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Item 9A. Controls and Procedures

2021-06-17 compared with 2020-06-19 · 504 added, 673 removed, 749 unchanged (61% of the section changed)

1 unchanged sentence

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our co-Chief Executive Officers and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Our management, under the supervision of our co-Chief Executive Officers 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 the end of the period covered by this Annual Report on Form-10-K.

Based on that evaluation, we have concluded that, as of the end of the period covered by this Annual Report on Form-10-K, our disclosure controls and procedures were not effective to provide such reasonable assurance.

This determination is based on the material weakness in our internal control over financial reporting described below.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

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, 2021, the end of the period covered by this Annual Report on Form-10-K.

Based on that evaluation, we have concluded that, as of the end of the period covered by this Annual Report on Form-10-K, our disclosure controls and procedures were effective to provide such reasonable assurance.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management, with the participation of our co-Chief Executive Officers and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as our internal control our financial reporting is to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the c ompany’s internal control over financial reporting as of April 30 , 2020.

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013).

A material weakness, as defined in Exchange Act Rule 12b-2, is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In the course of preparing the financial statements that are included in this Form 10-K, management identified a material weakness in the internal control environment as we did not appropriately design and maintain controls related to the accounting for goodwill impairment.

Control activities were not designed or maintained over the preparation and review of the goodwill impairment analysis, including our accounting for the related income tax treatment and review of third-party experts’ work product.

The material weakness resulted in audit adjustments to goodwill pertaining to our Outdoor Products & Accessories reporting unit that were recorded in our consolidated financial statements as of and for the year ended April 30, 2020 prior to our issuance of those financial statements and could result in a reasonable possibility that a material misstatement to our annual or interim consolidated financial statements may not be prevented or detected on a timely basis by our internal controls.

Because of this material weakness, management concluded that we did not maintain effective internal control over financial reporting as of April 30, 2020.

Our internal control over financial reporting as of April 30, 2020, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report on our internal control over financial reporting, which follows below.

Management’s Plan for Remediation of the Material Weakness

In response to the material weakness described above, with the oversight of the Audit Committee of our Board of Directors, management is currently evaluating our policies and procedures related to the accounting for goodwill and plans to design and implement adequate internal controls to ensure that the determination of the carrying value of the reporting unit is properly accounted for and reviewed.

The remediation efforts are intended both to address the identified material weakness and to enhance our overall financial control environment.

Management is committed to continuous improvement of our internal control over financial reporting and will continue to diligently review our internal control over financial reporting.

Our remediation efforts are ongoing and management expects that the remediation efforts, including design, implementation, and testing, will continue in fiscal year 2021.

Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies may deteriorate.

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, 2021.

The effectiveness of our internal control over financial reporting as of April 30, 2021 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, 2021.

Deloitte & Touche LLP's report on our internal control over financial reporting is included herein.

Previously Disclosed Material Weakness

We disclosed in Item 9A.

Controls and Procedures in our Annual Report on Form 10-K for the year ended April 30, 2020 that we had identified a material weakness in internal controls related to the preparation and review of the goodwill impairment analysis.

The material weakness resulted in audit adjustments to goodwill pertaining to our former Outdoor Products & Accessories reporting unit that were recorded in our consolidated financial statements as of and for the year ended April 30, 2020 prior to the issuance of those financial statements.

Remediation of Material Weakness in Internal Control over Financial Reporting

Due to our remediation actions, management has concluded that the material weakness identified as of April 30, 2020 has been eliminated as of April 30, 2021.

We will continue to monitor and evaluate the effectiveness of these remedial actions and make further changes as deemed appropriate.

We devoted considerable effort to remediate the material weakness that was identified as of April 30, 2020, which is evidenced by the following actions which were completed during fiscal 2021:

evaluated policies and procedures related to calculating deferred taxes associated with changes in goodwill;

assessed protocols around third-party service reliance;

implemented changes in the controls around management review of third-party service providers credentials, and reliance.

Inherent Limitations on the Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, our management recognizes 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.

In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and our management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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.

In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and we are is required to apply judgment in evaluating the benefits of

possible controls and procedures relative to their 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.

Changes to Internal Control over Financial Reporting

Other than the material weakness noted above, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter ended April 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have not experienced any material impact to our internal controls over financial reporting as a result of the COVID-19 pandemic.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Smith & Wesson Brands, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Smith & Wesson Brands, Inc.

and subsidiaries (the “Company”) as of April 30, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, because of the effect of the material weakness identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of April 30, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO .

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended April 30, 2020, of the Company and our report dated June 19, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weakness has been identified and included in management's assessment:

Control activities were not designed or maintained over the preparation and review of the goodwill impairment analysis, including the accounting for the related income tax treatment and review of third-party experts’ work product.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended April 30, 2020, of the Company, and this report does not affect our report on such financial statements.

/s/ Deloitte & Touche LLP

Boston, Massachusetts

June 19, 2020

Changes in Internal Control over Financial Reporting

Other than described above, there have been no changes in our internal control over financial reporting during our most recent fiscal quarter ended April 30, 2021 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

Other Information

14 unchanged sentences

(1) Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements on page F-1 of this report.

(2) Financial Statement Schedules:

Schedule II — Valuation and Qualifying Accounts for the years ended April 30, 2020, 2019, and 2018 is set forth on page F-39 of this report.

Stock Purchase and Sale Agreement, dated November 25, 2014, by and among the Registrant, Clearview Battenfeld Acquisition Company LLC, and the Members named therein(1)

Asset Purchase Agreement, dated July 15, 2016, by and among BTI Tools, LLC, Taylor Brands, LLC, and the Members named therein (2)

Asset Purchase Agreement, dated July 25, 2016, by and among Smith & Wesson Holding Corporation and Crimson Trace Holdings, LLC (3)

(2) All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because of the absence of the conditions under which they are required or because the information required is shown in the financial statements or notes above.

Plan of Merger, dated May 29, 2020, by and between American Outdoor Brands Corporation and Smith & Wesson Brands, Inc.

Separation and Distribution Agreement, dated as of August 21, 2020, by and between the Registrant and American Out Brands, Inc.

Amended and Restated Bylaws (3)

3 unchanged sentences

Form of Common Stock Certificate (6)

Amended and Restated 2004 Incentive Stock Plan(8)

Amendments to 2004 Incentive Stock Plan(9)

Description of Securities

Agreement with Respect to Defense of Smith & Wesson:

1 unchanged sentence

Form of Indemnity Agreement entered into with the following directors and executive officers:

As of June 29, 2009 with Barry M.

As of June 4, 2007 with Deana L.

and as of June 29, 2009 with Barry M.

Monheit, Michael F.

Golden, Robert L.

Scott, John B.

Furman, Mitch A.

Marie Wadecki, and Jeffrey D.

as of November 2009 with P.

James Debney;

Scott and John B.

as of December 14, 2011 with Mark P.

as of April 24, 2013 with Robert J.

as of June 23, 2015 with Gregory J.

Gluchowski, Jr.;

and as of February 5, 2016 with Anita Britt;

and as of August 9, 2018 with Brian D.

Amended and Restated Severance and Change in Control Agreement, executed December 8, 2011 as of January 3, 2011, by and between the Registrant and Jeffrey D.

Amended and Restated Employment Agreement, executed December 8, 2011 as of September 26, 2011, between P.

James Debney and Smith & Wesson Holding Corporation(12)

Letter of Amendment, dated September 9, 2011, between Jeffrey D.

Buchanan and the Registrant(12)

Letter of Amendment, dated September 9, 2011, between P.

James Debney and Smith & Wesson Holding Corporation(12)

Form of Non-Qualified Stock Option Award Grant Notice and Agreement to the 2004 Incentive Stock Plan(12)

as of February 5, 2016 with Anita Britt;

as of June 23, 2020 with Susan J.

and as of May 3, 2021 with Fred M.

Diaz and Denis G.

Amended and Restated 2011 Employee Stock Purchase Plan (9)

5 unchanged sentences

Form of Restricted Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in April 2015 (13)

Form of Restricted Stock Unit Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in September 2014(18)

Form of Restricted Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in April 2020

Form of Performance Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in April 2014(17)

Form of Performance Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in April 2015(18)

Credit Agreement, dated as of June 15, 2015, among the Registrant and Smith & Wesson Corp., as Borrowers, the Subsidiaries of the Borrowers party thereto, as the guarantors, TD Bank, N.A., as the Administrative Agent, the other lenders party thereto from time to time, TD Securities (USA) LLC, Branch Banking and Trust Company, Regions Business Capital, and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners, and Branch Banking and Trust Company, Regions Bank, and Wells Fargo Securities, LLC, as Co-Syndication Agents, including all exhibits thereto(18)

Second Amendment to Credit Agreement, dated as of October 27, 2016, among the Registrant and Smith & Wesson Corp., as Borrowers, the Subsidiaries of the Borrowers party thereto, as the guarantors, TD Bank, N.A., as the Administrative Agent, the other lenders party thereto from time to time, TD Securities (USA) LLC, Branch Banking and Trust Company, Regions Business Capital, and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners, and Branch Banking and Trust Company, Regions Bank, and Wells Fargo Securities, LLC, as Co-Syndication Agents(19)

Fifth Amendment to Credit Agreement, dated as of November 22, 2019, among the Registrant, American Outdoor Brands Sales Company, and Smith & Wesson Inc., as Borrowers, the subsidiaries of the Borrowers party thereto, as the guarantors, the lenders party thereto, and TD Bank, N.A., as Administrative Agent and Swingline Lender(20)

Form of Performance Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made in 2020

Form of Performance Stock Unit Award Grant Notice and Agreement to the 2013 Incentive Stock Plan for awards made beginning in 2021

Lease Agreement, dated October 26, 2017, by and between Ryan Boone County, LLC and Smith & Wesson Corp.

2 unchanged sentences

James Debney (15)

Employment Agreement, executed April 4, 2020 and effective as of January 15, 2020, by and between Brian D.

Murphy and the Registrant(23)

Employment Agreement, executed April 4, 2020 and effective as of January 15, 2020, by and between Mark P.

Smith and the Registrant (16)

Agreement, dated as of August 5, 2020, by and between Jeffrey D.

Buchanan and the Registrant (17)

Transition Services Agreement dated as of August 21, 2020, by and between the Registrant and American Outdoor Brands, Inc (2)

Tax Matters Agreement, dated as of August 21, 2020, by and between the Registrant and American Outdoor Brands, Inc.

Employee Matters Agreement, dated as of August 21, 2020, by and between the Registrant and American Outdoor Brands, Inc.

Trademark License Agreement, dated as of August 24, 2020, by and between Smith & Wesson Inc.

and AOB Products Company (2)

Sublease, dated as of August 24, 2020, by and between the Smith & Wesson Sales Company and American Outdoor Brands, Inc.

Supply Agreement, dated as of August 24, 2020, by and between Crimson Trace Corporation, as Supplier, and Smith & Wesson Inc.

Supply Agreement, dated as of August 24, 2020, by and between AOB Products Company, as Supplier, and Smith & Wesson Inc.

Amended and Restated Credit Agreement, dated as of August 24, 2020, by and among the Registrant, Smith & Wesson Sales Company, Smith & Wesson, Inc., the Guarantors, the Lenders, and TD Bank, N.A.

Separation and Release Agreement, dated as of May 24, 2021, by and between Robert J.

Cicero and the Registrant (18)

Subsidiaries of the Registrant

Consent of Deloitte & Touche LLP, an Independent Registered Public Accounting Firm

Rule 13a-14(a)/15d-14(a) Certification of Co-Principal Executive Officer

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer

Section 1350 Certification of Co-Principal Executive Officer

Section 1350 Certification of Principal Executive Officer

Section 1350 Certification of Principal Financial Officer

Section 1350 Certification of Principal Accounting Officer

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

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These portions have been omitted from this exhibit.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on November 26, 2014.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on July 18, 2016.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on July 26, 2016.

Certain schedules and exhibits have been omitted from this filing pursuant to Item 601(a) (5) of the Regulation S-K.

We agree to furnish supplementally a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on June 1, 2020.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on August 26, 2020.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on April 12, 2019.

1 unchanged sentence

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on October 1, 2013.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on September 28, 2011.

Incorporated by reference to the Registrant’s Proxy Statement on Schedule 14A filed with the SEC on August 14, 2006.

Incorporated by reference to the Registrant’s Form 10-K filed with the SEC on June 19, 2020.

Incorporated by reference to the Registrant’s Form 10-Q filed with the SEC on March 10, 2005.

Incorporated by reference to the Registrant’s Form 10-K filed with the SEC on June 30, 2009.

Incorporated by reference to the Registrant’s Form 10-Q filed with the SEC on December 8, 2011.

Incorporated by reference to the Registrant’s Form 10-K filed with the SEC on June 28, 2012.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on J une 9 , 20 20 .

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on June 9, 2020.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on December 20, 2013.

1 unchanged sentence

Incorporated by reference to the Registrant’s Form 10-K filed with the SEC on June 22, 2015.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on October 31, 2017.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on November 26, 2019.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on October 31, 2017.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on February 28, 2020.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on April 9, 2020.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on August 11, 2020.

