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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those set forth under Item 1A, “Risk Factors” and elsewhere in this report.

The results of our outdoor products and accessories business, which was previously reported as a separate business segment, are being presented as discontinued operations in the consolidated statements of income/(loss) for all periods presented, See Note 3 – Discontinued Operations to our consolidated financial statements for additional information regarding these discontinued operations. Unless otherwise indicated, any reference to income statement items in this Management’s Discussion and Analysis of Financial Condition and Results of Operations refers to results from continuing operations.

2022 Highlights

Our operating results for fiscal 2022 included the following:

•

Net sales of $864.1 million represented a decrease of $195.1 million, or 18.4%, from our fiscal 2021 net sales. The decrease in net sales was primarily driven by decreased consumer demand following a significant increase in demand in the prior fiscal year.

•

Gross profit decreased 16.6% from the prior fiscal year as a result of lower sales volume. Gross margin increased 0.9% over the prior fiscal year, primarily because of price increases, lower promotional spending, and favorable product mix. These favorable impacts were partially offset by unfavorable fixed-cost absorption due to lower production volume and expenses relating to employee severance and relocation costs associated with the Relocation.

•

Net income was $194.5 million, or $4.08 per diluted share, compared with net income of $243.6 million, or $4.40 per diluted share for the prior fiscal year.

•

During the fiscal year, we purchased 4,755,572 shares of our common stock for $90.0 million, utilizing cash on hand.

•

During the fiscal year, we paid $15.0 million in dividends compared with $8.2 million in fiscal 2021.

•

On September 30, 2021, we announced the Relocation. In connection with the Relocation, we will build a new facility in Maryville, Tennessee. Our corporate headquarters, some of our Springfield, Massachusetts manufacturing operations, a portion of our Deep River, Connecticut plastic injection molding facility, and our Columbia, Missouri distribution operations will be relocated to Maryville, Tennessee. We expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of no less than $120.0 million on or before December 31, 2025. Through April 30, 2022, we had incurred $5.5 million of capital expenditures and $10.2 million of other restructuring charges related to the Relocation.

Key Performance Indicators

We evaluate the performance of our business based upon operating profit, which includes net sales, cost of sales, selling and administrative expenses, and certain components of other income and expense. We also track our return on invested capital, and we use adjusted EBITDAS (earnings before interest, taxes, depreciation, amortization, and stock-based compensation expense, excluding certain non-operational items), which is a non-GAAP financial metric, as a supplemental measure of our performance in order to provide investors with an improved understanding of

underlying performance trends. We evaluate the performance of our products using measurements such as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.

External Factors that Impact the Firearm Industry

The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for all companies within the industry. These factors include, among others, fears surrounding crime and terrorism; significant news events, such as those related to mass shootings; potential restrictions on the sale or makeup of firearms; actual and potential legislative, judicial, and regulatory actions; economic changes; and changes in the social and political environment, including congressional and presidential elections. See Item IA, Risk Factors, for further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the firearm market, and often make it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. From 2011 through 2020, this increased consumer interest helped the firearm industry generate a ten-year compound annual growth rate in units of approximately 6.0% according to the ATF. We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points are important factors in our goal to continue increasing our market share. Based on data from calendar 2021, we estimate that we have an approximately 16.0% share of the U.S. consumer market for firearms.

Results of Operations

Net Sales and Gross Profit

The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

% of net sales (gross margin) 43.3 % 42.4 % 31.3 %

The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2022, 2021, and 2020 (units in thousands):

Sporting Goods Channel Units Shipped 2022 2021 # Change % Change 2020

Professional Channel Units Shipped 2022 2021 # Change % Change 2020

Fiscal 2022 Net Sales and Gross Profit Compared with Fiscal 2021

Sales of our handguns decreased $131.5 million, or 17.4%, from fiscal 2021, primarily as a result of lower demand for the majority of our products, partially offset by net sales generated from increased shipments of newly introduced products, combined with two price increases. Handgun unit shipments into the sporting goods channel

decreased 27.2% from fiscal 2021, while overall consumer demand decreased 25.5%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS).

Sales of our long guns decreased $63.9 million, or 25.2%, from fiscal 2021 as a result of decreased shipments of our M&P modern sporting rifles and lower shipments of our hunting rifles, as a result of our discontinuation of that product line, partially offset by increased shipments of newly introduced products in the fiscal year, combined with two price increases. Unit shipments into the sporting goods channel decreased 32.7% from fiscal 2021. Excluding Thompson/Center branded products, long gun unit shipments decreased 22.4% as compared with a 20.6% decrease in reported long gun NICS checks from the prior year.

We believe the decrease in overall firearm demand (as indicated by adjusted NICS) versus the prior fiscal year was due to heightened demand in the prior year driven by civil unrest, ongoing COVID restrictions, and news events driving increased concern for personal safety and fear of potential firearm restrictions. We believe our ability to ramp up production to meet surging consumer demand in the prior year, at a time when many of our competitors were unable to do so and when overall firearm demand exceeded the industry’s production capacity, enabled us to gain significant market share. As these concerns have become less pressing for consumers, demand has eased, inventory levels in the distribution and retail channels have normalized, and competitor offerings have become more available at retail, our prior year outperformance has likely resulted in a market share decline for us in the short-term in comparison to our peak levels during the surge. We believe, when comparing to levels prior to the surge that, over the long-term, we have gained market share and expanded our leadership position.

Other products and services sales increased $320,000, or 0.6%, over fiscal 2021, primarily because of increased business-to-business sales, partially offset by decreased sales of handcuffs and component parts.

New products, defined as any new SKU not shipped in the prior year, represented 19.8% of net sales for the 12 months ended April 30, 2022 and included two new pistols, one new modern sporting rifle, and many new product line extensions.

