FinanceLooker

Excrept from filing document 2025-04-30

The aggregate market value of Common Stock held by non affiliates of the registrant 43 661 996 shares based on the last reported sale price of the registrant s Common Stock on the Nasdaq Global Select Market on October 31 2024 which was the last business day of the registrant s most recently completed second fiscal quarter was 565 859 468 For purposes of this computation all officers directors and 10 beneficial owners of the registrant are deemed to be affiliates Such determination should not be deemed to be an admission that such officers directors or 10 beneficial owners are in fact affiliates of the registrant
Smith Wesson S W M P M P Shield Performance Center Abyss Airlite Airweight American Guardians Armornite Arrow Aurora II Blast Jacket Bodyguard Carry Comp Chiefs Special Club 1852 Competitor CSX Dagger Empowering Americans Eg Series ETM EZ Flexmag G Core Gemtech Gemtech Suppressors GM GM S1 GMT Halo Governor GVAC Integra Lady Smith Lever Lock Lunar M P FPC M2 0 Magnum Mist 22 Mountain Gun Protected by Smith Wesson Put A Legend On Your Line Quickmount Shield Silence is Golden Smith Wesson Collectors Association Smith Wesson Performance Center Smith Wesson Precision Components Smith Wesson Response SW Equalizer SW22 Victory TEMPO The S W Bench The Sigma Series Trek Volunteer and Weather Shield are some of the registered U S trademarks of our company or one of our subsidiaries This Annual Report on Form 10 K also may contain trademarks and trade names of other companies
This Annual Report on Form 10 K includes market and industry data that we obtained from industry publications third party studies and surveys government agency sources filings of public companies in our industry and internal company surveys Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable Although we believe the foregoing industry and market data to be reliable at the date of the report this information could prove to be inaccurate as a result of a variety of matters
The statements contained in this Annual Report on Form 10 K that are not purely historical are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended or the Securities Act and Section 21E of the Securities Exchange Act of 1934 as amended or the Exchange Act All statements other than statements of historical facts contained or incorporated herein by reference in this Annual Report on Form 10 K including statements regarding our future operating results future financial position business strategy objectives goals plans prospects markets and plans and objectives for future operations are forward looking statements In some cases you can identify forward looking statements by terms such as anticipates believes estimates expects intends targets contemplates projects predicts may might plan will would should could may can potential continue objective or the negative of those terms or similar expressions intended to identify forward looking statements However not all forward looking statements contain these identifying words Specific forward looking statements in this Annual Report on Form 10 K include statements regarding the impact if any of statements regarding our objectives goals strategies plans and focus including our objective to be the undisputed market leader in the firearm industry our plan to continue to introduce new products in fiscal 2026 our belief that by offering high quality products and services on a timely and cost effective basis as well as providing world class customer service training and support we will drive customer satisfaction and loyalty our intent to continue to streamline and standardize certain administrative functions of our business with a goal toward driving profitability and improving the ease with which our customers are able to do business with us our intent to continue investing in systems to further enhance our efficiency improve information reporting and strengthen internal controls our intent to continue our focus on developing growing and protecting our iconic firearm brands and using our cash flow from operations on actions that will maximize our return on invested capital including by investing in machinery equipment and new product development our intent to introduce new products to enhance our competitive position and broaden our participation in the overall market our belief that our M P branded pistol products are the most ergonomic feature rich and innovative products on the market today our belief that our manufacturing services provide us with increased flexibility and reduced supply chain risk our belief that business to business sales provide profitable revenue stream diversification and enable us to maximize capacity utilization of our manufacturing assets our belief that the loss of one or more of our top five commercial distributors in the United States would not materially impact sales our belief that our digital platforms support future sales growth and profitability our belief that our business is not materially dependent on any single patent our belief that our Smith Wesson and Gemtech brands including our S W monogram trademarks are known and recognized by the public worldwide and are important to our firearm business our intention to vigorously pursue and challenge infringements of our patents trademarks service marks trade dress and copyrights as we believe the goodwill associated with them is a cornerstone of our branding strategy our belief that we can effectively compete with all our present competitors our belief that microstamping laws may restrict our ability to sell our products into certain jurisdictions our concern that we may be required to remove hazardous waste or remediate the alleged effects of hazardous substances on the environment associated with past disposal practices at sites not owned by us our concerns that we may become involved in various proceedings relating to environmental health and safety matters our expectation based on information known to us that current environmental regulations or environmental proceedings and claims will not have a material adverse effect on our consolidated financial position results of operations or cash flows our belief that additional or changing environmental regulation may become more burdensome in the future and any such development could materially and adversely affect us our belief that our training and development programs lead to more valuable contributions and satisfaction for our employees within their existing roles and also positions employees for roles they aspire to attain our belief that our employee relations are good and that the high quality of our employee base is instrumental to our success our belief that the demand for our products is currently being and may continue to be impacted by unified Republican control of the executive and legislative branches of the federal government our expectation that we will continue to incur expenditures in order to comply with environmental requirements our belief that we may become subject to governmental proceedings and orders pertaining to waste disposal air emissions and water discharges from our operations into the environment our belief that our operations may cause contamination in the future our belief that we could incur additional costs to clean up contamination that exceed the amount of our reserves and our reserves may increase from time to time our concern that our failure to comply with laws regulation and other requirements could cause us to incur fines and penalties lead to restrictions on our ability to manufacture and sell our products and services or otherwise negatively impact our ability to import or export the products that we sell our concern that allegations that we have failed to comply with laws regulation and other requirements could also expose us to litigation and harm our reputation our belief that high levels of inflation may continue to depress consumer demand for our products and reduce our profitability our anticipation that we will continue to incur significant capital and
other expenditures with respect to our Springfield facility but we may not be successful in continuing to improve efficiencies our concern that we may be more likely than other companies to be a target for malicious disruptive activities or physical attacks on our senior leadership team or facilities given the industry within which we operate and our brand our belief that maintaining a high level of brand recognition and a strong reputation are critical to our success particularly with respect to retaining existing customers and attracting new customers our belief that the value of our brand depends in part on the value consumers place on the quality of our products our anticipation that we will continue to be involved in litigation including product liability cases and claims in the future we may be subject to governmental investigations and inquiries our belief that period to period comparisons of our operating results may not be meaningful in the short term and our performance in a particular period may not be indicative of our performance in any future period our concern that we may struggle to identify qualified candidates who are comfortable or enthusiastic to work for a firearm business our concern that if we fail to attract motivate train and retain qualified personnel or if we experience excessive turnover we may experience declining sales manufacturing delays or other operating inefficiencies increased recruiting training and relocation costs or other difficulties and our business financial condition and results of operations may be materially and adversely impacted our concern that the loss of key executive and management personnel to manage our business efficiently and effectively particularly during a challenging market of attracting and retaining employees could materially and adversely affect our business financial condition and results of operations our estimation that the annual domestic non military firearm market based on industry shipments is approximately 2 8 billion for handguns and 1 9 billion for long guns excluding shotguns our belief that an expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share our expectation that our inventory levels will moderately decline during fiscal 2026 our current expectation that we will spend between 25 0 million to 30 0 million on capital expenditures in fiscal 2026 our belief that based upon our current working capital position current operating plans and expected business conditions our existing capital resources and credit facilities will be adequate to fund our operations for the next 12 months our expectation that inflation will continue to impact us during fiscal 2026 our assessment of the effect of a variety of economic social political legislative and regulatory factors on our business our view of the outcome of the lawsuits and claims to which we are subject and their effect on us our assessment of future investments for capital expenditures our assessment of future products and product developments our belief about the features and performance of our products our belief about the success of particular product or marketing programs our view on future enterprise resource planning implementations and system improvements our view on future enhancements to our manufacturing capabilities and liquidity and our anticipated cash needs and availability All forward looking statements included herein are based on information available to us as of the date hereof and speak only as of such date Except as required by law we undertake no obligation to update any forward looking statements to reflect events or circumstances after the date of such statements The forward looking statements contained in or incorporated by reference into this Annual Report on Form 10 K reflect our views as of the date of this Annual Report on Form 10 K about future events and are subject to risks uncertainties assumptions and changes in circumstances that may cause our actual results performance or achievements to differ significantly from those expressed or implied in any forward looking statement Although we believe that the expectations reflected in the forward looking statements are reasonable we cannot guarantee future events results performance or achievements A number of factors could cause actual results to differ materially from those indicated by the forward looking statements Such factors include among other economic political social legislative regulatory inflationary and health factors the potential for increased regulation of firearms and firearms related products actions of social activists that could have an adverse effect on our business the impact of lawsuits the demand for our products the state of the U S economy in general and the firearm industry in particular general economic conditions and consumer spending patterns our competitive environment the supply availability and costs of raw materials and components the impact of tariffs speculation surrounding fears of terrorism and crime our anticipated growth and growth opportunities our ability to increase demand for our products in various markets including consumer law enforcement and military channels domestically and internationally our penetration rates in new and existing markets our strategies our ability to maintain and enhance brand recognition and reputation our ability to introduce new products and the success of those products our ability to expand our markets the potential for cancellation of orders from our backlog and other factors detailed from time to time in our reports filed with the Securities and Exchange Commission or the SEC including the factors discussed under Item 1A Risk Factors
We are one of the world s leading manufacturers and designers of firearms We manufacture a wide array of handguns including revolvers and pistols long guns including modern sporting rifles pistol caliber carbines and lever action rifles handcuffs firearm suppressors and other firearm related products for sale to a wide variety of customers including firearm enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home and personal protection law enforcement and security agencies and officers and military agencies in the United States and throughout the world We sell our products under the Smith Wesson and Gemtech brands We manufacture our products at our facilities in Maryville Tennessee Springfield Massachusetts and Houlton Maine We also sell our manufacturing services under our Smith Wesson and Smith Wesson Precision Components brands to other businesses to attempt to level load our factories During fiscal 2024 we began manufacturing and distribution activities from our Maryville facility During the fiscal year ended April 30 2025 we discontinued operations at our Deep River Connecticut facility and vacated the premises See Note 14 Commitments and Contingencies and Note 15 Restructuring for more information
Smith Wesson was founded in 1852 by Horace Smith and Daniel B Wesson Mr Wesson purchased Mr Smith s interest in 1873 The Wesson family sold Smith Wesson to Bangor Punta Corp in 1965 Lear Siegler Corporation purchased Bangor Punta in 1984 thereby acquiring ownership of Smith Wesson Forstmann Little Co purchased Lear Siegler in 1986 and sold Smith Wesson shortly thereafter to Tomkins Corporation an affiliate of U K based Tomkins PLC We purchased Smith Wesson from Tomkins in May 2001 and renamed our company Smith Wesson Holding Corporation In January 2017 we changed the name of our company from Smith Wesson Holding Corporation to American Outdoor Brands Corporation In May 2020 in preparation for the spin off of our outdoor products and accessories business or the Separation which was completed on August 24 2020 we changed our name to Smith Wesson Brands Inc On September 30 2021 we announced our plan to move our headquarters and significant elements of our operations to Maryville Tennessee in 2023 or the Relocation
We maintain our principal executive offices at 1852 Proffitt Springs Road Maryville Tennessee 37801 Our telephone number is 800 331 0852 Our website is located at www smith wesson com Through our website we make available free of charge our Annual Reports on Form 10 K our proxy statements our quarterly reports on Form 10 Q our current reports on Form 8 K and amendments to any of these documents filed or furnished pursuant to Section 13 a or 15 d of the Exchange Act These documents are available as soon as reasonably practicable after we electronically file them with the SEC We also post on our website the charters of our Audit Compensation Nominations and Corporate Governance and Sustainability Committees our Corporate Governance Guidelines our Code of Conduct and any amendments or waivers thereto and any other corporate governance materials contemplated by the regulations of the SEC and the Nasdaq Global Select Market These documents are also available in print by contacting our corporate secretary at our executive offices
Unless the context indicates otherwise the terms we our ours us and our company refer to Smith Wesson Brands Inc and its consolidated subsidiaries Common stock refers to the common stock par value 001 per share of our company Our most recently completed fiscal year ended on April 30 2025 or fiscal 2025
We are focused on driving organic growth by producing a robust new product pipeline and leveraging our brands to help us to increase market share in the markets in which we participate and to expand into adjacent and complementary markets by 1 capitalizing on the goodwill developed through our historic more than 170 year old Smith Wesson brand 2 enhancing our relationships with distributors key retailers and buying groups and 3 introducing new products During the last two fiscal years we have introduced numerous new products including variations and product lines around the Smith Wesson and Gemtech brands We plan to continue to introduce new products in fiscal 2026
We are focused on designing producing and marketing high quality innovative firearms and related accessories that meet the needs and desires of our consumer and professional customers and that drive customer satisfaction and loyalty Our research and development product engineering product sourcing marketing and distribution activities are critical components of our ability to offer successful products We believe that by offering high quality products and services on a timely and cost effective basis as well as providing world class customer service training and support we will drive customer satisfaction and loyalty We regard our high quality innovative products as the most important aspect of our customer satisfaction and loyalty but we also offer customer service and support with various programs such as toll free customer support numbers e mail customer question and answer communications broad service policies and product warranties
We intend to continue to streamline and standardize certain administrative functions of our business with a goal toward driving profitability and improving the ease with which our customers are able to do business with us A streamlined and standardized approach requires investing in an integrated and configurable technology infrastructure in areas such as enterprise resource planning or ERP and compliance We intend to continue investing in such systems to further enhance our efficiency improve information reporting and strengthen internal controls
During fiscal 2025 and 2024 we generated a total of 99 5 million in cash from operations During the same period we invested 112 7 million in cash to acquire property equipment and patents of which 84 3 million was to fund the Relocation repurchased 35 7 million of our outstanding stock distributed 45 1 million in dividends and borrowed 55 0 million from our revolving line of credit We intend to continue our focus on developing growing and protecting our iconic firearm brands and using our cash flow from operations on actions that will maximize our return on invested capital including by investing in machinery equipment and new product development
Our products combine our legacy of more than 170 years of American manufacturing and engineering expertise with modern technological advances Driven by the needs of the individual firearm owner we continually strive to improve the experience of buying owning and shooting a firearm We also strive to leverage our tradition of innovation in materials performance and engineering along with our proven history of reliability to produce feature rich safe durable accurate and high performing firearms that satisfy the needs of our broad range of customers Our introduction of new products is intended to enhance our competitive position and broaden our participation in the overall market
We have always been a leader in the revolver market We have substantially enhanced the breadth and quality of our portfolio of products over the years The introduction of our popular M P pistol in 2005 resulted in us becoming one of the leaders in the polymer pistol market as well serving both the consumer sporting goods market and law enforcement agencies The launch of our M P modern sporting rifle in 2006 enabled us to capture what we estimate is the leading share of the modern sporting rifle market In 2023 we further expanded and strengthened our position in the broader long gun market with the introduction of new pistol caliber carbine offerings the M P FPC and Response rifles In 2024 we introduced our first ever lever action rifle the Model 1854 The addition of our Gemtech branded firearm suppressor products in 2017 expanded our firearm related product offerings Our firearm suppressors are compatible with most pistols and rifles on the market and complement our firearm products We currently participate in three categories of the long gun market semi automatic rifles lever action rifles and shotguns and both core categories of the handgun market semi automatic pistols and revolvers
Our product development strategy is to understand our consumers needs and preferences and then design and develop products to uniquely meet those requirements Throughout this process we test multiple concepts with firearm owners and potential purchasers We compare these test results against a growing database of prior concepts to identify those with the greatest market potential We complete additional market research to optimize the desired features and benefits While this development process is ongoing our launch timing for new products depends on market conditions to maximize sales across the entire product portfolio
In fiscal 2025 we introduced a number of new products including i the BodyGuard 2 0 a micro handgun concealed carry pistol ii several new variants of our Model 1854 Lever Action Rifle series iii the expansion of the M P FPC in 40 caliber and 10mm iv the CSX E Series our next generation offering of the hammer fired metal framed CSX featuring several new upgrades and chambered in 9mm v expansion of our revolver line to include several new no lock Classic revolvers and our innovative Ultimate Carry revolvers and vi the M P 4 select fire rifle chambered in 5 56mm NATO We received several innovation awards in 2024 including from Guns Ammo magazine NRA Publications and the National Association of Sporting Goods Wholesalers
Our customers continue to demand premium firearms that provide a competitive edge in sport shooting and hunting Our Performance Center products are engineered and manufactured to meet this need and they incorporate many custom features not found in our standard products such as enhanced triggers for smoother trigger pull ported barrels for better muzzle control and specialty sights for quicker target acquisition In fiscal 2025 we introduced our fifth annual Performance Center Spec Series M P pistol This limited edition 2025 model features a heavy duty steel frame construction an integrated compensator enhanced trigger and ergonomics and a sharp aesthetic with Smith Wesson blue highlights We also introduced several line extensions for our popular Performance Center M P9 Carry Comp lineup that offers premium features including an integrated port and tuned trigger for reduced felt recoil and better on target performance
We manufacture an extensive variety of handgun models that includes revolvers and pistols A revolver is a handgun with a cylinder that holds the ammunition in a series of rotating chambers that are successively aligned with the barrel of the firearm during each firing cycle There are two general types of revolvers single action and double action To fire a single action revolver the hammer is pulled back to cock the firearm and align the cylinder before the trigger is pulled To fire a double action revolver a single trigger pull advances the cylinder as it cocks and releases the hammer A pistol is a handgun in which the ammunition chamber is an integral part of the barrel and which is fed ammunition from a magazine contained in the grip The firing cycle ejects the spent casings and loads a new round into the chamber
We have long been known as an innovator and leader in the revolver market and most of our revolvers are currently marketed under the Smith Wesson brand We sell a wide range of sizes from small frame revolvers used primarily for concealed carry and personal protection to large frame revolvers used primarily for recreational and competitive sport shooting Our extra large frame revolvers primarily address the handgun hunting market
Our small frame revolvers have been carried by law enforcement personnel and personal defense minded citizens for over 150 years Our revolvers are available in a variety of models and calibers with applications in virtually all professional and consumer markets In fiscal 2025 we expanded our line of revolvers that are designed to enhance the personal carry experience continuing our innovative leadership in the category These Ultimate Carry revolvers are chambered in 38 Special and 32 H R Magnum and feature enhanced grips sights and triggers that are designed to enhance the shooting experience
Our Classics department makes it possible to own historic firearms that are manufactured today but modeled after original favorites such as the Model 29 which was made famous by the movie character Dirty Harry These firearms are newly crafted with designs that take advantage of some of the most famous and collectible firearms that we have ever made Our Classics department also makes commemorative firearms and employs master engravers to craft one of a kind custom firearms These custom made firearms are intended to reflect the skill and vision of the master engraver and the artistic expression of the owner We offer a number of catalog variations of Classics and engraved Classics to our customers
