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

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

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

2021 Highlights

Our operating results for fiscal 2021 included the following:

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 such measurements as gross margin per unit produced, units produced per day, revenue by trade channel, and incoming orders per day.

External Factors that Impact the Firearm Industry

The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for all companies within the industry. These factors include, among others, fears surrounding crime and terrorism; tragic news events; 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 presidential elections. See Item IA, Risk Factors, for further discussion of external factors that impact the firearm industry. Although these external factors have created demand surges and volatility in the

firearm market, and often make it difficult to predict demand, we believe that those external factors have also likely contributed to a long-term increase in consumer interest in firearms. From 2010 through 2019, this increased consumer interesthelped the firearm industry generate a ten-year compound annual growth rate in units of approximately 2.8% according to the ATF. We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points are important factors in our goal to continue increasing our market share. Based on data from calendar 2020, we estimate that we have a 19.0% share of the U.S. consumer market for firearms.

Results of Operations

Net Sales and Gross Profit

The following table sets forth certain information regarding net sales and gross profit for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):

% of net sales (gross margin) 42.4 % 31.3 % 30.4 %

The following table sets forth certain information regarding units shipped by trade channel for the fiscal years ended April 30, 2021, 2020, and 2019 (units in thousands):

Sporting Goods Channel Units Shipped 2021 2020 # Change % Change 2019

Professional Channel Units Shipped 2021 2020 # Change % Change 2019

Fiscal 2021 Net Sales and Gross Profit Compared with Fiscal 2020

Net sales for our handguns increased $365.0 million, or 93.4%, over fiscal 2020 as a result of increased demand for all major product lines, likely as a result of pandemic-related restrictions, fear for personal safety, and concerns over increased firearm regulation resulting from a change in the Presidential administration. Unit shipments of our handguns into the sporting goods consumer channel increased 66.9% over fiscal 2020 as a result of increased demand, which correlates to the 48.9% increase in adjusted background checks for handguns reported to NICS. We believe our outperformance of adjusted NICS was a result of our ability to increase capacity to meet consumer demand, and a consumer preference for our products at the retail level.

Net sales for our long guns increased $151.8 million, or 149.5%, over fiscal 2020 as a result of increased consumer demand for our M&P modern sporting rifles, we believe driven by fear for public safety, concerns over increased firearms regulation resulting from a change in the Presidential administration, and an increased participation in outdoor activities because of COVID-19, partially offset by a bulk sale to clear discontinued products from the channel in the prior year. Unit shipments into the sporting goods channel increased 80.8% over fiscal 2020 compared with a 40.6% increase in reported NICS checks over the prior comparable period. We believe

that our percentage increase in long gun sales significantly exceeded the increase in NICS because our flexible manufacturing capabilities allowed us to increase production capacity significantly during this period, combined with a consumer preference for our products at the retail level.

Other products and services net sales increased $12.8 million, or 34.1%, over fiscal 2020, primarily because of increased sales of component parts, handcuffs, and business-to-business services.

New products, defined as any new SKU not shipped in the prior year, represented 17.3% of net sales for the 12 months ended April 30, 2021 and included several new M&P branded polymer pistols, many new product line extensions, and promotional products bundle kits for our M&P and Thompson/Center Arms branded products.

Gross margin for fiscal 2021 increased by 171.0% over the prior fiscal year, primarily because of lower promotional spending, favorable manufacturing fixed cost absorption, favorable product mix, and price increases. This increase was partially offset by increased manufacturing spending, unfavorable inventory valuation adjustments.

Our inventory levels decreased $25.3 million during fiscal 2021, as a result of the increase in consumer demand. The past year has seen unprecedented demand, which has resulted in internal, distributor, and retail inventories being at historically low levels.

A discussion of our results of net sales and gross profit for the year ended April 30, 2020 compared to the year ended April 30, 2019 is included in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended April 30, 2020, filed with the SEC on June 19, 2020.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):

Fiscal 2021 Operating Expenses Compared with Fiscal 2020

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

Fiscal 2020 Operating Expenses Compared with Fiscal 2019

Operating expenses increased by $12.6 million over fiscal 2019. Research and development expenses decreased $644,000 as a result of decreased compensation-related expenses. Selling and marketing expenses increased primarily as a result of $5.3 million of increased compensation-related expenses, $4.4 million of increased freight and shipping expense, and $2.5 million in depreciation expense related to our distribution center. These increased expenses were partially offset by a decrease in spending on promotional events because of COVID-19.

General and administrative expenses increased $1.0 million because of increased depreciation expenses and other expenses related to the spin-off of our outdoor products and accessories business. These increases were partially offset by decreased compensation-related expenses in connection with the separation of our former President and Chief Executive Officer.

Operating Income from Continuing Operations

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):

% of net sales (operating margin) 30.2 % 9.5 % 9.0 %

Fiscal 2021 Operating Income from Continuing Operations Compared with Fiscal 2020

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

Fiscal 2020 Operating Income from Continuing Operations Compared with Fiscal 2019

Operating income from continuing operations for fiscal 2020 was $50.3 million, an increase of $6.8 million, or 15.6% over fiscal 2019, primarily because of favorable manufacturing fixed cost absorption, favorable inventory valuation adjustments, and lower manufacturing spending, as well as decreased compensation-related expenses in connection with the separation of our former President and Chief Executive Officer. These increases in operating income from continuing operations were partially offset by increased promotional product discounts and targeted customer promotions, increased depreciation and compensation-related expenses related to the new distribution center, increased expenses related to the spin-off of our outdoor products and accessories business, and increased expenses related to the COVID-19 pandemic.

Other Income

The following table sets forth certain information regarding operating income for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):

Other income for fiscal 2021increased $1.8 million, or 354.9%, over the prior fiscal year, primarily as a result of the sublease of the distribution center to AOUT, whereby AOUT subleases from us 59.0% of our distribution center under the same terms as the master lease.