Gross margin for fiscal 2022 increased by 1.0% over the prior fiscal year, primarily as a result of two price increases, lower promotional spending, and favorable product mix. This increase was partially offset by unfavorable fixed-cost absorption due to lower production volume in the second half of the year and expenses relating to employee severance and relocation costs associated with the Relocation.

Our inventory levels increased $58.2 million during fiscal 2022, as we replenished stock to provide our customers with a more robust selection of inventory and positioned ourselves for potential future increases in consumer demand. Our fiscal year 2021 ending inventory levels were at historically low levels due to the unprecedented consumer demand during fiscal 2021. We anticipate that inventory levels will continue to build in the first quarter of fiscal 2023 as we continue to build to our more normalized stocking levels.

A discussion of our results of net sales and gross profit for the year ended April 30, 2021 compared to the year ended April 30, 2020 is included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended April 30, 2021, filed with the SEC on June 17, 2021.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

Fiscal 2022 Operating Expenses Compared with Fiscal 2021

Operating expenses decreased $6.4 million from the prior fiscal year. Research and development expenses decreased $218,000, primarily because of decreased compensation-related costs, driven by temporarily unfilled positions, we believe as a result of the Relocation. Selling, marketing, and distribution expenses increased $553,000, primarily as a result of increased digital advertising costs and expenses relating to industry shows, partially offset by decreased co-op advertising expenses on lower sales and decreased freight costs due to lower shipments. General and administrative expenses decreased $6.8 million, primarily because of a decrease of $7.0 million related to Separation costs incurred in the prior year, $5.2 million of lower compensation-related expenses primarily as a result of the synergy savings realized from the Separation, and a decrease of $1.5 million in depreciation expenses, partially offset by an increase of $5.6 million of costs associated with the Relocation and $1.4 million of increased legal-related expenses.

We expect that there will be increased compensation expense in fiscal 2023 as we return to more normalized staffing levels.

Fiscal 2021 Operating Expenses Compared with Fiscal 2020

Operating expenses increased $14.0 million over the prior fiscal year. Selling, marketing, and distribution expenses increased $616,000, primarily because of increased freight-related expenses and expenses related to temporary labor, as a result of increased shipments, additional expenses for a consumer firearm safety program, increased co-op advertising expenses for strategic customers, and compensation-related expenses. These increased expenses were partially offset by lower travel and entertainment expenses as a result of COVID-19 and decreased spending on targeted customer promotions. General and administrative expenses increased $13.2 million, primarily because of $3.2 million of increased expenses related to the Separation, $12.6 million of increased profit-sharing expense, and $1.0 million in donations to the National Shooting Sports Foundation. These increased expenses were partially offset by lower travel and entertainment expensed due to COVID-19, and decreased compensation-related expenses.

Operating Income from Operations

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

% of net sales (operating margin) 29.1 % 30.2 % 9.5 %

Fiscal 2022 Operating Income from Operations Compared with Fiscal 2021

Operating income from operations for fiscal 2022 decreased $68.0 million, or 21.3%, from the prior fiscal year, primarily because of reduced sales volumes across nearly all product lines, unfavorable fixed-cost absorption, expenses incurred in relation to the Relocation, and increased legal costs. These unfavorable impacts were partially offset by lower promotional product spending, lower spend related to the Separation, decreased co-op advertising expenses, and decreased freight costs.

Fiscal 2021 Operating Income from Operations Compared with Fiscal 2020

Operating income from operations for fiscal 2021 increased $269.3 million, or 535.4%, over the prior fiscal year, primarily because of increased sales and the resulting improvements in gross margins. Operating income from operations was also favorably impacted by lower promotional product spending, favorable manufacturing fixed-cost absorption, lower travel and entertainment expenses because of COVID-19, and decreased advertising costs. These favorable impacts were partially offset by increased volume-related spending, increased freight-related expenses, and increased profit-sharing expense.

Other Income

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

Other income for fiscal 2022 increased $616,000, or 27.4%, over the prior fiscal year, primarily as a result of the sublease of the distribution center to AOUT, whereby AOUT subleases from us 59.0% of our distribution center under the same terms as the master lease.

Interest (Expense)

The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

Interest expense decreased by $1.8 million from the prior fiscal year as we maintained a zero balance on our revolving line following our debt repayment in fiscal 2021.

Income Tax Expense

The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

% of income from operations (effective tax rate) 22.9 % 23.4 % -0.5 % 29.4 %

We recorded income tax expense of $57.9 million for fiscal 2022, $16.5 million lower than the prior fiscal year, primarily because of decreased profitability. The effective tax rates were 22.9% and 23.4% for fiscal 2022 and 2021, respectively.

We recorded income tax expense of $74.4 million for fiscal 2021, $62.9 million higher than the prior fiscal year, primarily because of increased profitability. The effective tax rates were 23.4% and 29.4% for fiscal 2021 and 2020, respectively. The effective tax rate decreased by 6.0% as a result of non-deductible expenses impacting taxable income to a lesser extent as taxable income rises. In addition, prior year income tax expense included higher non-deductible Separation-related transaction costs.

Income from Operations

The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands, except per share data):

Net income per share

Fiscal 2022 Income from Operations Compared with Fiscal 2021

Net income decreased $49.1 million, or $0.34 per diluted share, from the prior fiscal year for reasons outlined above.

Fiscal 2021 Income from Operations Compared with Fiscal 2020

Net income increased $215.9 million, or $3.9 per diluted share, over the prior fiscal year for reasons outlined above.

Liquidity and Capital Resources

Our principal cash requirements are to (1) finance the growth of our operations, including working capital and capital expenditures, (2) fund the Relocation, and (3) return capital to our stockholders. Capital expenditures for the Relocation, new product development, additional manufacturing capacity, and repair and replacement of equipment represent important cash needs.