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on May 24, 2021.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SMITH & WESSON BRANDS, INC.

Co-President and Co-Chief Executive Officer

President and Chief Executive Officer

June 17, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Co-President and Co-Chief Executive Officer (Co-Principal Executive Officers)

June 19, 2020

Co-President and Co-Chief Executive Officer (Co-Principal Executive Officers)

June 19, 2020

/s/ Jeffrey D.

Executive Vice President, Chief Financial

Officer, Chief Administrative Officer, and Treasurer (Principal Financial Officer)

President, Chief Executive Officer, and Director

(Principal Executive Officer)

June 17, 2021

Vice President, Chief Accounting Officer, Corporate Controller, and Assistant Treasurer (Principal Accounting Officer)

Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary

(Principal Financial and Accounting Officer)

June 17, 2021

/s/ Robert L.

Chairman of the Board

June 17, 2021

/s/ Robert L.

/s/ Michael F.

Vice Chairman of the Board

2 unchanged sentences

June 17, 2021

/s/ Gregory J.

Gluchowski, Jr.

June 17, 2021

Gluchowski, Jr.

/s/ Michael F.

June 17, 2021

/s/ Mitchell A.

June 17, 2021

Marie Wadecki

June 19, 2020

Marie Wadecki

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

3 unchanged sentences

Consolidated Balance Sheets as of April 30, 2021 and 2020

Consolidated Statements of ( Loss)/ Income and Comprehensive ( Loss)/ Income for the years ended April 30, 2020, 2019, and 2018

Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss) for the years ended April 30, 2021, 2020, and 2019

Consolidated Statements of Changes in Stockholders’ Equity for the years ended April 30, 2021, 2020,

1 unchanged sentence

Notes to Consolidated Financial Statements

Schedule II — Valuation and Qualifying Accounts for the years ended April 30, 2020, 2019, and 2018

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Smith & Wesson Brands, Inc.

Opinion on the Financial Statements

Springfield, Massachusetts

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Smith & Wesson Brands, Inc.

and subsidiaries (the "Company") as of April 30, 2020 and 2019, the related consolidated statements of (loss)/income, comprehensive (loss)/income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended April 30, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of April 30, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 19, 2020, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness.

Change in Accounting Principle

As discussed in Note 3 to the financial statements, the Company has changed its method of accounting for leases in fiscal year 2020 due to adoption of ASU 2016-02, Leases (Topic 842) .

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

and subsidiaries (the "Company") as of April 30, 2021 and 2020, the related consolidated statements of income/(loss) and comprehensive income/(loss), changes in stockholders’ equity, and cash flows, for each of the three years in the period ended April 30, 2021, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become

inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

1 unchanged sentence

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill — Outdoor Products & Accessories Reporting Unit — Refer to Notes 3 and 6 of the financial statements

Tax-Free Determination of the Divestiture of American Outdoor Brands, Inc.

(“AOUT”) Business – Refer to Note 3 to the financial statements.

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the estimated fair value of each reporting unit to their carrying value.

The Company tests goodwill for impairment on an annual basis on February 1 and between annual tests if indicators of potential impairment exist.

The Company used the discounted cash flow model to estimate fair value, which requires management to make significant estimates and assumptions related to discount rates and forecasts of future revenues and operating margins.

Changes in these assumptions could have a significant impact on either the estimated fair value, the amount of any goodwill impairment charge, or both.

The Company determined that there are two reporting units, (1) Firearms and (2) Outdoor Products & Accessories.

On February 1, 2020, the date of the annual goodwill impairment analysis, the goodwill balance was $182.2 million, of which $163.2 was allocated to Outdoor Products and Accessories reporting unit.

While performing the February 1, 2020 annual goodwill impairment analysis, the Company identified an impairment indicator related to the expected negative impact on Outdoor Products & Accessories reporting unit forecasted cash flows due to several COVID-19 factors, including a major online retail customer’s decision to halt or delay most non-essential product orders, COVID-19-related supply chain issues, as well as COVID-19-related “stay at home” orders and sporting goods store closures, which reduced retail foot traffic in many states.

As a result, the Company performed a goodwill

impairment analysis with reduced forecasted cash flows in which they determined that the Outdoor Products & Accessories reporting unit’s carrying value, including goodwill, exceeded its fair value by $98.7 million and therefore recognized an impairment charge of $98.7 million relating to the goodwill allocated to the Outdoor Products & Accessories reporting unit.

Significant judgments were required by management to estimate the fair value of the Outdoor Products & Accessories reporting unit in light of reduced overall demand for its products and the resulting need to reduce the forecasts of its long-range cash flows.

Therefore, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the company specific risk premium (“CSRP”) included within the discount rate as well as forecasts of future cash flows required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

As described in Note 3 to the consolidated financial statements, on August 10, 2021, the Company completed the spin-off of its AOUT business into an independent, publicly traded company.

The spin-off was affected through a stock distribution to the Company’s shareholders.

As disclosed by management, the divestiture of the AOUT business was determined to qualify for U.S.

Federal tax-free treatment under certain sections of the Internal Revenue Code.

The determination of the transaction as tax-free requires management to make significant judgments about the interpretation of tax laws and regulations.

We identified the determination by management of the spin-off as a tax-free transaction for US Federal income tax purposes to be a critical audit matter because of the complexity of the interpretation and application of the Internal Revenue Code (“Code”), the materiality of the potential tax consequences, and the need to involve our income tax specialists when performing audit procedures to evaluate the U.S.

Federal taxability of the spin-off.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the CSRP included within the discount rate and forecasts of future cash flows used by management to estimate the fair value of the Outdoor Products & Accessories reporting unit included the following, among others:

We tested the effectiveness of controls over the determination of the fair value of the Outdoor Products & Accessories reporting unit, such as controls related to management’s selection of the discount rate and forecasts of future cash flows.

We evaluated management’s ability to accurately forecast future cash flows by performing a retrospective review of current year revenue and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) results as compared to management’s historical forecasts of the current year.

We evaluated the reasonableness of management’s forecasted cash flows by comparing the forecasts to:

Historical revenues, gross margin, expense ratio, and EBITDA

Internal communications to management and the Board of Directors

Projected growth rates included within relevant industry reports for industries in which the Outdoor Products & Accessories reporting unit operates.

Performed a sensitivity analysis over the impairment charge including developing independent estimates of projected cash flows based on various scenarios impacting revenues, gross margin, and expense ratio.

We evaluated the impact of changes in management’s forecasts from the measurement date to April 30, 2020.

With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodology and (2) CSRP included within the discount rate and:

Tested the source information underlying the determination of the discount rate and the mathematical accuracy of the calculation.

Developed a range of independent estimates and comparing those to the discount rate selected by management.

Performed a sensitivity analysis over the selected CSRP by applying a discount rate that did not include a CSRP to the projected cash flows and solving for revenue growth and EBITDA margins that would result in the same fair value as within the Company’s discounted cash flow model.

The resulting revenue growth and EBITDA margins were compared to historical results and industry growth forecasted growth rates to evaluate the sufficiency of the selected CSRP.

Compared the change in the fair value of equity of the Outdoor Products & Accessories reporting unit from February 1, 2019, which is the estimate date in the prior year’s analysis through the current estimate date of March 23, 2020 to the change in guideline public company market capitalizations.

Our audit procedures related to the evaluation of the U.S Federal taxability of the spin-off included the following, among others:

We tested the effectiveness of controls over management’s evaluation of the spin-off as tax free for U.S.

Federal income tax.

We inspected the opinion from the Company’s outside legal counsel and external tax advisor that management utilized in forming their conclusions on U.S.

Federal taxability of the spin-off, including certain interpretations of the Code and related statutes.

We inspected meeting minutes of the Board of Directors and its committees, income tax filings, support from external advisors, historical financial results of the Company and AOUT, and contracts associated with the spin-off for corroborating or contradictory evidence.

We obtained written representations from management concerning management’s intent associated with future transactions that could affect U.S.

Federal taxability and we obtained representations made by AOUT management that it does not intend to cause any transactions that could affect the Company’s U.S.

Federal taxability.

We assessed the key facts and assumptions in the opinion from the Company’s outside legal counsel and external tax advisor detailing the requirements under the Code and specifying how such requirements were met.

With the assistance of our income tax specialists, we evaluated management’s conclusion that the requirements were met to qualify the spin-off as tax free for U.S.

Federal income tax purposes.

/s/ Deloitte & Touche LLP

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Cash and cash equivalents

Accounts receivable, net of allowance for doubtful accounts of $ 1,438 on

Accounts receivable, net of allowances for credit losses of $ 107 on

April 30, 2021 and $ 1,038 on April 30, 2020

Prepaid expenses and other current assets

Deferred income taxes

Current assets of discontinued operations

Income tax receivable

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Intangibles, net

Other assets of discontinued operations

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Accrued warranty

Current portion of notes and loans payable

Current liabilities of discontinued operations

Total current liabilities

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Finance lease payable, net of current portion

Other non-current liabilities of discontinued operations

Other non-current liabilities

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Accumulated other comprehensive income

Treasury stock, at cost ( 18,166,862 shares on April 30, 2020 and

April 30, 2019)

Treasury stock, at cost ( 24,284,798 shares on April 30, 2021 and 18,166,862 on April 30, 2020)

Total stockholders’ equity

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AND SUBSIDIARIES

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

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

For the Year Ended April 30,

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General and administrative

Goodwill impairment

Total operating expenses

Operating (loss)/income

Other (expense)/income, net:

Operating income from continuing operations

Other income/(expense), net:

Other income/(expense), net

Interest expense, net

Total other (expense)/income, net

(Loss)/income from operations before income taxes

Income tax expense/(benefit)

Net (loss)/income

Comprehensive loss/(income):

Change in unrealized loss/(income) on interest rate swap

Other comprehensive loss/(income), before income taxes

Income tax benefit/(loss) on other comprehensive loss

Other comprehensive loss/(income), net of tax

Comprehensive (loss)/income:

Net (loss)/income per share:

Weighted average number of common shares

Total other income/(expense), net

Income from continuing operations before income taxes

Income tax expense

Income from continuing operations

Discontinued operations:

Income/(loss) from discontinued operations, net of tax

Net income/(loss)

Comprehensive income/(loss):

Other comprehensive loss, net of tax

Comprehensive income/(loss):

Net income/(loss) per share:

Basic - continuing operations

Basic - net income/(loss)

Diluted - continuing operations

Diluted - net income/(loss)

Weighted average number of common shares outstanding:

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

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(In thousands)

(Loss)/Income

Balance at April 30, 2017

Proceeds from exercise of

employee stock options

Stock-based compensation

Shares issued under employee stock

purchase plan

Change in unrealized income on

interest rate swap, net of tax effect

Reclassification due to U.S.

Issuance of common stock under restricted

stock unit awards, net of shares surrendered

Income/(Loss)

Balance at April 30, 2018

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employee stock options

Stock-based compensation

Stock-based compensation - continuing operations

Stock-based compensation - discontinued operations

Shares issued under employee stock

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employee stock options

Stock-based compensation

Stock-based compensation - continuing operations

Stock-based compensation - discontinued operations

Shares issued under employee stock

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Balance at April, 2020

Proceeds from exercise of employee stock options

Stock-based compensation - continuing operations

Stock-based compensation - discontinued operations

Shares issued under employee stock purchase plan

Issuance of common stock under restricted

stock unit awards, net of shares surrendered

Repurchase of treasury stock

Dividends issued

Spin-off of outdoor products and accessories business

Balance at April, 2021

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

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Cash flows from operating activities:

Net (loss)/income

Adjustments to reconcile net (loss)/income to net cash provided by operating activities:

Income from continuing operations

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Loss/(gain) on sale/disposition of assets

(Gain)/loss on sale/disposition of assets

Provision for losses on notes and accounts receivable

Impairment of long-lived tangible assets

Goodwill impairment

Deferred income taxes

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Other non-current liabilities

Cash provided by operating activities - continuing operations

Cash (used in)/provided by operating activities - discontinued operations

Net cash provided by operating activities

Cash flows from investing activities:

Acquisition of businesses, net of cash acquired

Refunds on machinery and equipment

Receipts from note receivable

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Payments to acquire property and equipment

Cash used by investing activities - continuing operations

Cash used by investing activities - discontinued operations

Net cash used in investing activities

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Payments on notes and loans payable

Proceeds from exercise of options to acquire common stock, including employee stock purchase plan

Distribution to discontinued operations

Payments to acquire treasury stock

Dividend distribution

Proceeds from exercise of options to acquire common stock, including

employee stock purchase plan

Payment of employee withholding tax related to restricted stock units

Net cash provided by/(used in) financing activities

Net increase/(decrease) in cash and cash equivalents

Cash (used in)/provided by financing activities - continuing operations

Cash used in financing activities - discontinued operations

Net cash (used in)/provided by financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

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Supplemental Disclosure of Non-cash Investing and Financing Activities:

For the Years Ended April 30,

For the Year Ended April 30,

(In thousands)

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Change in fair value of interest rate swap

Contingent consideration

Purchases of property and equipment funded by capital lease

Purchase of property and equipment funded by capital lease

Capital lease obligation

Changes in note receivable

Machinery and equipment on deposit placed into service

Adoption of ASU 2016-02:

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Changes in lease liabilities for operating lease obligations

The accompanying notes are an integral part of these consolidated financial statement

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

SMITH & WESSON BRANDS, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are a leading manufacturer, designer, and provider of consumer products for the shooting, hunting, and rugged outdoor enthusiast.

