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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.

This section generally discusses year-to-year comparisons between fiscal 2024 and fiscal 2023. A discussion of our results of operations, liquidity, and capital resources for fiscal 2023 compared with fiscal 2022 are not included in this Annual Report on Form 10-K and can be found 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 fiscal 2023, filed with the SEC on June 22, 2023.

2024 Highlights

Our operating results for fiscal 2024 included the following:

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Net sales of $535.8 million represented an increase of $56.6 million, or 11.8%, over the prior fiscal year.

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Gross profit increased $3.6 million, or 2.3%, over the prior fiscal year, primarily as a result of increased sales volume. Gross margin decreased 2.7% from the prior fiscal year, primarily because of unfavorable fixed-cost absorption, as a result of lower production volume, the impact of an accrued legal settlement, the impact of inflation on raw materials, finished parts, and labor costs, and unfavorable inventory reserves adjustments, partially offset by the impact of decreased relocation spend and favorable mix associated with newly introduced products.

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Net income was $39.6 million, or $0.86 per diluted share, compared with net income of $36.9 million, or $0.80 per diluted share, for the prior fiscal year.

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During fiscal 2024, we paid $22.0 million in dividends compared with $18.3 million in fiscal 2023.

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On September 30, 2021, we announced the Relocation. In connection with the Relocation, we built a new facility in Maryville, Tennessee and relocated some of our Springfield, Massachusetts operations and all of our Columbia, Missouri distribution operations to Maryville. We are in the process of relocating our corporate headquarters and a portion of our Deep River, Connecticut plastic injection molding operations to Maryville. In total, we expect to incur capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of approximately $160.0 million to $170.0 million. Through April 30, 2024, we had incurred $157.0 million of capital expenditures and $25.6 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.

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External Factors that Impact the Firearm Industry

The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for companies within the industry. 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. We estimate that the annual domestic non-military firearm market is approximately $2.9 billion for handguns and $1.8 billion for long guns, excluding shotguns, based on the latest data for industry shipments as calculated by the National Shooting Sports Foundation, or NSSF, utilizing Firearms and Ammunition Excise Tax data for calendar year 2023. According to calendar 2022 reports by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, or ATF, the U.S. firearm manufacturing industry grew at a 10.0% compound annual growth rate in units from 2017 through 2022, although there has been wide variation among years (e.g., 2019 to 2020 grew 58.0%). We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share.

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, 2024, 2023, and 2022 (dollars in thousands):

% of net sales (gross margin) 29.5 % 32.2 % 43.3 %

The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2024, 2023, and 2022 (units in thousands):

Sporting Goods Channel Units Shipped 2024 2023 # Change % Change 2022

Professional Channel Units Shipped 2024 2023 # Change % Change 2022

Sales of our handguns increased $21.2 million, or 5.9%, over fiscal 2023, primarily as a result of increased shipments of revolvers, increased shipments of newly introduced products (defined as any new SKU not shipped in the prior year), which represented 22.8% of handgun sales in the period, the impact of targeted promotions on certain polymer frame pistols, and a 2%-5% price increase on select products that became effective in the third fiscal quarter, partially offset by lower demand for several older handgun products and certain products that were introduced in the

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prior year. Handgun unit shipments into the sporting goods channel increased 5.6% over fiscal 2023, while overall consumer demand decreased 7.7%, (as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System, or NICS).

Sales of our long guns increased $42.3 million, or 56.9%, over fiscal 2023, primarily as a result of increased shipments of new products in the fiscal year, which represented 52.2% of sales in the period. Unit shipments into the sporting goods channel increased 53.3% over fiscal 2023, while overall consumer demand for long guns decreased 3.0%, as indicated by NICS.

Other products and services sales decreased $6.9 million, or 15.6%, from fiscal 2023, primarily because of decreased sales of component parts, decreased business-to-business sales, and decreased licensing revenue, partially offset by increased sales of handcuffs.

New products represented 27.6% of net sales for the 12 months ended April 30, 2024 and included one new pistol, three new long guns, and many new product line extensions.

Gross margin for fiscal 2024 decreased by 2.7% from the prior fiscal year, primarily because of a combination of unfavorable fixed-cost absorption (as a result of lower production volumes), the impact of an accrued legal settlement for $3.2 million, the impact of inflation on raw materials and finished parts, which increased approximately 5.6% over the prior fiscal year, the impact of inflation on labor costs (particularly as it relates to entry level positions), and unfavorable inventory reserve adjustments, including capitalized variances, partially offset by the impact of decreased Relocation spend and favorable mix associated with new products.

Our inventory levels decreased $16.6 million during fiscal 2024. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventories to increase in the first quarter of fiscal 2025 due to seasonal factors.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

Operating expenses increased $7.2 million over the prior fiscal year. Research and development expenses decreased $284,000, primarily because of decreased sample and testing costs associated with new product development. Selling, marketing, and distribution expenses increased $3.6 million, primarily as a result of a $1.9 million impairment of distribution equipment related to the Relocation, one-time costs related to the grand opening event at our new Maryville facility, increased compensation costs, increased spend on targeted promotions, and increased freight costs because of higher shipments, partially offset by decreased compensation-related Relocation costs and decreased digital advertising costs. General and administrative expenses increased $3.9 million, primarily as a result of increased compensation expenses, legal expenses, and profit-related compensation costs, partially offset by decreased Relocation costs.