The following table sets forth certain cash flow information for the fiscal years ended April 30, 2022, 2021, and 2020 (dollars in thousands):

Operating Activities

Operating activities represent the principal source of our cash flow.

Cash provided by operating activities was $137.8 million in fiscal 2022, or $179.4 million lower than the prior fiscal year. The fiscal 2022 cash from operating activities was negatively impacted by an incremental $83.4 million increase in inventory due to increased production capacity combined with reduced consumer demand, an incremental $52.5 million decrease in accounts payable due to lower operating activities, and the impact of paying the fiscal 2021 profit sharing in fiscal 2022. These unfavorable impacts were partially offset by an incremental $14.9 million increase in accrued expenses as a result of the payment of deferred federal excise tax liabilities during the first quarter of 2021, the fulfillment of performance obligations relating to sales promotions in the prior year, and a $9.9 million decrease in accounts receivable due to timing of shipments and customer payments.

Cash provided by operating activities was $317.3 million in fiscal 2021, or $236.4 million higher than the prior fiscal year. Cash provided by operating activities was favorably impacted by net income of $274.3 million before depreciation and amortization, an incremental $26.2 million decrease in inventory from the prior year due to increased shipments to meet consumer demand, an incremental $21.5 million increase in accounts payable due to increased manufacturing purchases and timing of payments, an incremental $12.6 million increase in profit sharing, and a $10.8 million increase in management incentive bonus accruals due to higher income from continuing operations. These favorable impacts were partially offset by an incremental $46.7 million of decreased accrued expenses, primarily due to lower promotional product discount accruals and the payment of deferred federal excise tax liabilities allowed by the Tax and Trade Bureau as a result of the COVID-19 pandemic, and a $5.6 million incremental increase in accounts receivable due to timing of shipments.

Investing Activities

Cash used in investing activities in fiscal 2022 was $24.1 million, or $1.9 million higher than fiscal 2021. We recorded capital expenditures of $24.0 million for fiscal 2022, $1.9 million higher than fiscal 2021. Excluding spending related to the Relocation, we currently expect to spend between $20.0 million and $25.0 million on capital expenditures in fiscal 2023.

Additionally, as it relates to the Relocation, we currently expect to spend between $125.0 million and $130.0 million on capital expenditures in fiscal 2023, of which $90.0 million to $95.0 million is expected for the construction of the facility.

Cash used in investing activities in fiscal 2021 was $22.3 million, or $10.2 million higher than fiscal 2020. We recorded capital expenditures of $22.1 million for fiscal 2021, $9.6 million higher than fiscal 2020 due to expenditures required to increase manufacturing capacity.

Financing Activities

Cash used in financing activities was $106.0 million in fiscal 2022, or $197.8 million lower than fiscal 2021. Cash used in financing activities during the fiscal year primarily included $90.0 million of share repurchases and $15.0 million in dividend distributions.

Cash used in financing activities was $303.8 million in fiscal 2021 compared with cash provided by financing activities of $3.4 million in fiscal 2020. Cash used in financing activities during the fiscal year was primarily a result of a net repayment of $160.0 million of borrowings on our credit facility, funding a distribution of $25.0 million in connection with the Separation, and $110.0 million of share repurchases.

Finance Lease –We are party to a $46.2 million lease for our distribution center in Columbia, Missouri, which has an effective rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During the fiscal year, we paid $1.1 million in principal payments relating to this finance lease. In connection with the completion of the Separation on August 24, 2020, we entered into an agreement with AOUT, pursuant to which AOUT subleases 59.0% of this facility under the same terms as the master lease. We recorded $2.1 million of income related to this sublease agreement, which is recorded in other income/(expense) in our condensed consolidated statement of income/(loss) and comprehensive income/(loss).

Credit Facilities - As of April 30, 2022, we had no outstanding indebtedness. However, we maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time. The revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2022. The 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 bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. In response to a Springing Lien Triggering Event (as defined in the credit agreement), we 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 as legal, valid, and enforceable first priority lien on the collateral described therein. Subject to the satisfaction of certain terms and conditions described in the 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 credit agreement.

The credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. We were in compliance with all debt covenants as of April 30, 2022.

Share Repurchase Programs - On March 2, 2021, our board of directors authorized the repurchase of $100.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until March 1, 2022. Pursuant to this authorization, during fiscal 2021, we purchased 3,380,447 shares of our common stock for $60.0 million, utilizing cash on hand. During fiscal 2022, we completed this stock repurchase program by purchasing 1,967,420 of our common stock for $40.0 million, utilizing cash on hand. On June 15, 2021, our board of directors authorized the repurchase of an additional $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions, until August 2022. Pursuant to this authorization, during fiscal 2022, we completed this repurchase program by purchasing 2,788,152 shares of our common stock for $50.0 million, utilizing cash on hand.

At April 30, 2022, we had $120.7 million in cash and cash equivalents on hand.

Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months.

Our future capital requirements will depend on many factors, including net sales, the timing of the construction of the new facility in Tennessee, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity, and costs to enhance the equipment and software at our distribution center.

Inflation

We do not believe that inflation had a material impact on us during fiscal 2022, 2021, or 2020; however, during the fourth fiscal quarter, we began to see inflationary increases in both hourly wages and raw materials. We expect that there will be an increased impact from inflation during fiscal 2023.

Critical Accounting Policies

Revenue Recognition

We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, Revenue from Contracts withCustomers (Topic 606), which became effective for us on May 1, 2018. Generally, all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.

In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs that entitle customers to receive free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. 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 proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available in certain cases for early payment. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. 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. 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.