We are one of the largest manufacturers of handguns, modern sporting rifles, and handcuffs in the United States and an active participant in the hunting rifle and suppressor markets.

We are also a leading provider of shooting, hunting, and rugged outdoor products and accessories, including knives and cutting tools, sighting lasers, shooting supplies, tree saws, and survival gear.

We have two reporting segments:

(1) Firearms and (2) Outdoor Products & Accessories.

In our Firearms segment, we manufacture a wide array of handguns (including revolvers and pistols), long guns (including modern sporting rifles, bolt action rifles, and muzzleloaders), handcuffs, suppressors, and other firearm-related products for sale to a wide variety of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and throughout the world.

We sell our firearm products under the Smith & Wesson, M&P, Performance Center, Thompson/Center Arms, and Gemtech brands.

We manufacture our firearm products at our facilities in Springfield, Massachusetts, Houlton, Maine, and Deep River, Connecticut.

We are one of the world’s leading manufacturers and designers of firearms.

We manufacture a wide array of handguns (including revolvers and pistols), long guns (including modern sporting rifles, bolt action rifles, and muzzleloaders), handcuffs, suppressors, and other firearm-related products for sale to a wide variety of customers, including firearm enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and throughout the world.

We sell our products under the Smith & Wesson, M&P, Thompson/Center Arms, and Gemtech brands.

We manufacture our products at our facilities in Springfield, Massachusetts;

Houlton, Maine;

and Deep River, Connecticut.

We also sell our manufacturing services to other businesses to level-load our factories.

We sell those services under our Smith & Wesson and Smith & Wesson Precision Components brands.

In our OP&A segment, 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 at our facility in Wilsonville, Oregon.

On November 13, 2019, we announced that we were proceeding with a plan to spin-off our outdoor products and accessories business, or the Separation, and create an independent publicly traded company to conduct that business.

We believe that separating the our outdoor products and accessories business from our firearm business and forming a new company to conduct the outdoor products and accessories business will enable the management team of each company to focus on its specific strategies, including, among others, (1) structuring its business to take advantage of growth opportunities in its specific markets, (2) tailoring its business operation and financial model to its specific long-term strategies, and (3) aligning its external financial resources, such as stock, access to markets, credit, and insurance factors, with its particular type of business.

In our view, the Separation is in the best interests of our company and our stockholders and would create two industry-leading companies with attributes that best position each company for long-term success.

In preparation for the Separation, on May 29, 2020, we changed our name to Smith & Wesson Brands, Inc., and on June 1, 2020, we changed the name of the company that will operate our outdoor products and accessories business through its subsidiaries to American Outdoor Brands, Inc., or AOUT.

Subject to the satisfaction or waiver of certain conditions, the Separation will be completed by way of a pro rata distribution, or the Distribution, of all the outstanding shares of AOUT common stock to our stockholders of record as of the close of business on the record date of the Distribution.

Each of our stockholders will receive shares of AOUT common stock for the shares of our common stock held by such stockholders as of the close of business on the record date, so that our stockholders would own stock of our company as well as 100 % of the stock of AOUT and we will retain no ownership interest in that company.

We expect to receive an opinion from counsel to the effect that, among other things, the transfer of the assets and legal entities, subject to any related liabilities, associated with the outdoor products and accessories business, to AOUT, will qualify as a transaction that is tax-free for U.S.

federal income tax purposes, except to the extent of any cash received in lieu of fractional shares.

The Distribution does not require the approval of our stockholders.

Our common stock will continue to trade on the Nasdaq Global Select Market under the new ticker symbol “SWBI,” and AOUT has applied to have its shares of common stock listed on the Nasdaq Global Market under the ticker symbol “AOUT.” The Separation is subject to the satisfaction or waiver of certain conditions, and we cannot provide any assurance that we will complete the Separation.

SMITH & WESSON BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

LaserLyte Acquisition

In January 2019, we acquired substantially all of the LaserLyte branded products and other assets from P&L Industries, Inc., for a purchase price of $ 2.0 million, subject to certain adjustments, utilizing cash on hand.

P&L Industries was a provider of laser training and sighting products for the consumer market.

The operations of LaserLyte were fully integrated into our facility located in Wilsonville, Oregon and reported in our Outdoor Products & Accessories segment.

This acquisition did not have a material impact on our condensed consolidated financial statements for all periods presented.

Included in general and administrative costs are $ 28,000 of acquisition-related costs incurred for the LaserLyte Acquisition during the year ended April 30, 2019.

Pro forma results of operations assuming that the LaserLyte Acquisitions had occurred as of May 1, 2017 are not required because of the immaterial impact on our consolidated financial statements for all periods presented.

2018 Acquisitions

In August 2017, in two separate transactions, we acquired (1) substantially all of the net assets of Gemtech and (2) Bubba Blade branded products and other assets from Fish Tales, LLC.

The aggregate purchase price for the two acquisitions was $ 23.1 million, subject to certain adjustments, utilizing a combination of cash on hand and borrowings under our revolving line of credit.

In connection with the Gemtech acquisition, additional consideration of up to a maximum of $ 17.1 million may be paid contingent upon the cumulative three year sales volume of Gemtech products.

The valuation of this contingent consideration liability was established in accordance with ASC 805 — Business Combinations .

During fiscal 2020, we reduced the remaining fair value of this contingent liability by $ 100,000 to zero because we confirmed the performance metrics were not achieved.

This reduction was recorded in other income on the consolidated statements of (loss)/income.

Gemtech, based in Meridian, Idaho, was a provider of quality suppressors and accessories for the consumer, law enforcement, and military markets.

Fish Tales, LLC, based in Oro Valley, Arizona, was a provider of premium sportsmen knives and tools for fishing and hunting, including the premium knife brand Bubba Blade.

The valuations of the assets acquired and liabilities assumed in the 2018 Acquisitions are complete.

On November 13, 2019, we announced that we were proceeding with a plan to spin-off our outdoor products and accessories business and create an independent publicly traded company to conduct that business, or the Separation.

On August 24, 2020, or the Distribution Date, we completed the previously announced Separation.

See also Note 3 — Discontinued Operations , for more information.

Significant Accounting Policies

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Principles of Consolidation — The accompanying consolidated financial statements include the accounts of Smith & Wesson Brands, Inc.

and its wholly owned subsidiaries, including Smith & Wesson Inc., Smith & Wesson Sales Company, and SWPC Plastics, LLC, reported in our Firearms segment;

AOB Products Company, Crimson Trace Corporation, and AOB Consulting (Shenzhen), Co., LTD., reported in our Outdoor Products & Accessories segment;

and SWSS LLC, formerly Smith & Wesson Security Solutions, Inc., or SWSS, our former security services division.

and its wholly owned subsidiaries, including Smith & Wesson Inc., Smith & Wesson Sales Company, and SWPC Plastics, LLC.

In our opinion, all adjustments, which include only normal recurring adjustments necessary to fairly present the financial position, results of operations, changes in stockholders’ equity, and cash flows at April 30, 2021 and 2020 and for the periods presented, have been included.

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Fair Value of Financial Instruments — Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments not held for trading purposes, approximate the carrying values of such amounts because of their short-term nature or market rates of interest.

SMITH & WESSON BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Cash and Cash Equivalents — We consider all highly liquid investments purchased with original maturities of three months or less at the date of acquisition to be cash equivalents.

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As of April 30, 2021, we did no t have any Level 2 financial instruments within the hierarchy.

See Note 7 – Notes and Loans Payable and Financing Arrangements for more information regarding our financial instruments.

See Note 6 – Notes, Loans Payable, and Financing Arrangements for more information regarding our financial instruments.

Trade Receivables — We extend credit to our domestic customers and some foreign distributors based on their financial condition.

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We write off balances deemed uncollectible by us against our allowance for doubtful accounts.

We estimate our allowance for doubtful accounts through current past due balances, knowledge of our customers’ financial situations, and past payment history.

We estimate our allowance for doubtful

SMITH & WESSON BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

accounts through current past due balances, knowledge of our customers’ financial situations, and past payment history.

Concentrations of Credit Risk — Financial instruments that potentially subject us to concentration of credit risk consist principally of cash, cash equivalents, and trade receivables.

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We perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral.

For the year ended April 30, 2020, one of our customers accounted for approximately 10.5 % of our net sales but did not exceed 10 % of our accounts receivable.

Three other customers each had greater than 10 % of our accounts receivable and combined for a total of 37.7 %.

For the fiscal year ended April 30, 2019, no ne of our customers exceeded 10 % of our net sales and one of our customers accounted for approximately 19.8 % of our accounts receivable.

For the fiscal year ended April 30, 2018, one of our customers accounted for 11.9 % of our net sales and no ne of our customers accounted for 10 % or more of our accounts receivable.

For the year ended April 30, 2021, four of our customers exceeded 10 % of our net sales and accounted for approximately 45.0 % of our net sales.

Two of these customers each accounted for more than 10 % of our accounts receivable for a total of 28.4 %.

For the fiscal year ended April 30, 2020, four of our customers accounted for more than 10 % of our net sales and accounted for approximately 43.9 % of our net sales and three customers accounted for approximately 45.3 % of our accounts receivable.

For the fiscal year ended April 30, 2019, one of our customers accounted for 10.4 % of our net sales and one of our customers accounted for 23.1 % of our accounts receivable.

Inventories — We value inventories at the lower cost, using the first-in, first-out, or FIFO method, or net realizable value.

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We include tooling, dies, and fixtures as part of machinery and equipment and depreciate them over a period generally not exceeding ten years .

SMITH & WESSON BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Intangible Assets — We record intangible assets at cost or based on the fair value of the assets acquired.

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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 are our responsibility.

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.

We recognize revenue related to the material right proportionally as each performance obligation is satisfied.

The fulfillment of these free goods is our responsibility.

SMITH & WESSON BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

promotional program, including the free goods.

We recognize r evenue 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.

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 90 days of product shipment with a discount available to some customers for early payment.

We generally sell our products free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 90 days of product shipment with a discount available to some customers for early payment.

Generally, framework contracts define the general terms of sales, including payment terms, freight terms, insurance requirements, and cancelation provisions.

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We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled.

In some instances, we provide longer payment terms, particularly as it relates to our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer.

In some instances, we provide longer payment terms, particularly as it relates to our fall dating programs for hunting sales, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer.

As a result of utilizing practical expedience upon the adoption of ASC 606, 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 all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.

Segment Information — We have two reporting segments:

Firearms, which includes our Firearms and Manufacturing Services divisions;

and Outdoor Products & Accessories.

See Note 20 – Segment Reporting for more information regarding our segments.

Research and Development — We engage in both internal and external research and development, or R&D, in order to remain competitive and to exploit possible untapped market opportunities.

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Costs in R&D expense include, among other items, salaries, materials, utilities, and administrative costs.

(Loss)/ Earnings per Share — We calculate basic and diluted (loss)/earnings per common share in accordance with the provisions of ASC 260-10, Earnings Per Share .

Basic (loss)/earnings per common share equals net (loss)/income divided by the weighted average number of common shares outstanding during the period.

Diluted (loss)/earnings per common share equals net (loss)/income divided by the weighted average number of common shares outstanding during the period, including the effect of outstanding stock options and other stock-based instruments if their effect is dilutive.

Earnings/(Loss) per Share — We calculate basic and diluted earnings/(loss) per common share in accordance with the provisions of ASC 260-10, Earnings Per Share .

Basic earnings/(loss) per common share equals net income/(loss) divided by the weighted average number of common shares outstanding during the period.

Diluted earnings/(loss) per common share equals net income/(loss) divided by the weighted average number of common shares outstanding during the period, including the effect of outstanding stock options and other stock-based instruments if their effect is dilutive.

The following table provides a reconciliation of the net income/(loss) amounts and weighted average number of common and common equivalent shares used to determine basic and diluted earnings/(loss) per common share (in thousands, except per share data):

For the Year Ended

Net income/(loss)

Income from continuing operations

Income/(loss) from discontinued operations

Net income/(loss)

Weighted average shares outstanding — Basic

Effect of dilutive stock awards

Weighted average shares outstanding — Diluted

Earnings/(loss) per share — Basic

Income from continuing operations

Income/(loss) from discontinued operations

Net income/(loss)

Earnings/(loss) per share — Diluted

Income from continuing operations

Income/(loss) from discontinued operations

Net income/(loss)

SMITH & WESSON BRANDS, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table provides a reconciliation of the net (loss)/income amounts and weighted average number of common and common equivalent shares used to determine basic and diluted (loss)/earnings per common share (in thousands, except per share data):

For the Year Ended April 30,

Basic (loss)/earnings

Effect of dilutive stock awards

Diluted (loss)/earnings

All of our outstanding stock options and restricted stock units, or RSUs, were included in the computation of diluted earnings per share for the years ended April 30, 20 21 and 20 20 .