Interest (Expense)

The following table sets forth certain information regarding interest expense for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):

Interest expense decreased by $7.7 million from the prior fiscal year as a result of lower overall outstanding debt during fiscal 2021 resulting from increased cash generation that enabled us to repay all amounts outstanding on our revolving line of credit.

Interest expense increased by $1.8 million over fiscal 2019 as a result of interest recorded related to our capital lease for our new distribution center and additional borrowings outstanding on our revolving line of credit during the fiscal year.

Income Tax Expense

The following table sets forth certain information regarding income tax expense for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):

% of income from operations (effective tax rate) 23.4 % 29.4 % -6.0 % 27.1 %

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

We recorded income tax expense of $11.5 million for fiscal 2020, $2.2 million higher than 2019, primarily because of increased profitability. The effective tax rates were 29.4% and 27.1% for fiscal 2020 and 2019, respectively. The increase in rate was due to higher non-deductible spin-related costs in fiscal 2020.

Income from Continuing Operations

The following table sets forth certain information regarding net income and the related per share data for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands, except per share data):

Net income per share

Fiscal 2021 Income from Continuing Operations Compared with Fiscal 2020

Net income increased $215.9 million, or $3.90 per diluted share, over the prior fiscal year for reasons outlined above.

Fiscal 2020 Income from Continuing Operations Compared with Fiscal 2019

Net income increased $2.7 million, or $0.05 per diluted share, over the prior fiscal year for reasons outlined above.

Liquidity and Capital Resources

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

The following table sets forth certain cash flow information for the fiscal years ended April 30, 2021, 2020, and 2019 (dollars in thousands):

Operating Activities

Operating activities from continuing operations represent the principal source of our cash flow.

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

We anticipate that inventory levels will remain relatively flat in the first quarter of fiscal 2022 as we continue to meet current consumer demand.

Cash provided by operating activities from continuing operations was $80.8 million in fiscal 2020, or $29.7 million higher than fiscal 2019. Cash generated by operating activities from continuing operations for fiscal 2020 was favorably impacted by net income of $59.6 million before depreciation and amortization, a $28.9 million incremental decrease in accounts receivable due to the timing of shipments and customer payments, and a $28.3 million incremental increase in accrued expenses, primarily due to an increase in promotional product discount accruals and the postponement of federal excise tax payments as a result of the COVID-19 pandemic. These favorable impacts were partially offset by an incremental $15.9 million of decreased payroll and incentive accruals due to the payment of higher management incentive bonuses during the year and the separation of our former President and Chief Executive Officer and a $8.6 million incremental increase in inventory.

Investing Activities

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

Cash used in investing activities in fiscal 2020 was $12.1 million, or $17.6 million lower than in fiscal 2019. We recorded capital expenditures of $12.4 million for fiscal 2020, $18.5 million lower than fiscal 2019 due to increased spending in the prior year related to our distribution center.

Financing Activities

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

Cash provided by financing activities was $3.4 million in fiscal 2020, compared with a cash usage of $30.5 million in fiscal 2019. Cash generated from operations and not earmarked for investments in our business would historically been used to reduce the balance of our revolving credit facility but was not in fiscal 2020 solely as a precaution related to the COVID-19 pandemic.

Finance Lease –We are party to a $46.2 million lease for our distribution center in Columbia, Missouri, which has an effective rate of approximately 5.0% and is payable in 240 monthly installments through fiscal 2039. The building is pledged to secure the amounts outstanding. During the fiscal year, we paid $949,000 in principal payments relating to this finance lease. In connection with the completion of the Separation on August 24, 2020, we entered into an agreement with AOUT to sublease them 59.0% of this facility under the same terms as the master lease. We have recorded $1.7 million of income related to this sublease agreement, which is recorded in other income/(expense) in our condensed consolidated statement of income/(loss) and comprehensive income/(loss).

Credit Facilities - As of April 30, 2021, we had no outstanding indebtedness. However, we maintain an unsecured revolving line of credit with TD Bank, N.A. and other lenders, or the Lenders, which includes availability up to $100.0 million at any one time. The revolving line provides for availability for general corporate purposes, with borrowings to bear interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio, as of April 30, 2021. The credit agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the revolving line). Each swingline loan bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. In response to a Springing Lien Triggering Event (as defined in the credit agreement), we would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents as legal, valid, and enforceable first priority lien on the collateral described therein. Subject to the satisfaction of certain terms and conditions described in the credit agreement, we have an option to increase the revolving line by an aggregate amount not exceeding $50.0 million. The revolving line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any permitted notes under the credit agreement.

The credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. We were in compliance with all debt covenants as of April 30, 2021.

Share Repurchase Programs - On December 15, 2020, our board of directors authorized the repurchase of $50.0 million of our common stock, subject to certain conditions, in the open market or privately negotiated transactions until December 14, 2021. During fiscal 2021, we repurchased 2,737,489 shares of our common stock under this authorization. On March 2, 2021, our board of directors authorized the repurchase of an additional $100.0 million of our common stock, subject to certain conditions, in the open market or privately negotiated transactions. During fiscal 2021, we repurchased 3,380,447 shares of our common stock for $60.0 million. Subsequent to fiscal 2021, we completed the second stock repurchase program by purchasing 1,967,420 shares of our common stock for $40.0 million. We did not repurchase any shares of our common stock during fiscal 2020 or 2019.

At April 30, 2021, we had $113.0 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, the costs to ensure access to adequate manufacturing capacity, and costs to enhance the equipment and software at our distribution center.

Inflation

We do not believe that inflation had a material impact on us during fiscal 2021, 2020, or 2019.

Critical Accounting Policies

Revenue Recognition

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

In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs that entitle customers to receive free goods based upon their purchase of our products. The fulfillment of these free goods is our responsibility. In such instances, we allocate the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the products included in the promotional program, including the free goods. We recognize revenue proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 90 days of product shipment with a discount available in certain cases for early payment. For contracts with discounted terms, we determine the transaction price upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.

