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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2019

Commission File No. 001-31552

 

American Outdoor Brands Corporation

(Exact name of registrant as specified in its charter)

 

 

Nevada

 

87-0543688

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2100 Roosevelt Avenue

Springfield, Massachusetts

 

01104

(Address of principal executive offices)

 

(Zip Code)

(800331-0852

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each Class

Trading Symbol

Name of exchange on which registered

Common Stock, par value $.001 per share

AOBC

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

  

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The registrant had 55,060,972 shares of common stock, par value $0.001, outstanding as of December 3, 2019.

 

 


AMERICAN OUTDOOR BRANDS CORPORATION

Quarterly Report on Form 10-Q

For the Three and Six Months Ended October 31, 2019 and 2018

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

  

 

 

Item 1. Financial Statements (Unaudited)

  

4

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

22

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

32

 

Item 4. Controls and Procedures

  

33

 

 

 

 

PART II - OTHER INFORMATION

  

 

 

Item 1. Legal Proceedings

  

34

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

Item 6. Exhibits

  

34

Signatures

  

36

EX-31.1

  

 

EX-31.2

  

 

EX-32.1

  

 

EX-32.2

  

 

 

Smith & Wesson®, S&W®, M&P®, M&P Shield®, Performance Center®, Bodyguard®, Governor®, SW22 Victory®, T/C ®, America’s Master Gunmaker ®, Compass®, Contender®, Dimension®, Encore®, Triumph®, Weather Shield®, Caldwell®, Delta Series®, Wheeler®, Tipton®, Frankford Arsenal®, Lockdown®, BOG-POD®, Golden Rod®, Mag Charger®, Hooyman®, Schrade®, Old Timer®, Uncle Henry®, Imperial®, Non-Typical Wildlife Solutions®, Crimson Trace®, Lasergrips®, Laserguard®, Rail Master®, Shockstop®, Laserlyte®, Key Gear®, U-Dig-It®, Bubba®, Bubba Blade®, One Cut and You’re Through®, Gemtech®, G-Core®, Halo®, Integra®, World Class Silencers®, LiNQ®, Stinky Bubba®, and Turkinator™ are some of the registered U.S. trademarks of our company or one of our subsidiaries. American Outdoor Brands CorporationSM, M2.0™, SDVE™, Thompson/Center Arms™, Impact!™, Strike™, Venture™, Defender Series™, Instinctive Activation™, Master Series™, UST™, Blast Jacket™, One™, The Professional’s Choice for Decades™, and World Class Ammunition™ are some of the unregistered trademarks of our company or one of our subsidiaries. This report also may contain trademarks and trade names of other companies.

 

 

 


Statement Regarding Forward-Looking Information

 

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “will,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding the impact, if any, of recently issued accounting standards on our consolidated financial statements; assessments that we make about determining segments and reporting units; the features of our outstanding debt; estimated amortization expense of intangible assets for future periods; the outcome of the lawsuits to which we are subject and their effect on us; the proposed spin-off, including the timing and purpose thereof and the expected restructuring charges, our belief that inventory levels, both internally and in the distribution channel, in excess of demand, may negatively impact future operating results; our belief that it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events,  and consumer tastes; our assessment of consumer demand and factors that stimulate demand for our products; the effect on our business of various factors, including terrorism and the level of political pressures on firearm laws and regulations; expected inventory levels for future periods; future investments for capital expenditures; future products and product developments; the features, quality, and performance of our products; the success of particular product or marketing programs; our market share and factors that affect our market share; and liquidity and anticipated cash needs and availability. All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements. A number of factors could cause actual results to differ materially from those indicated by the forward-looking statements. Such factors include, among other, economic, social, political, legislative, and regulatory factors; the potential for increased regulation of firearms and firearms-related products; actions of social activists that could have an adverse effect on our business; the impact of lawsuits; the demand for our products; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; our competitive environment; the supply, availability, and costs of raw materials and components; speculation surrounding fears of terrorism and crime; our anticipated growth and growth opportunities; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; our penetration rates in new and existing markets; our strategies; the completion of our proposed spin-off and the operations and performance of the two separate companies thereafter; our ability to maintain and enhance brand recognition and reputation; risks associated with the establishment of our new 632,000 square foot national logistics facility including the expected benefits; our ability to introduce new products; the success of new products; our ability to expand our markets; our ability to integrate acquired businesses in a successful manner; the general growth of our outdoor products and accessories business; the potential for cancellation of orders from our backlog; and other factors detailed from time to time in our reports filed with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2019, filed with the SEC on June 19, 2019.

 

 

 

 


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

 

As of:

 

 

 

October 31, 2019

 

 

April 30, 2019

 

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

43,846

 

 

$

41,015

 

Accounts receivable, net of allowance for doubtful accounts of $2,036 on

   October 31, 2019 and $1,899 on April 30, 2019

 

 

93,629

 

 

 

84,907

 

Inventories

 

 

201,213

 

 

 

163,770

 

Prepaid expenses and other current assets

 

 

8,904

 

 

 

6,528

 

Income tax receivable

 

 

5,468

 

 

 

2,464

 

Total current assets

 

 

353,060

 

 

 

298,684

 

Property, plant, and equipment, net

 

 

170,348

 

 

 

183,268

 

Intangibles, net

 

 

82,562

 

 

 

91,840

 

Goodwill

 

 

182,267

 

 

 

182,269

 

Other assets

 

 

20,559

 

 

 

10,728

 

 

 

$

808,796

 

 

$

766,789

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

36,102

 

 

$

35,584

 

Accrued expenses and deferred revenue

 

 

42,545

 

 

 

39,322

 

Accrued payroll and incentives

 

 

10,640

 

 

 

21,473

 

Accrued income taxes

 

 

265

 

 

 

175

 

Accrued profit sharing

 

 

1,198

 

 

 

2,830

 

Accrued warranty

 

 

4,475

 

 

 

5,599

 

Current portion of notes and loans payable

 

 

75,000

 

 

 

6,300

 

Total current liabilities

 

 

170,225

 

 

 

111,283

 

Deferred income taxes

 

 

9,640

 

 

 

9,776

 

Notes and loans payable, net of current portion

 

 

127,800

 

 

 

149,434

 

Finance lease payable, net of current portion

 

 

40,389

 

 

 

45,400

 

Other non-current liabilities

 

 

14,192

 

 

 

6,452

 

Total liabilities

 

 

362,246

 

 

 

322,345

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares

   issued or outstanding

 

 

 

 

 

 

Common stock, $.001 par value, 100,000,000 shares authorized, 73,226,141 issued

   and 55,059,279 shares outstanding on October 31, 2019 and 72,863,624 shares

   issued and 54,696,762 shares outstanding on April 30, 2019

 

 

73

 

 

 

73

 

Additional paid-in capital

 

 

266,582

 

 

 

263,180

 

Retained earnings

 

 

402,131

 

 

 

402,946

 

Accumulated other comprehensive income

 

 

139

 

 

 

620

 

Treasury stock, at cost (18,166,862 shares on October 31, 2019 and

   April 30, 2019)

 

 

(222,375

)

 

 

(222,375

)

Total stockholders’ equity

 

 

446,550

 

 

 

444,444

 

 

 

$

808,796

 

 

$

766,789

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS)

(Unaudited)

 

 

 

For the Three Months Ended October 31,

 

 

For the Six Months Ended October 31,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands, except per share data)

 

Net sales

 

$

154,388

 

 

$

161,703

 

 

$

278,057

 

 

$

300,536

 

Cost of sales

 

 

104,082

 

 

 

105,317

 

 

 

179,898

 

 

 

191,728

 

Gross profit

 

 

50,306

 

 

 

56,386

 

 

 

98,159

 

 

 

108,808

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

2,988

 

 

 

3,251

 

 

 

6,217

 

 

 

6,062

 

Selling, marketing, and distribution

 

 

19,352

 

 

 

15,291

 

 

 

36,125

 

 

 

26,906

 

General and administrative

 

 

23,082

 

 

 

26,518

 

 

 

49,791

 

 

 

51,039

 

Total operating expenses

 

 

45,422

 

 

 

45,060

 

 

 

92,133

 

 

 

84,007

 

Operating income

 

 

4,884

 

 

 

11,326

 

 

 

6,026

 

 

 

24,801

 

Other (expense)/income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income/(expense), net

 

 

86

 

 

 

8

 

 

 

91

 

 

 

(9

)

Interest expense, net

 

 

(3,039

)

 

 

(2,274

)

 

 

(5,666

)

 

 

(4,274

)

Total other (expense)/income, net

 

 

(2,953

)

 

 

(2,266

)

 

 

(5,575

)

 

 

(4,283

)

Income from operations before income taxes

 

 

1,931

 

 

 

9,060

 

 

 

451

 

 

 

20,518

 

Income tax expense

 

 

638

 

 

 

2,395

 

 

 

1,266

 

 

 

6,208

 

Net income/(loss)

 

 

1,293

 

 

 

6,665

 

 

 

(815

)

 

 

14,310

 

Comprehensive (loss)/income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized loss on interest rate swap

 

 

(198

)

 

 

(54

)

 

 

(618

)

 

 

(158

)

Other comprehensive loss, before income taxes

 

 

(198

)

 

 

(54

)

 

 

(618

)

 

 

(158

)

Income tax benefit on other comprehensive loss

 

 

45

 

 

 

14

 

 

 

137

 

 

 

41

 

Other comprehensive loss, net of tax

 

 

(153

)

 

 

(40

)

 

 

(481

)

 

 

(117

)

Comprehensive income/(loss):

 

$

1,140

 

 

$

6,625

 

 

$

(1,296

)

 

$

14,193

 

Net income/(loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

 

$

0.12

 

 

$

(0.01

)

 

$

0.26

 

Diluted

 

$

0.02

 

 

$

0.12

 

 

$

(0.01

)

 

$

0.26

 

Weighted average number of common shares

   outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

54,912

 

 

 

54,444

 

 

 

54,847

 

 

 

54,395

 

Diluted

 

 

55,424

 

 

 

55,107

 

 

 

54,847

 

 

 

55,047

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Stockholders’

 

(In thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income/(Loss)

 

 

Shares

 

 

Amount

 

 

Equity

 

Balance at July 31, 2018

 

 

72,551

 

 

$

73

 

 

$

255,189

 

 

$

392,181

 

 

$

1,612

 

 

 

18,167

 

 

$

(222,375

)

 

$

426,680

 

Proceeds from exercise of employee stock options

 

 

16

 

 

 

 

 

 

76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

76

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

1,962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,962

 

Shares issued under employee stock purchase plan

 

 

108

 

 

 

 

 

 

943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

943

 

Change in unrealized loss on interest rate swap, net of

   tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40

)

 

 

 

 

 

 

 

 

(40

)

Issuance of common stock under restricted stock unit awards, net of shares surrendered

 

 

31

 

 

 

 

 

 

(44

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

Net income

 

 

 

 

 

 

 

 

 

 

6,665

 

 

 

 

 

 

 

 

 

 

 

 

6,665

 

Balance at October 31, 2018

 

 

72,706

 

 

 

73

 

 

 

258,126

 

 

 

398,846

 

 

 

1,572

 

 

 

18,167

 

 

 

(222,375

)

 

 

436,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2018

 

 

72,434

 

 

 

72

 

 

 

253,616

 

 

 

389,146

 

 

 

1,689

 

 

 

18,167

 

 

 

(222,375

)

 

 

422,148

 

Proceeds from exercise of employee stock options

 

 

33

 

 

 

 

 

 

215

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

215

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,952

 

Shares issued under employee stock purchase plan

 

 

108

 

 

 

 

 

 

943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

943

 

Change in unrealized loss on interest rate swap, net of

   tax effect

 

 

 

 

 

 

 

 

 

 

 

(117

)

 

 

 

 

 

 

 

 

(117

)

Impact of adoption of accounting standard updates

 

 

 

 

 

 

 

 

(4,610

)

 

 

 

 

 

 

 

 

 

 

 

(4,610

)

Issuance of common stock under restricted stock unit awards, net of shares surrendered

 

 

131

 

 

 

1

 

 

 

(600

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(599

)

Net income

 

 

 

 

 

 

 

 

 

 

14,310

 

 

 

 

 

 

 

 

 

 

 

 

14,310

 

Balance at October 31, 2018

 

 

72,706

 

 

 

73

 

 

 

258,126

 

 

 

398,846

 

 

 

1,572

 

 

 

18,167

 

 

 

(222,375

)

 

 

436,242

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at July 31, 2019

 

 

72,988

 

 

 

73

 

 

 

264,230

 

 

 

400,838

 

 

 

292

 

 

 

18,167

 

 

 

(222,375

)

 

 

443,058

 

Proceeds from exercise of employee stock options

 

 

15

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,428

 

Shares issued under employee stock purchase plan

 

 

173

 

 

 

 

 

 

862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Change in unrealized loss on interest rate swap, net of tax effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153

)

 

 

 

 

 

 

 

 

(153

)

Issuance of common stock under restricted stock unit awards, net of shares surrendered

 

 

50

 

 

 

 

 

 

(12

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

Net income

 

 

 

 

 

 

 

 

 

 

1,293

 

 

 

 

 

 

 

 

 

 

 

 

1,293

 

Balance at October 31, 2019

 

 

73,226

 

 

 

73

 

 

 

266,582

 

 

 

402,131

 

 

 

139

 

 

 

18,167

 

 

 

(222,375

)

 

 

446,550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 30, 2019

 

 

72,864

 

 

 

73

 

 

 

263,180

 

 

 

402,946

 

 

 

620

 

 

 

18,167

 

 

 

(222,375

)

 

 

444,444

 

Proceeds from exercise of employee stock options

 

 

15

 

 

 

 

 

 

74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,016

 

Shares issued under employee stock purchase plan

 

 

173

 

 

 

 

 

 

862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

862

 

Change in unrealized loss on interest rate swap, net of tax effect

 

 

 

 

 

 

 

 

 

 

 

(481

)