.6% in the prior year period.

The increase in these expenses

for the three months ended April 1, 2023 was primarily attributable to the resumption of trade show participation costs, travel expenditures,

and advertising that had been deferred in 2022 due to COVID-19 restrictions, partially offset by decreased sales volume and decreased

incentive compensation expenses.

Other income, net

Other income, net of $1.5 million

for the three months ended April 1, 2023, increased from $0.8 million for the three months ended April 2, 2022 as the result of increases

in interest income, partially offset by decreased royalty and miscellaneous income.

Income Taxes and Net Income

the six months ended July 1, 2023 is attributable to a product mix shift toward products with relatively lower margins that remain in

relatively stronger demand, unfavorable deleveraging of fixed costs, including depreciation, engineering and other indirect labor, resulting

from decreased production, and decreased labor efficiencies.

In addition to the shift in product mix and the unfavorable deleveraging

of fixed costs, the aforementioned promotional and inflationary cost increases, partially offset by increased pricing, resulted in lower

Selling and General and Administrative Expenses

Selling and general and administrative

expenses data for the three months ended (dollars in millions):

Selling expenses

General and administrative expenses

Total operating expenses

The increase in selling expenses

for the three months ended July 1, 2023 was primarily attributable to the resumption of trade show participation costs, travel expenditures,

and advertising, some of which had been deferred in 2022 due to COVID-19 restrictions.

The increase in general, and administrative

expenses for the three months ended July 1, 2023 was primarily attributable to increased professional service costs, partially offset

by decreased incentive compensation expenses.

Selling and general and administrative

expenses data for the six months ended (dollars in millions):

Selling expenses

General and administrative expenses

Total operating expenses

The increase in selling expenses

for the six months ended July 1, 2023 was primarily attributable to the resumption of trade show participation costs, travel expenditures,

and advertising, some of which had been deferred in 2022 due to COVID-19 restrictions, partially offset by decreased sales volume.

The increase in general, and administrative

expenses for the six months ended July 1, 2023 was primarily attributable to increased professional service costs, partially offset by

decreased incentive compensation expenses.

Other income data for the three

months ended (dollars in millions):

The increase in other income for

the three months ended July 1, 2023 was the result of increases in interest income, partially offset by decreased royalty and miscellaneous

Other income data for the six

months ended (dollars in millions):

The increase in other income

for the six months ended July 1, 2023 was the result of increases in interest income, partially offset by decreased royalty and

miscellaneous income.

The Company's 2023 and 2022 effective

1 unchanged sentence

nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 22.4% for the three months ended

April 1, 2023.

The Company’s effective income tax rate was 23.5% for the three months ended April 2, 2022.

As a result of the foregoing factors,

consolidated net income was $14.4 million for the three months ended April 1, 2023.

This represents a decrease of 52.5% from $30.2 million

in the comparable prior year period.

The Company’s effective income tax rate was 20.0% and 21.1% for the three and

six months ended July 1, 2023, respectively.

The Company’s effective income tax rate was 20.5% and 22.3% for the three and six months

ended July 1, 2022, respectively.

Non-GAAP Financial Measures

22 unchanged sentences

EBITDA was $25.3 million for the

three months ended April 1, 2023, a decrease of 48.5% from $46.3 million in the comparable prior year period.

three months ended July 1, 2023, a decrease of 22.5% from $32.6 million in the comparable prior year period.

For the six months ended July

1, 2023 EBITDA was $49.1 million, a decrease of 37.8% from $79.0 million in the comparable prior year period.

Non-GAAP Reconciliation – EBITDA

1 unchanged sentence

Three Months Ended

April 1, 2023

April 2, 2022

Six Months Ended

Income tax expense

5 unchanged sentences

Liquidity and Capital Resources

At the end of the first quarter

At the end of the second quarter

of 2023, the Company’s cash and short-term investments totaled $137.7 million.

2 unchanged sentences

Cash provided by operating activities

was $5.3 million for the three months ended April 1, 2023, compared to $18.8 million for the comparable prior year period.

in cash provided in the three months ended April 1, 2023 is primarily attributable to the decrease in net income and reduced income taxes

payable, partially offset by the decrease in inventory, in the three months ended April 1, 2023.

was $21.8 million for the six months ended July 1, 2023, compared to $32.4 million for the comparable prior year period.

in cash provided in the six months ended July 1, 2023 is primarily attributable to the decrease in net income and the increase in prepaid

expenses and other assets in the six months ended July 1, 2023, partially offset by the decrease in accounts receivable in the six months

ended July 1, 2023 and the increase in inventory in the six months ended July 2, 2022.

Third parties supply the Company

1 unchanged sentence

laminated lumber for rifle stocks, wax, ceramic material, metal alloys, various synthetic products and other component parts.

months ended April 1, 2023, the Company’s manufacturing operations were impacted by limited deliveries of raw materials.

months ended July 1, 2023, the Company’s manufacturing operations were impacted by limited deliveries of raw materials.

supply of these materials in the marketplace can result in increases to purchase prices and adversely affect production levels.

3 unchanged sentences

Investing and Financing

Capital expenditures for the three

months ended April 1, 2023 totaled $1.7 million, a decrease from $10.9 million in the comparable prior year period.

Capital expenditures for the six

months ended July 1, 2023 totaled $4.9 million, a decrease from $14.3 million in the comparable prior year period.

In 2023, the Company

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

and current cash.

and current cash and cash equivalents.

Dividends of $101.4 million were

paid during the three months ended April 1, 2023.

This included $88.3 million paid in January 2023 for a special dividend declared by

the Board of Directors in November 2022.

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

quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount per share.

The Company’s

practice is to pay a dividend of approximately 40% of net income.

On April 28, 2023, the

Company’s Board of Directors authorized a dividend of 32¢ per share to shareholders of record on May 15, 2023, payable on

May 31, 2023.

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.

As of April 1, 2023, the Company

paid during the six months ended July 1, 2023.

This included $88.3 million paid in January 2023 for a $5.00 per share special dividend

declared by the Board of Directors in November 2022.

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

The quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount per share.

The Company’s practice is to pay a dividend of approximately 40% of net income.

On August 1, 2023, the Company’s

Board of Directors authorized a dividend of 36¢ per share to shareholders of record on August 15, 2023, payable on August 30, 2023.

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.

As of July 1, 2023, the Company

had $118.0 million of United States Treasury instruments which mature within one year.

1 unchanged sentence

money market fund that invests exclusively in United States Treasury instruments which mature within one year.

At April 1, 2023, the Company’s

At July 1, 2023, the Company’s

investment in this money market fund totaled $8.2 million.

The Company did not purchase any

shares of its common stock during the three months ended April 1, 2023.

As of April 1, 2023, $86.6 million remained authorized for future

shares of its common stock during the six months ended July 1, 2023.

As of July 1, 2023, $86.6 million remained authorized for future

stock repurchases.

2 unchanged sentences

The Company’s unsecured

$40 million credit facility, which expires on January 7, 2025, was unused at April 1, 2023.

$40 million credit facility, which expires on January 7, 2025, was unused at July 1, 2023.

Other Operational Matters

17 unchanged sentences

its deferred tax assets through tax deductions against future taxable income.

Impact of Covid-19

The global outbreak of the coronavirus

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

in March 2020.

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

on its business.

During the six month period ended July 1, 2023, the Company did not experience a significant adverse impact on its business

from COVID-19 or related government restrictions.

The Company cannot predict the extent to which its business, results of operations,

financial condition, or cash flows will ultimately be impacted by COVID-19.

Adjustments to Critical Accounting Policies

16 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 2. Management’s Discussion and Analysis