Valuation of Long-lived Tangible and Intangible Assets

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

Inventories

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

Warranty

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

operating results for the period or periods in which such returns or additional costs materialize could be adversely impacted.

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements is discussed in Note 3 — Significant Accounting Policies to our consolidated financial statements, which is incorporated herein by reference.

Off-Balance Sheet Arrangements

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We do not enter into any market risk sensitive instruments for trading purposes. Our principal market risk relates to the variable interest rate associated with our credit agreement, which consists of a $100.0 million revolving line of credit that bears interest at a variable rate equal to LIBOR or prime, at our election, plus an applicable margin based on our consolidated leverage ratio. For more information regarding our financing arrangements, see Note 7 — Notes, Loans Payable, and Financing Arrangements. As of April 30, 2021, we did not have any borrowings outstanding on the revolving line. Had there been borrowings, they would have borne an interest rate of 1.61%, which is equal to the LIBOR rate plus an applicable margin.

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, 2021, the end of the period covered by this Annual Report on Form-10-K. Based on that evaluation, we have concluded that, as of the end of the period covered by this Annual Report on Form-10-K, our disclosure controls and procedures were effective to provide such reasonable assurance.

Management’s Annual Report on Internal Control Over Financial Reporting

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, 2021.

The effectiveness of our internal control over financial reporting as of April 30, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, which also audited our consolidated financial statements for the year ended April 30, 2021. Deloitte & Touche LLP's report on our internal control over financial reporting is included herein.

Previously Disclosed Material Weakness

We disclosed in Item 9A. Controls and Procedures in our Annual Report on Form 10-K for the year ended April 30, 2020 that we had identified a material weakness in internal controls related to the preparation and review of the goodwill impairment analysis. The material weakness resulted in audit adjustments to goodwill pertaining to our former Outdoor Products & Accessories reporting unit that were recorded in our consolidated financial statements as of and for the year ended April 30, 2020 prior to the issuance of those financial statements.

Remediation of Material Weakness in Internal Control over Financial Reporting

Due to our remediation actions, management has concluded that the material weakness identified as of April 30, 2020 has been eliminated as of April 30, 2021. We will continue to monitor and evaluate the effectiveness of these remedial actions and make further changes as deemed appropriate. We devoted considerable effort to remediate the material weakness that was identified as of April 30, 2020, which is evidenced by the following actions which were completed during fiscal 2021:

• assessed protocols around third-party service reliance; and

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

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

Item 9B. Other Information

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by this Item relating to our directors and corporate governance is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2021 Annual Meeting of Stockholders. The information required by this Item relating to our executive officers is included in Item 1, “Business — Executive Officers” of this report.

Item 11. Executive Compensation

The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2021 Annual Meeting of Stockholders.

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

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

Item 14. Principal Accountant Fees and Services

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements and Financial Statement Schedules

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

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

(b) Exhibits

Exhibit Number Exhibit

3.1 Amended and Restated Bylaws (3)

3.4 Second Amended and Restated Articles of Incorporation (4)

3.9(a) Certificate of Withdrawal of Certificate of Designation (5)

3.10 Articles of Merger (1)

4.1 Form of Common Stock Certificate (6)

4.2 Description of Securities

10.100* Amended and Restated 2011 Employee Stock Purchase Plan (9)

10.107(a)* Smith & Wesson Brands, Inc. Executive Severance Pay Plan (10)

Exhibit Number Exhibit

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

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

Exhibit Number Exhibit

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

* Management contract or compensatory arrangement.

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. Smith President and Chief Executive Officer

Date: June 17, 2021

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

Signature Capacity Date

Mark P. Smith

Deana L. McPherson

/s/ Robert L. Scott Chairman of the Board June 17, 2021

Robert L. Scott

/s/ Michael F. Golden Vice Chairman of the Board June 17, 2021

Michael F. Golden

/s/ Anita D. Britt Director June 17, 2021

Anita D. Britt

Fred M. Diaz

/s/ John B. Furman Director June 17, 2021

John B. Furman

/s/ Barry M. Monheit Director June 17, 2021

Barry M. Monheit

Denis G. Suggs

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

Page

Report of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of April 30, 2021 and 2020 F-4

Notes to Consolidated Financial Statements F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Smith & Wesson Brands, Inc. and subsidiaries (the "Company") as of April 30, 2021 and 2020, the related consolidated statements of income/(loss) and comprehensive income/(loss), changes in stockholders’ equity, and cash flows, for each of the three years in the period ended April 30, 2021, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of April 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 30, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

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

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

F-2

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

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Tax-Free Determination of the Divestiture of American Outdoor Brands, Inc. (“AOUT”) Business – Refer to Note 3 to the financial statements.

Critical Audit Matter Description

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

The spin-off was affected through a stock distribution to the Company’s shareholders. As disclosed by management, the divestiture of the AOUT business was determined to qualify for U.S. Federal tax-free treatment under certain sections of the Internal Revenue Code. The determination of the transaction as tax-free requires management to make significant judgments about the interpretation of tax laws and regulations.

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

How the Critical Audit Matter Was Addressed in the Audit

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

/s/ Deloitte & Touche LLP

Boston, Massachusetts

June 17, 2021

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 8,408 7,556

Current assets of discontinued operations — 94,673

Other assets of discontinued operations — 148,485

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accrued expenses and deferred revenue 33,136 57,678

Current liabilities of discontinued operations — 17,372

Notes and loans payable, net of current portion — 159,171

Finance lease payable, net of current portion 38,786 39,873

Other non-current liabilities of discontinued operations — 2,299

Commitments and contingencies (Note 17)

Stockholders’ equity:

Accumulated other comprehensive income 73 73

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

F-4

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

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

For the Year Ended April 30,

(In thousands, except per share data)

Operating expenses:

Other income/(expense), net:

Discontinued operations:

Income/(loss) from discontinued operations, net of tax 8,478 (88,883 ) (6,510 )

Comprehensive income/(loss):

Other comprehensive loss, net of tax — (547 ) (1,069 )

Net income/(loss) per share:

Basic - continuing operations $ 4.46 $ 0.50 $ 0.46

Basic - net income/(loss) $ 4.62 $ (1.11 ) $ 0.34

Diluted - continuing operations $ 4.40 $ 0.50 $ 0.45

Diluted - net income/(loss) $ 4.55 $ (1.10 ) $ 0.33

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/(Loss) Shares Amount Equity

Proceeds from exercise of employee stock options 48 — 304 — — — — 304

Stock-based compensation - continuing operations — — 6,947 — — — — 6,947

Stock-based compensation - discontinued operations — — 1,045 — — — — 1,045

Shares issued under employee stock purchase plan 231 — 1,918 — — — — 1,918

Impact of adoption of accounting standard updates — — — (4,610 ) — — — (4,610 )

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

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

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

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

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

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

Stock-based compensation - discontinued operations 184 184

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

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

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 154 419 (460 )

Provision for losses on notes and accounts receivable (739 ) (585 ) 1,027

Change in fair value of contingent consideration — 100 —

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (852 ) (3,124 ) 1,436

Cash flows from investing activities:

Refunds on machinery and equipment 310 — —

Receipts from note receivable — 786 74

Payments to acquire patents and software (632 ) (429 ) (211 )

Proceeds from sale of property and equipment 113 — 1,336

Cash flows from financing activities:

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

Payments on finance lease obligation (996 ) (900 ) (741 )

Distribution to discontinued operations (25,000 ) — —

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

Dividend distribution (8,223 ) — —

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

Net cash (used in)/provided by financing activities (303,924 ) 3,380 (30,468 )

Net (decrease)/increase in cash and cash equivalents (11,994 ) 84,158 (8,196 )

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)

Change in fair value of interest rate swap — — 1,393

Purchase of property and equipment funded by capital lease — — 24,271

Capital lease obligation — — 24,271

Changes in note receivable — — 1,007

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

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

Change in property and equipment — 3,276 —

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

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

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

F-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, bolt action rifles, and muzzleloaders), handcuffs, suppressors, and other firearm-related products for sale to a wide variety of customers, including firearm enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and throughout the world. We sell our products under the Smith & Wesson, M&P, Thompson/Center Arms, and Gemtech brands. We manufacture our products at our facilities in Springfield, Massachusetts; Houlton, Maine; and Deep River, Connecticut. We also sell our manufacturing services to other businesses to level-load our factories. We sell those services under our Smith & Wesson and Smith & Wesson Precision Components brands.

On November 13, 2019, we announced that we were proceeding with a plan to spin-off our outdoor products and accessories business and create an independent publicly traded company to conduct that business, or the Separation. On August 24, 2020, or the Distribution Date, we completed the previously announced Separation. See also Note 3 — Discontinued Operations, for more information.

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, and valuation of intangible assets. 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, 2021 and 2020 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, 2021, 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, 2021, we did not have any Level 2 financial instruments within the hierarchy. See Note 6 – Notes, Loans Payable, and Financing Arrangements for more information regarding our financial instruments.

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

F-9

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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

For the year ended April 30, 2021, four of our customers exceeded 10% of our net sales and accounted for approximately 45.0% of our net sales. Two of these customers each accounted for more than 10% of our accounts receivable for a total of 28.4%. For the fiscal year ended April 30, 2020, four of our customers accounted for more than 10% of our net sales and accounted for approximately 43.9% of our net sales and three customers accounted for approximately 45.3% of our accounts receivable. For the fiscal year ended April 30, 2019, one of our customers accounted for 10.4% of our net sales and one of our customers accounted for 23.1% of our accounts receivable.

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

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

Description Useful Life

Building and improvements 10 to 40 years

Software and hardware 2 to 7 years

Machinery and equipment 2 to 10 years

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

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

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

F-10

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

promotional program, including the free goods. We recognize revenue related to the material right proportionally as each performance obligation is satisfied. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

We generally sell our products free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 90 days of product shipment with a discount available to some customers for early payment. Generally, framework contracts define the general terms of sales, including payment terms, freight terms, insurance requirements, and cancelation provisions. Purchase orders define the terms for specific sales, including description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our fall dating programs for hunting sales, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. As a result of utilizing practical expedience upon the adoption of ASC 606, we do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.

Research and Development — We engage in both internal and external research and development, or R&D, in order to remain competitive and to exploit possible untapped market opportunities. We approve prospective R&D projects after analysis of the cost and benefits associated with the potential product. Costs in R&D expense include, among other items, salaries, materials, utilities, and administrative costs.

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

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

For the Year Ended April 30,

Net income/(loss)

Income/(loss) from discontinued operations 8,478 (88,883 ) (6,510 )

Earnings/(loss) per share — Basic

Income from continuing operations $ 4.46 $ 0.50 $ 0.46

Income/(loss) from discontinued operations $ 0.16 $ (1.62 ) $ (0.12 )

Earnings/(loss) per share — Diluted

Income from continuing operations $ 4.40 $ 0.50 $ 0.45

Income/(loss) from discontinued operations $ 0.15 $ (1.60 ) $ (0.12 )

F-11

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

All of our outstanding stock options and restricted stock units, or RSUs, were included in the computation of diluted earnings per share for the years ended April 30, 2021 and 2020.

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, developed technology, customer relationships, patents, trademarks, and trade names. We amortize all finite-lived intangible assets either on a straight-line basis or based upon patterns in which we expect to utilize the economic benefits of such assets. We initially determine the values of intangible assets by a risk-adjusted, discounted cash flow approach. We assess the potential impairment of identifiable intangible assets and fixed assets whenever events or changes in circumstances indicate that the carrying values may not be recoverable and at least annually. Factors we consider important, which could trigger an impairment of such assets, include the following:

• significant 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, following the Separation, we had concluded that we have one operating unit when reviewing ASC 350-20.

We review the fair value of our goodwill based on financial performance annually. As of our last valuation date, February 1, 2021, we had $19.0 million of goodwill and its fair value significantly exceeded its carrying value, based on EBITDAS, cashflow, and market capitalization. Our assumptions related to the development of fair value could deviate materially from actual results and forecasts used to support asset carrying values may change in the future, which could result in non-cash charges that would adversely affect our financial results of operations.

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

Income Taxes — We use the asset and liability approach for financial accounting and reporting income taxes. The provision for income taxes is based upon income reported in the accompanying consolidated financial statements as required by ASC 740-10, Accounting for Income Taxes. We determine deferred tax assets and liabilities based on temporary differences between financial reporting and tax bases in assets and liabilities and measure them by applying enacted rates and laws expected to be in place when the deferred items become subject to income tax or deductible for income tax purposes. We recognize the effect on deferred taxes and liabilities of a change in tax rates in the period that includes the enactment date. In assessing the realization of our deferred income tax assets, we consider whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of our deferred income tax assets depends upon generating future taxable income during the

F-12

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

periods in which our temporary differences become deductible and before our net operating loss carryforwards expire. We evaluate the recoverability of our deferred income tax assets by assessing the need for a valuation allowance on a quarterly basis. If we determine that it is more likely than not that our deferred income tax assets will not be recovered, we establish a valuation allowance against some or all of our deferred income 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 either provide a limited one-year, or a limited-lifetime warranty to the original purchaser of most of our products. We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value, at our option, without charge during the warranty period. We quantify and record an estimate for warranty-related costs based on our actual historical claims experience and current repair costs. We adjust accruals as warranty claims data and historical experience warrant. Should we experience actual claims and repair costs that are higher than the estimated claims and repair costs used to calculate the provision, our operating results for the period or periods in which such returns or additional costs materialize would be adversely impacted.

From time to time, we have experienced certain manufacturing and design issues with respect to some of our firearms and have initiated some product recalls and safety alerts. In October 2020, we initiated a recall for certain models of our M&P Shield EZ pistols manufactured between March 1, 2020 and October 31, 2020 because some hammers manufactured by our supplier were cracked and could potentially cause a discharge without depressing the trigger. The remaining estimated cost of all recalls, safety alerts, and consumer advisories is $323,000, which is recorded in accrued warranty on our consolidated balance sheet. The remaining balance relates to a general accrual related to standard warranty costs for products shipped in the ordinary course of business.

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

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, 2021, 2020, and 2019 (in thousands):

Warranties issued and adjustments to provisions 1,757

Warranty claims (2,887 )

Warranties issued and adjustments to provisions 5,163

Warranty claims (3,366 )

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 $10.5 million, $43.6 million, and $39.2 million for the fiscal years ended April 30, 2021, 2020, and 2019, respectively. We have a co-op advertising program at the retail level. We expensed costs amounting to $15.2 million, $9.2 million, and $8.0 million for fiscal 2021, 2020, and 2019, 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. Beginning in fiscal 2020, 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. As a result of this change, we recorded $4.4 million of costs in selling, marketing, and distribution expenses that would have been recorded in cost of sales in fiscal 2019. Prior to fiscal 2020, we included costs relating to shipping and handling charges, including inbound freight charges, internal transfer costs, and the other costs of our distribution network, in cost of goods sold.

F-13

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Insurance Reserves — In January 2020, we formed a wholly owned captive insurance company, which provides product liability insurance to us and our subsidiaries. This captive insurance company was recorded in our consolidated financial statements for the fiscal year ended April 30, 2021 and 2020. We are self-insured through retentions or deductibles for the majority of our workers’ compensation, automobile, general liability, product liability, and group health insurance programs. 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 — In February 2016, the Financial Accounting Standards Board, or FASB, issued ASU 2016-02, Leases (Topic 842), or ASU 2016-02, which amends the existing guidance to require lessees to recognize right-of-use assets and lease liabilities in a classified balance sheet. The most prominent among the changes in the standard is the requirement for lessees to recognize right-of-use assets and lease liabilities for those leases classified as operating leases under current GAAP. The requirements of ASU 2016-02 are effective for financial statements for annual periods beginning after December 15, 2018, and early adoption is permitted. We used the optional transitional method allowed by ASU 2018-11, Leases (Topic 842): Targeted Improvements. Under this method, we applied the standard using the modified retrospective method with an adoption date of May 1, 2019. We elected to use the package of practical expedients, which permits us to not reassess certain lease contract provisions. We adopted ASU 2016-02 effective May 1, 2019 and recognized right-of-use assets of $11.5 million and lease liabilities of $12.8 million. The difference between the right-of-use assets and the lease liabilities of $1.3 million is a result of the reclassification of deferred rent and lease incentive liabilities primarily relating to our real estate operating leases into the right-of use assets, which had no impact to retained earnings. See also Note 4 — Leases, for more information.

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will recognize credit losses to be incurred over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. The requirements of ASU 2016-13 are effective for financial statements for annual periods beginning after December 15, 2019, and early adoption is permitted. We adopted ASU 2016-13 on May 1, 2020, and the adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", an update that amends and simplifies the accounting for income taxes by removing certain exceptions in existing guidance and providing new guidance to reduce complexity in certain areas. The guidance will be effective in the first quarter of the year ending April 30, 2022 with early adoption permitted. We are evaluating the impact that adopting this guidance will have on our consolidated financial statements.

3. Discontinued Operations

On November 13, 2019, we announced the Separation. On the Distribution Date, at 12:01 a.m. Eastern Time, we completed the Separation of our wholly owned subsidiary, American Outdoor Brands, Inc., a Delaware corporation, or AOUT, from our company. The Separation was treated as tax-free for U.S. federal income tax purposes and was achieved through the transfer of all the assets and legal entities, subject to any related liabilities, associated with our outdoor products and accessories business to AOUT, or the Transfer, and the distribution of 100% of the AOUT outstanding capital stock to holders of our common stock, or the Distribution, as of the close of business on August 10, 2020, or the Record Date. In connection with the Distribution, our stockholders received one share of AOUT common stock for every four shares of our common stock held as of the close of business on the Record Date. Following the Distribution, AOUT became an independent, publicly traded company, and we retain no ownership interest in AOUT. During the fiscal year ended April 30, 2021, we recorded $8.4 million in general and administrative expenses related to the Separation and there was no gain/(loss) recognized for the Separation. In connection with the Separation, we distributed $25.0 million in cash to AOUT.

F-14

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our common stock continues to trade on the Nasdaq Global Select Market under the new ticker symbol “SWBI,” and AOUT common stock is now trading on the Nasdaq Global Select Market under the ticker symbol “AOUT.” The outdoor products and accessories business historical financial data is recorded as discontinued operations. Please refer to our Current Report on Form 8-K filed on August 26, 2020 for more information regarding the Separation. As a result of the Separation, we divested net assets of $260.4 million, which included the $25.0 million cash distribution to AOUT.

The results of AOUT were previously reported in our Outdoor Products & Accessories segment. The historical financial data of the outdoor products and accessories business through August 23, 2020 is recorded as discontinued operations in income/(loss) from discontinued operations in the condensed consolidated financial statements. During the fiscal year ended April 30, 2021, 2020, and 2019, income/(loss) from discontinued operations, net of tax was $8.5 million, ($88.9) million, and ($6.5) million, respectively.

In connection with the Separation, we entered into several agreements with AOUT that govern the relationship of the parties following the Separation, including the Separation and Distribution Agreement, the Tax Matters Agreement, the Transition Services Agreement, and the Employee Matters Agreement. Under the terms of the Transition Services Agreement, both companies agreed to provide each other certain transitional services, including information technology, information management, human resources, employee benefits administration, facilities, and other limited finance and accounting related services, for periods up to 24 months. Payments for transition services are recorded in other income/(expense) in our condensed consolidated financial statements.

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

For the Years Ended April 30,

(In thousands)

Interest income/(expense), net 112 21 (6 )

Other income/(expense), net — (21 ) —

F-15

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

As of:

(In thousands)

Cash and cash equivalents $ — $ 387

Accounts receivable, net — 32,554

Prepaid expenses and other current assets — 1,282

Property, plant, and equipment, net — 9,678

Intangible assets, net — 69,379

Deferred income taxes — 2,950

Total assets of discontinued operations $ — $ 243,158

Current liabilities $ — $ 17,372

Other non-current liabilities — 2,299

Total liabilities of discontinued operations $ — $ 19,671

4. Leases

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

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

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.

F-16

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The amounts of assets and liabilities related to our operating and financing leases as of April 30, 2021 were as follows (in thousands):

Balance Sheet Caption April 30, 2021

Operating Leases

Right-of-use assets $ 7,126

Accumulated amortization (2,363 )

Right-of-use assets, net Other assets $ 4,763

Current liabilities Accrued expenses and deferred revenue $ 1,309

Non-current liabilities Other non-current liabilities 3,630

Total operating lease liabilities $ 4,939

Finance Leases

Right-of-use assets $ 40,986

Accumulated depreciation (4,231 )

Right-of-use assets, net Property, plant, and equipment, net $ 36,755

Current liabilities Accrued expenses and deferred revenue $ 1,087

Non-current liabilities Finance lease payable, net of current portion 38,786

Total finance lease liabilities $ 39,873

During the fiscal year ended April 30, 2021, we recorded $1.8 million of operating lease costs, of which $216,000 related to short-term leases that were not recorded as right-of-use assets. We recorded $2.1 million of finance lease amortization and $2.0 million of financing lease interest expense during fiscal 2021. As of April 30, 2021, our weighted average lease term and weighted average discount rate for our operating leases was 4.1 years and 4.5%, respectively. As of April 30, 2021, our weighted average lease term and weighted average discount rate for our financing leases were 17.5 years and 5.0%, respectively, and consisted primarily of our distribution center located in Columbia, Missouri. The building is pledged to secure the amounts outstanding. The depreciable lives of right-of-use assets are limited by the lease term and are amortized on a straight-line basis over the life of the lease.

With the completion of the Separation, we entered into a sublease under which AOUT subleases from us 59.0% of our distribution center under the same terms applicable to us under the master lease. During the fiscal year ended April 30, 2021, we recorded $1.7 million of income related to this sublease agreement, which is recorded in other income/(expense) in our condensed consolidated statements of income/(loss) and comprehensive income/(loss).

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

Fiscal Amount

Total future sublease receipts 38,199

Less amounts representing interest (13,335 )

Present value of sublease receipts $ 24,864

F-17

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Operating Financing Total

Less current maturities of lease liabilities (1,309 ) (1,087 ) (2,396 )

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

5. Revenue Recognition and Contracts with Customers

We record our outstanding performance obligations related to sales promotions in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which we adopted on May, 1, 2018. When evaluating our performance obligations, we disaggregate revenue based on major product lines, which are disclosed in Note 7 — Net Sales. Domestic sales account for 98% of our total net sales. There are no significant judgments or estimates used in the determination of performance obligations, and the transaction price for the performance obligations are allocated on a pro-rata basis. There are no other contract costs that need to be considered based on the nature of our performance obligations.

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

Outstanding performance obligations at beginning of period $ 14,744 $ 12,213

Outstanding performance obligations at end of period $ 2,907 $ 14,744

During fiscal 2021, we recognized $15.0 million of deferred revenue, of which $13.7 million was previously deferred as of April 30, 2020, as the performance obligations relating to sales promotions were satisfied. This recognition of revenue was partially offset by $3.1 million of additional deferred revenue for outstanding performance obligations incurred during fiscal 2021. This resulted in a $11.8 million net increase in revenue recognized during fiscal 2021. We estimate that the majority of the revenue from outstanding performance obligations as of April 30, 2021 will be recognized during our first half of fiscal 2022.