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Operating Income

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

% of net sales (operating margin) 8.4 % 10.1 % 29.1 %

Operating income for fiscal 2024 decreased $3.6 million, or 7.5%, from the prior fiscal year, primarily because of the impact of an accrued legal settlement for $3.2 million, unfavorable inventory reserve adjustments, one-time costs associated with the grand opening of our new Maryville facility, increased spend on targeted promotions, and increased freight costs because of higher shipments, partially offset by increased sales volumes and decreased Relocation spend.

Other Income

The following table sets forth certain information regarding other income for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

Other income for fiscal 2024 increased $6.5 million primarily is a result of the sale of certain intangible assets.

Interest (Expense)

The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

Interest expense increased by $1.7 million over the prior fiscal year, primarily as a result of higher average outstanding debt balances during fiscal 2024.

Income Tax Expense

The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands):

% of income from operations (effective tax rate) 19.8 % 23.5 % -3.7 % 22.9 %

We recorded income tax expense of $9.8 million for fiscal 2024, $1.6 million lower than the prior fiscal year, in spite of increased profitability, primarily as a result of an amendment of prior year returns for the foreign derived income deduction that favorably reduced current year income tax expense by $1.4 million, or 2.9%. Our effective tax rates were 19.8% and 23.5% for fiscal 2024 and 2023, respectively. Adjusting for the foreign derived income deduction for each year, the effective tax rates would have been 22.7% and 23.0% for fiscal 2024 and 2023, respectively.

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Net Income

The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2024, 2023, and 2022 (dollars in thousands, except per share data):

Net income per share

Net income increased $2.7 million, or $0.06 per diluted share, from the prior fiscal year for reasons outlined above.

Liquidity and Capital Resources

Our principal cash requirements are to finance the growth of our operations, including working capital and capital expenditures, and return capital to our stockholders. Capital expenditures for new product development 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, 2024, 2023, and 2022 (dollars in thousands):

Operating Activities

Operating activities represent the principal source of our cash flow.

Cash provided by operating activities was $106.7 million in fiscal 2024, or $90.0 million higher than the prior fiscal year. Cash from operating activities was favorably impacted by a $16.6 million decrease in inventory in fiscal 2024 compared with a $40.5 million increase in inventory in fiscal 2023, an $18.2 million increase in accounts payable in fiscal 2024 compared with an $8.6 million decrease in fiscal 2023, and a $6.3 million increase in accrued expenses and deferred revenue in fiscal 2024 compared with a $3.6 million decrease in fiscal 2023. Partially offsetting this favorable activity was a $3.9 million increase in accounts receivable in fiscal 2024 compared with a $7.6 million decrease in accounts receivable in fiscal 2023 due to increased sales volume.

Investing Activities

Cash used in investing activities in fiscal 2024 was $8.3 million lower than fiscal 2023, primarily as a result of $6.5 million received for the sale of certain intangible assets and the sale of assets related to the Relocation.

We currently expect to spend $25.0 to $30.0 million on capital expenditures in fiscal 2025.

Financing Activities

Cash used in financing activities was $18.0 million in fiscal 2024 compared with cash provided by financing activities of $5.9 million in fiscal 2023. Cash used in financing activities in fiscal 2024 primarily included $22.0 million in dividend distributions and $10.2 million of share repurchases, partially offset by a net $15.0 million borrowing under our revolving line of credit.

Finance Lease – We are a party to a material finance lease, the Missouri Lease, which is a $46.2 million lease for our Missouri distribution center that has an effective interest rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During fiscal

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2024, we paid approximately $1.3 million in principal payments relating to the Missouri Lease. With the completion of the Separation, we entered into the Missouri Sublease. On July 16, 2022, we entered into an amendment to the Missouri Sublease, increasing the subleased space to 64.7% of the facility under the same terms as the Missouri Lease. As part of the Relocation, on January 31, 2023, we entered into the Assignment and Assumption Agreement and the Amended and Restated Guaranty. We terminated the Missouri Sublease as of January 1, 2024. For fiscal 2024, income related to the Missouri Sublease was $2.7 million, of which $1.3 million was recorded in general and administrative expenses and $1.4 million was recorded in interest expense, net, in our consolidated statements of income.

Credit Facilities– We maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time, or the Revolving Line. The Revolving Line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or SOFR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2024. 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. On April 28, 2023, we amended our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of “Consolidated Fixed Charge Coverage Ratio” to exclude unfinanced capital expenditures in connection with the Relocation.

As of April 30, 2024, we had $40.0 million of borrowings outstanding on the Revolving Line, bearing interest at an average rate of 7.18%, which was equal to SOFR rate plus an applicable margin.

The credit agreement for our credit facility contains financial covenants relating to maintaining a maximum leverage ratio and a minimum debt service coverage ratio. We were in compliance with all debt covenants as of April 30, 2024.

Share Repurchase Programs– On September 19, 2023, our Board of Directors authorized the repurchase of $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024. During fiscal 2024, we purchased 793,551 shares of our common stock for $10.2 million under this authorization. We did not purchase any shares of our common stock during fiscal 2023, and we did not have an authorized repurchase program as of April 30, 2023.

At April 30, 2024, we had $60.8 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 and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, and the costs to ensure access to adequate manufacturing capacity.