Valuation of Long-lived Tangible and Intangible Assets

We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset’s new cost basis. We determine fair value primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.

Inventories

We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.

Warranty

We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We provide for estimated warranty obligations in the period in which we recognize the related revenue. We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements is discussed in Note 2 — Significant Accounting Policies to our consolidated financial statements, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

We do not have any transactions, arrangements, or other relationships with unconsolidated entities that are reasonably likely to affect our liquidity or capital resources. We have no special purpose or limited purpose entities that provide off-balance sheet financing, liquidity, or market or credit risk support or that engage in leasing, hedging, research and development services, or other relationships that expose us to liability that is not reflected in our financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We do not enter into any market risk sensitive instruments for trading purposes. Our principal market risk relates to the variable interest rate associated with our credit agreement, which consists of a $100.0 million revolving line of credit that bears interest at a variable rate equal to LIBOR or prime, at our election, plus an applicable margin based on our consolidated leverage ratio. For more information regarding our financing arrangements, see Note 5 — Notes, Loans Payable, and Financing Arrangements. As of April 30, 2022, we did not have any borrowings outstanding on the revolving line. Had there been borrowings, they would have borne an interest rate of 2.1%, which is equal to the LIBOR rate plus an applicable margin.

Item 8. Financial Statements and Supplementary Data

Reference is made to our consolidated financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financial statements, notes, and report are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

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 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, 2022, 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

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. 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, 2022.

The effectiveness of our internal control over financial reporting as of April 30, 2022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which also audited our consolidated financial statements for the year ended April 30, 2022. Deloitte & Touche LLP's report on our internal control over financial reporting is included herein.

Inherent Limitations on the Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. 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 in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our fourth fiscal quarter of 2022 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item relating to our directors and corporate governance is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2022 Annual Meeting of Stockholders. The information required by this Item relating to our executive officers is included in Item 1, “Business — Executive Officers” of this report.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2022 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)

Financial Statements and Financial Statement Schedules

(1)

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

(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.

(b)

Exhibits

ExhibitNumber Exhibit

3.1 Amended and Restated Bylaws (2)

3.4 Second Amended and Restated Articles of Incorporation (3)

3.9(a) Certificate of Withdrawal of Certificate of Designation (4)

4.1 Form of Common Stock Certificate (5)

4.2 Description of Securities (12)

10.107(a)* Smith & Wesson Brands, Inc. Executive Severance Pay Plan (8)

10.115 Guaranty, dated October 26, 2017, entered into by the Registrant (13)

21.1 Subsidiaries of the Registrant

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

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

32.1 Section 1350 Certification of Principal Executive Officer

32.2 Section 1350 Certification of Principal Financial Officer

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Management contract or compensatory arrangement.

** An application has been submitted to the Securities and Exchange Commission for confidential treatment, pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, of portions of this exhibit. These portions have been omitted from this exhibit.

*** 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.

(1)

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

(2)

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

(3)

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

(4)

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

(5)

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

(6)

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

(7)

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

(8)

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

(9)

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

(10)

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

(11)

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

(12)

Incorporated by reference to the Registrant’s Form 10-K filed with the SEC on June 17, 2021.

(13)

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

(14)

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

(15)

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

(16)

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

(17)

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on September 30, 2021.

(18)

Incorporated by reference to the Registrant’s Form S-8 filed with the SEC on March 30, 2022.

Item 16. Form 10-K Summary

Not applicable.

SIGNATURES

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.

/s/ Mark P. Smith

Mark P. SmithPresident and Chief Executive Officer

Date: June 23, 2022

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.

Signature Capacity Date

Mark P. Smith

Deana L. McPherson

/s/ Robert L. Scott Chairman of the Board June 23, 2022

Robert L. Scott

/s/ Michael F. Golden Vice Chairman of the Board June 23, 2022

Michael F. Golden

/s/ Anita D. Britt Director June 23, 2022

Anita D. Britt

/s/ Fred M. Diaz Director June 23, 2022

Fred M. Diaz

/s/ John B. Furman Director June 23, 2022

John B. Furman

/s/ Barry M. Monheit Director June 23, 2022

Barry M. Monheit

/s/ Denis G. Suggs Director June 23, 2022

Denis G. Suggs

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

Page

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of April 30, 2022 and 2021 F-5

Notes to Consolidated Financial Statements F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Smith & Wesson Brands, Inc. and subsidiaries (the "Company") as of April 30, 2022 and 2021, 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, 2022, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2022, 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, 2022, 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 Annual 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 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. 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

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.

F-2

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 Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Property, Plant, and Equipment – Evaluation of Impairment as a result of the Relocation (Refer to Notes 4 and 16)

Critical Audit Matter Description

On September 30, 2021, the Company announced their plan to move their headquarters and significant elements of their operations to Maryville, Tennessee in 2023, or the Relocation. As part of the Relocation, the Company intends to vacate and sublease their Missouri distribution facility. In addition, at or near the conclusion of their Connecticut building lease in May 2024, the Company intends to relocate a portion of their plastic injection molding operations to Tennessee and will evaluate selling the remaining molding operations utilized in their Connecticut operations to a third party.

We identified accounting implications of the Relocation as a critical audit matter because it is an impairment indictor for Property, Plant, and Equipment, including right of use assets because of the significant assumptions and judgements management makes when determining whether events or changes in circumstances have occurred indicating that the carrying amounts may not be recoverable. This required a high degree of auditor judgment when performing audit procedures to evaluate whether management appropriately identified impairment indicators and determined the recoverability of the assets.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the evaluation of Property, Plant, and Equipment for impairment included the following, among others:

•

We tested the effectiveness of the controls over management’s identification of possible impairment indicators and their analysis of whether the carrying amounts of Property, Plant, and Equipment are no longer recoverable.