During fiscal 2020, we recognized $48.6 million of deferred revenue, of which $10.5 million was previously deferred as of April 30, 2019, as the performance obligations relating to sales promotions were satisfied. This recognition of revenue was partially offset by $51.1 million of additional deferred revenue for outstanding performance obligations incurred during fiscal 2020. This resulted in a $2.5 million net decrease in revenue recognized during fiscal 2020.

F-18

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Notes, Loans Payable, and Financing Arrangements

Credit Facilities — On August 24, 2020, we and certain of our subsidiaries entered into an amended and restated credit agreement, or the Amended and Restated Credit Agreement, with certain lenders; including TD Bank, N.A., as administrative agent; TD Securities (USA) LLC and Regions Bank, as joint lead arrangers and joint bookrunners; and Regions Bank, as syndication agent. The Amended and Restated Credit Agreement amended and restated out former credit agreement dated as of June 15, 2015. The Amended and Restated Credit Agreement is currently unsecured; however, should any Springing Lien Trigger Event (as defined in the Amended and Restated Credit Agreement) occur, we and certain of our subsidiaries would be required to enter into certain documents that create in favor of TD Bank, N.A., as administrative agent, and the lenders party to such documents a legal, valid, and enforceable ‎first priority Lien on the Collateral described therein.

The Amended and Restated Credit Agreement provides for a revolving line of credit of $100.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate or LIBOR rate, plus an applicable margin based on our consolidated leverage ratio. The Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan (as defined in the Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our consolidated leverage ratio. Subject to the satisfaction of certain terms and conditions described in the Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of August 24, 2025, or the date that is six months in advance of the earliest maturity of any Permitted Notes under the Amended and Restated Credit Agreement.

As of April 30, 2021, we did not have any borrowings outstanding on the Revolving Line. Had there been borrowings, they would have borne an interest rate of 1.61%, which is equal to the LIBOR rate plus an applicable margin.

The Amended and Restated Credit Agreement contains customary limitations, including limitations on indebtedness, liens, fundamental changes to business or organizational structure, investments, loans, advances, guarantees, and acquisitions, asset sales, dividends, stock repurchases, stock redemptions, and the redemption or prepayment of other debt, and transactions with affiliates. We are also subject to financial covenants, including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio, all of which were met as of April 30, 2021.

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

Debt Issuance Costs — We recorded, in notes payable, $450,000 of debt issuance costs during the fiscal year ended April 30, 2021 and wrote off $689,000 of debt issuance costs remaining from the $875,000 of debt issuance costs incurred during the fiscal year ended April 30, 2020. We did not record any debt issuance costs during the fiscal year ended April 30, 2019. These remaining costs are being amortized to expense over the life of the credit facility. In total, we amortized $890,553, $687,000, and $431,000 to interest expense for all debt issuance costs in fiscal 2021, 2020, and 2019, respectively, including write-offs related to extinguishment.

7. Net Sales

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

For the Years Ended April 30,

F-19

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We sell our products and services under our Smith & Wesson, M&P, Gemtech, Thompson/Center Arms, and Smith & Wesson Precision Components brands. Depending upon the product or service, our customers primarily include distributors; federal, state, and municipal law enforcement agencies and officers; government and military agencies; businesses; and retailers.

We sell our products worldwide. The following table sets forth the breakdown of export net sales included in the above table. Our export net sales accounted for 2%, 4%, and 5% of total net sales for the fiscal years ended April 30, 2021, 2020, and 2019, respectively (in thousands):

For the Years Ended April 30,

8. Advertising Costs

We expense advertising costs, primarily consisting of magazine advertisements, printed materials, and television advertisements, either as incurred or upon the first occurrence of the advertising. Advertising expense, included in selling and marketing expenses, for the fiscal years ended April 30, 2021, 2020, and 2019, amounted to $12.5 million, $13.6 million, and $13.4 million, respectively.

9. Property, Plant, and Equipment

The following table summarizes property, plant, and equipment as of April 30, 2021 and 2020 (in thousands):

Less: Accumulated depreciation and amortization (277,862 ) (249,621 )

Total property, plant, and equipment, net $ 141,612 $ 147,739

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

F-20

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

For the Years Ended April 30,

10. Inventories

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

11. Accrued Expenses and Deferred Revenue

The following table sets forth other accrued expenses as of April 30, 2021 and 2020 (in thousands):

Accrued taxes other than income (a) $ 12,210 $ 21,256

Accrued distributor incentives 2,414 2,253

Accrued rebates and promotions 2,174 3,335

Current portion of operating lease obligation 1,309 1,506

Current portion of finance lease obligation 1,087 1,046

Total accrued expenses and deferred revenue $ 33,136 $ 57,678

F-21

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. Fair Value Measurement

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

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

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

Our cash and cash equivalents, which are measured at fair value on a recurring basis, totaled $113.0 million and $125.0 million as of April 30, 2021 and 2020, respectively. We utilized Level 1 of the value hierarchy to determine the fair values of these assets.

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

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

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

13. Self-Insurance Reserves

As of April 30, 2021 and 2020, we had reserves for workers’ compensation, product liability, municipal liability, and medical/dental costs totaling $9.5 million and $9.0 million, respectively, of which $5.0 million and $4.5 million, respectively, was classified as other non-current liabilities. As of April 30, 2021 and 2020, $4.5 million and $4.5 million, respectively, were included in accrued expenses on the accompanying consolidated balance sheets. In addition, as of April 30, 2021 and 2020, $614,000 and $620,000, respectively, of workers’ compensation recoverable was classified as other assets. While we believe these reserves to be adequate, it is possible that the ultimate liabilities will exceed such estimates.

