Smith & Wesson Brands (SWBI) Risk Analysis

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: - disrupting our ongoing business, including distracting management from our existing businesses;- integrating acquired businesses and personnel into our business, including integrating information technology systems and operations across different cultures and languages and addressing the economic, political, and regulatory risks associated with specific countries;- working with partners or other ownership structures with shared decision-making authority;- obtaining and verifying relevant information regarding a business prior to the consummation of the transaction, including the identification and assessment of liabilities, claims, or other circumstances that could result in litigation or regulatory risk exposure;- obtaining required regulatory approvals and financing on favorable terms;- retaining key employees, contractual relationships, and customers;- the potential impairment of assets – for example, in fiscal 2024 we incurred a $1.9 million impairment related to assets formerly utilized at the Columbia facility;- incurring substantial indebtedness to finance an acquisition or investment;- implementing controls, procedures, and policies at companies we acquire; and - the dilution of interests of holders of our common stock through the issuance of equity securities. Mergers, acquisitions, investments, and divestitures may not be successful and may materially and adversely affect our business, operating results, and financial condition.

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.

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.

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.

Our foreign sales and purchases of certain components expose us to various economic, political, and other risks, including the following: - compliance with U.S. and local laws and regulatory requirements, including adverse changes in those laws and requirements;- transportation delays or interruptions;- foreign exchange rate fluctuations;- limitations on imports and exports – In 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;- imposition of restrictions on currency conversion or the transfer of funds;- the possibility of appropriation of our assets without just compensation;- taxes, tariffs, and duties;- the burdens and costs of compliance with a variety of foreign laws; and - political or economic instability in countries in which we conduct business, including possible terrorist acts. Any one or more of these risks could materially and adversely affect our business, operating results, and financial condition.

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,which has been significantly impacted by the Relocation. Any one or more of these risks could cause us to fail to realize the expected benefits of the Relocation.

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.

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 believe 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. 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: - determine the appropriate creative message and media mix and markets for advertising, marketing, and promotional expenditures;- select the appropriate markets, media, and specific media vehicles in which to advertise;- identify the most effective and efficient level of spending in each market, media, and specific media vehicle; and - effectively manage marketing costs, including creative and media expenses, in order to maintain acceptable customer acquisition costs. 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.

Firearms Compliance. 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. Environmental Compliance. 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 could also be adversely affected by future laws and regulations related to climate change, including laws related to greenhouse gas emissions. These laws and regulations could lead to increased environmental compliance costs and increased energy and raw materials costs, in addition to other impacts. Employment and Occupational Health and Safety Compliance. 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. Corruption Compliance. 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. Privacy Compliance. 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.