•

We evaluated management’s impairment analysis by:

•

Reviewing contracts, indicators of interest, and draft term sheets to determine potential impairment indicators and compare those with management’s identified indicators and analysis.

•

Inspecting Board of Director’s minutes to determine Management’s plans including determination of Property, Plant, and Equipment to be relocated or sold.

•

Obtaining written representations from Management regarding the Management’s plans and assumptions used in their impairment analysis.

•

Independently comparing market lease payments and rates to the Company’s lease obligations.

Operating Expenses - Determination of Applicable Severance Charges as a result of the Relocation (Refer to Note 17)

Critical Audit Matter Description

F-3

Tennessee and will evaluate selling the remaining molding operations utilized in their Connecticut operations to a third party.

We identified the accounting for the Company’s severance and relocation package as a critical audit matter because of the high degree of auditor judgment when performing audit procedures to evaluate the assumptions and judgements management utilized in determining its obligation.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the evaluation of Property, Plant, and Equipment for possible indications of impairment included the following, among others:

•

We tested the effectiveness of the controls over management’s calculation and assumptions of the Relocation charges.

•

We tested management’s calculation of Relocation charges by:

•

Reviewing management’s communications to understand the terms and conditions of the relocation package.

•

Agreeing inputs to source documents.

•

Challenging management’s assumptions of which employees are affected by the Relocation and who will be eligible for a Relocation package.

•

Verifying the mathematical accuracy of management’s calculation.

/s/ Deloitte & Touche LLP

Hartford, Connecticut

June 23, 2022

We have served as the Company's auditor since 2014.

F-4

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of:

(In thousands, except par value and share data)

ASSETS

Current assets:

Prepaid expenses and other current assets 5,569 8,408

Deferred income taxes 1,221 —

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accrued expenses and deferred revenue 23,482 33,136

Deferred income taxes — 904

Finance lease payable, net of current portion 37,628 38,786

Commitments and contingencies (Note 16)

Stockholders’ equity:

Accumulated other comprehensive income 73 73

Total liabilities and stockholders' equity $ 497,476 $ 446,388

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

F-5

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

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

For the Year Ended April 30,

(In thousands, except per share data)

Operating expenses:

Other income/(expense), net:

Discontinued operations:

Income/(loss) from discontinued operations, net of tax — 8,478 (88,883 )

Comprehensive income/(loss):

Other comprehensive loss, net of tax — — (547 )

Net income/(loss) per share:

Basic - continuing operations $ 4.12 $ 4.46 $ 0.50

Diluted - continuing operations $ 4.08 $ 4.40 $ 0.50

Weighted average number of common shares outstanding:

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

F-6

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Accumulated

Common Additional Other Total

Stock Paid-In Retained Comprehensive Treasury Stock Stockholders’

(In thousands) Shares Amount Capital Earnings Income/(Loss) Shares Amount Equity

Proceeds from exercise of employee stock options 67 — 254 — — — — 254

Stock-based compensation - continuing operations — — 2,357 — — — — 2,357

Stock-based compensation - discontinued operations — — 564 — — — — 564

Shares issued under employee stock purchase plan 380 — 1,873 — — — — 1,873

Proceeds from exercise of employee stock options 201 — 1,540 — — — — 1,540

Stock-based compensation - continuing operations — — 4,706 — — — — 4,706

Stock-based compensation - discontinued operations 184 184

Shares issued under employee stock purchase plan 205 — 1,614 — — — — 1,614

Dividends issued — — — (8,223 ) — — — (8,223 )

Stock-based compensation — — 4,536 — — — — 4,536

Shares issued under employee stock purchase plan — 1,719 — — — — 1,719

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

F-7

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended April 30,

(In thousands)

Cash flows from operating activities:

Loss on sale/disposition of assets 625 154 419

Impairment of long-lived tangible assets 86 — —

Change in fair value of contingent consideration — — 100

Changes in operating assets and liabilities:

Prepaid expenses and other current assets 2,839 (852 ) (3,124 )

Accrued payroll and incentives (10 ) 4,933 (5,831 )

Cash flows from investing activities:

Refunds on machinery and equipment — 310 —

Receipts from note receivable — — 786

Payments to acquire patents and software (283 ) (632 ) (429 )

Proceeds from sale of property and equipment 139 113 —

Cash used in investing activities - discontinued operations — (1,143 ) (1,874 )

Cash flows from financing activities:

Cash paid for debt issuance costs — (450 ) (875 )

Payments on finance lease obligation (1,087 ) (996 ) (900 )

Distribution to discontinued operations — (25,000 ) —

Payments to acquire treasury stock (90,000 ) (110,000 ) —

Cash used in financing activities - discontinued operations — (166 ) —

Net increase/(decrease) in cash and cash equivalents 7,711 (11,994 ) 84,158

Supplemental disclosure of cash flow information

Cash paid for:

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

F-8

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

Supplemental Disclosure of Non-cash Investing and Financing Activities:

For the Year Ended April 30,

(In thousands)

Machinery and equipment on deposit placed into service — 1,855 —

Changes in other assets for operating lease obligations — — 11,821

Change in property and equipment — — 3,276

Changes in finance lease liabilities — — (4,245 )

Changes in lease liabilities for operating lease obligations — — 12,790

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

F-9

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

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), 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, 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 attempt to level-load our factories. We sell those services under our Smith & Wesson and Smith & Wesson Precision Components brands. We plan to move our headquarters and certain of our manufacturing operations to a new facility being constructed in Maryville, Tennessee. See Note 16 — Commitments and Contingencies, for more information regarding this plan.