F-22

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

For the Year Ended April 30,

Additional provision charged to expense 2,484 19,608

It is our policy to provide an estimate for loss as a result of expected adverse findings or legal settlements on product liability, municipal liability, workers’ compensation, and other matters when such losses are probable and are reasonably estimable. It is also our policy to accrue for reasonable 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. As of April 30, 2021 and 2020, we had accrued reserves for product and municipal litigation liabilities of $4.0 million and $3.7 million, respectively (of which $2.9 million and $2.6 million, respectively, was non-current), consisting entirely of expected legal defense costs. In addition, as of April 30, 2021, we did not record any receivables from insurance carriers related to these liabilities. During fiscal 2020, we had recorded receivables from insurance carriers related to these liabilities of $1.9 million, nearly all of which has been classified as other assets.

14. Stockholders’ Equity

Treasury Stock

During fiscal 2021, our board of directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market, or privately negotiated transactions until December 14, 2021. During fiscal 2021, we completed this stock repurchase program by purchasing 2,737,489 shares of common stock for $50.0 million utilizing cash on hand. On March 2, 2021, our board of directors authorized the repurchase of an additional $100.0 million of our common stock, subject to certain condition, in the open market, or in privately negotiated transaction until March 1, 2022. Pursuant to the second authorization, during fiscal 2021, we purchased 3,380,447 shares of our common stock for $60.0 million using cash on hand. Subsequent to fiscal 2021, we completed the second stock repurchase program by purchasing 1,967,420 of our common stock for $40.0 million utilizing cash on hand.

Incentive Stock and Employee Stock Purchase Plans

We have two stock incentive plans, or SPs: the 2004 Incentive Stock Plan and the 2013 Incentive Stock Plan. New grants under the 2004 Incentive Stock Plan have not been made since the approval of the 2013 Incentive Stock Plan at our September 23, 2013 annual meeting of stockholders. All new grants covering all participants are issued under the 2013 Incentive Stock Plan. The remaining grants under the 2004 Incentive Stock Plan were exercised in the fiscal year ended, April 30, 2021.

The 2013 Incentive Stock Plan authorizes the issuance of 3,000,000 shares, plus any shares that were reserved and remained available for grant and delivery under the 2004 Incentive Stock Plan as of September 23, 2013, the effective date of the 2013 Incentive Stock Plan. The plan permits the grant of options to acquire common stock, restricted stock awards, RSUs, stock appreciation rights, bonus stock and awards in lieu of obligations, performance awards, and dividend equivalents. Our board of directors, or a committee established by our board, administers the SPs, selects recipients to whom awards are granted, and determines the grants to be awarded. Options granted under the SPs are exercisable at a price determined by our board or committee at the time of grant, but in no event, less than fair market value of our common stock on the date granted. Grants of options may be made to employees and directors without regard to any performance measures. All options issued pursuant to the SPs are generally nontransferable and subject to forfeiture.

F-23

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Except in specific circumstances, grants vest over a period of four years and grants of stock options are exercisable for a period of 10 years. The plan also permits the grant of awards to non-employees, which our board of directors or committee has authorized in the past.

The number of shares and weighted average exercise prices of options for the fiscal years ended April 30, 2021, 2020, and 2019 are as follows:

For the Year Ended April 30,

Weighted Weighted Weighted

Average Average Average

Shares Exercise Price Shares Exercise Price Shares Exercise Price

Canceled/forfeited during period — — — — —

Weighted average remaining contractual life — 0.43 years 2.35 years

As of April 30, 2021, there were 3,967,603 shares available for grant under the 2013 Incentive Stock Plan. We use our unissued share pool for all shares issued for options, restricted stock awards, or RSUs, performance share units, performance-based restricted stock units, or PSUs, and shares issued under our Employee Stock Purchase Plan, or ESPP.

In connection with the spin-off of AOUT, as of August 24, 2020, there was one option award outstanding that could be converted into 10,000 shares of SWBI common stock. Under the terms of the Employee Matters Agreement between us and AOUT, the holder of the outstanding SWBI options was granted a pro rata number of AOUT options with the price of the SWBI options reduced at a pro rata value to the amount of awards granted of AOUT options. Incremental compensation expense associated with this change in the award was immaterial and recognized fully in fiscal 2021.

There were no outstanding and exercisable stock options as of April 30, 2021. The aggregate intrinsic value of outstanding and exercisable stock options as of April 30, 2020 and 2019 was $356,000, $826,000, respectively. The aggregate intrinsic value of the options exercised for the years ended April 30, 2021, 2020, and 2019 was $2.9 million, $260,000, and $285,000, respectively.

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

For the Years Ended April 30,

Research and development 71 79 62

F-24

SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 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.

In connection with the spin-off of AOUT, we adjusted outstanding RSU awards in accordance with the terms of the Employee Matters Agreement between us and AOUT. For directors and certain executives, a pro rata number of RSUs were issued of AOUT RSUs with terms that matched original SWBI RSU. For all other employees, we adjusted the underlying shares of outstanding RSUs to preserve the intrinsic value of the awards immediately before the spin-off. The adjustment of the underlying shares was determined using a ratio based on the relative values of the SWBI pre-distribution stock value and the SWBI post-distribution stock value. The outstanding awards continue to vest over their original vesting periods. We will recognize $380,000 of incremental compensation expense costs related to the adjustment of PSUs, and $740,000 of compensation expense related to the adjustment of RSUs, for a total of $1.1 million. During the fiscal year, we recognized expense of $738,000 relating to total incremental compensation cost.

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

For the Years Ended April 30,

Grant date fair market value

Volatility (a)

Dividend yield (d) 0.95 % 0 % 0 %

(d) We did not pay dividends in fiscal 2020 and 2019.

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.

F-25

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.

SWBI US Equity

SWBI · 10-K · period ended 2021-04-30

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

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

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

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

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

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

SWBI US Equity☆

SWBI · 10-K · period ended 2021-04-30

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

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

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

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

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

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits and Financial Statement Schedules

SWBI US Equity