What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-07 compared with 2023-11-01 · 88 added, 130 removed, 174 unchanged (56% of the section changed)

5 unchanged sentences

99% of sales are from firearms.

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.

Export sales accounted for approximately 5% and 7% of total sales for the three month periods ended March

30, 2024 and April 1, 2023, respectively.

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

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The estimated unit sell-through

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

of the Company’s products from the independent distributors to retailers increased 1% in the first quarter months of 2024 compared

to the prior year period.

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

decreased 7%.

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

trailing seven quarters follow:

For the same period, National Instant Criminal Background Check System (“NICS”) background checks

(as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 4%.

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)

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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,

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):

8 unchanged sentences

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 .

to plan production levels.

Consequently, the Company’s overall production in the first quarter of 2024 increased 3% from the fourth

quarter of 2023 .

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):

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

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Ending Unit Backlog

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

During the first quarter of 2024,

the Company’s finished goods inventory decreased by 30,900 units and distributor inventories of the Company’s products decreased

by 51,300 units.

Inventory unit data for the trailing seven quarters

Inventory unit data for the trailing five quarters

Company Inventory

10 unchanged sentences

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

September 30,

March 30, 2024

April 1, 2023

Net firearms sales

3 unchanged sentences

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 $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 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 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 nine months ended (dollars in millions):

September 30,

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

Centerfire Rifle Generation II represented $41.8 million or 32.0% of firearm sales in the three months ended March 30, 2024.

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

The decreased gross profit for

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 three months ended March 30, 2024 is attributable to the decrease in sales, a product mix shift toward products with relatively lower

margins that remain in relatively stronger demand, unfavorable deleveraging of fixed costs resulting from decreased production, and inflationary

cost increases in materials, commodities, services, wages, energy, fuel and transportation.

The decrease in gross margin for

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

the three months ended March 30, 2024 is attributable the aforementioned factors, partially offset by increased pricing.

Selling and General and Administrative Expenses

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

September 30,

Selling expenses

General and administrative expenses

Total operating 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 nine months ended (dollars in millions):

September 30,

March 30, 2024

April 1, 2023

Selling expenses

2 unchanged sentences

The increase in selling expenses

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

by decreased incentive compensation.

for the three months ended March 30, 2024 was primarily attributable to increases in shipping costs and increased advertising and promotional

The decrease in general, and administrative

expenses for the three months ended March 30, 2024 was primarily attributable to decreased professional service costs and decreased incentive

compensation, offset by accrued severance expense of $1.5 million related to a reduction in force that involved about 80 employees.

accrued severances are expected to be settled in cash and consist of one-time termination charges arising from severance obligations and

other customary employee benefit payments in connection with a reduction in force.

The reduction in force is expected

to result in approximately $9 million of annualized cash savings.

This action is part of the Company’s initiatives to reallocate

its resources and cost structure into prioritized areas that will drive long-term growth and improve margins.

As the Company focuses on

these goals, it will continue to pursue opportunities to consolidate functions and reduce or eliminate investment in areas of lower focus.

Other income data for the three

months ended (dollars in millions):

September 30,

The increase in other income for

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):

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

March 30, 2024

April 1, 2023

Other income for the three months

ended March 30, 2024 was essentially unchanged as increases in interest income were offset by decreased royalty and miscellaneous income.

The Company's 2024 and 2023 effective

1 unchanged sentence

nondeductibility of certain executive compensation.

The Company’s effective income tax rate was 8.1% and 18.9% for the three and

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.

The Company’s effective income tax rate was 21.7% for the three months ended

March 30, 2024, a decrease from 22.4% for the three months ended April 1, 2023.

Non-GAAP Financial Measures

22 unchanged sentences

EBITDA was $13.5 million for the

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.

three months ended March 30, 2024, a decrease of 43.2% from $23.8 million in the comparable prior year period.

Non-GAAP Reconciliation – EBITDA

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

March 30, 2024

April 1, 2023

Income tax expense

5 unchanged sentences

Liquidity and Capital Resources

At the end of the third quarter

At the end of the first quarter

of 2024, the Company’s cash and short-term investments totaled $115.3 million.

2 unchanged sentences

Cash provided by operating activities

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.

was $7.3 million for the three months ended March 30, 2024, compared to $5.3 million for the comparable prior year period.

in cash provided in the three months ended March 30, 2024 is primarily attributable to the decrease in inventory and the decrease in prepaid

expenses and other assets in the three months ended March 30, 2024, partially offset by the decrease in net income and the increase in

accounts receivable in the three months ended March 30, 2024.

Third parties supply the Company

6 unchanged sentences

Investing and Financing

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.

Capital expenditures for the three

months ended March 30, 2024 totaled $1.8 million, an increase from $1.7 million in the comparable prior year period.

In 2024, the Company

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

approximately $15 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 $4.1 million were

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

declared by the Board of Directors in November 2022.

paid during the three months ended March 30, 2024.

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

1 unchanged sentence

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

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 nine months ended September 30, 2023.

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

for future stock repurchases.

On April 26, 2024, the Company’s

Board of Directors authorized a dividend of 16¢ per share to shareholders of record on May 20, 2024, payable on June 7, 2024.

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 March 30, 2024, the Company

had $75.3 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 March 30, 2024, the

Company’s investment in this money market fund totaled $24.2 million.

During the three months ended

March 30, 2024 the Company purchased 75,024 shares of its common stock for $3.2 million in the open market.

The average price per share

purchased was $42.89.

These purchases were funded with cash on hand.

As of March 30, 2024, $71.5 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 September 30, 2023.

$40 million credit facility, which expires on January 7, 2025, was unused at March 30, 2024.

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 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

8 unchanged sentences

and earnings, the need for external financing for operations or capital expenditures, the results of pending litigation against the Company,

the impact of future firearms control and environmental legislation, the impact of COVID-19, and accounting estimates, any one or more

of which could cause actual results to differ materially from those projected.

Readers are cautioned not to place undue reliance on these

forward-looking statements, which speak only as of the date made.

The Company undertakes no obligation to publish revised forward-looking

statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of

subsequent unanticipated events.

the impact of future firearms control and environmental legislation, and accounting estimates, any one or more of which could cause actual

results to differ materially from those projected.

Readers are cautioned not to place undue reliance on these forward-looking statements,

which speak only as of the date made.

The Company undertakes no obligation to publish revised forward-looking statements to reflect events

or circumstances after the date such forward-looking statements are made or to reflect the occurrence of subsequent unanticipated events.

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