On May 3, 2021, we announced our intent to divest our Thompson/Center Arms brand. After careful consideration and evaluation of offers received, we have decided that we will no longer market the Thompson/Center brand for sale. This decision had no material impact to our financial statements for the fiscal year ended April 30, 2022.

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

2. Significant Accounting Policies

Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the financial statement dates and the reported amounts of revenue and expenses during the reporting periods. Our significant estimates include the accrual for warranty, reserves for excess and obsolete inventory, rebates and other promotions, valuation of intangible assets, and costs associated with the Relocation. Actual results could differ from those estimates.

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. 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, 2022 and 2021 and for the periods presented, have been included. All intercompany accounts and transactions have been eliminated in consolidation.

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.

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. We maintain our cash in bank deposit accounts that, at times, may exceed federally insured limits. We have not experienced any losses in such accounts. As of April 30, 2022, all of our accounts exceeded federally insured limits.

Financial Instruments — We account for derivative instruments under Accounting Standards Codification (“ASC”) 815-10, Fair Value Measurements and Disclosure Topic, which establishes accounting and reporting

F-10

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

standards for derivative instruments and hedging activities and requires us to recognize these instruments as either assets or liabilities on the balance sheet and measure them at fair value. As of April 30, 2022, we did not have any Level 2 or Level 3 financial instruments within the hierarchy. See Note 5 – 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. We sometimes offer discounts for early payment on invoices. When we believe the extension of credit is not advisable, we rely on either a prepayment or a letter of credit. 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.

Concentrations of Credit Risk — Financial instruments that potentially subject us to concentration of credit risk consist principally of cash, cash equivalents, and trade receivables. We place our cash and cash equivalents in overnight U.S. government securities. Concentrations of credit risk with respect to trade receivables are limited by the large number of customers comprising our customer base and their geographic and business dispersion. We perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral.

For the year ended April 30, 2022, one of our customers accounted for 16.9% of our net sales. Two of our customers each accounted for more than 10% of our accounts receivable, for a total of 36.8%. For the fiscal year ended April 30, 2021, four of our customers each accounted for more than 10% of our net sales, totaling 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, totaling 43.9% of our net sales. Three of ourcustomers each accounted for more than 10% of our accounts receivable, for a total of 45.3%.

Inventories — We value inventories at the lower of cost, using the first-in, first-out, or FIFO method, or net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.

Property, Plant, and Equipment — We record property, plant, and equipment, consisting of land, building, improvements, machinery, equipment, software, hardware, furniture, and fixtures, at cost and depreciate them using the straight-line method over their estimated useful lives. We charge expenditures for maintenance and repairs to earnings as incurred, and we capitalize additions, renewals, and betterments. Upon the retirement or other disposition of property and equipment, we remove the related cost and accumulated depreciation from the respective accounts and include any gain or loss in operations. We lease certain of our real estate, machinery, photocopiers, and vehicles under non-cancelable operating lease agreements, and 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. The depreciable life of assets and leasehold improvements are based on the expected life of the lease. A summary of the estimated useful lives is as follows:

Description Useful Life

Building and improvements 10 to 40 years

Software and hardware 2 to 7 years

Machinery and equipment 2 to 10 years

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

Intangible Assets — We record intangible assets at cost or based on the fair value of the assets acquired. Intangible assets consist of developed technology, customer relationships, trademarks, trade names, and patents. We amortize intangible assets over their estimated useful lives or in proportion to expected yearly revenue generated from the intangibles that were acquired.

Revenue Recognition — We recognize revenue in accordance with the provisions of Accounting Standards Update, or ASU, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018.

F-11

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Generally, all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.

In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs under which customers are entitled to receive free goods based upon their purchase of our products, which we have identified as a material right. The fulfillment of these free goods is our responsibility. In such instances, we allocate the 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 net change in contract liabilities for a given period is reported as an increase or decrease to sales.

We generally sell our products free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 60 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. Purchase orders define the terms for specific sales, including description, quantity, and price of each product purchased. 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 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.

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. We approve prospective R&D projects after analysis of the cost and benefits associated with the potential product. Costs in R&D expense include, among other items, salaries, materials, utilities, and administrative costs.

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.

F-12

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 April 30,

Net income/(loss)

Income/(loss) from discontinued operations — 8,478 (88,883 )

Earnings/(loss) per share — Basic

Income from continuing operations $ 4.12 $ 4.46 $ 0.50

Income/(loss) from discontinued operations — $ 0.16 $ (1.62 )

Earnings/(loss) per share — Diluted

Income from continuing operations $ 4.08 $ 4.40 $ 0.50

Income/(loss) from discontinued operations — $ 0.15 $ (1.60 )

For the fiscal year ended April 30, 2022, 2021, and 2020, the number of shares excluded from the computation of diluted earnings per share was 43,530, 9,301, and 28,642, respectively, because the effect would be antidilutive.

Valuation of Long-lived Tangible and Intangible Assets — We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. When such evaluations indicate that the related future undiscounted cash flows are not sufficient to recover the carrying values of the assets, such carrying values are reduced to fair value and this adjusted carrying value becomes the asset’s new cost basis. We determine fair value primarily using future anticipated cash flows that are directly associated with and are expected to arise as a direct result of the use and eventual disposition of the asset, or asset group, discounted using an interest rate commensurate with the risk involved.

We have significant long-lived tangible and intangible assets, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. The most significant long-lived tangible and intangible assets, other than goodwill, are property, plant, and equipment, right of use assets, developed technology, customer relationships, patents, trademarks, and trade names. We amortize all finite-lived intangible assets either on a straight-line basis or based upon patterns in which we expect to utilize the economic benefits of such assets. We initially determine the values of intangible assets by a risk-adjusted, discounted cash flow approach. We assess the potential impairment of identifiable intangible assets and fixed assets whenever events or changes in circumstances indicate that the carrying values may not be recoverable and at least annually. Factors we consider important, which could trigger an impairment of such assets, include the following:

•

significant underperformance relative to historical or projected future operating results;

•

significant changes in the manner or use of the assets or the strategy for our overall business;

•

significant negative industry or economic trends;

•

a significant decline in our stock price for a sustained period; and

•

a decline in our market capitalization below net book value.

