Index

NOTE 6 —- LINE OF CREDIT

On January 7, 2022, the Company entered into a $40$40 million unsecured revolving line of credit agreement with a bank that expires January 7, 2024.2025. Borrowings under this new facility bear interest at either 1) the Bloomberg short-Term Bank Yield Index – 1 month plus 150 basis points, or 2) a fluctuating rate per annum equal to the greater of (i) the Bank’s prime rate or (ii) the federal funds rate plus 50 basis points. The Company is also charged one-quarter of a percent (0.25%(0.25%) per year on the unused portion. At July 2, 2022,April 1, 2023, the Company was in compliance with the terms and covenants of the credit facility and the line of credit was unused.

NOTE 7 —- EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) plan that covers substantially all employees. The Company matches a certain portion of employee contributions using the safe harbor guidelines contained in the Internal Revenue Code. Expenses related to these matching contributions totaled $0.9$1.7 million and $2.3$1.3 million for the three and six months ended JulyApril 1, 2023 and April 2, 2022, respectively, and $0.9 million and $2.2 million for the three and six months ended July 3, 2021, respectively. The Company plans to contribute approximately $2.0$4.0 million to the plan in matching employee contributions during the remainder of 2022.2023.

In addition, the Company provided supplemental discretionary contributions to the 401(k) plan totaling $1.5$2.2 million and $3.9$2.4 million for the three and six months ended JulyApril 1, 2023 and April 2, 2022, respectively, and $1.6 million and $4.0 million for the three and six months ended July 3, 2021, respectively. The Company plans to contribute approximately $3.0$5.0 million in supplemental contributions to the plan during the remainder of 2022.2023.

NOTE 8 —- INCOME TAXES

The Company's 20222023 and 20212022 effective tax rates differ from the statutory federal tax rate due principally to the availability of research and development tax credits, state income taxes, and the nondeductibility of certain executive compensation. The Company’s effective income tax rate was 20.5%22.4% and 22.3%23.5% for the three and six months ended July 2,April 1, 2023 and April 1, 2022, respectively. The Company’s effective income tax rate was 26.4% and 26.7% for the three and six months ended July 3, 2021, respectively. The decrease in the effective tax rates was primarily attributable to research and development tax credits.

Income tax payments for the three and six months ended JulyApril 1, 2023 and April 2, 2022 totaled $17.6$3.0 million and $20.7$3.1 million, respectively. Income tax payments for the three and six months ended July 3, 2021 totaled $22.6 and $22.8 million, respectively.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2017.

The Company does not believe it has included any “uncertain tax positions” in its federal income tax return or any of the state income tax returns it is currently filing. The Company has made an evaluation of the potential impact of additional state taxes being assessed by jurisdictions in which the Company does not currently consider itself liable. The Company does not anticipate that such additional taxes, if any, would result in a material change to its financial position.

NOTE 12 —- RELATED PARTY TRANSACTIONS

The Company contracts with the National Rifle Association (“NRA”) for some of its promotional and advertising activities. Payments made to the NRA totaled $0.1 million in each of the three and six months ended July 2, 2022 totaled $0.1 millionApril 1, 2023 and $0.2 million, respectively. Payments made to the NRA in the three and six months ended July 3, 2021 totaled $0.2 million and $0.2 million, respectively.April 1, 2022. One of the Company’s Directors also serves as a Director on the Board of the NRA.

The Company is a member of the National Shooting Sports Foundation (“NSSF”), the firearm industry trade association.  Payments made to the NSSF totaled $0.1 million in each of the three months ended April 1, 2023 and April 2, 2022.  One of the Company’s Directors also serves on the Board of the NSSF.

NOTE 13 —- CONTINGENT LIABILITIES

As of July 2, 2022,April 1, 2023, the Company was a defendant in three (3)eight (8) lawsuits and is aware of certain other such claims. The lawsuits fall into twothree categories: traditional product liabilitymunicipal litigation, negligence, and municipal litigation.unfair trade practices. Each is discussed in turn below.

Traditional Product Liability Litigation

One lawsuit mentioned above involves a claim for damages related to an allegedly defective product due to its design and/or manufacture. The lawsuit stems from a specific incident of personal injury and is based on traditional product liability theories such as strict liability, negligence, and/or breach of warranty.

The Company management believes that the allegations in this case are unfounded, that the incident is unrelated to the design or manufacture of the firearms involved, and that there should be no recovery against the Company.

Municipal Litigation

Municipal litigation generally includes those cases brought by cities or other governmental entities against firearms manufacturers, distributors and retailers seeking to recover damages allegedly arising out of the misuse of firearms by third parties. There are twofour lawsuits of this type: the City of Gary case,, filed in Indiana State Court in 1999, and 1999: Estados Unidos Mexicanos v. Smith & Wesson, et al., which was filed in August 2021.2021; The City of Buffalo, filed in the Supreme Court of the State of New York for Erie County on December 20, 2022; and The City of Rochester, filed in the Supreme Court for the State of New York for Monroe County on December 21, 2022, each of which is described in more detail below.

The City of Gary

The City of Gary Complaint seeks damages, among other things, for the costs of medical care, police and emergency services, public health services, and other services as well as punitive damages. In addition, nuisance abatement and/or injunctive relief is sought to change the design, manufacture, marketing and distribution practices of the various defendants. The suit alleges, among other claims, negligence in the design of products, public nuisance, negligent distribution and marketing, negligence per se and deceptive advertising. The case does not allege a specific injury to a specific individual as a result of the misuse or use of any of the Company's products.

After a long procedural history the case was scheduled for trial on June 15, 2009. The case was not tried on that date and was largely dormant until a status conference was held on July 27, 2015. At that time, the court entered a scheduling order setting deadlines for Plaintiff to file a Second Amended Complaint, for Defendants to answer, and for Defendants to file dispositive motions. Plaintiff did not file a Second Amended Complaint by the deadline.

In 2015, Indiana passed a new law such that Indiana Code §34-12-3-1 became applicable to the City's case. Defendants filed a joint motion for judgment on the pleadings, asserting immunity under §34-12-3-1 and asking the court to revisit the Court of Appeals' decision holding the Protection of Lawful Commerce in Arms Act inapplicable to the City's claims.

On September 29, 2016, the court entered an order staying the case pending a decision by the Indiana Supreme Court in KS&E Sports v. Runnels,, which presented related issues. The Indiana Supreme Court decided KS&E Sports on April 24, 2017, and the City of Gary court lifted the stay. The City of Gary court also entered an order setting a supplemental briefing schedule under which the parties addressed the impact of the KS&E Sports decision on Defendants' motion for judgment on the pleadings.

A hearing on the motion for judgment on the pleadings was held on December 12, 2017. On January 2, 2018, the court issued an order granting Defendants’ motion for judgment on the pleadings, but denying Defendants’ request for attorney’s fees and costs. On January 8, 2018, the court entered judgment for Defendants. The City filed a Notice of Appeal on February 1, 2018. Defendants cross-appealed the order denying attorney’s fees and costs.

Briefing in the Indiana Court of Appeals was completed on the City’s appeal and Defendants’ cross appeal on September 10, 2018. The Court of Appeals issued its ruling on May 23, 2019, affirming dismissal of the City’s negligent design and warnings count on the basis that the City had not alleged that the Manufacturer Defendants’ conduct was unlawful. However, the court reversed dismissal of the City’s negligent sale and distribution and related public nuisance counts for damages and injunctive relief.

The Manufacturer Defendants filed a Petition to Transfer the case to the Indiana Supreme Court on July 8, 2019. The Petition was denied on November 26, 2019. The case was remanded to the trial court for further proceedings.

Duringduring the quarter ended April 3, 2021, the City initiated discovery and the Manufacturer Defendantsmanufacturer defendants reciprocated. Discovery is ongoing.

Estados Unidos Mexicanos

Estados Unidos Mexicanos v. Smith & Wesson Brands, Inc., et al. was filed by the Country of Mexico and names seven defendants, mostly U.S.-based firearms manufacturers, including the Company. The Complaint advances a variety of legal theories including negligence, public nuisance, unjust enrichment, restitution, and others. Plaintiff essentially alleges that Defendants design, manufacture, distribute, market and sell firearms in a way that they know results in the illegal trafficking of firearms into Mexico, where they are used by Mexican drug cartels for criminal activities. Plaintiff seeks injunctive relief and monetary damages.

On November 22, 2021, Defendantsdefendants filed a joint Rule 12(b)(6) motion to dismiss the Mexican Government’s complaint basedcomplaint. On September 30, 2022, the court entered an order granting defendants’ motion. On October 26, 2022, plaintiff filed a Notice of Appeal and the matter is being briefed.

On December 20, 2022, the City of Buffalo, New York filed a lawsuit captioned The City of Buffalo v. Smith & Wesson Brands, Inc., et al. in the New York State Supreme Court for Erie County, New York. The suit names a number of firearm manufacturers, distributors, and retailers as defendants, including the Company, and purports to state causes of action for violations of Sections 898, 349 and 350 of the New York General Business Law, as well as common law public nuisance. Generally, plaintiff alleges that the criminal misuse of firearms in the City of Buffalo is the result of the manufacturing, sales, marketing, and distribution practices of the defendants. Defendants timely removed the matter to the U.S. District Court for the Western District of New York. The matter was transferred to the New York Supreme Court for Monroe County and consolidated with The City of Rochester v. Smith & Wesson Brands, Inc., et al., discussed below.

On December 21, 2022, the City of Rochester, New York filed a lawsuit captioned The City of Rochester v. Smith & Wesson Brands, Inc., et al. in the New York State Supreme Court for Monroe County, New York. The allegations essentially mirror those in The City of Buffalo, discussed in the preceding paragraph. Defendants timely removed the matter to the U.S. District Court for the Western District of New York and the matter was consolidated with The City of Buffalo.

Defendants moved to stay the consolidated Buffalo/Rochester case pending a decision by the Second Circuit Court of Appeals in National Shooting Sports Foundation, Inc. et al. v. James, which challenges the constitutionality of the recently enacted N.Y. Gen. Bus. Law §§ 898-a–e. The motion is pending.

Negligence

Rossiter v. Sturm, Ruger, et al. is a lawsuit arising out of a slip and fall accident by a contract security officer in December 2019. The Complaint was filed in the Superior Court for Sullivan County, New Hampshire on the Plaintiff’s lack of Article III standing, Protection of Lawful Commerce in Arms Act immunity,December 13, 2022 and lack of proximate cause.names Pine Hill Construction, a snow removal contractor, as a co-defendant. The Company alonghas tendered the defense of this matter to its insurance carrier and is assisting as required.

The Company was named in two purported class action lawsuits arising out of a data breach at Freestyle Solutions, Inc., the vendor who hosted the Company’s ShopRuger.com website at the time of the breach. Jones v. Sturm, Ruger & Co., was filed in the U.S. District Court for Connecticut on October 4, 2022 and Copeland v. Sturm, Ruger & Company, et al. was filed in the U.S. District Court for New Jersey on October 27, 2022. Copeland also named Freestyle Solutions, Inc. as a defendant. By agreement of the parties, Copeland was dismissed, without prejudice, and consolidated with other non-Massachusetts defendants, alsoJones in the pending Connecticut case. On January 20, 2023, five plaintiffs filed an Amended Complaint naming the Company and Freestyle Software, Inc. as defendants. The Complaint alleges causes of action for negligence, breach of implied warranties, and unjust enrichment. The Company filed a Rule 12(b)(2) motionMotion to dismiss basedDismiss on lacka variety of specific personal jurisdiction.grounds, and a briefing schedule was entered by the court.

Unfair Trade Practices

Estate of Suzanne Fountain v. Sturm, Ruger & Co., Inc., arises out of the criminal shootings at the King Soopers supermarket in Boulder, Colorado on March 22, 2021. On that date, plaintiff’s decedent, Suzanne Fountain, was murdered by 21-year-old Ahmad Al Aliwi Al-Issa. The motionsComplaint alleges that the Company’s advertising and marketing of the Ruger AR-556 pistol involved in the criminal shootings violate the Connecticut Unfair Trade Practices Act and were fully briefeda substantial factor in bringing about the wrongful death of Suzanne Fountain. On April 24, 2023, the Connecticut Superior Court in Stamford sua sponte transferred the case to the Connecticut Superior Court in Bridgeport.