What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-01 compared with 2023-08-02 · 94 added, 92 removed, 210 unchanged (47% of the section changed)

5 unchanged sentences

99% of sales are from firearms.

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.

Export sales accounted for approximately 7% of total sales for the nine month periods ended September

30, 2023 and October 1, 2022.

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 market.

The Company also manufactures

7 unchanged sentences

The estimated unit sell-through

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.

of the Company’s products from the independent distributors to retailers decreased 8% in the first nine months of 2023 compared

to the prior year period.

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

1 unchanged sentence

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

trailing six quarters follow:

trailing seven quarters follow:

Estimated Units Sold from Distributors to Retailers (1)

23 unchanged sentences

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,

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):

6 unchanged sentences

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.

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

of 2023 decreased by 19% from the first half 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 nine months of 2023 decreased

by 18% from the first nine months of 2022 .

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):

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 2023,

During the third quarter of 2023,

the Company’s finished goods inventory increased by 16,100 units and distributor inventories of the Company’s products increased

by 1,000 units.

Inventory unit data for the trailing six quarters follows:

Inventory unit data for the trailing seven quarters

Company Inventory

10 unchanged sentences

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

September 30,

Net firearms sales

4 unchanged sentences

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.

pistol, represented $27.2 million or 22.9% of firearm sales in the three months ended September 30, 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 three months ended September 30, 2023 is attributable to the decrease in sales, unfavorable deleveraging of fixed costs resulting

from decreased production, increased promotional costs, inflationary cost increases in materials, commodities, services, wages, energy,

fuel and transportation, and a product mix shift toward products with relatively lower margins that remain in relatively stronger demand.

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.

the three months ended September 30, 2023 is attributable the aforementioned factors, partially offset by increased pricing.

Net sales, cost of products sold,

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

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

September 30,

Net firearms sales

3 unchanged sentences

The decrease in total consolidated

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.

net sales and net firearms sales for the three and nine months ended September 30, 2023 is attributable to decreased consumer demand for

firearms, as evidenced by the adjusted NICS checks.

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 $90.5 million or 22.7% of firearm sales in the first nine months of 2023.

New product sales include only major new products

that were introduced in the past two years.

The decreased gross profit for

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 nine months ended September 30, 2023 is attributable to the decrease in sales, inflationary cost increases in materials, commodities,

services, wages, energy, fuel and transportation, unfavorable deleveraging of fixed costs resulting from decreased production, a product

mix shift toward products with relatively lower margins that remain in relatively stronger demand, and increased promotional costs.

The decrease in gross margin for

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

the nine months ended September 30, 2023 is attributable to the aforementioned factors, partially offset by increased pricing.

Selling and General and Administrative Expenses

1 unchanged sentence

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

September 30,

Selling expenses

1 unchanged sentence

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.

The decrease in selling expenses

for the three months ended September 30, 2023 was primarily attributable to the decreased shipping costs as a result of the decrease in

sales for the period, partially offset by increased advertising and promotional activity.

The decrease in general, and administrative

expenses for the three months ended September 30, 2023 was primarily attributable to decreased professional service costs and decreased

incentive compensation.

Selling and general and administrative

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

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

September 30,

Selling expenses

2 unchanged sentences

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,

for the nine months ended September 30, 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.

expenses for the nine months ended September 30, 2023 was primarily attributable to increased professional service costs, partially offset

by decreased incentive compensation.

Other income data for the three

months ended (dollars in millions):

September 30,

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

the three months ended September 30, 2023 was the result of increases in interest income, partially offset by decreased royalty and miscellaneous

Other income data for the nine

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.

September 30,

The increase in other income for

the nine months ended September 30, 2023 was the result of increases in interest income, partially offset by decreased royalty and miscellaneous

The Company's 2023 and 2022 effective

2 unchanged sentences

The Company’s effective income tax rate was 8.1% and 18.9% 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.

nine months ended September 30, 2023, respectively.

The Company’s effective income tax rate was 12.4% and 19.9% for the three and

nine months ended October 1, 2022, respectively.

Non-GAAP Financial Measures

22 unchanged sentences

EBITDA was $13.3 million for the

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

three months ended September 30, 2023, a decrease of 50.8% from $27.0 million in the comparable prior year period.

For the nine months ended September

30, 2023 EBITDA was $62.4 million, a decrease of 41.1% from $106.0 million in the comparable prior year period.

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Income tax expense

5 unchanged sentences

Liquidity and Capital Resources

At the end of the second quarter

At the end of the third quarter

of 2023, the Company’s cash and short-term investments totaled $120.0 million.

2 unchanged sentences

Cash provided by operating activities

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.

was $17.3 million for the nine months ended September 30, 2023, compared to $50.3 million for the comparable prior year period.

in cash provided in the nine months ended September 30, 2023 is primarily attributable to the decrease in net income and the increase

in prepaid expenses and other assets in the nine months ended September 30, 2023, partially offset by the decrease in accounts receivable

in the nine months ended September 30, 2023.

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 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 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

expects capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities to total

approximately $20 million.

Due to market conditions and business circumstances, actual capital expenditures could vary significantly from

the projected amount.

Capital expenditures for the nine

months ended September 30, 2023 totaled $11.6 million, a decrease from $17.2 million in the comparable prior year period.

Company expects capital expenditures related to new product introductions and upgrades to our manufacturing equipment and facilities to

total approximately $20 million.

Due to market conditions and business circumstances, actual capital expenditures could vary significantly

from the projected amount.

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

1 unchanged sentence

Dividends of $107.8 million were

paid during the six months ended July 1, 2023.

paid during the nine months ended September 30, 2023.

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

3 unchanged sentences

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.

The Company also invests available cash in a bank-managed

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

At July 1, 2023, the Company’s

investment in this money market fund totaled $8.2 million.

On October 27, 2023, the Company’s

Board of Directors authorized a dividend of 17¢ per share to shareholders of record on November 15, 2023, payable on November 29,

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 September 30, 2023,

the Company had $88.1 million of United States Treasury instruments which mature within one year.

The Company also invests available

cash in a bank-managed money market fund that invests exclusively in United States Treasury instruments which mature within one

At September 30, 2023, the Company’s investment in this money market fund totaled $18.4 million.

The Company did not purchase any

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.

shares of its common stock during the nine months ended September 30, 2023.

As of September 30, 2023, $86.6 million remained authorized

for future stock repurchases.

Based on its unencumbered assets,

1 unchanged sentence

The Company’s unsecured

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

$40 million credit facility, which expires on January 7, 2025, was unused at September 30, 2023.

Other Operational Matters

23 unchanged sentences

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.

During the nine month period ended September 30, 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