What changed in SMITH & WESSON BRANDS, INC.'s 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of SMITH & WESSON BRANDS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.
+103 added−94 removedSource: 10-K (2023-06-22) vs 10-K (2022-06-23)
Top changes in SMITH & WESSON BRANDS, INC.'s 2023 10-K
103 paragraphs added · 94 removed · 67 edited across 2 sections
- Item 7. Management's Discussion & Analysis+96 / −81 · 61 edited
- Item 5. Market for Registrant's Common Equity+7 / −13 · 6 edited
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
6 edited+1 added−7 removed2 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
6 edited+1 added−7 removed2 unchanged
2022 filing
2023 filing
Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans For equity compensation plan information, refer to Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters) in Part III of this Annual Report on Form 10-K. 34 Performance Graph The following line graph compares cumulative total stockholder returns for the five years ended April 30, 2022 for (i) our common stock; (ii) the Russell 2000 Index; (iii) the S&P Composite 1500 Leisure Products Index (S&P 1500 Leisure Products on the graph below, our new peer group); and (iv) a peer group consisting of Sturm, Ruger & Company, Inc., Vista Outdoor, Inc., and National Presto Industries, Inc., (Old Peer Group on the graph below).
Biggest changeSecurities Authorized for Issuance under Equity Compensation Plans For equity compensation plan information, refer to Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters) in Part III of this Annual Report on Form 10-K. 34 Performance Graph The following line graph compares cumulative total stockholder returns for the five years ended April 30, 2023 for (i) our common stock, (ii) the Russell 2000 Index, and (iii) the S&P Composite 1500 Leisure Products Index (S&P 1500 Leisure Products on the graph below).
A substantially greater number of holders of common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions. Dividend Policy SWBI has paid dividends on a quarterly basis since the Separation. Quarterly dividends, when declared, are paid approximately three weeks after earnings are announced.
A substantially greater number of holders of common stock are “street name” or beneficial holders, whose shares are held of record by banks, brokers, and other financial institutions. Dividend Policy SWBI has paid dividends on a quarterly basis since August 2020. Quarterly dividends, when declared, are paid approximately three weeks after earnings are announced.
The shares of common stock have no preemptive or conversion rights, no redemption or sinking fund provisions, are not liable for further call or assessment, and are not entitled to cumulative voting rights. Holders On June 21, 2022, there were 866 record holders of our common stock.
The shares of common stock have no preemptive or conversion rights, no redemption or sinking fund provisions, are not liable for further call or assessment, and are not entitled to cumulative voting rights. Holders On June 21, 2023, there were 885 record holders of our common stock.
Payment of any cash dividends depends on our financial condition, operating results, and capital requirements as well as other factors deemed relevant by our board of directors. We paid dividends totaling $15.0 and $8.2 million during fiscal 2022 and 2021, respectively.
Payment of any cash dividends depends on our financial condition, operating results, and capital requirements as well as other factors deemed relevant by our board of directors. We paid dividends totaling $18.3 million and $15.0 million during fiscal 2023 and 2022, respectively.
The performance graph above shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section.
Fiscal year ending April 30. The performance graph above shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section.
The performance shown is not necessarily indicative of future performance. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* Among Smith & Wesson Brands, Inc., The Russell 2000 Index, And Peer Group * $100 invested on April 30, 2017 in stock or index — including reinvestment of dividends. Fiscal year ending April 30.
The graph assumes an investment of $100 on April 30, 2018, with dividends reinvested. The performance shown is not necessarily indicative of future performance. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* Among Smith & Wesson Brands, Inc., The Russell 2000 Index, And Peer Group * $100 invested on April 30, 2018 in stock or index — including reinvestment of dividends.
Removed
For the year ended April 30, 2022, we changed our peer group index from Old Peer Group to S&P 1500 Leisure Products because we believe S&P 1500 Leisure Products represents an index of issuers with similar market capitalization within a broad range of leisure industries, while, at the same time, including two of the three constituent companies from Old Peer Group.
Added
The performance graph above will not be deemed incorporated by reference into any filing of our company under the Securities Act of 1933, as amended, or the Securities Act. 35 Repurchases of Common Stock As of April 30, 2023, we had no authorized share repurchase programs. We did not purchase any shares of our common stock during fiscal 2023.
Removed
Therefore, for the years following fiscal 2022, we will no longer provide a comparison of our stock performance with Old Peer Group.
Removed
We are utilizing market capitalization and a broad industry peer group index because we do not believe that it is feasible to assemble a peer group based on industry or line of business as there is only one other publicly traded firearm company. The graph assumes an investment of $100 on April 30, 2017, with dividends reinvested.
Removed
The performance graph above will not be deemed incorporated by reference into any filing of our company under the Securities Act of 1933, as amended, or the Securities Act. 35 Repurchases of Common Stock The following table sets forth certain information relating to the purchases of our common stock by us and any affiliated purchasers within the meaning of Rule 10b-18(a)(3) under the Exchange Act during the fiscal year ended April 30, 2022 (dollars in thousands, except per share data): Total # of Shares Maximum Dollar Purchased as Value of Shares Part of Publicly that May Yet Be Total # of Average Announced Purchased Shares Price Paid Plans or Under the Plans Period Purchased Per Share (2) Programs (1) or Programs May 1 to May 31, 2021 1,054,550 $ 18.95 1,054,550 $ 20,000 June 1 to June 30, 2021 912,870 21.93 912,870 50,000 December 1 to April 30, 2022 2,788,152 17.75 2,788,152 — Total 4,755,572 $ 18.91 4,755,572 $ — (1) On March 2, 2021, our board of directors authorized the repurchase of $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until March 1, 2022.
Removed
Pursuant to this authorization, during fiscal 2021, we purchased 3,380,447 shares of our common stock for $60.0 million, utilizing cash on hand. During fiscal 2022, we completed this stock repurchase program by purchasing 1,967,420 of our common stock for $40.0 million, utilizing cash on hand.
Removed
On June 15, 2021, our board of directors authorized the repurchase of an additional $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until August 2022.
Removed
Pursuant to this authorization, during fiscal 2022, we completed this repurchase program by purchasing 2,788,152 shares of our common stock for $50.0 million, utilizing cash on hand. (2) The average price per share excludes fees paid to acquire the shares. Item 6. RESERVED 36
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
61 edited+35 added−20 removed30 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
61 edited+35 added−20 removed30 unchanged
2022 filing
2023 filing
Biggest changeResults of Operations Net Sales and Gross Profit The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands): 2022 2021 $ Change % Change 2020 Handguns $ 624,219 $ 755,735 $ (131,516 ) -17.4 % $ 390,711 Long Guns 189,467 253,340 (63,873 ) -25.2 % 101,540 Other Products & Services 50,440 50,120 320 0.6 % 37,367 Total net sales $ 864,126 $ 1,059,195 $ (195,069 ) -18.4 % $ 529,618 Cost of sales 489,562 610,212 (120,650 ) -19.8 % 363,929 Gross profit $ 374,564 $ 448,983 $ (74,419 ) -16.6 % $ 165,689 % of net sales (gross margin) 43.3 % 42.4 % 31.3 % The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2022, 2021, and 2020 (units in thousands): Total Units Shipped 2022 2021 # Change % Change 2020 Handguns 1,518 2,079 (561 ) -27.0% 1,253 Long Guns 363 524 (161 ) -30.7% 295 Sporting Goods Channel Units Shipped 2022 2021 # Change % Change 2020 Handguns 1,422 1,953 (531 ) -27.2% 1,170 Long Guns 342 508 (166 ) -32.7% 281 Professional Channel Units Shipped 2022 2021 # Change % Change 2020 Handguns 96 126 (30 ) -23.8% 83 Long Guns 21 16 5 31.3% 14 Fiscal 2022 Net Sales and Gross Profit Compared with Fiscal 2021 Sales of our handguns decreased $131.5 million, or 17.4%, from fiscal 2021, primarily as a result of lower demand for the majority of our products, partially offset by net sales generated from increased shipments of newly introduced products, combined with two price increases.
Biggest changeResults of Operations Net Sales and Gross Profit The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands): 2023 2022 $ Change % Change 2021 Handguns $ 360,668 $ 624,219 $ (263,551 ) -42.2 % $ 755,735 Long Guns 74,230 189,467 (115,237 ) -60.8 % 253,340 Other Products & Services 44,344 50,440 (6,096 ) -12.1 % 50,120 Total net sales $ 479,242 $ 864,126 $ (384,884 ) -44.5 % $ 1,059,195 Cost of sales 324,705 489,562 (164,857 ) -33.7 % 610,212 Gross profit $ 154,537 $ 374,564 $ (220,027 ) -58.7 % $ 448,983 % of net sales (gross margin) 32.2 % 43.3 % 42.4 % The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2023, 2022, and 2021 (units in thousands): Total Units Shipped 2023 2022 # Change % Change 2021 Handguns 793 1,518 (725 ) -47.8% 2,079 Long Guns 148 363 (215 ) -59.2% 524 Sporting Goods Channel Units Shipped 2023 2022 # Change % Change 2021 Handguns 734 1,422 (688 ) -48.4% 1,953 Long Guns 137 342 (205 ) -59.9% 508 Professional Channel Units Shipped 2023 2022 # Change % Change 2021 Handguns 59 96 (37 ) -38.5% 126 Long Guns 11 21 (10 ) -47.6% 16 38 Fiscal 2023 Net Sales and Gross Profit Compared with Fiscal 2022 Sales of our handguns decreased $263.6 million, or 42.2%, from fiscal 2022, primarily as a result of a return to more normalized demand from the historic pandemic-related demand that lasted from March 2020 through the beginning of fiscal 2022 as competing products became more available through the replenishment of depleted channel inventory, partially offset by net sales generated from increased shipments of new products, which represented 26.8% of sales in the period, combined with one price increase of 5% on select products.
The fiscal 2022 cash from operating activities was negatively impacted by an incremental $83.4 million increase in inventory due to increased production capacity combined with reduced consumer demand, an incremental $52.5 million decrease in accounts payable due to lower operating activities, and the impact of paying the fiscal 2021 profit sharing in fiscal 2022.
The fiscal 2022 cash from operating activities was negatively impacted by an incremental $83.4 million increase in inventory due to increased production capacity combined with reduced consumer demand, an incremental 42 $52.5 million decrease in accounts payable due to lower operating activities, and the impact of paying the fiscal 2021 profit sharing in fiscal 2022.
The results of our outdoor products and accessories business, which was previously reported as a separate business segment, are being presented as discontinued operations in the consolidated statements of income/(loss) for all periods presented, See Note 3 – Discontinued Operations to our consolidated financial statements for additional information regarding these discontinued operations.
The results of our outdoor products and accessories business, which was previously reported as a separate business segment, are being presented as discontinued operations in the consolidated statements of income for all periods presented, See Note 3 – Discontinued Operations to our consolidated financial statements for additional information regarding these discontinued operations.
Inherent Limitations on the Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Inherent Limitations on the Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of 47 achieving the desired control objectives.
External Factors that Impact the Firearm Industry The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for all companies within the industry.
External Factors that Impact the Firearm Industry The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for companies within the industry.
We were in compliance with all debt covenants as of April 30, 2022. Share Repurchase Programs - On March 2, 2021, our board of directors authorized the repurchase of $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until March 1, 2022.
We were in compliance with all debt covenants as of April 30, 2023. Share Repurchase Programs – On March 2, 2021, our board of directors authorized the repurchase of $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until March 2022.
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of April 30, 2022, the end of the period covered by this Annual Report on Form-10-K.
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of April 30, 2023, the end of the period covered by this Annual Report on Form-10-K.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Based on that evaluation, management believes that our internal control over financial reporting was effective as of April 30, 2022.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Based on that evaluation, management believes that our internal control over financial reporting was effective as of April 30, 2023.
The revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2022.
The revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2023.
However, we maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time.
Credit Facilities – We maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time, or the Revolving Line.
Inventories We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.
Inventories Description : We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value. Judgments and Uncertainties : An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.
I tem 8. Financial Statements and Supplementary Data Reference is made to our consolidated financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financial statements, notes, and report are incorporated herein by reference. 45 I tem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.
Financial Statements and Supplementary Data Reference is made to our consolidated financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financial statements, notes, and report are incorporated herein by reference. I tem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. I tem 9A.
Generally, all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have 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.
Generally, 44 all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance. Judgments and Uncertainties : In some instances, sales include multiple performance obligations.
Liquidity and Capital Resources Our principal cash requirements are to (1) finance the growth of our operations, including working capital and capital expenditures, (2) fund the Relocation, and (3) return capital to our stockholders. Capital expenditures for the Relocation, new product development, additional manufacturing capacity, and repair and replacement of equipment represent important cash needs.
Liquidity and Capital Resources Our principal cash requirements are to (1) finance the growth of our operations, including working capital and capital expenditures, (2) fund the Relocation, and (3) return capital to our stockholders. Capital expenditures for the Relocation, new product development, and repair and replacement of equipment represent important cash needs.
Finance Lease – We are party to a $46.2 million lease for our distribution center in Columbia, Missouri, which has an effective rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding.
Finance Lease – We are a party to a material finance lease, the Missouri Lease, which is a $46.2 million lease for our Missouri distribution center that has an effective interest rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding.
The effectiveness of our internal control over financial reporting as of April 30, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which also audited our consolidated financial statements for the year ended April 30, 2022. Deloitte & Touche LLP's report on our internal control over financial reporting is included herein.
The effectiveness of our internal control over financial reporting as of April 30, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which also audited our consolidated financial statements for fiscal 2023. Deloitte & Touche LLP's report on our internal control over financial reporting is included herein.
New products, defined as any new SKU not shipped in the prior year, represented 19.8% of net sales for the 12 months ended April 30, 2022 and included two new pistols, one new modern sporting rifle, and many new product line extensions.
New products, defined as any new SKU not shipped in the prior year, represented 25.8% of net sales for the 12 months ended April 30, 2023 and included three new pistols, one new modern sporting rifle, and many new product line extensions.
Our future capital requirements will depend on many factors, including net sales, the timing of the construction of the new facility in Tennessee, 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 costs to ensure access to adequate manufacturing capacity, and costs to enhance the equipment and software at our distribution center.
Our future capital requirements will depend on many factors, including net sales, the construction of the new facility in Maryville, 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, and the costs to ensure access to adequate manufacturing capacity.
In connection with the Relocation, we will build a new facility in Maryville, Tennessee. Our corporate headquarters, some of our Springfield, Massachusetts manufacturing operations, a portion of our Deep River, Connecticut plastic injection molding facility, and our Columbia, Missouri distribution operations will be relocated to Maryville, Tennessee.
In connection with the Relocation, we are building a new facility in Maryville. Our corporate headquarters, some of our Springfield manufacturing operations, a portion of our Deep River plastic injection molding facility, and our Columbia distribution operations will be relocated to Maryville.
Income Tax Expense The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands): 2022 2021 $ Change % Change 2020 Income tax expense $ 57,892 $ 74,394 $ (16,502 ) -22.2 % $ 11,522 % of income from operations (effective tax rate) 22.9 % 23.4 % -0.5 % 29.4 % We recorded income tax expense of $57.9 million for fiscal 2022, $16.5 million lower than the prior fiscal year, primarily because of decreased profitability.
Income Tax Expense The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands): 2023 2022 $ Change % Change 2021 Income tax expense $ 11,350 $ 57,892 $ (46,542 ) -80.4 % $ 74,394 % of income from operations (effective tax rate) 23.5 % 22.9 % 0.6 % 23.4 % 41 We recorded income tax expense of $11.4 million for fiscal 2023, $46.5 million lower than the prior fiscal year, primarily because of decreased profitability.
Critical Accounting Policies Revenue Recognition We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018.
The Company believes the following are its critical accounting estimates: Revenue Recognition Description : We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018.
Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.
Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted. Sensitivity of Estimate to Change : The assumptions used to assess warranty consider historical trends.
Unless otherwise indicated, any reference to income statement items in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations. 2022 Highlights Our operating results for fiscal 2022 included the following: • Net sales of $864.1 million represented a decrease of $195.1 million, or 18.4%, from our fiscal 2021 net sales.
Unless otherwise indicated, any reference to income statement items in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations. 2023 Highlights Our operating results for fiscal 2023 included the following: • Net sales of $479.2 million represented a decrease of $384.9 million, or 44.5%, from our fiscal 2022 net sales.
Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available in certain cases for early payment.
The net change in contract liabilities for a given period is reported as an increase or decrease to sales. Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available in certain cases for early payment.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended April 30, 2021, filed with the SEC on June 17, 2021.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for fiscal 2022, filed with the SEC on June 23, 2022.
Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months.
At April 30, 2023, we had $53.6 million in cash and cash equivalents on hand. Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months.
The effective tax rates were 22.9% and 23.4% for fiscal 2022 and 2021, respectively. We recorded income tax expense of $74.4 million for fiscal 2021, $62.9 million higher than the prior fiscal year, primarily because of increased profitability. The effective tax rates were 23.4% and 29.4% for fiscal 2021 and 2020, respectively.
The effective tax rates were 23.5% and 22.9% for fiscal 2023 and 2022, respectively. We recorded income tax expense of $57.9 million for fiscal 2022, $16.5 million lower than the prior fiscal year, primarily because of decreased profitability. The effective tax rates were 22.9% and 23.4% for fiscal 2022 and 2021, respectively.
We provide for estimated warranty obligations in the period in which we recognize the related revenue. We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant.
Judgments and Uncertainties : We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant.
Income from Operations The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands, except per share data): 2022 2021 $ Change % Change 2020 Income from operations $ 194,494 $ 243,571 $ (49,077 ) -20.1 % $ 27,653 Net income per share Basic - continuing $ 4.12 $ 4.46 $ (0.34 ) -7.6 % $ 0.50 Diluted - continuing $ 4.08 $ 4.40 $ (0.32 ) -7.3 % $ 0.50 Fiscal 2022 Income from Operations Compared with Fiscal 2021 Net income decreased $49.1 million, or $0.34 per diluted share, from the prior fiscal year for reasons outlined above. 41 Fiscal 2021 Income from Operations Compared with Fiscal 2020 Net income increased $215.9 million, or $3.9 per diluted share, over the prior fiscal year for reasons outlined above.
Net Income The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands, except per share data): 2023 2022 $ Change % Change 2021 Net income $ 36,876 $ 194,494 $ (157,618 ) -81.0 % $ 243,571 Net income per share Basic $ 0.80 $ 4.12 $ (3.32 ) -80.6 % $ 4.46 Diluted $ 0.80 $ 4.08 $ (3.28 ) -80.4 % $ 4.40 Fiscal 2023 Net Income Compared with Fiscal 2022 Net income decreased $157.6 million, or $3.32 per diluted share, from the prior fiscal year for reasons outlined above.
Operating Expenses The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands): 2022 2021 $ Change % Change 2020 Research and development $ 7,262 $ 7,480 $ (218 ) -2.9 % $ 7,364 Selling, marketing, and distribution 43,156 42,603 553 1.3 % 41,987 General and administrative 72,493 79,268 (6,775 ) -8.5 % 66,033 Total operating expenses $ 122,911 $ 129,351 $ (6,440 ) -5.0 % $ 115,384 % of net sales 14.2 % 12.2 % 21.8 % 39 Fiscal 2022 Operating Expenses Compared with Fiscal 2021 Operating expenses decreased $6.4 million from the prior fiscal year.
Operating Expenses The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands): 2023 2022 $ Change % Change 2021 Research and development $ 7,550 $ 7,262 $ 288 4.0 % $ 7,480 Selling, marketing, and distribution 36,976 43,156 (6,180 ) -14.3 % 42,603 General and administrative 61,604 72,493 (10,889 ) -15.0 % 79,268 Total operating expenses $ 106,130 $ 122,911 $ (16,781 ) -13.7 % $ 129,351 % of net sales 22.1 % 14.2 % 12.2 % Fiscal 2023 Operating Expenses Compared with Fiscal 2022 Operating expenses decreased $16.8 million from the prior fiscal year.
For more information regarding our financing arrangements, see Note 5 — Notes, Loans Payable, and Financing Arrangements . As of April 30, 2022, we did not have any borrowings outstanding on the revolving line. Had there been borrowings, they would have borne an interest rate of 2.1%, which is equal to the LIBOR rate plus an applicable margin.
For more information regarding our financing arrangements, see Note 5 — Notes, Loans Payable, and Financing Arrangements . As of April 30, 2023, we had $25.0 million of borrowings outstanding on the Revolving Line, which bore an interest rate of 6.62%, which is equal to the LIBOR rate plus an applicable margin.
Pursuant to this authorization, during fiscal 2022, we completed this repurchase program by purchasing 2,788,152 shares of our common stock for $50.0 million, utilizing cash on hand. 43 At April 30, 2022, we had $120.7 million in cash and cash equivalents on hand.
Pursuant to this authorization, during fiscal 2022, we completed this repurchase program by purchasing 2,788,152 shares of our common stock for $50.0 million, utilizing cash on hand. As of April 30, 2023, we had no authorized share repurchase programs. We did not purchase any shares of our common stock during fiscal 2023.
Warranty We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period.
We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We provide for estimated warranty obligations in the period in which we recognize the related revenue.
In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer. 44 Valuation of Long-lived Tangible and Intangible Assets We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.
Valuation of Goodwill, Long-lived Tangible, and Intangible Assets Description : We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable.
Operating Income from Operations The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands): 2022 2021 $ Change % Change 2020 Operating income from operations $ 251,653 $ 319,632 $ (67,979 ) -21.3 % $ 50,305 % of net sales (operating margin) 29.1 % 30.2 % 9.5 % Fiscal 2022 Operating Income from Operations Compared with Fiscal 2021 Operating income from operations for fiscal 2022 decreased $68.0 million, or 21.3%, from the prior fiscal year, primarily because of reduced sales volumes across nearly all product lines, unfavorable fixed-cost absorption, expenses incurred in relation to the Relocation, and increased legal costs.
Fiscal 2022 Operating Income from Operations Compared with Fiscal 2021 Operating income from operations for fiscal 2022 decreased $68.0 million, or 21.3%, from the prior fiscal year, primarily because of reduced sales volumes across nearly all product lines, unfavorable fixed-cost absorption, expenses incurred in relation to the Relocation, and increased legal costs.
The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. 46 Changes in Internal Control over Financial Reporting There was no change in our internal control over financial reporting that occurred during our fourth fiscal quarter of 2022 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
The following table sets forth certain cash flow information for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands): 2022 2021 $ Change % Change 2020 Operating activities $ 137,814 $ 317,260 $ (179,446 ) -56.6 % $ 80,835 Investing activities (24,116 ) (22,261 ) (1,855 ) -8.3 % (12,084 ) Financing activities (105,987 ) (303,758 ) 197,771 65.1 % 3,380 Total cash flow $ 7,711 $ (8,759 ) $ 16,470 188.0 % $ 72,131 Operating Activities Operating activities represent the principal source of our cash flow.
The following table sets forth certain cash flow information for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands): 2023 2022 $ Change % Change 2021 Operating activities $ 16,732 $ 137,814 $ (121,082 ) -87.9 % $ 317,260 Investing activities (89,781 ) (24,116 ) (65,665 ) -272.3 % (22,261 ) Financing activities 5,877 (105,987 ) 111,864 105.5 % (303,758 ) Total cash flow $ (67,172 ) $ 7,711 $ (74,883 ) -971.1 % $ (8,759 ) Operating Activities Operating activities represent the principal source of our cash flow.
We expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of no less than $120.0 million on or before December 31, 2025. Through April 30, 2022, we had incurred $5.5 million of capital expenditures and $10.2 million of other restructuring charges related to the Relocation.
In total, we expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of approximately $160.0 million to $170.0 million through the end of fiscal 2024. Through April 30, 2023, we had incurred $93.5 million of capital expenditures and $18.5 million of other restructuring charges related to the Relocation.
Cash used in financing activities during the fiscal year primarily included $90.0 million of share repurchases and $15.0 million in dividend distributions. Cash used in financing activities was $303.8 million in fiscal 2021 compared with cash provided by financing activities of $3.4 million in fiscal 2020.
Cash used in financing activities during fiscal 2022 primarily included $90.0 million of share repurchases and $15.0 million in dividend distributions.
Handgun unit shipments into the sporting goods channel 38 decreased 27.2% from fiscal 2021, while overall consumer demand decreased 25.5%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS).
Handgun unit shipments into the sporting goods channel decreased 48.4% from fiscal 2022, while overall consumer demand decreased 3.3%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS). In addition, during the fiscal year, handgun inventory in our distribution channel declined by 44.4%, which negatively impacted our net sales.
We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year.
In some instances, we may provide longer payment terms. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are always less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.
Investing Activities Cash used in investing activities in fiscal 2022 was $24.1 million, or $1.9 million higher than fiscal 2021. We recorded capital expenditures of $24.0 million for fiscal 2022, $1.9 million higher than fiscal 2021. Excluding spending related to the Relocation, we currently expect to spend between $20.0 million and $25.0 million on capital expenditures in fiscal 2023.
Excluding spending related to the Relocation, we currently expect to spend between $20.0 million and $25.0 million on capital expenditures in fiscal 2024.
Interest (Expense) The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands): 2022 2021 $ Change % Change 2020 Interest expense $ (2,135 ) $ (3,919 ) $ (1,784 ) -45.5 % $ (11,625 ) Interest expense decreased by $1.8 million from the prior fiscal year as we maintained a zero balance on our revolving line following our debt repayment in fiscal 2021.
Interest (Expense) The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands): 2023 2022 $ Change % Change 2021 Interest expense $ (331 ) $ (2,135 ) $ (1,804 ) -84.5 % $ (3,919 ) Interest expense decreased by $1.8 million, or 84.5%, from the prior fiscal year primarily as a result of the reclassification of interest income on the sublease from other income combined with higher average interest rates paid on cash on deposit.
Recent Accounting Pronouncements The nature and impact of recent accounting pronouncements is discussed in Note 2 — Significant Accounting Policies to our consolidated financial statements, which is incorporated herein by reference. Off-Balance Sheet Arrangements We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources.
Off-Balance Sheet Arrangements We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources.
We recorded capital expenditures of $22.1 million for fiscal 2021, $9.6 million higher than fiscal 2020 due to expenditures required to increase manufacturing capacity. Financing Activities Cash used in financing activities was $106.0 million in fiscal 2022, or $197.8 million lower than fiscal 2021.
Cash used in investing activities in fiscal 2022 was $24.1 million, or $1.9 million higher than fiscal 2021 primarily due to cash used for capital expenditures. Financing Activities Cash provided by financing activities was $5.9 million in fiscal 2023 compared with cash used of $106.0 million in fiscal 2022.
Additionally, as it relates to the Relocation, we currently expect to spend between $125.0 million and $130.0 million on capital expenditures in fiscal 2023, of which $90.0 million to $95.0 million is expected for the construction of the facility. 42 Cash used in investing activities in fiscal 2021 was $22.3 million, or $10.2 million higher than fiscal 2020.
Additionally, as it relates to the Relocation, we currently expect to spend between $70.0 million and $75.0 million on capital expenditures in fiscal 2024, of which $50.0 million to $55.0 million is expected for the construction of the facility.
The most common of these instances relates to sales promotion programs that entitle customers to receive free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility.
These may include sales promotion programs that entitle customers to receive rebates or free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. We recognize revenue proportionally as each performance obligation is satisfied, based on the relative transaction price of each product.
In such instances, we allocate the revenue 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.
Sensitivity of Estimate to Change : The liability relating to performance obligations is based on the estimated level of participation in the sales promotional program and the timing of the shipment of all products included in the promotional program.
Our inventory levels increased $58.2 million during fiscal 2022, as we replenished stock to provide our customers with a more robust selection of inventory and positioned ourselves for potential future increases in consumer demand. Our fiscal year 2021 ending inventory levels were at historically low levels due to the unprecedented consumer demand during fiscal 2021.
Our inventory levels increased $40.5 million during fiscal 2023, as we slowly ramped down production to minimize impact to our employees and suppliers while replenishing stock to provide our customers with a more robust selection of inventory and position ourselves for potential increases in consumer demand and plan for the Relocation.
During the fiscal year, we paid $1.1 million in principal payments relating to this finance lease. In connection with the completion of the Separation on August 24, 2020, we entered into an agreement with AOUT, pursuant to which AOUT subleases 59.0% of this facility under the same terms as the master lease.
During fiscal 2023, we paid approximately $1.2 million in principal payments relating to the Missouri Lease. With the completion of the Separation, we entered into the Missouri Sublease. On July 16, 2022, we entered into an amendment to the Missouri Sublease, increasing the subleased space to 64.7% of the facility under the same terms as the Missouri Lease.
These favorable impacts were partially offset by unfavorable fixed-cost absorption due to lower production volume and expenses relating to employee severance and relocation costs associated with the Relocation. • Net income was $194.5 million, or $4.08 per diluted share, compared with net income of $243.6 million, or $4.40 per diluted share for the prior fiscal year. • During the fiscal year, we purchased 4,755,572 shares of our common stock for $90.0 million, utilizing cash on hand. • During the fiscal year, we paid $15.0 million in dividends compared with $8.2 million in fiscal 2021. • On September 30, 2021, we announced the Relocation.
These unfavorable impacts were partially offset by decreased compensation costs and favorable inventory valuation adjustments caused by amortization of variance capitalization offset by an increase in excess and obsolescence reserves. • Net income was $36.9 million, or $0.80 per diluted share, compared with net income of $194.5 million, or $4.08 per diluted share, for the prior fiscal year. • During fiscal 2023, we paid $18.3 million in dividends compared with $15.0 million in fiscal 2022. • On September 30, 2021, we announced the Relocation.
We anticipate that inventory levels will continue to build in the first quarter of fiscal 2023 as we continue to build to our more normalized stocking levels. A discussion of our results of net sales and gross profit for the year ended April 30, 2021 compared to the year ended April 30, 2020 is included in Part II, Item 7.
We expect our inventories to remain elevated as we begin our transition to our new facility in Maryville. A discussion of our results of net sales and gross profit for fiscal 2022 compared to fiscal 2021 is included in Part II, Item 7.
These favorable impacts were partially offset by increased volume-related spending, increased freight-related expenses, and increased profit-sharing expense. 40 Other Income The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands): 2022 2021 $ Change % Change 2020 Other income $ 2,868 $ 2,252 $ 616 27.4 % $ 495 Other income for fiscal 2022 increased $616,000, or 27.4%, over the prior fiscal year, primarily as a result of the sublease of the distribution center to AOUT, whereby AOUT subleases from us 59.0% of our distribution center under the same terms as the master lease.
Other Income The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2023, 2022, and 2021 (dollars in thousands): 2023 2022 $ Change % Change 2021 Other income $ 150 $ 2,868 $ (2,718 ) -94.8 % $ 2,252 Other income for fiscal 2023 decreased $2.7 million, or 94.8%, from the prior fiscal year, primarily as a result of the reclassification of sublease income to general and administrative expenses and interest expense, as applicable, in the current fiscal year.
We believe, when comparing to levels prior to the surge that, over the long-term, we have gained market share and expanded our leadership position. Other products and services sales increased $320,000, or 0.6%, over fiscal 2021, primarily because of increased business-to-business sales, partially offset by decreased sales of handcuffs and component parts.
Other products and services sales decreased $6.1 million, or 12.1%, from fiscal 2022, primarily because of decreased sales of component parts and business-to-business sales, partially offset by increased sales of handcuffs.
Inflation We do not believe that inflation had a material impact on us during fiscal 2022, 2021, or 2020; however, during the fourth fiscal quarter, we began to see inflationary increases in both hourly wages and raw materials. We expect that there will be an increased impact from inflation during fiscal 2023.
Inflation During fiscal 2023, inflationary pressures resulted in increases in the cost of certain of the components, parts, raw materials, and other supplies necessary for the production of our products, as well as labor costs. We do not believe that inflation had a material impact on us during fiscal 2022 or 2021.
Selling, marketing, and distribution expenses increased $616,000, primarily because of increased freight-related expenses and expenses related to temporary labor, as a result of increased shipments, additional expenses for a consumer firearm safety program, increased co-op advertising expenses for strategic customers, and compensation-related expenses.
Research and development expenses increased $288,000, primarily because of increased new product development costs, partially offset by decreased compensation-related costs. Selling, marketing, and distribution expenses decreased $6.2 million, primarily as a result of decreased compensation-related expenses, decreased co-op advertising expenses, decreased advertising costs, and decreased freight costs due to lower shipments, partially offset by increased spending on targeted customer promotions.
These increased expenses were partially offset by lower travel and entertainment expenses as a result of COVID-19 and decreased spending on targeted customer promotions. General and administrative expenses increased $13.2 million, primarily because of $3.2 million of increased expenses related to the Separation, $12.6 million of increased profit-sharing expense, and $1.0 million in donations to the National Shooting Sports Foundation.
General and administrative expenses decreased $10.9 million, primarily because of a decrease of $5.3 million in profit sharing expense, decreased profit-related compensation costs, lower costs associated with the Relocation, decreased legal-related expenses, and decreased bad debt expense, partially offset by increased travel and entertainment expenses.
The revolving line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notes under the credit agreement. The credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage.
The revolving line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notes under the credit agreement. 43 On April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of "Consolidated Fixed Charge Coverage Ratio" to exclude unfinanced capital expenditures in connection with the Relocation.
From 2011 through 2020, this increased consumer interest helped the firearm industry generate a ten-year compound annual growth rate in units of approximately 6.0% according to the ATF. We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points are important factors in our goal to continue increasing our market share.
We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share.
The decrease in net sales was primarily driven by decreased consumer demand following a significant increase in demand in the prior fiscal year. • Gross profit decreased 16.6% from the prior fiscal year as a result of lower sales volume.
The decrease in net sales was primarily as a result of a return to more normalized demand from the historic pandemic-related demand that lasted from March 2020 through the beginning of fiscal 2022 combined with a reduction in inventory within the distribution channel. • Gross profit decreased $220.0 million, or 58.7%, from the prior fiscal year primarily as a result of lower sales volume.
We recorded $2.1 million of income related to this sublease agreement, which is recorded in other income/(expense) in our condensed consolidated statement of income/(loss) and comprehensive income/(loss). Credit Facilities - As of April 30, 2022, we had no outstanding indebtedness.
We recorded $2.3 million of income related to the Missouri Sublease, of which $1.1 million was recorded in general and administrative expenses and $1.2 million was recorded in interest income in our condensed consolidated statements of income.
Removed
Gross margin increased 0.9% over the prior fiscal year, primarily because of price increases, lower promotional spending, and favorable product mix.
Added
Gross margin decreased 11.1% from the prior fiscal year as a result of reduced sales volumes across nearly all product lines, combined with the impact of inflation, unfavorable fixed-cost absorption due to lower production volume, and expenses related to the Relocation.
Removed
Based on data from calendar 2021, we estimate that we have an approximately 16.0% share of the U.S. consumer market for firearms.
Added
We estimate that the annual domestic non-military firearm market is approximately $3.5 billion for handguns and $1.6 billion for long guns, excluding shotguns, based on the latest data for industry shipments as calculated by the National Shooting Sports Foundation, or NSSF, utilizing Firearms and Ammunition Excise Tax data for calendar year 2022. According to calendar 2021 reports by the U.S.
Removed
Sales of our long guns decreased $63.9 million, or 25.2%, from fiscal 2021 as a result of decreased shipments of our M&P modern sporting rifles and lower shipments of our hunting rifles, as a result of our discontinuation of that product line, partially offset by increased shipments of newly introduced products in the fiscal year, combined with two price increases.
Added
Bureau of Alcohol, Tobacco, Firearms and Explosives, or ATF, the U.S. firearm manufacturing industry grew at a 3.7% compound annual growth rate in units from 2016 through 2021, although there has been wide variation among years (e.g., 2019 to 2020 grew 58.0%).
Removed
Unit shipments into the sporting goods channel decreased 32.7% from fiscal 2021. Excluding Thompson/Center branded products, long gun unit shipments decreased 22.4% as compared with a 20.6% decrease in reported long gun NICS checks from the prior year.
Added
Sales of our long guns decreased $115.2 million, or 60.8%, from fiscal 2022.
Removed
We believe the decrease in overall firearm demand (as indicated by adjusted NICS) versus the prior fiscal year was due to heightened demand in the prior year driven by civil unrest, ongoing COVID restrictions, and news events driving increased concern for personal safety and fear of potential firearm restrictions.
Added
Similar to handgun sales, this decrease was primarily a result of lower demand for the majority of our long gun products as competing products became more available through the replenishment of depleted channel inventory, partially offset by increased shipments of new products in the fiscal year, which represented 36.3% of sales in the period.
Removed
We believe our ability to ramp up production to meet surging consumer demand in the prior year, at a time when many of our competitors were unable to do so and when overall firearm demand exceeded the industry’s production capacity, enabled us to gain significant market share.
Added
Unit shipments into the sporting goods channel decreased 59.9% from fiscal 2022, while overall consumer demand for long guns decreased 5.9%, as indicated by NICS. In addition, during the fiscal year, long gun inventory in our distribution channel declined by 49.6%, which negatively impacted our net sales.
Removed
As these concerns have become less pressing for consumers, demand has eased, inventory levels in the distribution and retail channels have normalized, and competitor offerings have become more available at retail, our prior year outperformance has likely resulted in a market share decline for us in the short-term in comparison to our peak levels during the surge.
Added
We believe that overall firearm demand remains healthy, as indicated by NICS data, but has normalized from the surge levels we experienced during much of calendar years 2020 and 2021.
Removed
Gross margin for fiscal 2022 increased by 1.0% over the prior fiscal year, primarily as a result of two price increases, lower promotional spending, and favorable product mix.
Added
We believe our comparable shipments year over year underperformed in comparison to NICS primarily because of an over-replenishment of our channel inventory during the first three quarters of fiscal 2022, at which time channel inventory peaked, and which led to our distribution partners actively seeking to reduce inventory of our products during fiscal 2023.
Removed
This increase was partially offset by unfavorable fixed-cost absorption due to lower production volume in the second half of the year and expenses relating to employee severance and relocation costs associated with the Relocation.
Added
Gross margin for fiscal 2023 decreased by 11.1% from the prior fiscal year, primarily because of a combination of reduced sales volumes across nearly all product lines, the impact of inflation on raw material and finished parts, which increased approximately 9.6% over the prior year, the impact of inflation on labor costs, particularly as it relates to entry level positions, unfavorable fixed-cost absorption due to lower production volume, and expenses related to employee severance, partially offset by decreased compensation costs and favorable inventory valuation adjustments caused by amortization of variance capitalization offset by an increase in excess and obsolescence reserves.
Removed
We expect that there will be increased compensation expense in fiscal 2023 as we return to more normalized staffing levels. Fiscal 2021 Operating Expenses Compared with Fiscal 2020 Operating expenses increased $14.0 million over the prior fiscal year.
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