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We have reviewed the provisions of ASC 350-20, with respect to the criteria necessary to evaluate the number of reporting units that exist.

Based on this review, we have two operating units when reviewing ASC 350-20:

Firearms and Outdoor Products & Accessories.

SMITH & WESSON BRANDS, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We estimate the fair value of our Firearms and Outdoor Products & Accessories operating units using an equal weighting of the fair values derived from the income approach and the market approach because we believe a market participant would equally weight both approaches when valuing the operating units.

The income approach is based on the projected cash flows that are discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows.

Fair value is estimated using internally developed forecasts and assumptions.

The discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics.

Other significant assumptions include revenue growth rates, profitability projections, and terminal value growth rates.

The market approach estimates fair values based on the determination of appropriate publicly traded market comparison companies and market multiples of revenue and earnings derived from those companies with similar operating and investment characteristics as the operating unit being valued.

Finally, we compare and reconcile our overall fair value to our market capitalization in order to assess the reasonableness of the calculated fair values of our operating units.

We recognize an impairment loss for goodwill if the implied fair value of goodwill is less than the carrying value.

As of our valuation date, February 1, 2020, our Firearms operating unit had $ 19.0 million of goodwill and its fair value significantly exceeded its carrying value.

Our Outdoor Products & Accessories operating unit had $ 163.2 million of goodwill and its fair value exceeded its carrying value by approximately 1.5 %.

On March 23, 2020, we determined that business in our Outdoor Products & Accessories segment was expected to be negatively impacted by several factors related to the COVID-19 pandemic, including a major online retail customer’s decision to halt or delay most non-essential product orders, COVID-19-related supply chain issues, as well as COVID-19-related “stay at home” orders and sporting goods store closures, which reduced retail foot traffic in many states.

Given the extreme market volatility, we relied solely on the income approach to derive the current value of the Outdoor Products & Accessories segment.

Based on these factors, we expect reduced cash flows in our Outdoor Products & Accessories segment, and we believe this constituted a triggering event under generally accepted accounting principles.

Based on the results of this evaluation, we recorded a non-cash impairment charge of $ 98.7 million of goodwill in our Outdoor Products & Accessories segment.

As of April 30, 2020, our Outdoor Products & Accessories operating unit had $ 64.6 million of goodwill.

Although we concluded that there was no additional impairment of the goodwill associated with our operating units as of April 30, 2020, we will continue to closely monitor their performance and related market conditions for future indicators of potential impairment and reassess accordingly.

Based on this review, following the Separation, we had concluded that we have one operating unit when reviewing ASC 350-20.

We review the fair value of our goodwill based on financial performance annually.

As of our last valuation date, February 1, 2021, we had $ 19.0 million of goodwill and its fair value significantly exceeded its carrying value, based on EBITDAS, cashflow, and market capitalization.

Our assumptions related to the development of fair value could deviate materially from actual results and forecasts used to support asset carrying values may change in the future, which could result in non-cash charges that would adversely affect our financial results of operations .

The re-measurement of goodwill is classified as a Level 3 fair value assessment as described in Note 13 - Fair Value Measurement, due to the significance of unobservable inputs developed using company-specific information.

Income Taxes — We use the asset and liability approach for financial accounting and reporting income taxes.

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In assessing the realization of our deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized.

The ultimate realization of our deferred income tax assets depends upon generating future taxable income during the periods in which our temporary differences become deductible and before our net operating loss carryforwards expire.

The ultimate realization of our deferred income tax assets depends upon generating future taxable income during the

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periods in which our temporary differences become deductible and before our net operating loss carryforwards expire.

We evaluate the recoverability of our deferred income tax assets by assessing the need for a valuation allowance on a quarterly basis.

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Warranty — We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products.

We either provide a limited one year or limited lifetime warranty program to the original purchaser of most of our outdoor products and accessories products and we will repair or replace any of our electro-optics products or parts that are 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.

We either provide a limited one-year, or a limited-lifetime warranty to the original purchaser of most of our 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 quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs.

We make adjustments to accruals as warranty claims data and historical experience warrant.

We adjust accruals as warranty claims data and historical experience warrant.

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 would be adversely impacted.

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From time to time, we have experienced certain manufacturing and design issues with respect to some of our firearms and have initiated some product recalls and safety alerts in the past.

In November 2011, we initiated a recall of all Thompson/Center Arms Venture rifles manufactured since the products’ introduction in mid-2009.

In June 2013, we also initiated a recall of all Thompson/Center Arms bolt action rifles manufactured since the products’ introduction in 2007.

In April 2018, we initiated a consumer advisory for certain models of our M&P Shield EZ pistols because in rare circumstances the safety on the pistol will move from the fire position to the “safety on” position when using ammunition that produces a high level of felt recoil.

In May 2018, we initiated a recall of certain models of our electro-optics products that incorporated diodes manufactured by a particular third party because the diodes failed to comply with a Food and Drug Administration, or FDA, standard for laser products.

We have made efforts to notify all consumers that may be impacted by this recall.

The remaining cost of all recalls, safety alerts, and consumer advisories is $ 683,000 , which is recorded in accrued warranty on our consolidated balance sheet.

From time to time, we have experienced certain manufacturing and design issues with respect to some of our firearms and have initiated some product recalls and safety alerts.

In October 2020, we initiated a recall for certain models of our M&P Shield EZ pistols manufactured between March 1, 2020 and October 31, 2020 because some hammers manufactured by our supplier were cracked and could potentially cause a discharge without depressing the trigger.

The remaining estimated cost of all recalls, safety alerts, and consumer advisories is $ 323,000 , which is recorded in accrued warranty on our consolidated balance sheet.

The remaining balance relates to a general accrual related to standard warranty costs for products shipped in the ordinary course of business.

Warranty expense for the fiscal years ended April 30, 2021, 2020, and 2019 amounted to $ 5.2 million, $ 1.8 million, and $ 2.7 million, respectively.

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Sales and Promotional Related Expenses — We present product sales in our consolidated financial statements, net of customer promotional program costs that depend upon the volume of sales.

For promotional program costs that are not dependent on the volume of sales, we record promotional costs in cost of goods sold.

For promotional program costs that do not depend on the volume of sales, we record promotional costs in cost of goods sold.

The total of all our promotional programs amounted to $ 10.5 million, $ 43.6 million, and $ 39.2 million for the fiscal years ended April 30, 2021, 2020, and 2019, respectively.

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however, costs incurred to distribute products to customers is included in selling, marketing, and distribution expenses.

As a result of this change, we recorded $ 4.4 million of costs in selling, marketing, and distribution expenses that would have been recorded in cost of sales in the prior fiscal year.

Prior to fiscal 2020, in our Firearms segment, we included costs relating to shipping and handling charges, including inbound freight charges, internal transfer costs, and the other costs of our distribution network, in cost of goods sold.

As a result of this change, we recorded $ 4.4 million of costs in selling, marketing, and distribution expenses that would have been recorded in cost of sales in fiscal 2019.

Prior to fiscal 2020, we included costs relating to shipping and handling charges, including inbound freight charges, internal transfer costs, and the other costs of our distribution network, in cost of goods sold.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Insurance Reserves — In January 2020, we formed a wholly owned captive insurance company, which provides product liability insurance to us and our subsidiaries.

This captive insurance company was recorded in our consolidated financial statements for the fiscal year ended April 30, 2020.

This captive insurance company was recorded in our consolidated financial statements for the fiscal year ended April 30, 2021 and 2020.

We are self-insured through retentions or deductibles for the majority of our workers’ compensation, automobile, general liability, product liability, and group health insurance programs.

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We record our liability for estimated premiums and incurred losses in the accompanying consolidated financial statements on an undiscounted basis.

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Recently Issued Accounting Standards — In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-02, Leases (Topic 842), or ASU 2016-02, which amends the existing guidance to require lessees to recognize right-of-use assets and lease liabilities in a classified balance sheet.

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The requirements of ASU 2016-02 are effective for financial statements for annual periods beginning after December 15, 2018, and early adoption is permitted.

We utilized leasing software to assist us in the accounting and tracking of leases and used the optional transitional method allowed by ASU 2018-11, Leases (Topic 842):

We used the optional transitional method allowed by ASU 2018-11, Leases (Topic 842):

Targeted Improvements.

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See also Note 4 — Leases, for more information.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

The new standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures.

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, 2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, or ASU 2016-13.

ASU 2016-13 changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures.

Under the expected loss model, entities will recognize credit losses to be incurred over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred.

The requirements of this ASU are effective for financial statements for annual periods beginning after December 15, 2019, and early adoption is permitted.

While we are currently evaluating the impact this standard will have on our consolidated financial statements, we do not expect the impact to be material.

The requirements of ASU 2016-13 are effective for financial statements for annual periods beginning after December 15, 2019, and early adoption is permitted.

We adopted ASU 2016-13 on May 1, 2020, and the adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, " Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes", an update that amends and simplifies the accounting for income taxes by removing certain exceptions in existing guidance and providing new guidance to reduce complexity in certain areas.

The guidance will be effective in the first quarter of the year ending April 30, 2022 with early adoption permitted.

We are evaluating the impact that adopting this guidance will have on our consolidated financial statements.

Discontinued Operations

On November 13, 2019, we announced the Separation.

On the Distribution Date, at 12:01 a.m.

Eastern Time, we completed the Separation of our wholly owned subsidiary, American Outdoor Brands, Inc., a Delaware corporation, or AOUT, from our company.

The Separation was treated as tax-free for U.S.

federal income tax purposes and was achieved through the transfer of all the assets and legal entities, subject to any related liabilities, associated with our outdoor products and accessories business to AOUT, or the Transfer, and the distribution of 100 % of the AOUT outstanding capital stock to holders of our common stock, or the Distribution, as of the close of business on August 10, 2020, or the Record Date.

In connection with the Distribution, our stockholders received one share of AOUT common stock for every four shares of our common stock held as of the close of business on the Record Date.

Following the Distribution, AOUT became an independent, publicly traded company, and we retain no ownership interest in AOUT.

During the fiscal year ended April 30, 2021, we recorded $ 8.4 million in general and administrative expenses related to the Separation and there was no gain/(loss) recognized for the Separation.

In connection with the Separation, we distributed $ 25.0 million in cash to AOUT.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our common stock continues to trade on the Nasdaq Global Select Market under the new ticker symbol “SWBI,” and AOUT common stock is now trading on the Nasdaq Global Select Market under the ticker symbol “AOUT.” The outdoor products and accessories business historical financial data is recorded as discontinued operations.

Please refer to our Current Report on Form 8-K filed on August 26, 2020 for more information regarding the Separation.

As a result of the Separation, we divested net assets of $ 260.4 million, which included the $ 25.0 million cash distribution to AOUT.

The results of AOUT were previously reported in our Outdoor Products & Accessories segment.

The historical financial data of the outdoor products and accessories business through August 23, 2020 is recorded as discontinued operations in income/(loss) from discontinued operations in the condensed consolidated financial statements.

During the fiscal year ended April 30, 2021, 2020, and 2019, income/(loss) from discontinued operations, net of tax was $ 8.5 million, ($ 88.9 ) million, and ($ 6.5 ) million, respectively.

In connection with the Separation, we entered into several agreements with AOUT that govern the relationship of the parties following the Separation, including the Separation and Distribution Agreement, the Tax Matters Agreement, the Transition Services Agreement, and the Employee Matters Agreement.

Under the terms of the Transition Services Agreement, both companies agreed to provide each other certain transitional services, including information technology, information management, human resources, employee benefits administration, facilities, and other limited finance and accounting related services, for periods up to 24 months.

Payments for transition services are recorded in other income/(expense) in our condensed consolidated financial statements.

The following table summarizes the major line items for the outdoor products and accessories business that are included in income/(loss) from discontinued operations, net of tax, in the condensed consolidation statements of income/(loss) and comprehensive income/(loss):

For the Years Ended April 30,

(In thousands)

Cost of sales

Operating expenses

Interest income/(expense), net

Other income/(expense), net

Income/(loss) from discontinued operations before

Income tax expense/(benefit)

Income/(loss) from discontinued operations, net of tax

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the carrying amounts of major classes of assets and liabilities of discontinued operations for each of the periods presented:

April 30, 2021

April 30, 2020

(In thousands)

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Property, plant, and equipment, net

Intangible assets, net

Deferred income taxes

Total assets of discontinued operations

Current liabilities

Other non-current liabilities

Total liabilities of discontinued operations

We lease certain of our real estate, machinery, photocopiers, and vehicles under non-cancelable operating lease agreements.

We recognize expenses under our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease term.

We recognize expenses for our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease term.

Our leases do not provide an implicit interest rate.

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Tenant improvement allowances are recorded as an offsetting adjustment included in our calculation of the respective right-of-use asset.

Many of our leases include renewal options that can extend the lease term.

The execution of those renewal options is at our sole discretion and are reflected in the lease term when they are reasonably certain to be exercised.

Many of our leases include renewal options that enable us to extend the lease term.