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Inflation

During fiscal 2024 and 2023, inflationary pressures resulted in increases in the cost of certain of the components, parts, raw materials, and other supplies necessary for the production of our products, as well as labor costs. We do not believe that inflation had a material impact on us during fiscal 2022. We expect that inflation will continue to have an impact during fiscal 2025.

Critical Accounting Estimates

Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires that we make accounting estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. See Note 2 — Significant Accounting Policies for additional information.

Critical accounting estimates are defined as those reflective of significant judgments, estimates, and uncertainties, which may result in materially different results under different assumptions and conditions. We believe the following are our critical accounting estimates:

Revenue Recognition

Description: 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.

Judgments and Uncertainties: In some instances, sales include multiple performance obligations. These may include sales promotion programs that entitle customers to receive rebates or free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. We recognize revenue proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. 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. In some instances, we may provide longer payment terms. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are always less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.

Sensitivity of Estimate to Change:The liability relating to performance obligations is based on the estimated level of participation in the sales promotional program and the timing of the shipment of all products included in the promotional program. 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.

Valuation of Goodwill, Long-lived Tangible, and Intangible Assets

Description:We evaluate the recoverability of long-lived assets, or asset groups, whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. 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.

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Judgments and Uncertainties: Determining whether impairment indicators exist and estimating the fair value of our goodwill, tangible and intangible assets requires significant judgment. Estimating the fair value of goodwill requires management to make assumptions and projections of future cash flows, revenues, earnings, discount rates, long term growth rates, and other factors.

Sensitivity of Estimate to Change: The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with our operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses.

Inventories

Description: We value inventories at the lower of cost, using the first-in, first-out, or FIFO, method, or net realizable value.

Judgments and Uncertainties: An allowance for potential non-saleable inventory as a result of excess stock or obsolescence is based upon a detailed review of inventory, past history, and expected future usage.

Sensitivity of Estimate to Change: The assumptions used to assess inventory valuation consider historical activity. Changes in these estimates can have a significant impact on the assessment of excess and obsolete inventory, which could result in material losses.

Warranty

Description: 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.

Judgments and Uncertainties: We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.

Sensitivity of Estimate to Change: The assumptions used to assess warranty consider historical trends. Changes in these estimates can have a significant impact on the assessment of warranty, which could result in material losses.

Relocation

Description:As part of the Relocation, we offered a severance and relocation package to every affected employee. The severance was, in part, based on the employee's service term, job function, and classification status, and required the employee to remain active and in good standing through their relocation date.

Judgments and Uncertainties:In accounting for severance and relocation costs, we must make a variety of assumptions and estimates, including the number of employees that will meet all of the requirements to receive the severance and relocation package, the number of those employees that will be electing to relocate versus opt for severance, and the potential cost of self-insured benefits that may be incurred during any potential severance period. We consider current facts when determining these estimates.

Sensitivity of Estimate to Change: The liabilities relating to severance and relocation obligations is based on the number of employees affected by the Relocation, the number of employees that have decided to relocate, the estimated cost of benefits during the severance period, and the employees' terms of service and rates of pay as of the fiscal year end. Changes in these assumptions can have a significant impact on the estimate of these liabilities.

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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 either the Base Rate or SOFR rate, plus an applicable margin based on our consolidated leverage ratio. For more information regarding our financing arrangements, see Note 4 — Notes, Loans Payable, and Financing Arrangements. As of April 30, 2024, we had $40.0 million of borrowings outstanding on the Revolving Line, which bore an interest rate of 7.18%, which is equal to SOFR rate plus an applicable margin. On April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of "Consolidated Fixed Charge Coverage Ratio" to exclude unfinanced capital expenditures in connection with the Relocation.

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, 2024, 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.

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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, 2024.

The effectiveness of our internal control over financial reporting as of April 30, 2024 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which also audited our consolidated financial statements for fiscal 2024. 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 2024 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

The adoption or termination of contracts, instructions, or written plans for the purchase and sale of our securities by our Section 16 officers and directors for the three months ended April 30, 2024, each of which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act, or a Rule 10b5-1 Plan, were as follows:

Robert L. Scott, the Chairman of our Board of Directors, entered into a Rule 10b5-1 Plan on March 29, 2024. Mr. Scott's Rule 10b5-1 Plan provides for the potential sale of up to 8,071 shares of our common stock and expires on October 28, 2024, or upon the earlier completion of all the transactions authorized thereunder.

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During the three months ended April 30, 2024, none of our directors or officers adopted or terminated a "non-Rule 10b5-1 trading arrangement" (as defined in Item 408 of Regulation S-K).

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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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 2024 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.

We have adopted our Policy on Inside Information and Insider Trading governing the purchase, sale, and/or other disposition of our securities by our directors, officers, employees, and other covered persons. We believe this policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and the exchange listing standards applicable to us. A copy of this policy is filed as Exhibit 19.1 to this Annual Report on Form 10-K.

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 2024 Annual Meeting of Stockholders.

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

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 2024 Annual Meeting of Stockholders.

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

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 2024 Annual Meeting of Stockholders.

Item 14. Principal Accountant Fees and Services

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 2024 Annual Meeting of Stockholders.