We offer pistols under our Smith Wesson brand Our full size and compact M P line of pistol products have been engineered with input from professional users and are designed to offer performance safety and durability that meet the standards of global law enforcement and military personnel as well as features attractive to consumers We believe that our M P branded pistol products are the most ergonomic feature rich and innovative products on the market today Our range of full size and compact M P pistol products are made with a polymer or aluminum frame a rigid stainless steel chassis and a black through hardened corrosion resistant finished stainless steel barrel and slide for durability Our M P pistol products feature patented and easily changed palm swell grips in four sizes allowing the user to customize grips in a matter of seconds a passive trigger safety to prevent the pistol from firing if dropped an enlarged trigger guard to accommodate gloved hands a sear lever release that eliminates the need to press the trigger in order to disassemble the firearm an ambidextrous slide stop and reversible magazine release to accommodate right and left handed shooters an optional internal locking system and magazine safety and a universal equipment rail to allow the addition of accessories including lights and lasers
In fiscal 2012 we entered the growing personal protection and concealed carry market with the launch of the M P Shield pistol The M P Shield features a slim concealable profile 9mm 380 Auto 40 S W and 45 Auto calibers and M P ergonomics Since the launch of the M P Shield we have introduced several additional models including the Shield Plus with enhanced features and capacity and most recently the award winning Bodyguard 2 0
Our Performance Center department has been providing specialized products and services for the most demanding shooting sports enthusiasts since 1990 To meet the requirements of law enforcement professionals competitive shooters collectors and discriminating sports enthusiasts who demand superior products our Performance Center personnel conceptualize engineer and craft products to create enhanced versions of our standard products Our craftsmen are highly skilled and experienced gunsmiths Performance Center products are typically made in limited production quantities although we offer a number of catalog variations in order to increase product availability
Our modern sporting rifles are designed to satisfy the functionality and reliability needs of recreational personal defense and professional users including global military law enforcement and security personnel These long guns are popular with consumers as hunting personal protection and sporting target rifles We offer two pistol caliber carbines the M P FPC chambered in 9mm 40 S W and 10mm and the Response chambered in 9mm We offer the M P and Volunteer series modern sporting rifles in five different calibers 22LR 5 56mm NATO 223 308 Winchester 7 62x51mm 6 5 Creedmoor and 6mm ARC We also offer upper assemblies so firearm owners can easily modify their modern sporting rifles to suit the needs and tasks of the various forms of sport shooting and hunting Our broad product portfolio of modern sporting rifles includes a 22 caliber model an opening price point sport model a hunting caliber model for longer range effectiveness and several models designed for professional users
In fiscal 2025 we continued to expand our lever action offerings building on the success of the Model 1854 which was introduced in fiscal 2024 This expansion included new caliber introductions in 45 Long Colt 357 Magnum and our first long action rifle cartridge offering in 45 70 Government The expansion also included our Stealth Hunter series
Handcuffs We are one of the largest manufacturers of handcuffs and restraints in the United States We fabricate these products from the highest grade carbon or stainless steel Our patented Lever Lock cuffs offer a double locking system for added security and comfort without extra tools or keys Internal locks help prevent tampering and smooth ratchets allow for swift cuffing and an extra measure of safety We have the ability to customize handcuffs to fit customer specifications
Firearm Suppressors We are one of the nation s oldest firearm suppressor manufacturers and an active participant in the firearm suppressor market around the world We believe our Gemtech branded firearm suppressors have been involved in setting standards used by the military in suppressor testing implementation and safety Our firearm suppressors are constructed from high grade aluminum steel or titanium and are compatible with every major type of rimfire and centerfire pistol and centerfire rifle caliber currently on the market
Manufacturing Services We utilize our substantial manufacturing capabilities to provide services to third party customers Our manufacturing services include forging heat treating rapid prototyping tooling finishing plating and machining We believe our manufacturing services provide us with increased flexibility and reduced supply chain risk We also believe that business to business sales provide profitable revenue stream diversification and enable us to maximize capacity utilization of our manufacturing assets We market our manufacturing services under the Smith Wesson and Smith Wesson Precision Components brand names
We go to market in a variety of ways including two step distribution strategic retailers and buying groups consisting of certain large regional retailers utilizing direct sales employees to service these customers We also sell firearms directly to law enforcement agencies and manufacturing services directly to other businesses We sell internationally primarily through distributors which in turn sell to retail stores and government agencies
Our top five commercial distributors in the United States accounted for a total of 45 46 and 44 of our net sales for the fiscal years ended April 30 2025 2024 and 2023 respectively Those commercial distributors are not regionally exclusive and have many of the same dealer customers Therefore we believe that the loss of one or more of these distributors would not materially impact sales as the remaining distributors would be allocated additional sales
We market our products using a multi faceted approach to consumers through independent dealers large retailers in store retail channels direct to consumer and range operations using focused marketing and promotional campaigns which include print broadcast and digital advertising campaigns social and electronic media and in store retail merchandising strategies We are prominently featured in vertical print media including editorial coverage in an extensive list of leading firearms and outdoor magazines including Guns Ammo American Rifleman Shooting Times American Handgunner Shooting Illustrated American Hunter Outdoor Life and Field Stream We also sponsor many outdoor television internet and online programs that generate significant editorial exposure We sponsor a number of firearm safety shooting and hunting events and organizations
We print various product catalogs that are distributed to our dealers and mailed directly on a limited basis to consumers We also attend various trade shows and expositions such as the Shooting Hunting Outdoor Trade or SHOT Show the National Association of Sporting Goods Wholesalers Annual Expo the International Association of Chiefs of Police Annual Conference Expo the Association of the United States Army or AUSA Annual Meeting Exposition the IWA OutdoorClassics international trade fair in Europe and various distributor buying group and consumer shows
We utilize our websites including www smith wesson com and www gemtech com to market our products and services and to provide a wide range of information regarding our company to customers consumers dealers distributors investors and government and law enforcement agencies worldwide Social media platforms such as Facebook Instagram YouTube LinkedIn and X formerly Twitter are effective ways for us to communicate the features and benefits of our products Our direct to consumer e mail marketing helps us to further engage our consumers and communicate the value of our brands We continue to invest in new digital marketing capabilities to provide best in class customer experiences Our websites are designed to inform inspire and prepare our customers
We utilize a variety of methods for supporting our consumers and dealers We have a toll free customer service number e mail and social media messaging to answer questions and resolve issues regarding our products In addition we offer a limited one year warranty program and a lifetime service policy under which we repair defects in material or workmanship in our products without charge for as long as the original purchaser owns the firearm We also maintain a number of authorized warranty centers throughout the world and provide both warranty and charge repair services at our facilities
We manufacture most of the components for our firearms but purchase certain components and parts including bolt carriers rifle receivers magazines small parts and rifle stocks from third parties We also purchase ammunition for product testing Most of our major suppliers are U S based and provide materials components and parts such as steel polymer components and metal injected molded components The costs of these materials components and parts are at competitive rates We have become less dependent on any particular supplier by strategically sourcing parts and raw material from multiple suppliers based on quality cost and risk Whenever appropriate we ensure that we have primary and secondary sources of supply for critical parts and components We are also able to leverage our supply base to supplement our internal capacity and provide flexibility in our response to changes in market conditions We use numerous raw materials such as steel wood lead brass and plastics in producing and testing our products We have alternative sources for these raw materials
We have four manufacturing facilities at which we produce our products a 645 000 square foot facility located in Maryville Tennessee a 575 000 square foot facility located in Springfield Massachusetts and two facilities totaling 44 000 square feet located in Houlton Maine We conduct plastic injection molding assembly and distribution services from our Maryville facility We conduct certain machining assembly and manufacturing services at our Springfield facility We machine non serialized firearm parts and manufacture handcuffs and other restraint devices in our Houlton facilities As part of the Relocation we discontinued operations at the Deep River facility during fiscal 2025 All of these facilities are ISO 9001 certified
We perform most of the machining and all of the assembly inspection and testing of the firearms that we sell in our own facilities We produce our major firearm components utilizing computer assisted machines Our skilled employees use sophisticated automated testing equipment to ensure the proper functioning of our firearms Every firearm is test fired before shipment Our Maryville facility operates primarily on three shift patterns a five day 8 hour shift schedule Our Springfield facility operates primarily on two shift patterns a seven day 12 hour rotating shift schedule and a five day 8 hour shift schedule Our Houlton facilities operate primarily on three shift patterns a seven day 12 hour shift schedule a five day 8 hour shift and a four day 10 hour shift schedule
We are party to a lease agreement dated October 26 2017 between us and Ryan Boone County LLC or the Original Missouri Landlord concerning certain real property located in Boone County Missouri on which we had been operating our distribution center or the Missouri Lease as well as a related payment and performance guaranty dated October 26 2017 in favor of the Original Missouri Landlord As part of the Relocation on January 31 2023 we entered into i an assignment and assumption agreement with American Outdoor Brands Inc our former wholly owned subsidiary or AOUT which became effective on January 1 2024 pursuant to which AOUT assumed all of our rights entitlement and obligations in to and under the Missouri Lease or the Assignment and Assumption Agreement and ii an amended and restated guaranty in favor of RCS S W Facility LLC as successor in interest to the Original Missouri Landlord pursuant to which Smith Wesson Sales Company was added as a guarantor or the Amended and Restated Guaranty Because of the Amended and Restated Guaranty we continue to account for this lease as we have since prior to the Relocation Effective January 1 2024 we vacated the Missouri distribution
In addition we relocated a portion of our plastic injection molding operations to the Maryville facility As of April 30 2025 the plastic injection molding machinery and equipment previously utilized in our Deep River facility had been relocated to the Maryville facility or disposed of We did not recognize a material impairment related to the assets previously utilized at the Deep River facility
Through our advanced products engineering departments we enhance existing products and develop new products for our business Through our research and development personnel we conceive design and develop potential products that we believe will be attractive to our customers and help address the needs wants and desires of our target consumer base In so doing we must seek to anticipate and respond to trends and shifts in consumer preferences by continually adjusting our product mix with innovative features and designs and marketing them in an effective manner Prior to introducing any product we assess its cost of production and delivery estimate its potential sales volume and margin and conduct vigorous prototype and production quality sample testing In fiscal 2025 2024 and 2023 our gross spending on research activities relating to the development of new products was 9 6 million 7 3 million and 7 6 million respectively As of April 30 2025 we had 45 employees at our various facilities engaged in ongoing research and development activities for all of our brands
We recognize the importance of innovation and protecting our intellectual property Accordingly we own numerous patents related to our products We apply for patents whenever we develop innovative new products unique designs or processes of commercial importance We do not believe that our business is materially dependent on any single patent
Because of the significance of our brand names our trademarks service marks trade dress and copyrights are also important to our business We have an active global program of trademark registration monitoring and enforcement We believe that our Smith Wesson and Gemtech brands including our S W monogram trademarks are known and recognized by the public worldwide and are important to our firearm business
We encounter rigorous competition in the firearms industry from both domestic and foreign manufacturers Although some competitors manufacture as wide a variety of firearms as we do most of our competitors manufacture only certain types of firearms We are one of the largest manufacturers of handguns modern sporting rifles and handcuffs in the United States We compete primarily based upon innovation quality reliability durability price performance consumer brand awareness and customer service and support Our customer service organization is proactive in offering timely responses to customer inquiries We believe we can effectively compete with all our present competitors Our primary competitors are Colt Ruger and Taurus in the revolver market Glock Ruger Sig Sauer Springfield Armory and Taurus in the pistol market Daniel Defense Diamondback Ruger Sig Sauer and Springfield Armory in the semi automatic rifle market and Ruger and Henry in the lever action rifle market
We sell our products through a variety of federally licensed distribution channels Depending upon the product or service our customers include distributors federal state and municipal law enforcement agencies and officers government and military agencies and retailers We also sell non serialized parts accessories and apparel to retail consumers through our new e commerce platform
During fiscal 2025 sales into our professional channel accounted for approximately 9 0 of our net sales which included state and local law enforcement agencies the federal government and international customers The remaining 91 0 of our net sales was through federal firearm licensees to domestic consumers
Our business is seasonal with sales generally peaking in our fourth fiscal quarter which ends April 30 as a result of most industry events and distributor shows normally scheduled during the early spring months In addition because of our operating schedule which includes a summer and a winter shutdown of our manufacturing facilities we have an increased number of operating days in our fourth fiscal quarter which allows our shipping and production volumes to exceed other quarters Seasonality however can be disrupted by external events such as results of federal state and local elections and periodic social and political unrest crime and other factors that may drive sales or impact channel inventories
There are also various state laws regulations and local ordinances relating to firearm characteristics features sales and firearm magazine capacities Local firearm dealers must comply with federal state and local laws regulations and ordinances pertaining to firearm firearm suppressor and magazine sales within their jurisdictions We manufacture several firearm models and magazines in various capacities that comply with those laws regulations and ordinances for sales in those states and localities In Massachusetts for example there are regulations related to the weight of the trigger pull barrel length material strength and independent testing of handguns California Connecticut Maryland New Jersey and New York as well as other states the District of Columbia and other localities have similar laws ordinances and restrictions In addition certain states and the District of Columbia have implemented laws related to microstamping Generally these laws require any new pistols to contain a microstamping mechanism which must be able to etch or imprint an array of characters that identify the make model and serial number of a pistol onto each cartridge case when the pistol is fired No commercially produced firearm has utilized the microstamping process which many consider to be infeasible and we have no plans to utilize any microstamping feature in our firearms While these microstamping laws do not currently restrict our product offerings as a result of ongoing viability studies or legal challenges in the future they may restrict our ability to sell our products into these jurisdictions
We are subject to numerous federal state and local laws and regulations that regulate the health and safety of our workforce including those regulations monitored by the Occupational Health and Safety Administration or OSHA the National Fire Protection Association and the Department of Public Health Though not exhaustive examples of applicable regulations include confined space safety walking and working surfaces machine guarding and life safety
We are also subject to numerous federal state and local environmental laws and regulations concerning among other things emissions to the air discharges to land surface subsurface strata and water and the generation handling storage transportation treatment and disposal of hazardous waste and other materials These laws require us to make significant expenditures of both a capital and expense nature Several of the more significant federal laws applicable to our operations include the Clean Air Act the Clean Water Act the Comprehensive Environmental Response Compensation and Liability Act or CERCLA and the Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act or RCRA
We are required to remediate hazardous waste at our facilities Currently we own a designated site in Springfield Massachusetts that contains two release areas which are the focus of remediation projects as part of the Massachusetts Contingency Plan or MCP The MCP provides a structured environment for the voluntary remediation of regulated releases We may be required to remove hazardous waste or remediate the alleged effects of hazardous substances on the environment associated with past disposal practices at sites not owned by us We have received notice that we are a potentially responsible party from the Environmental Protection Agency and or individual states under CERCLA or a state equivalent at two sites
In our efforts to satisfy our environmental responsibilities and to comply with environmental laws and regulations we have established and periodically update policies relating to the environmental standards of performance for our operations We have in place programs that monitor compliance with various federal state and local environmental regulations However in the normal course of our manufacturing operations we are subject to governmental proceedings and orders pertaining to waste disposal air emissions and water discharges from our operations into the environment We regularly incur substantial capital and operating costs to comply with environmental laws including remediation of known environmental conditions which we fund through cash flows from operations We spent 1 7 million 1 5 million and 1 5 million in fiscal 2025 2024 and 2023 respectively on environmental compliance primarily related to disposal fees and containers
In the normal course of our business we may become involved in various proceedings relating to environmental health and safety matters and we are currently engaged in an environmental investigation and remediation Our manufacturing facilities are located on properties with long histories of industrial use including the use of hazardous substances We have identified soil and groundwater contamination at our Springfield facility that we continue to monitor and remediate as appropriate Based on the situation an environmental reserve may be recorded based upon currently enacted laws and regulations currently available facts experience in remediation efforts existing technology and the ability of other potentially responsible parties or contractually liable parties to pay the allocated portions of any environmental obligations As of April 30 2025 we did not have an open environmental reserve recorded in our consolidated balance sheet
Based on information known to us we do not expect current environmental regulations or environmental proceedings and claims to have a material adverse effect on our consolidated financial position results of operations or cash flows However it is not possible to predict with certainty the impact on us of future environmental compliance requirements or of the cost of resolution of future environmental health and safety proceedings and claims in part because the scope of the remedies that may be required is not certain liability under federal environmental laws is joint and several in nature and environmental laws and regulations are subject to modification and changes in interpretation Additional or changing environmental regulation may become more burdensome in the future and any such development could materially and adversely affect us
Creating a positive work environment for our employees is critical to our ability to successfully execute our strategy We are committed to a strong healthy culture focused on respect for all employees creating and sustaining a family atmosphere united under a clear vision with the understanding of each function and individual s responsibility for team results collective pride in our company and our industry and shared rewards for results In order to ensure that we embody our values and that our culture remains healthy and strong we place significant focus on our human resources
We believe that this training and development leads to more valuable contributions and satisfaction for our employees within their existing roles and also positions employees for roles they aspire to attain The intern program is intended to serve as a talent pipeline for future hires as an opportunity for us to receive fresh perspectives and ideas to introduce college students to our brand and increase positive employer branding and to contribute to beneficial community engagement Finally we conduct periodic compliance and industry training for employees on various topics that are important to our business including sexual harassment anti corruption and cybersecurity among others
Our Talent Acquisition team focuses on ensuring that our workforce is representative of the local communities in which we operate and that our business is open and welcoming to everyone This commitment extends to all levels of our organization including within senior management and our Board of Directors We are committed to hiring qualified candidates without regard to race religion color sex sexual orientation pregnancy gender age national origin ancestry physical or mental disability genetic information or any other status
We utilize third party tools and databases to review compensation practices on an annual basis to ensure we pay all employees fairly We engage the services of benefit consultants to provide expert advice on the development of benefit designs and offerings current market trends exposure to loss and various contract provisions We also partner with various recruiting services to expand our ability to attract a qualified workforce as needed
We have a documented education and training plan to ensure employees are well trained on safety measures throughout the organization We offer more than 55 different types of training including lecture classroom setting and hands on training to ensure our employees have the knowledge needed to ensure their safety as well as the safety of others The success of our training program has allowed us to maintain a relatively low level of safety claims and reduce lost work hours Our calendar year 2024 and 2023 total recordable incident rate or TRIR of 2 3 and 1 6 respectively and lost time incident rate or LTIR of 0 6 and 0 5 respectively compares favorably to the latest OSHA industry data According to OSHA for our NAICS industry code the calendar year 2023 and 2022 TRIR was 2 3 and 2 5 and the LTIR was 0 6 and 1 6 respectively Our calendar year 2024 and 2023 near miss frequency rate was 1 9 and 0 3 respectively and we did not have any fatalities in either year
Competitive pay and benefits have always been a highlight of our employee experience We offer comprehensive benefit programs to our employees that allow them flexibility of choice through our total rewards framework of pay and service recognition health and wellness financial well being work life balance culture and community and learning and development
Annual increases and incentive compensation for salaried and non operations hourly employees are based on merit which is communicated to employees upon hire and documented through our talent management program as part of the annual performance review process Annual increases for hourly operations employees are based on a yearly market analysis for comparable jobs
As of April 30 2025 we had 1 416 employees including eleven part time employees None of our employees are represented by a union in collective bargaining with us Of our employees 30 have 10 or more years of service with our company and 3 have greater than 25 years of service with our company We believe that our employee relations are good and that the high quality of our employee base is instrumental to our success