The execution of those renewal options is at our sole discretion and renewals are reflected in the lease term when they are reasonably certain to be exercised.

The depreciable life of assets and leasehold improvements are limited by the expected lease term.

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Total finance lease liabilities

During the fiscal year ended April 30, 2020, we recorded $ 4.3 million of operating lease costs, of which $ 1.1 million related to short-term leases, and not recorded as right-of-use assets.

We recorded $ 2.1 million of financing lease amortization, and $ 2.1 million of financing lease interest expense during fiscal 2020.

During the fiscal year ended April 30, 2021, we recorded $ 1.8 million of operating lease costs, of which $ 216,000 related to short-term leases that were not recorded as right-of-use assets.

We recorded $ 2.1 million of finance lease amortization and $ 2.0 million of financing lease interest expense during fiscal 2021.

As of April 30, 2021, our weighted average lease term and weighted average discount rate for our operating leases was 4.1 years and 4.5 %, respectively.

As of April 30, 2020, our weighted average lease term and weighted average discount rate for our financing leases was 18.5 years and 5.0 %, respectively, and consisted primarily of our distribution center located in Columbia, Missouri.

As of April 30, 2021, our weighted average lease term and weighted average discount rate for our financing leases were 17.5 years and 5.0 %, respectively, and consisted primarily of our distribution center located in Columbia, Missouri.

The building is pledged to secure the amounts outstanding.

The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight-line basis over the life of the lease .

With the completion of the Separation, we entered into a sublease under which AOUT subleases from us 59.0 % of our distribution center under the same terms applicable to us under the master lease.

During the fiscal year ended April 30, 2021, we recorded $ 1.7 million of income related to this sublease agreement, which is recorded in other income/(expense) in our condensed consolidated statements of income/(loss) and comprehensive income/(loss).

The following table represents future expected undiscounted cashflows, based on the sublease agreement to AOUT, to be received on an annual basis for the next five years and thereafter, as of April 30, 2021 (in thousands):

Total future sublease receipts

Less amounts representing interest

Present value of sublease receipts

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Future lease payments for all our operating and finance leases for succeeding fiscal years is as follows (in thousands):

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During the fiscal year ended April 30, 2021, the cash paid for amounts included in the measurement of the liabilities and the operating cash flows was $ 4.7 million .

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenue Recognition and Contracts with Customers

On May 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , or ASU 2014-09, using the modified retrospective approach, and recorded a contract liability, included in accrued expenses in the condensed consolidated balance sheet, for outstanding performance obligations related to sales promotions.

Under the modified retrospective approach, results for reporting periods after May 1, 2018 will be presented in accordance with ASU 2014-09, while prior period amounts will not be adjusted and will continue to be reported in accordance with the previous guidance, Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition .

When evaluating our performance obligations, we disaggregate revenue based on major product lines, which correlate with our reportable segments disclosed in Note 20 — Segment Reporting.

We record our outstanding performance obligations related to sales promotions in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , which we adopted on May, 1, 2018.

When evaluating our performance obligations, we disaggregate revenue based on major product lines, which are disclosed in Note 7 — Net Sales.

Domestic sales account for 98 % of our total net sales.

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There are no other contract costs that need to be considered based on the nature of our performance obligations.

The following table outlines the impact of the adoption of ASU 2014-09 on revenue recognized during the year ended April 30, 2019 (in thousands):

The following table outlines changes in the balance of our outstanding performance obligations during the year ended April 30, 2021, and 2020 (in thousands):

Outstanding performance obligations at beginning of period

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This recognition of revenue was partially offset by $ 3.1 million of additional deferred revenue for outstanding performance obligations incurred during fiscal 2021.

This resulted in a $ 11.8 million net increase in revenue recognized during fiscal 2021.

We estimate that the majority of the revenue from outstanding performance obligations as of April 30, 2021 will be recognized during our first half of fiscal 2022.

During fiscal 2020, we recognized $ 48.6 million of deferred revenue, of which $ 10.5 million was previously deferred as of April 30, 2019, as the performance obligations relating to sales promotions were satisfied.

This recognition of revenue was partially offset by $ 51.1 million of additional deferred revenue for outstanding performance obligations incurred during fiscal 2020.

This resulted in a $ 2.5 million net decrease in revenue recognized during fiscal 2020.

We estimate that the majority of the revenue from the outstanding performance obligations as of April 30, 2020 will be recognized during our first quarter of fiscal 2021.

During fiscal 2019, we recognized $ 22.2 million of revenue previously deferred as of May 1, 2018 as the performance obligations relating to sales promotions were satisfied.

In addition, we deferred $ 11.1 million during fiscal 2019, net of revenue recognized, as the performance obligations related to sales promotions were not satisfied, resulting in an outstanding performance obligation liability of $ 12.2 million that is recorded in accrued expenses in the consolidated balance sheet.

During fiscal 2019, we recognized an $ 11.1 million net increase of revenue relating to the adoption of ASU 2014-09.

As a result of the adoption of ASU 2014-09, for the year ended April 30, 2019, gross margin was unfavorably impacted by 400 basis points and earnings per share was increased by $ 0.03 .

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill by reporting segment are as follows (in thousands):

Balance as of April 30, 2018

Goodwill impairment

Balance as of April 30, 2019

Goodwill impairment

Balance as of April 30, 2020

For more information regarding goodwill impairment testing, see Note 3 — Significant Accounting Policies — Valuation of Long-lived Tangible and Intangible Assets to our consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of April 30, 2020, the goodwill recorded within our Outdoor Products & Accessories segment is presented net of $ 109.1 million of accumulated impairment losses, all of which was recorded during fiscal 2020 and 2019.

The goodwill within our Firearms segment has no accumulated impairment losses.

The following table presents a summary of intangible assets as of April 30, 2020 and 2019 (in thousands):

April 30, 2020

April 30, 2019

Customer relationships

Developed technology

Patents, trademarks, and trade names

Patents in progress

Total definite-lived intangible assets

Indefinite-lived intangible assets

Total intangible assets

We amortize intangible assets with determinable lives over a weighted-average period of approximately five years .

The weighted-average periods of amortization by intangible asset class is approximately five years for customer relationships, six years for developed technology, and five years for patents, trademarks, and trade names.

Amortization expense, excluding amortization of deferred financing costs, amounted to $ 19.5 million, $ 22.0 million, and $ 21.0 million for the fiscal years ended April 30, 2020, 2019, and 2018, respectively.

The following table represents future expected amortization expense as of April 30, 2020, which will primarily be recorded in our Outdoor Products & Accessories segment (in thousands):

Notes and Loans Payable and Financing Arrangements

Credit Facilities – On June 15, 2015, we and certain of our domestic subsidiaries entered into an unsecured credit facility, or the Credit Agreement, with TD Bank, N.A.

and other lenders, or the Lenders, which included a $ 175.0 million revolving line of credit, or the Revolving Line, and a $ 105.0 million term loan, or the Term Loan.

The Term Loan was paid in full on November 19, 2019 with proceeds from the Revolving Line.

The Revolving Line provides for availability for general corporate purposes, with borrowings to bear interest at a variable rate equal to LIBOR or prime plus an applicable margin based on our consolidated leverage ratio, at our election.

On October 27, 2016, we entered into a second amendment to our Credit Agreement, or the Second Amendment, which, among other things, increased the Revolving Line to $ 350.0 million, increased the option to expand the credit commitment to an additional $ 150.0 million, and extended the maturity of the Revolving Line from June 15, 2020 to October 27, 2021 .

On November 22, 2019, we entered into a fifth amendment to our Credit Agreement, or the Fifth Amendment, which, among other things, provides the Lenders’ consent to the spin-off of our outdoor products and accessories business, provided that certain financial conditions are satisfied, including (x) granting the Lenders security interest in the assets of the remaining business, (y) reducing the Revolving Line to $ 250.0 million at the time of the spin-off, and (z) reducing the option to expand the credit agreement to $ 50.0 million at the time of the spin-off.

Other than the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

changes described in the Second and Fifth Amendments, we otherwise remain subject to the terms of the Credit Agreement, as described below.

We incurred $ 875,000 of debt issuance costs related to the Fifth Amendment.

As of April 30, 2020, we had $ 160.0 million of borrowings outstanding under the Revolving Line, which bore interest at 2.95 %, which is equal to the LIBOR rate plus an applicable margin based on our consolidated leverage ratio.

We were required to obtain interest rate protection on the Term Loan covering not less than 75 % of the aggregate outstanding principal balance of the Term Loan.

Accordingly, on June 18, 2015, we entered into an interest rate swap agreement that covered 100 % of the $ 105.0 million of floating rate debt.

On July 6, 2015, we executed an interest rate swap pursuant to such agreement, which required us to pay interest at a defined rate of 1.56 % while receiving interest at a defined variable rate equal to the one-month LIBOR rate.

This swap, when combined with the applicable margin based on our consolidated leverage ratio, effectively fixed our interest rate on the Term Loan, which was subject to change based on changes in our consolidated leverage ratio.

In accordance with the repayment of the Term Loan on November 19, 2019, the interest rate swap was terminated resulting in a realized gain of approximately $ 40,000 .

We recognize derivatives as either assets or liabilities on our consolidated balance sheets at fair value.

The accounting for changes in the fair value (i.e., unrealized gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and on the type of hedging relationship.

Derivatives that do not qualify for hedge accounting must be adjusted to fair value through earnings.

Our interest rate swap agreement is considered effective and qualifies as a cash flow hedge.

The effective portion of the gain or loss on the derivative that is designated and qualifies as a cash flow hedge is recorded as a component of accumulated other comprehensive income or loss and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

As of April 30, 2019, the interest rate swap was considered effective and had no effect on earnings.

The fair value of the interest rate swap on April 30, 2019 and 2018 was an asset of $ 710,000 and $ 2.1 million, respectively, and was recorded in other assets on our consolidated balance sheet.

2018 Senior Notes – During fiscal 2015, we issued an aggregate of $ 75.0 million of 5.000 % Senior Notes due 2018, or the 2018 Senior Notes, to various institutional investors pursuant to the terms and conditions of an indenture and purchase agreements.

The 2018 Senior Notes bear interest at a rate of 5.000% per annum payable on January 15 and July 15 of each year, beginning on January 15, 2015.

We incurred $ 2.3 million of debt issuance costs related to the issuance of the 2018 Senior Notes.

As discussed below, the 2018 Senior Notes were redeemed on March 8, 2018 with proceeds from the issuance of 5.000% Senior Notes due 2020.

As part of the redemption, in fiscal 2018, we wrote off $ 226,000 of debt issuance costs related to the 2018 Senior Notes.

2020 Senior Notes – On February 28, 2018, we issued an aggregate of $ 75.0 million of 5.000 % Senior Notes due 2020, or the 2020 Senior Notes, to various institutional investors pursuant to the terms and conditions of an indenture, or the 2020 Senior Notes Indenture, and purchase agreements.

The 2020 Senior Notes bore interest at a rate of 5.000% per annum payable on February 28 and August 28 of each year, beginning on August 28, 2018.

We incurred $ 158,000 of debt issuance costs related to the issuance of the 2020 Senior Notes.

On January 6, 2020 , or the Redemption Date, we redeemed 100 % of the principal amount of the 2020 Senior Notes, plus accrued and unpaid interest to, but not including, the Redemption Date, with proceeds from the Revolving Line.

As part of the redemption, we wrote off $ 42,000 of debt issuance costs related to the 2020 Senior Notes.

Debt Issuance Costs — We recorded, in notes payable, $ 875,000 of debt issuance costs for the fiscal year ended April 30, 2020.

Notes, Loans Payable, and Financing Arrangements

Credit Facilities — On August 24, 2020, we and certain of our subsidiaries entered into an amended and restated credit agreement, or the Amended and Restated Credit Agreement, with certain lenders;

including TD Bank, N.A., as administrative agent;

TD Securities (USA) LLC and Regions Bank, as joint lead arrangers and joint bookrunners;

and Regions Bank, as syndication agent.

The Amended and Restated Credit Agreement amended and restated out former credit agreement dated as of June 15, 2015.

The Amended and Restated Credit Agreement is currently unsecured;

however, should any Springing Lien Trigger Event (as defined in the Amended and Restated Credit Agreement) occur, we and certain of our subsidiaries would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents a legal, valid, and enforceable ‎first priority Lien on the Collateral described therein.

The Amended and Restated Credit Agreement provides for a revolving line of credit of $ 100.0 million at any one time, or the Revolving Line.

The Revolving Line bears interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio.

The Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $ 5.0 million at any one time (subject to availability under the Revolving Line).

Each Swingline Loan (as defined in the Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio.

Subject to the satisfaction of certain terms and conditions described in the Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $ 50.0 million.

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 Amended and Restated Credit Agreement.

As of April 30, 2021, we did no t have any borrowings outstanding on the Revolving Line.

Had there been borrowings, they would have borne an interest rate of 1.61 %, which is equal to the LIBOR rate plus an applicable margin.

The Amended and Restated Credit Agreement contains customary limitations, including limitations on indebtedness, liens, fundamental changes to business or organizational structure, investments, loans, advances, guarantees, and acquisitions, asset sales, dividends, stock repurchases, stock redemptions, and the redemption or prepayment of other debt, and transactions with affiliates.