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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 Certificate of Withdrawal of Certificate of Designation (4)

4.1 Form of Common Stock Certificate (5)

4.2 Description of Securities (6)

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

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10.115(a) Guaranty, dated October 26, 2017, entered into by the Registrant (14)

10.115(b) Amended and Restated Guaranty, dated January 31, 2023 (15)

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10.131 Form of Dividend Equivalent Award Agreement (22)

19.1 Policy on Inside Information and Insider Trading

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

97.1 Executive Officer Clawback Policy

101.SCH Inline XBRL Taxonomy Extension Schema 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 SEC for confidential treatment, pursuant to Rule 24b-2 of the Exchange Act, 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 SEC 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 March 22, 2024.

(3)

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on April 12, 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-K filed with the SEC on June 17, 2021.

(7)

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

(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 Appendix A of the Registrant's Proxy Statement filed with the SEC on August 3, 2022.

(12)

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

(13)

Incorporated by reference to the Registrant’s Form 10-K filed with the SEC on June 22, 2023.

(14)

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

(15)

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on February 3, 2023.

(16)

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

(17)

Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on May 2, 2023.

(18)

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

(19)

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

(20)

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

(21)

Incorporated by reference to the Registrant’s Form 10-Q filed with the SEC on September 8, 2022.

53

(22)

Incorporated by reference to the Registrant’s Form 10-Q filed with the SEC on December 7, 2023.

Item 16. Form 10-K Summary

Not applicable.

54

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 20, 2024

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 20, 2024

Robert L. Scott

/s/ Anita D. Britt Director June 20, 2024

Anita D. Britt

/s/ Fred M. Diaz Director June 20, 2024

Fred M. Diaz

/s/ Michelle J. Lohmeier Director June 20, 2024

Michelle J. Lohmeier

/s/ Barry M. Monheit Director June 20, 2024

Barry M. Monheit

/s/ Denis G. Suggs Director June 20, 2024

Denis G. Suggs

55

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, 2024 and 2023 F-4

Notes to Consolidated Financial Statements F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Smith & Wesson Brands, Inc. and subsidiaries (the "Company") as of April 30, 2024 and 2023, the related consolidated statements of income, changes in stockholders' equity, and cash flows, for each of the three years in the period ended April 30, 2024, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2024, 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, 2024, 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.

F-2

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

Critical audit matters 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. We determined that there are no critical audit matters.

/s/ Deloitte & Touche LLP

Hartford, Connecticut

June 20, 2024

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

F-3

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 4,973 4,917

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accrued expenses and deferred revenue 26,811 20,149

Accrued income taxes — 1,831

Finance lease payable, net of current portion 35,404 36,961

Other non-current liabilities 7,852 7,707

Commitments and contingencies (Note 15)

Stockholders’ equity:

Accumulated other comprehensive income 73 73

Total liabilities and stockholders' equity $ 577,996 $ 541,294

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

F-4

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Year Ended April 30,

(In thousands, except per share data)

Operating expenses:

Other income/(expense), net:

Net income per share:

Weighted average number of common shares outstanding:

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

F-5

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 Shares Amount Equity

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

Shares issued under employee stock purchase plan 129 — 1,719 — — — — 1,719

Dividends issued ($0.32 per common share) — — — (15,035 ) — — — (15,035 )

Stock-based compensation — — 5,102 — — — — 5,102

Shares issued under employee stock purchase plan 175 — 1,528 — — — — 1,528

Dividends issued ($0.40 per common share) — — — (18,333 ) — — — (18,333 )

Stock-based compensation — — 5,683 — — — — 5,683

Shares issued under employee stock purchase plan 151 — 1,484 — — — — 1,484

Unpaid dividend accrued (113 ) (113 )

Dividends issued ($0.48 per common share) — — — (22,020 ) — — — (22,020 )

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

F-6

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Year Ended April 30,

(In thousands)

Cash flows from operating activities:

(Gain)/loss on sale/disposition of assets (5,595 ) (55 ) 625

Impairment of long-lived tangible assets — — 86

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (57 ) 653 2,839

Accrued payroll and incentives (1,418 ) 1,194 (10 )

Accrued expenses and deferred revenue 6,318 (3,618 ) (9,725 )

Cash flows from investing activities:

Payments to acquire patents and software (186 ) (334 ) (283 )

Proceeds from sale of property and equipment 2,955 118 139

Proceeds from sale of intangible assets 6,500 — —

Cash flows from financing activities:

Proceeds from loans and notes payable 50,000 25,000 —

Payments on finance lease obligation (1,378 ) (1,253 ) (1,087 )

Payments on notes and loans payable (35,000 ) — —

Payments to acquire treasury stock (10,213 ) — (90,000 )

Net cash (used in)/ provided by financing activities (17,966 ) 5,877 (105,987 )

Net increase/(decrease) in cash and cash equivalents 7,283 (67,172 ) 7,711

Supplemental disclosure of cash flow information

Cash paid for:

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 - (Continued)

Supplemental Disclosure of Non-cash Investing and Financing Activities:

For the Year Ended April 30,

(In thousands)

Capital lease included in accrued expenses and finance lease payable 612 767 —

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

F-8

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, pistol caliber carbines, and lever action rifles), handcuffs, firearm 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 and Gemtech brands. We manufacture our products at our facilities in Springfield, Massachusetts; Houlton, Maine; Deep River, Connecticut; and Maryville, Tennessee. 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. During fiscal 2024, we began manufacturing and distribution activities from our new Maryville, Tennessee facility. See Note 15 — Commitments and Contingencies, and Note 16 — Restructuring 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, 2024 and 2023 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, 2024, 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 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, 2024 and 2023, we did not have any derivative instruments or any Level 2 or Level 3 financial instruments within the hierarchy. See Note 4 – 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.