Future adverse changes in these or other unforeseeable factors could result in an impairment charge that could materially impact future results of operations and financial position in the reporting period identified.

F-13

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In accordance with ASC 350, Intangibles-Goodwill and Other, we test goodwill for impairment on an annual basis on February 1 and between annual tests if indicators of potential impairment exist. The impairment test compares the fair value of the operating units to their carrying amounts to assess whether impairment is present. 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, 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, 2022, 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 11 - 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. The provision for income taxes is based upon income reported in the accompanying consolidated financial statements as required by ASC 740, Income Taxes. We determine our deferred tax assets and liabilities based on temporary differences between financial reporting and tax bases in assets and liabilities, which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We recognize the effect on deferred taxes of a change in tax rates in the period that includes the enactment date. In assessing the realization of our deferred tax assets, we consider whether it is more likely that not that the deferred tax assets will be realized. The ultimate realization of our deferred 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. We evaluate the recoverability of our deferred tax assets by assessing the need for a valuation allowance on a quarterly basis. If we determine that it is more likely than not that our deferred tax assets will not be recovered, we establish a valuation allowance against some or all of our deferred tax assets. Recording or reversing a valuation allowance could have a significant effect on our future results of operations and financial position.

Warranty — We generally provide a limited one-year warranty and a lifetime service policy to the original purchaser of our new firearm products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. 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.

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. In October 2021, we initiated a safety recall for M&P 12 shotguns manufactured prior to October 15, 2021 as a result of two field reports related to cracked barrels. This safety recall is limited to only M&P 12 shotguns manufactured prior to October 15, 2021 to ensure there are no barrel anomalies or conditions that might adversely affect the safety, function, or performance of these shotguns. The remaining estimated cost of all recalls, safety alerts, and consumer advisories is $51,000, which is recorded in accrued warranty on our consolidated balance sheet as of April 30, 2022. 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, 2022, 2021, and 2020 amounted to $1.9 million, $5.2 million, and $1.8 million, respectively.

The following table sets forth the change in accrued warranties, a portion of which is recorded as a non-current liability, in the fiscal years ended April 30, 2022, 2021, and 2020 (in thousands):

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Warranties issued and adjustments to provisions 5,163

Warranty claims (3,366 )

Warranties issued and adjustments to provisions 1,910

Warranty claims (2,730 )

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 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 $6.6 million, $10.5 million, and $43.6 million for the fiscal years ended April 30, 2022, 2021, and 2020, respectively. We have a co-op advertising program at the retail level. We expensed sales and promotional related costs amounting to $4.3 million, $15.2 million, and $9.2 million for fiscal 2022, 2021, and 2020, respectively, as selling and marketing expenses.

Shipping and Handling — In the accompanying consolidated financial statements, we included amounts billed to customers for shipping and handling in net sales. Inbound freight charges and internal transfer costs are included in cost of goods sold; however, costs incurred to distribute products to customers is included in selling, marketing, and distribution expenses.

Insurance Reserves — In January 2020, we formed a wholly owned captive insurance company, which provides product liability insurance to us and our subsidiaries. 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. Self-insurance amounts vary up to $10.0 million per occurrence; however, we believe the likelihood of reaching the maximum per occurrence limit is remote. We record our liability for estimated premiums and incurred losses in the accompanying consolidated financial statements on an undiscounted basis.

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 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, which did not have a material impact on our consolidated financial statements.

In December 2019, the Financial Accounting Standards Board issued ASU 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 the existing guidance and providing new guidance to reduce complexity in certain areas. The guidance went into effect at the start of this fiscal year ending April 30, 2022 with early adoption permitted. We adopted ASU 2019-12 on May 1, 2021, which did not have a material impact on our consolidated financial statements.

3. Discontinued Operations

On August 24, 2020, at 12:01 a.m. Eastern Time, we completed the Separation of our wholly owned subsidiary, American Outdoor Brands, Inc., or AOUT. 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.

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

Our common stock continues to trade on the Nasdaq Global Select Market under the ticker symbol “SWBI,” and AOUT's common stock trades on the Nasdaq Global Select Market under the ticker symbol “AOUT.” See our Current Report on Form 8-K filed with the SEC 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 a $25.0 million cash distribution to AOUT, in the prior fiscal year.

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 from discontinued operations in the condensed consolidated financial statements. During the fiscal year ended April 30, 2021 and 2020, income/(loss) from discontinued operations, net of tax was $8.5 million and ($88.9) 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 a Separation and Distribution Agreement, a Tax Matters Agreement, a Transition Services Agreement, and an 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 and operating expense reimbursements for transition services are recorded accordingly in our condensed consolidated financial statements based on the service provided.