We are also subject to financial covenants, including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio, all of which were met as of April 30, 2021.

Letters of Credit – At April 30, 2021, we had outstanding letters of credit aggregating $ 2.7 million, which included a $ 1.5 million letter of credit to collateralize our captive insurance company .

Debt Issuance Costs — We recorded, in notes payable, $ 450,000 of debt issuance costs during the fiscal year ended April 30, 2021 and wrote off $ 689,000 of debt issuance costs remaining from the $ 875,000 of debt issuance costs incurred during the fiscal year ended April 30, 2020.

We did no t record any debt issuance costs during the fiscal year ended April 30, 2019.

We recorded, in notes payable, $ 158,000 of debt issuance costs for the fiscal years ended April 30, 2018.

These costs are being amortized to expense over the life of the credit facility.

In total, we amortized $ 687,000 , $ 431,000 , and $ 1.1 million to interest expense for all debt issuance costs in fiscal 2020, 2019, and 2018, respectively, including write-offs related to extinguishment.

The Credit Agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage.

Letters of Credit — At April 30, 2020, we had outstanding letters of credit aggregating $ 2.2 million, which included a $ 1.5 million letter of credit to collateralize our newly created captive insurance company.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

These remaining costs are being amortized to expense over the life of the credit facility.

In total, we amortized $ 890,553 , $ 687,000 , and $ 431,000 to interest expense for all debt issuance costs in fiscal 2021, 2020, and 2019, respectively, including write-offs related to extinguishment.

The following table sets forth the breakdown of net sales for the fiscal years ended April 30, 2021, 2020, and 2019 (in thousands):

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Other Products & Services

Firearms Segment

Outdoor Products & Accessories Segment

Total Net Sales

We sell our products and services in our Firearms segment under our Smith & Wesson, M&P, Performance Center, Gemtech, Thompson/Center Arms, and Smith & Wesson Precision Components brands.

Depending upon the product or service, our firearm customers primarily include distributors;

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We sell our products and services under our Smith & Wesson, M&P, Gemtech, Thompson/Center Arms, and Smith & Wesson Precision Components brands.

Depending upon the product or service, our customers primarily include distributors;

federal, state, and municipal law enforcement agencies and officers;

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and retailers.

We sell our outdoor products & accessories products under our Caldwell, Wheeler, Tipton, Frankford Arsenal, Hooyman, BOG, MEAT!, Uncle Henry, Old Timer, Imperial, Crimson Trace, LaserLyte, Lockdown, UST, BUBBA, and Schrade, and we license from our Firearms segment for use in association with certain products that we sell, including M&P, Smith & Wesson, Performance Center by Smith & Wesson, and Thompson/Center Arms.

Our outdoor products and accessories customers include online retailers, sports specialty stores, sporting goods stores, dealers and distributors, mass market, home and auto retailers, and direct-to-consumers.

We sell our products worldwide.

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All others international

Total international net sales (a)

Our international sales were negatively impacted in our fourth fiscal quarter as a result of COVID-19 pandemic.

Our Firearm and Outdoor Products & Accessories segments own tooling that is located at various suppliers in Asia and North America.

Total international net sales

Our international sales were negatively impacted in our fourth fiscal quarter of 2020 as a result of the COVID-19 pandemic.

Advertising Costs

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Advertising expense, included in selling and marketing expenses, for the fiscal years ended April 30, 2021, 2020, and 2019, amounted to $ 12.5 million, $ 13.6 million, and $ 13.4 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property, Plant, and Equipment

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Depreciation of tangible assets and amortization of software expense amounted to $ 30.1 million, $ 30.5 million, and $ 28.1 million for the fiscal years ended April 30, 2021, 2020, and 2019, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes depreciation and amortization expense, which includes amortization of intangibles and debt financing costs, by line item for the fiscal years ended April 30, 2021, 2020, and 2019 (in thousands):

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Total depreciation and amortization

General and administrative expenses included $ 19.0 million, $ 21.8 million, and $ 20.8 million of amortization for the fiscal years ended April 30, 2020, 2019, and 2018, respectively, which were recorded as a result of our acquisitions.

General and administrative expenses included $ 330,644 , $ 344,527 , and $ 286,261 of amortization for the fiscal years ended April 30, 2021, 2020, and 2019, respectively, which were recorded as a result of our acquisitions.

The following table sets forth a summary of inventories, net of reserves, stated at lower of cost or market, as of April 30, 2021 and 2020 (in thousands):

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Total inventories

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accrued Expenses and Deferred Revenue

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April 30, 2020

Accrued taxes other than income

Deferred revenue

Accrued rebates and promotions

Accrued taxes other than income (a)

Accrued employee benefits

Accrued other

Deferred revenue (b)

Accrued professional fees

Right-of-use lease liabilities

Accrued distributor incentives

Accrued commissions

Interest payable

Current portion of capital lease obligation

Accrued other

Accrued rebates and promotions

Current portion of operating lease obligation

Current portion of finance lease obligation

Total accrued expenses and deferred revenue

Increase in accrued taxes other than income is due to the deferral of federal excise tax payments allowed by the Tax and Trade Bureau as a result of the COVID-19 pandemic .

Decrease in accrued taxes other than income is due to the deferral of federal excise tax payments allowed by the Tax and Trade Bureau as a result of the COVID-19 pandemic as of April 30, 2020 .

Decrease in deferred revenue due to the fulfillment of performance obligations related to promotional activity.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Fair Value Measurement

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inputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability (such as certain securities and derivatives).

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Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

These inputs reflect our assumptions about the assumptions a market participant would use in pricing the asset or liability.

We currently do no t have any Level 2 or Level 3 financial assets or liabilities.

We currently do not have any Level 2 or Level 3 financial assets or liabilities as of April 30, 2021.

Self-Insurance Reserves

As of April 30, 2020 and 2019, we had reserves for workers’ compensation, product liability, municipal liability, and medical/dental costs totaling $ 9.4 million and $ 8.9 million, respectively, of which $ 4.6 million and $ 4.8 million was classified as other non-current liabilities, respectively.

As of April 30, 2021 and 2020, we had reserves for workers’ compensation, product liability, municipal liability, and medical/dental costs totaling $ 9.5 million and $ 9.0 million, respectively, of which $ 5.0 million and $ 4.5 million, respectively, was classified as other non-current liabilities.

As of April 30, 2021 and 2020, $ 4.5 million and $ 4.5 million, respectively, were included in accrued expenses on the accompanying consolidated balance sheets.

In addition, as of April 30, 2020 and 2019, 620,000 of workers’ compensation recoverable was classified as other assets.

In addition, as of April 30, 2021 and 2020, $ 614,000 and $ 620,000 , respectively, of workers’ compensation recoverable was classified as other assets.

While we believe these reserves to be adequate, it is possible that the ultimate liabilities will exceed such estimates.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the activity in the workers’ compensation, product liability, municipal liability, and medical/dental reserves in the fiscal years ended April 30, 2021 and 2020 (in thousands):

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We also record receivables from insurance carriers relating to these matters when their collection is probable.

As of April 30, 2020 and 2019, we had accrued reserves for product and municipal litigation liabilities of $ 3.6 million and $ 3.3 million, respectively (of which $ 2.6 million and $ 2.8 million was non-current, respectively), consisting entirely of expected legal defense costs.

In addition, as of April 30, 2020 and 2019, we had recorded receivables from insurance carriers related to these liabilities of $ 1.9 million, nearly all of which has been classified as other assets.

As of April 30, 2021 and 2020, we had accrued reserves for product and municipal litigation liabilities of $ 4.0 million and $ 3.7 million, respectively (of which $ 2.9 million and $ 2.6 million, respectively, was non-current), consisting entirely of expected legal defense costs.

In addition, as of April 30, 2021, we did no t record any receivables from insurance carriers related to these liabilities.

During fiscal 2020, we had recorded receivables from insurance carriers related to these liabilities of $ 1.9 million, nearly all of which has been classified as other assets.

Stockholders’ Equity

Treasury Stock

We did no t repurchase any shares of our common stock during fiscal 2020, 2019, or 2018, and we do no t have an authorized repurchase program as of April 30, 2020.

During fiscal 2021, our board of directors authorized the repurchase of up to $ 50.0 million of our common stock, subject to certain conditions, in the open market, or privately negotiated transactions until December 14, 2021.

During fiscal 2021, we completed this stock repurchase program by purchasing 2,737,489 shares of common stock for $ 50.0 million utilizing cash on hand.

On March 2, 2021, our board of directors authorized the repurchase of an additional $ 100.0 million of our common stock, subject to certain condition, in the open market, or in privately negotiated transaction until March 1, 2022.

Pursuant to the second authorization, during fiscal 2021, we purchased 3,380,447 shares of our common stock for $ 60.0 million using cash on hand.

Subsequent to fiscal 2021, we completed the second stock repurchase program by purchasing 1,967,420 of our common stock for $ 40.0 million utilizing cash on hand.

Incentive Stock and Employee Stock Purchase Plans

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All new grants covering all participants are issued under the 2013 Incentive Stock Plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The remaining grants under the 2004 Incentive Stock Plan were exercised in the fiscal year ended, April 30, 2021.

The 2013 Incentive Stock Plan authorizes the issuance of 3,000,000 shares, plus any shares that were reserved and remained available for grant and delivery under the 2004 Incentive Stock Plan as of September 23, 2013, the effective date of the 2013 Incentive Stock Plan.

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All options issued pursuant to the SPs are generally nontransferable and subject to forfeiture.

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Unless terminated earlier by our board of directors, the 2013 Incentive Stock Plan will terminate at the earliest of (1) the tenth anniversary of the effective date of the 2013 Stock Plan, or (2) such time as no shares of common stock remain available for issuance under the plan and we have no further rights or obligations with respect to outstanding awards under the plan.

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Exercised during the period

Canceled/forfeited during period

Options outstanding, end of period

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As of April 30, 2021, there were 3,967,603 shares available for grant under the 2013 Incentive Stock Plan.

We use our unissued share pool for all shares issued for options, restricted stock awards, RSUs, performance share units, performance-based restricted stock units, or PSUs, and shares issued under our Employee Stock Purchase Plan, or ESPP.

The aggregate intrinsic value of outstanding and exercisable stock options as of April 30, 2020, 2019, and 2018 was $ 356,000 , $ 826,000 , and $ 1.4 million, respectively.

The aggregate intrinsic value of the options exercised for the years ended April 30, 2020, 2019, and 2018 was $ 260,000 , $ 285,000 , and $ 116,000 , respectively.

At April 30, 2020, there was no unrecognized compensation cost of outstanding options.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We use our unissued share pool for all shares issued for options, restricted stock awards, or RSUs, performance share units, performance-based restricted stock units, or PSUs, and shares issued under our Employee Stock Purchase Plan, or ESPP.

In connection with the spin-off of AOUT, as of August 24, 2020, there was one option award outstanding that could be converted into 10,000 shares of SWBI common stock .

Under the terms of the Employee Matters Agreement between us and AOUT, the holder of the outstanding SWBI options was granted a pro rata number of AOUT options with the price of the SWBI options reduced at a pro rata value to the amount of awards granted of AOUT options.

Incremental compensation expense associated with this change in the award was immaterial and recognized fully in fiscal 2021.

There were no outstanding and exercisable stock options as of April 30, 2021.

The aggregate intrinsic value of outstanding and exercisable stock options as of April 30, 2020 and 2019 was $ 356,000 , $ 826,000 , respectively.

The aggregate intrinsic value of the options exercised for the years ended April 30, 2021, 2020, and 2019 was $ 2.9 million, $ 260,000 , and $ 285,000 , respectively.

The following table summarizes stock compensation expense by line item for the fiscal years ended April 30, 2021, 2020, and 2019 (in thousands):

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Total stock-based compensation

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The decrease in general and administrative stock-based compensation expense from fiscal 2019 was because of the separation of our former President and Chief Executive Officer.

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Except in specific circumstances, RSU grants to employees generally vest over a period of three or four years with one-third or one-fourth of the units vesting, respectively, on each anniversary date of the grant date.

RSU grants to directors generally vest over a period of one year with one-twelfth of the units vesting each month.

The aggregate fair value of our RSU grants is amortized to compensation expense over the applicable vesting period.

We grant PSUs to our executive officers and certain management employees who are not executive officers.

In connection with the spin-off of AOUT, we adjusted outstanding RSU awards in accordance with the terms of the Employee Matters Agreement between us and AOUT.

For directors and certain executives, a pro rata number of RSUs were issued of AOUT RSUs with terms that matched original SWBI RSU.

For all other employees, we adjusted the underlying shares of outstanding RSUs to preserve the intrinsic value of the awards immediately before the spin-off.

The adjustment of the underlying shares was determined using a ratio based on the relative values of the SWBI pre-distribution stock value and the SWBI post-distribution stock value.

The outstanding awards continue to vest over their original vesting periods.

We will recognize $ 380,000 of incremental compensation expense costs related to the adjustment of PSUs, and $ 740,000 of compensation expense related to the adjustment of RSUs, for a total of $ 1.1 million.