F-9

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 fiscal 2024, sales to three of our customers exceeded 10.0% of our net sales, totaling 34.8%. As of April 30, 2024, two of our customers each accounted for more than 10% of our accounts receivable, for a total of 47.9%. For fiscal 2023, sales to two of our customers exceeded 10.0% of our net sales, totaling 22.8%. As of April 30, 2023, three of our customers each accounted for more than 10% of our accounts receivable, for a total of 39.4%.

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, and photocopiers under non-cancelable operating and finance 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. 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.

F-10

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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. As a result of utilizing practical expedients 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 per Share — We calculate basic and diluted earnings per common share in accordance with the provisions of ASC 260-10, Earnings Per Share. Basic earnings per common share equals net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share equals net income divided by the weighted average number of common shares outstanding during the period, including the effect of outstanding stock options and other stock-based instruments if their effect is dilutive.

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

For the Year Ended April 30,

Earnings per share — Basic $ 0.86 $ 0.80 $ 4.12

Earnings per share — Diluted $ 0.86 $ 0.80 $ 4.08

For fiscal 2024, 2023, and 2022, the number of shares excluded from the computation of diluted earnings per share was18,009, 30,307, and 43,530, 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

F-11

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

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, we 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, 2024, 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 10 - 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 than 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 February 2024, we initiated a safety recall for Response rifles manufactured prior to February 12, 2024 as a result of field reports related to the potential for an out of battery discharge. This safety recall was limited to Response rifles manufactured prior to February 12, 2024 and was conducted to ensure there were no anomalies or conditions that might adversely affect the safety, function, or

F-12

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

performance of these rifles. The remaining estimated cost of all recalls, safety alerts, and consumer advisories is $38,000, which is recorded in accrued warranty on our consolidated balance sheet as of April 30, 2024. 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, 2024, 2023, and 2022 amounted to $2.6 million, $1.5 million, and $1.9 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, 2024, 2023, and 2022 (in thousands):

Warranties issued and adjustments to provisions 1,496

Warranty claims (2,364 )

Warranties issued and adjustments to provisions 2,560

Warranty claims (2,681 )

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, $10.2 million, and $6.6 million for the fiscal years ended April 30, 2024, 2023, and 2022, respectively. We have a co-op advertising program at the retail level. We expensed sales and promotional related costs amounting to $2.6 million, $2.7 million, and $4.3 million for fiscal 2024, 2023, and 2022, 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.

Recently Issued Accounting Standards — There are no new accounting pronouncements that are expected to have a significant impact on our consolidated financial statements.

F-13

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Leases

We lease certain of our real estate, machinery, equipment, and photocopiers under non-cancelable operating and finance 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 or residual value guarantees, nor do they include 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.

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, 2024 were as follows (in thousands):

Operating Leases

Accumulated amortization (5,411 ) (4,153 )

Right-of-use assets, net Other assets $ 1,350 $ 1,841

Current liabilities Accrued expenses and deferred revenue $ 947 $ 1,274

Non-current liabilities Other non-current liabilities 574 801

Total operating lease liabilities $ 1,521 $ 2,075

Finance Leases

Right-of-use assets, net Property, plant, and equipment, net $ 29,918 $ 32,183

Current liabilities Accrued expenses and deferred revenue $ 1,564 $ 1,434

During fiscal 2024, we recorded $1.5 million of operating lease costs, of which $98,000 related to short-term leases that were not recorded as right-of-use assets. We recorded $2.3 million of finance lease amortization and $1.9 million of financing lease interest expense during fiscal 2024. As of April 30, 2024, our weighted average lease term and weighted average discount rate for our operating leases was 2.2 years and 3.2%, respectively. As of April 30, 2024, our weighted average lease term and weighted average discount rate for our financing leases were 14.4 years and 5.0%, respectively, and consisted primarily of our Missouri distribution center. 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.

On October 26, 2017, we entered into (a) a lease agreement with Ryan Boone County, LLC, or the Original Missouri Landlord, concerning certain real property located in Boone County, Missouri on which we have been operating our distribution center, or the Missouri Lease, and (b) a guaranty in favor of the Original Missouri Landlord, or the Guaranty. With the completion of the Separation, we entered into a sublease under which American Outdoor Brands, Inc., our former wholly owned subsidiary, or AOUT, subleases from us 59.0% of our Missouri distribution center under the same terms as the Missouri Lease, or the Sublease. On July 16, 2022, we entered into an amendment to the Sublease, increasing the leased space to 64.7% of the facility under the same terms as the Missouri Lease. As

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

part of the Relocation, on January 31, 2023, we entered into (i) an assignment and assumption agreement with AOUT, pursuant to which AOUT will assume all of our rights, entitlement, and obligations in, to, and under the Missouri Lease, in each case, which became effective on January 1, 2024, and (ii) an amended and restated guaranty in favor of RCS-S&W Facility, LLC, as successor in interest to the Original Missouri Landlord, pursuant to which Smith & Wesson Sales Company was added as a guarantor, or the Amended and Restated Guaranty. We terminated the Missouri Sublease as of January 1, 2024. For the fiscal year April 30, 2024, income related to the Sublease was $2.7 million, of which $1.3 million was recorded in general and administrative expense and $1.4 million was recorded in interest expense, net, in our consolidated statements of income. In addition, on January 5, 2024, we entered into an amendment to extend the lease term on our Deep River facility through January 4, 2025. We intend to occupy the facility at least through the current lease termination date. We do not believe there are any indications of impairment relating to assets being utilized at the Deep River facility.