Mark P Smith has served as President and Chief Executive Officer since 2020 Mr Smith served as Co President and Co Chief Executive Officer from January 2020 to August 2020 Mr Smith served as President Manufacturing Services of our company and as President of Manufacturing Services for Smith Wesson Sales Company formerly known as American Outdoor Brands Sales Company and Smith Wesson Corp a subsidiary of our company from 2016 until 2020 Mr Smith served as Vice President of Manufacturing and Supply Chain Management from 2011 until 2016 and served as Vice President of Supply Chain Management from 2010 until 2011 He was Director Supply Chain Solutions for Alvarez Marsal Business Consulting LLC from 2007 until 2010 Mr Smith held various positions for Ecolab Inc a developer and marketer of programs products and services for the hospitality foodservice healthcare industrial and energy markets from 2001 until 2007 including Program Manager Acquisition Integration Manager Senior Manufacturing Planner Plant Engineer and Senior Production Quality Supervisor Mr Smith was a Production Supervisor for Bell Aromatics a manufacturer of flavors and fragrances from 1999 until 2001
Deana L McPherson has served as Executive Vice President Chief Financial Officer Treasurer and Assistant Secretary since 2020 Ms McPherson served as Vice President Chief Accounting Officer Corporate Controller and Assistant Treasurer from 2017 to 2020 Ms McPherson served as Vice President Corporate Controller and Assistant Treasurer from 2009 to 2017 Ms McPherson served as Corporate Controller from 2007 to 2009 From 2001 to 2007 Ms McPherson held a number of increasingly responsible positions for Wood Group PLC a 5 0 billion international energy services company including at her departure Vice President of Finance for the Heavy Industrial Turbines division From 1995 to 2001 she served as Accounting Manager of FiberMark DSI Inc formerly Rexam DSI Inc a producer of specialty fiber based materials in the paper and packaging industry From 1992 to 1995 she was employed as an auditor at Deloitte Touche LLP Ms McPherson is a Certified Public Accountant registered with the Commonwealth of Massachusetts
Kevin A Maxwell has served as Senior Vice President General Counsel Chief Compliance Officer and Secretary since 2021 From 2016 to 2021 he served in leadership positions within the legal department of WestRock Company a publicly traded paper and packaging company including as Vice President Associate General Counsel and Assistant Secretary From 2010 to 2016 Mr Maxwell held a number of increasingly responsible positions with Mueller Water Products Inc a publicly traded water infrastructure company including Vice President Assistant General Counsel and Assistant Secretary From 2004 to 2010 he served as a corporate associate in the London and Washington DC offices of Skadden Arps Slate Meagher Flom
Susan J Cupero served as Vice President of Sales of our company from 2021 until her retirement in May 2025 Ms Cupero held increasingly higher positions with our company during her 45 years of service including Director of Independent Distributors from 2017 until 2021 and Director of Sales Administration from 2015 until 2017
The following summarizes the material risks of purchasing or owning our common stock Additional unknown risks may also adversely impact our business operating results and financial condition Our business operating results and financial condition may be materially and adversely affected by the nature and impact of the risks discussed below as well as additional unknown risks in which case the trading price of our common stock could be adversely affected and investors may lose part or all of the value of their investment You should carefully consider the risks and uncertainties described below
Our business may be adversely impacted by general economic conditions and consumer spending patterns Consumer spending on discretionary items and demand for our products may be adversely impacted by a number of economic factors including economic uncertainty high levels of unemployment declines in consumer confidence and discretionary income lack of consumer credit increases in consumer debt levels stock market declines poor weather conditions high energy prices increased energy and commodity prices higher costs for materials and services high levels of tax interest rates inflationary conditions and increased labor costs Economic conditions also affect governmental and budgetary policies which may adversely affect our ability to sell our products to law enforcement government and military customers
Our business may be adversely impacted by political social and related factors Concerns about presidential congressional state and local elections and legislative and public policy shifts resulting from those elections can adversely affect demand for our products For example we believe demand for our products was negatively impacted by unified Republican control of the executive and legislative branches of the federal government during the first two years of the first Trump administration and we believe demand for our products is currently being and may continue to be impacted by unified Republican control of the executive and legislative branches of the federal government in each case as a result of the reduced risks of gun control legislation and regulation In addition speculation surrounding increased gun control at the federal state and local level and heightened fears of crime and terrorism can affect consumer demand for our products These concerns often result in an increase in near term consumer demand for our products and subsequent softening of demand when these concerns subside For example we experienced historic levels of demand for our products in parts of fiscal 2022 and 2021 as a result of the impact of COVID 19 and the social unrest experienced in the United States during the summer of 2020 with demand for our products subsequently returning to more normalized levels As a result of these significant fluctuations in demand our operating results can vary significantly from period to period and we may build and maintain inventory levels that are significantly in excess of customer demand
Federal and state legislatures frequently consider laws to regulate firearms including the amendment or repeal of existing laws Existing laws may also be affected by future judicial rulings and interpretations Changes to existing laws or the enactment of new laws may seek to restrict the makeup of firearms including limiting magazine capacity mandating the use of certain technologies in a firearm removing existing legal defenses in lawsuits or banning the sale and in some cases the ownership of various types of firearms and accessories For example certain states i prohibit the sale of modern sporting rifles ii restrict magazine capacity or iii have adopted some form of so called gun industry accountability laws that attempt to facilitate the filing of civil lawsuits by the respective state government or private individuals against certain firearm industry participants Certain states have also raised the minimum age for buying firearms and begun levying excise taxes on firearm firearm component and ammunition sales Interest in gun control legislation among federal and state legislatures tends to intensify following significant events such as mass shootings If restrictive laws or restrictive changes to existing laws are adopted we could find it difficult expensive or even impossible to comply with such laws which could impede our ability to develop new products and distribute existing products and it may become more difficult or costly to purchase our products In addition gun control activists may succeed in imposing restrictions or an outright ban on private firearm ownership or particular firearm models which could have a material adverse effect on our business operating results and financial condition
In addition to these matters which are largely beyond our control demand for our products may also be adversely impacted by shortages of ammunition since potential purchasers of our products may choose not to purchase our products unless supplies of ammunition to use with our products are available Since we do not manufacture ammunition the supply of ammunition is also beyond our control
Our business as well as the business of all manufacturers and marketers of firearms and firearm parts is subject to numerous federal state local and foreign laws regulations and protocols including ATF rules and regulations If we fail to comply with ATF rules and regulations the ATF may limit our activities or growth fine us or ultimately put us out of business
The manufacture sale and purchase of firearms are subject to extensive federal state and local governmental regulation The primary federal laws are the National Firearms Act of 1934 or NFA the Gun Control Act of 1968 or GCA and the Firearms Owners Protection Act of 1986 which have been amended from time to time The NFA severely restricts the private ownership of fully automatic weapons and heavily regulates other firearms defined in that law and accompanying regulations including firearm suppressors The GCA places certain restrictions on interstate firearm sales among other things Most of our exported products are governed by the U S Department of Commerce and regulated by its Bureau of Industry and Security or BIS under the Export Administration Regulations Certain of our exported products are governed by the U S Department of State and subject to the International Traffic in Arms Regulations We are generally required to obtain U S government authorization for exports including licensure or other similar authorization prior to engaging in international transactions The U S government has discretion as to whether to grant a license In addition Congress may block a proposed sale of firearms that are export controlled by the Department of State valued at 1 million or more Consequently we may not be able to obtain export licenses or complete profitable contracts as a result of political or other reasons that are beyond our control In May 2024 new BIS rules took effect that among other things led to the revocation of certain of our previously valid licenses that authorized firearm exports to non government end users in countries deemed high risk by the State Department and otherwise imposed significant changes on the licensing requirements for many firearms exports These new restrictions negatively impacted our international sales Failure to receive required licenses or authorizations or the termination or suspension of our export privileges could have a material adverse effect on our business operating results and financial condition
In addition to federal requirements state and local laws and regulations may place additional restrictions or prohibitions on firearm ownership and transfer These laws and regulations vary significantly from jurisdiction to jurisdiction Some states or other governmental entities have enacted and others are considering laws restricting or prohibiting the ownership use sale or importation of certain categories of firearms firearm suppressors ammunition and ammunition feeding devices For example certain states have adopted restrictions on the sale of modern sporting
rifles and other states are considering adopting similar laws Some states mandate or are considering mandating certain design features based on perceived safety or other grounds California maintains a roster of handguns that are certified for sale in the state and other states have adopted or are considering adopting similar rosters Certain of our products have been removed from the California roster in the past meaning that they can no longer lawfully be sold by retailers and may be removed in the future Finally our ability to sell our products in international markets is impacted by local laws rules and regulations in those markets For example Canada has banned the sale purchase or transfer of various firearms within Canada subject to certain exceptions Such laws could have a material adverse effect on our business operating results and financial condition
Existing industry protections may be repealed or affected by judicial rulings For example the Protection of Lawful Commerce in Arms Act of 2005 or the PLCAA was enacted by Congress in 2005 to protect firearms manufacturers and dealers from liability when their legally manufactured and lawfully sold products are later used in criminal acts The PLCAA or state law equivalents of the PLCAA could be repealed amended or affected by future judicial rulings and interpretations If the PLCAA or state law equivalents of the PLCAA were repealed amended or reinterpreted firearm manufacturers could face a significant increase in litigation which could have a material adverse effect on our business operating results and financial condition
We are subject to numerous federal state and local laws that regulate or otherwise relate to the protection of the environment including the Clean Air Act the Clean Water Act CERCLA and the Solid Waste Disposal Act as amended by RCRA CERCLA and RCRA and related state laws subject us to the potential obligation to remove or mitigate the environmental effects of the disposal or release of certain pollutants at our manufacturing facilities and at third party or formerly owned or leased sites at which contaminants generated by us may be located We have incurred and expect to continue to incur expenditures in order to comply with these requirements Further we may become subject to governmental proceedings and orders pertaining to waste disposal air emissions and water discharges
We may not have identified all existing contamination on our properties and our operations may cause contamination in the future As a result we could incur additional costs to clean up contamination that exceed the amount of our reserves and our reserves may increase from time to time Furthermore it is not possible to predict with certainty the impact on us of future environmental compliance requirements or the cost to satisfy future regulatory proceedings and claims
We are subject to a number of employment and occupational health and safety laws and regulations including the Fair Labor Standards Act and the Occupational Safety and Health Act and the rules and regulations promulgated thereunder that could significantly increase our operating costs and reduce our operational flexibility In 2024 we settled a matter involving the alleged non payment of wages and overtime in violation of the Massachusetts Wage Act and Massachusetts Minimum Fair Wage Law
The Foreign Corrupt Practices Act of 1977 or FCPA and local anti corruption laws among other things prohibit companies and their intermediaries from making improper payments to government officials for the purpose of influencing official decisions Our efforts to comply with the FCPA or other applicable anti corruption laws and regulations may cause us to limit our international business activities or result in reducing or impeding our sales growth in numerous foreign countries Further our internal control policies and procedures or those of our vendors may not adequately protect us from reckless or criminal acts committed or alleged to have been committed by our employees agents or vendors Any such violations could lead to civil or criminal monetary and non monetary penalties and or could damage our reputation
Changing privacy laws in the United States Europe and elsewhere have created new individual privacy rights imposed increased obligations on companies handling personal data and increased potential exposure to fines litigation and penalties In 2025 a purported class action matter was filed against us alleging among other things violations of the California Invasion of Privacy Act
Compliance with laws regulations and other requirements including those discussed above is costly and time consuming and our failure to comply could cause us to incur fines and penalties lead to restrictions on our ability to manufacture and sell our products and services or otherwise negatively impact our ability to import or export the products that we sell Allegations that we have failed to comply with these laws regulations and other requirements could also expose us to litigation and harm our reputation In addition these laws regulations and other requirements may change or be applied or interpreted in ways that will require us to modify our products subject us to enforcement risk expose us to reputational harm or impose on or require us to incur additional costs including substantial compliance costs which may materially and adversely affect our business operating results and financial condition
The federal government has at times put in place tariffs and other trade restrictions with respect to other countries including limiting trade and imposing tariffs on imports from foreign countries In addition other countries have at times threatened or put in place tariffs of their own For example in April 2025 the United States announced the imposition of worldwide reciprocal and other tariffs on its trading partners and in response to the United States actions many of the United States trading partners announced retaliatory tariffs
We are currently subject to tariffs on certain of our products and other of our products could become subject to tariffs in the future Protectionist trade restrictions such as changes in tariff structures export or import compliance laws or other trade policies in the United States or foreign countries could reduce our ability to sell our products in foreign markets negatively impact the ability of foreign customers to purchase our products adversely affect our
ability to import products components and raw materials from foreign suppliers and interfere with our supply chain Tariffs that result in increased costs or adversely impact the availability of imported products components or raw materials used in the production of our products could materially and adversely impact our business operating results and financial condition In particular increased input costs may require us to increase the prices of our products which may result in lower demand for our products or lower gross margins on such products if we are unable to increase the price of those products to our customers In addition the imposition of tariffs on products that we export to international markets could make those products more expensive compared to those of our competitors if we pass the additional costs on to our customers which may also adversely impact our business
Many of the markets in which we sell our products including our primary market in the United States have experienced high levels of inflation We believe high levels of inflation have depressed and may continue to depress consumer demand for our products as certain firearm consumers have traded down to purchase lower priced firearms or delayed purchases due to cost concerns Inflation can also adversely affect us by increasing material labor and other costs required to operate and grow our business which we believe has reduced and may continue to reduce our profitability For example in response to inflationary pressures we have experienced increases in the cost of certain of the components parts raw materials and other supplies necessary for the production of our products and such increases may continue to impact us in the future Because we typically purchase these supplies based on short term commitments from our suppliers we are exposed to risks associated with significant levels of cost inflation If we are unable to increase our prices to offset the effects of inflation our business operating results and financial condition could be materially and adversely affected
Our success depends on our ability to continue to conceive design produce or source and market in a timely manner a continuing stream of innovative new products that appeal to consumers achieve market acceptance and drive customer satisfaction and loyalty New product development can be a lengthy and costly process Any new products that we develop and introduce to the marketplace may be unsuccessful in achieving customer or market acceptance or may achieve success that does not meet our expectations for a variety of reasons including delays in introduction unfavorable cost comparisons with alternative products unfavorable customer or consumer acceptance and unfavorable performance Our business operating results and financial condition could be materially and adversely affected if we fail to introduce new products that consumers want to buy or we incur significant expenses related to proposed new products that prove to be unsuccessful for any reason
Consumer preferences include the choice of sales channels In 2025 we launched a direct to consumer e commerce website for certain apparel and firearm accessories Legal and regulatory restrictions apply to the sale of certain of the products offered such as magazines through our e commerce website As a result we may be unable to sell or may choose not to sell certain products through our e commerce website and any changes in applicable federal or state laws or regulations may impact our ability to sell our products through our e commerce website Our efforts to increase our sales on our e commerce website may not be successful
In connection with the Relocation we continue to be subject to a number of risks including those associated with meeting the spending headcount and wage commitments required to receive and or retain certain governmental incentives associated with the Relocation and our ability to effectively implement and utilize productivity enhancements including those related to automation In addition we have experienced and may continue to experience increased employee turnover and challenges in recruiting employees and retaining existing employees This turnover may have resulted in and may continue to result in the loss of valuable historical knowledge concerning our business and its operations In particular we may be unable to recruit employees with the requisite skills to work at our Maryville facility and we may struggle to recruit and retain employees to work in our Springfield facility
We produce key components for most of our products at our Springfield facility which also houses our principal research development engineering and design functions We frequently make changes in our manufacturing operations to modernize the facility and associated equipment and systems as a result of the age of the facility and the continued need to introduce efficiencies in manufacturing and other processes We anticipate that we will continue to incur significant capital and other expenditures with respect to the facility but we may not be successful in continuing to improve efficiencies A disruption of the operation of this facility would adversely affect our ability to produce many of our products and serve our customers
We house our management administrative assembly except for revolvers certain metal pistols and lever action rifles which continue to be manufactured and assembled in the Springfield facility distribution and plastic injection molding functions at our Maryville facility Our Maryville facility includes computer controlled and automated equipment which is complex and may be subject to a number of risks related to security or computer viruses the proper operation of software and hardware electronic or power interruptions and other system failures
Our ability to successfully operate our facilities depends on numerous factors including the proper design of the facilities the ability to employ an adequate number of skilled workers to operate the facilities the design and operation of computer controlled and automated systems the design of software systems to operate the facilities and the integration of the facilities into our ERP system Difficulties or delays in performing any of these critical tasks could negatively impact our operating results and a disruption of the operation of these facilities would adversely affect our ability to distribute our products to our customers
Business disruptions may impair our production and distribution capabilities and materially and adversely affect our business operating results and financial condition Given the industry within which we operate and our brand we may be more likely than other companies to be a target for malicious disruptive activities or physical attacks on our senior leadership team or facilities The casualty and business interruption insurance that we maintain may not be adequate to protect us from the types and amounts of losses we may incur or from the adverse effects that may be caused by disruptions in our operations such as the long term loss of customers or an erosion of our brand image
We utilize contract manufacturers for a portion of our production requirements particularly during periods of very high customer demand in order to increase our manufacturing capacity and reduce our capital expenditures for facilities that may not always operate at peak capacity Qualifying new contract manufacturers is time consuming and may result in unforeseen disruptions in our operations The loss of our relationships with our contract manufacturers or their inability to conduct their services for us as anticipated in terms of capacity cost quality and timeliness could adversely affect our ability to fill customer orders in accordance with required delivery quality and performance requirements If this were to occur the resulting decline in net sales could harm our business
The ability of our suppliers to effectively satisfy our production requirements could be impacted by their financial difficulty or various operating risks including catastrophic events pandemics such as COVID 19 terrorist attacks natural disasters interruptions in the delivery of raw materials or other manufacturing supplies adverse government regulations or equipment breakdowns or failures The failure of any supplier to perform to our expectations could result in supply shortages or delays for certain products and product components and harm our business If we experience significantly increased demand for our products or if we need to replace an existing supplier we may be unable to supplement or replace our production capacity on a timely basis or on terms that are acceptable to us which may increase our costs reduce our profitability and harm our ability to deliver our products timely For certain of our products it may take a significant amount of time to identify and qualify a supplier that has the capability and resources to meet our product specifications in sufficient volume and satisfy our service and quality control standards A number of factors related to our suppliers are beyond our control including political and economic instability in the countries in which they operate their financial and managerial instability their failure to meet our standards or production deadlines their lack of adequate quality control problems they encounter with production capacity their labor problems the availability of raw materials product quality issues currency exchange rates transport availability cost inflation and other factors Although we have insurance to cover potential loss from most of our suppliers for these events we could experience losses in excess of our insured limits and any claims for various losses could be denied In addition failure to take adequate steps to mitigate the likelihood or potential impact of such events or to effectively manage such events if they occur could have a material adverse effect on us as well as require additional resources to restore our supply chain