During the fiscal year, we recognized expense of $ 738,000 relating to total incremental compensation cost.

We grant PSUs to our executive officers.

At the time of grant, we calculate the fair value of our PSUs using the Monte-Carlo simulation.

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Smith & Wesson Brands, Inc

$ 16.99 - 17.27

Russell 2000 Index

$ 1,526.46 - 1,571.21

Volatility (a)

Smith & Wesson Brands, Inc

59.09% - 61.34%

Russell 2000 Index

27.62% - 29.27%

Correlation coefficient (b)

0.1242 - 0.1302

Risk-free interest rate (c)

0.16% - 0.22%

Dividend yield (d)

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We did not pay dividends in fiscal 2020 and 2019.

The PSUs vest, and the fair value of such PSUs will be recognized, over the corresponding three-year performance period.

The PSUs vest, and the fair value of such PSUs are recognized, over the corresponding three-year performance period.

Our PSUs have a maximum aggregate award equal to 200 % of the target amount granted.

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In addition, there is a cap on the number of shares that can be earned under our PSUs, which is equal to six times the grant-date value of each award.

In certain circumstances, the vested awards will be delivered on the first anniversary of the applicable vesting date.

We have applied a discount to the grant date fair value when determining the amount of compensation expense to be recorded for these RSUs and PSUs.

SMITH & WESSON BRANDS, INC.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

During the fiscal year ended April 30, 2020, we granted 105,767 PSUs to certain of our executive officers and 32,050 PSUs to non-executive officer employees.

In connection with the spin-off of AOUT and in accordance with the terms of the Employee Matters Agreement between us and AOUT, all outstanding PSU awards were adjusted such that the performance criteria relative to SWBI share price was modified to compare the market cap of SWBI for the 90 days subsequent to the original grant date to the combined market cap of SWBI and AOUT for the 90 days preceding the original vest date.

The change in the market cap will be compared to the change in the value of the Russell 2000 index for the same period.

In addition, a pro rata number of AOUT PSUs were granted at the time of the spin to each SWBI PSU recipient with the same terms as the underlying original SWBI PSU.

In connection with the retirement of our former chief financial officer, 50,200 PSUs were converted to RSUs for immediate delivery during the fiscal year.

In certain circumstances, the vested awards will be delivered on the first anniversary of the applicable vesting date.

We have applied a discount to the grant date fair value when determining the amount of compensation expense to be recorded for these RSUs and PSUs.

During the fiscal year ended April 30, 2021, we granted 36,308 PSUs to certain of our executive officers.

We also granted 234,007 service-based RSUs during the year ended April 30, 2021, including 68,461 RSUs to certain of our executive officers, 25,570 RSUs to our directors, and 139,976 RSUs to non-executive officer employees.

Compensation expense recognized related to grants of RSUs and PSUs was $ 3.4 million for the fiscal year ended April 30, 2021.

During the fiscal year ended April 30, 2020, we canceled 232,793 service-based RSUs as a result of the service period condition not being met and 367,025 PSUs as the three year stock performance targets were not achieved.

During the fiscal year ended April 30, 2021, we canceled 88,365 service-based RSUs, of which 57,547 RSUs was a result of the spin-off, and 30,818 RSUs was as a result of the service period condition not being met.

We canceled 92,500 PSUs of which 28,800 PSUs was a result of the spin-off and 63,700 was a result of the three-year stock performance targets were not being achieved.

We delivered 50,200 shares of common stock to our former chief financial officer under vested PSUs with a total market value of $ 1.3 million, under the terms of his retirement.

We delivered 357,345 shares of common stock to current employees under vested RSUs with a total market value of $ 5.8 million.

During the fiscal year ended April 30, 2019, we granted 181,600 PSUs to certain of our executive officers.

During the fiscal year ended April 30, 2020, we granted 105,767 PSUs to certain of our executive officers and 32,050 PSUs to non-executive officer employees.

We also granted 400,483 service-based RSUs during the year ended April 30, 2020, including 113,770 RSUs to certain of our executive officers, 115,600 RSUs to our directors, and 211,073 RSUs to non-executive officer employees.

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We also granted 360,185 service-based RSUs during the year ended April 30, 2019, including 167,818 RSUs to certain of our executive officers, 49,509 RSUs to our directors, and 142,858 RSUs to non-executive officer employees.

In addition, in connection with a 2014 grant of 105,000 PSUs (i.e., the target amount granted), which achieved 115.2 % of the targeted award, we vested and delivered awards totaling 121,504 shares to certain of our executive officers.

Compensation expense recognized related to grants of RSUs and PSUs was $ 7.3 million for the fiscal year ended April 30, 2019.

During the fiscal year ended April 30, 2018, we canceled 208,496 service-based RSUs and 39,429 PSUs as a result of the service period condition not being met and delivered 300,496 shares of common stock to current employees under vested RSUs and PSUs with a total market value of $ 6.2 million.

During the fiscal year ended April 30, 2019, we canceled 33,899 service-based RSUs as a result of the service period condition not being met and 112,000 PSUs as the three-year stock performance targets were not achieved.

We delivered 206,572 shares of common stock to current employees under vested RSUs with a total market value of $ 2.5 million.

The grant date fair value of RSUs and PSUs that vested in fiscal 2021, 2020, and 2019 was $ 5.9 million, $ 5.0 million, and $ 3.9 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of activity for unvested RSUs and PSUs for fiscal years 2021, 2020, and 2019 is as follows:

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This cost is expected to be recognized over a weighted average remaining contractual term of 1.4 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On September 26, 2011, our stockholders approved our 2011 ESPP, which authorizes the sale of up to 6,000,000 shares of our common stock to employees.

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Expected volatility (b)

Dividend yield

We expect to have an abbreviated purchase period for the first half of fiscal 2021 because of our expected spin-off of our outdoor products and accessories business.

Dividend yield (c)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The 2 nd purchase period of 2020 was abbreviated because of the timing of the spin-off of our outdoor products and accessories business.

We believe our expected volatility increased in fiscal 2020 primarily due to market and stock price fluctuations as a result of the COVID-19 pandemic.

We did not pay dividends in fiscal 2020 and 2019.

We estimate expected volatility using historical volatility for the expected term.

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The total stock-based compensation expense, including stock options, purchases under our ESPP, and RSU and PSU awards, was $ 4.7 million, $ 2.4 million, and $ 6.9 million, for fiscal years 2021, 2020, and 2019, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Employer Sponsored Benefit Plans

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Contributions are funded after the fiscal year-end.

Income tax expense/(benefit) from continuing operations consists of the following (in thousands):

Income tax expense/(benefit) from continuing operations consisted of the following (in thousands):

For the Year Ended April 30,

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Total income tax expense/(benefit)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents a reconciliation of the provision for income taxes from continuing operations at statutory rates to the provision (benefit) in the consolidated financial statements (in thousands):

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Business meals and entertainment

Domestic production activity deduction

Research and development tax credit

Goodwill impairment

Non-deductible Separation expenses

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Total income tax expense/(benefit)

We had a statutory rate of 21 % in fiscal 2020 and 2019 and a blended statutory rate of 30.4 % in fiscal 2018 because of Tax Reform.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We had a statutory rate of 21 % in fiscal 2021, 2020 and 2019.

Deferred tax assets (liabilities) related to temporary differences are the following (in thousands):

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Accrued expenses, including compensation

Environmental reserves

Product liability

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The state tax credit carryforwards will expire between April 30, 2023 and April 30, 2025 or have no expiration date.

As of April 30, 2020, valuation allowances of $ 904,000 and $ 2.3 million were provided on our deferred tax assets for those state net operating loss carryforwards, and state tax credits, respectively, that we do not anticipate using prior to their expiration.

As of April 30, 2019, valuation allowances of $ 911,000 and $ 2.3 million were provided on our deferred tax assets for those state net operating loss carryforwards and state tax credits, respectively, that we do not anticipate using prior to their expiration.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of both April 30, 2021 and 2020, valuation allowances of $ 904,000 and $ 2.3 million were provided on our deferred tax assets for those state net operating loss carryforwards, and state tax credits, respectively, that we do not anticipate using prior to their expiration.

Additional valuation allowances of $ 79,000 were provided on our deferred income tax assets as of April 30, 2021, as we believe that it is more likely than not that all such assets will not be realized.

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Recording a valuation allowance or reversing a valuation allowance could have an effect on our future results of operations and financial position.

On December 22, 2017, the SEC issued Staff Accounting Bulletin 118, or SAB118, that provided additional guidance allowing companies to use a measurement period, similar to that used in business combinations, to account for the impacts of Tax Reform in their financial statements.

This measurement period was not permitted to extend beyond one year from the Tax reform enactment date.

In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of the Tax Reform is incomplete, but the company was able to determine a reasonably estimating the effects, we were permitted to record a provisional estimate in our financial statements.

All provisional estimates related to Tax Reform were finalized within the measurement period.

The income tax provisions represent effective tax rates of 23.4 % and 29.4 % for the fiscal year ended April 30, 2021 and 2020, respectively.

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income taxes have not been provided on $ 84,000 of undistributed earnings of our foreign subsidiary since it is our intention to permanently reinvest such earnings offshore.

If the earnings were distributed in the form of dividends, we would not be subject to U.S.

tax as a result of the Tax Act but could be subject to foreign income and withholding taxes.

Determination of the amount of this unrecognized deferred income tax liability is not practical.

At April 30, 2021 and 2020, we did no t have any gross tax-effected unrecognized tax benefits.

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Commitments and Contingencies

In January 2018, Gemini Technologies, Incorporated, or Gemini, commenced an action against us and Smith & Wesson Corp.

in the United States District Court for the District of Idaho, or District Court.

The complaint alleges, among other things, that the defendants breached the earn-out and other provisions of the Asset Purchase Agreement and ancillary agreements between the parties in connection with Smith & Wesson Corp.’s acquisition of the Gemtech business from Gemini.

In January 2018, Gemini Technologies, Incorporated, or Gemini, commenced an action against us in the U.S.

District Court for the District of Idaho, or the District Court.

The complaint alleges, among other things, that we breached the earn-out and other provisions of the Asset Purchase Agreement and ancillary agreements between the parties in connection with our acquisition of the Gemtech business from Gemini.

The complaint seeks a declaratory judgment interpreting various terms of the Asset Purchase Agreement and damages in the sum of $ 18.6 million.

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In June 2018, Gemini appealed the decision dismissing its complaint to the U.S.

Court of Appeals for the Ninth Circuit.

Court of Appeals for the Ninth Circuit, or the Ninth Circuit.

On July 24, 2019, the Ninth Circuit reversed the dismissal and remanded the case to the District Court to perform a traditional forum non conveniens analysis.

On September 6, 2019, the parties stipulated that they do not contest that the venue is proper in the District of Idaho.

On November 4, 2019, we filed an answer to plaintiff’s complaint and a counterclaim against Gemini and its stockholders at the time of the signing of the Asset Purchase Agreement.

On November 4, 2019, we filed an answer to Gemini’s complaint and a counterclaim against Gemini and its stockholders at the time of the signing of the Asset Purchase Agreement.

Plaintiffs amended their complaint to add a claim of fraud in the inducement.

We believe the claims asserted in the complaint have no merit, and we intend to aggressively defend this action.

We are a defendant in seven product liability cases and are aware of five other product liability claims, primarily alleging defective product design, defective manufacturing, or failure to provide adequate warnings.

In addition, we are a co-defendant in a case filed on August 27, 1999 by the city of Gary, Indiana against numerous firearm manufacturers, distributors, and dealers seeking to recover monetary damages, as well as injunctive relief, allegedly arising out of the misuse of firearms by third parties.

We are a defendant in four product liability cases and are aware of one other product liability claim, primarily alleging defective product design, defective manufacturing, or failure to provide adequate warnings.

In addition, we are a co-defendant in a case filed on August 27, 1999 by the city of Gary, Indiana, or the City, against numerous firearm manufacturers, distributors, and dealers seeking to recover monetary damages, as well as injunctive relief, allegedly arising out of the misuse of firearms by third parties.

In January 2018, the trial court granted defendants’ Motion for Judgment on the Pleadings, dismissing the case in its entirety.

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The case was returned to the trial court.

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In May 2018, we were named in an action related to the Parkland, Florida shooting, filed in the Circuit Court, Broward County, Florida, seeking a declaratory judgment that a Florida statute that provides firearm manufacturers and dealers immunity from liability when their legally manufactured and lawfully sold firearms are later used in criminal acts only applies to civil actions commenced by governmental agencies not private litigants.

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On November 21, 2019, the court granted defendants’ motion to dismiss plaintiffs’ second amended complaint, with prejudice.

In August 2019, Primus Group, LLC filed an action in the U.S.

District Court for the Southern District of Ohio Eastern Division against us and other firearms manufacturers, alleging Racketeer Influenced Corrupt Organizations Act (RICO) violations, racketeering enterprise, and intentional misrepresentation.