The following table represents future expected undiscounted cashflows, based on the Assignment and Assumption Agreement with AOUT, to be received on an annual basis for the next five years and thereafter, as of April 30, 2024 (in thousands):

Fiscal Amount

Total future receipts 51,963

Less amounts representing interest (15,607 )

Present value of receipts $ 36,356

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 (947 ) (1,564 ) (2,511 )

During fiscal 2024, the cash paid for amounts included in the measurement of liabilities and operating cash flows was $4.6 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. 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 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 the SOFR 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 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. On April 28, 2023, we entered into an amendment to our existing credit agreement to, among other things, replace LIBOR with SOFR as the interest rate benchmark and amend the definition of “Consolidated Fixed Charge Coverage Ratio” to exclude unfinanced capital expenditures in connection with the Relocation.

As of April 30, 2024, we had $40.0 million of borrowings outstanding on the Revolving Line, which bore an interest rate of 7.18%, which is equal to the SOFR rate plus an applicable margin. As a result of the construction associated with the Relocation, $759,000 of interest was capitalized as of April 30, 2024.

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, 2024, we were compliant with all required financial covenants.

Letters of Credit – At April 30, 2024, 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 the fiscal years ended 2024, 2023, and 2022, we did not incur any debt issuance costs. We recorded, in notes payable, $450,000 of debt issuance costs during fiscal 2021. The remaining costs are

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

being amortized to expense over the life of the credit facility. In total, we amortized $89,805, $89,560, and $89,560 to interest expense for all debt issuance costs in fiscal 2024, 2023, and 2022, respectively.

5. Net Sales

The following table sets forth the breakdown of net sales for the fiscal years ended April 30, 2024, 2023, and 2022 (in thousands):

For the Years Ended April 30,

We sell our products and services under our Smith & Wesson and Gemtech 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 shown below accounted for approximately 5%, 4%, and 3% of total net sales for the fiscal years ended April 30, 2024, 2023, and 2022, respectively (in thousands):

For the Years Ended April 30,

6. Advertising Costs

We expense advertising costs, primarily consisting of magazine advertisements, printed materials, television advertisements, digital advertisements, radio advertisements, and billboards, 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, 2024, 2023, and 2022, amounted to $14.7 million, $14.7 million, and $17.5 million, respectively.

7. Property, Plant, and Equipment

The following table summarizes property, plant, and equipment as of April 30, 2024 and 2023 (in thousands):

Less: Accumulated depreciation and amortization (352,615 ) (334,383 )

Total property, plant, and equipment, net $ 252,633 $ 210,330

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Depreciation of tangible assets and amortization of software expense amounted to $32.0 million, $31.0 million, and $29.5 million for the fiscal years ended April 30, 2024, 2023, and 2022, 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, 2024, 2023, and 2022 (in thousands):

For the Years Ended April 30,

8. Inventories

The following table sets forth a summary of inventories, net of reserves, stated at lower of cost or net realizable value, as of April 30, 2024 and 2023 (in thousands):

9. Accrued Expenses and Deferred Revenue

The following table sets forth other accrued expenses as of April 30, 2024 and 2023 (in thousands):

Accrued taxes other than income $ 5,838 $ 3,703

Accrued settlement 3,200 —

Accrued distributor incentives 1,687 1,640

Current portion of finance lease obligation 1,564 1,434

Accrued rebates and promotions 1,485 1,649

Current portion of operating lease obligation 947 1,274

Total accrued expenses and deferred revenue $ 26,811 $ 20,149

10. 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 $60.8 million and $53.6 million as of April 30, 2024 and 2023, respectively. The carrying value of our revolving line of credit approximated the fair value as of April, 30, 2024. 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:

•

quoted prices for identical or similar assets or liabilities in non-active markets (such as corporate and municipal bonds which trade infrequently);

•

inputs other than quoted prices that are observable for substantially the full term of the asset or liability (such as interest rate and currency swaps); and

•

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

Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our assumptions about the assumptions a market participant would use in pricing the asset or liability.

As of April 30, 2024, we did not have any Level 2 or Level 3 financial assets or liabilities.

11. Self-Insurance Reserves

As of April 30, 2024 and 2023, we had reserves for workers’ compensation, product liability, and medical/dental costs totaling $8.7 million and $9.2 million, respectively, of which $3.3 million and $2.6 million, respectively, was classified as other non-current liabilities. As of April 30, 2024 and 2023, $5.4 million and $6.6 million, respectively, were included in accrued expenses or accounts payable on the accompanying consolidated balance sheets. In addition, as of April 30, 2024 and 2023, $984,000 and $663,000, respectively, of workers’ compensation recoverable was classified as other assets. While we believe these reserves to be adequate, it is possible that the ultimate liabilities will exceed such estimates.