The capacity of our contract manufacturers to produce our products also depends upon the cost and availability of raw materials Our contract manufacturers and other suppliers may not be able to obtain sufficient supply of raw materials which could result in delays in deliveries of our products by our manufacturers or increased costs Any shortage of raw materials or inability of a manufacturer to produce or ship our products timely or at all could impair our ability to ship orders of our products in a cost efficient timely manner As a result we could experience cancellations of orders refusals to accept deliveries or reductions in our prices and margins any of which could harm our financial performance reputation and operating results
We have occasionally received and may receive in the future product deliveries from suppliers that fail to conform to our quality control standards In such circumstances our inability to utilize those products in production could have a negative effect on our net sales and increase our administrative and shipping costs if we are unable to obtain replacement products in a timely manner
We often schedule internal production and place orders for product components and raw materials with third party suppliers before receiving firm orders from our customers Demand for our products can vary significantly from period to period If we fail to accurately forecast customer demand we may experience excess inventory levels or a shortage of products to deliver to our customers Factors that could affect our ability to accurately forecast demand for our products include the following
Internal inventory levels in excess of customer demand may result in inventory write downs and the sale of excess inventory at discounted prices which could have a material adverse effect on our business operating results and financial condition Inventory levels in excess of consumer demand within our distribution channel may also impact our ability to sell our internal inventory For example inventory levels in the distribution channel were elevated for much of fiscal 2023 as our customers adjusted to more normal levels of demand following the historic levels of demand for our products in parts of fiscal 2022 and 2021 which we believe resulted in lower than anticipated net sales of our internal inventory in fiscal 2023 If we underestimate demand for our products we and our third party suppliers may not be able to produce products to meet customer demand and this could result in delays in the shipment of products and lost net sales as well as damage to our reputation and customer relationships Our business operating results and financial condition could be materially and adversely impacted if we are unable to forecast demand for our products accurately
From time to time we have been capacity constrained and have been unable to satisfy on a timely basis the demand for some of our products We believe that we have improved our manufacturing productivity by adding capacity increasing daily production quantities increasing operational availability of equipment reducing machinery down time extending machinery useful life increasing manufacturing efficiency and contracting with suppliers to obtain additional finished parts Future significant increases in demand for our products if any may require us to further expand our manufacturing capacity particularly through the purchase of additional manufacturing equipment and the addition of manufacturing space and we may not be able to increase our capacity in time to satisfy these increases Capacity constraints may prevent us from satisfying customer orders and result in a loss of market share to competitors that are not capacity constrained At other times we may suffer excess capacity and increased overhead costs particularly if we increase our capacity to meet actual or anticipated demand which decreases or does not materialize Our business operating results and financial condition could be materially and adversely impacted if we fail to align our capacity with demand for our products
Although we manufacture most of the components for our firearms we purchase certain components and parts from third parties including bolt carriers rifle receivers magazines slides small parts barrels and rifle stocks We also purchase ammunition for product testing Most of the major suppliers for our products are U S based and provide materials components and parts such as raw steel polymer components and metal injected molded components
We have become increasingly dependent on a small number of key vendors that supply components and parts for our firearms as a result of our decision to increase our manufacturing flexibility by using third parties that can supplement our internal capacity to better react to changes in market conditions We also use numerous raw materials including steel wood lead brass and plastics that we purchase from third party suppliers to produce and test our products The price of these raw materials may fluctuate substantially depending on a variety of factors including demand weather supply conditions transportation costs energy prices work stoppages government regulation environmental protection and other unpredictable factors Any of these factors may be exacerbated by global climate change Inflationary pressures have resulted in increases in the cost of certain of the components parts raw materials and other supplies necessary for the production of our products and such increases may continue to impact us in the future In addition uncertainties related to governmental fiscal policies including increased duties tariffs or other trade restrictions could result in an increase in the price of components parts raw materials and other supplies we purchase from third party suppliers In an inflationary environment we may be unable to raise the price of our products sufficiently to keep up with the rate of inflation which would reduce our profitability and cash flows
Our inability to obtain sufficient quantities of components parts raw materials and other supplies from independent sources necessary for the production of our products could result in reduced or delayed sales or lost orders which could materially and adversely impact our operating results Many of the components parts raw materials and other supplies used to produce our products are available only from a limited number of suppliers In most cases we do not have long term supply contracts with these suppliers As a result we could be subject to increased costs supply interruptions and difficulties in obtaining materials and finished products Our suppliers also may encounter difficulties or increased costs in obtaining the materials necessary to produce the components and parts that we use in our products The time lost in seeking and acquiring new sources of supply or our inability to locate alternative sources of supply of comparable quality at an acceptable price or at all could negatively impact our net sales and profitability
While we have historically relied on print and electronic media advertising to increase consumer awareness of our brands to increase purchasing intent and conversion we increasingly rely on other forms of media advertising including social media and digital marketing Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our advertising marketing public relations and promotional programs These brand promotion activities may not be effective and their efficacy will depend on a number of factors including our ability to
Increases in the pricing of one or more of our marketing and advertising channels could increase our marketing and advertising expenses or cause us to choose less expensive but possibly less effective marketing and advertising channels If we implement new marketing and advertising strategies we may incur higher costs which in turn could materially and adversely affect our operating results Implementing new marketing and advertising strategies also could increase the risk of devoting significant capital and other resources to endeavors that do not prove to be cost effective We also may incur marketing and advertising expenses significantly in advance of the time we anticipate recognizing revenue associated with such expenses and our marketing and advertising expenditures may not generate sufficient levels of brand awareness and conversion or result in increased net sales Even if our marketing and advertising expenses result in increased net sales the increase might not offset our related expenditures If we are
unable to maintain our marketing and advertising channels on cost effective terms or replace or supplement existing marketing and advertising channels with similarly or more effective channels our marketing and advertising expenses could increase substantially our customer base could be adversely affected and our business operating results financial condition and reputation could suffer
Consumers are increasingly using online platforms to learn about firearms We plan to continue to expand our brand recognition and product loyalty through social media and our websites with generation of original content We are subject to de platforming whereby our ability to share information on social platforms or websites could be blocked limiting our ability to reach our customers In addition we seek endorsements and support from particular sporting enthusiasts athletes or other celebrities for certain of our products and brands and those products and brands may become personally associated with those individuals As a result sales of the endorsed products could be adversely affected if any of those individuals images reputations or popularity were to be negatively impacted Also our internal policies and procedures may not adequately protect us from inappropriate acts committed or alleged to have been committed by our employees or social media partners including endorsers influencers in which case we could be exposed to penalties and other sanctions by the Federal Trade Commission or FTC or other regulatory bodies
We believe that the value of our brand depends in part on the value consumers place on the quality of our products Poor product quality or performance could adversely impact the value of our brand and materially and adversely impact our business operating results and financial condition In particular we have experienced manufacturing and design issues with respect to certain of our firearms and have initiated product recalls and safety alerts in the past and may experience similar issues in the future which may result in the initiation of product recalls and safety alerts in the future Based on the volume of products we have shipped into the market any future recalls safety alerts or product liability claims could result in us incurring significant warranty support and repair costs Such incidents could harm our reputation damage the value of our brands and cause us to lose business all of which could materially and adversely affect our business operating results and financial condition We generally provide a limited one year warranty and a lifetime service policy to the original purchaser of our new firearm products
We operate in highly competitive consumer markets Competition is primarily based on innovation quality reliability durability price performance consumer brand awareness and customer service and support Our inability to compete in one or more of these areas could materially and adversely impact our business operating results and financial condition Our competitors include major domestic and international companies Competitive conditions could result in pricing pressures lower sales reduced profitability and lower market share Some of our competitors may have greater financial technical marketing distribution and other resources and in certain cases may have lower cost structures than we have that may afford them competitive advantages As a result they may be able to devote greater resources to the promotion and sale of products negotiate lower prices on raw materials and components deliver competitive products at lower prices and introduce new products and respond to customer requirements more effectively and quickly than we can
Nearly all of our competitors are privately held which may give them certain competitive advantages For example these competitors may be less focused on maintaining high levels of profitability which may give them more flexibility to compete aggressively on price particularly during periods of high inflation
We may seek to acquire invest in or sell companies assets or businesses or enter into joint ventures with third parties We may not be able to identify suitable targets or purchasers or successfully complete suitable transactions in the future and completed transactions may not be successful These transactions create risks including the following
Certain of our customers have experienced and may in the future experience credit related issues We perform ongoing credit evaluations of customers but these evaluations may not be completely effective We generally grant payment terms to most customers ranging from 20 to 60 days and do not generally require collateral Should more customers than we anticipate experience liquidity issues or if payment is not received on a timely basis we may have difficulty collecting amounts owed to us by such customers and our business operating results and financial condition could be materially and adversely impacted
For fiscal 2025 sales to one of our customers represented 14 6 of our total net sales and as of April 30 2025 this customer accounted for 36 1 of our total accounts receivable For fiscal 2024 sales to three of our customers exceeded 10 0 of our net sales totaling 34 8 As of April 30 2024 two of our customers each accounted for more than 10 of our accounts receivable for a total of 47 9
Our insurance policies are subject to periodic review by our insurers and may not be renewed at all or on similar or favorable terms Because we manufacture and sell firearms a number of insurance carriers have decided in the past and may decide in the future not to insure us For example in the past certain insurance carriers have chosen either to cancel our insurance coverage or not to submit proposals to insure us in areas such as auto general liability and products liability insurance among others In addition if we or other firearm manufacturers sustain significant losses or make significant insurance claims our ability to obtain future insurance coverage at commercially reasonable rates could be materially and adversely affected For example our ability to obtain liability insurance on commercially reasonable terms has been adversely impacted by the 73 million settlement that was announced in 2022 between insurance carriers representing Remington Outdoor Company and plaintiffs in the Soto v Bushmaster Firearms
An inability to obtain liability insurance significant increases in the cost of the liability insurance we obtain or losses in excess of our liability insurance coverage could have a material adverse effect on our business operating results and financial condition In fiscal 2020 we established a wholly owned captive insurance company to help mitigate these risks but our funding of the insurance company may not adequately cover the cost of claims against us if any
We are vigorously defending ourselves in a number of lawsuits As a result of these or future lawsuits we may have to pay significant damages or amounts in settlement above insurance coverage An unfavorable outcome or prolonged litigation could materially and adversely impact our business operating results and financial condition Defending litigation of this nature is also expensive and time consuming and may divert the resources time and attention of our management
Our products expose us to potential product liability warranty liability and personal injury claims as well as litigation relating to the use or misuse of our products These include allegations of defects in manufacturing and design failure to warn of inherent dangers in the product itself or activities associated with the product product performance issues and negligence and strict liability In addition we could be subject to future litigation arising out of the criminal misuse of our firearms If successful such claims could have a material adverse effect on our business operating results and financial condition Although we maintain product liability insurance in amounts that we believe are reasonable we may not be able to maintain such insurance on acceptable terms if at all and product liability claims may exceed the amount of insurance coverage available to us Because we manufacture and sell firearms insurance carriers may decide not to insure our products or our company in the future In addition our reputation may be adversely affected by such claims whether or not successful including potential negative publicity about our products Due to the nature of our products we anticipate that we will continue to be involved in litigation including product liability cases and claims in the future
We have been and may continue to be subject to governmental investigations and inquiries Such investigations and inquiries could subject us to various sanctions including significant civil and criminal penalties the indictment of our company or various of our officers and employees our being prevented from bidding on domestic military and government contracts restriction by the U S Government including by the U S Department of State or U S Department of Commerce on exporting our products private civil litigation arising out of the outcome of the investigations or inquiries the diversion of time and attention of our management from normal business operations and a negative impact on the perception of our company by investors customers and others For example in 2020 the office of the attorney general of New Jersey issued us a subpoena requesting certain business records as part of an investigation into potential violations of the New Jersey Consumer Fraud Act in 2022 certain gun control activists submitted a petition to the FTC suggesting that the FTC investigate and regulate our industry s alleged unfair and deceptive advertising and in 2022 the U S House of Representatives Committee on Oversight and Reform issued us a subpoena requesting certain business records as part of an investigation into certain firearm manufacturers including us More recently in 2024 certain state attorneys general announced the formation of a multistate coalition that purports to target the firearm industry Responding to inquiries and investigations including through litigation is time consuming and costly may disrupt our ongoing business and distract management from operating our business and may expose us to litigation including claims raised by private plaintiffs
As a distributor of non firearm consumer products such as handcuffs we are subject to the U S Consumer Products Safety Act of 1972 as amended by the Consumer Product Safety Improvement Act of 2008 which empowers the Consumer Products Safety Commission to exclude from the market products that are found to be unsafe or hazardous and similar laws under foreign jurisdictions Under certain circumstances the Consumer Products Safety Commission or comparable foreign agencies could require us to repurchase or recall one or more of our products Additionally other laws and agencies regulate certain consumer products sold by us and more restrictive laws and regulations may be adopted in the future Any repurchase or recall of our products could be costly and damage our reputation If we were required to remove or we voluntarily remove our products from the market our reputation could be tarnished and we might have large quantities of finished products that we could not sell We also face exposure to product liability claims in the event that one of our products is alleged to have resulted in property damage bodily injury or other adverse effects In addition to the risk of substantial monetary judgments fines or penalties that may result from any governmental investigations product liability claims or regulatory actions such events could result in negative publicity that could harm our reputation adversely impact the value of our brands and result in an increase in the cost of producing our products Similar to product liability claims we face exposure to class action lawsuits related to the performance safety or advertising of our products Such class action lawsuits could result in substantial monetary judgments injunctions related to the marketing and sale of products and potentially harm our reputation
In fiscal 2020 we formed a wholly owned captive insurance company which provides product liability insurance to us and our subsidiaries The product liability insurance that we carry is in most cases subject to large self insured retentions for which we are responsible and we may not be able to maintain such insurance on acceptable terms if at all Further product liability claims may exceed the amount of insurance coverage As a result product recalls or product liability claims could have a material adverse effect on our business operating results and financial condition In addition we face other types of litigation arising out of alleged defects in our products or otherwise such as class action lawsuits Our insurance may not cover certain claims involving alleged defects in our products that do not involve personal injury or property damage
Our product liability insurance program is an occurrence based program based on our current and historical claims experience and the availability and cost of insurance Our future product liability experience may not be consistent with our past experience and future claims and awards may substantially impact the costs of our insurance programs in the future
Some of our products involve or are used in applications and situations that involve risk of personal injury and death Our products expose us to potential product liability warranty liability personal injury claims and litigation relating to the use or misuse of our products including allegations of defects in manufacturing defects in design a failure to warn of dangers inherent in the product or activities associated with the product negligence and strict liability If successful such claims could have a material adverse effect on our business operating results and financial condition In addition defects in our products could reduce demand for our products and result in a decrease in sales and market acceptance and damage to our reputation
Components used in our products may contain undetected defects that are subsequently discovered at any point in the life of the product In addition we obtain many of our finished products and product components from third party suppliers and may not be able to detect defects in such products or components until after they are sold Defects in our products may result in a loss of sales recall expenses delay in market acceptance damage to our reputation and increased warranty costs which could have a material adverse effect on our business operating results and financial condition
Our success depends in part on our ability to protect our intellectual property We rely on a combination of patents copyrights trade secrets trademarks trade dress customer records monitoring brand protection services confidentiality agreements and other contractual provisions to protect our intellectual property but these measures may provide only limited protection Our failure to enforce and protect our intellectual property rights or obtain the right to use necessary intellectual property from third parties may lead to our loss of trademark and service mark rights brand loyalty and notoriety among our customers and prospective customers The scope of any intellectual property to which we have or may obtain rights may not prevent others from developing and selling competing products In addition our intellectual property may be held invalid upon challenge or others may claim rights in or ownership of our intellectual property Moreover we may become subject to litigation with parties that claim among other things that we infringed their patents or other intellectual property rights The defense and prosecution of patent and other intellectual property claims are costly and time consuming and could materially and adversely affect our business operating results and financial condition
Patents may not be issued for the patent applications that we have filed or may file in the future Our issued patents may be challenged invalidated or circumvented and claims of our patents may not be of sufficient scope or strength or issued in the proper geographic regions to provide meaningful protection or any commercial advantage We have registered certain of our trademarks and trade dress in the United States and other countries We have also recorded certain of our registered trademarks with customs officials in the United States and other countries We may be unable to enforce existing or obtain new registrations of trademarks in key markets Our failure to obtain or enforce such registrations could compromise our ability to protect our trademarks and brands fully and could increase the risk of challenges from third parties to our use of our trademarks and brands
In addition to intellectual property that we own some of our products and services may use or include intellectual property owned by third parties As a result it may be necessary in the future to seek or renew licenses relating to various aspects of our products processes and services We may be unable to obtain or renew such licenses in the future on reasonable terms or at all In the past we did not consistently require our employees and consultants to enter into confidentiality agreements employment agreements or proprietary information and invention agreements Therefore our former employees and consultants and certain of our current employees may try to claim some ownership interest in our intellectual property and may use our intellectual property competitively and without appropriate limitations In addition our acquired businesses may not have consistently required their employees and consultants to enter into confidentiality agreements employment agreements or proprietary information and invention agreements Claims by such individuals may affect our business operating results and financial condition