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

For the Year Ended April 30,

(In thousands)

Other income/(expense), net — 112 —

Income tax expense/(benefit) — 2,278 (10,241 )

Income/(loss) from discontinued operations, net of tax $ — $ 8,478 $ (88,883 )

4. Leases

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

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. We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. Our lease agreements do not require material variable lease payments, residual value guarantees, or restrictive covenants. For operating leases, we recognize expense on a straight-line basis over the lease term. Tenant improvement allowances are recorded as an offsetting adjustment included in our calculation of the respective right-of-use asset.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

The amounts of assets and liabilities related to our operating and financing leases as of April 30, 2022 were as follows (in thousands):

Balance Sheet Caption April 30, 2022

Operating Leases

Right-of-use assets $ 7,180

Accumulated amortization (3,645 )

Right-of-use assets, net Other assets $ 3,535

Current liabilities Accrued expenses and deferred revenue $ 1,495

Non-current liabilities Other non-current liabilities 2,304

Total operating lease liabilities $ 3,799

Finance Leases

Right-of-use assets $ 40,986

Accumulated depreciation (6,333 )

Right-of-use assets, net Property, plant, and equipment, net $ 34,653

Current liabilities Accrued expenses and deferred revenue $ 1,158

Non-current liabilities Finance lease payable, net of current portion 37,628

Total finance lease liabilities $ 38,786

During the fiscal year ended April 30, 2022, we recorded $1.7 million of operating lease costs, of which $124,000 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 2022. As of April 30, 2022, our weighted average lease term and weighted average discount rate for our operating leases was 2.1 years and 4.4%, respectively. As of April 30, 2022, our weighted average lease term and weighted average discount rate for our financing leases were 16.5 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, 2022, we recorded $2.1 million of income related to this sublease agreement, which is recorded in other income/(expense) in our consolidated statements of income/(loss) and comprehensive income/(loss).

As part of the Relocation, we intend to vacate and sublease or assign to a third party the lease related to our Missouri distribution facility. In addition, we intend to occupy our Connecticut facility through the lease term. As of April 30, 2022, we do not believe there are any indications of impairment relating to these right-of-use assets.

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, 2022 (in thousands):

Fiscal Amount

Total future sublease receipts 36,336

Less amounts representing interest (12,114 )

Present value of sublease receipts $ 24,222

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

Operating Financing Total

Less current maturities of lease liabilities (1,495 ) (1,158 ) (2,653 )

During the fiscal year ended April 30, 2022, the cash paid for amounts included in the measurement of liabilities and operating cash flows was $4.4 million.

5. 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 our 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 execute certain documents in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents would have 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 (as defined in the Amended and Restated Credit Agreement) 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 Adjusted Consolidated Leverage Ratio (as defined in the Amended and Restated Credit Agreement). 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

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 (as defined in the Amended and Restated Credit Agreement) under the Amended and Restated Credit Agreement.

As of April 30, 2022, we did not have any borrowings outstanding on the Revolving Line. Had there been borrowings, they would have borne an interest rate of 2.1%, which is equal to the LIBOR rate plus an applicable margin.

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. As of April 30, 2022, we were compliant with all required financial covenants.

Letters of Credit – At April 30, 2022, 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 — During fiscal year ended April 30, 2022, we did not incur any 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. These remaining costs are being amortized to expense over the life of the credit facility. In total, we amortized $89,560, $890,553, and $687,000 to interest expense for all debt issuance costs in fiscal 2022, 2021, and 2020, respectively, including write-offs related to extinguishment.

6. Net Sales

The following table sets forth the breakdown of net sales for the fiscal years ended April 30, 2022, 2021, and 2020 (in thousands):

For the Years Ended April 30,

We sell our products and services under our Smith & Wesson, M&P, Gemtech, 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; government and military agencies; businesses; and retailers.

We sell our products worldwide. The following table sets forth the breakdown of export net sales included in the above table. Our export net sales accounted for 3%, 2%, and 4% of total net sales for the fiscal years ended April 30, 2022, 2021, and 2020, respectively (in thousands):

For the Years Ended April 30,

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. Advertising Costs

We expense advertising costs, primarily consisting of magazine advertisements, printed materials, and television advertisements, either as incurred or upon the first occurrence of the advertising. Advertising expense, included in selling, marketing, and distribution expenses, for the fiscal years ended April 30, 2022, 2021, and 2020, amounted to $17.5 million, $12.5 million, and $13.6 million, respectively.

8. Property, Plant, and Equipment

The following table summarizes property, plant, and equipment as of April 30, 2022 and 2021 (in thousands):

Less: Accumulated depreciation and amortization (306,350 ) (277,862 )

Total property, plant, and equipment, net $ 135,591 $ 141,612

Depreciation of tangible assets and amortization of software expense amounted to $29.5 million, $30.1 million, and $30.5 million for the fiscal years ended April 30, 2022, 2021, and 2020, respectively.

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, 2022, 2021, and 2020 (in thousands):

For the Years Ended April 30,

9. Inventories

The following table sets forth a summary of inventories, net of reserves, stated at lower of cost or market, as of April 30, 2022 and 2021 (in thousands):

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. Accrued Expenses and Deferred Revenue

The following table sets forth other accrued expenses as of April 30, 2022 and 2021 (in thousands):

Accrued taxes other than income $ 7,008 $ 12,210

Accrued distributor incentives 2,917 2,414

Current portion of operating lease obligation 1,495 1,309

Accrued rebates and promotions 1,243 2,174

Current portion of finance lease obligation 1,158 1,087

Total accrued expenses and deferred revenue $ 23,482 $ 33,136

11. Fair Value Measurement

We follow the provisions of ASC 820-10, Fair Value Measurements and Disclosures Topic, or ASC 820-10, for our financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

Financial assets and liabilities recorded on the accompanying consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).

Our cash and cash equivalents, which are measured at fair value on a recurring basis, totaled $120.7 million and $113.0 million as of April 30, 2022 and 2021, respectively. We utilized Level 1 of the value hierarchy to determine the fair values of these assets.

Level 2 — Financial assets and liabilities whose values are based on quoted prices in markets in which trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

SWBI US Equity

SWBI · 10-K · period ended 2022-04-30

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

SWBI US Equity☆

SWBI · 10-K · period ended 2022-04-30

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

Item 16. Form 10-K Summary

SWBI US Equity