The following table summarizes the activity in the workers’ compensation, product liability, municipal liability, and medical/dental reserves in the fiscal years ended April 30, 2024 and 2023 (in thousands):

For the Year Ended April 30,

Additional provision charged to expense 2,921 3,589

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

It is our policy to provide an estimate for loss as a result of expected adverse findings or legal settlements on product liability, workers’ compensation, and other matters when such losses are probable and are reasonably estimable. It is also our policy to accrue for reasonably estimable legal costs associated with defending such litigation. While such estimates involve a range of possible costs, we determine, in consultation with counsel, the most likely cost within such range on a case-by-case basis. We also record receivables from insurance carriers relating to these matters when their collection is probable and reasonably estimable. As of April 30, 2024 and 2023, we had accrued reserves for product litigation liabilities of $3.1 million and $4.3 million, respectively (of which $497,000 and $568,000, respectively, was non-current), consisting entirely of expected legal defense costs. During fiscal 2024, we did not record any receivables from insurance carriers related to these liabilities. Prior to fiscal 2024, we had recorded receivables from insurance carriers related to these liabilities of $1.9 million, nearly all of which has been classified as other non-current assets.

12. Stockholders’ Equity

Treasury Stock

On September 19, 2023, our Board of Directors authorized the repurchase of $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024. During fiscal 2024, we purchased 793,551 shares of our common stock for $10.2 million under this authorization. We did not purchase any shares of our common stock during fiscal 2023, and we did not have an authorized repurchase program as of April 30, 2023. During fiscal 2022, we repurchased 1,967,420 of our common stock for $40.0 million, utilizing cash on hand under an available program that our Board of Directors authorized in fiscal 2021. 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. 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.

Incentive Stock and Employee Stock Purchase Plans

We have two stock incentive plans: the 2013 Incentive Stock Plan and the 2022 Incentive Stock Plan. New grants under the 2013 Incentive Stock Plan have not been made since our stockholders approved the 2022 Incentive Stock Plan at our annual meeting of stockholders held on September 12, 2022. All new grants covering participants are issued under the 2022 Incentive Stock Plan.

The 2022 Incentive Stock Plan authorizes the issuance of 1,000,000 shares, plus 4,312,247 shares that were reserved and remained available for grant and delivery under the 2013 Incentive Stock Plan as of September 12, 2022, the effective date of the 2022 Incentive Stock Plan. The 2022 Incentive Stock Plan permits the grant of options to acquire common stock, restricted stock awards, restricted stock units, or RSUs, stock appreciation rights, bonus stock and awards in lieu of obligations, performance awards, and dividend equivalents. Our Board of Directors, or a committee of our board, administers the stock plans, selects recipients to whom awards are granted, and determines the grants to be awarded. Options granted under the stock plans are exercisable at a price determined by our Board of Directors or a committee of our board at the time of grant, but in no event, less than fair market value of our common stock on the effective date of the grant. Grants of options may be made to employees and directors without regard to any performance measures. All options issued pursuant to the stock plans are generally nontransferable and subject to forfeiture.

Unless terminated earlier by our Board of Directors, the 2022 Incentive Stock Plan will terminate at the earliest of (1) the tenth anniversary of the effective date of the 2022 Incentive Stock Plan, or (2) such time as no shares of common stock remain available for issuance under the plan and we have no further rights or obligations with respect to outstanding awards under the plan. The date of grant of an award is deemed to be the effective date upon which our Board of Directors or a committee authorizes the granting of such award.

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Except in specific circumstances, grants of stock options vest over a period of four years and are exercisable for a period of 10 years after vesting. The 2022 Incentive Stock Plan also permits the grant of stock options to non-employees, which our Board of Directors or a committee has authorized in the past. There were no outstanding and exercisable stock options in fiscal 2024, 2023, and 2022.

The following table summarizes stock compensation expense by line item for the fiscal years ended April 30, 2024, 2023, and 2022 (in thousands):

For the Year Ended April 30,

Research and development 77 80 61

Selling, marketing, and distribution 930 814 844

As of April 30, 2024, there were 5,420,444 shares available for grant under the 2022 Incentive Stock Plan. We use our unissued share pool for all shares issued for options, restricted stock awards, RSUs, performance share units, performance-based restricted stock units, or PSUs, and shares issued under our Employee Stock Purchase Plan, or ESPP.

We grant service-based RSUs to employees, consultants, and directors. The awards are made at no cost to the recipient. An RSU represents the right to acquire one share of our common stock and does not carry voting or dividend rights. Except in specific circumstances, RSU grants to employees and consultants generally vest over a period of three or four years with one-third or one-fourth of the units vesting, respectively, on each anniversary date of the grant date. RSU grants to directors generally vest over a period of one year with one-twelfth of the units vesting each month. The aggregate fair value of our RSU grants is amortized to compensation expense over the applicable vesting period.

We grant PSUs to our executive officers. At the time of grant, we calculate the fair value of our PSUs using the Monte-Carlo simulation. We incorporate the following variables into the valuation model:

For the Year Ended April 30,

Grant date fair market value

Volatility (a)

Risk-free interest rate (c) 3.81 % 2.91 % 0.33 %

(a)

Expected volatility is calculated over the most recent period that represents the remaining term of the performance period as of the valuation date, or three years.

(b)

The correlation coefficient utilizes the same historical price data used to develop the volatility assumptions.

(c)

The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bill, commensurate with the three-year performance period.

The PSUs vest, and the fair value of such PSUs are recognized, over the corresponding three-year performance period. Our PSUs have a maximum aggregate award equal to 200% of the target amount granted. Generally, the number of PSUs that may be earned depends upon the total stockholder return, or TSR, of our common stock compared with the TSR of the Russell 2000 Index, or RUT, over the three-year performance period. For PSUs, our stock must outperform the RUT by 5% in order for the target award to vest. In addition, there is a cap on the number of shares that can be earned under our PSUs, which is equal to six times the grant-date value of each award.

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SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In connection with the spin-off of AOUT and in accordance with the terms of the Employee Matters Agreement between us and AOUT, all outstanding PSU awards were adjusted such that the performance criteria relative to SWBI share price was modified to compare the market cap of SWBI for the 90 days subsequent to the original grant date to the combined market cap of SWBI and AOUT for the 90 days preceding the original vest date. The change in the market cap will be compared to the change in the value of the Russell 2000 index for the same period. In addition, a pro rata number of AOUT PSUs were granted at the time of the spin to each SWBI PSU recipient with the same terms as the underlying original SWBI PSU.

In certain circumstances, the vested awards will be delivered on the first anniversary of the applicable vesting date. We have applied a discount to the grant date fair value when determining the amount of compensation expense to be recorded for these RSUs and PSUs.

During fiscal 2024, we granted 176,583 PSUs to certain of our executive officers. We also granted 357,357 service-based RSUs during fiscal 2024, including 117,724 RSUs to certain of our executive officers, 58,819 RSUs to our directors, and 180,814 RSUs to non-executive officer employees.

During fiscal 2024, we canceled 158,100 market-condition PSUs as a result of the failure to satisfy the performance metric. We canceled 24,385 service-based RSUs as a result of the service period condition not being met. We delivered 228,087 shares of common stock to current employees and directors under vested RSUs with a total market value of $2.7 million. In addition, in connection with a 2019 grant, which vested in fiscal 2023, we delivered 55,726 market-condition PSUs to certain of our executive officers and a former executive officer with a total market value of $664,000.

During fiscal 2023, we granted 108,736 PSUs to certain of our executive officers. We also granted 287,854 service-based RSUs during fiscal 2023, including 72,494 RSUs to certain of our executive officers, 56,497 RSUs to our directors, and 158,863 RSUs to non-executive officer employees.

During fiscal 2023, we canceled 35,179 service-based RSUs as a result of the service period condition not being met. We delivered 202,859 shares of common stock to current employees under vested RSUs with a total market value of $2.7 million. In addition, in connection with a 2018 grant, which vested in fiscal 2022, we delivered 83,586 market-condition PSUs to certain of our executive officers and a former executive officer with a total market value of $1.2 million. In addition, in connection with a 2019 grant, 57,600 PSUs vested to certain of our executive officers and a former executive officer, which resulted from achieving the maximum performance of 200.0% of target for the original 28,800 PSUs granted. Relating to this same grant, 1,874 shares were released to cover tax obligations on the vesting.

During fiscal 2022, we granted 73,913 PSUs to certain of our executive officers and a former executive officer. We also granted 184,767 service-based RSUs during fiscal 2022, including 65,518 RSUs to certain of our executive officers and a former executive officer, 42,702 RSUs to our directors, and 76,547 RSUs to non-executive officer employees.

During fiscal 2022, we canceled 45,249 service-based RSUs as a result of the service period condition not being met. We canceled 40,869 PSUs as a result of the service period condition not being met. We delivered 365,736 shares of common stock to current employees under vested RSUs with a total market value of $7.5 million. In addition, in connection with a 2018 grant, we vested 86,400 market-condition PSUs to certain of our executive officers and a former executive officer, which resulted from achieving the maximum performance of 200.0% of target for the original 43,200 PSUs granted. Related to this same grant, we released 2,814 market-condition PSUs to cover tax obligations as a result of the vesting.

The grant date fair value of RSUs and PSUs that vested in fiscal 2024, 2023, and 2022 was $3.3 million, $4.0 million, and $4.4 million, respectively.

F-22

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of activity for unvested RSUs and PSUs for fiscal years 2024, 2023, and 2022 is as follows:

For the Year Ended April 30,

Weighted Weighted Weighted

Total # of Average Total # of Average Total # of Average

Restricted Grant Date Restricted Grant Date Restricted Grant Date

Stock Units Fair Value Stock Units Fair Value Stock Units Fair Value

_____________________

(a)

Includes 28,800 PSUs that vested during the fiscal year in connection with achieving maximum performance targets for the 2019 grants.

(b)

Includes 55,726 PSUs that vested during fiscal 2023.

As of April 30, 2024, there was $3.8 million of unrecognized compensation cost related to unvested RSUs and PSUs. This cost is expected to be recognized over a weighted average remaining contractual term of 1.3 years.

We had an ESPP that commenced on September 26, 2011, or the 2011 ESPP, which authorized the sale of up to 6,000,000 of our common stock to employees. The 2011 ESPP continued in effect for a term of 10 years and expired with the offering period that ended March 31, 2022. All options and rights to participate in the 2011 ESPP are nontransferable and subject to forfeiture in accordance with the 2011 ESPP guidelines. As of April 30, 2022, we had issued 1,948,334 shares of common stock under the 2011 ESPP, all of which were purchased prior to April 30, 2022. During fiscal 2022, 128,422 shares were purchased under the 2011 ESPP, respectively.