We may become involved in litigation regarding patents and other intellectual property rights Other companies including our competitors may develop intellectual property that is similar or superior to our intellectual property duplicate our intellectual property or design around our patents and may have or obtain patents or other proprietary rights that would prevent limit or interfere with our ability to make use or sell our products Effective intellectual property protection may be unavailable or limited in some foreign countries in which we sell products or from which competing products may be sold Unauthorized parties may attempt to copy or otherwise use aspects of our intellectual property and products that we regard as proprietary Our means of protecting our proprietary rights in the United States or abroad may prove inadequate and competitors may be able to independently develop similar intellectual property If our intellectual property protection is insufficient to protect our intellectual property rights we could face increased competition in the markets for our products
Should any of our competitors file patent applications or obtain patents that claim inventions also claimed by us we may choose to participate in a United States Patent and Trademark Office Patent Trial and Appeal Board proceeding to determine the patentability or validity of these patents because our business would be harmed if we fail to enforce and protect our intellectual property rights Even if the outcome is favorable this proceeding could be costly and disrupt our business
We have filed lawsuits and may file additional lawsuits in the future to enforce our intellectual property rights protect our trade secrets or determine the validity and scope of the proprietary rights of others This litigation whether successful or unsuccessful could be costly and divert valuable resources which could materially and adversely impact our business financial condition and results of operations
We rely on our information systems to manage our business data communications supply chain ordering pricing billing inventory replenishment accounting functions and other processes Our systems are subject to damage or interruption from various sources including computer and telecommunications failures computer viruses cybersecurity breaches attacks by hackers and other breaches introduction of malware or ransomware phishing attacks denial of service attacks blocking of unauthorized service attacks vandalism severe weather conditions power outages catastrophic events terrorism and human error and our disaster recovery planning cannot account for all eventualities If our systems are damaged fail to function properly or otherwise become compromised or unavailable we may incur substantial costs to repair or replace them and we may experience loss of critical data and interruptions or delays in our ability to perform critical functions which could materially and adversely affect our business operating results and financial condition
Our information technology systems require periodic modifications upgrades and replacement that subject us to costs and risks including potential disruption to our internal control structure substantial capital expenditures additional administration and operating expenses retention of sufficiently skilled personnel or outside firms to implement and operate existing or new systems and other risks and costs of delays or difficulties in transitioning to new or modified systems or of integrating new or modified systems into our current systems In addition challenges implementing new or modified technology systems may cause disruptions in our business operations and have an adverse effect on our business operations if not anticipated and appropriately mitigated
We operate our business utilizing SAP which is a fully integrated ERP system We continue to implement various modules and additional usages of SAP including in connection with the Relocation Any new implementations or usages of SAP including those related to the Relocation could result in a significant disruption to our business and any disruption could materially and adversely impact our business operating results and financial condition In addition utilizing SAP has required and will continue to require significant resources and refinement to fully realize the expected benefits of the system
We use information technologies to securely manage operations and various business functions We rely on various technologies some of which are managed by third parties to process transmit and store electronic information In addition we facilitate a variety of business processes and activities including reporting on our business and interacting with customers vendors and employees We also collect and store data including proprietary business information and may have access to confidential or personal information that is subject to privacy and security laws regulations and customer imposed controls Our systems are subject to recurring attempts by third parties to access information manipulate data or disrupt our operations Despite our security design and controls and those of our third party providers we have in the past experienced and may in the future become subject to system damage disruptions or shutdowns due to any number of causes including cyber attacks data breaches employee error or malfeasance power outages telecommunication or utility failures systems failures service provider failures natural disasters or other catastrophic events
Cybersecurity related vulnerabilities may remain undetected for an extended period of time We maintain contingency plans and processes to prevent or mitigate the impact of events arising from these vulnerabilities however these events could result in operational disruptions or the misappropriation of sensitive data and depending on their nature and scope could lead to the compromise of confidential information improper use of our systems and networks manipulation and destruction of data defective products production downtimes operational disruptions and exposure to liability Such disruptions or misappropriations and the resulting repercussions including reputational damage and legal claims or proceedings may materially and adversely affect our business operating results and financial condition
In addition market demand for small capitalization stocks like ours and price and volume fluctuations in the stock market unrelated to our performance could result in significant fluctuations in the market price of our common stock The performance of our common stock could adversely affect our ability to raise equity in the public markets and adversely affect the growth of our business
Our environmental social and governance or ESG disclosures or lack thereof in addition to ESG disclosure criteria established by third parties may impact our reputation For example public perception including among our stakeholders may depend in part on the policies and procedures we adopt and the disclosures we make whether or not we meet third party ESG disclosure requirements including those related to human rights that the ESG investment community deems relevant and whether we are perceived to fail to act responsibly in the areas on which we report The subjective nature and wide variety of methods and processes used by stakeholders including investors to assess companies on ESG criteria could result in a negative perception about our ESG related policies and practices or a misrepresentation of those policies and practices If our stakeholders feel that we are failing to achieve progress with respect to ESG factors or if we fail to meet ESG disclosure criteria set by third parties our ability to attract and retain employees the willingness of third parties to do business with us investors willingness or ability to purchase or hold our securities or our ability to access capital could be impacted any of which could materially and adversely impact our business operating results and financial condition
We have been and may be in the future subject to informal private or public inquiries and formal proxy proposals by stockholder activists urging us to take certain corporate actions For example in recent years certain stockholder activists submitted proposals requesting that our Board of Directors engage a third party to conduct a human rights impact assessment Responding to inquiries or proposals can be costly time consuming and disruptive to our operations and could divert the attention of our resources including those of our management team and other employees In addition certain stockholder inquiries and proposals could create perceived uncertainties or concerns as to our future operating environment legislative environment strategy direction or leadership and could i result in the loss of potential business opportunities ii harm our ability to attract or retain investors customers and employees iii harm or disrupt our business and financial relationships iv result in consumer boycotts of our
products and iv cause the trading price of our common stock to experience periods of decline volatility or stagnation Stockholder activists have pressured and may continue to pressure us to adopt actions that are not in the best interests of our company or our stockholders inconsistent with the legal operation of our business or contrary to the beliefs of our core consumers and our reputation could be damaged if our core consumers believe that we have adopted the gun control agenda of certain activists In February 2025 certain stockholder activists filed a stockholder derivative suit against our directors and certain of our officers Responding to the stockholder activists claims has been and may continue to be costly and time consuming Finally the actions of stockholder activists may strengthen our competitors particularly those that are privately held and not subject to these types of gun control focused stockholder activism
Gun control activists have sought to engineer boycotts of firearm products by service providers to our industry certain of which discriminate against companies involved with the firearm industry For example some financial institutions and insurance companies no longer provide certain services to firearm manufacturers Gun control activists have also targeted credit card companies transportation companies and social media companies among others Further certain law firms refuse to provide services to firearm manufacturers For example in 2022 we were notified by a law firm with which we had maintained a long term relationship that it would no longer provide legal services to us If additional service providers refuse to work with us we would need to engage alternative service providers which may adversely impact the delivery of important services to us and increase our costs Further we may be unable to locate suitable alternative service providers The refusal of service providers and other businesses that permit firearm related activities to work with us could have a material adverse effect on our business operating results and financial condition
Our success depends on our ability to attract motivate train and retain employees with the skills necessary to understand and adapt to our customers continuously developing needs The increasing demand for qualified personnel makes it more difficult for us to attract and retain employees with requisite skill sets particularly employees with specialized technical and trade experience Changing demographics and labor work force trends also may result in a loss of knowledge and skills as workers with more tenure and experience retire The market for both hourly workers and professional workers has been particularly challenging in recent years and we have incurred higher labor costs as a result Despite our focused efforts to attract and retain employees our attrition rates in recent years have exceeded our historical rates resulting in higher operating costs at certain of our facilities in the form of higher wages and higher levels of overtime pay The Relocation was a significant contributing factor to these higher rates of attrition as certain employees particularly those based in our Springfield facility and former Deep River facility left our employment to work for employers that would allow them to continue working near their homes or to work remotely In addition to challenges associated with a competitive labor market we may also struggle to identify qualified candidates who are comfortable or enthusiastic to work for a firearm business If we fail to attract motivate train and retain qualified personnel or if we experience excessive turnover we may experience declining sales manufacturing delays or other operating inefficiencies increased recruiting training and relocation costs or other difficulties and our business financial condition and results of operations may be materially and adversely impacted
We rely on key executive and management personnel to manage our business efficiently and effectively The loss of these employees particularly during a challenging market for attracting and retaining employees could materially and adversely affect our business financial condition and results of operations
We are incorporated in Nevada Certain provisions of Nevada law and our articles of incorporation and bylaws make it more difficult for a third party to acquire us and make a takeover more difficult to complete even if such a transaction were in our stockholders interest or might result in a premium over the trading price for the shares held by our stockholders
We are responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rule 13a 15 f under the Exchange Act As disclosed in Item 9A Controls and Procedures we identified a material weakness in our internal control over financial reporting related to the accrual of certain legal expenses A material weakness is defined as a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis As a result of the material weakness we concluded that our internal control over financial reporting and related disclosure controls and procedures were not effective as of April 30 2025 based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission We evaluated the errors resulting from the material weakness and determined that the related impact was not material to results of operations financial position or cash flows for any historical annual or interim period We are actively engaged in implementing a remediation plan designed to address this material weakness however we cannot guarantee that these steps have been sufficient or that we will not have a material weakness in the future If our remedial measures are insufficient to address the material weakness or if additional material weaknesses in our internal control are discovered or occur in the future our financial statements may contain material misstatements and we could be required to restate our financial statements
We have implemented and maintain various information security processes designed to identify assess and manage material risks from cybersecurity threats We identify and assess risks from cybersecurity threats by monitoring and evaluating our threat environment and our risk profile using various methods including conducting scans of the threat environment and conducting threat and vulnerability assessments Depending on the environment we implement and maintain various technical physical and organizational measures processes standards and policies designed to manage and mitigate material risks from cybersecurity threats including risk assessments incident detection and response end point detection and response network security controls access controls physical security systems monitoring a vendor risk management program and penetration testing We work with third parties including professional services firms threat intelligence service providers and penetration testing firms from time to time that assist us to identify assess and manage cybersecurity risks
We utilize third party service providers to perform certain business functions We seek to engage reliable and reputable service providers that maintain cybersecurity programs Depending on the nature of the services provided the sensitivity and quantity of information processed and the identity of the service provider we may review the cybersecurity practices of such provider contractually impose obligations on the provider conduct information security risk assessments and conduct periodic reassessments during their engagement
We describe whether and how risks from identified cybersecurity threats have materially affected or are reasonably likely to materially affect us including our business strategy results of operations or financial condition under the heading We are subject to cybersecurity risks including risks related to customer employee vendor and other company data included as part of our risk factor disclosures at Item 1A of this Annual Report on Form 10 K
The Audit Committee is responsible for overseeing risks from cybersecurity threats in accordance with its charter The Audit Committee holds quarterly meetings and receives periodic reports from our Vice President Information Technology Chief Information Officer concerning our significant cybersecurity threats and risks and the processes we have implemented to address them
Management plays an important role in assessing and managing our material risks from cybersecurity threats Our Chief Information Officer which is the management position responsible for assessing and managing material risks from cybersecurity threats is responsible for developing and implementing our information security program and reporting on cybersecurity matters to the Audit Committee He has over a decade of experience leading cybersecurity oversight and leads other members of our information security team who have professional cybersecurity experience training or certifications
We maintain a cyber incident response plan that is designed to provide a framework that will allow us to respond effectively to a cybersecurity incident A cyber emergency response team which includes members of our executive leadership team manages this plan This team meets periodically to discuss cybersecurity threat trends and related information Our incident response processes are designed to escalate certain cybersecurity incidents to our cyber emergency response team and include reporting to the Audit Committee for certain cybersecurity incidents
We view cybersecurity threats as a shared responsibility All new employees with company email addresses receive cybersecurity training as part of their onboarding as well as annual training We also periodically publish a cybersecurity newsletter to these employees related to topics such as phishing social engineering and insider threat awareness
Our common stock trades on the Nasdaq Global Select Market under the symbol SWBI Our common stock was previously traded on the Nasdaq Global Select Market under the symbol AOBC from January 1 2017 to June 1 2020 and under the symbol SWHC from July 20 2006 to January 1 2017 The holders of our common stock are entitled to one vote per share on any matter to be voted upon by our stockholders All shares of common stock rank equally as to voting and all other matters The shares of common stock have no preemptive or conversion rights no redemption or sinking fund provisions are not liable for further call or assessment and are not entitled to cumulative voting rights
We have paid dividends on a quarterly basis since August 2020 Quarterly dividends when declared are paid approximately four weeks after earnings are announced Payment of any cash dividends depends on our financial condition operating results and capital requirements as well as other factors deemed relevant by our Board of Directors We paid dividends totaling 23 1 million and 22 0 million during fiscal 2025 and 2024 respectively
The following line graph compares cumulative total stockholder returns for the five years ended April 30 2025 for i our common stock ii the Russell 2000 Index and iii the S P Composite 1500 Leisure Products Index S P 1500 Leisure Products on the graph below The graph assumes an investment of 100 on April 30 2020 with dividends reinvested The performance shown is not necessarily indicative of future performance
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 Annual Report on Form 10 K 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 Annual Report on Form 10 K
This section generally discusses year to year comparisons between fiscal 2025 and fiscal 2024 A discussion of our results of operations liquidity and capital resources for fiscal 2024 compared with fiscal 2023 is not included in this Annual Report on Form 10 K and can be found in Part II Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10 K for fiscal 2024 filed with the SEC on June 20 2024 See also the discussion below related to an immaterial correction of an error
During the fourth quarter of fiscal 2025 we identified an immaterial error related to our accrual for certain legal expenses resulting in an overstatement of general and administrative expenses in the interim and annual periods for the year ended April 30 2024 and during the interim periods for the year ended April 30 2025 In accordance with Staff Accounting Bulletin SAB No 99 Materiality and SAB No 108 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements we evaluated the quantitative and qualitative considerations of the error and determined that the related impact was not material to results of operations financial position or cash flows for any historical annual or interim period Prior year amounts have been adjusted to correct the immaterial error which overstated accrued expenses and deferred revenue and general and administrative expenses by 2 3 million and understated income tax expense by 569 000 and overstated the related amounts of income tax receivable by 548 000 and deferred income taxes by 21 000 as of April 30 2024 and for the year then ended Related changes to net income corresponding line items within cash provided by operating activities and related disclosures within the notes accompanying these financial statements reflect the immaterial correction
We evaluate the performance of our business based upon operating profit and net income 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 expense 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
The firearm industry has been subject to many external factors in the past that have significantly increased the volatility of revenue generated for companies within the industry These factors include among others fears surrounding crime and terrorism significant news events potential restrictions on the sale or makeup of firearms actual and potential legislative judicial and regulatory actions economic changes and changes in the social and political environment including congressional and presidential elections See Item 1A Risk Factors for further discussion of external factors that impact the firearm industry Although these external factors have created demand surges and volatility in the firearm market and often make it difficult to predict demand we believe that those external factors have also likely contributed to a long term increase in consumer interest in firearms We estimate that the annual domestic non military firearm market is approximately 2 8 billion for handguns and 1 9 billion for long guns excluding shotguns based on the latest data for industry shipments as calculated by the National Shooting Sports Foundation or NSSF utilizing Firearms and Ammunition Excise Tax data for calendar year 2023 According to calendar 2024 reports by the ATF the U S firearm manufacturing industry grew at a 1 5 compound annual growth rate in units from 2018 through 2023 although there has been wide variation among years e g 2019 to 2020 grew 58 0 We believe that this expanding base of consumers combined with our strong brand reputation and attractive price points lend support to our goal of continuing to increase our market share
Sales of our handguns decreased 50 0 million or 13 1 from fiscal 2024 primarily as a result of lower consumer demand within the industry and a shift in product mix to lower priced models partially offset by increased shipments of newly introduced products defined as any new SKU not shipped in the prior year which represented 42 6 of handgun sales in the period and a 2 5 price increase on select products that became effective in the third fiscal quarter of fiscal 2024 Handgun unit shipments into the sporting goods channel decreased 3 5 from fiscal 2024 while overall consumer demand decreased 3 2 as indicated by adjusted background checks for handguns reported to the National Instant Criminal Background Check System or NICS
Sales of our long guns decreased 12 5 million or 10 8 from fiscal 2024 primarily as a result of lower consumer demand within the industry partially offset by increased shipments of new products in the fiscal year which represented 59 5 of sales in the period a shift in product mix to higher priced models and a 2 5 price increase on select products that became effective in the third fiscal quarter of fiscal 2024 Unit shipments into the sporting goods channel decreased 24 8 from fiscal 2024 while overall consumer demand for long guns decreased 2 1 as indicated by NICS We believe that our unit demand declined at a significantly greater rate than NICS as a result of a combination of the industry wide performance in some of the long gun categories in which we participate relative to those categories in which we do not participate fully specifically hunting as well as the impact in the current year of newly introduced products from the prior year that are at lower price points
Gross margin decreased 270 basis points from the prior fiscal year in spite of a 3 2 million legal settlement recognized in the prior year comparable period Excluding the impact of the prior year legal settlement gross margin was 330 basis points lower as a result of higher material costs higher promotional costs and a shift in product mix to lower margin models partially offset by lower inventory adjustments including standard cost revaluations shrink and excess inventory write downs
Inventory balances increased 29 3 million between April 30 2024 and April 30 2025 as a result of a slowdown in demand combined with level loading of our manufacturing facilities to ensure our ability to satisfy anticipated future demand While inventory levels both internally and in the distribution channel in excess of demand may negatively impact future operating results it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors including seasonality new product introductions news events political events and consumer tastes We expect our inventory levels to moderately decline during fiscal 2026
Research and development expenses increased 2 3 million primarily because of higher materials and testing costs associated with new product development and higher compensation related costs Selling marketing and distribution expenses increased 702 000 in spite of a 1 9 million impairment on distribution equipment related to the Relocation and one time costs related to our grand opening event at our Maryville facility in fiscal 2024 Excluding
the impact of these one time prior year charges selling marketing and distribution expenses increased 3 5 million primarily as a result of higher spending on promotions and higher compensation related costs General and administrative expenses decreased 8 2 million primarily because of lower Relocation costs lower profit related compensation expense and lower insurance costs partially offset by higher legal costs During fiscal 2025 we sold certain real estate located adjacent to our former Missouri distribution center for 2 3 million net of transaction costs and recognized a 2 3 million pre tax gain on sale