Plaintiff, which operates as an “entertainment venue” in Columbus, Ohio, purports to bring this action on behalf of “all persons entitled to freely attend schools, shopping locations, churches, entertainment venues, and workplaces in the United States without the intrusion of individuals armed with assault weapons.” In addition to compensatory and punitive damages, plaintiff seeks preliminary and permanent injunctive relief enjoining the distribution and sale of “assault weapons.” On August 20, 2019, the court denied without prejudice plaintiff’s Motion for Temporary Restraining Order.

On September 3, 2019, defendants moved to dismiss plaintiff’s complaint.

On September 16, 2019, plaintiff filed an amended complaint, adding claims of public nuisance, negligent design, and failure to warn.

On October 9, 2019, the U.S.

District Court granted defendants’ motion, dismissing the case in its entirety.

On October 11, 2019, plaintiff filed a notice of appeal with the U.S.

Court of Appeals for the Sixth Circuit.

On November 1, 2019, the Sixth Circuit dismissed plaintiff’s appeal for failure to pay the required fee.

On November 4, 2019, plaintiff-appellant filed, and the Sixth Circuit granted, a motion to reinstate the case.

However, on March 13, 2020, at the request of the Appellant and based on the death of co-counsel, the Sixth Circuit held the case in abeyance and ordered that the Appellant file a status report every 30 days.

On April 14, 2020, the Appellant filed a Status Report stating that it intended to reactivate the case or dismiss the appeal within 60 days.

The Appellant has filed no further Status Reports.

On June 15, 2021, upon plaintiffs’ motion, the Fourth District Court of Appeal of the State of Florida, or

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the Court of Appeal, ruled that the Circuit Court’s November 21, 2019 order dismissing the case was not “final and appealable,” and ordered the Circuit Court to enter a final order of dismissal.

We are a defendant in a putative class proceeding before the Ontario Superior Court of Justice in Toronto, Canada.

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The case has not been certified as a class action.

We intend to vigorously oppose the proceedings.

On July 13, 2020, we filed a Notice of Motion for an order striking the claim and dismissing the action in its entirety.

On February 11, 2021, the court granted our motion in part, and dismissed the plaintiffs’ claims in public nuisance and strict liability.

The court declined to strike the negligent design claim, and ordered that the claim proceed to a certification motion.

The certification motion is scheduled to be heard in March of 2022.

On March 2, 2021, we filed a motion for leave to appeal the court’s refusal to strike the negligent design claim with the Divisional Court, Ontario Superior Court of Justice.

No hearing date for that motion has yet been set.

In May 2020, we were named in an action related to the Chabad of Poway synagogue shooting that took place on April 27, 2019.

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The plaintiffs seek compensatory and punitive damages, attorneys’ fees, and injunctive relief.

We have not yet been served in the litigation.

On July 31, 2019, our competitor, Sturm, Ruger & Co., Inc., filed a complaint and motion for preliminary injunction against us in the U.S.

District Court, District of New Hampshire, seeking injunctive relief and damages.

Plaintiff alleges trade dress infringement, involving our Thompson/Center brand T/CR22 rifle, as well as violation of the New Hampshire Consumer Protection Act.

A hearing on plaintiff’s motion for preliminary injunction was held in November 2019.

On December 2, 2019, plaintiff withdrew its motion for preliminary injunction.

On September 3, 2020, we filed a demurrer and motion to strike, seeking to dismiss plaintiffs’ complaint.

The plaintiffs filed an opposition to our motion on December 18, 2020.

Our reply to plaintiffs’ opposition was filed on January 15, 2021.

On February 16, 2021 several law professors with First Amendment expertise filed an amicus brief in support of our demurrer.

Plaintiffs responded to the law professors’ brief on March 8, 2021.

On March 23, 2021, Public Citizen, a consumer advocacy organization, filed an amicus brief in response to the law professors’ amicus brief.

We responded to Public Citizen’s brief on May 10, 2021.

The hearing on our motion was held on June 8, 2021.

No decision has been issued to date.

We believe that the various allegations as described above are unfounded, and, in addition, that any incident and any results from them or any injuries were due to negligence or misuse of the firearm by the claimant or a third party.

John Pidcock, as trustee of the ASPC Creditor Trust (appointed under the plan of reorganization of AcuSport Corp., or AcuSport, as debtor in possession under chapter 11 of the U.S.

Bankruptcy Code), is the plaintiff in three

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separate actions against us in the U.S.

Bankruptcy Code), is the plaintiff in two separate actions against us in the U.S.

Bankruptcy Court for the Southern District of Ohio.

Two seek recovery of alleged preferential transfers received by us from AcuSport in the aggregate amount of $ 4.2 million.

The third seeks turnover of goods allegedly owed to AcuSport by us under one or more of our promotional programs in the amount of $ 1.5 million.

We deny all material allegations and have asserted affirmative defenses.

The first seeks recovery of alleged preferential transfers received by us from AcuSport in the aggregate amount of $ 4.2 million.

The second seeks turnover of goods allegedly owed to AcuSport by us under one or more of our promotional programs in the amount of $ 1.5 million.

We have filed answers to both complaints denying all material allegations and asserting affirmative defenses.

Mediation was held on December 10, 2020, and was unsuccessful in resolving these cases.

We believe we have strong defenses to these actions and intend to continue to vigorously defend them.

We believe that the various allegations as described above are unfounded , and that any incident and any results from them or any injuries were due to negligence or misuse of the firearm by the claimant or a third party.

In addition, from time to time, we are involved in lawsuits, claims, investigations, and proceedings, including commercial, environmental, and employment matters, which arise in the ordinary course of business.

A second mediation is scheduled for June 23, 2021.

We believe that the various allegations as described above are unfounded.

In addition, from time to time, we are involved in lawsuits, claims, investigations, and proceedings, including commercial, environmental, premises and employment matters, which arise in the ordinary course of business.

The relief sought in individual cases primarily includes compensatory and, sometimes, punitive damages.

Certain of the cases and claims seek unspecified compensatory or punitive damages.

In others, compensatory damages sought may range from less than $ 75,000 to approximately $ 50.0 million, with punitive damages up to approximately $ 100.0 million.

In others, compensatory damages sought may range from less than $ 75,000 to approximately $ 50.0 million.

In our experience, initial demands do not generally bear a reasonable relationship to the facts and circumstances of a particular matter.

We believe that our accruals for product liability cases and claims, as described below, are a reasonable quantitative measure of the cost to us of product liability cases and claims.

We believe that our accruals for product liability cases and claims are a reasonable quantitative measure of the cost to us of product liability cases and claims.

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We are vigorously defending ourselves in the lawsuits to which we are subject.

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Though not exhaustive, examples of applicable regulations include confined space safety, walking and working surfaces, machine guarding, and life safety.

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We are also subject to numerous federal, state and local environmental laws and regulations concerning, among other things, emissions in the air, discharges to land, surface, subsurface strata and water and the generation, handling, storage, transportation, treatment and disposal of hazardous wastes and other materials.

We are also subject to numerous federal, state, and local environmental laws and regulations concerning, among other things, emissions in the air;

discharges to land, surface, subsurface strata and water;

and the generation, handling, storage, transportation, treatment, and disposal of hazardous wastes and other materials.

These laws have required us to make significant expenditures of both a capital and expense nature.

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The MCP provides a structured environment for the voluntary remediation of regulated releases.

We may be required to remove hazardous waste or remediate the alleged effects of hazardous substances on the environment associated with past disposal practices at sites not owned by us.

We may be required to remove hazardous waste or remediate the alleged effects

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of hazardous substances on the environment associated with past disposal practices at sites not owned by us.

We have received notice that we are a potentially responsible party from the Environmental Protection Agency and/or individual states under CERCLA or a state equivalent at two sites.

As of April 30, 2020, we do no t have an open environmental reserve recorded in our consolidated balance sheet.

As of April 30, 2019, we recorded approximately $ 725,000 of environmental reserve in non-current liabilities.

As of April 30, 2021, and 2020, we do no t have an open environmental reserve recorded in our consolidated balance sheet.

When the available information is sufficient to estimate the amount of liability, that estimate has been used.

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We have not recognized any gains from probable recoveries or other gain contingencies.

The environmental reserve in fiscal 2019 was calculated using undiscounted amounts based on environmental remediation reports obtained from independent third-parties.

Based on information known to us, we do not expect current environmental regulations or environmental proceedings and claims to have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

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Employment Agreements — We have employment, severance, and change of control agreements with certain officers and managers.

Other Agreements — We have distribution agreements with various third parties in the ordinary course of business.

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The following summarizes our operating leases for office and/or manufacturing space:

Location of Lease

Expiration Date

Springfield, Massachusetts

November 30, 2020

Scottsdale, Arizona

April 30, 2021

Somersworth, New Hampshire

June 30, 2021

Shenzhen, China

August 31, 2021

Houlton, Maine

January 31, 2022

Wilsonville, Oregon

October 31, 2022

Columbia, Missouri (1)

April 30, 2023

Bentonville, Arkansas

December 31, 2023

Deep River, Connecticut

Park City , Utah

August 31, 2024

Herstal, Belgium

January 21, 2027

Meridian, Idaho (1)

October 14, 2027

Columbia, Missouri

November 25, 2038

Properties are subleased.

We also lease machinery, photocopiers, and vehicles for our national sales force with various expiration dates.

Quarterly Financial Information (Unaudited)

The following table summarizes quarterly financial results in fiscal 2020 and 2019.

In our opinion, all adjustments necessary to present fairly the information for such quarters have been reflected (in thousands, except per share data):

For the Year Ended April 30, 2020

Net (loss)/income

Per common share (a)

Basic - total

Diluted - total

For the Year Ended April 30, 2019

Net income/(loss)

Per common share (a)

Basic – total

Diluted – total

Basic and diluted earnings per share may not equal the sum of the quarterly basic and diluted earnings per share due to rounding.

Amounts includes a $ 98.7 million non-cash goodwill impairment relating to our Outdoor Products & Accessories segment.

Amounts includes a $ 10.4 million non-cash goodwill impairment relating to our Outdoor Products & Accessories segment.

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Segment Reporting

We report our results of operations in two segments:

(1) Firearms (which includes Firearms and Manufacturing Services divisions) and (2) Outdoor Products & Accessories.

Our two segments are defined based on the reporting and review process used by the chief operating decision makers, our co-Chief Executive Officers.

The Firearms segment has been determined to be a single operating segment and reporting segment based on our reliance on production metrics such as gross margin per unit produced, units produced per day, incoming orders per day, and revenue produced by trade channel, all of which are particular to the Firearms segment.

The Outdoor Products & Accessories segment has been determined to be a single operating segment and reporting segment based on our measurement of incoming orders per day and sales and gross margin by customer and brand.

The Firearms segment includes our firearms, services, and other components, which we manufacture or provide at our facilities in Springfield, Massachusetts, Houlton, Maine, and Deep River, Connecticut and our firearm products, which we develop, assemble, and market in our Springfield, Massachusetts facility.

The Outdoor Products & Accessories segment includes our accessories products, which we develop, source, market, and distribute at our facilities in Columbia, Missouri and our electro-optics products, which we develop, market, and assemble in our Wilsonville, Oregon facility.

We report operating costs based on the activities performed within each segment.

Segment assets are those directly used in or clearly allocable to a reportable segment’s operations.

Assets by business segment are presented in the following table as of April 30, 2020 and 2019 (in thousands):

As of April 30, 2020

As of April 30, 2019

Property, plant, and equipment, net

Intangibles, net

Results by business segment are presented in the following table for the years ended April 30, 2020, 2019, and 2018 (in thousands):

For the Year Ended April 30, 2020 (a)

Revenue from external customers

Intersegment revenue

Total gross revenue

Cost of sales

Operating income/(loss)

Income tax expense/(benefit)

For the Year Ended April 30, 2019 (a)

Revenue from external customers

Intersegment revenue

Total gross revenue

Cost of sales

Operating income/(loss)

Income tax expense/(benefit)

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For the Year Ended April 30, 2018 (a)

Revenue from external customers

Intersegment revenue

Total net sales

Cost of sales

Operating income/(loss)

Income tax expense/(benefit)

For the years ended April 30, 2020, 2019, and 2018, we allocated all of corporate overhead expenses except for interest and income taxes, such as general and administrative expenses and other corporate-level expenses, to both our Firearms and Outdoor Products & Accessories segments.

Amount includes a non-cash goodwill charge of $ 98.7 million.

Amount includes a non-cash goodwill charge of $ 10.4 million.

Amount includes $ 500,000 of additional cost of goods sold from the fair value inventory step-up related to our 2018 Acquisitions.

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VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended April 30, 2020, 2019, and 2018

Allowance for doubtful accounts

Deferred tax valuation allowance

Allowance for doubtful accounts

Deferred tax valuation allowance

Allowance for doubtful accounts

Deferred tax valuation allowance

Subsequent Events

On June 15, 2021 , our board of directors authorized a regular quarterly dividend for stockholders of $ 0.08 per share.

The dividend will be for stockholders of record as of market close on July 1, 2021 and is payable on July 6, 2021 .

Treasury Stock

On June 15, 2021, our board of directors authorized the repurchase of up to $ 50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions, valid through August 15, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures