UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
Commission File No.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each Class |
Trading Symbol |
Name of exchange on which registered |
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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 ☐
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).
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.
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not 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
The registrant had
AMERICAN OUTDOOR BRANDS, INC.
Quarterly Report on Form 10-Q
For the Three and Six Months Ended October 31, 2020 and 2019
TABLE OF CONTENTS
1st Response®, 24/7®, Accumax®, Ammo Vault®, Black Ops®, BOG®, Boneyard®, Bubba®, Caldwell®, Deadshot®, Deathgrip®, Delta Series®, Delta Force®, E-MAX®, Extreme Ops®, F.A.T. Wrench®, Fieldpod®, Flexware®, Frankford Arsenal®, Frontier®, Galaxy®, Golden Rod®, Great Divide®, Grip A Legend®, Gun Butler®, Homeland Security®, Hooyman®, H.R.T.®, Hydrosled®, Imperial®, Intellidropper®, Key Gear®, Jolt®, Lead Sled®, Lockdown®, M-Press®, M.A,G.I.C.®, Mag Charger®, Magnum Rifle Gong®, Night Guard®, Night Terror®, Nitro®, Non-Typical Wildlife Solutions®, Old Timer®, One Cut and You’re Through®, Orange Peel®, Outback®, Pico Light®, S.W.A.T.®, Safe-T-Lock®, Schrade®, Schrade Tough®, Search & Rescue®, Sharpfinger®, Special Ops®, Special Tactical®, Spright®, Stable Table®, Sure-Lock®, Switcheroo®, Switch-it®, Tack Driver®, Tipton®, U-Dig-It®, Ultra Glide®, Uncle Henry®, Wheeler®, XLA Bipod®, ®, Zinx®, 10,000 Rounds in Your Pocket®, Color Guard®, Complete Focus®, Crimson Trace®, Kryptonyte®, Lasergrips®, Laserguard®, Laserlyte®, Lightguard®, LINQ®, Quick Tyme®, Rail Master®, Reaction Tyme®, Rumble Tyme®, Score Tyme®, Shockstop®, Steel Tyme®, Trigger Tyme®, and Triple Tyme® are some of the registered U.S. trademarks of our company or one of our subsidiaries. Adrenaline™, Bloodmoon™, Built for Generations™, Clandestine™, Dominion™, Don’t Settle for Average. Demand Perfection™, Duro™, Engineered for the Unknown™, Field General™, Flex Change™, It’s not protected unless it’s on LOCKDOWN™, Learn and Live™, Lockdown Puck™, Magnum Magnet™, MEAT!™, MEAT Your Maker!™, Officer™, On the Edge of Adventure™, Pile Driver™, Stinger™, Survival Born, Adventure Ready™, Secure Your Lifestyle™, The Ultimate Lifestyle™, Triple Play™, Tunnel Vision™, Turkinator™, Unmatched Accuracy at the Bench and in the Field™, UST™, Velociradar™, Water to Plate™, Your Land. Your Legacy™, Accu-Guard™, Accu-Grips™, Dart Tyme™, Defender Series™, Instant Activation™, Instinctive Activation™, Lasersaddle™, Master Series™, and Popper Tyme™ are some of the unregistered trademarks of our company or one of our subsidiaries. Trademarks licensed to us by Smith & Wesson Brands, Inc. in connection with the manufacture, distribution, marketing, advertising, promotion, merchandising, shipping, and sale of certain licensed accessory product categories include Gemtech®, M&P®, Performance Center®, Smith & Wesson®, T/C®, and Thompson/Center Arms™, among others. 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 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, or the Exchange Act. 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,” “suggests,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “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:
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our expectation to incur costs to establish certain standalone functions, information technology systems, and other one-time costs; |
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the performance of certain functions using our own resources or outsourced services going forward; |
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the impact on profitability and operating cash flows, resulting from recurring standalone costs possibly differing materially from historical allocations; |
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our expectation that the unrecognized compensation expense related to unvested RSUs and PSUs will be recognized over a weighted average remaining contractual term of two years; |
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our intention to vigorously defend ourselves in the lawsuits to which we are subject; |
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the possibility that an unfavorable outcome of litigation or prolonged litigation could harm our business; |
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in the future, our disclosure of an estimate of the possible loss or range of loss, if such estimate could be made, or our disclosure that an estimate could not be made, should we determine that a loss (or an additional loss in excess of our accrual) is at least reasonably possible and material; |
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our belief that we have provided adequate accruals for defense costs; |
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the combined and consolidated financial statements may not be indicative of our future performance; |
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the changes we expect to experience in the future as a result of the separation from Smith & Wesson Brands, Inc., or SWBI, including changes in the financing, cash management, operations, cost structure, and personnel needs of our business; |
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the possibility that worsening of conditions or increased fears of a pandemic could have a renewed and prolonged effect on manufacturing or employment in China, travel to and from China, or other restrictions on imports – all of which could have a longer-term effect on our sales and profitability in future periods, with regard to concerns surrounding COVID-19; |
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our future ability to fund our operating needs; |
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our belief that we will be able to meet our short-term liquidity needs, based upon our history of generating strong cash flows; |
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our belief we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances, and available borrowings through the issuance of third-party debt; |
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our expectation that our separation from SWBI may increase the overall cost of debt funding and decrease the overall debt capacity and commercial credit available to us; |
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our future capital requirements dependency on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the capital needed to operate as an independent publicly traded company, any acquisitions or strategic investments that we may determine to make, and our ability to navigate through the many negative business impacts from the COVID-19 pandemic; |
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our expectation to utilize our cash flows to continue to invest in our brands, including research and development of new product initiatives, talent and capabilities, and growth strategies, including any potential acquisitions, and to repay any indebtedness we may incur over time; and |
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our expectation that our inventory will decline in our second and third fiscal quarters due to the holiday shopping season, which is consistent with our seasonal inventory trends. |
A number of factors could cause our actual results to differ materially from those indicated by the forward-looking statements. Such factors include, among others, the following:
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the effects of the coronavirus, or COVID-19, pandemic, including potential disruptions in our ability to source the raw materials necessary for the production of our products, disruptions and delays in the manufacture of our products, and difficulties encountered by retailers and other components of the distribution channel for our products; |
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lower levels of consumer spending; |
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our ability to introduce new products that are successful in the marketplace; |
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interruptions of our arrangements with third-party contract manufacturers that disrupt our ability to fill our customers’ orders; |
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increases in costs or decreases in availability of finished products, product components, and raw materials; |
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the failure to maintain or strengthen our brand recognition and reputation; |
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the ability to forecast demand for our products accurately; |
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our ability to continue to expand our e-commerce business; |
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our ability to compete in a highly competitive market; |
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our dependence on large customers; |
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an increase on emphasis of private label products by our customers; |
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pricing pressures by our customers; |
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our ability to collect our accounts receivable; |
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the potential for product recalls, product liability, and other claims or lawsuits against us; |
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our ability to protect our intellectual property; |
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inventory levels, both internally and in the distribution channel, in excess of demand; |
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our ability to identify acquisition candidates, to complete acquisitions of potential acquisition candidates, to integrate acquired businesses with our business, to achieve success with acquired companies, and to realize the benefits of acquisitions in a manner consistent with our expectations; |
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the performance and security of our information systems; |
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the risk of complying with any applicable foreign laws or regulations and the effect of increased protective tariffs; |
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economic, social, political, legislative, and regulatory factors; |
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the potential for increased regulation of firearms and firearms- related products; |
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the effect of political pressures on firearm laws and regulations; |
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the potential impact on our business and operations of the outcome of the 2020 U.S. Presidential, Congressional, state, and local elections and the policies that may be implemented as a result thereof; |
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changes in the makeup of the U.S. Supreme Court; |
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the failure to realize the anticipated benefits of being a separate, public company following the separation from SWBI or to achieve the benefits anticipated from our new principal facility; |
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future investments for capital expenditures, liquidity and anticipated cash needs and availability; |
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the potential for impairment charges; |
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estimated amortization expense of intangible assets for future periods; |
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actions of social activists that could have an adverse effect on our business; |
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disruptions caused by social unrest, including related protests or disturbances; |
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our assessment of factors relating to the valuation of assets acquired and liabilities assumed in acquisitions, the timing for such evaluations, and the potential adjustment in such evaluations; and |
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other factors detailed from time to time in our reports filed with the Securities and Exchange Commission, or the SEC, including our Information Statement filed as Exhibit 99.1 to our Current Report on Form 8-K, filed with the SEC on August 4, 2020. |
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.
We are subject to the informational requirements of the Exchange Act, and we file or furnish reports, proxy statements, and other information with the SEC. Such reports and other information we file with the SEC are available free of charge at https://ir.aob.com/financial-information/sec-filings as soon as practicable after such reports are available on the SEC’s website at www.sec.gov. The SEC’s website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
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As of: |
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October 31, 2020 (Unaudited) |
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April 30, 2020 |
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(In thousands, except per share data) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for credit losses of $ and $ |
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Inventories |
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Prepaid expenses and other current assets |
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Income tax receivable |
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— |
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Total current assets |
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Property, plant, and equipment, net |
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Intangible assets, net |
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Goodwill |
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Right-of-use assets |
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Deferred income taxes |
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Other assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Accrued payroll and incentives |
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Accrued income taxes |
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— |
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Lease liabilities, current |
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Accrued profit sharing |
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Total current liabilities |
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Lease liabilities, net of current portion |
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Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies (Note 11) |
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Equity: |
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Preferred stock, $ issued or outstanding |
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Common stock, $ issued and outstanding on October 31, 2020 |
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— |
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Former net parent company investment |
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— |
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Additional paid in capital |
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— |
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Retained earnings |
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— |
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Total equity |
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$ |
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$ |
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See accompanying notes to unaudited consolidated and combined financial statements.
5
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)/INCOME
(Unaudited)
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For the Three Months Ended October 31, |
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For the Six Months Ended October 31, |
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2020 |
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2019 |
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2020 |
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2019 |
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(In thousands, except per share data) |
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Net sales (including $ related party sales for the one month and four months of our fiscal year 2021, respectively, prior to the Separation and $ related party sales for the three and six months ended October 31, 2019, respectively) |
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$ |
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$ |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, marketing, and distribution |
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General and administrative |
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Total operating expenses |
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Operating income/(loss) |
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Other (expense)/income, net: |
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Other income/(expense), net |
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Interest income, net |
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Total other (expense)/income, net |
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Income/(loss) from operations before income taxes |
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Income tax expense/(benefit) |
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Net income/(loss)/comprehensive income/(loss) |
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$ |
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$ |
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Net income/(loss) per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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See accompanying notes to unaudited consolidated and combined financial statements.
6
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY
(Unaudited)
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Common Stock |
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Former Net Parent |
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Additional |
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Retained |
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Total |
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(In thousands) |
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Shares |
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Amount |
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Company Investment |
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Paid-In Capital |
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Earnings |
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Equity |
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Balance at April 30, 2019 |
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— |
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$ |
— |
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$ |
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$ |
— |
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$ |
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$ |
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Net loss |
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— |
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— |
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( |
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— |
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— |
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( |
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Net transfers from former Parent |
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— |
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— |
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— |
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— |
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Balance at July 31, 2019 |
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— |
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$ |
— |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Net income |
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— |
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— |
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( |
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— |
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— |
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Net transfers from former Parent |
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— |
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— |
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— |
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— |
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Balance at October 31, 2019 |
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— |
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$ |
— |
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$ |
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$ |
— |
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$ |
— |
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$ |
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Balance at April 30, 2020 |
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— |
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— |
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— |
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— |
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|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Net transfers from former Parent |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance at July 31, 2020 |
|
|
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Issuance of common stock under restricted stock unit awards |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net transfers from former Parent |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of common stock and reclassification of former net parent company investment |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Balance at October 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See accompanying notes to unaudited consolidated and combined financial statements.
7
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
For the Six Months Ended October 31, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income/(loss) |
|
$ |
|
|
|
$ |
( |
) |
|
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Provision for losses on notes and accounts receivable |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
( |
) |
|
|
— |
|
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
Inventories |
|
|
( |
) |
|
|
( |
) |
|
Prepaid expenses and other current assets |
|
|
( |
) |
|
|
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
|
|
|
|
( |
) |
|
Accrued payroll and incentives |
|
|
|
|
|
|
( |
) |
|
Right of use assets |
|
|
|
|
|
|
|
|
|
Accrued profit sharing |
|
|
|
|
|
|
( |
) |
|
Accrued expenses |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
( |
) |
|
|
( |
) |
|
Lease liabilities |
|
|
( |
) |
|
|
( |
) |
|
Other non-current liabilities |
|
|
|
|
|
|
( |
) |
|
Net cash provided by/(used in) operating activities |
|
|
|
|
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Payments to acquire patents and software |
|
|
( |
) |
|
|
( |
) |
|
Payments to acquire property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Net transfers from former Parent |
|
|
|
|
|
|
|
|
|
Cash paid for debt issuance costs |
|
|
( |
) |
|
|
— |
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to unaudited consolidated and combined financial statements.
8
AMERICAN OUTDOOR BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
Supplemental Disclosure of Non-cash Investing and Financing Activities:
|
|
|
For the Six Months Ended October 31, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
|
|
(In thousands) |
|
|||||
|
Purchases of property and equipment included in accounts payable |
|
$ |
|
|
|
$ |
— |
|
|
Non-cash transfers to/from former parent |
|
|
|
|
|
|
— |
|
|
Changes in right of use assets for operating lease obligations |
|
|
|
|
|
|
|
|
|
Changes in lease liabilities for operating lease obligations |
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated and combined financial statements.
9
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended October 31, 2020 and 2019
(1) Background, Description of Business, and Basis of Presentation:
Background
On November 13, 2019, Smith & Wesson Brands, Inc., or SWBI, announced that it was proceeding with a plan to spin-off its outdoor products and accessories business, or the Separation, to our company, American Outdoor Brands, Inc., a newly formed wholly owned subsidiary formed in anticipation of the Separation (our “company,” “we,” “us,” or “our”), resulting in two distinct, publicly traded companies.
On August 24, 2020, SWBI completed the Separation through a pro-rata distribution, or the Distribution, of all the outstanding shares of our common stock to the stockholders of record of SWBI as of the close of business on August 10, 2020, the record date for the Distribution, or the Record Date. Each SWBI stockholder of record received share of our common stock, $
In connection with the Separation, we entered into several agreements with SWBI that govern the relationship of the parties following the Separation, including a Separation and Distribution Agreement, a Tax Matters Agreement, a Transition Services Agreement, a Trademark License Agreement, and an Employee Matters Agreement. Under the terms of the Transition Services Agreement, SWBI and we have agreed to provide each other certain transitional services, including information technology, information management, and other limited human resources, legal, compliance, and finance and accounting related services for a certain period following the Separation. We have also entered into certain commercial arrangements with SWBI. Expense reimbursements under these agreements are recorded within cost of goods sold or operating expenses, based on the nature of the arrangements.
Description of Business
We are a leading provider of outdoor products and accessories encompassing hunting, fishing, camping, shooting, and personal security and defense products for rugged outdoor enthusiasts. We conceive, design, produce or source, and sell products and accessories, including shooting supplies, rests, vaults, and other related accessories; premium sportsman knives and tools for fishing and hunting; land management tools for hunting preparedness; harvesting products for post-hunt or post-fishing activities; electro-optical devices, including hunting optics, firearm aiming devices, flashlights, and laser grips; reloading, gunsmithing, and firearm cleaning supplies; and survival, camping, and emergency preparedness products. We develop and market our products at our facility in Columbia, Missouri and contract for the manufacture and assembly of most of our products with third-parties located in Asia. We also manufacture some of our electro-optics products in our facility in Wilsonville, Oregon.
We focus on our brands and the establishment of product categories in which we believe our brands will resonate strongly with the activities and passions of consumers and enable us to capture an increasing share of our overall addressable markets. Our owned brands include Caldwell, Wheeler, Tipton, Frankford Arsenal, Hooyman, BOG, MEAT!, Uncle Henry, Old Timer, Imperial, Crimson Trace, LaserLyte, Lockdown, UST, BUBBA, and Schrade, and we license for use in association with certain products we sell additional brands, including M&P, Smith & Wesson, Performance Center by Smith & Wesson, and Thompson/Center Arms. In focusing on the growth of our brands, we organize our creative, product development, sourcing, and e-commerce teams into
10
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended October 31, 2020 and 2019
Our Marksman brands address product needs arising from consumer activities that take place primarily at the shooting range and where firearms are cleaned, maintained, and worked on. Our Defender brands include products that help consumers aim their firearms more accurately, including situations that require self-defense, and products that help secure, store, and maintain connectivity to those possessions that some consumers would consider to be high value or high consequence. Our Harvester brands focus on the activities hunters typically engage in, including hunting preparation, the hunt itself, and the activities that follow a hunt, such as meat processing. Our Adventurer brands include products that help enhance consumers’ fishing and camping experiences.
Basis of Presentation – Unaudited Consolidated Financial Statements
Our financial statements for the periods through the Separation date of August 24, 2020 are combined financial statements prepared on a “carve out” basis as discussed below. Our financial statements for the period from August 24, 2020 through October 31, 2020 are consolidated financial statements based on the reported results of American Outdoor Brands, Inc. as a standalone company. Accordingly, the second quarter of fiscal 2021 included consolidated and combined financial statements, while all prior periods included combined financial statements. These financial statements have been prepared in accordance with the generally accepted accounting principles for interim financial information and Article 10 of Regulation S-X. The Combined Balance Sheet at April 30, 2020 was derived from audited financial statements.
The consolidated and combined financial statements at October 31, 2020 and for the three and six months ended October 31, 2020 and 2019 are unaudited, but in our opinion include all normal recurring adjustments necessary for a fair statement of the results for the interim periods. The results reported in these consolidated and combined financial statements should not necessarily be taken as indicative of results that may be expected for the entire year. The financial information included herein should be read in conjunction with the financial statements and notes in our registration statement on Form 10 (File No. 001-39366), initially filed with the Securities and Exchange Commission, or SEC, on July 2, 2020, as amended by Amendment No. 1 filed with the SEC on July 13, 2020, or the Form 10.
Basis of Presentation –Prior to the Separation
Prior to the Separation, the combined financial statements include certain assets and liabilities that have historically been held by SWBI and various of its subsidiaries, but are specifically identifiable to or otherwise attributable to the outdoor products and accessories business. Our combined statements of operations and comprehensive income/(loss), prior to the Separation, also include costs for certain pre-Separation centralized functions and programs provided and administered by SWBI that have been charged directly to SWBI businesses, including us. These centralized functions and programs include information technology, human resources, accounting, legal, and insurance. These costs were included in general and administrative expenses in the combined statements of operations and comprehensive income/(loss).
In addition, for purposes of preparing the combined financial statements, prior to the Separation, on a “carve-out” basis, a portion of SWBI’s total corporate expenses were allocated to us. These expense allocations include the cost of corporate functions and resources provided by SWBI, including executive management, finance, accounting, legal, human resources, internal audit, and the related benefit costs associated with such functions, such as stock-based compensation, and the cost of the SWBI Springfield, Massachusetts corporate headquarters. In fiscal 2020, SWBI began operating a new distribution facility in Columbia, Missouri, which included shared distribution expenses between SWBI and us. In addition to the portion of SWBI corporate expenses allocated to us prior to the Separation, a portion of SWBI total distribution expenses were allocated to us. These expense allocations include selling, distribution, inventory management, warehouse, and fulfillment services provided by SWBI and the related benefit costs associated with such functions, such as stock-based compensation and the cost of the SWBI Columbia, Missouri distribution facility. For the period prior to the Separation in fiscal 2021, we were allocated $
11
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended October 31, 2020 and 2019
Prior to the Separation, costs were allocated to us based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional net sales, employee headcount, delivery units, or square footage, as applicable. We consider the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or the benefit received by, us during the periods presented. However, the allocations may not reflect the expenses we would have incurred if we had been a standalone company for the periods presented prior to the Separation. Actual costs that may have been incurred if we had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. Going forward, we may perform these functions using our own resources or outsourced services. For a period following the Separation, however, some of these functions will continue to be provided by SWBI under a Transition Services Agreement. Additionally, we will provide some services to SWBI under such Transition Services Agreement. We also entered into certain commercial arrangements with SWBI in connection with the Separation.
Prior to the Separation, SWBI utilized a centralized approach to cash management and financing its operations. The cash and cash equivalents held by SWBI at the corporate level were not specifically identifiable to us and therefore have not been reflected in our combined balance sheet. Cash transfers between us and SWBI were accounted for through former parent company investment. Cash and cash equivalents in the pre-Separation combined balance sheet represent cash and cash equivalents held by legal entities that were transferred to us or amounts otherwise attributable to us. The combined financial statements include certain assets and liabilities that have historically been held at the SWBI corporate level, but are specifically identifiable or other attributable to us.
SWBI incurred debt and related debt issuance costs with respect to the acquisitions of the carved-out businesses. However, such debt has been refinanced since the consummation of these acquisitions, and the proceeds of such refinancing have been utilized for retirement of original debt obligations and the funding of other SWBI expenditures. As a result, the SWBI third-party long-term debt and the related interest expense have not been allocated to us for any of the periods presented as we were not the legal obligor of such debt.
Subsequent to the completion of the Separation, we incurred costs to establish certain standalone functions, information technology systems, and other one-time costs. Recurring standalone costs include accounting, financial reporting, tax, regulatory compliance, corporate governance, treasury, legal, and investor relations functions, as well as the annual expenses associated with running an independent, publicly traded company, including listing fees, board of director fees, and external audit costs. Recurring standalone costs may differ materially from historical allocations, which may have an impact on profitability and operating cash flows.
All intracompany transactions have been eliminated. All transactions between us and SWBI have been included in these consolidated and combined financial statements. The aggregate net effect of such transactions that are not historically settled in cash has been reflected in the consolidated and combined balance sheet as parent company investment and in the consolidated and combined statements of cash flows as net transfers to and from SWBI.
Reclassification
We have adjusted the accompanying combined balance sheet as of April 30, 2020 for an immaterial correction of an error to appropriately present deferred income taxes, in the amount of $
Fiscal Year
We operate and report using a fiscal year ending on April 30 of each year.
12
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended October 31, 2020 and 2019
Revenue Recognition
We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU 2016-10, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018. Performance obligations are satisfied and revenue is recognized when title has transferred to the customer, which is generally upon shipment, but could be delayed until the receipt of customer acceptance.
In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs under which customers are entitled to receive free goods based upon their purchase of our products, which we have identified as a material right. The fulfillment of these free goods is our responsibility. In such instances, we allocate the transaction price of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the products included in the promotional program, including the free goods. We recognize revenue related to the material right proportionally as each performance obligation is satisfied. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.
We generally sell our products free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from
We sponsor direct to consumer customer loyalty programs in which customers earn rewards from qualifying purchases or activities. We defer revenue for a portion of the transaction price from product sales to customers that earn loyalty points. We recognize revenue upon shipment of the products associated with the loyalty points and record an offsetting reserve utilizing a breakage factor based on historical redemption.
Net sales reflects adjustments for estimated allowances for trade terms, sales incentive programs, discounts, markdowns, chargebacks, and returns. These allowances are estimated based on evaluations of specific product and customer circumstances, historical and anticipated trends, and current economic conditions.
Concentration of credit risk
Financial instruments that potentially subject us to concentration of credit risk consist principally of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents in overnight U.S. government securities. Concentrations of credit risk with respect to trade receivables are limited by the large number of customers comprising our customer base and their geographic and business dispersion. We perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral.
For the three and six months ended October 31, 2020,
Disaggregation of revenue
The following table sets forth certain information regarding trade channel net sales for the three months ended October 31, 2020 and 2019 (dollars in thousands):
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
e-commerce channels |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
Traditional channels |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
Total net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
13
AMERICAN OUTDOORS BRANDS, INC. AND SUBSIDIARIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the Three and Six Months Ended October 31, 2020 and 2019
Our e-commerce channels include net sales from customers that do not traditionally operate a physical brick-and-mortar store, but generate the majority of their revenue from consumer purchases from their retail websites. Our e-commerce channels also include our direct-to-consumer sales. Our traditional channels include customers that primarily operate out of physical brick-and-mortar stores and generate the large majority of revenue from consumer purchases in their brick-and-mortar locations.
We sell our products worldwide.
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
Domestic net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
International net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
Total net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
The following table sets forth certain information regarding trade channel net sales for the six months ended October 31, 2020 and 2019 (dollars in thousands):
|
|
2020 |
|
|
2019 |
|
|
$ Change |
|
|
% Change |
|
||||
|
e-commerce channels |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|