We recorded income tax expense of 5 8 million for fiscal 2025 4 5 million lower than the prior fiscal year primarily because of decreased profitability Our effective tax rates were 30 2 and 20 0 for fiscal 2025 and 2024 respectively The 2024 rate was impacted favorably as a result of an amendment of prior year returns for the foreign derived income deduction that reduced 2024 income tax expense by 1 4 million or 2 9 Adjusting for the foreign derived income deduction for each year the effective tax rate would have been 22 8 for fiscal 2024 which is 7 9 lower than fiscal 2025 due primarily to decreased pretax income and changes in state apportionment and other state adjustments
Cash used in operating activities was 7 2 million in fiscal 2025 compared with 106 7 million of cash provided in fiscal 2024 Cash used in operating activities in fiscal 2025 was unfavorably impacted by a 29 3 million increase in inventory compared with a 16 6 million decrease in inventory in fiscal 2024 a 14 8 million decrease in accounts payable compared with a 18 2 million increase in accounts payable in fiscal 2024 an 8 1 million decrease in accrued payroll and incentives compared with a 1 4 million decrease in accrued payroll and incentives in fiscal 2024 a 4 4 million decrease in accrued profit sharing compared with a 895 000 increase in accrued profit sharing in fiscal 2024 and lower net income Cash used in operating activities in fiscal 2025 was favorably impacted by a 3 2 million decrease in accounts receivable compared with a 3 9 million increase in accounts receivable in fiscal 2024
Cash used in financing activities was 9 2 million for fiscal 2025 compared with 18 0 million in fiscal 2024 Cash used in financing activities during fiscal 2025 was primarily the result of 25 5 million of share repurchases and 23 1 million in dividend distributions partially offset by 40 million of net borrowings under our revolving line of credit
Credit Facilities We entered into the Second Amended and Restated Credit Agreement on October 3 2024 The Second Amended and Restated Credit Agreement provides for a revolving line of credit of 175 0 million at any one time or the Revolving Line The Revolving Line bears interest at either the Base Rate as defined in the Second Amended and Restated Credit Agreement or the Adjusted Term SOFR rate as defined in the Second Amended and Restated Credit Agreement plus an applicable margin based on our consolidated leverage ratio The Second Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of 5 0 million at any one time subject to availability under the Revolving Line Each Swingline Loan as defined in the Amended and Restated Credit Agreement bears interest at the Base Rate plus an applicable margin based on our Adjusted Consolidated Leverage Ratio as defined in the Second Amended and Restated Credit Agreement Subject to the satisfaction of certain terms and conditions described in the Second 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 October 3 2029 or the date that is six months in advance of the earliest maturity of any Permitted Notes as defined in the Second Amended and Restated Credit Agreement under the Second Amended and Restated Credit Agreement
Share Repurchase Programs On September 19 2023 our Board of Directors authorized the repurchase of up to 50 0 million of our common stock subject to certain conditions in the open market or in privately negotiated transactions through September 19 2024 or the 2023 Authorization During fiscal 2024 we purchased 793 551 shares of our common stock for 10 2 million under the 2023 Authorization During fiscal 2025 we purchased 1 531 763 shares of our common stock for 21 4 million under the 2023 Authorization The 2023 Authorization expired on September 19 2024 On September 5 2024 our Board of Directors authorized the repurchase of up to 50 0 million of our common stock subject to certain conditions in the open market or in privately negotiated transactions from September 20 2024 through September 20 2025 or the 2024 Authorization During fiscal 2025 we repurchased 312 310 shares of our common stock for 4 1 million under the 2024 Authorization During fiscal 2025 we repurchased a total of 1 844 073 shares of our common stock for 25 5 million
Finance Lease We are a party to a material finance lease which is a 46 2 million lease that has an effective interest rate of approximately 5 0 and is payable in 240 monthly installments through fiscal 2039 as well as a related payment and performance guaranty dated October 26 2017 in favor of the Original Missouri Landlord The building is pledged to secure the amounts outstanding As part of the Relocation on January 31 2023 we entered into the Assignment and Assumption Agreement and the Amended and Restated Guaranty Because of the Amended and Restated Guaranty we continue to account for this lease as we have since prior to the Relocation During fiscal 2025 AOUT made payments pursuant to this lease directly to the landlord and we neither received nor paid any cash related to this arrangement See Note 3 Leases for additional information
Our future capital requirements will depend on many factors including net sales the timing and extent of spending to support product development efforts the expansion of sales and marketing activities the timing of introductions of new products and enhancements to existing products and the costs to ensure access to adequate manufacturing capacity Future equity or debt financing may not be available to us on acceptable terms or at all If sufficient funds are not available or are not available on acceptable terms our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained
Management s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements which have been prepared in accordance with U S generally accepted accounting principles The preparation of these financial statements requires that we make accounting estimates judgments and assumptions that can have a meaningful effect on the reporting of consolidated financial statements See Note 2 Significant Accounting Policies for additional information
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 consolidated financial statements
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 175 0 million revolving line of credit that bears interest at either the Base Rate or Adjusted Term SOFR rate plus an applicable margin based on our consolidated leverage ratio For more information regarding our financing arrangements see Note 4 Notes and Loans Payable As of April 30 2025 we had 80 0 million of borrowings outstanding on the Revolving Line which bore an interest rate of 6 69 which is equal to Adjusted Term SOFR rate plus an applicable margin
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 the design and operation 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 2025 the end of the period covered by this Annual Report on Form 10 K Based on that evaluation we have concluded that as of the end of the period covered by this Annual Report on Form 10 K our disclosure controls and procedures were not effective This determination is based on the material weakness in our internal control over financial reporting described below
A company s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
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 with participation of the CEO and CFO under the oversight of our Audit Committee of our Board of Directors conducted an evaluation of the effectiveness of our internal control over financial reporting as of April 30 2025 using the framework established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission the COSO Framework Based on that evaluation management concluded that our internal control over financial reporting was not effective as of April 30 2025 due to the material weakness in internal control over financial reporting described below
A material weakness as defined in Exchange Act Rule 12b 2 is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company s annual or interim financial statements will not be prevented or detected on a timely basis
A deficiency was identified in our internal control over financial reporting related to the operation of the control to review the accrual for certain legal expenses This control did not operate effectively due to insufficient knowledge and experience of our personnel related to the reconciliation of the accrual for certain legal expenses
The material weakness resulted in immaterial misstatements to the accrual for certain legal expenses that were recorded in our consolidated financial statements during the interim and annual periods for the year ended April 30 2024 and during the interim periods for the year ended April 30 2025 Prior period amounts have been adjusted to correct the immaterial error which overstated accrued expenses and deferred revenue and general and administrative expenses understated income tax expense and overstated income tax receivable and deferred income taxes
Our independent registered public accounting firm KPMG LLP who audited the consolidated financial statements included in this Annual Report on Form 10 K issued an adverse opinion on the effectiveness of the Company s internal control over financial reporting KPMG LLP s report appears elsewhere in this Form 10 K
In response to the material weakness described above with the oversight of the Audit Committee of our Board of Directors management plans to remediate the material weakness such that the control over the accrual for certain legal expenses is operating effectively The remediation actions include developing a training program for certain personnel to increase their knowledge of accruals for legal expenses
Our remediation efforts are ongoing and management expects that the remediation efforts and testing will continue in fiscal 2026 Management believes that these actions and the improvements achieved as a result thereof will effectively remediate the material weakness However the material weakness in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded through testing that these controls are operating effectively
On June 18 2025 the Compensation Committee of our Board of Directors approved an amendment and restatement of the Smith Wesson Brands Inc Executive Severance Plan the Amended and Restated Severance Plan Among other things the Amended and Restated Severance Plan i increases the duration of the Change in Control Protection Period as defined therein from 12 months to 24 months ii increases the period of base salary continuation in the case of a termination without Good Cause as defined therein or a resignation for Good Reason as defined therein from 26 weeks to 18 months iii increases the period of base salary continuation in the case of a termination without Good Cause during a Potential Change in Control Protection Period as defined therein or Change in Control Protection Period as defined therein or a resignation upon an Adverse Change in Control Effect as defined therein from 52 weeks to 24 months iv increases the annual cash bonus payable under the scenario described in iii above to two times target v provides that the non competition restriction period will apply for the period during which the individual receives cash severance vi increases the duration of the application of the non solicitation restriction from 12 months to 18 months and vii includes other administrative changes
On June 18 2025 we entered into an Amended and Restated Employment Agreement with our President and Chief Executive Officer Mark Smith Among other things the Amended and Restated Employment Agreement a increases the duration of the protection period related to a Change in Control as defined therein from 12 months to 24 months b increases the period of base salary continuation in the case of a Change in Control from 18 months to 24 months c increases the annual cash bonus payable under the scenario described in b above to two times target d increases the duration of the car allowance medical coverage and COBRA coverage benefits under the scenario described in b above from 18 months to two years and e includes other administrative changes
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 2025 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 Annual Report on Form 10 K
We have adopted our Policy on Inside Information and Insider Trading governing the purchase sale and or other disposition of our securities by our directors officers employees and other covered persons We believe this policy is reasonably designed to promote compliance with insider trading laws rules and regulations and the exchange listing standards applicable to us A copy of this policy is filed as Exhibit 19 1 to this Annual Report on Form 10 K
Form of Indemnity Agreement entered into with the following directors and executive officers as of August 9 2022 with Anita D Britt Fred M Diaz Kevin A Maxwell Deana L McPherson Barry M Monheit and Robert L Scott as of August 24 2022 with Susan J Cupero as of August 25 2022 with Denis G Suggs and Mark P Smith and as of July 17 2023 with Michelle J Lohmeier 22
We have audited the accompanying consolidated balance sheet of Smith Wesson Brands Inc and subsidiaries the Company as of April 30 2025 the related consolidated statements of income changes in stockholders equity and cash flows for the year then ended and the related notes collectively the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company as of April 30 2025 and the results of its operations and its cash flows for the year then ended in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of April 30 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 20 2025 expressed an adverse opinion on the effectiveness of the Company s internal control over financial reporting
These consolidated financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on these consolidated financial statements based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the consolidated financial statements Our audit also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the consolidated financial statements We believe that our audit provides a reasonable basis for our opinion
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the consolidated financial statements and 2 involved our especially challenging subjective or complex judgments We determined that there are no critical audit matters
We have audited Smith Wesson Brands Inc and subsidiaries the Company internal control over financial reporting as of April 30 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission In our opinion because of the effect of the material weakness described below on the achievement of the objectives of the control criteria the Company has not maintained effective internal control over financial reporting as of April 30 2025 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the consolidated balance sheet of the Company as of April 30 2025 the related consolidated statements of income changes in stockholders equity and cash flows for the year then ended and the related notes collectively the consolidated financial statements and our report dated June 20 2025 expressed an unqualified opinion on those consolidated financial statements
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company s annual or interim financial statements will not be prevented or detected on a timely basis A material weakness related to the ineffective operation of a control over the accrual for certain legal expenses has been identified and included in management s assessment The material weakness was considered in determining the nature timing and extent of audit tests applied in our audit of the 2025 consolidated financial statements and this report does not affect our report on those consolidated financial statements
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Annual Report on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects Our audit 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 audit also included performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
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
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
We have audited the accompanying consolidated balance sheet of Smith Wesson Brands Inc and subsidiaries the Company as of April 30 2024 the related consolidated statements of income changes in stockholders equity and cash flows for each of the two years in the period ended April 30 2024 and the related notes collectively referred to as the financial statements
In our opinion the financial statements present fairly in all material respects the financial position of the Company as of April 30 2024 and the results of its operations and its cash flows for each of the two years in the period ended April 30 2024 in conformity with accounting principles generally accepted in the United States of America
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
We are one of the world s leading manufacturers and designers of firearms We manufacture a wide array of handguns including revolvers and pistols long guns including modern sporting rifles pistol caliber carbines and lever action rifles handcuffs firearm suppressors and other firearm related products for sale to a wide variety of customers including firearm enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home and personal protection law enforcement and security agencies and officers and military agencies in the United States and throughout the world We sell our products under the Smith Wesson and Gemtech brands We manufacture our products at our facilities in Maryville Tennessee Springfield Massachusetts and Houlton Maine We also sell our manufacturing services to other businesses to attempt to level load our factories We sell those services under our Smith Wesson and Smith Wesson Precision Components brands On September 30 2021 we announced our plan to move our headquarters and significant elements of our operations to Maryville Tennessee in 2023 or the Relocation During fiscal 2024 we began manufacturing and distribution activities from the new Maryville Tennessee facility During fiscal 2025 we ceased operations at our Deep River facility and vacated the premises See Note 14 Commitments and Contingencies and Note 15 Restructuring for more information
Immaterial Correction of an Error During the fourth quarter of fiscal 2025 we identified an immaterial error related to our accrual for certain legal expenses resulting in an overstatement of general and administrative expenses in the interim and annual periods for the year ended April 30 2024 and during the interim periods for the year ended April 30 2025 In accordance with Staff Accounting Bulletin SAB No 99 Materiality and SAB No 108 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements we evaluated the quantitative and qualitative considerations of the error and determined that the related impact was not material to results of operations financial position or cash flows for any historical annual or interim period Prior year amounts have been adjusted to correct the immaterial error which overstated accrued expenses and deferred revenue and general and administrative expenses by 2 3 million and understated income tax expense by 569 000 and overstated the related amounts of income tax receivable by 548 000 and deferred income taxes by 21 000 as of April 30 2024 and for the year then ended Related changes to net income corresponding line items within cash provided by operating activities and related disclosures within the notes accompanying these financial statements reflect the immaterial correction
Use of Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the financial statement dates and the reported amounts of revenue and expenses during the reporting periods Our significant estimates include the accrual for warranty reserves for excess and obsolete inventory rebates and other promotions valuation of intangible assets and costs associated with the Relocation Actual results could differ from those estimates
Principles of Consolidation The accompanying consolidated financial statements include the accounts of Smith Wesson Brands Inc and its wholly owned subsidiaries including Smith Wesson Inc Smith Wesson Sales Company and SWPC Plastics LLC In our opinion all adjustments which include only normal recurring adjustments necessary to fairly present the financial position results of operations changes in stockholders equity and cash flows at April 30 2025 and 2024 and for the periods presented have been included All intercompany accounts and transactions have been eliminated in consolidation
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 2025 all of our accounts exceeded federally insured limits
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 credit losses We estimate our allowance for credit losses 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 fiscal 2025 sales to one of our customers represented 14 6 of our total net sales and as of April 30 2025 this customer accounted for 36 1 of our total accounts receivable No other customer represented more than 10 of our fiscal 2025 net sales or accounted for more than 10 of our accounts receivable as of April 30 2025 For fiscal 2024 sales to three of our customers exceeded 10 of our net sales totaling 34 8 As of April 30 2024 two of our customers each accounted for more than 10 of our accounts receivable for a total of 47 9
Property Plant and Equipment We record property plant and equipment consisting of land building improvements machinery equipment software hardware furniture and fixtures at cost and depreciate them using the straight line method over their estimated useful lives We charge expenditures for maintenance and repairs to earnings as incurred and we capitalize additions renewals and betterments Upon the retirement or other disposition of property and equipment we remove the related cost and accumulated depreciation from the respective accounts and include any gain or loss in operations We lease certain of our real estate machinery and photocopiers under non cancelable operating and finance lease agreements and we recognize expenses under our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease term The depreciable life of assets and leasehold improvements are based on the expected life of the lease A summary of the estimated useful lives is as follows
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
In some instances sales include multiple performance obligations The most common of these instances relates to sales promotion programs under which customers are entitled to receive free goods based upon their purchase of our products which we have identified as a material right The fulfillment of these free goods is our responsibility In such instances we allocate the revenue of the promotional sales based on the estimated level of participation in the sales promotional program and the timing of the shipment of all of the products included in the promotional program including the free goods We recognize revenue related to the material right proportionally as each performance obligation is satisfied The net change in contract liabilities for a given period is reported as an increase or decrease to sales
We generally sell our products free on board or FOB shipping point and provide payment terms to most commercial customers ranging from 20 to 60 days of product shipment with a discount available to some customers for early payment Generally framework contracts define the general terms of sales including payment terms freight terms insurance requirements and cancelation provisions Purchase orders define the terms for specific sales including description quantity and price of each product purchased We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled As a result of utilizing practical expedients in accordance with ASC 606 we do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year In all cases we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer
Research and Development We engage in both internal and external research and development or R D in order to remain competitive and to exploit possible untapped market opportunities We approve prospective R D projects after analysis of the cost and benefits associated with the potential product Costs in R D expense include among other items salaries materials utilities and administrative costs
Earnings per Share We calculate basic and diluted earnings per common share in accordance with the provisions of ASC 260 10 Earnings Per Share Basic earnings per common share equals net income divided by the weighted average number of common shares outstanding during the period Diluted earnings per common share equals net income divided by the weighted average number of common shares outstanding during the period including the effect of outstanding stock options and other stock based instruments if their effect is dilutive
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
We have significant long lived tangible and intangible assets which are susceptible to valuation adjustments as a result of changes in various factors or conditions The most significant long lived tangible and intangible assets other than goodwill are property plant and equipment right of use assets developed technology customer relationships patents trademarks and trade names We amortize all finite lived intangible assets either on a straight line basis or based upon patterns in which we expect to utilize the economic benefits of such assets We initially determine the values of intangible assets by a risk adjusted discounted cash flow approach We assess the potential impairment of identifiable intangible assets and fixed assets whenever events or changes in circumstances indicate that the carrying values may not be recoverable and at least annually Factors we consider important which could trigger an impairment of such assets include the following
In accordance with ASC 350 Intangibles Goodwill and Other we evaluate goodwill for potential impairment on an annual basis as of February 1 and whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value Under the guidance we may assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount If this assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount a quantitative test for goodwill impairment would be performed If the fair value of our single reporting unit exceeds the carrying value of our net assets including goodwill goodwill is not impaired If the carrying value of our net assets including goodwill exceeds the fair value of the reporting unit then we would determine the implied fair value of the reporting unit s goodwill If the carrying value of our goodwill exceeds its implied fair value then we would record an impairment loss equal to the difference We did not record any goodwill impairments during the fiscal years ended April 30 2025 or 2024
Income Taxes We use the asset and liability approach for financial accounting and reporting income taxes The provision for income taxes is based upon income reported in the accompanying consolidated financial statements as required by ASC 740 Income Taxes We determine our deferred tax assets and liabilities based on temporary differences between financial reporting and tax bases in assets and liabilities which are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse We recognize the effect on deferred taxes of a change in tax rates in the period that includes the enactment date In assessing the realization of our deferred tax assets we consider whether it is more likely than not that the deferred tax assets will be realized The ultimate realization of our deferred tax assets depends upon generating future taxable income during the periods in which our temporary differences become deductible and before our net operating loss carryforwards expire We evaluate the recoverability of our deferred tax assets by assessing the need for a valuation allowance on a quarterly basis If we determine that it is more likely than not that our deferred tax assets will not be recovered we establish a valuation allowance against some or all of our deferred tax assets Recording or reversing a valuation allowance could have a significant effect on our future results of operations and financial position
Warranty We generally provide a limited one year warranty and a lifetime service policy to the original purchaser of our new firearm products We will also repair or replace certain products or parts found to be defective under normal use and service with an item of equivalent value at our option without charge during the warranty period In addition we sometimes experience certain manufacturing and design issues with respect to our firearms and initiate product recalls and safety alerts
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 Warranty expense for the fiscal years ended April 30 2025 2024 and 2023 amounted to 2 4 million 2 6 million and 1 5 million respectively
Advertising Costs We expense advertising costs primarily consisting of magazine advertisements printed materials television advertisements digital advertisements radio advertisements and billboards either as incurred or upon the first occurrence of the advertising Advertising expense included in selling marketing and distribution expenses for the fiscal years ended April 30 2025 2024 and 2023 amounted to 15 2 million 14 7 million and 14 7 million respectively
Shipping and Handling In the accompanying consolidated financial statements we included amounts billed to customers for shipping and handling in net sales Inbound freight charges and internal transfer costs are included in cost of goods sold however costs incurred to distribute products to customers is included in selling marketing and distribution expenses
Insurance Reserves In January 2020 we formed a wholly owned captive insurance company which provides product liability insurance to us and our subsidiaries We are self insured through retentions or deductibles for the majority of our workers compensation automobile general liability product liability and group health insurance programs Self insurance amounts vary up to 10 0 million per occurrence however we believe the likelihood of reaching the maximum per occurrence limit is remote We record our liability for estimated premiums and incurred losses in the accompanying consolidated financial statements on an undiscounted basis
Recently Issued Accounting Standards The Financial Accounting Standards Board or FASB issued ASU 2023 07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures which is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses The disclosure requirements included in ASU 2023 07 are required for all public entities including entities with a single reportable segment ASU 2023 07 is effective for fiscal years beginning after December 15 2023 and interim periods within fiscal years beginning after December 15 2024 and early adoption is permitted The guidance is required to be applied on a retrospective basis We adopted ASU 2023 07 in the fourth quarter of fiscal 2025 The adoption of this guidance resulted in additional financial statement disclosures and had no impact to our consolidated financial condition results of operations or cash flows See Note 16 Segment Reporting which includes the disclosures resulting from our adoption of this guidance
income taxes and provide more details about the reconciling items in some categories if items meet a quantitative threshold Entities will have to provide qualitative disclosures about the new categories The guidance will require all entities to disclose income taxes paid net of refunds disaggregated by federal national state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold The guidance makes several other changes to the disclosure requirements Entities are required to apply the guidance prospectively with the option to apply it retrospectively The guidance is effective for annual periods beginning after December 15 2024 or the fiscal year ending April 30 2026 for us We are currently evaluating the impact if any that the adoption of this standard will have on financial disclosures
In November 2024 the FASB issued ASU 2024 03 Disaggregation of Income Statement Expenses which requires entities to disclose in the notes to financial statements specified information about certain costs and expenses included in each relevant expense caption presented on the face of the income statement Entities will also be required to disclose qualitative descriptions of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively Entities will need to disclose the total amount of selling expenses and in annual reporting periods an entity s definition of selling expenses Entities are required to apply the guidance prospectively with the option to apply it retrospectively The guidance is effective for annual periods beginning after December 15 2026 or
We recognize expenses for our operating lease assets and liabilities at the commencement date based on the present value of lease payments over the lease term Our leases do not provide an implicit interest rate We use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments Our lease agreements do not require material variable lease payments or residual value guarantees nor do they include restrictive covenants For operating leases we recognize expense on a straight line basis over the lease term Tenant improvement allowances are recorded as an offsetting adjustment included in our calculation of the respective right of use asset
Many of our leases include renewal options that enable us to extend the lease term The execution of those renewal options is at our sole discretion and renewals are reflected in the lease term when they are reasonably certain to be exercised The depreciable life of assets and leasehold improvements are limited by the expected lease term
During fiscal 2025 we recorded 1 0 million of operating lease costs We recorded 2 3 million of finance lease amortization and 1 8 million of financing lease interest expense during fiscal 2025 As of April 30 2025 our weighted average lease term and weighted average discount rate for our operating leases was 2 4 years and 4 4 respectively As of April 30 2025 our weighted average lease term and weighted average discount rate for our financing leases were 13 4 years and 5 0 respectively and consisted primarily of our former Missouri distribution center The building is pledged to secure the amounts outstanding The depreciable lives of right of use assets are limited by the lease term and are amortized on a straight line basis over the life of the lease
On October 26 2017 we entered into a lease agreement with Ryan Boone County LLC or the Original Missouri Landlord concerning certain real property located in Boone County Missouri on which we had been operating our distribution center or the Missouri Lease as well as a related payment and performance guaranty dated
October 26 2017 in favor of the Original Missouri Landlord As part of the Relocation on January 31 2023 we entered into i an assignment and assumption agreement with American Outdoor Brands Inc our former wholly owned subsidiary or AOUT which became effective on January 1 2024 pursuant to which AOUT assumed all of our rights entitlement and obligations in to and under the Missouri Lease or the Assignment and Assumption Agreement and ii an amended and restated guaranty in favor of RCS S W Facility LLC as successor in interest to the Original Missouri Landlord pursuant to which Smith Wesson Sales Company was added as a guarantor or the Amended and Restated Guaranty Because of the Amended and Restated Guaranty we continue to account for this lease as we have since prior to the Relocation During fiscal 2025 AOUT made payments pursuant to this lease directly to the landlord and we neither received nor paid any cash payments related to this arrangement For the fiscal year ended April 30 2025 noncash sublease income was 1 7 million and was recorded in general and administrative expense in our consolidated statements of income During the fiscal year ended April 30 2025 we recognized 2 1 million of depreciation expense associated with the related right of use asset In addition on January 5 2024 we entered into an amendment to extend the lease term on our Deep River facility through January 4 2025 at which time we ceased the related operations and vacated the premises
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 provided for a revolving line of credit of 100 0 million at any one time On April 28 2023 we entered into an amendment to the Amended and Restated Credit Agreement to among other things replace LIBOR with SOFR as the interest rate benchmark and amend the definition of Consolidated Fixed Charge Coverage Ratio to exclude unfinanced capital expenditures in connection with our plan to move our headquarters and significant elements of our operations to Maryville Tennessee in 2023 or the Relocation The revolving line bore interest at either the Base Rate as defined in the Amended and Restated Credit Agreement or the Adjusted Term SOFR rate plus an applicable margin based on our consolidated leverage ratio
On October 3 2024 we and certain of our subsidiaries entered into an amended and restated credit agreement or the Second 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 Second Amended and Restated Credit Agreement amended and restated the Amended and Restated Credit Agreement The Second Amended and Restated Credit Agreement is currently unsecured however should any Springing Lien Trigger Event as defined in the Second Amended and Restated Credit Agreement occur we and certain of our subsidiaries would be required to execute certain documents in favor of TD Bank N A as administrative agent and the lenders party to such documents would have a legal valid and enforceable first priority lien on the collateral described therein
The Second Amended and Restated Credit Agreement provides for a revolving line of credit of 175 0 million at any one time or the Revolving Line The Revolving Line bears interest at either the Base Rate as defined in the Second Amended and Restated Credit Agreement or the Adjusted Term SOFR rate plus an applicable margin based on our consolidated leverage ratio The Second 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 Second Amended and Restated Credit Agreement bears interest at the Base Rate plus an applicable margin based on our Adjusted Consolidated Leverage Ratio as defined in the Second Amended and Restated Credit Agreement Subject to the satisfaction of certain terms and conditions described in the Second 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 October 3 2029 or the date that is six months in advance of the earliest maturity of any Permitted Notes as defined in the Second Amended and Restated Credit Agreement under the Second Amended and Restated Credit Agreement
The Second Amended and Restated Credit Agreement contains customary limitations including limitations on indebtedness liens fundamental changes to business or organizational structure investments loans advances guarantees and acquisitions asset sales dividends stock repurchases stock redemptions and the redemption or prepayment of other debt and transactions with affiliates We are also subject to financial covenants including a minimum consolidated fixed charge coverage ratio and a maximum consolidated leverage ratio As of April 30 2025 we were compliant with all required financial covenants
We sell our products and services under our Smith Wesson and Gemtech brands Depending upon the product or service our customers primarily include distributors federal state and municipal law enforcement agencies and officers government and military agencies businesses retailers and retail consumers for non serialized firearms related products
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
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 25 2 million and 60 8 million as of April 30 2025 and 2024 respectively The carrying value of our revolving line of credit approximated the fair value as of April 30 2025 We utilized Level 1 of the value hierarchy to determine the fair values of these assets
Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement These inputs reflect our assumptions about the assumptions a market participant would use in pricing the asset or liability
As of April 30 2025 and 2024 we had reserves for workers compensation product liability and medical dental costs totaling 8 7 million of which 3 6 million and 3 3 million respectively was classified as other non current liabilities As of April 30 2025 and 2024 5 1 million and 5 4 million respectively were included in current liabilities on the accompanying consolidated balance sheets In addition as of April 30 2025 and 2024 1 1 million and 984 000 respectively of workers compensation receivable was classified as other assets While we believe these reserves to be adequate it is possible that the ultimate liabilities will exceed such estimates
It is our policy to provide an estimate for loss as a result of expected adverse findings or legal settlements on product liability workers compensation and other matters when such losses are probable and are reasonably estimable It is also our policy to accrue for reasonably estimable legal costs associated with defending such litigation While such estimates involve a range of possible costs we determine in consultation with counsel the most likely cost within such range on a case by case basis We also record receivables from insurance carriers relating to these matters when their collection is probable and reasonably estimable As of April 30 2025 and 2024 we had accrued reserves for product litigation liabilities of 3 1 million of which 566 000 and 497 000 respectively was non current consisting entirely of expected legal defense costs As of April 30 2025 and 2024 we had no receivables from insurance carriers related to these liabilities
On September 19 2023 our Board of Directors authorized the repurchase of 50 0 million of our common stock subject to certain conditions in the open market or in privately negotiated transactions through September 19 2024 or the 2023 Authorization During fiscal 2024 we purchased 793 551 shares of our common stock for 10 2 million under the 2023 Authorization During fiscal 2025 we purchased 1 531 763 shares of our common stock for 21 4 million under the 2023 Authorization The 2023 Authorization expired on September 19 2024 On September 5 2024 our Board of Directors authorized the repurchase of up to 50 0 million of our common stock subject to certain conditions in the open market or in privately negotiated transactions from September 20 2024 through September 20 2025 or the 2024 Authorization As of April 30 2025 we had repurchased 312 310 shares of our common stock for 4 1 million under the 2024 Authorization We did not purchase any shares of our common stock during fiscal 2023
We have two stock incentive plans the 2013 Incentive Stock Plan and the 2022 Incentive Stock Plan or together the Incentive Stock Plans under which employees and non employees may be granted stock options restricted stock awards restricted stock units or RSUs stock appreciation rights bonus stock and awards in lieu of obligations performance awards and dividend equivalents No grants have been made under the 2013 Incentive Stock Plan since our stockholders approved the 2022 Incentive Stock Plan at our annual meeting of stockholders held in September 2022 All new grants are issued under the 2022 Incentive Stock Plan
The 2022 Incentive Stock Plan authorizes the issuance of 1 000 000 shares plus 4 312 247 shares that were reserved and remained available for grant and delivery under the 2013 Incentive Stock Plan as of September 12 2022 the effective date of the 2022 Incentive Stock Plan The 2022 Incentive Stock Plan permits the grant of options to acquire common stock restricted stock awards RSUs stock appreciation rights bonus stock and awards in lieu of obligations performance awards and dividend equivalents Our Board of Directors or a committee of our Board of Directors administers the stock plans selects recipients to whom awards are granted and determines the grants to be awarded Options granted under the stock plans are exercisable at a price determined by our Board of Directors or a committee of our Board of Directors at the time of grant but in no event less than fair market value of our common stock on the effective date of the grant Grants of options may be made to employees and directors without regard to any performance measures All options issued pursuant to the stock plans are generally nontransferable and subject to forfeiture
Unless terminated earlier by our Board of Directors the 2022 Incentive Stock Plan will terminate at the earliest of 1 the tenth anniversary of the effective date of the 2022 Incentive Stock Plan or 2 such time as no shares of common stock remain available for issuance under the plan and we have no further rights or obligations with respect to outstanding awards under the plan The date of grant of an award is deemed to be the effective date upon which our Board of Directors or a committee authorizes the granting of such award
Except in specific circumstances grants of stock options vest over a period of four years and are exercisable for a period of 10 years after vesting The 2022 Incentive Stock Plan also permits the grant of stock options to non employees which our Board of Directors or a committee has authorized in the past There were no outstanding and exercisable stock options in fiscal 2025 2024 and 2023
As of April 30 2025 there were 4 997 827 shares available for grant under the 2022 Incentive Stock Plan We use our unissued share pool for all shares issued for options restricted stock awards RSUs performance share units performance based restricted stock units or PSUs and shares issued under our Employee Stock Purchase Plan or ESPP
We grant service based RSUs to employees consultants and directors The awards are made at no cost to the recipient An RSU represents the right to acquire one share of our common stock and does not carry voting or dividend rights Except in specific circumstances RSU grants to employees and consultants generally vest over a period of three or four years with one third or one fourth of the units vesting respectively on each anniversary date of the grant date RSU grants to directors generally vest over a period of one year with one twelfth of the units vesting each month The aggregate fair value of our RSU grants is amortized to compensation expense over the applicable vesting period
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 The relative performance of our common stock must equal or exceed the relative performance of the RUT for any of the PSUs subject to the awards to be earned and vest The relative performance of our common stock must outperform the RUT by 5 in order for the target award to vest The relative performance of our common stock must outperform the RUT by at least 10 in order for 200 of the PSUs subject to the awards the maximum number of PSUs being earned and vesting 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
During fiscal 2025 we canceled 63 469 market condition PSUs as a result of the failure to satisfy the performance metric and 38 521 as a result of the service period condition not being met We canceled 36 068 service based RSUs as a result of the service period condition not being met We delivered 218 831 shares of common stock to current employees and directors under vested RSUs with a total market value of 4 5 million
During fiscal 2024 we canceled 158 100 market condition PSUs as a result of the failure to satisfy the performance metric We canceled 24 385 service based RSUs as a result of the service period condition not being met We delivered 228 087 shares of common stock to current employees and directors under vested RSUs with a total market value of 2 7 million In addition in connection with a 2019 grant which vested in fiscal 2023 we delivered 55 726 market condition PSUs to certain of our executive officers and a former executive officer with a total market value of 664 000
During fiscal 2023 we canceled 35 179 service based RSUs as a result of the service period condition not being met We delivered 202 859 shares of common stock to current employees under vested RSUs with a total market value of 2 7 million In addition in connection with a 2018 grant which vested in fiscal 2022 we delivered 83 586 market condition PSUs to certain of our executive officers and a former executive officer with a total market value of 1 2 million In addition in connection with a 2019 grant 57 600 PSUs vested to certain of our executive officers and a former executive officer which resulted from achieving the maximum performance of 200 0 of target for the original 28 800 PSUs granted Relating to this same grant 1 874 shares were released to cover tax obligations on the vesting
On September 27 2021 our stockholders approved our 2021 ESPP which authorizes the sale of up to 3 000 000 shares of our common stock to employees All options and rights to participate in our ESPP are nontransferable and subject to forfeiture in accordance with our ESPP guidelines Our current ESPP will be implemented in a series of successive offering periods each with a maximum duration of 12 months If the fair market value or FMV per share of our common stock on any purchase date is less than the FMV per share on the start date of a 12 month offering period then that offering period will automatically terminate and a new 12 month offering period will begin on the next business day Each offering period will begin on April 1 or October 1 as applicable immediately following the end of the previous offering period Payroll deductions will be on an after tax basis in an amount of not less than 1 and not more than 20 or such greater percentage as the committee appointed to administer our ESPP may establish from time to time before the first day of an offering period of a participant s compensation on each payroll date The option exercise price per share will equal 85 of the lower of the FMV on the first day of the offering period or the FMV on the exercise date The maximum number of shares that a participant may purchase during any purchase period is 12 500 shares or a total of 25 000 in shares based on the FMV on the first day of the offering period Our ESPP will remain in effect until the earliest of a the exercise date that participants become entitled to purchase a number of shares greater than the number of reserved shares available for purchase under our ESPP b such date as is determined by our Board of Directors in its discretion or c March 31 2032 In the event of certain corporate transactions each option outstanding under our ESPP will be assumed or an equivalent option will be substituted by the successor corporation or a parent or subsidiary of such successor corporation During fiscal 2025 and 2024 175 134 and 151 225 shares were purchased under the 2021 ESPP respectively
We measure the cost of employee services received in exchange for an award of an equity instrument based on the grant date fair value of the award We calculate the fair value of our stock options issued to employees using the Black Scholes model at the time the options were granted That amount is then amortized over the vesting period of the option With our ESPP fair value is determined at the beginning of the purchase period and amortized over the term of each exercise period
We estimate expected volatility using historical volatility for the expected term The fair value of each stock option or ESPP purchase was estimated on the date of the grant using the Black Scholes option pricing model using the risk free interest rate expected term expected volatility and dividend yield variables as noted in the above table The total stock based compensation expense including stock options purchases under our ESPP and RSU and PSU awards was 7 6 million 5 7 million and 5 1 million for fiscal years 2025 2024 and 2023 respectively
Contributory Defined Investment Plan We offer two contributory defined investment plans covering substantially all employees subject to service requirements Employees may contribute up to 100 of their annual pay depending on the plan We generally make discretionary matching contributions of up to 50 of the first 6 of employee contributions to the plan We contributed 2 4 million 2 7 million and 2 6 million for the fiscal years ended April 30 2025 2024 and 2023 respectively
Nonelective Contribution Sharing Plan We have a non contributory profit sharing plan covering substantially all of our employees Employees become eligible on May 1 following the completion of a full fiscal year of continuous service Our contributions to the plan are discretionary For fiscal 2025 we plan to contribute approximately 3 8 million which has been recorded in general and administrative costs We contributed 9 1 million and 8 2 million for the fiscal years ended April 30 2024 and 2023 respectively Contributions are funded after the fiscal year end
We had 77 3 million and 27 1 million in state net operating loss carryforwards as of April 30 2025 and 2024 respectively The state net operating loss carryforwards will expire between April 30 2026 and April 30 2040 We had 5 3 million and 3 3 million of state tax credit carryforwards as of April 30 2025 and 2024 respectively Of the 5 3 million 2 4 million can be carried forward indefinitely and 2 9 million will expire between April 30 2026 and April 30 2050
As of April 30 2025 and 2024 valuation allowances related to our deferred tax assets for state net operating loss carryforwards were 4 0 million and 1 4 million respectively and 2 2 million and 1 9 million were provided on our deferred tax assets for state tax credits respectively that we do not anticipate using prior to expiration
As of April 30 2025 and 2024 we have not recorded any unrecognized tax benefits We maintain an accounting policy of recording interest and penalties if applicable related to uncertain tax positions as a component of income taxes As of April 30 2025 and 2024 there were no interest and penalties accrued
In January 2018 Gemini Technologies Incorporated or Gemini commenced an action against us in the U S District Court for the District of Idaho or the District Court The complaint alleges among other things that we breached the earn out and other provisions of the asset purchase agreement and ancillary agreements between the parties in connection with our acquisition of the Gemtech business from Gemini The complaint seeks a declaratory judgment interpreting various terms of the asset purchase agreement and damages in the sum of 18 6 million In November 2019 we filed an answer to Gemini s complaint and a counterclaim against Gemini and its stockholders at the time the asset purchase agreement was signed Plaintiffs amended their complaint to add a claim of fraud in the inducement In September 2021 Gemini filed a motion for summary judgment seeking to dismiss our counterclaim In June 2022 the District Court denied Gemini s motion for summary judgment Gemini filed a second motion for summary judgment and in August 2023 the District Court again denied Gemini s motion In November 2023 we entered into a settlement agreement with plaintiffs on the indemnity and counterclaims On the same day plaintiffs filed a motion for leave seeking to file a second amended complaint In January 2024 the District Court allowed plaintiffs amended allegations of fraud and denied without prejudice their motion to add punitive damages In February 2024 the District Court set a trial date of January 6 2025 which was later postponed In April 2025 the District Court issued an amended scheduling order The expert discovery cutoff and dispositive motion deadline are August 15 2025 The court also scheduled a status conference in June 2025 We believe the claims asserted in the complaint have no merit and we intend to aggressively defend this action
We are a defendant in one product liability case and are aware of six other product liability claims primarily alleging defective product design defective manufacturing or failure to provide adequate warnings In addition we are a co defendant in a case filed in August 1999 by the city of Gary Indiana or the City against numerous firearm manufacturers distributors and dealers seeking to recover monetary damages as well as injunctive relief allegedly arising out of the misuse of firearms by third parties In January 2018 the Lake Superior Court County of Lake Indiana granted defendants Motion for Judgment on the Pleadings dismissing the case in its entirety In February 2018 plaintiffs appealed the dismissal to the Indiana Court of Appeals In May 2019 the Indiana Court of Appeals issued a decision which affirmed in part and reversed in part and remanded for further proceedings the trial court s dismissal of the City s complaint In July 2019 defendants filed a Petition to Transfer jurisdiction to the Indiana Supreme Court In November 2019 the Indiana Supreme Court denied defendants petition to transfer and the case was returned to the trial court In March 2024 a bill was signed into law that purports to prohibit political subdivisions in Indiana from bringing certain legal actions against certain firearm industry members and to apply to actions or suits filed before after or on August 27 1999 Defendants subsequently filed a joint motion for judgment on the pleadings based on the new law In August 2024 the trial court denied defendants joint motion for judgment on the pleadings and in October 2024 stayed its proceedings pending an interlocutory appeal with the Indiana Court of Appeals In November 2024 the Indiana Court of Appeals granted defendants motion to accept jurisdiction of the interlocutory appeal In December 2024 the state of Indiana filed a notice of intervention in the appeal which was accepted in January 2025 In February 2025 defendants and the state of Indiana filed opening briefs with the Indiana Court of Appeals In March 2025 the court granted the City s request to file its opposition brief in May 2025 We believe the claims asserted in the complaint have no merit and we intend to aggressively defend this action
We are a defendant in a putative class proceeding before the Ontario Superior Court of Justice in Toronto Canada that was filed in December 2019 The action claims CAD 50 million in aggregate general damages CAD 100 million in aggregate punitive damages special damages in an unspecified amount together with interest and legal costs The named plaintiffs are two victims of a shooting that took place in Toronto in July 2018 and their family members One victim was shot and injured during the shooting The other victim suffered unspecified injuries while fleeing the shooting The plaintiffs sought to certify a claim on behalf of classes that include all persons who were killed or injured in the shooting and their immediate family members The plaintiffs allege negligent design and public nuisance The case has not been certified as a class action In July 2020 we filed a Notice of Motion for an order striking the claim and dismissing the action in its entirety In February 2021 the court granted our motion in part and dismissed the plaintiffs claims in public nuisance and strict liability The court declined to strike the negligent design claim and ordered that the claim proceed to a certification motion In March 2021 we filed a motion for leave to appeal the court s refusal to strike the negligent design claim with the Divisional Court Ontario Superior Court of Justice In July 2021 plaintiffs filed a motion to stay our motion for leave to appeal with the Divisional Court on
grounds that appeal is premature In November 2021 the Divisional Court granted plaintiffs motion staying our motion for leave to appeal until 30 days after the decision on the balance of plaintiffs certification motion A hearing on plaintiffs certification motion was held in January 2024 In March 2024 the court denied the plaintiffs motion for class certification Three appeals have been filed 1 our appeal from the dismissal of our motion to strike the negligent design claim 2 the plaintiffs appeal from the order striking out their public nuisance and strict liability claims and 3 the plaintiffs appeal from the order dismissing their certification motion In August 2024 the parties filed their motions regarding the appeals In October 2024 the parties filed their response briefs and in December 2024 the Court of Appeals for Ontario heard the appeals together
In May 2020 we were named in an action related to the Chabad of Poway synagogue shooting that took place in April 2019 The complaint was filed in the Superior Court of the State of California for the County of San Diego Central and asserts claims against us for product liability unfair competition negligence and public nuisance The plaintiffs allege they were present at the synagogue on the day of the incident and suffered physical and or emotional injury The plaintiffs seek compensatory and punitive damages attorneys fees and injunctive relief In September 2020 we filed a demurrer and motion to strike seeking to dismiss plaintiffs complaint In July 2021 the court granted our motion in part and reversed it in part ruling that 1 the Protection of Lawful Commerce in Arms Act barred plaintiffs product liability action 2 plaintiffs did not have standing to maintain an action under the Unfair Competition Law for personal injury related damages but gave plaintiffs leave to amend to plead an economic injury and 3 the Protection of Lawful Commerce in Arms Act did not bar plaintiffs ordinary negligence and public nuisance actions because plaintiffs had alleged that we violated 18 U S C Section 922 b 4 which generally prohibits the sale of fully automatic machineguns In August 2021 we filed a Petition for Writ of Mandate in the Court of Appeal of the State of California Fourth Appellate District Division One In September 2021 the Court of Appeal denied our appeal In February 2022 the court consolidated the case with three related cases in which we are not a party In March 2022 the court granted our motion dismissing plaintiffs Unfair Competition Law claim without further leave to amend In February 2023 we filed a motion for summary judgment In May 2023 the court denied our motion for summary judgment without prejudice and allowed plaintiffs time for additional discovery A hearing on our renewed motion for summary judgment was held in October 2024 In December 2024 the court granted our renewed motion for summary judgment and we later filed a proposed notice of final judgment with the court requesting the court to enter a final judgment in our favor and to dismiss all claims against us In February 2025 the court entered the final judgment On April 7 2025 we filed a memorandum of costs requesting the court award us taxable costs On April 8 2025 plaintiffs filed a notice of appeal with the California Court of Appeal On April 22 2025 plaintiffs filed a motion to tax costs with the court On April 18 2025 plaintiffs filed a notice designating record on appeal requesting the court to prepare the record for the California Court of Appeal On April 29 2025 we filed a notice designating record on appeal with the court
We are a defendant in an action filed in the U S District Court for the District of Massachusetts In August 2021 the Mexican Government filed an action against several U S based firearms manufacturers and a firearms distributor claiming defendants design market distribute and sell firearms in ways they know routinely arm the drug cartels in Mexico Plaintiff alleges among other claims negligence public nuisance design defect unjust enrichment and restitution against all defendants and violation of the Massachusetts Consumer Protection Act against us alone and is seeking monetary damages and injunctive relief In November 2021 defendants filed motions to dismiss plaintiff s complaint In September 2022 the district court granted defendants motions to dismiss In October 2022 plaintiff filed a notice of appeal with the U S Court of Appeals for the First Circuit In January 2024 the First Circuit reversed the trial court s dismissal of the case In April 2024 defendants filed a Petition for a Writ of Certiorari with the U S Supreme Court In August 2024 the district court dismissed the case against six of the eight defendants in the lawsuit excluding us based on personal jurisdiction grounds In October 2024 the U S Supreme Court granted defendants Petition for Writ of Certiorari and the district court issued an order staying the case in its entirety pending the U S Supreme Court s review of the case On June 5 2025 the Supreme Court ruled in our favor holding that because Mexico s complaint does not plausibly allege that the defendant firearm manufacturers aided and abetted firearm dealers unlawful sales of firearms to Mexican traffickers the PLCAA bars the suit
In September 2022 we were named as defendants in 12 nearly identical separate actions related to a shooting in Highland Park Illinois on July 4 2022 The complaints were filed in the Circuit Court of the Nineteenth Judicial Circuit in Lake County Illinois and assert claims against us for negligence and deceptive and unfair practices under the Illinois Consumer Fraud and Deceptive Business Practices Act The plaintiffs allege they were present at a parade at the time of the incident and suffered physical and or emotional injury The plaintiffs seek compensatory damages attorneys fees and injunctive relief We filed motions for removal of each case to the U S District Court for the Northern District of Illinois In November 2022 we filed a motion to consolidate the cases for preliminary motion purposes In December 2022 plaintiffs filed motions to remand the cases back to the state court In September 2023 the court granted plaintiffs motion to remand In October 2023 we filed a notice of appeal to the U S Court of Appeals for the Seventh Circuit In March 2024 three new lawsuits were filed in the Circuit Court of Lake County Illinois In April 2024 the Seventh Circuit affirmed the remand decision In May 2024 plaintiffs filed a motion for attorneys fees incurred as a result of removal and we filed an opposition to plaintiffs motion In March 2025 the district court granted plaintiffs motion ordering us to pay certain of plaintiffs attorneys fees In June and July 2024 the district court remanded the 12 separate actions to state court with some plaintiffs amending their complaints to remove references to violations of federal law and asserting additional claims against us including claims alleging violation of the Illinois Uniform Deceptive Trade Practices Act negligent and intentional infliction of emotional distress and negligent entrustment We were also named in 13 additional separate cases against us in the same state court during the same time period largely raising similar allegations against us as in the initial and amended complaints In July 2024 the trial court consolidated all cases for purposes of motions to dismiss and discovery In September 2024 we filed our motions to dismiss plaintiffs 25 separate complaints On January 23 and 28 2025 the trial court heard oral argument on our motions to dismiss plaintiffs complaints On April 1 2025 the court granted our motion to dismiss without prejudice with respect to plaintiffs counts for violation of the Illinois Consumer Fraud and Deceptive Business Practices Act Deceptive and Unlawful Acts for lack of standing Consumer Fraud Act Deception Claims only and negligent entrustment and denied all remaining counts Later in April plaintiffs served their first set of written discovery and we filed a motion to certify issues for interlocutory appeal with the trial court On May 1 2025 the trial court ordered an expedited briefing schedule for the motion and stayed discovery On June 5 2025 the court certified several issues for interlocutory appeal lifted the discovery stay and set an initial trial date for March 8 2027 We also filed our answers to plaintiffs complaints
In December 2022 the City of Buffalo New York filed a complaint in the Supreme Court of the State of New York County of Erie against numerous manufacturers distributors and retailers of firearms Later in December 2022 the City of Rochester New York filed an almost identical complaint in the Supreme Court of the State of New York County of Monroe against the same defendants The complaints allege violation of the New York General Business Law public nuisance and deceptive business practices in violation of the New York General Business Law In January 2023 we filed notices of removal of the cases to the U S District Court for the Western District of New York In March 2023 defendants filed a motion to stay both cases pending a ruling by the U S Court of Appeals for the Second Circuit in the NSSF v James case In June 2023 the court granted defendants motions to consolidate and to stay pending resolution of the NSSF v James appeal
The relief sought in individual cases primarily includes compensatory and sometimes punitive damages Certain of the cases and claims seek unspecified compensatory or punitive damages In others compensatory damages sought may range from less than 75 000 to approximately 50 0 million In our experience initial demands do not generally bear a reasonable relationship to the facts and circumstances of a particular matter We believe that our accruals for product liability cases and claims are a reasonable quantitative measure of the cost to us of product liability cases and claims
We are also involved in a putative stockholder derivative lawsuit filed on February 4 2025 in the U S District Court for the District of Nevada The action was brought by plaintiffs seeking to act on our behalf against our directors and certain of our executive officers The complaint alleges breach of fiduciary duty for allegedly allowing us to become exposed to significant liability for intentionally violating federal state and local laws through our manufacturing marketing and sales of AR 15 style rifles and similar semiautomatic firearms and violations of Section 14 a of the Securities Exchange Act of 1934 The derivative plaintiffs seek among other things damages as well as reforms and improvements to our compliance procedures and governance policies In May 2025 we filed a motion to dismiss plaintiffs complaint
We were named in a putative class action lawsuit filed on April 4 2025 in the U S District for the Northern District of California The complaint alleges violation of the California Invasion of Privacy Act the California Privacy Act invasion of privacy intrusion upon seclusion fraud deceit misrepresentation breach of contract breach of implied contract and fair dealing trespass to chattels and unjust enrichment Plaintiffs allege that after they clicked on the reject all cookies button our website enabled third parties to place cookies and similar tracking technologies on their browsers and devices and or to transmit their user data to third parties for their financial gain and other purposes Plaintiffs seek compensatory damages including statutory damages punitive damages nominal damages restitution disgorgement of revenues and profits injunctive relief and attorneys fees and costs
We monitor the status of known claims and the related product liability accrual which includes amounts for defense costs for asserted and unasserted claims After consultation with litigation counsel and a review of the merit of each claim we have concluded that we are unable to reasonably estimate the probability or the estimated range of reasonably possible losses related to material adverse judgments related to such claims and therefore we have not accrued for any such judgments In the future should we determine that a loss or an additional loss in excess of our accrual is at least reasonably possible and material we would then disclose an estimate of the possible loss or range of loss if such estimate could be made or disclose that an estimate could not be made We believe that we have provided adequate accruals for defense costs
For the fiscal years ended April 30 2025 2024 and 2023 we paid 155 000 320 000 and 988 000 respectively in defense and administrative costs relative to product liability and municipal litigation In addition during fiscal 2025 2024 and 2023 we paid an aggregate of 30 000 1 6 million and 1 5 million respectively in settlements related to product liability cases As of April 30 2025 we had 20 000 accrued for settlements that were subsequently paid in the following fiscal year As of April 30 2024 we had no amounts accrued for settlements
In connection with the Relocation we entered into a project agreement or the Project Agreement with The Industrial Development Board of Blount County and the cities of Alcoa and Maryville Tennessee a public nonprofit corporation organized and existing under the laws of the state of Tennessee or the IDB Pursuant to the Project Agreement we represented to the IDB that we intend to incur or cause to be incurred no less than 120 0 million in aggregate capital expenditures on or before December 31 2025 create no less than 620 new jobs and sustain an average hourly wage of at least 25 97 at the facility Further pursuant to the Project Agreement we are required to among other things A execute a facility lease and an equipment lease with the IDB B cause the construction of the new facility at our sole cost and expense to commence on or before May 31 2022 C incur or cause to be incurred aggregate capital expenditures in connection with the construction and equipping of the new facility in an aggregate amount of not less than 120 0 million on or before December 31 2025 D cause the construction of the
new facility to be substantially completed and for a certificate of occupancy to be issued therefore on or before December 31 2023 E provide the IDB with a written report certified by one of our authorized officers not later than January 31 of each year during the period between January 31 2024 and January 31 2031 and F make certain payments to the IDB in the event that our actual capital expenditures number of employees or average hourly wage of such employees are less than our projections
On February 2 2023 we entered into a design build agreement with The Christman Company or Christman related to the construction of our Maryville facility or the Construction Contract The Construction Contract has an effective date of September 13 2021 and incorporates the arrangements under which we and Christman have been proceeding Pursuant to the Construction Contract Christman is obligated to deliver certain services including among others design phase services and construction phase services and we are obligated to pay Christman for services performed The parties to the Construction Contract agreed that Christman will perform and complete the Work as defined therein on a cost plus basis for a guaranteed minimum price of 114 0 million including contingencies When adding the cost of machinery and equipment we spent 158 0 million net of 10 million in grants received as of April 30 2025 on capital expenditures related to the Relocation The Construction Contract includes terms that are customary for contracts of this type including with respect to indemnification and insurance The Construction Contract lists certain contract milestones and guaranteed completion dates and we will be entitled to liquidated damages under certain circumstances Each party to the Construction Contract is entitled to terminate the Construction Contract under certain circumstances
During fiscal 2024 we determined that we would have no use for certain distribution equipment in the Missouri distribution center and could not fully recover the net book value of such equipment Therefore we recorded an impairment of 1 9 million in selling marketing and distribution on the consolidated statements of income during that period We vacated the Missouri distribution center effective January 1 2024 and sold assets we could no longer utilize to AOUT at their remaining net book value of 2 9 million relocating all remaining assets to our Maryville facility During fiscal 2025 we sold certain real estate located adjacent to the Missouri distribution center for 2 3 million net of transaction costs and recognized a 2 3 million pre tax gain on sale
During fiscal 2025 and 2024 we relocated a portion of our plastic injection molding operations to the Maryville facility As of April 30 2025 the plastic injection molding machinery and equipment previously utilized in our Deep River facility had been relocated to the Maryville facility or disposed of We recognized no material amounts of impairment related to the assets previously utilized at the Deep River facility
We are subject to numerous federal state and local laws and regulations that regulate the health and safety of our workforce including those regulations monitored by the Occupational Health and Safety Administration or OSHA the National Fire Protection Association and the Department of Public Health Though not exhaustive examples of applicable regulations include confined space safety walking and working surfaces machine guarding and life safety
We are also subject to numerous federal state and local environmental laws and regulations concerning among other things emissions in the air discharges to land surface subsurface strata and water and the generation handling storage transportation treatment and disposal of hazardous wastes and other materials These laws have required us to make significant expenditures of both a capital and expense nature Several of the more significant federal laws applicable to our operations include the Clean Air Act the Clean Water Act the Comprehensive Environmental Response Compensation and Liability Act or CERCLA and the Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act
We have in place programs and personnel to monitor compliance with various federal state and local environmental regulations In the normal course of our manufacturing operations we are subject to governmental proceedings and orders pertaining to waste disposal air emissions and water discharges into the environment We fund our environmental costs through cash flows from operations We believe that we are in compliance with applicable environmental regulations in all material respects
We are required to remediate hazardous waste at our facilities Currently we own a designated site in Springfield Massachusetts that contains two release areas which are the focus of remediation projects as part of the Massachusetts Contingency Plan or MCP The MCP provides a structured environment for the voluntary remediation of regulated releases We may be required to remove hazardous waste or remediate the alleged effects of hazardous substances on the environment associated with past disposal practices at sites not owned by us We have received notice that we are a potentially responsible party from the Environmental Protection Agency and or individual states under CERCLA or a state equivalent at two sites
When the available information is sufficient to estimate the amount of liability that estimate has been used When the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other the lower end of the range has been used We may not have insurance coverage for our environmental remediation costs We have not recognized any gains from probable recoveries or other gain contingencies
Based on information known to us we do not expect current environmental regulations or environmental proceedings and claims to have a material adverse effect on our consolidated financial position results of operations or cash flows However it is not possible to predict with certainty the impact on us of future environmental compliance requirements or the cost of resolving of future environmental health and safety proceedings and claims in part because the scope of the remedies that may be required is not certain liability under federal environmental laws is joint and several in nature and environmental laws and regulations are subject to modification and changes in interpretation There can be no assurance that additional or changing environmental regulation will not become more burdensome in the future and that any such development would not have a material adverse effect on our company
The firearms segment is engaged in the design manufacture and sale of a variety of firearms and firearm related products Our Chief Executive Officer has been identified as the chief operating decision maker CODM The CODM manages and allocates resources on a consolidated basis The determination of a single segment is consistent with the financial information regularly reviewed by the CODM for purposes of evaluating performance and allocating resources which is reviewed on a consolidated basis
As our CODM evaluates the financial performance of our firearms segment on a consolidated basis the measure of segment performance is net income as reflected in the consolidated statements of income The CODM uses net income to allocate resources on a consolidated basis which enables the CODM to assess both the overall level of resources available and optimize distribution of resources in line with our long term strategic goals Our segment net sales segment significant expenses and segment profit as provided to the CODM align to the captions presented on our consolidated statements of income As we manage our assets on a consolidated basis the measure of segment assets is total assets as reflected in the consolidated balance sheets

Company Name	SMITH & WESSON BRANDS, INC. Vist SEC web-site
Category	ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES)
Trading Symbol	SWBI