item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2004 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2005 annual meeting stockholders part iv item 15item 14 principal accounting fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2007 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2008 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2009 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2010 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2011 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2012 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2014 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2015 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2016 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2017 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2018 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2019 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2020 annual meeting stockholders part iv item 15item 14 principal accounting fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2006 annual meeting stockholders part iv item 15item 14 principal accountant fees services information required item incorporated herein reference definitive proxy statement filed pursuant regulation 14a exchange act 2013 annual meeting stockholders part iv item 15 item 7 management’s discussion analysis financial condition results operations read following discussion analysis conjunction financial statements related notes contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth “risk factors” elsewhere report overview 2004 highlights net product sales approximately 1179 million fiscal 2004 represented increase 197 fiscal 2003 income operations fiscal 2004 increased 1424780 375 fiscal 2003 despite onetime restructuring costs 10 million 25 million legal accounting fees associated restatement financial statements fiscal 2002 first three quarters fiscal 2003 investigation conducted sec regarding restatement restatementsec investigation august 2003 decided amend various reports previously filed sec modify certain accounting matters related acquisition smith wesson corp decided restate financial statements fiscal year ended april 30 2002 well financial statements quarters ended july 31 2001 2002 october 31 2001 2002 january 31 2002 2003 form 10ksb report fiscal year ended april 30 2003 filed december 2003 included restated financial statements fiscal 2002 amended form 10qsb reports july october quarters filed january 2004 amended form 10qsb reports january quarters filed march 2004 current sec filings sec conducting investigation regarding circumstances surrounding restatement cooperating fully sec investigation still ongoing management objectives january 2004 decided refocus emphasis core business manufacture sale quality firearms towards end decided discontinue advanced technology crossings catalog divisions unprofitable drain resources also decided close corporate office scottsdale arizona relocate corporate functions licensing operations previously conducted office main facility springfield massachusetts believe actions better enable us devote attention core business addition expect save 11 million per year pretax result closure corporate office scottsdale business one largest handgun manufacturers world offer one broadest lines handguns industry product line consists revolvers pistols also one largest manufacturers handcuffs restraints united states key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use ebitda earnings interest taxes depreciation amortization evaluate performance evaluate various product lines measurements cost per unit produced units produced per day incoming orders per day key industry data handgun market united states remained relatively constant past 10 years handguns subject legislative actions past market reacted actions substantial increase sales early 1990’s period leading shortly enactment brady bill 1992 1994 period us handgun market increased 50 consumers purchased handguns fear prohibition handgun ownership best measurement us market share federal excise tax collections information issued quarterly basis us government comparing tax payment reported collection estimate market share data based upon recent data believe 22 share us consumer market compares 10 period acquired smith wesson corp also compares favorably market share figures 1990’s estimated 16 market share results operations net product sales following table set forth certain information relative net product sales fiscal years ended april 30 2004 2003 2002 recorded net product sales 117892507 fiscal 2004 increase 19423741 197 fiscal 2003 firearms sales increased 21864509 272 total handgun unit sales fiscal 2004 approximately 300000 units increase 255 fiscal 2003 sales approximately 239000 units nonfirearm sales fiscal 2004 declined 2440768 135 compared fiscal 2003 result decision exit certain noncore businesses revolver sales increased 9411733 246 fiscal 2004 47642409 introduction new products model 500 revolver helped fuel increase net product sales sold 16000 model 500 revolvers fiscal 2004 generating approximately 91 million sales fiscal 2004 continued aggressive pricing strategy reducing price m642 revolver sales m642 increased approximately 4500 units fiscal 2003 17000 units fiscal 2004 representing increase approximately 30 million revolver order backlog 13953390 april 30 2004 pistol sales 26939756 5653400 266 higher fiscal 2004 increase pistol sales attributable full year impact sw1911 pistol aggressive pricing strategy sigma pistol sales sw1911 accounted approximately 38 million increase pistol sales fiscal 2004 sigma pistol sales increased approximately 10000 units fiscal 2003 approximately 30000 units fiscal 2004 increase sales 37 million result new pricing partially offsetting gains two areas decline traditional metal frame pistols lower international pistol sales declined approximately 22 million 415000 respectively higher cost traditional pistols puts us competitive disadvantage particularly foreign competitors whose labor costs lower pistol order backlog 4756489 april 30 2004 exclusive us distributor walther firearms product line grown considerably last two years walther sales totaled 17179183 fiscal 2004 increase 4431747 348 previous fiscal year increase walther sales attributable success p22 pistol walther order backlog 4293273 april 30 2004 performance center sales increased 1272220 208 fiscal 2004 7385554 custom variations model 500 sw1911 responsible increase sales performance center order backlog 4383867 april 30 2004 nonfirearms sales declined 2440768 135 fiscal 2004 result discontinuation late fiscal 2003 certain product lines part decision focus firearms business fiscal 2003 discontinued machining cutter grinding businesses thirdparty customers well bicycle business also closed four five retail locations fiscal 2003 result decisions nonfirearms sales declined 4468919 fiscal 2004 partially offset 1777958 optics sales discontinued optics product line fiscal 2004 sales reflect closeout inventory hand fiscal 2003 net product sales increased 19184057 242 fiscal 2002 net product sales 79284709 firearms sales accounted 16621787 increase nonfirearms sales accounted 2562270 total handgun units sold increased 320 approximately 181000 units fiscal 2002 approximately 239000 units fiscal 2003 firearms sales increase driven increased demand products consumers dealers began buying smith wesson products purchased smith wesson corp many consumers dealers boycotting smith wesson products smith wesson corp signed agreement us department housing urban development launched aggressive promotional effort acquired smith wesson corp persuaded dealers consumers resume buying products impact started latter portion fiscal 2002 pronounced fiscal 2003 also introduced number new products also served stimulate demand revolver sales increased 4302443 127 fiscal 2003 reflecting increased demand aggressive pricing program model 637 sales model 637 increased approximately 9000 units fiscal 2003 generating additional sales approximately 23 million pistol sales increased 3613388 204 fiscal 2003 result increased demand full year impact sw99 series pistols sw99 pistol sales increased approximately 12 million fiscal 2002 approximately 39 million fiscal 2003 walther sales fiscal 2003 reflected full year impact distribution agreement versus four months fiscal 2002 sales increased 9114904 3632532 fiscal 2002 12747436 fiscal 2003 increase 2509 fiscal 2002 sales reflect four months sales distribution walther products began january 2002 nonfirearms sales increased 2562270 165 fiscal 2003 increase nonfirearms sales due specialty services business handcuff sales specialty services sales increased 1515314 238 fiscal 2003 7894918 result increase thirdparty machining business handcuff sales increased 4368280 fiscal 2002 5437976 fiscal 2003 increase 1069696 245 licensing revenue following table sets forth certain information relative licensing revenue fiscal years ended april 30 2004 2003 2002 licensing revenue fiscal 2004 increased 119680 80 previous fiscal year increase licensing revenue resulted new licensees added year relocated licensing operations springfield facility retained consultant assist us enhancing licensing efforts plan focus areas synergy core products brand customer base also intend add additional licensees develop strategies existing licensees assist expanding business thereby increase licensing revenue cost goods sold services gross profit following table sets forth certain information regarding cost good sold services gross profit fiscal years ended april 30 2004 2003 2002 gross profit fiscal 2004 increased 8920641 299 fiscal 2003 increase gross profit attributable increase net product sales well improvements efficiency increased handgun production without corresponding increase staffing infrastructure led improved efficiency evidenced increase gross profit percentage net product sales licensing revenue dismissal several municipal litigation cases resulted reduction reserves favorable impact gross profit 738243 06 fiscal 2003 refunds insurance carriers defense costs paid fiscal 2004 reduced cost sales 445067 gross profit percentage net product sales licensing revenue increased 298 fiscal 2003 324 fiscal 2004 gross profit fiscal 2003 increased 10008918 506 fiscal 2002 contributing factors increase gross profit increase sales improved efficiency result increased production meet higher demand gross profit percentage net product sales licensing revenue increased 246 fiscal 2002 298 fiscal 2003 operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2004 2003 2002 operating expenses fiscal 2004 increased 7495861 288 fiscal 2003 increase fiscal 2004 operating expenses 1977537 related discontinued crossings catalog advanced technology divisions 1000931 related restructuring costs relative closing corporate office scottsdale 2494729 related legal accounting fees relative restatement financial statements fiscal 2002 first three quarters fiscal 2003 sec investigation 651102 related higher profit sharing expenses due increased profits 930755 related increased advertising expenses 538372 related higher management bonuses operating expenses increased 2686005 115 fiscal 2003 previous fiscal year increase operating expenses 1616312 related promotional efforts 801090 related higher profit sharing expense result higher profits 1452352 related salaries fringe benefits 225353 related research development costs associated advanced technology products fiscal 2003 incurred 442163 severance costs result decision discontinue thirdparty machining business bicycle business also incurred additional 473344 consulting fees fiscal 2002 onetime charges relating acquisition smith wesson corp totaled 2080134 addition incurred onetime charge 2500000 provide environmental remediation costs springfield facility fiscal 2002 operating income loss following table sets forth certain information regarding operating income fiscal years ended april 30 2004 2003 2002 operating income 5227912 fiscal 2004 increase 375 compared operating income 3803132 fiscal 2003 increase reflected improved results handgun operation reduction municipal litigation reserve partially offset losses incurred discontinued divisions restructuring costs legal accounting fees related restatement sec investigation following table illustrates impact items operating income operating income fiscal 2004 adjusting onetime items discontinued products services increased approximately 63 million 1454 fiscal 2003 increase operating profit attributable increased firearms sales improved utilization springfield facility well reduction municipal litigation reserve factors drove 8920641 increase gross profit well increase gross profit percentage net product sales licensing revenue 298 324 operating income 3803132 fiscal 2003 7322913 higher operating loss 3519781 fiscal 2002 gross profit fiscal 2003 increased 10008918 506 previous fiscal year increase attributable 19184057 increase net product sales well improved efficiency due higher utilization springfield manufacturing facility incomeexpense expense totaled 900675 fiscal 2004 compared income 2362841 fiscal 2003 expense included 1132923 exchange loss related purchase inventory walther purchased forward contracts hedge exchange losses dollar declined significantly euro unable protect fully loss partially offsetting loss insurance refunds municipal litigation costs 410933 income 2362841 fiscal 2003 included insurance refund 1688393 gain sale land 1666132 two items partially offset inventory adjustment 1114666 write optics versa vault inventories market value expense 47200 fiscal 2002 interest income 318868 fiscal 2004 represented decline 361837 versus 680705 fiscal 2003 due reduced cash available investment well decline interest rates invested cash interest income 680705 fiscal 2003 declined 199218 fiscal 2002 interest income 879923 decrease also attributable lower interest rates invested cash lower amount cash available investment interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2004 2003 2002 interest expense declined fiscal 2004 247144 due repayments made fiscal 2003 2004 tomkins note made early payments tomkins note fiscal 2003 totaling 2000000 repaid additional 1000000 fiscal 2004 interest rate note 9 8020559 interest fiscal 2002 included approximately 37 million amortization debt issue costs related financing conjunction purchase smith wesson corp income taxes income tax benefit fiscal 2004 83750 compared income tax benefit 12404320 fiscal 2003 tax benefit fiscal 2004 primarily attributable federal net operating loss adjustments described reversal 135856 state tax valuation allowance tax benefit fiscal 2003 12404320 related primarily reversal 12656537 814594 federal state tax valuation allowances income tax expense 70598 fiscal 2002 state income taxes deferred tax provision fiscal 2002 due valuation allowances fiscal 2004 tax provision included 416193 benefit federal net operating loss adjustments benefit related filing amended fiscal 2003 2002 federal income tax returns recognize tax deductions warrant option exercises previously entitled deductions complied federal statutory reporting requirements subsequently complied reporting requirements therefore entitled realize tax benefits related warrant option exercises income tax expense includes deferred income taxes arising temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled approximately 140 million valuation allowance april 30 2004 assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered valuation allowance established deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position april 30 2002 federal state valuation allowance established deferred tax assets approximately 134 million 14 million respectively based operational changes discussed valuation allowance provided deferred federal income tax assets april 30 2004 2003 believe likely assets realized however continue maintain valuation allowance 500000 600000 provided state deferred tax assets april 30 2004 2003 respectively valuation allowance specifically relates state net operating loss carryforwards uncertainty related recognition benefit attributable state net operating losses reached conclusions considering changes business well availability taxable income prior carryback years tax planning strategies likelihood generating future taxable income exclusive reversing temporary differences carryforwards differences forecasted actual future operating results could adversely impact ability realize deferred tax assets reached conclusions despite existence cumulative losses recent years cumulative losses weighted heavily overall assessment need valuation allowance however believe current year pretax income pretax income fiscal 2003 utilization approximately 600000 federal net operating loss carryforwards fiscal 2004 additional positive evidence discussed outweigh negative evidence cumulative losses making assessment took consideration existence significant expenses fiscal year ended april 30 2002 relating acquisition smith wesson corp recurring future fiscal years fourth quarter fiscal year ended april 30 2003 determined valuation allowance deferred tax assets longer needed exception certain state deferred tax assets prior years losses income taxes financial reporting purposes however fiscal years ended april 30 2004 2003 reporting pretax income approximately 13 million 33 million respectively believe existing levels income changes operations taken place take place sufficient generate minimum amounts taxable income set forth utilize deferred tax assets net operating losses expire changes included maintaining strong order backlog ii successful launch new firearm products fiscal 2003 well received marketplace iii new licensing strategies projected generate royalty income iv changes effort increase efficiency business operations including closing scottsdale arizona office discontinuing crossings catalog advanced technology divisions utilize federal net operating loss carryforwards expiration would need generate minimum taxable income 149 million amount net operating loss carryforwards 2024 april 30 2004 total gross book compared tax temporary differences 228 million may result future tax deductions therefore future income 377 million would need generated realize deferred tax assets believe current level pretax earnings sufficient realize deferred tax assets following chart reconciles income loss taxes financial statement purposes taxable income loss income tax purposes april 30 2004 federal income tax loss carryforwards 14964553 available subject various statutory restrictions use future federal income tax returns carryforwards expire follows utilization losses may limited certain federal statutory provisions conjunction acquisition smith wesson corp may cumulative change ownership threeyear period pursuant section 382 internal revenue code additional analysis still required order conclude whether section 382 change occurred however provisions expected impair ability realize assets prior expiration based projections future taxable income expect utilize largest portion net operating loss carryforward next five six years finally since net operating loss carryforwards begin expire 2019 based projections future financial reporting income expect utilize net deferred income tax assets 135 million 500000 state tax valuation allowance next seven eight years net income loss following table sets forth certain information regarding net income loss related per share data fiscal years ended april 30 2004 2003 2002 decrease net income net income per share fiscal 2004 resulted primarily comparative effect income tax valuation allowance reversed fiscal 2003 approximately 127 million resulted income tax benefit release allowance triggered improved profitability likelihood would able utilize income tax loss carryforwards addition losses associated crossings catalog advanced technology divisions restructuring charges incurred third quarter costs related restatement sec inquiry eroded profitability fiscal 2004 10778215 loss fiscal 2002 attributable number items results included 25 million provision environmental remediation additional 16 million product liability provision indicated interest expense section incurred approximately 37 million amortization debt issue costs relative acquisition smith wesson corp addition number costs associated acquisition including 588000 legal accounting fees 852500 debt extinguishment costs approximately 12 million expenses liquidity capital resources principal cash requirements finance growth firearms licensing operations service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs one strengths ability generate cash operations excess internal operating needs certain loan covenants tomkins note preclude us repaying indebtedness obligations utilizing cash wholly owned subsidiary smith wesson corp following table sets forth certain information relative cash flow fiscal years ended april 30 2004 2003 2002 operating activities represent principal source cash flow cash flow operating activities increased 2424574 fiscal 2004 compared fiscal 2003 improvement operating cash flow fiscal 2004 attributable improved profitability launched aggressive sales promotion campaign january 2004 program included extended payment terms distributors result accounts receivable collections lower historical levels program resulted higher sales fourth quarter fiscal 2004 cash impact felt fiscal 2005 cash flow operating activities decreased 7599349 fiscal 2003 compared fiscal 2002 result receipt fiscal 2002 7699500 tomkins connection acquisition smith wesson corp apart transaction cash flow operating activities would improved approximately 100000 fiscal 2003 compared fiscal 2002 cash used investing activities increased 2453877 fiscal 2004 partially result 1503196 increase capital expenditures collateralized cash deposits increased 1160059 result banking agreements relative forwardexchange contracts purchased fiscal 2002 cash flow provided investing activities resulted acquisition smith wesson corp cash balance books intend spend approximately 50 million capital expenditures fiscal 2005 major capital expenditures focus increasing revolver production capacity meet increased demand expanding pistol product line 1188437 decrease cash used financing activities fiscal 2004 resulted repayment 2375425 debt fiscal 2003 compared 1090498 fiscal 2004 repayment note banknorth primary bank commenced april 2004 principal payments tomkins note commenced may 2004 financing activities fiscal 2002 related acquisition smith wesson corp may 2001 related costs associated financing transaction april 30 2004 open letters credit aggregating 51 million april 30 2004 5510663 cash equivalents hand credit facilities banknorth support letters credit issued ordinary course business borrowing capacity limitedhowever covenants tomkins note covenants prohibit additional borrowing capacity tomkins note repaid full covenants tomkins note also limit amount money withdraw subsidiary smith wesson corp believe issue upcoming fiscal year longer term need restructure tomkins debt order address issues raised restrictive covenants tomkins note retained investment banking firm assist us refinancing activities matters inflation believe inflation material impact us fiscal 2004 2003 2002 critical accounting policies principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training center gmbh germany smith wesson distributing inc smith wesson inc smith wesson licensing llc smith wesson interactive management llc smith wesson technology llc lost coast ventures inc inactive majority owned subsidiary smith wesson advanced technologies llc significant intercompany accounts transactions eliminated consolidation use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter estimates respect adequacy insurance reserves significant estimates assumptions used us preparation financial statements relate reserves established uncollectible accounts receivable obsolete slow moving inventory certain accrued liabilities including product environmental warranty liabilities workers’ compensation revenue recognition revenues sale products recognized title products transferred customer product shipment contingencies material performance obligations exist collectibility reasonably assured earned right receive retain payments products shipped billed recognize tooling forging heat treating finishing plating engineering support revenues acceptance customer contingencies material performance obligations exist collectibility reasonably assured earned right receive retain payments services performed billed recognize revenue use registered trademarks licenses use identikit software revenue recognized subscription period trademark licensing revenues consists initial fees collected upon signing upon meeting certain conditions licensing agreement ii minimum royalties andor percentage licensee’s sales licensed products collectible multiyear period recognize trademark licensing revenues individual licensees quarterly basis based actual receipts due licensees date financial statements revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenues payable calendar quarter basis fees received upon initial signing license agreements recognized revenues extent costs incurred result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore initially recognize minimum royalty payments instead record revenue period minimum royalty becomes due payable also believe due factors noted allowance “uncollectible minimum royalties” cannot reasonably estimated accounting policy addresses license revenue single class transactions contractual undiscounted minimum royalties 5745000 next five years certain agreements extend beyond period product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost sales evaluation based upon information regarding potential existing product liability cases future costs result evaluation recorded considered probable reasonably estimable time estimated range reasonably possible additional losses term defined sfas 5 zero stock options account stockbased employee compensation arrangements accordance provisions accounting principles board opinion 25 “accounting stock issued employees” comply disclosure provisions sfas 123 “accounting stockbased compensation” apb 25 compensation cost recognized vesting period based excess date grant fair value shares employee’s exercise price exercise price employee share options less fair value price underlying shares grant date deferred stock compensation recognized amortized expense accordance fasb interpretation 28 vesting period individual options accordingly exercise price employee options equals exceeds market price underlying shares date grant compensation expense recognized options shares awards issued nonemployees nonemployee directors valued using fair value method expensed period services provided recent accounting pronouncements december 2003 financial accounting standards board fasb issued statement financial accounting standards 132 “employers’ disclosures pensions postretirement benefits revised 2003” fas 132 revised fas 132 revised requires additional disclosures pension plans postretirement benefit plans compared required original fasb statement 132 disclosures require additional information provided related assets obligations cash flows net periodic benefit cost defined benefit pension plans defined benefit postretirement plans fas 132 revised also requires information provided regarding types plan assets investment strategy measurement dates required disclosures fas 132 revised pertinent us effective annual periods ending december 15 2003 interim periods beginning december 15 2003 adoption standard material impact consolidated financial position results operations cash flows december 2003 fasb issued interpretation 46 “consolidation variable interest entities revised december 2003 interpretation arb 51” interpretation requires variable interest entities consolidated primary beneficiary equity investment risk sufficient permit entity finance activities without support parties equity investors lack certain specified characteristics controlling financial interest currently accounting disclosure requirements provisions interpretation contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2004 offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis conjunction financial statements related notes contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth “risk factors” elsewhere report overview 2005 highlights fiscal 2005 net product sales approximately 1240 million represented increase 52 fiscal 2004 firearms sales core business increased 110 income operations fiscal 2005 increased 6370302 1324 fiscal 2004 also completed refinancing outstanding debt january 2005 repaid tomkins note 9 interest rate also included many restrictive covenants would prevented us growing business repaid result refinancing significantly improved balance sheet total debt april 30 2005 176 million compared 419 million april 30 2004 anticipate annual interest savings refinancing approximately 15 million restatement sec inquiry august 2003 decided amend various reports previously filed sec modify certain accounting matters related acquisition smith wesson corp decided restate form 10ksb report fiscal year ended april 30 2002 well form 10qsb reports quarters ended july 31 2001 2002 october 31 2001 2002 january 31 2002 2003 form 10ksb report fiscal year ended april 30 2003 filed december 2003 included restated financial statements fiscal 2002 amended form 10qsb reports july october quarters filed january 2004 amended form 10qsb reports january quarters filed march 2004 current sec filings sec conducting informal inquiry regarding circumstances surrounding restatement cooperating fully sec inquiry still ongoing june 2005 determined previously reported financial statements 2002 2003 2004 first three quarters 2005 required restatement increase compensation expense certain employee stock awards issued warrants two former employees may 2001 containing cashless exercise feature result compensation expense adjusted subsequent periods april 30 2005 increases decreases quoted value stock addition fiscal 2004 2005 recorded compensation expense resulting modification certain vested stock options terminating employees year ended april 30 2005 decided adopt statement financial accounting standards 123r sharebased payment revised 2004 sfas 123r using modified retrospective application method filed form 8k july 1 2005 describing need restate previously issued financial statements correct compensation expense decision adopt fas 123r financial statements included form 10k restated correct compensation expense adopt sfas 123r effects restatements described notes 24 25 consolidated financial statements management objectives fiscal 2005 added several new senior managers company including new chief executive officer december 2004 new management team assessing business including extensive market research smith wesson brand firearms market competitors research determined smith wesson brand stands safety security protection sport management team decided focus strategy around four items future ventures licensing opportunities fit umbrella safety security protection sport view opportunities company extend beyond handguns belief supported brand research identified several areas smith wesson brand strong recognition among prospective buyers continue grow handgun market increased emphasis military law enforcement markets also look beyond handgun market using safety security protection sport guide determining business expansion business one largest handgun manufacturers world offer one broadest lines handguns industry product line consists revolvers pistols also one largest manufacturers handcuffs restraints united states key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use ebitda earnings interest taxes depreciation amortization evaluate performance evaluate various product lines measurements cost per unit produced units produced per day incoming orders per day key industry data handgun market united states remained relatively constant past 10 years handguns subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill 1992 1994 period us handgun market increased 50 consumers purchased handguns fear prohibition handgun ownership federal excise tax collections represents best measurement us market share us government issues information quarterly basis comparing tax payment reported collection estimate market share based upon recent data believe approximately 19 share us consumer market handguns compares 10 period acquired smith wesson corp also compares favorably market share figures 1990s estimated 16 market share results operations net product sales following table set forth certain information relative net product sales fiscal years ended april 30 2005 2004 2003 fiscal 2005 compared fiscal 2004 recorded net product sales 123963973 fiscal 2005 increase 6071466 52 fiscal 2004 firearms sales increased 11277896 110 total handgun unit sales fiscal 2005 approximately 323000 units increase 77 fiscal 2004 sales approximately 300000 units nonfirearm sales fiscal 2005 declined 5206430 334 compared fiscal 2004 result lower demand handcuffs decision exit certain noncore businesses revolver sales increased 6378711 134 fiscal 2005 54021120 continued success model 500 revolver fueled increase revolver sales sold 27700 model 500 revolvers fiscal 2005 generating approximately 176 million sales revolver order backlog 12251811 april 30 2005 pistol sales 28950858 2011102 75 higher fiscal 2005 increase pistol sales attributable aggressive pricing strategy sigma pistol sales sw1911 accounted approximately 38 million increase pistol sales fiscal 2004 sigma pistol sales increased approximately 30000 units fiscal 2004 approximately 46000 units fiscal 2005 increase sales approximately 36 million partially offsetting gains two areas decline traditional metal frame pistols lower sw99 pistol sales higher cost traditional pistols puts us competitive disadvantage particularly foreign competitors whose labor costs lower pistol order backlog 6082826 april 30 2005 exclusive us distributor walther firearms walther sales totaled 17308440 fiscal 2005 increase 129257 08 previous fiscal year increase walther sales attributable introduction g22 rifle walther order backlog 1977404 april 30 2005 performance center sales increased 1099246 149 fiscal 2005 8484800 custom variations model 500 sw1911 responsible increase sales performance center order backlog 2120714 april 30 2005 engraving sales increased 1419891 million fiscal 2004 increased emphasis profitable segment highend highmargin engraved handguns nonfirearms sales declined 5206430 334 fiscal 2005 result lower handcuff sales discontinuation certain product lines part decision focus core business decline handcuff sales result lower demand domestically competitive pressure lowcost providers internationally fiscal 2004 closed optics business sold remaining inventory sales fiscal 2004 includes 1777958 optics sales also sold identikit business early fiscal 2005 fiscal 2004 sales include 469786 relative identikit business fiscal 2004 compared fiscal 2003 recorded net product sales 117892507 fiscal 2004 increase 19423741 197 fiscal 2003 firearms sales increased 21864509 272 total handgun unit sales fiscal 2004 approximately 300000 units increase 255 fiscal 2003 sales approximately 239000 units nonfirearm sales fiscal 2004 declined 2440768 135 compared fiscal 2003 result decision exit certain noncore businesses revolver sales increased 9411733 246 fiscal 2004 47642409 introduction new products model 500 revolver helped fuel increase net product sales sold 16000 model 500 revolvers fiscal 2004 generating approximately 91 million sales fiscal 2004 continued aggressive pricing strategy reducing price m642 revolver sales m642 increased approximately 4500 units fiscal 2003 17000 units fiscal 2004 representing increase approximately 30 million revolver order backlog 13953390 april 30 2004 pistol sales 26939756 5653400 266 higher fiscal 2004 increase pistol sales attributable full year impact sw1911 pistol aggressive pricing strategy sigma pistol sales sw1911 accounted approximately 38 million increase pistol sales fiscal 2004 sigma pistol sales increased approximately 10000 units fiscal 2003 approximately 30000 units fiscal 2004 increase sales 37 million result new pricing partially offsetting gains two areas decline traditional metal frame pistols lower international pistol sales declined approximately 22 million 415000 respectively higher cost traditional pistols puts us competitive disadvantage particularly foreign competitors whose labor costs lower pistol order backlog 4756489 april 30 2004 exclusive us distributor walther firearms product line grown considerably last two years walther sales totaled 17179183 fiscal 2004 increase 4431747 348 previous fiscal year increase walther sales attributable success p22 pistol walther order backlog 4293273 april 30 2004 performance center sales increased 1272220 208 fiscal 2004 7385554 custom variations model 500 sw1911 responsible increase sales performance center order backlog 4383867 april 30 2004 nonfirearms sales declined 2440768 135 fiscal 2004 result discontinuation late fiscal 2003 certain product lines part decision focus core businesses fiscal 2003 discontinued machining cutter grinding businesses thirdparty customers well bicycle business also closed four five retail locations fiscal 2003 result decisions nonfirearms sales declined 4468919 fiscal 2004 partially offset 1777958 optics sales discontinued optics product line fiscal 2004 sales reflect closeout inventory hand licensing revenue following table sets forth certain information relative licensing revenue fiscal years ended april 30 2005 2004 2003 licensing revenue fiscal 2005 increased 201949 124 previous fiscal year increase licensing revenue resulted new licensees added year hired vice presidentlicensing extensive background field plan focus areas synergy core products brand customer base also intend add additional licensees develop strategies existing licensees assist expanding business thereby increase licensing revenue cost goods services gross profit following table sets forth certain information regarding cost sales services gross profit fiscal years ended april 30 2005 2004 2003 gross profit fiscal 2005 increased 1758103 45 fiscal 2004 gross margin percentage net products services sales license revenue sales licensing declined 327 fiscal 2004 325 fiscal 2005 decline gross margin percentage attributable number factors substantial increase capital expenditures led significant increase depreciation expense depreciation expense included cost goods sold increased 876997 1060106 fiscal 2004 1937103 fiscal 2005 also incurred additional 802820 manufacturing consulting fees relative studies manufacturing processes january 2005 moved several production departments sevenday workweek required hiring approximately 25 additional production workers incurred additional 200001 costs preparation move sevenday workweek addition incurred production inefficiencies higher normal scrap result startup new production schedule gross profit fiscal 2005 also included 2023000 refund one insurance carriers legal expenses relative product liability municipal litigation defense costs gross profit fiscal 2004 increased 8749198 288 fiscal 2003 increase gross profit attributable increase net product sales well improvements efficiency increased handgun production without corresponding increase staffing infrastructure led improved efficiency evidenced increase gross profit percentage net product sales licensing revenue dismissal several municipal litigation cases resulted reduction reserves favorable impact gross profit 738243 refunds insurance carriers defense costs paid fiscal 2004 reduced cost sales 445067 gross profit percentage net product services sales license revenue increased 304 fiscal 2003 327 fiscal 2004 operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2005 2004 2003 operating expenses fiscal 2005 decreased 4612199 134 fiscal 2004 fiscal 2004 operating expenses included 1977537 related discontinued crossings catalog advanced technology divisions 1000931 related restructuring costs relative closing corporate office scottsdale 2494729 related legal accounting fees relative restatement financial statements fiscal 2002 first three quarters fiscal 2003 sec inquiry total 5473197 expenses fiscal 2004 recur fiscal 2005 fiscal 2005 operating expenses included 1137143 recruiting relocation expenses chief executive officer several senior management additions increase 752880 fiscal 2004 spending recruiting relocation stock option expense calculated sfas 123r totaled 626150 fiscal 2005 versus 819507 fiscal 2004 profit sharing expense 2403019 fiscal 2005 130989 higher versus fiscal 2004 spending result increased profits operating expenses fiscal 2004 increased 6661066 241 fiscal 2003 increase fiscal 2004 operating expenses 5473197 identified addition incurred 651102 related higher profit sharing expenses due increased profits 930755 related increased advertising expenses 538372 related higher management bonuses stock option expense fiscal 2004 decreased 834795 1654302 fiscal 2003 819507 income operations following table sets forth certain information regarding operating income fiscal years ended april 30 2005 2004 2003 income operations 11180991 fiscal 2005 increase 6370302 1324 compared operating income 4810689 fiscal 2004 increase income operations income primarily due reduction operating expenses noted fiscal 2004 number onetime expenses totaling 5473197 recur fiscal 2005 income operations 4810689 fiscal 2004 increase 1767 compared income operations 2722557 fiscal 2003 increase reflected improved results handgun operation reduction municipal litigation reserve partially offset losses incurred discontinued divisions restructuring costs legal accounting fees related restatement sec inquiry onetime items discontinued products services increased expenses 5473197 income expense totaled 120373 fiscal 2005 compared expense 1302959 fiscal 2004 realized 435815 gain sale identikit business partially offsetting gain 682927 exchange losses related purchase inventory walther expense totaled 1302959 fiscal 2004 compared income 1789114 fiscal 2003 expense included 1132923 exchange loss related purchase inventory walther purchased forward contracts reduce exposure exchange losses dollar declined significantly euro unable protect fully loss income 1789114 fiscal 2003 included gain sale land 1666132 interest income 290201 fiscal 2005 represented decline 28667 versus 318868 fiscal 2004 due reduced cash available investment interest income 318868 fiscal 2004 represented decline 361837 versus 680705 fiscal 2003 due reduced cash available investment well decline interest rates invested cash interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2005 2004 2003 interest expense declined 665002 fiscal 2005 due primarily refinancing completed january 2005 monthly interest expense declined approximately 128000 per month result refinancing interest expense declined fiscal 2004 247144 due repayments made fiscal 2003 2004 tomkins note made early payments tomkins note fiscal 2003 totaling 2000000 repaid additional 1000000 fiscal 2004 interest rate note 9 income taxes income tax expense fiscal 2005 3426490 compared income tax benefit 346062 fiscal 2004 income tax benefit 15620636 fiscal 2003 tax provision fiscal 2005 included 155512 adjustment resulting writeoff internal revenue code section 382 limitation federal net operating loss carryforward 457388 discussed 60826 tax expense related tax deficiencies exercises employee stock options sfas123r tax benefit fiscal 2004 primarily attributable federal net operating loss adjustments described reversal 135856 state tax valuation allowance tax benefit fiscal 2003 15620636 related primarily reversal approximately 15 million 1 million federal state valuation allowances fiscal 2004 tax provision included 416193 benefit federal net operating loss adjustments benefit related filing amended fiscal 2003 2002 federal income tax returns recognize tax deductions warrant option exercises previously entitled deductions complied federal statutory reporting requirements subsequently complied reporting requirements therefore entitled realize tax benefits related warrant option exercises income tax expense includes deferred income taxes arising temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled approximately 142 million valuation allowance april 30 2005 assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered valuation allowance established deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position valuation allowance provided deferred federal income tax assets april 30 2005 2004 2003 believe likely assets realized however continue maintain valuation allowance approximately 300000 500000 600000 provided state deferred tax assets april 30 2005 2004 2003 respectively valuation allowance specifically relates state net operating loss carryforwards uncertainty related recognition benefit attributable state net operating losses reached conclusions considering changes business well availability taxable income prior carryback years tax planning strategies likelihood generating future taxable income exclusive reversing temporary differences carryforwards differences forecasted actual future operating results could adversely impact ability realize deferred tax assets fourth quarter fiscal year ended april 30 2003 determined valuation allowance deferred tax assets longer needed exception certain state deferred tax assets reached conclusion despite existence cumulative losses recent years cumulative losses weighted heavily overall assessment need valuation allowance making assessment took consideration existence significant expenses fiscal year ended april 30 2002 relating acquisition smith wesson corp recurring future fiscal years prior years losses income taxes financial reporting purposes fiscal years ended april 30 2005 2004 2003 reporting pretax income approximately 87 million 05 million 16 million respectively net operating loss carryforwards 50 million 05 million utilized fiscal 2005 2004 respectively believe existing levels income changes operations taken place take place sufficient generate minimum amounts taxable income set forth utilize deferred tax assets net operating losses expire changes included maintaining strong order backlog ii successful launch new firearm products well received marketplace iii new licensing strategies projected generate royalty income iv changes effort increase efficiency business operations including closing scottsdale arizona office discontinuing crossings catalog advanced technology divisions believe positive evidence outweighs negative evidence prior year losses fiscal 2002 utilize federal net operating loss carryforwards expiration would need generate minimum taxable income 109 million amount net operating loss carryforwards 2024 april 30 2005 total gross book compared tax temporary differences 290 million may result future tax deductions therefore future income 399 million would need generated realize deferred tax assets believe current level pretax earnings sufficient realize deferred tax assets following chart reconciles income loss taxes financial statement purposes taxable income loss income tax purposes april 30 2005 federal income tax loss carryforwards 10880216 available subject various statutory restrictions use future federal income tax returns carryforwards expire follows net operating loss carryforwards reflecting deferred tax assets reduced 02 million pursuant footnote 82 sfas 123r fiscal year 2005 completed analysis pursuant internal revenue code section 382 “section 382” analysis determined ownership change within definition section 382 calendar year ended december 31 2000 result ownership change net operating losses 36 million incurred prior ownership change subject limitation 01 million annually subject increases builtin gains limitation results 457388 net operating loss carryforwards expiring unutilized therefore deferred tax asset attributable expiring net operating losses 155512 reversed possible future substantial changes ownership could occur could result additional ownership changes pursuant internal revenue code section 382 ownership change occur would annual limitation remaining net operating loss tax credit carryforwards utilized based projections future taxable income expect utilize largest portion net operating loss carryforward next five six years finally since net operating loss carryforwards begin expire 2019 based projections future financial reporting income expect utilize net deferred income tax assets 139 million 03 million state tax valuation allowance next six seven years october 22 2004 american jobs creation act “the ajca” signed law ajca provides deduction income qualified domestic production activity “qpa” phased 2005 2010 pursuant fasb staff position 1091 “application sfas 109 accounting income taxes tax deduction qualified production activity provided ajca” effect deduction reported period claimed tax return qpa deduction expected available us starting fy2006 deduction available year tax loss taxable income due operating loss carryforwards net operating loss carryforwards analysis required order determine timing impact qpa financial statements return qpa ajca provides twoyear transition existing extraterritorial income exclusion “eti” tax benefit foreign sales world trade organization wto ruled illegal export subsidy eti benefit fully phased us fy2007 eti benefit us approximately 40000 43000 fiscal years 2005 2004 net income following table sets forth certain information regarding net income related per share data fiscal years ended april 30 2005 2004 2003 increase net income net income per share fiscal 2005 resulted primarily reduction operating expenses fiscal 2004 spending included 1977537 related discontinued crossings catalog advanced technology divisions 1000931 related restructuring costs relative closing corporate office scottsdale 2494729 related legal accounting fees relative restatement financial statements fiscal 2002 first three quarters fiscal 2003 sec inquiry fiscal 2005 results also reflected benefit agreement reached one insurance carriers included net cash refund approximately 20 million decrease net income net income per share fiscal 2004 resulted primarily comparative effect income tax valuation allowance reversed fiscal 2003 approximately 160 million resulted income tax benefit reversal allowance triggered improved profitability likelihood would able utilize income tax loss carryforwards addition losses associated crossings catalog advanced technology divisions restructuring charges incurred third quarter costs related restatement sec inquiry eroded profitability fiscal 2004 adoption sfas 123r record additional stock compensation expense 626000 820000 1654000 year end april 30 2005 2004 2003 respectively liquidity capital resources principal cash requirements finance growth firearms licensing operations service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain information relative cash flow fiscal years ended april 30 2005 2004 2003 operating activities represent principal source cash flow cash flow operating activities increased 5535289 fiscal 2005 compared fiscal 2004 improvement operating cash flow fiscal 2004 attributable improved profitability enhanced use tax loss carry forwards accounts receivable improved substantially year result collecting open receivable fiscal 2004 fourth quarter sales promotion inventories increased 40 million result increased volume replenishing finished goods inventory depleted normal levels fourth quarter fiscal 2004 cash flow operating activities increased 2424574 fiscal 2004 compared fiscal 2003 improvement operating cash flow fiscal 2004 attributable improved profitability launched aggressive sales promotion campaign january 2004 program included extended payment terms distributors result accounts receivable collections lower historical levels program resulted higher sales fourth quarter fiscal 2004 cash impact felt fiscal 2005 cash provided investing activities totaled 16097297 compared cash use 6840766 fiscal 2004 increase 22938063 collateralized cash deposits decreased 22673059 result refinancing completed january 2005 capital expenditures 8423144 fiscal 2005 2746530 higher fiscal 2004’s capital expenditures 5676614 capital expenditures fiscal 2005 three times depreciation expense year intend spend approximately 120 million capital expenditures fiscal 2006 internally financed cash used investing activities increased 2453877 fiscal 2004 partially result 1503196 increase capital expenditures collateralized cash deposits increased 1160059 result banking agreements relative forwardexchange contracts purchased 23231193 increase cash used financing activities fiscal 2005 resulted repayment 27000000 tomkins note well refinancing banknorth debt january 2005 incurred 654843 costs relative refinancing effort 1188437 decrease cash used financing activities fiscal 2004 resulted repayment 2357425 debt fiscal 2003 compared 1090498 fiscal 2004 repayment note banknorth primary bank commenced april 2004 principal payments tomkins note commenced may 2004 april 30 2005 open letters credit aggregating 51 million april 30 2005 4081475 cash equivalents hand 17 million revolving line credit banknorth well access 5 million line starting may 1 2005 capital expenditures matters inflation believe inflation material impact us fiscal 2005 2004 2003 critical accounting policies use estimates preparation financial statements use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenues expenses reporting periods significant estimates include accruals warranty product liability workers compensation environmental liability excess obsolete inventory medical claims payable actual results could differ estimates revenue recognition recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment substantial portion revenues product sales also provide tooling forging heat treating finishing plating engineering support services customers revenues recognized accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenues individual licensees quarterly basis based actual receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenues payable calendar quarter basis fees received upon initial signing license agreements recognized revenues result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore initially recognize minimum royalty payments instead record revenue minimum royalty paid april 30 2005 minimum royalties collected future amounted approximately 61 million product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel exclusive insurance reimbursements adjustments provision product liability evaluated ongoing basis charged credited cost sales evaluation based upon information regarding potential existing product liability cases future costs result evaluation recorded considered probable reasonably estimable time estimated range reasonably possible additional losses term defined sfas 5 zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made april 30 2005 reserve 37 million environmental matters recorded undiscounted basis stock options account stockbased employee compensation arrangements accordance provisions statement financial accounting standards 123r sharedbased payments revised sfas 123r compensation cost calculated date grant using black scholes method compensation expense amortized vesting period recent accounting pronouncements november 2004 financial accounting standards board fasb issued statement financial accounting standards 151 “inventory costs amendment arb 43 chapter 4” fas 151 fas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted material additionally fas 151 requires allocation fixed production overhead inventory based normal capacity production facilities provisions fas 151 applicable inventory costs incurred fiscal years beginning june 15 2005 adoption statement expected material effect company’s consolidated financial position results operations cash flows december 2004 fasb issued statement financial accounting standards 123 “sharebased payment” revised 2004fas 123r adopted sfas 123r using modified retrospective application method resulted restatement prior years see footnote 24 december 2004 fasb issued statement financial accounting standards 153 “exchanges nonmonetary assets amendment apb opinion 29” fas 153 statement eliminates exception measure exchanges fair value exchanges similar productive assets replaces general exception exchange transactions commercial substance fas 153 effective nonmonetary exchanges fiscal periods beginning june 15 2005 adoption statement expected material effect company’s consolidated financial position results operations cash flows contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2005 offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operation read following discussion analysis conjunction consolidated financial statements related notes contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report overview highlights fiscal 2007 net product services sales approximately 2348 million represented increase 487 fiscal 2006 sales firearms core business increased 501 approximately 2213 million net income fiscal 2007 increased 43 million 490 fiscal 2006 net income number initiatives took place fiscal 2007 contributed improvement results including following • acquired thompsoncenter arms january 3 2007 part initiative enter long gun market 80 larger handgun market four months owned company fiscal 2007 contributed approximately 225 million sales approximately 200 million firearms • mp series pistols production one year 80 win rate law enforcement test evaluations participated • similarly mp15 tactical rifle 96 law enforcement test evaluations participated first full year sales rifle selected approved 82 law enforcement agencies duty weapon • regional employeebased sporting goods sales force effect full year favorable results sporting goods channel increased 352 fiscal 2007 excluding thompsoncenter arms acquisition continued growth quarter since implementation sales force replacement independent manufacturers’ representatives • invested 156 million machinery equipment investment related expansion pistol business pistols represent 75 domestic handgun market pistol sales grew 60 fiscal 2007 restatementsec inquiry august 2003 amended various reports previously filed sec modify certain accounting matters related acquisition smith wesson corp restated form 10ksb report fiscal year ended april 30 2002 well form 10qsb reports quarters ended july 31 2001 2002 october 31 2001 2002 january 31 2002 2003 form 10ksb report fiscal year ended april 30 2003 filed december 2003 included restated financial statements fiscal 2002 amended form 10qsb reports july october quarters filed january 2004 amended form 10qsb reports january quarters filed march 2004 sec conducting informal inquiry regarding circumstances surrounding restatement cooperating fully sec inquiry still ongoing management objectives fiscal 2005 added several new senior managers company including new chief executive officer december 2004 new management team assessing business including conducting extensive market research smith wesson brand firearms market competitors research determined smith wesson brand stands safety security protection sport management team decided focus strategy around four items future ventures licensing opportunities fit umbrella safety security protection sport view opportunities company extend beyond firearms belief supported brand research identified several areas smith wesson brand strong recognition prospective buyers continue focus firearms increased emphasis military law enforcement markets also look beyond firearms using safety security protection sport guide determining business expansion business largest handgun manufacturer united states offer one broadest lines handguns industry product line consists revolvers pistols entered long gun market fiscal 2006 introduction mp15 rifle fiscal 2007 continued expand product offerings long gun market acquisition thompsoncenter arms introduction line smith wesson shotguns introduction smith wesson boltaction rifle also one largest manufacturers handcuffs restraints united states key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use ebitda earnings interest taxes depreciation amortization evaluate performance evaluate various product lines measurements cost per unit produced units produced per day incoming orders per day key industry data handgun market united states remained relatively constant past 10 years handguns subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun market increased 50 consumers purchased handguns fear prohibition handgun ownership market levels returned pre1992 levels remained relatively unchanged within us handgun market approximately 75 market pistols 25 revolvers largest manufacturer revolvers pistols united states limited market data available firearms industry federal excise tax collections represent best measurement us market share us government issues information quarterly basis comparing tax payment reported collection estimate market share based upon recent data believe approximately 22 share us consumer market handguns compares 10 period acquired smith wesson corp 2001 also compares favorably market share figures 1990s estimated 16 market share results operations net product services sales following table set forth certain information relative net product services sales fiscal years ended april 30 2007 2006 2005 fiscal 2007 net product services sales compared fiscal recorded net product services sales 234837707 fiscal 2007 increase 76962990 487 fiscal 2006 levels firearms sales increased 73871074 501 thompsoncenter arms sales accounted 19998504 firearms sales increase excluding thompsoncenter arms firearms sales increased 53872570 365 total firearm unit sales fiscal 2007 excluding thompsoncenter arms approximately 559000 units increase 350 fiscal 2006 sales approximately 414000 units nonfirearm sales fiscal 2007 increased 3091916 296 fiscal 2006 levels result higher demand handcuffs addition thompsoncenter arms specialty services retail operations revolver sales increased 2628888 43 fiscal 2007 64070183 sale small frame revolvers fueled increase revolver sales increase number states passing concealed carry laws increased demand smaller revolvers personal protection revolver order backlog 11711850 april 30 2007 pistol sales 78157410 29229700 597 higher fiscal 2006 increase pistol sales attributable full year impact mp pistol including introduction 9mm 45 caliber models well increased consumer demand sigma series pistols pistol order backlog 8652943 april 30 2007 sales walther firearms exclusive us distributor 23262291 fiscal 2007 increase 7287112 456 previous fiscal year increase walther sales attributable realigned sales force increased focus retail level product perspective walther p22 ppk pistols primary beneficiaries increased sales effort walther order backlog 3086285 april 30 2007 performance center sales fiscal 2007 increased 759519 82 9979255 custom variations model 460 500 revolvers custom tactical rifle fueled sales growth fiscal 2007 performance center backlog stood 1159085 april 30 2007 engraving sales increased 2464803 410 8474554 fiscal 2007 continue add marketing sales emphasis profitable line classic revolvers introduced shot show january 2007 expanded line hunting rifle sales 17049111 represented thompsoncenter arms sales january 3 april 30 2007 postacquisition period thompsoncenter arms sales increased 21 comparable period last year increase attributable introduction triumph line muzzleloaders increased production capacity meet demand rifle barrel production increased 27 since acquisition lean manufacturing initiatives launched thompsoncenter arms january 2007 order backlog thompsoncenter arms 30209106 april 30 2007 tactical rifles introduced 2006 shot show first full year tactical rifle sales 12753460 10789784 increase fiscal 2006 mp15 tactical rifle manufactured third party specifications introduced january 2006 result significant demand product supplier’s inability keep demand began assemble mp15 rifles springfield facility january 2007 tactical rifle backlog 3802263 april 30 2007 shot show january 2007 introduced smith wesson line fixedaction semiautomatic shotguns new product line results strategic alliance manufacturer turkey shotguns manufactured specifications dedicated facilities turkey owned strategic partner facilities began come line fourth quarter fiscal 2007 impact sales 130716 backlog shotguns 2675178 april 30 2007 firearms sales 7429014 increased 3531441 906 increase largely due addition thompsoncenter arms black powder accessories sales black powder accessories period postacquisition totaled 2949393 nonfirearms sales increased 3091916 296 13531713 reflecting increased demand handcuffs addition thompsoncenter arms foundry operations included specialty services handcuff sales increased 1080512 212 6168429 fiscal 2007 postacquisition thompsoncenter arms foundry operations accounted 1416490 3863614 specialty services sales fiscal 2007 sales consumer channel accounted approximately 1818 million 627 million 526 increase sales 1191 million fiscal 2006 included consumer sales approximately 225 million thompsoncenter arms sales postacquisition period january 3 april 30 2007 excluding thompsoncenter arms sales consumer sales grew rate 337 sales state local government agencies approximately 230 million 128 million 1258 increase fiscal 2006 102 million increase sales state local governmental agencies resulted introduction mp pistol increased emphasis law enforcement sales international sales approximately 193 million represented 18 million 101 increase fiscal 2006 sales federal government sales 107 million 276000 lower fiscal 2006 sales 110 million new contracts products use afghanistan awarded fiscal 2007 fiscal 2006 net product services sales compared fiscal recorded net product services sales 157874717 fiscal 2006 increase 33910744 274 fiscal 2005 levels firearms sales increased 33875064 298 total handgun unit sales fiscal 2006 approximately 414000 units increase 282 fiscal 2005 sales approximately 323000 units nonfirearm sales fiscal 2006 increased 35680 03 fiscal 2005 result higher demand handcuffs partially offset lower specialty services sales revolver sales increased 7420175 137 fiscal 2006 61441295 sale small frame revolvers fueled increase revolver sales increase number states passing concealed carry laws increased demand smaller revolvers personal protection sales extra large frame revolvers slightly result introduction model 460 revolver order backlog 6280980 april 30 2006 pistol sales 48927710 19976852 690 higher fiscal 2005 pistol sales increase pistol sales attributable sales sigma pistols us government afghanistan national police border patrol well introduction mp pistol order backlog 21111169 april 30 2006 january 2006 introduced mp15 tactical rifle first entry long gun market sales fiscal 2006 totaled 1963676 production ramped course fourth quarter tactical rifle backlog 8188834 april 30 2006 exclusive us distributor walther firearms walther sales totaled 15975179 fiscal 2006 decrease 1333261 77 previous fiscal year decrease walther sales attributable lower demand p99 pistol g22 rifle sales ppk pistol manufacture houlton maine increased 12 including engraved 75th anniversary model walther order backlog 3445409 april 30 2006 performance center sales fiscal 2006 increased 734936 87 9219736 custom variations model 500 model 460 revolver responsible increase sales performance center order backlog 2521553 april 30 2006 engraving sales fiscal 2006 increased 4304683 6009751 2525 increase sales resulted emphasis profitable segment highend highmargin engraved handguns nonfirearms sales increased 35680 03 fiscal 2006 result higher handcuff sales partially offset lower specialty services sales handcuff sales increased 824909 194 result increased sales efforts specialty services sales reflected lower demand forging heattreating services sales within consumer market channel accounted approximately 1191 million 175 million 172 increase fiscal 2005 consumer sales approximately 1016 million sales state local federal government agencies 212 million 99 million 872 increase fiscal 2005 sales international sales 176 million 67 million 611 increase fiscal 2005 license revenue following table sets forth certain information relative license revenue fiscal years ended april 30 2007 2006 2005 license revenue fiscal 2007 decreased 459582 211 fiscal 2006 license revenue fiscal 2006 included approximately 350000 additional royalty payments following audit determined one licensees underpaid royalties due us addition terminated agreements 5 licensees accounted 171500 licensing revenue fiscal 2006 added 11 licensees fiscal 2007 continue focus areas synergy core products brand customer base license revenue fiscal 2006 increased 349830 192 fiscal 2005 levels noted increase license revenue result additional royalty payments following audit determined one licensees underpaid royalties due us fiscal 2005 reached agreement one licensees regarding termination agreement licensee agreed pay 175000 buyout future minimum guaranteed payments onetime benefit recur fiscal 2006 cost revenue gross profit following table sets forth certain information regarding cost revenue gross profit fiscal years ended april 30 2007 2006 2005 gross profit fiscal 2007 76337835 increase 26730836 539 fiscal 2006 gross profit gross profit percentage net revenue 323 fiscal 2007 compared 310 fiscal 2006 cost sales fiscal 2007 included 2705000 additional costs resulting revaluation fair market value thompsoncenter arms inventory excluding acquisitionrelated charge gross profit percentage net revenue would 334 26730836 increase gross profit included 5738146 thompsoncenter arms postacquisition period january 3 april 30 2007 remaining 20992690 increase gross profit attributable increased sales volume increased leveraging manufacturing fixed expenses process improvements continue maintain control spending increasing production capacity firearms sales excluding thompsoncenter arms increased 365 fixed expenses increased 186 almost 60 increase attributable additional depreciation expense higher utility costs depreciation expense manufacturing area increased 1202822 fiscal 2006 utility expenses increased 1011462 272 fiscal 2006 warranty expense 1931346 increased 668302 529 fiscal 2006 warranty expense 1263044 included fiscal 2007 warranty expense cost performance center model 460 recall amounted 160000 balance increase attributable higher sales volume addition thompsoncenter arms thompsoncenter arms accounted 117742 increase warranty expense gross profit fiscal 2006 49606999 8718981 213 increase fiscal 2005 gross profit gross profit percentage net revenue declined 325 fiscal 2005 310 fiscal 2006 cost revenue sold fiscal 2005 included approximately 41 million favorable insurancerelated adjustments reimbursement defense costs previously paid us higher sales volume responsible increase gross profit partially offsetting increase higher sales increased depreciation expense higher utility costs depreciation expense included cost revenue increased 1370061 1937103 fiscal 2005 3307164 fiscal 2006 result increased capital expenditures past two years utility costs increased substantially second half fiscal 2006 result rising oil prices impact hurricane katrina utility costs charged cost revenue increased 2637985 fiscal 2005 3712583 fiscal 2006 1074598 407 increase increases cost raw materials minimized combination alternative suppliers process changes warranty expense declined fiscal 2006 276356 180 1539400 fiscal 2005 1263044 fiscal 2006 despite higher sales volume reflecting lower cost revolver repairs operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2007 2006 2005 operating expenses fiscal 2007 increased 16846493 480 fiscal 2006 levels operating expenses thompsoncenter arms postacquisition period january 3 april 30 2007 accounted 7551929 increase fiscal 2006 operating expenses net 3087810 reduction environmental reserves remaining 6206754 increase spending included 785292 increase research development 2380066 increase sales marketing expense 2951162 increase general administrative expenses 90234 environmental expenses 785292 increase research development related work new smith wesson ibolt rifle introduced nra show april 2007 2380066 increase sales marketing expense reflected full year impact expanded consumer sales efforts sales compensation expense increased 1512782 fiscal 2007 travel expense increased 556127 marketing consulting increased 377086 advertising expense excluding thompsoncenter arms declined 83260 due substantial launch costs mp pistol fiscal 2006 2951162 increase general administrative expenses included 2352616 additional profit sharing expense 786760 additional compensation expense 481798 stockbased compensation expense partially offset 1004386 reduction professional fees due primarily inclusion prior fiscal year firstyear costs implementation internal controls compliance section 404 sarbanesoxley act fiscal 2006 operating expenses percentage net revenue 219 fiscal 2007 equal fiscal 2006 ratio excluding onetime reduction environmental reserves fiscal 2006 fiscal 2006 operating expenses percentage net revenue 238 general administrative expense 2007 includes 1630076 amortization intangibles established acquisition thompsoncenter arms operating expenses fiscal 2006 increased 5355653 180 fiscal 2005 operating expenses net 3087810 reduction environmental reserves resulting completion remediation property sold city springfield february 2003 purchase sale agreement required buyer pay remediation costs maintained reserve books remediation completed may 2005 spending environmental adjustment increased 8443463 284 selling marketing expenses increased 2964732 fiscal 2006 incurred 2196010 additional salaries fringe benefits result expansion sales marketing efforts including switch employee sales force combination direct sales personnel manufacturers’ representatives also incurred 638635 additional travel expense resulting primarily switch employee sales force manufacturers’ representatives saved 1067723 commissions independent sales representatives result transition also incurred additional 1201459 advertising expense result promotional costs related introduction mp pistol nascar sponsorship higher coop advertising costs related increased sales volume general administrative expenses fiscal 2006 5373485 higher previous year salaries fringes increased 2615563 previous fiscal year amount includes 175 million senior middle management bonuses 398000 payroll taxes related warrants exercised september two former officers stock option expense 2139693 increase 1513543 fiscal 2005 expense 626150 increase stock option expense related primarily increase stock price full year impact options granted new employees second half fiscal 2005 also incurred approximately 12 million professional fees relative implementation internal controls compliance reporting requirements section 404 sarbanesoxley act 2002 income operations following table sets forth certain information regarding income operations fiscal years ended april 30 2007 2006 2005 operating income 24428662 fiscal 2007 increase 9884343 680 compared operating income 14544319 fiscal 2006 thompsoncenter arms posted operating loss 1813783 postacquisition period january 3 april 30 2007 thompsoncenter arms operating loss included 2705000 cost revenue related revaluation acquired inventory fair market value increase operating income attributable increased sales volume continued leveraging fixed manufacturing costs controlled spending fiscal 2006 included 3087810 reduction environmental reserves excluding benefit operating income fiscal 2006 11456509 72 net revenue operating income 14544319 fiscal 2006 increase 3363328 301 operating income 11180991 fiscal 2005 increase operating income attributable higher sales volume partially offset higher depreciation utility expense well higher spending selling marketing general administrative expenses fiscal 2006 included 3087810 environmental reserve reduction fiscal 2005 included 41 million onetime insurance adjustments refunds incomeexpense following table sets forth certain information regarding incomeexpense fiscal years ended april 30 2007 2006 2005 expense totaled 497060 fiscal 2007 compared income 745577 fiscal 2006 unfavorable variance 1242637 incurred 571665 exchange losses related purchase inventory walther compared 462358 exchange gains fiscal 2006 income totaled 745577 fiscal 2006 compared expense 120373 fiscal 2005 865950 improvement included income 462358 exchange gains related purchase inventory walther also received refund 126006 industry dues interest income following table sets forth certain information regarding interest income fiscal years ended april 30 2007 2006 2005 interest income 216953 fiscal 2007 increased 104631 fiscal 2006 levels increase attributable higher cash balance hand primarily december january 80000000 proceeds convertible debt offering completing acquisition thompsoncenter arms interest income 112322 fiscal 2006 represented decline 177879 fiscal 2005 levels result refinancing occurred january 2005 approximately 227 million cash held collateral debt prior january 2005 refinancing cash used repay debt part refinancing interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2007 2006 2005 interest expense increased 1930769 fiscal 2007 result additional debt incurred fiscal 2007 acquire thompsoncenter arms december 2006 completed 80000000 convertible debt offering provide funds thompsoncenter arms acquisition also borrowed 28000000 acquisition line credit td banknorth january 2007 fund balance acquisition cost interest expense declined 1037351 fiscal 2006 result refinancing completed january 2005 income taxes following table sets forth certain information regarding income tax expense fiscal years ended april 30 2007 2006 2005 income tax expense fiscal 2007 7617830 compared income tax expense 5062617 fiscal 2006 3426490 fiscal 2005 tax provision fiscal 2006 included effect federal state deferred tax rate change 358687 tax provision fiscal 2005 included 155512 adjustment resulting writeoff internal revenue code section 382 limitation federal net operating loss carryforward 457388 60826 tax expense related tax adjustments exercises employee stock options sfas 123r income tax expense includes deferred income taxes arising temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled approximately 79 million valuation allowance well net deferred tax liabilities totaled approximately 236 million april 30 2007 net tax assets liabilities changed substantially year ended april 30 2007 change occurred primarily result acquisition thompsoncenter arms january 2007 required fasb statement 109 recorded tax assets liabilities temporary differences book value tax bases assets liabilities purchase date assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered valuation allowance established deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position valuation allowance approximately 26000 provided deferred federal tax assets capital loss carryforward anticipate using prior expiration valuation allowance provided deferred federal income tax assets april 30 2007 2006 2005 believe likely assets realized addition maintained valuation allowance approximately 42000 300000 state deferred tax assets april 30 2006 2005 respectively valuation allowance specifically relates state net operating loss carryforwards uncertainty related recognition benefit attributable state net operating losses reached conclusions considering changes business well availability taxable income prior carryback years tax planning strategies likelihood generating future taxable income exclusive reversing temporary differences carryforwards differences forecasted actual future operating results could adversely impact ability realize deferred tax assets federal net operating loss carryforwards amounting 25 million 42 million 109 million april 30 2007 2006 2005 respectively net operating loss carryforward april 30 2007 expires fiscal years 2019 2020 internal revenue code section 382 limits utilization losses 108161 per year effective april 30 2005 determined 457388 net operating loss carryforwards expire unutilized therefore related deferred tax asset 155512 reversed tax expense fiscal 2005 possible future substantial changes ownership could occur could result additional ownership changes pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards utilized federal net operating losses account 03 million total net deferred tax liability 157 million 12 million 107 million net deferred tax assets april 30 2007 2006 respectively state net operating loss carryforwards amounted 12 million 65 million april 30 2006 2005 respectively state net operating loss carryforwards end fiscal 2007 october 22 2004 american jobs creation act ajca signed law ajca provides deduction income qualified domestic production activity qpa phased 2005 2010 pursuant fasb staff position 1091 “application sfas 109 accounting income taxes tax deduction qualified production activity provided ajca 2004” effect deduction reported period claimed tax return qpa benefit us approximately 430000 fiscal 2007 resulted reduction tax expense 150500 fiscal 2007 benefit available fiscal 2006 2005 taxable income due operating loss carryforwards annual deduction remaining federal net operating loss carryforward limited internal revenue code section 382 unfavorable impact future benefits qpa negligible return qpa ajca provides twoyear transition existing extraterritorial income exclusion eti tax benefit foreign sales world trade organization wto ruled illegal export subsidy eti benefit fully phased us fiscal 2007 eti benefit us approximately 38500 85000 fiscal 2007 2006 respectively net income following table sets forth certain information regarding net income related per share data fiscal years ended april 30 2007 2006 2005 increase net income net income per share fiscal 2007 attributable 487 increase sales well improvements gross profit operating income margins resulting controlled spending increase net income net income per share fiscal 2006 attributable 274 increase sales 3087810 benefit reduction environmental reserves 1037351 reduction interest expense driven refinancing took place january 2005 fiscal 2005 results also reflected 41 million benefit agreement reached one insurance carriers included net cash refund approximately 20 million increase net income net income per share fiscal 2005 resulted primarily reduction operating expenses liquidity capital resources principal cash requirements finance growth firearms operations service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2007 2006 2005 excluding cash activity relating thompsoncenter arms acquisition operating activities represent principal source cash flow cash flow operating activities increased 4620385 fiscal 2007 fiscal 2006 levels improvement operating cash flow fiscal 2007 attributable improved profitability partially offset larger increase working capital fiscal 2007 realized fiscal 2006 accounts receivable increased 16981276 fiscal 2007 60 million related increased activity thompsoncenter arms since january 3 2007 acquisition date remaining 110 million due record fourth quarter sales springfield houlton facilities sales quarter excluding thompsoncenter arms 634 million 116 million higher similar period last year noncash expenses depreciation amortization deferred taxes significant impact fiscal 2007 results depreciation amortization increased 3106187 result increased capital spending acquisitionrelated intangible assets net deferred taxes liability decreased 6228884 primarily resulting book deduction acquisitionrelated assets tax deductible significant changes reserves represent timing difference tax purposes fiscal 2006 cash flow operating activities increased 4793152 fiscal 2005 levels improvement operating cash flow fiscal 2006 attributable improved profitability enhanced use tax loss carryforwards noncash expenses depreciation stockbased compensation expense also significant impact fiscal 2006 results depreciation amortization increased 1609925 stockbased compensation expense increased 1631882 substantial increase accounts receivable april 30 2006 reflected record sales month april 2006 sales month 256 million 116 million higher april 2005 addition receivable insurance carriers reported assets reduced 4534489 reflect dismissal cases corresponding reduction potential liability related claims excluding 103341585 used acquire thompsoncenter arms cash used investing activities totaled 14754219 847890 reduction cash used fiscal 2006 usage primarily due 1000000 received springfield redevelopment authority part final payment 85 acres land sold fiscal 2003 capital expenditures fiscal 2007 15656861 cash used investing activities totaled 15602109 fiscal 2006 compared 16139844 provided investing activities fiscal 2005 decrease 31741953 capital expenditures 15592203 fiscal 2006 compared 8423144 fiscal 2005 fiscal 2005 collateralized cash deposits totaling 22673059 used repay debt part refinancing completed january 2005 cash generated financing activities fiscal 2007 included 800 million convertible debt 280 million finance acquisition thompsoncenter arms partially offset 4605336 debt financing costs cash generated financing activities totaled 1059344 fiscal 2006 compared cash used financing activities 23968476 fiscal 2005 improvement 25027820 fiscal 2006 sold 6000000 shares common stock warrants purchase common stock private equity placement proceeds sale 24375943 proceeds sale used repurchase 8970300 common stock warrants two former officers company cost 23950701 proceeds exercise common stock warrants totaled 1729096 fiscal 2006 compared 980981 fiscal 2005 fiscal 2005 completed refinancing resulted repaying 270 million note tomkins corporation combination collateralized cash deposits proceeds 180 million note obtained td banknorth na april 30 2007 open letters credit aggregating 3642125 april 30 2007 4065328 cash equivalents hand 17000000 revolving line credit td banknorth 15000000 revolving line credit citizens bank outstanding balances either line april 30 2007 based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months matters inflation believe inflation material impact us fiscal 2007 2006 2005 critical accounting policies use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter estimates respect adequacy insurance reserves significant estimates assumptions used us preparation financial statements relate reserves established uncollectible accounts receivable obsolete slow moving inventory certain accrued liabilities including product environmental warranty liabilities workers’ compensation revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account substantial portion revenues recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenues accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenues individual licensees quarterly basis based actual receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenues payable calendar quarter basis recognize fees received upon initial signing license agreements revenues future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore initially recognize minimum royalty payments instead record revenue monthly minimum royalty reasonably estimated month payment assured april 30 2007 minimum royalties collected future amounted approximately 68 million valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets including goodwill intangible assets indefinite lives susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology customer relationships patents trademarks tradenames finitelived intangible assets amortized based upon patterns economic benefits customer relationships expected utilized values intangible assets exception goodwill intangible assets indefinite lives initially determined riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance sfas 142 “goodwill intangible assets” test goodwill intangible assets indefinite lives impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions sfas 142 respect criteria necessary evaluate number reporting units exist based review determined operate one reporting unit based assessment impairment charges history result impairment evaluation goodwill indefinitelived intangible assets sfas 142 accordance sfas 144 “accounting impairment disposal longlived assets” periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis impairment charges taken fiscal 2007 2006 2005 based review longlived assets sfas 144 significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including limited technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit andor c changes previous assumptions estimates turn could significant impact consolidated financial statements accelerated amortization andor impairment charges accounting acquisitions completed significant business acquisition fiscal 2007 resulted significant goodwill intangible asset balances future business strategy contemplates may continue pursue additional acquisitions future accounting acquisitions involves significant judgments estimates primarily limited fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally sfas 142 determine fair value reporting unit purposes first step annual goodwill impairment test based market value prior future acquisitions accretive results operations expected market value declines dramatically determine one reporting unit may required complete second step requires significant judgments estimates may result material impairment charges period determined product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs result evaluation recorded considered probable reasonably estimable time estimated range reasonably possible additional losses term defined statement financial accounting standards “sfas” 5 “accounting contingencies” zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made april 30 2007 reserve approximately 829000 environmental matters recorded undiscounted basis inventory value inventories primarily consisting finished firearms components finished firearms related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide lifetime warranty “original” purchaser new firearms products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign distributors based financial condition offer discounts early payment believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying currently enacted tax laws workers’ compensation selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis stockbased compensation account stockbased employee compensation arrangements accordance provisions sfas 123r “sharedbased payment revised” sfas 123r compensation cost calculated date grant using blackscholes method compensation expense amortized vesting period fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables recent accounting pronouncements february 2006 financial accounting standards board “fasb” issued statement financial accounting standards “sfas” 155 “accounting certain hybrid financial instruments” amends sfas 133 “accounting derivative instruments hedging activities” sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 earlier adoption permitted provided yet issued financial statements including interim periods fiscal year expect adoption sfas 155 material impact financial position results operations cash flows june 2006 fasb ratified consensus emerging issues task force “eitf” issue 0603 “how taxes collected customers remitted governmental authorities presented income statement” scope eitf issue 0603 includes tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added universal service fund “usf” contributions excise taxes task force affirmed conclusion entities present taxes income statement either gross net basis based accounting policy disclosed pursuant apb opinion 22 disclosure accounting policies taxes significant presented gross basis amounts taxes disclosed consensus eitf issue 0603 effective interim annual reporting periods beginning december 15 2006 currently evaluating impact eitf issue 0603 need change manner record gross receipts expected change would material impact total revenue expenses operating income net income would affected june 2006 fasb issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance fasb statement 109 accounting income taxes fin 48 prescribes recognition threshold measurement tax position taken expected taken tax return fin 48 effective fiscal years beginning december 15 2006 currently evaluating impact adoption fin 48 consolidated financial statements march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” sfas 156 requires separately recognized servicing rights initially measured fair value practicable addition statement permits entity choose two measurement methods amortization method fair value measurement method class separately recognized servicing assets liabilities new accounting standard effective january 1 2007 adoption sfas 156 expected impact financial position results operations cash flows september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years earlier application encouraged yet determined effect adoption sfas 157 financial position results operations cash flows september 2006 fasb issued sfas 158 “employers’ accounting defined benefit pension postretirement plan amendment fasb statements 87 88 106 132r” sfas 158 requires employer recognize overfunded underfunded status defined benefit postretirement plan multiemployer plan asset liability statement financial position recognize changes funded status year changes occur comprehensive income sfas 158 also requires measurement defined benefit plan assets obligations fiscal year end addition footnote disclosures common stock publicly traded equity security required recognize funded status defined benefit pension plans provide required footnote disclosures end fiscal year ending april 30 2007 effect adopting sfas adjustment accumulated comprehensive income 72651 september 2006 fasb issued fasb staff position aug air1 “fsp” “accounting planned major maintenance activities” eliminates accrueinadvance method acceptable method accounting planned major maintenance activities fsp applicable fiscal years beginning december 15 2006 requires retrospective application financial statements presented believe impact adoption fsp material impact financial statements september 2006 sec issued sab 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” provide guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 companies evaluate misstatement based impact current year income statement well cumulative effect correcting misstatements existed prior years existing current year’s ending balance sheet sab 108 effective fiscal years ending november 15 2006 adoption sab 108 effect consolidated financial statements december 2006 fasb issued fsp eitf 00192 “accounting registration payment arrangements” fsp eitf 00192 specifies contingent obligation make future payments otherwise transfer consideration registration payment arrangement whether issued separate agreement included provision financial instrument agreement separately recognized measured accordance fasb statement 5 “accounting contingencies” registration payment arrangements financial instruments subject arrangements entered prior issuance fsp eitf 00192 guidance effective financial statements issued fiscal years beginning december 15 2006 evaluating impact fsp eitf 00192 may consolidated financial statements february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” permits entities choose measure eligible items fair value specified election dates unrealized gains losses items fair value option elected reported earnings subsequent reporting date following balance sheet items within scope sfas 159 • recognized financial assets financial liabilities unless special exception applies • firm commitments would otherwise recognized inception involve financial instruments • nonfinancial insurance contracts • financial instruments resulting separation embedded nonfinancial derivative instrument nonfinancial hybrid instrument sfas 159 effective fiscal years beginning november 2007 early adoption possible subject certain requirements expect adoption sfas 159 material impact consolidated financial statements contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2007 december 15 2006 issued sold aggregate 80000000 4 senior convertible notes due 2026 “notes” qualified institutional buyers pursuant terms conditions indenture securities purchase agreement dated december 15 2006 notes convertible shares common stock initially conversion price approximately 1234 per share subject adjustment certain events 810636 shares per 1000 principal amount notes may converted time notes pay interest june 15 december 15 year beginning june 15 2007 annual rate 4 unpaid principal amount december 15 2009 december 15 2011 company may election redeem portion notes redemption price 100 principal amount notes plus accrued unpaid interest closing price company’s common stock fewer 20 trading days period 30 consecutive trading days exceeds 150 applicable conversion price notes december 15 2011 company may redeem election portion notes redemption price 100 principal amount notes plus accrued unpaid interest holders notes may require company repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company price 100 principal amount notes plus accrued unpaid interest including contingent interest redeemed company repaid pursuant holders’ right require repurchase notes mature december 15 2026 included 1534 million longterm debt obligation 128 million contractually obligated interest payments pertaining 800 million convertible debt amount represents interest payments december 15 2011 first redemption milestone company may required pay additional interest subsequent december 15 2011 redemption date however due uncertainty subsequent interest payments reflected table offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis conjunction consolidated financial statements related notes contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report highlights fiscal 2008 net product services sales approximately 2939 million represented increase 252 fiscal 2007 levels sales firearms core business increased 239 approximately 2741 million net income fiscal 2008 decreased 38 million 296 fiscal 2007 net income net income affected numerous factors including following • domestic consumer firearms market experienced decline demand commencing second fiscal quarter timing decline coincident escalation sub prime loan crisis tightening credit markets continued worsening housing market increasing fuel prices less robust employment growth generally weak economic conditions factors contributed general slowdown consumer spending across wide variety industry product lines environment unseasonably warm weather throughout united states adversely affected retail traffic sporting goods channel time significant distribution channel purchases anticipation strong hunting season resulted unexpectedly high inventory levels limited ability distribution channel purchase additional products • sudden downturn firearms market inventory levels grew significantly order bring line demand implemented threeweek shutdown springfield facility third quarter oneweek shutdown rochester facility fourth quarter resulting unabsorbed overhead caused decrease gross profit net income 26 million • order stimulate movement dealer distributor inventory third fourth quarters implemented several consumerdriven promotional programs cumulatively cost 89 million • impact owning thompsoncenter arms full year fiscal 2008 resulted 524 million increase net product sales 200 million increase gross profit business one world’s leading manufacturers firearms manufacture wide array pistols revolvers tactical rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters protection focused individuals law enforcement agencies officers military agencies united states throughout world largest manufacturer handguns handcuffs united states largest us exporter handguns growing participant tactical hunting rifle markets recently entered manufacture products facilities springfield massachusetts houlton maine rochester new hampshire also market shotguns manufactured specifications dedicated facilities strategic alliance addition pursue opportunities license name trademarks third parties use association products services plan substantially increase product offerings licensing program leverage 150plus year old “smith wesson” brand capitalize goodwill developed historic american tradition expanding consumer awareness products produce license safety security protection sport markets key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use ebitdas earnings interest taxes depreciation amortization stockbased compensation expense evaluate performance evaluate various product lines measurements cost per unit produced units produced per day incoming orders per day key industry data handgun market united states remained relatively constant past 10 years handguns subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun market increased 50 consumers purchased handguns fear prohibition handgun ownership market levels returned pre1992 levels remained relatively unchanged within us handgun market estimate approximately 81 market pistols 19 revolvers also estimate approximately 19 share us consumer market handguns compares 10 period acquired smith wesson corp 2001 also compares favorably market share figures 1990s estimated 16 market share results operations net product services sales following table sets forth certain information relative net product services sales fiscal years ended april 30 2008 2007 2006 fiscal 2008 net product services sales compared fiscal recorded net product services sales 293851529 fiscal 2008 increase 59144538 252 fiscal 2007 levels firearm sales increased 52956721 239 impact owning thompsoncenter arms full fiscal year accounted 46569525 firearm sales increase excluding thompsoncenter arms firearm sales increased 6256480 31 total firearm unit sales fiscal 2008 excluding thompsoncenter arms approximately 589000 units increase 54 fiscal 2007 sales approximately 559000 units nonfirearm sales fiscal 2008 increased 6187817 457 fiscal 2007 levels result full year impact thompsoncenter arms specialty services retail operations revolver sales increased 6146654 96 fiscal 2008 70216837 sale small frame revolvers fueled increase revolver sales partially offset lower large frame revolver sales large frame revolvers adversely impacted weak fall hunting season revolver order backlog 6690883 april 30 2008 pistol sales 69639324 8518086 109 lower fiscal 2007 fiscal 2007 sales included 87 million pistol sales afghanistan military 62 million pistol sales california highway patrol comparable sales fiscal 2008 average selling price pistols reduced promotional programs implemented second half fiscal 2008 fiscal 2008 mp pistol sales increased 380 fiscal 2007 levels pistol order backlog 17450842 april 30 2008 sales walther firearms exclusive us distributor 27086830 fiscal 2008 increase 3824539 164 previous fiscal year increase walther sales attributable introduction pps sp22 pistols well strong international sales ppk pistol walther order backlog 6883378 april 30 2008 performance center sales fiscal 2008 decreased 355356 36 9623899 weak hunting season affected large frame performance center revolver sales performance center backlog stood 1115651 april 30 2008 engraving sales decreased 1981739 234 6492815 fiscal 2008 decline yearoveryear primarily related 50th anniversary commemorative model 29 introduced midfiscal 2007 drove sales significantly higher year hunting rifle sales 55195557 grew significantly fiscal 2007 primarily result full year impact owning thompsoncenter arms well impact sales icon ibolt rifles introduced 2007 shot show order backlog hunting rifles 10576364 april 30 2008 tactical rifle sales increased 3883481 305 16636941 fiscal 2008 second full year offered tactical rifle backlog 6680281 april 30 2008 began shipments fixedaction semiautomatic shotguns april 2007 shotguns manufactured specifications dedicated facilities turkey strategic alliance partner sales fiscal 2008 2413330 introduction line shotguns occurred weak fall hunting season making difficult gain traction market backlog shotguns 272152 april 30 2008 parts accessories sales 16826466 increased 9397452 1265 increase largely due full year impact selling thompsoncenter arms black powder accessories nonfirearm sales increased 6187817 457 19719530 reflecting full year impact thompsoncenter arms foundry operations included specialty services handcuff sales remained stable yearoveryear sales consumer channel approximately 2485 million 667 million 367 increase sales 1818 million fiscal 2007 full year impact thompsoncenter arms added approximately 524 million fiscal 2008 consumer sales excluding thompsoncenter arms sales consumer sales grew rate 89 sales state local government agencies approximately 219 million 11 million 47 decrease fiscal 2007 sales 230 million fiscal 2007 state local government sales included 62 million order california highway patrol excluding impact large order state local government sales increased 51 million 303 continued strong performance mp line firearms international sales approximately 214 million represented 21 million 108 increase fiscal 2007 sales federal government sales 34 million 73 million lower fiscal 2007 sales 107 million fiscal 2007 included 98 million product shipments afghanistan new contracts products use afghanistan awarded fiscal 2008 fiscal 2007 net product services sales compared fiscal recorded net product services sales 234837707 fiscal 2007 increase 76962990 487 fiscal 2006 levels firearm sales increased 73871074 501 thompsoncenter arms sales accounted 19998504 firearm sales increase excluding thompsoncenter arms firearm sales increased 53872570 365 total firearm unit sales fiscal 2007 excluding thompsoncenter arms approximately 559000 units increase 350 fiscal 2006 sales approximately 414000 units nonfirearm sales fiscal 2007 increased 3091916 296 fiscal 2006 levels result higher demand handcuffs addition thompsoncenter arms specialty services retail operations revolver sales increased 2628888 43 fiscal 2007 64070183 sale small frame revolvers fueled increase revolver sales increase number states passing concealed carry laws increased demand smaller revolvers personal protection revolver order backlog 11711850 april 30 2007 pistol sales 78157410 29229700 597 higher fiscal 2006 increase pistol sales attributable full year impact mp pistol including introduction 9mm 45 caliber models well increased consumer demand sigma series pistols pistol order backlog 8652943 april 30 2007 sales walther firearms 23262291 fiscal 2007 increase 7287112 456 previous fiscal year increase walther sales attributable realigned sales force increased focus retail level product perspective walther p22 ppk pistols primary beneficiaries increased sales effort walther order backlog 3086285 april 30 2007 performance center sales fiscal 2007 increased 759519 82 9979255 custom variations model 460 500 revolvers custom tactical rifle fueled sales growth fiscal 2007 performance center backlog stood 1159085 april 30 2007 engraving sales increased 2464803 410 8474554 fiscal 2007 added marketing sales emphasis profitable line classic revolvers introduced shot show january 2007 expanded line hunting rifle sales 17049111 represented thompsoncenter arms sales january 3 april 30 2007 postacquisition period thompsoncenter arms sales increased 21 comparable period previous year increase attributable introduction triumph line muzzleloaders increased production capacity meet demand rifle barrel production increased 27 since acquisition lean manufacturing initiatives launched thompsoncenter arms january 2007 order backlog thompsoncenter arms 30209106 april 30 2007 tactical rifles introduced 2006 shot show first full year tactical rifle sales 12753460 10789784 increase fiscal 2006 mp15 tactical rifle manufactured third party specifications introduced january 2006 result significant demand product supplier’s inability keep demand began assemble mp15 rifles springfield facility january 2007 tactical rifle backlog 3802263 april 30 2007 shot show january 2007 introduced smith wesson line fixedaction semiautomatic shotguns manufactured new thirdparty facilities turkey facilities began come line fourth quarter fiscal 2007 impact sales 130716 backlog shotguns 2675178 april 30 2007 parts accessories sales 7429014 increased 3531441 906 increase primarily due addition thompsoncenter arms black powder accessories sales black powder accessories period postacquisition totaled 2949393 nonfirearm sales increased 3091916 296 13531713 reflecting increased demand handcuffs addition thompsoncenter arms foundry operations included specialty services handcuff sales increased 1080512 212 6168429 fiscal 2007 postacquisition thompsoncenter arms foundry operations accounted 1416490 3863614 specialty services sales fiscal 2007 sales consumer channel approximately 1818 million 627 million 526 increase sales 1191 million fiscal 2006 included consumer sales approximately 225 million thompsoncenter arms sales postacquisition period january 3 april 30 2007 excluding thompsoncenter arms sales consumer sales grew rate 337 sales state local government agencies approximately 230 million 128 million 1258 increase fiscal 2006 102 million increase sales state local governmental agencies resulted introduction mp pistol increased emphasis law enforcement sales international sales approximately 193 million represented 18 million 101 increase fiscal 2006 sales federal government sales 107 million 276000 lower fiscal 2006 sales 110 million new contracts products use afghanistan awarded fiscal 2007 license revenue following table sets forth certain information relative license revenue fiscal years ended april 30 2008 2007 2006 license revenue fiscal 2008 increased 343827 201 fiscal 2007 added six terminated four licensees fiscal 2008 continue focus areas synergy core products brand customer base license revenue fiscal 2007 decreased 459582 211 fiscal 2006 license revenue fiscal 2006 included approximately 350000 additional royalty payments following audit determined one licensees underpaid royalties due us addition terminated agreements five licensees accounted 171500 licensing revenue fiscal 2006 added 11 licensees fiscal 2007 cost revenue gross profit following table sets forth certain information regarding cost revenue gross profit fiscal years ended april 30 2008 2007 2006 gross profit fiscal 2008 92374576 increase 16036741 210 fiscal 2007 gross profit excluding 20014558 full year impact owning thompsoncenter arms gross profit decreased 3977817 gross profit percentage net revenue 312 fiscal 2008 compared 323 fiscal 2007 promotion costs 89 million incurred spur consumer demand clear inventory supply chain eroded gross margins fiscal 2008 addition unabsorbed fixed costs associated threeweek plant shutdown springfield oneweek plant shutdown rochester negatively impacted gross profit 26 million gross profit fiscal 2007 76337835 increase 26730836 539 fiscal 2006 gross profit gross profit percentage net revenue 323 fiscal 2007 compared 310 fiscal 2006 cost sales fiscal 2007 included 2705000 additional costs resulting revaluation fair market value thompsoncenter arms inventory excluding acquisitionrelated charge gross profit percentage net revenue would 334 26730836 increase gross profit included 5738146 thompsoncenter arms postacquisition period january 3 april 30 2007 remaining 20992690 increase gross profit attributable increased sales volume increased leveraging manufacturing fixed expenses process improvements firearm sales excluding thompsoncenter arms increased 365 fixed expenses increased 186 almost 60 increase attributable additional depreciation expense higher utility costs depreciation expense manufacturing area increased 1202822 fiscal 2006 utility expenses increased 1011462 272 fiscal 2006 warranty expense 1931346 increased 668302 529 fiscal 2006 warranty expense 1263044 included fiscal 2007 warranty expense cost performance center model 460 recall amounted 160000 balance increase attributable higher sales volume addition thompsoncenter arms thompsoncenter arms accounted 117742 increase warranty expense operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2008 2007 2006 operating expenses fiscal 2008 increased 16325885 315 fiscal 2007 levels full year impact owning thompsoncenter arms accounted 13026589 increase remaining 3299296 increase spending included 418377 increase research development expenses 720421 increase sales marketing expense 2221877 increase general administrative expenses 61379 decrease environmental expenses 418377 increase research development related expansion long gun product offerings 720421 increase sales marketing expense reflected increased advertising efforts market well increased travel expanded consumer sales force 2221877 increase general administrative expenses included 2144776 higher stockbased compensation expense 1501805 additional professional fees resulting increased audit costs associated thompsoncenter arms acquisition firstyear costs implementing internal controls compliance section 404 sarbanesoxley act location well increased legal fees partially offset 1245729 reduced profit sharing expense stockbased compensation expense fiscal 2008 included 1004130 adjustment amortize restricted stock units issued fiscal 2007 accelerated method rather straightline method order comply amortization policy stockbased awards adjustment material affect prior periods operating expenses percentage net revenue 231 fiscal 2008 12 higher fiscal 2007 ratio due increased amortization intangibles associated thompsoncenter arms acquisition general administrative costs fiscal 2008 included 4118739 amortization fiscal 2007 included 1630076 amortization operating expenses fiscal 2007 increased 16846493 480 fiscal 2006 levels operating expenses thompsoncenter arms postacquisition period january 3 april 30 2007 accounted 7551929 increase fiscal 2006 operating expenses net 3087810 reduction environmental reserves remaining 6206754 increase spending included 785292 increase research development expenses 2380066 increase sales marketing expenses 2951162 increase general administrative expenses 90234 environmental expenses 785292 increase research development related work new smith wesson ibolt rifle introduced nra show april 2007 2380066 increase sales marketing expense reflected full year impact expanded consumer sales efforts sales compensation expense increased 1512782 fiscal 2007 travel expense increased 556127 marketing consulting increased 377086 advertising expenses excluding thompsoncenter arms declined 83260 result substantial launch costs mp pistol fiscal 2006 2951162 increase general administrative expenses included 2352616 additional profit sharing expenses 786760 additional compensation expenses 481798 stockbased compensation expenses partially offset 1004386 reduction professional fees due primarily inclusion prior fiscal year firstyear costs implementation internal controls compliance section 404 sarbanesoxley act fiscal 2006 operating expenses percentage net revenue 219 fiscal 2007 equal fiscal 2006 ratio excluding onetime reduction environmental reserves fiscal 2006 fiscal 2006 operating expenses percentage net revenue 238 general administrative expenses 2007 included 1630076 amortization intangibles established acquisition thompsoncenter arms income operations following table sets forth certain information regarding income operations fiscal years ended april 30 2008 2007 2006 operating income 24139518 fiscal 2008 decrease 289144 12 compared operating income 24428662 fiscal 2007 decrease operating income caused combination increased promotion costs increased unabsorbed overhead costs due plant shutdowns increased operating expenses partially offset increased sales effect owning thompsoncenter arms full year fiscal 2008 operating income 24428662 fiscal 2007 increase 9884343 680 compared operating income 14544319 fiscal 2006 thompsoncenter arms posted operating loss 1813783 postacquisition period january 3 april 30 2007 thompsoncenter arms operating loss included 2705000 cost revenue related revaluation acquired inventory fair market value increase operating income attributable increased sales volume continued leveraging fixed manufacturing costs controlled spending fiscal 2006 included 3087810 reduction environmental reserves excluding benefit operating income fiscal 2006 11456509 72 net revenue incomeexpense following table sets forth certain information regarding incomeexpense fiscal years ended april 30 2008 2007 2006 expense totaled 723010 fiscal 2008 compared 497060 fiscal 2007 unfavorable variance 225950 incurred 700700 exchange losses related purchase inventory walther compared 571665 losses fiscal 2007 expense totaled 497060 fiscal 2007 compared income 745577 fiscal 2006 unfavorable variance 1242637 incurred 571665 exchange losses related purchase inventory walther compared 462358 exchange gains fiscal 2006 interest income following table sets forth certain information regarding interest income fiscal years ended april 30 2008 2007 2006 interest income 121906 fiscal 2008 decreased 95047 fiscal 2007 levels decrease attributable return normal levels spike cash hand midfiscal 2007 80000000 proceeds convertible debt offering several weeks completing acquisition thompsoncenter arms interest income 216953 fiscal 2007 increased 104631 fiscal 2006 levels increase attributable higher cash balance hand primarily december january 80000000 proceeds convertible debt offering completing acquisition thompsoncenter arms interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2008 2007 2006 interest expense increased 5173993 fiscal 2008 result additional debt incurred midfiscal 2007 acquire thompsoncenter arms addition higher revolving loan balances lower operating cash flows caused interest expense increase fiscal 2008 interest expense increased 1930769 fiscal 2007 result additional debt incurred fiscal 2007 acquire thompsoncenter arms december 2006 completed 80000000 convertible debt offering provide funds thompsoncenter arms acquisition also borrowed 28000000 acquisition line credit td banknorth january 2007 fund balance acquisition cost income taxes following table sets forth certain information regarding income tax expense fiscal years ended april 30 2008 2007 2006 income tax expense fiscal 2008 5674516 compared income tax expense 7617830 fiscal 2007 5062617 fiscal 2006 tax provision fiscal 2006 included effect federal state deferred tax rate change 358687 income tax expense included deferred income taxes arising temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled 9947234 valuation allowance well net deferred tax liabilities totaled 20216239 april 30 2008 net deferred tax liabilities reduced fiscal 2008 5404006 result amortization intangibles related thompsoncenter arms acquisition net tax assets liabilities changed substantially year ended april 30 2007 primarily result acquisition thompsoncenter arms january 2007 required statement financial accounting standards “sfas” 109 “accounting income taxes” record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position valuation allowance approximately 26000 provided deferred federal tax assets capital loss carryforward anticipate using prior expiration valuation allowance provided deferred federal income tax assets april 30 2008 2007 2006 believe likely assets realized addition maintained valuation allowance approximately 42000 state deferred tax assets april 30 2007 2006 related state net operating loss carryforwards fiscal 2008 determined reserve longer necessary federal net operating loss carryforwards amounting 2393636 2501797 4200000 april 30 2008 2007 2006 respectively net operating loss carryforward april 30 2008 expires fiscal years 2019 2020 internal revenue code section 382 limits utilization losses 108161 per year possible future substantial changes ownership could occur could result additional ownership changes pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards utilized federal net operating losses account 837774 total net deferred tax liability 10269005 324977 total net deferred tax liability 15673011 april 30 2008 2007 respectively state net operating loss carryforwards amounted 1200000 april 30 2006 state net operating loss carryforwards end fiscal 2007 2008 october 22 2004 american jobs creation act ajca signed law ajca provides deduction income qualified domestic production activity qpa phased 2005 2010 pursuant financial accounting standards board “fasb” staff position 1091 “application sfas 109 accounting income taxes tax deduction qualified production activity provided ajca 2004” effect deduction reported period claimed tax return qpa benefit us approximately 970000 fiscal 2008 430000 fiscal 2007 resulted reduction tax expense 339500 fiscal 2008 150500 fiscal 2007 annual deduction remaining federal net operating loss carryforward limited internal revenue code section 382 unfavorable impact future benefits qpa negligible return qpa ajca provides twoyear transition existing extraterritorial income exclusion eti tax benefit foreign sales world trade organization wto ruled illegal export subsidy eti benefit fully phased us fiscal 2007 eti benefit us approximately 38500 fiscal 2007 net income following table sets forth certain information regarding net income related per share data fiscal years ended april 30 2008 2007 2006 decrease net income net income per share fiscal 2008 primarily attributable weak consumer market prompted increased promotion costs two unscheduled plant shutdowns leading unabsorbed overhead increase net income net income per share fiscal 2007 attributable 487 increase sales well improvements gross profit operating income margins resulting controlled spending net income net income per share fiscal 2006 included 3087810 pretax benefit reduction environmental reserves liquidity capital resources principal cash requirements finance growth firearms operations including acquisitions service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2008 2007 2006 excluding 2007 cash activity relating thompsoncenter arms acquisition operating activities represent principal source cash flow cash flow operating activities decreased 9809039 fiscal 2008 fiscal 2007 levels reduction operating cash flow fiscal 2008 attributable lower net income offset higher noncash items included net income depreciation amortization deferred taxes stockbased compensation expense well 15137685 increase inventory negative cash flow partially offset 3890505 increased accruals fiscal 2007 caused primarily accrued promotion costs fourth quarter promotions cash flow operating activities increased 4620385 fiscal 2007 fiscal 2006 levels improvement operating cash flow fiscal 2007 attributable improved profitability partially offset larger increase working capital fiscal 2007 fiscal 2006 accounts receivable increased 16981276 fiscal 2007 5973458 related increased activity thompsoncenter arms since january 3 2007 acquisition date remaining 11007818 due record fourth quarter sales springfield houlton facilities sales quarter excluding thompsoncenter arms 63366446 11514183 higher similar period last year noncash expenses depreciation amortization deferred taxes significant impact fiscal 2007 results depreciation amortization increased 3106187 result increased capital spending acquisitionrelated intangible assets net deferred taxes liability decreased 6228884 primarily resulting book deduction acquisitionrelated assets tax deductible significant changes reserves represent timing difference tax purposes cash used investing activities fiscal 2008 14161205 significantly lower fiscal 2007 due 103341585 used acquire thompsoncenter arms january 2007 capital spending 13950986 1705875 lower fiscal 2008 fiscal 2007 fiscal 2007 spending partially offset 1000000 cash received springfield redevelopment authority part final payment 85 acres land sold fiscal 2003 excluding 103341585 used acquire thompsoncenter arms cash used investing activities fiscal 2007 totaled 14754219 847890 reduction cash used fiscal 2006 usage primarily due 1000000 received sale land capital expenditures fiscal 2007 15656861 cash generated financing activities fiscal 2008 8450791 97166054 lower fiscal 2007 due 108000000 debt incurred related acquisition thompsoncenter arms january 2007 partially offset 6396000 payments acquire treasury stock fiscal year remaining increase 2008 4437946 due 7000000 increased revolving credit line borrowings cover current cash requirements offset 3954206 lower debt issue costs april 30 2008 open letters credit aggregating 3726396 april 30 2008 4358856 cash equivalents hand 40000000 revolving line credit toronto dominion texas llc 7000000 outstanding april 30 2008 may 2008 completed stock offering 6250000 shares common stock yielded net proceeds approximately 31912500 allowed us repay 28 million debt incurred finance portion thompsoncenter arms acquisition conjunction repayment retired 70000000 million acquisition line credit toronto dominion texas llc based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions matters inflation believe inflation material impact us fiscal 2008 2007 2006 critical accounting policies use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter estimates respect adequacy insurance reserves significant estimates include accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory forfeiture rates stockbased awards medical claims payable actual results could differ estimates revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account substantial portion revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenue individual licensees quarterly basis based actual receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore initially recognize minimum royalty payments instead record revenue monthly minimum royalty reasonably estimated month payment assured april 30 2008 minimum royalties collected future amounted approximately 8121000 valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets including goodwill intangible assets indefinite lives susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology customer relationships patents trademarks tradenames amortize finitelived intangible assets based upon patterns expect utilize economic benefits customer relationships exception goodwill intangible assets indefinite lives initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance sfas 142 “goodwill intangible assets” test goodwill intangible assets indefinite lives impairment annual basis end fiscal third quarter annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions sfas 142 respect criteria necessary evaluate number reporting units exist based review determined operate one reporting unit based assessment impairment charges result impairment evaluation goodwill indefinitelived intangible assets sfas 142 accordance sfas 144 “accounting impairment disposal longlived assets” periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated write asset estimated fair value based discounted cash flow analysis impairment charges taken fiscal 2008 2007 2006 based review longlived assets sfas 144 significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates turn could significant impact consolidated financial statements accelerated amortization andor impairment charges goodwill acquired intangibles completed significant business acquisition fiscal 2007 resulted significant goodwill intangible asset balances business strategy contemplates may pursue additional acquisitions future accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally sfas 142 determine fair value reporting unit purposes first step annual goodwill impairment test based market value prior future acquisitions accretive results operations expected market value declines dramatically determine one reporting unit may required complete second step requires significant judgments estimates may result material impairment charges period determined product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs result evaluation recorded considered probable reasonably estimable time estimated range reasonably possible additional losses term defined sfas 5 “accounting contingencies” zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made april 30 2008 reserve approximately 645000 environmental matters recorded undiscounted basis inventory value inventories consisting primarily finished firearms components finished firearms related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide lifetime warranty “original” purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign distributors based financial condition offer discounts early payment believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes workers’ compensation selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis stockbased compensation account stockbased employee compensation arrangements accordance provisions sfas 123r “sharedbased payment revised” sfas 123r calculate compensation cost date grant using blackscholes method amortize compensation expense vesting period estimate fair value stock option espp purchase date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables estimated forfeiture rates recent accounting pronouncements recently issued accounting standards september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years earlier application encouraged expect adoption sfas 157 material impact consolidated financial statements february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” permits entities choose measure eligible items fair value specified election dates unrealized gains losses items fair value option elected reported earnings subsequent reporting date following balance sheet items within scope sfas 159 • recognized financial assets financial liabilities unless special exception applies • firm commitments would otherwise recognized inception involve financial instruments • nonfinancial insurance contracts • financial instruments resulting separation embedded nonfinancial derivative instrument nonfinancial hybrid instrument sfas 159 effective fiscal years beginning november 2007 early adoption possible subject certain requirements expect adoption sfas 159 material impact consolidated financial statements december 2007 fasb issued sfas 141 revised “business combinations” “sfas 141r” sfas 141r changes accounting business combinations including measurement acquirer shares issued consideration business combination recognition contingent consideration accounting preacquisition gain loss contingencies recognition capitalized inprocess research development accounting acquisitionrelated restructuring cost accruals treatment acquisition related transaction costs recognition changes acquirer’s income tax valuation allowance sfas 141r effective fiscal years beginning december 15 2008 early adoption prohibited december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 establishes accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 effective fiscal years beginning december 15 2008 expect adoption sfas 160 material impact consolidated financial statements december 2007 fasb ratified consensus reached emerging issues task force “eitf” eitf issue 0701 “accounting collaborative arrangements related development commercialization intellectual property” eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf issue 9919 “reporting revenue gross principal versus net agent” accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf issue 0701 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date expect adoption eitf 0701 material impact consolidated financial statements march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities amendment fasb statement 133” statement requires entities utilize derivative instruments provide qualitative disclosures objectives strategies using instruments well details creditriskrelated contingent features contained within derivatives also requires entities disclose additional information amounts location derivatives located within financial statements provisions sfas 133 applied impact hedges entity’s financial position financial performance cash flows statement effective fiscal years interim periods beginning november 15 2008 early application encouraged expect adoption sfas 161 material impact consolidated financial statements may 2008 fasb issued fasb staff position “fsp” apb 14a “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” staff position requires entities convertible debt instruments may settled entirely partially cash upon conversion separately account liability equity components instrument manner reflects issuer’s economic interest cost effect proposed new rules debentures equity component would included paidincapital section shareholders’ equity entity’s consolidated balance sheet value equity component would treated original issue discount purposes accounting debt component convertible debt fsp effective fiscal years beginning december 15 2008 interim periods within fiscal years retrospective application required early adoption permitted currently evaluating proposed new rules impact financial condition results operations recently adopted accounting standards february 2006 thefasb issued sfas 155 “accounting certain hybrid financial instruments” amends sfas 133 “accounting derivative instruments hedging activities” sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 adoption sfas 155 impact financial position results operations cash flows june 2006 fasb ratified consensus eitf issue 0603 “how taxes collected customers remitted governmental authorities presented income statement” scope eitf issue 0603 includes tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added universal service fund “usf” contributions excise taxes task force affirmed conclusion entities present taxes income statement either gross net basis based accounting policy disclosed pursuant apb opinion 22 disclosure accounting policies taxes significant presented gross basis amounts taxes disclosed consensus eitf issue 0603 effective interim annual reporting periods beginning december 15 2006 required eitf issue 0603 adopted new accounting standard interim period beginning may 1 2007 adoption eitf issue 0603 impact financial position results operations cash flows june 2006 fasb issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance fasb statement 109 “accounting income taxes” fin 48 prescribes recognition threshold measurement tax position taken expected taken tax return adopted fin 48 may 1 2007 see note 21 information pertaining effects adoption september 2006 fasb issued fsp aug air1 “accounting planned major maintenance activities” eliminates accrueinadvance method acceptable method accounting planned major maintenance activities fsp applicable fiscal years beginning december 15 2006 requires retrospective application financial statements presented adoption fsp material impact financial position results operations cash flows december 2006 fasb issued fsp eitf 00192 “accounting registration payment arrangements” fsp eitf 00192 specifies contingent obligation make future payments otherwise transfer consideration registration payment arrangement whether issued separate agreement included provision financial instrument agreement separately recognized measured accordance fasb statement 5 “accounting contingencies” registration payment arrangements financial instruments subject arrangements entered prior issuance fsp eitf 00192 guidance effective financial statements issued fiscal years beginning december 15 2006 adoption fsp eitf 00192 material impact financial position results operations cash flows contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2008 december 15 2006 issued sold aggregate 80000000 4 senior convertible notes due 2026 qualified institutional buyers pursuant terms conditions indenture securities purchase agreement dated december 15 2006 notes convertible shares common stock initially conversion price approximately 1234 per share subject adjustment certain events 810636 shares per 1000 principal amount notes may converted time notes pay interest june 15 december 15 year beginning june 15 2007 annual rate 4 unpaid principal amount december 15 2009 december 15 2011 may election redeem portion notes redemption price 100 principal amount notes plus accrued unpaid interest closing price common stock fewer 20 trading days period 30 consecutive trading days exceeds 150 applicable conversion price notes december 15 2011 may redeem election portion notes redemption price 100 principal amount notes plus accrued unpaid interest holders notes may require us repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company price 100 principal amount notes plus accrued unpaid interest including contingent interest redeemed us repaid pursuant holders’ right require repurchase notes mature december 15 2026 included 1534 million longterm debt obligation 128 million contractually obligated interest payments pertaining 800 million convertible debt amount represents interest payments december 15 2011 first redemption milestone may required pay additional interest subsequent december 15 2011 redemption date however due uncertainty subsequent interest payments reflected table offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements restatementsec inquiry august 2003 amended various reports previously filed sec modify certain accounting matters related acquisition smith wesson corp restated form 10ksb report fiscal year ended april 30 2002 well form 10qsb reports quarters ended july 31 2001 2002 october 31 2001 2002 january 31 2002 2003 form 10ksb report fiscal year ended april 30 2003 filed december 2003 included restated financial statements fiscal 2002 amended form 10qsb reports july october quarters filed january 2004 amended form 10qsb reports january quarters filed march 2004 sec conducting informal inquiry regarding circumstances surrounding restatement cooperating fully sec inquiry still ongoing may 8 2008 received notice intent division enforcement staff sec recommend sec authorize administrative ceaseanddesist proceedings us prohibit future violations periodic reporting record keeping internal controls provisions federal securities laws staff recommending imposition monetary sanctions remedies us purported violations arose accounting adjustments made us fiscal 2002 first three quarters fiscal 2003 resulted restatement 2002 quarterly fiscal yearend financial statements quarterly report period ended january 31 2003 believe staff’s current recommendation ultimately authorized sec material impact financial position item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis conjunction consolidated financial statements related notes contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report highlights fiscal 2009 net sales 3350 million represented increase 132 fiscal 2008 levels sales firearm core business increased 142 approximately 3130 million net loss fiscal 2009 642 million significantly impacted impairment charge related goodwill intangible assets 765 million net deferred taxes 218 million excluding item net income fiscal 2009 increased 31 million 345 fiscal 2008 net income net income affected numerous factors including following • despite weakness overall economy handgun tactical rifle sales experienced growth throughout first half fiscal 2009 began experience strong consumer demand handguns tactical rifle products beginning third fiscal quarter believe increased demand related multiple factors including heightened fears terrorism crime speculation surrounding increased gun control new administration taking office washington dc unable assess whether long increase consumer demand last whether orders constituting backlog cancelled consumer demand decreases demand products much larger ability produce backlog grew 20 million second quarter 123 million third quarter 268 million end fiscal year excluding impact hunting products sales fiscal 2009 grew 295 sales similar products fiscal 2008 • fiscal 2009 experienced significant decline demand hunting products including boltaction hunting rifles fixedbarrel black powder firearms related parts accessories hunting firearm sales declined 33 fiscal year ended april 30 2009 recorded impairment charge relating hunting business 982 million less related deferred tax liabilities 218 million resulting 765 million adverse impact aftertax profits among things attribute weakness hunting products severe weakness economy excess levels hunting product inventory sporting good distribution channel premium nature hunting products offer taken number actions address weak demand hunting products reduce losses incurring including introduction lower pricepoint products effort reach larger segment market moving direct sales force manufacturers’ representative model instituting costcutting initiatives workforce reductions business one world’s leading manufacturers firearms manufacture wide array pistols revolvers tactical rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters protection focused individuals law enforcement agencies officers military agencies united states throughout world largest manufacturer handguns handcuffs united states largest us exporter handguns growing participant tactical hunting rifle markets recently entered manufacture products facilities springfield massachusetts houlton maine rochester new hampshire addition pursue opportunities license name trademarks third parties use association products services plan substantially increase product offerings licensing program leverage 150plus year old “smith wesson” brand capitalize goodwill developed historic american tradition expanding consumer awareness products produce license safety security protection sport markets key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding large nonrecurring items evaluate performance evaluate various product lines measurements cost per unit produced units produced per day incoming orders per day key industry data handguns subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun market increased 50 consumers purchased handguns fear prohibition handgun ownership market levels returned pre1992 levels remained relatively unchanged late calendar 2008 market increased appears fears surrounding crime terrorism economic downturn change white house administration like increase 1992 expect current increase market temporary nature expect market return normal levels point within us handgun market estimate approximately 81 market pistols 19 revolvers also estimate approximately 19 share us consumer market handguns compares approximately 10 period acquired smith wesson corp 2001 also compares favorably market share figures 1990s estimated 16 market share results operations net product services sales following table sets forth certain information relative net sales fiscal years ended april 30 2009 2008 2007 dollars thousands fiscal 2009 net product services sales compared fiscal net sales fiscal 2009 increased strong consumer driven growth handguns tactical rifles excluding hunting products firearm unit sales increased 22 prior year approximately 710000 units revolver sales driven primarily consumer demand however product much capital intensive growth year smaller handgun product lines pistol sales increased strong demand sigmas mp sales product lines 599 417 respectively prior year walther sales increased significantly prior year result higher sales p22 pistol full year benefit pps pistol introduced fiscal 2008 walther ppk pistol sales suspended fourth quarter fiscal 2009 february 2009 recall product adversely impacting fourth quarter sales tactical rifle sales continued increase result increased consumer demand well continued acceptance law enforcement agencies date 235 police security agencies either selected mp 15 approved mp 15 onduty use hunting firearms severely impacted economic factors black powder dropping 394 fiscal 2008 levels decrease parts accessories correlated decrease black powder rifle sales nonfirearm sales fiscal 2009 flat increased handcuff sales offset reduced foundry sales order backlog end fiscal 2009 267862000 217934000 higher end fiscal 2008 144719000 higher end previous fiscal quarter extraordinary increase backlog related directly increase consumer demand experienced third fourth fiscal quarters also increased result existing manufacturing capacity planned demand levels experienced prior significant increase consumer demand time limited data determine long increase consumer demand last orders received yet shipped constitutes reported backlog could cancelled demand suddenly decrease therefore backlog numbers provided may indicative future sales consumer channel approximately 279812000 35731000 146 increase sales 244081000 fiscal 2008 excluding hunting products sporting goods increased 319 fiscal 2008 levels sales state local government agencies approximately 25175000 3261000 149 increase fiscal 2008 sales 21914000 international sales approximately 24686000 represented 251000 10 increase fiscal 2008 sales federal government sales 3294000 127000 lower fiscal 2008 sales 3421000 fiscal 2008 net product services sales compared fiscal impact owning thompsoncenter arms full fiscal year accounted 46570000 firearm sales increase excluding thompsoncenter arms firearm sales increased 6256000 31 total firearm unit sales fiscal 2008 excluding thompsoncenter arms approximately 589000 units increase 54 fiscal 2007 sales approximately 559000 units firearm backlog april 30 2008 approximately 49928000 nonfirearm sales fiscal 2008 increased result full year impact thompsoncenter arms specialty services retail operations increase revolver sales fueled sale small frame revolvers partially offset lower large frame revolver sales large frame revolvers adversely impacted weak fall hunting season pistol sales lower prior year fiscal 2007 sales included 8700000 pistol sales afghanistan military 6177000 pistol sales california highway patrol comparable sales fiscal 2008 average selling price pistols reduced promotional programs implemented second half fiscal 2008 fiscal 2008 mp pistol sales increased 380 fiscal 2007 levels increase sales walther firearms exclusive us distributor attributable introduction pps sp22 pistols well strong international sales ppk pistol tactical rifle sales increased significantly second full year offered premium products sales fiscal 2008 decreased effect weak hunting season large frame performance center revolver sales inclusion fiscal 2007 50th anniversary commemorative model 29 introduced midfiscal 2007 drove sales significantly higher year hunting firearm sales grew significantly fiscal 2007 primarily result full year impact owning thompsoncenter arms well impact sales icon rifles introduced 2007 shot show hunting firearms also includes shipments fixedaction semiautomatic shotguns parts accessories sales increased primarily result full year impact selling thompsoncenter arms black powder accessories nonfirearm sales reflected full year impact thompsoncenter arms foundry operations included specialty services handcuff sales remained stable yearoveryear sales consumer channel approximately 244081000 62453000 344 increase sales 181628000 fiscal 2007 full year impact thompsoncenter arms added approximately 52418000 fiscal 2008 consumer sales excluding thompsoncenter arms sales consumer sales grew rate 89 sales state local government agencies approximately 21914000 1079000 47 decrease fiscal 2007 sales 22993000 fiscal 2007 state local government sales included 6177000 order california highway patrol excluding impact large order state local government sales increased 5098000 303 continued strong performance mp line firearms excluding 2988000 impact thompsoncenter arms international sales approximately 21447000 represented 2103000 109 increase fiscal 2007 sales federal government sales 3421000 7297000 lower fiscal 2007 sales 10718000 fiscal 2007 included 9766000 product shipments afghanistan new contracts products use afghanistan awarded fiscal 2008 cost revenue gross profit following table sets forth certain information regarding cost revenue gross profit fiscal years ended april 30 2009 2008 2007 dollars thousands gross profit fiscal 2009 increased result increase sales gross profit percentage net revenue declined result impact significantly lower sales production volumes higher margin hunting products well 2271000 accrual related february 2009 walther ppk ppks recall reduced production levels reduced number operating days rochester new hampshire plant resulted underutilized capacity fixed overhead fully absorbed inventory addition increased capital spending last several years increased depreciation expense 1103000 fiscal 2009 promotion costs 8368000 compared 8862000 year ended april 30 2008 excluding 20015000 full year impact owning thompsoncenter arms fiscal 2008 gross profit dollars decreased 3978000 gross profit percentage net revenue declined 28 promotion costs 8862000 incurred spur consumer demand clear inventory supply chain eroding gross margins fiscal 2008 substantially offsetting increase gross margin dollars caused growth sales addition unabsorbed fixed costs associated threeweek plant shutdown springfield massachusetts oneweek plant shutdown rochester new hampshire negatively impacted gross profit 2600000 operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2009 2008 2007 dollars thousands october 2008 due serious unfavorable recurring economic market conditions factors adverse effect hunting market became apparent goodwill longlived assets related investment thompsoncenter arms significantly impaired conducted review reporting unit related products determined fair value defined statement financial accounting standards “sfas” 142 sfas 144 lower book value requiring us record impairment charge 98243000 excluding impact impairment charge noted operating expenses fiscal 2009 increased 4032000 59 fiscal 2008 levels increase research development related 232000 increased testing materials result increasing cost ammunition 334000 thirdparty engineering costs 70000 increased salaries benefits 126000 reduced allocations manufacturing based increased focus new product engineering increase sales marketing expense reflected increased sales incentives incurred result higher handgun sales levels increase general administrative expenses included 2690000 increased profit sharing related springfield massachusetts houlton maine facilities addition weak economic factors impacting certain regional retail customers increased bad debt reserves 2312000 fiscal 2009 finally increased salaries benefits recruiting relocation resulting changes management structure totaling 1065000 offset 1742000 reduced amortization intangibles result impairment charge lower stockbased compensation expense 1578000 due lower awards reversal expense associated performancebased options achieved based actual operating results operating expenses percentage net revenue excluding impairment charge 216 fiscal 2009 15 lower fiscal 2008 ratio due reduced amortization intangibles result impairment charge well increased revenue caused increased consumer demand general administrative costs fiscal 2009 included 2437000 amortization fiscal 2008 included 4119000 amortization operating expenses fiscal 2008 increased primarily result full year impact owning thompsoncenter arms accounted 13027000 total increase remaining 3299000 increase spending included 418000 increase research development expenses 720000 increase sales marketing expense 2161000 increase general administrative expenses increase research development related expansion long gun product offerings increase sales marketing expense reflected increased advertising efforts market well increased travel expanded consumer sales force increase general administrative expenses included 2145000 higher stockbased compensation expense 1502000 additional professional fees resulting increased audit costs associated thompsoncenter arms acquisition firstyear costs implementing internal controls compliance section 404 sarbanesoxley act location well increased legal fees partially offset 1246000 reduced profit sharing expense stockbased compensation expense fiscal 2008 included 1004000 adjustment amortize restricted stock units issued fiscal 2007 accelerated method rather straightline method order comply amortization policy stockbased awards adjustment material affect prior periods operating expenses percentage net revenue 231 fiscal 2008 12 higher fiscal 2007 ratio due increased amortization intangibles associated thompsoncenter arms acquisition general administrative costs fiscal 2008 included 4119000 amortization fiscal 2007 included 1630000 amortization incomeloss operations following table sets forth certain information regarding incomeloss operations fiscal years ended april 30 2009 2008 2007 dollars thousands excluding impact 98243000 impairment thompsoncenter arms assets fiscal 2009 operating income 25521000 1381000 57 higher operating income fiscal 2008 impact associated consumerdriven demand offset unfavorable absorption product mix thompsoncenter arms impact walther ppk ppks recall increase operating expenses operating income fiscal 2008 decreased 288000 12 compared operating income fiscal 2007 decrease operating income caused combination increased promotion costs increased unabsorbed overhead costs due plant shutdowns increased operating expenses partially offset increased sales effect owning thompsoncenter arms full year fiscal 2008 interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2009 2008 2007 dollars thousands interest expense decreased fiscal 2009 result repayment 28000000 acquisition line may 2008 repayment 4367000 longterm debt june 2008 reduced borrowings revolving line credit overall lower interest rates addition 6250000share stock offering may 2008 increased cash flow associated consumer demand enabled us reduce overall outstanding indebtedness throughout fiscal 2009 interest expense increased fiscal 2008 result additional debt incurred midfiscal 2007 acquire thompsoncenter arms addition higher revolving loan balances lower operating cash flows caused interest expense increase fiscal 2008 income taxes following table sets forth certain information regarding income tax expensebenefit fiscal years ended april 30 2009 2008 2007 dollars thousands income tax benefit fiscal 2009 included effect changes temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled 13648000 valuation allowance april 30 2009 net deferred tax liabilities reduced fiscal 2009 21766000 result impairment thompsoncenter arms goodwill longlived assets required sfas 109 “accounting income taxes” record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position valuation allowance approximately 26000 provided deferred federal tax assets capital loss carryforward anticipate using prior expiration valuation allowance provided deferred federal income tax assets april 30 2009 2008 believe likely assets realized federal net operating loss carryforwards amounting 2285000 2394000 2502000 april 30 2009 2008 2007 respectively net operating loss carryforward april 30 2009 expires fiscal years 2019 2020 internal revenue code section 382 limits utilization losses 108000 per year possible future substantial changes ownership could occur could result additional ownership changes pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards utilized federal net operating losses increased overall net deferred tax asset 13648000 800000 april 30 2009 federal net operating losses account 838000 total net deferred tax liability 10269000 april 30 2008 state net operating loss carryforwards end fiscal 2009 2008 2007 october 22 2004 american jobs creation act ajca signed law ajca provides deduction income qualified domestic production activity qpa phased 2005 2010 pursuant financial accounting standards board “fasb” staff position 1091 “application sfas 109 accounting income taxes tax deduction qualified production activity provided ajca 2004” effect deduction reported period claimed tax return qpa benefit us approximately 1405000 fiscal 2009 970000 fiscal 2008 resulted reduction tax expense 492000 fiscal 2009 339000 fiscal 2008 annual deduction remaining federal net operating loss carryforward limited internal revenue code section 382 unfavorable impact future benefits qpa negligible income tax expense fiscal 2008 included changes deferred income taxes arising temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled 9947000 valuation allowance well net deferred tax liabilities totaled 20216000 april 30 2008 net deferred tax liabilities reduced fiscal 2008 5404000 result amortization intangibles related thompsoncenter arms acquisition net tax assets liabilities changed substantially year ended april 30 2007 primarily result acquisition thompsoncenter arms january 2007 net incomeloss following table sets forth certain information regarding net income related per share data fiscal years ended april 30 2009 2008 2007 dollars thousands except per share data decrease net income net income per share fiscal 2009 primarily attributable impairment longlived assets goodwill associated acquisition thompsoncenter arms totaled 76477000 net deferred taxes 21766000 excluding writeoff income would increased 3149000 12270000 earnings per share would 026 increase income result increased sales due consumerdriven demand partially offset reduced volume corresponding gross margin impact hunting business addition eps lower fiscal 2009 due additional 6250000 shares issued may 2008 decrease net income net income per share fiscal 2008 primarily attributable weak consumer market prompted increased promotion costs two unscheduled plant shutdowns leading unabsorbed overhead liquidity capital resources principal cash requirements finance growth firearm operations including acquisitions service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2009 2008 2007 dollars thousands operating activities represent principal source cash flow cash flow operating activities increased significantly fiscal 2009 fiscal 2008 levels resulting largely 5431000 decrease inventory fiscal 2009 addition accounts receivable decreased 3619000 fiscal 2009 finally 3149000 increase net income excluding noncash impairment increase current accrual levels 6468000 prior year increase contributed increase cash operating activities cash flow operating activities decreased fiscal 2008 fiscal 2007 levels reduction operating cash flow fiscal 2008 attributable lower net income offset higher noncash items included net income depreciation amortization deferred taxes stockbased compensation expense well 15138000 increase inventory 2457000 increase accounts receivable negative cash flow partially offset 3891000 increased accruals fiscal 2007 caused primarily accrued promotion costs fourth quarter promotions cash used investing activities lower fiscal 2009 fiscal 2008 due reduced capital spending 4515000 cash used investing activities fiscal 2008 significantly lower fiscal 2007 due 103342000 used acquire thompsoncenter arms january 2007 capital spending 1706000 lower fiscal 2008 fiscal 2007 fiscal 2007 spending partially offset 1000000 cash received springfield redevelopment authority part final payment 85 acres land sold fiscal 2003 cash used financing activities unfavorable compared prior year due repayment 28000000 acquisition loan 4367000 term loans 7000000 revolving line partially offset proceeds may 2008 6250000share stock offering cash generated financing activities fiscal 2008 lower fiscal 2007 due 108000000 debt incurred related acquisition thompsoncenter arms january 2007 partially offset 6396000 payments acquire treasury stock fiscal year remaining increase 2008 4438000 due 7000000 increased revolving credit line borrowings cover current cash requirements offset 3954000 lower debt issue costs april 30 2009 open letters credit aggregating 3805000 april 30 2009 39822000 cash equivalents hand 40000000 revolving line credit toronto dominion texas llc balance outstanding april 30 2009 may 2009 completed stock offering 6000000 shares common stock yielded net proceeds approximately 35000000 expect use general corporate purposes including potential purchase additional equipment expand manufacturing capacity addition june 18 2009 reported entry material definitive agreement acquire universal security response inc acquisition utilize maximum 26000000 cash extent opportunities present may utilize portion net proceeds offering purchase portion 80 million outstanding senior convertible notes strategic investments may also use portion net proceeds offering pursue opportunities strategic relationships acquisitions based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions matters inflation believe inflation material impact us fiscal 2009 2008 2007 critical accounting policies use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter estimates respect adequacy insurance reserves significant estimates include accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory forfeiture rates stockbased awards asset impairments medical claims payable actual results could differ estimates revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account substantial portion revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenue individual licensees quarterly basis based actual receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore initially recognize minimum royalty payments instead record revenue monthly minimum royalty reasonably estimated month payment assured april 30 2009 minimum royalties collected future amounted approximately 7283000 valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks tradenames amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets exception goodwill intangible assets indefinite lives initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance sfas 142 “goodwill intangible assets” test goodwill intangible assets indefinite lives impairment annual basis end fiscal third quarter annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions sfas 142 respect criteria necessary evaluate number reporting units exist based review sfas 131 “disclosures segments enterprise related information” determined operate two reporting units one springfield massachusetts houlton maine facilities second rochester new hampshire facility goodwill recorded books associated rochester new hampshire reporting unit arose acquisition thompsoncenter arms january 3 2007 based combination factors occurring fiscal 2009 including current economic environment market conditions hunting industry determined indicators impairment goodwill intangible assets existed rochester new hampshire reporting unit result conducted evaluation assets pursuant sfas 142 based lower order intake past several quarters lower expected operating profits cash flows reporting unit earnings forecast next ten years revised fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 41173000 three months ended october 31 2008 accordance sfas 144 “accounting impairment disposal longlived assets” periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affecting rochester new hampshire reporting unit required us test impairment longlived assets pertaining location second quarter fiscal 2009 based assessment sfas 144 recorded impairment charge 57070000 reflect excess carrying value longlived intangible assets discounted cash flows impairment charges taken fiscal 2008 2007 based review longlived assets sfas 144 significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates turn could additional impact consolidated financial statements accelerated amortization impairment charges goodwill acquired intangibles completed significant business acquisition fiscal 2007 resulted significant goodwill intangible asset balances business strategy contemplates may make additional acquisitions future accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally sfas 142 determine fair value reporting unit purposes first step annual goodwill impairment test based market value prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs related evaluation recorded considered probable reasonably estimable time estimated range reasonably possible additional losses term defined sfas 5 “accounting contingencies” zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made april 30 2009 reserve approximately 754000 environmental matters recorded undiscounted basis inventory value inventories consisting primarily finished firearm components finished firearms related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide lifetime warranty “original” purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign distributors based financial condition offer discounts early payment believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes workers’ compensation selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis stockbased compensation account stockbased employee compensation arrangements accordance provisions sfas 123r “sharedbased payment revised” sfas 123r calculate compensation cost date grant using blackscholes method amortize compensation expense vesting period estimate fair value stock option purchase employee stock purchase program date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables estimated forfeiture rates recent accounting pronouncements recently issued accounting standards december 2007 fasb issued sfas 141 revised “business combinations” sfas 141r changes accounting business combinations including measurement acquirer shares issued consideration business combination recognition contingent consideration accounting preacquisition gain loss contingencies recognition capitalized inprocess research development accounting acquisitionrelated restructuring cost accruals treatment acquisition related transaction costs recognition changes acquirer’s income tax valuation allowance sfas 141r effective fiscal years beginning december 15 2008 early adoption prohibited although adoption sfas 141r impact current consolidated financial statements expect affect accounting treatment future acquisitions may consummate december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 establishes accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 effective fiscal years beginning december 15 2008 expect adoption sfas 160 material impact consolidated financial statements december 2007 fasb ratified consensus reached emerging issues task force “eitf” eitf issue 0701 “accounting collaborative arrangements related development commercialization intellectual property” eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenue costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf issue 9919 “reporting revenue gross principal versus net agent” accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf issue 0701 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date expect adoption eitf 0701 impact consolidated financial statements april 2008 fasb issued fasb staff position “fsp” 1423 “determination useful life intangible assets” fsp 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset sfas 142 “goodwill intangible assets” fsp 1423 effective financial statements issued fiscal years beginning december 15 2008 well interim periods within fiscal years currently process evaluating impact adopting pronouncement may 2008 fasb issued fsp apb 141 “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” staff position requires entities convertible debt instruments may settled entirely partially cash upon conversion separately account liability equity components instrument manner reflects issuer’s economic interest cost effect proposed new rules debentures equity component would included paidincapital section shareholders’ equity entity’s consolidated balance sheet value equity component would treated original issue discount purposes accounting debt component convertible debt fsp effective fiscal years beginning december 15 2008 interim periods within fiscal years retrospective application required early adoption permitted currently evaluating proposed new rules impact consolidated financial statements may 2008 fasb issued sfas 162 “the hierarchy generally accepted accounting principles” statement identifies sources accounting principles framework selecting principles used preparation financial statements presented conformity generally accepted accounting principles united states statement effective 60 days following sec’s approval public company accounting oversight board amendments au section 411 “the meaning present fairly conformity generally accepted accounting principles” expect sfas 162 material impact consolidated financial statements june 2008 fasb ratified eitf issue 0705 “determining whether instrument embedded feature indexed entity’s stock” addresses accounting certain instruments derivatives sfas 133 “accounting derivative instruments hedging activities” pronouncement specific guidance provided regarding requirements entity consider embedded features indexed entity’s stock issue effective fiscal years beginning december 15 2008 currently process evaluating impact adopting pronouncement april 2009 fasb issued fsp 141r1 “accounting assets acquired liabilities assumed business combination arise contingencies” fsp requires assets acquired liabilities assumed business combination arise contingencies recognized fair value fair value reasonably estimated fsp effective fiscal years beginning december 15 2008 although adoption fsp141r1 impact current consolidated financial statements expect affect accounting treatment future acquisitions may consummate april 2009 fasb issued fsp 1574 “determining fair value volume level activity asset liability significantly decreased identifying transactions orderly” fsp 1574 provides guidance determine fair value assets liabilities sfas 157 current economic environment reemphasizes objective fair value measurement remains exit price conclude significant decrease volume level activity asset liability relation normal market activities quoted market values may representative fair value may conclude change valuation technique use multiple valuation techniques may appropriate fsp 1574 effective interim annual periods ending june 15 2009 expect fsp 1574 material impact consolidated financial statements april 2009 fasb issued fsp 1152 fsp 1242 “recognition presentation otherthantemporary impairments” fsp 1152 fsp 1242 amend otherthantemporary impairment guidance debt securities improve presentation disclosure otherthantemporary impairments debt equity securities financial statements fsp 1152 fsp 1242 effective reporting periods ending june 15 2009 expect either fsp’s material impact consolidated financial statements april 2009 fasb issued fsp 1071 apb 281 “interim disclosures fair value financial instruments” fsp 1071 apb 281 amend sfas 107 “disclosures fair value financial instruments” require disclosures fair value financial instruments interim well annual financial statements fsp also amends apb opinion 28 “interim financial reporting” require disclosures interim financial statements fsp 1071 apb 281 effective reporting periods ending june 15 2009 expect pronouncements impact consolidated financial statements may 2009 fasb issued sfas 165 “subsequent events” “sfas 165” sfas 165 establishes general standards accounting disclosure events occur balance sheet data financial statements issued sfas 165 effective interim annual financial periods ending june 15 2009 currently evaluating impact statement recently adopted accounting standards september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years fasb provided oneyear deferral implementation nonfinancial assets liabilities earlier application encouraged adopted required provisions sfas 157 may 1 2008 adoption sfas 157 impact consolidated financial statements information adoption required provisions sfas 157 see note 14 consolidated financial statements february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” permits entities choose measure eligible items fair value specified election dates unrealized gains losses items fair value option elected reported earnings subsequent reporting date following balance sheet items within scope sfas 159 • recognized financial assets financial liabilities unless special exception applies • firm commitments would otherwise recognized inception involve financial instruments • nonfinancial insurance contracts • financial instruments resulting separation embedded nonfinancial derivative instrument nonfinancial hybrid instrument sfas 159 became effective fiscal years beginning november 2007 elect measure items fair value already recorded therefore adoption sfas 159 impact consolidated financial statements october 2008 fasb issued fsp 1573 “determining fair value financial asset market asset active” fsp 1573 clarifies application sfas 157 inactive market demonstrated fair value financial asset determined market financial asset inactive fsp 1573 effective upon issuance including prior periods financial statements issued adoption provisions impact consolidated financial statements march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities amendment fasb statement 133” statement requires entities utilize derivative instruments provide qualitative disclosures objectives strategies using instruments well details creditriskrelated contingent features contained within derivatives also requires entities disclose additional information amounts location derivatives located within financial statements provisions sfas 133 applied impact hedges entity’s financial position financial performance cash flows statement effective fiscal years interim periods beginning november 15 2008 early application encouraged adoption sfas 161 impact consolidated financial statements information adoption required provisions sfas 161 see note 14 consolidated financial statements contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2009 dollars thousands december 15 2006 issued sold aggregate 800 million senior convertible notes due 2026 qualified institutional buyers pursuant terms conditions indenture securities purchase agreement dated december 15 2006 notes convertible shares common stock initially conversion price approximately 1234 per share subject adjustment certain events 810636 shares per 1000 principal amount notes may converted time notes pay interest june 15 december 15 year annual rate 4 unpaid principal amount december 15 2009 december 15 2011 may election redeem portion notes redemption price 100 principal amount notes plus accrued unpaid interest closing price common stock fewer 20 trading days period 30 consecutive trading days exceeds 150 applicable conversion price notes december 15 2011 may redeem election portion notes redemption price 100 principal amount notes plus accrued unpaid interest holders notes may require us repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company price 100 principal amount notes plus accrued unpaid interest including contingent interest redeemed us repaid pursuant holders’ right require repurchase notes mature december 15 2026 included 924 million longterm debt obligation 64 million contractually obligated interest payments pertaining 800 million convertible debt amount represents interest payments december 15 2011 first redemption milestone may required pay additional interest subsequent december 15 2011 redemption date however due uncertainty subsequent interest payments reflected table offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements restatementsec inquiry august 2003 amended various reports previously filed sec modify certain accounting matters related acquisition smith wesson corp restated form 10ksb report fiscal year ended april 30 2002 well form 10qsb reports quarters ended july 31 2001 2002 october 31 2001 2002 january 31 2002 2003 form 10ksb report fiscal year ended april 30 2003 filed december 2003 included restated financial statements fiscal 2002 amended form 10qsb reports july october quarters filed january 2004 amended form 10qsb reports january quarters filed march 2004 sec conducted informal inquiry regarding circumstances surrounding restatement june 18 2009 notified us completed investigation recommending enforcement action us item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis conjunction consolidated financial statements related notes contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report highlights fiscal 2010 net sales approximately 4062 million represented increase approximately 213 fiscal 2009 net sales firearm division increased approximately 69 approximately 3579 million net income fiscal 2010 approximately 325 million 053 per fully diluted share compared net loss approximately 642 million 137 per fully diluted share fiscal 2009 net income fiscal 2010 impacted favorably approximately 96 million adjustment revalue 4080000 earn shares related july 2009 acquisition usr net income fiscal 2009 unfavorably impacted impairment charge related goodwill intangible assets thompsoncenter arms approximately 765 million net deferred taxes approximately 218 million excluding two items net income fiscal 2010 increased approximately 107 million approximately 868 fiscal 2009 net income net income fiscal 2010 affected numerous factors including following • growth revenue 213 driven increased firearm sales tactical rifles walther new products offset lower yearoveryear demand handgun offerings addition acquisition usr contributed approximately 483 million consolidated revenue • improved gross profit margin result lower warranty costs improved efficiencies lower promotional spending throughout firearm facilities • july 20 2009 acquired usr based franklin tennessee provides perimeter security solutions protect control access key military governmental corporate facilities acquisition usr designed leverage usr’s business model product line broad customer base enable us expand new markets security industry results operations period ended april 30 2010 included activity period subsequent acquisition • january 19 2010 doj unsealed indictments 22 individuals law enforcement military equipment industries one vice presidentsales international us law enforcement charged indictment also served grand jury subpoena production documents always taken continue take seriously obligation industry leader foster responsible ethical culture includes adherence laws industry regulations united states abroad although cooperating fully doj sec matters doj may determine violated fcpa laws sec may determine violated federal securities laws april 30 2010 incurred 3225000 legal consulting costs related matter business one world’s leading manufacturers firearms manufacture wide array pistols revolvers tactical rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world largest manufacturer handguns handcuffs united states largest us exporter handguns participant tactical hunting rifle markets also leading turnkey provider perimeter security solutions protect control access key military governmental corporate facilities manufacture firearm products facilities springfield massachusetts houlton maine rochester new hampshire manufacture assemble perimeter security products facilities franklin tennessee addition pursue opportunities license name trademarks third parties use association products services plan substantially increase product offerings leverage 150plus year old “smith wesson” brand capitalize goodwill developed historic american tradition expanding consumer awareness products produce license safety security protection sport markets key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding large nonrecurring items nongaap financial metric evaluate performance evaluate various firearm product lines measurements cost per unit produced units produced per day incoming orders per day evaluate perimeter security products revenue invoiced gross margin per job incoming orders per month key industry data handguns subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun market increased 50 consumers purchased handguns fear prohibition handgun ownership market levels returned pre1992 levels remained relatively unchanged late calendar 2008 market increased appears fears surrounding crime terrorism economic downturn change white house administration like increase 1992 expected increase market temporary nature market returned normal levels fiscal 2010 within us handgun market estimate approximately 81 market pistols 19 revolvers also estimate approximately 16 share us consumer market handguns compares approximately 10 period acquired smith wesson corp 2001 also compares market share figures 1990s estimated 16 market share results operations net sales following table sets forth certain information relative net sales fiscal years ended april 30 2010 2009 2008 dollars thousands fiscal 2010 net products services sales compared fiscal net sales fiscal 2010 increased strong consumer driven growth tactical rifles impact acquisition usr july 2009 revolver sales slightly lower prior fiscal year unit sales approximately 81 due reduced availability product meet extremely high level demand early part fiscal year coupled delayed international shipments related investigation fcpa matter factors partially offset reduced promotional costs pistol sales approximately 82 lower prior fiscal year metal sigma pistols significantly last year mp series pistols flat yearoveryear walther product sales grew approximately 270 based pk380 pistol product introduction increased production availability german manufactured products introduction new mp1522 tactical rifle increases capacity produce tactical rifles meet higher consumer demand led increased sales products new product offerings within classics series handguns increased sales products within premium product lines approximately 198 prior fiscal year hunting products negatively impacted late fiscal 2009 discontinuation smith wessonbranded boltaction rifles offset increased performance thompsoncenter armsbranded boltaction rifles spurred introduction venturetm product line improvement second half fiscal 2010 black powder rifle sales parts accessories sales grew increased sales focus hunting products higher demand parts accessories handgun lines reflecting high demand new used firearms order backlog april 30 2010 approximately 143098000 108001000 related firearms balance 35097000 related perimeter security firearm order backlog approximately 159861000 lower end fiscal 2009 represented approximately 33755000 increase prior quarter end primarily result backlog generated new products spite yearoveryear decline firearm backlog fiscal 2010 year end backlog remained substantially higher typically experienced prior extraordinary increases consumer demand third fourth quarters fiscal 2009 perimeter security backlog declined approximately 7406000 prior quarter end customer investment decisions began slow firearm orders received yet shipped could cancelled particularly demand suddenly decrease therefore firearm backlog may indicative future sales perimeter security backlog consists primarily projectoriented contracts andor letters intent provide progress payments typically cancelled therefore perimeter security backlog indicative future sales subject significant timing variations depending size nature scope order within total backlog given period time sales consumer channel approximately 294218000 14406000 51 increase sales approximately 279812000 fiscal 2009 sales state local government agencies approximately 31996000 6821000 271 increase fiscal 2009 sales approximately 25175000 included approximately 1472000 perimeter security sales international sales approximately 26925000 represented 2240000 90 increase fiscal 2009 sales excluding approximately 37738000 perimeter security sales federal government sales approximately 4445000 1151000 higher fiscal 2009 sales approximately 3294000 sales corporate customers perimeter security division totaled approximately 8079000 fiscal 2010 fiscal 2009 net product services sales compared fiscal net sales fiscal 2009 increased strong consumer driven growth handgun tactical rifle sales revolver sales driven primarily consumer demand however revolvers much capital intensive growth yearoveryear smaller handgun product lines pistol sales increased strong demand sigma mp series pistols sales product lines approximately 599 417 respectively prior fiscal year walther product sales increased significantly prior fiscal year result higher sales p22 pistol full year benefit pps pistol introduced fiscal 2008 walther ppk pistol sales suspended fourth quarter fiscal 2009 february 2009 recall product adversely impacted fourth quarter sales tactical rifle sales continued increase result increased consumer demand well continued acceptance law enforcement agencies hunting firearms severely impacted economic factors black powder sales dropping approximately 394 fiscal 2008 levels decrease parts accessories correlated decrease black powder rifle sales nonfirearm sales fiscal 2009 flat increased handcuff sales offset reduced foundry sales order backlog end fiscal 2009 approximately 267862000 approximately 217934000 higher end fiscal 2008 approximately 144719000 higher end previous fiscal quarter extraordinary increase backlog related directly increase consumer demand experienced third fourth quarters fiscal 2009 also increased result previously planned manufacturing capacity prior significant increase consumer demand sales consumer channel approximately 279812000 35731000 146 increase sales approximately 244081000 fiscal 2008 excluding hunting products sporting good sales increased approximately 319 fiscal 2008 levels sales state local government agencies approximately 25175000 3261000 149 increase fiscal 2008 sales approximately 21914000 international sales approximately 24685000 represented 250000 10 increase fiscal 2008 sales federal government sales approximately 3294000 127000 lower fiscal 2008 sales approximately 3421000 cost revenue gross profit following table sets forth certain information regarding cost revenue gross profit fiscal years ended april 30 2010 2009 2008 dollars thousands gross profit fiscal 2010 grew result increase sales gross profit percentage net revenue increased result improved efficiencies firearm business gross profit percentage net revenue improved result approximately 3075000 reduction warranty expense lower promotional spending favorable absorption resulting high production volume meet consumer demand addition reduced manufacturing spending improved material efficiencies rochester new hampshire facility contributed improved gross margin percentage reduced promotional spending approximately 1712000 fiscal 2010 fiscal 2009 levels gross profit fiscal 2010 firearm division approximately 119464 334 sales versus approximately 97143 290 sales gross profit fiscal 2010 perimeter security division approximately 11936 247 impact acquisition usr unfavorable impact total gross profit percentage net revenue largely result amortization acquisitionrelated intangibles reduced gross margin approximately 1526000 additional costs incurred continue expand business gross profit fiscal 2009 grew result increase sales gross profit percentage net revenue declined result impact significantly lower sales production volumes higher margin hunting products approximately 2271000 accrual related february 2009 walther ppk ppks recall reduced production levels reduced number operating days necessary meet reduced demand rochester new hampshire plant resulted underutilized capacity inability fully absorb fixed overhead inventory addition increased capital spending last several years increased depreciation expense approximately 1103000 fiscal 2009 promotional costs approximately 8368000 compared approximately 8862000 year ended april 30 2008 operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2010 2009 2008 dollars thousands excluding impact impairment charge recorded second quarter fiscal 2009 goodwill longlived intangible assets related thompsoncenter arms acquisition approximately 9738000 operating expense incurred connection newly acquired usr operation operating expenses fiscal 2010 grew approximately 7133000 increased profit sharing management incentive compensation related improved financial performance versus prior fiscal year increased administrative costs related acquisition usr including legal accountingrelated consulting fees increased legal consulting fees related allegations one employees fcpa partially offset lower amortization intangibles due impairment goodwill longlived assets thompsoncenter arms lower bad debt reserve charges arose sudden decline economy calendar 2008 increase research development costs related approximately 476000 increased samples testing materials support new product introductions approximately 675000 increased salaries benefits approximately 114000 perimeter security costs incurred subsequent acquisition usr approximately 204000 reduced allocations manufacturing based increased focus new product engineering increase sales marketing expense reflected approximately 652000 increased salaries benefits well approximately 1005000 increased commissions hunting business transitioned back use manufacturers’ representative sales model addition travel costs increased approximately 360000 marketing consulting increased approximately 466000 advertising marketing samples declined approximately 387000 excluding approximately 9336000 impact acquiring usr increase general administrative expenses resulted approximately 2897000 increase profit sharing management incentives exclusion impairment 2010 calculation approximately 408000 increased recruiting relocation costs approximately 3225000 increased professional fees related defense costs internal investigation fcpa matter approximately 586000 increased professional fees related acquisition usr offsetting costs approximately 2594000 reduced bad debt costs approximately 1845000 reduced amortization intangible assets subsequent impairment thompsoncenter arms assets fiscal 2009 operating expenses percentage net revenue approximately 220 fiscal 2010 approximately 216 fiscal 2009 excluding impairment charge approximately 04 increase predominately attributed approximately 3225000 incurred fcpa investigation employee defense costs october 2008 due serious unfavorable recurring economic market conditions factors adverse effect hunting market became apparent goodwill longlived assets related thompsoncenter arms acquisition significantly impaired conducted review reporting unit related products determined fair value lower book value requiring us record impairment charge approximately 98243000 excluding impact impairment charge noted operating expenses fiscal 2009 increased approximately 4032000 59 fiscal 2008 levels increase fiscal 2009 fiscal 2008 research development costs related approximately 232000 increased testing materials result increasing cost ammunition approximately 334000 thirdparty engineering costs approximately 70000 increased salaries benefits approximately 126000 reduced allocations manufacturing based increased focus new product engineering increase sales marketing expense reflected increased sales incentives incurred result higher handgun sales levels increase general administrative expenses included approximately 2690000 increased profit sharing related springfield massachusetts houlton maine facilities addition weak economic factors impacting certain regional retail customers increased bad debt reserves approximately 2312000 fiscal 2009 finally increased salaries benefits recruiting relocation resulting changes management structure totaling approximately 1065000 offset approximately 1742000 reduced amortization intangible assets resulting impairment charge lower stockbased compensation expense approximately 1578000 due lower awards reversal expense associated performancebased options achieved based actual operating results operating expenses percentage net revenue excluding impairment charge approximately 216 fiscal 2009 approximately 15 lower fiscal 2008 ratio due reduced amortization intangible assets result impairment charge well increased revenue caused increased consumer demand general administrative costs fiscal 2009 included approximately 2437000 amortization fiscal 2008 included approximately 4119000 amortization incomeloss operations following table sets forth certain information regarding incomeloss operations fiscal years ended april 30 2010 2009 2008 dollars thousands excluding fiscal 2009 impact approximately 98243000 impairment thompsoncenter arms assets fiscal 2010 operating income approximately 42272000 17396000 699 higher operating income approximately 24876000 fiscal 2009 increased revenue improved margins firearm business offset initial loss operations associated perimeter security business impact fcpa costs operating expenses excluding impact approximately 98243000 impairment thompsoncenter arms assets fiscal 2009 operating income approximately 24876000 1409000 60 higher operating income fiscal 2008 impact associated consumer driven demand offset unfavorable absorption product mix thompsoncenter arms impact walther ppk ppks recall increase operating expenses incomeexpense following table sets forth certain information regarding incomeexpense fiscal years ended april 30 2010 2009 2008 dollars thousands fiscal 2010 incomeexpense included approximately 9587000 income associated revaluation 4080000 shares expected paid conjunction acquisition usr see note 2 excluding amount remaining expense approximately 120000 represents among things unrealized losses foreign exchange contracts fines penalties incurred late filings payments tax returns approximately 161000 fiscal 2009 interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2010 2009 2008 dollars thousands interest expense decreased fiscal 2010 result repayment approximately 4814000 longterm debt december 2009 overall increased cash balances throughout fiscal year interest expense decreased fiscal 2009 result repayment 28000000 acquisition line may 2008 repayment approximately 4367000 longterm debt june 2008 reduced borrowings revolving line credit overall lower interest rates addition 6250000share stock offering may 2008 increased cash flow associated consumer demand enabled us reduce overall outstanding indebtedness throughout fiscal 2009 income taxes following table sets forth certain information regarding income tax expensebenefit fiscal years ended april 30 2010 2009 2008 dollars thousands income tax expense fiscal 2010 included effect changes temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled approximately 8284000 valuation allowance april 30 2010 required accounting standards codification “asc” topic 74010 record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position valuation allowance approximately 26000 provided deferred federal tax assets capital loss carryforward anticipate using prior expiration valuation allowance provided deferred federal income tax assets april 30 2010 2009 believe likely assets realized federal net operating loss carryforwards amounting approximately 3913000 2285000 2394000 april 30 2010 2009 2008 respectively obtained approximately 8215000 additional loss carryforwards acquisition usr july 20 2009 net operating loss carryforward april 30 2010 expires fiscal years 2019 2020 internal revenue code section 382 limits utilization losses approximately 8136000 fiscal 2010 approximately 295000 2011 approximately 108000 per subsequent year possible future substantial changes ownership could occur could result reduction loss carryforwards pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards could utilized utilization federal net operating losses amortization intangible assets decreased overall net deferred tax asset approximately 8284000 april 30 2010 federal net operating losses account approximately 800000 total net deferred tax asset approximately 13649000 april 30 2009 approximately 3120000 state net operating loss carryforwards april 30 2010 state net operating loss carryforwards april 30 2009 2008 october 22 2004 american jobs creation act “ajca” signed law ajca provides deduction income qualified domestic production activity “qpa” pursuant asc 7501055 effect deduction reported period claimed tax return qpa benefit us approximately 1270000 fiscal 2010 approximately 1405000 fiscal 2009 resulted reduction tax expense approximately 445000 fiscal 2010 approximately 492000 fiscal 2009 annual deduction remaining federal net operating loss carryforward limited internal revenue code section 382 unfavorable impact future benefits qpa negligible income tax benefit fiscal 2009 included effect changes temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled approximately 13649000 valuation allowance april 30 2009 net deferred tax liabilities reduced fiscal 2009 approximately 21766000 result impairment thompsoncenter arms goodwill longlived assets net incomeloss following table sets forth certain information regarding net incomeloss related per share data fiscal years ended april 30 2010 2009 2008 dollars thousands except per share data excluding approximately 9587000 favorable fair value adjustment usr earn liability fiscal 2010 approximately 76477000 impact thompsoncenter arms impairment charge net income increased approximately 10653000 868 prior fiscal year increase due increased sales margin firearm business offset increased costs associated fcpa matter acquisition costs expensed fiscal year loss recorded usr due acquisition accounting amortization excluding impact fair value adjustments diluted earnings per share would 038 026 fiscal 2010 fiscal 2009 respectively approximately 462 increase spite 6000000share offering may 2009 issuance 5600000 shares conjunction usr acquisition decrease net income net income per share fiscal 2009 primarily attributable impairment longlived assets goodwill associated acquisition thompsoncenter arms totaled approximately 76477000 net deferred taxes approximately 21766000 excluding writeoff fiscal 2009 income would increased approximately 3150000 approximately 12271000 earnings per share would 026 increase income prior fiscal year result increased sales due consumer driven demand partially offset reduced volume corresponding gross margin impact hunting business addition earnings per share lower fiscal 2009 due additional 6250000 shares issued may 2008 liquidity capital resources principal cash requirements finance growth operations including acquisitions service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2010 2009 2008 dollars thousands operating activities represent principal source cash flow cash flow operating activities decreased significantly fiscal 2010 fiscal 2009 levels largely result impact fiscal 2009 spike consumer demand reducing year end accounts receivable inventory april 30 2009 accounts receivable increased approximately 14872000 due relatively high april firearm sales acquisition usr inventory increased approximately 5024000 fiscal 2010 primarily due slowdown consumer demand allowed replenishment firearm safety stock cash paid income taxes represented significant increase fiscal 2010 due significant increase profitability consolidated company cash flow operating activities increased significantly fiscal 2009 fiscal 2008 levels largely result approximately 5431000 decrease inventory fiscal 2009 addition accounts receivable decreased approximately 3619000 fiscal 2009 finally approximately 2433000 increase net income excluding noncash impairment increase current accrual levels approximately 6468000 prior fiscal year increase contributed increase cash operating activities cash used investing activities higher fiscal 2010 fiscal 2009 due approximately 21074000 invested acquisition usr increased capital spending approximately 7830000 cash used investing activities lower fiscal 2009 fiscal 2008 due reduced capital spending approximately 4515000 cash provided financing activities fiscal 2010 favorable compared prior fiscal year due lower longterm debt repayments totaling approximately 14376000 fiscal 2009 repayment 7000000 revolving line borrowings addition proceeds share issuances fiscal 2010 approximately 2971000 higher proceeds received fiscal 2009 cash used financing activities fiscal 2009 unfavorable compared prior fiscal year due repayment 28000000 acquisition loan approximately 4367000 term loans 7000000 revolving line partially offset proceeds 6250000share offering may 2008 april 30 2010 open letters credit aggregating approximately 3892000 april 30 2010 approximately 39855000 cash equivalents hand 60000000 revolving line credit td bank na balance outstanding april 30 2010 credit agreement td bank contains financial covenants relating maintaining maximum leverage minimum debt service coverage agreement relating 4 senior convertible notes contains financial covenant relating maximum additional indebtedness compliance debt covenants april 30 2010 based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions matters inflation believe inflation material impact us fiscal 2010 2009 2008 critical accounting policies use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter estimates respect adequacy insurance reserves significant estimates include gross margin percentage completion inprocess perimeter security projects accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory forfeiture rates stockbased awards asset impairments medical claims payable actual results could differ estimates revenue recognition firearm segment recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured perimeter security segment recognize revenue fixedprice installation contracts using percentageofcompletion method measured percentage costs incurred date total costs contract product sales account substantial portion firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenue individual licensees quarterly basis based historical experience expected cash receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2010 minimum royalties collected future amounted approximately 6026000 valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks tradenames amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets exception goodwill intangible assets indefinite lives initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified test goodwill intangible assets indefinite lives impairment annual basis end fiscal third quarter annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 respect criteria necessary evaluate number reporting units exist based review segment reporting topic asc 2801050 determined operate three reporting units one springfield massachusetts houlton maine facilities second rochester new hampshire facility third usr determined operate two segments one firearm companies second perimeter security subsidiary usr goodwill recorded books april 30 2010 associated usr arose acquisition usr july 20 2009 based combination factors occurring fiscal 2009 including economic environment market conditions hunting industry determined indicators impairment goodwill intangible assets existed rochester new hampshire reporting unit result conducted evaluation goodwill intangible assets associated acquisition reporting unit based lower order intake fiscal 2009 lower expected operating profits cash flows reporting unit earnings forecast next ten years revised fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 41173000 three months ended october 31 2008 periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affecting rochester new hampshire reporting unit required us test impairment longlived assets pertaining location second quarter fiscal 2009 based assessment recorded impairment charge 57070000 reflect excess carrying value longlived intangible assets discounted cash flows impairment charges taken fiscal 2010 based review longlived assets based review goodwill indefinitelived intangible assets perimeter security reporting unit february 1 2010 utilizing discounted cash flow method discount rate 235 determined fair value goodwill exceeded carrying value unit 11 fair value indefinitelived assets substantially excess carrying value april 30 2010 goodwill reporting unit 83865 represents entire amount goodwill recorded books utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting units’ expected longterm operating cash performance approach also mitigates impact cyclical trends occur industries fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percent revenue decline future years due improved utilization resulting lean initiatives believe days sales outstanding decline grow also assumed economic downturn markets contracted long term however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges goodwill acquired intangibles completed significant business acquisition fiscal 2010 resulted significant goodwill intangible asset balances business strategy contemplates may make additional acquisitions future accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally determine fair value reporting unit purposes first step annual goodwill impairment test based market value prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs related evaluation recorded considered probable reasonably estimable april 30 2010 estimated range reasonably possible additional losses zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made april 30 2010 reserve approximately 657000 environmental matters recorded undiscounted basis inventory value firearm inventories consisting primarily finished firearm components finished firearms related products accessories perimeter security inventory consisting primarily mechanical electrical components required installation products lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide lifetime warranty “original” purchaser new firearm products one year parts labor warranty proprietary perimeter security products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearms invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes workers’ compensation firearm business selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis perimeter security business maintains separate workers’ compensation insurance policy stockbased compensation account stockbased employee compensation arrangements accordance provisions asc 718 calculating compensation cost date grant using blackscholes method amortize compensation expense vesting period estimate fair value stock option purchase employee stock purchase program date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables estimated forfeiture rates recent accounting pronouncements nature impact recent accounting pronouncements discussed note 4 consolidated financial statements commencing page report incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2010 dollars thousands december 15 2006 issued sold aggregate 800 million senior convertible notes due 2026 qualified institutional buyers pursuant terms conditions indenture securities purchase agreement dated december 15 2006 notes convertible shares common stock initially conversion price approximately 1234 per share subject adjustment certain events 810636 shares per 1000 principal amount notes may converted time notes pay interest june 15 december 15 year annual rate 4 unpaid principal amount december 15 2011 may election redeem portion notes redemption price 100 principal amount notes plus accrued unpaid interest closing price common stock fewer 20 trading days period 30 consecutive trading days exceeds 150 applicable conversion price notes december 15 2011 may redeem election portion notes redemption price 100 principal amount notes plus accrued unpaid interest holders notes may require us repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company price 100 principal amount notes plus accrued unpaid interest including contingent interest redeemed us repaid pursuant holders’ right require repurchase notes mature december 15 2026 included 852 million longterm debt obligation 52 million contractually obligated interest payments pertaining 800 million convertible debt amount represents interest payments december 15 2011 first redemption milestone may required pay additional interest subsequent december 15 2011 redemption date however due uncertainty subsequent interest payments reflected table offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report highlights fiscal 2011 net sales 3923 million represented decrease 34 fiscal 2010 net sales net sales firearm division decreased 44 3422 million net loss fiscal 2011 828 million 137 per fully diluted share compared net income 325 million 053 per fully diluted share fiscal 2010 fiscal 2011 net loss resulted large part goodwill intangible assets impairment charge related july 2009 acquisition universal safety response inc since renamed smith wesson security solutions inc referred herein swss 878 million net deferred taxes 27 million offset 31 million favorable adjustment revalue 4080000 shares common stock related swss acquisition net income fiscal 2010 included 96 million favorable adjustment related share revaluation excluding two items net income fiscal 2011 would 20 million 209 million 913 decrease fiscal 2010 net income operating results fiscal 2011 affected numerous factors including following • 34 decline revenue resulting lower order intake firearm business ordering returned normal levels compared strong consumer demand occurred november 2008 presidential election offset increase sales security solutions division prior fiscal year primarily result including full year revenue fiscal 2011 operating results versus nineandahalf months included fiscal 2010 operating results ongoing economic downturn reduced federal corporate spending perimeter security industry negative impact sales security solutions division fiscal 2011 • relocation rochester new hampshire operating activities including production hunting products springfield massachusetts facility resulting 27 million relocation costs 23 million attributed cost goods sold 422000 related operating expenses resulting lower margins prior fiscal year due negative impact efficiencies product line • negative impact gross profit margin resulting reduced pricing selected firearm products part pricerepositioning strategy included price protection adjustments distributors products held inventory time price reductions announced increased promotional activities related firearm products prior fiscal year period significant increase consumer demand weak demand caused federal funding deficits corporate budgetary constraints combined increase price competitiveness perimeter security market lower gross margins security solutions division • noncash impairment charge 878 million net 27 million deferred taxes based determination goodwill intangible assets related acquisition swss impaired due market conditions factors • legal consulting costs 99 million related doj unsealed indictments 22 individuals law enforcement military equipment industries one vice presidentsales international even though charged indictment incurred 32 million similar costs fiscal 2010 business one world’s leading manufacturers firearms manufacture wide array handguns modern sporting rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns handcuffs united states largest us exporter handguns participant modern sporting hunting rifle markets also leading turnkey provider perimeter security solutions protect control access key military government corporate facilities manufacture firearm products facilities springfield massachusetts houlton maine rochester new hampshire manufacture assemble perimeter security products facilities franklin tennessee addition pursue opportunities license name trademarks third parties use association products services plan increase product offerings leverage nearly 160 year old “smith wesson” brand capitalize goodwill developed historic american tradition expanding consumer awareness products produce license safety security protection sport markets key performance indicators evaluate performance business based upon operating profit includes net sales cost products services sold selling administrative expenses certain components income expense also use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding large nonrecurring items nongaap financial metric evaluate performance evaluate various firearm products measurements cost per unit produced units produced per day incoming orders per day evaluate security solutions products revenue invoiced gross margin per project incoming orders per month key industry data handguns subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun market increased 50 consumers purchased handguns fear prohibition handgun ownership market levels returned pre1992 levels grew normal industry growth rates late calendar 2008 market increased appears fears surrounding crime terrorism economic downturn change white house administration like increase 1992 increase market temporary nature market returned normal levels fiscal 2010 within us handgun market estimate approximately 81 market pistols 19 revolvers also estimate 18 share us consumer market handguns compares approximately 10 period acquired smith wesson corp 2001 approximately 16 1990s results operations net product services sales following table sets forth certain information regarding net product services sales fiscal years ended april 30 2011 2010 2009 dollars thousands fiscal 2011 net product services sales compared fiscal net product services sales fiscal 2011 decreased ordering returned normal levels compared strong consumer demand occurred november 2008 presidential election revolver sales increased 30 prior fiscal year significant demand bodyguard 38 revolver offset reduced volume aluminum frame products consumer market significantly reduced international shipments resulted substantial changes made foreign sales personnel foreign representatives modifications made foreign sales processes determination sell products certain foreign countries price repositioning costs rebate program small frame revolvers negatively impacted sales dollars helping spur unit sales pistol sales 68 higher prior fiscal year driven introduction bodyguard 380 concealed carry pistol sales metal pistols lower compared prior fiscal year primarily due reduced international shipments sales sigma demand shifted concealed carry domestic marketplace walther product sales declined 127 prior fiscal year increased competition small frame concealed carry products sales modern sporting rifles product line impacted reduction consumer demand declined 375 prior fiscal year however sales within product line favorably impacted fourth quarter fiscal 2011 introduction new sport model premium product sales increased 112 prior fiscal year primarily continued success pro series handguns introduction matched set engraved bodyguard revolver pistol hunting product sales increased 114 prior fiscal year increased bolt action rimfire black powder product sales parts accessories sales flat yearoveryear increased sales handgun accessories offset reduction sales hunting accessories sales security solutions products services increased 38 prior fiscal year primarily result including full year revenue fiscal 2011 operating results versus nineandahalf months included fiscal 2010 operating results ongoing economic downturn reduced federal corporate spending perimeter security industry negative impact sales fiscal 2011 order backlog april 30 2011 207276000 186711000 related firearms 20565000 related security solutions firearm order backlog 78710000 higher end fiscal 2010 112872000 higher end third quarter fiscal 2011 primarily result backlog generated new products success price repositioning sigma mp series pistols firearm orders received yet shipped could cancelled particularly demand suddenly decrease therefore firearm backlog may indicative future sales particularly since order demand currently exceeds manufacturing capacity security solutions backlog consists primarily projectoriented contracts andor letters intent provide progress payments typically cancelled therefore security solutions backlog indicative future sales subject significant timing variations depending size nature scope order within total backlog given period time sales consumer channel 295462000 1244000 04 increase sales 294218000 fiscal 2010 sales state local government agencies 28324000 3672000 115 decrease fiscal 2010 sales 31996000 resulting 255 decline firearm sales offset increase security solutions sales agencies international sales 19289000 represented 7621000 283 decrease fiscal 2010 sales result substantial changes made foreign sales personnel foreign representatives modifications made foreign sales processes determination sell products certain foreign countries federal government sales 37702000 5508000 127 lower fiscal 2010 sales result federal budgetary constraints homeland security line items sales corporate customers security solutions division totaled 9540000 1548000 194 increase fiscal 2010 sales primarily including full year sales fiscal 2011 compared nineandahalf months prior fiscal year fiscal 2010 net product services sales compared fiscal net product services sales fiscal 2010 increased strong consumer driven growth modern sporting rifles impact acquisition swss july 2009 revolver sales slightly lower prior fiscal year unit sales 81 due reduced availability product meet extremely high level demand early part fiscal year coupled delayed international shipments result substantial changes made foreign sales personnel foreign representatives modifications made foreign sales processes determination sell products certain foreign countries partially offset reduced promotional costs pistol sales 82 lower prior fiscal year metal sigma pistols significantly prior fiscal year mp series pistols flat yearoveryear walther product sales increased 270 prior fiscal year pk380 pistol product introduction increased production availability german manufactured products introduction new mp1522 modern sporting rifle increased capacity produce modern sporting rifles meet higher consumer demand led increased sales products new product offerings within classics series handguns increased sales premium products 198 prior fiscal year hunting products negatively impacted late fiscal 2009 discontinuation smith wessonbranded boltaction rifles offset increased performance thompsoncenter armsbranded boltaction rifles spurred introduction venturetm product line improved black powder rifle sales second half fiscal 2010 parts accessories sales grew prior fiscal year increased sales focus hunting products higher demand parts accessories handguns reflecting high demand new used firearms order backlog april 30 2010 143098000 108001000 related firearms 35097000 related security solutions firearm order backlog 159861000 lower end fiscal 2009 represented 33755000 increase backlog end third quarter fiscal 2010 primarily result backlog generated new products spite yearoveryear decline firearm backlog fiscal 2010 year end backlog remained substantially higher typically experienced prior extraordinary increases consumer demand firearms third fourth quarters fiscal 2009 security solutions backlog declined 7406000 end third quarter fiscal 2010 customer investment decisions began slow sales consumer channel 294218000 14406000 51 increase sales channel 279812000 fiscal 2009 sales state local government agencies 31996000 6821000 271 increase fiscal 2009 sales 25175000 included 1472000 security solutions sales international sales 26910000 represented 2224000 90 increase fiscal 2009 sales excluding 38765000 security solutions sales federal government sales 4445000 1151000 higher fiscal 2009 sales 3294000 sales corporate customers security solutions division totaled 7992000 fiscal 2010 cost products services sold gross profit following table sets forth certain information regarding cost products services sold gross profit fiscal years ended april 30 2011 2010 2009 dollars thousands fiscal 2011 cost products services sold gross profit compared fiscal 2010 gross profit firearm division fiscal 2011 decreased prior fiscal year decrease sales volume addition gross profit percentage net products services sold firearm division decreased result targeted price repositioning strategy several product lines aimed increasing market share repositioning resulted onetime credit 3202000 certain distributors large retailers protect inventory distribution channel price reduction also negatively impacted gross margin addition gross profit negatively impacted increased promotional activity prior price repositioning 1296000 increased distributor incentives second half fiscal year 3250000 costs associated relocation hunting production rochester new hampshire facility springfield massachusetts facility 2240000 related production labor inefficiencies associated relocation gross profit security solutions division fiscal 2011 decreased prior fiscal year spite increase products services sold certain projects completed significantly expected margins competitive pressures delayed reduced demand projects due federal corporate budgetary pressures acquired security solutions business july 20 2009 fiscal 2010 cost products services sold gross profit compared fiscal 2009 gross profit firearm division fiscal 2010 grew result increase sales gross profit percentage net products services sold improved result 3075000 reduction warranty expense 1712000 reduction promotional spending favorable absorption resulting high production volume meet consumer demand addition reduced manufacturing spending improved material efficiencies rochester new hampshire facility contributed improved gross margin percentage operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2011 2010 2009 dollars thousands fiscal 2011 operating expenses compared fiscal 2010 excluding impact impairment charge recorded fiscal 2011 goodwill intangible assets related 2009 acquisition swss fiscal 2011 operating expenses increased 16704000 187 prior fiscal year firearm division increase research development expenses prior fiscal year primarily due increased test samples support new product development increase selling marketing expenses result increased consulting outside services 2354000 included improvements customer acceptance process market research consulting licensing consulting well advertising 1119000 support new product launches cooperative advertising cost sharing agreements several large retail customers increase general administrative costs prior fiscal year included 6159000 legal consulting fees related investigation doj sec matters 803000 bad debt costs 812000 legal fees related filing international trade commission “itc” action several black powder competitors 1045000 severance costs 810000 consulting fees related internal audit activities amounts offset 3138000 lower profit sharing 1603000 lower stock compensation expense 2389000 lower management incentive compensation operating expenses percentage net products services sold firearm division increased 32 predominately due 6708000 increase costs related doj sec matters severance costs related manufacturing plant relocation costs associated itc filing excluding impact impairment charge recorded fiscal 2011 goodwill intangible assets related 2009 acquisition swss operating expenses security solutions division increased 9198000 945 18935000 approximately 2800000 attributed including full year expenses fiscal 2011 compared approximately nine half months fiscal 2010 remaining increase reflected 1702000 impact resulting focused effort expand administrative sales management team necessary sustain ongoing business recruited key personnel sales marketing engineering finance estimating order build appropriate control operating structure division addition incurred 765000 increased product development costs begin expand division’s product offerings offered 399000 increased equity compensation senior employees increased trade show marketing material costs 208000 spent additional 302000 travel sales team incurred 150000 relocation costs effort expand business fiscal 2011 incurred 435000 additional bad debt costs primarily one contract general contractor removed government addition fiscal 2011 increased overhead costs incurred including 428000 warranty costs 187000 increased intangible amortization 207000 increased depreciation 293000 severance costs 135000 legal fees excluding impact impairment charge recorded fiscal 2011 goodwill intangible assets related acquisition swss operating expenses percentage net products services sold security solutions division increased 176 predominately due increase employee costs described fiscal 2010 operating expenses compared fiscal 2009 excluding impact impairment charge recorded fiscal 2009 goodwill longlived intangible assets related thompsoncenter arms acquisition operating expenses fiscal 2010 increased 7123000 fiscal 2009 operating expenses increased profit sharing management incentive compensation related improved financial performance versus prior fiscal year increased administrative costs related acquisition swss including legal accountingrelated consulting fees increased legal consulting fees related allegations one employees fcpa partially offset lower amortization intangible assets due impairment goodwill longlived assets thompsoncenter arms lower bad debt reserve charges arose sudden decline economy calendar 2008 increase research development costs fiscal 2010 related 476000 increased samples testing materials support new product introductions 675000 increased salaries benefits 204000 reduced allocations manufacturing based increased focus new product engineering increase selling marketing expense reflected 652000 increased salaries benefits 1005000 increased commissions hunting business transitioned back use manufacturers’ representative sales model addition travel costs increased 360000 marketing consulting fees increased 466000 advertising marketing samples declined 387000 increase general administrative expenses resulted 2897000 increase profit sharing management incentive compensation 408000 increased recruiting relocation costs 3225000 increased professional fees related defense costs internal investigation fcpa matter 586000 increased professional fees related acquisition swss offsetting costs 2594000 reduced bad debt costs 1845000 reduced amortization intangible assets subsequent impairment thompsoncenter arms assets fiscal 2009 operating expenses percentage net revenue 220 fiscal 2010 216 fiscal 2009 excluding impairment charge recorded fiscal 2009 goodwill intangible assets related 2007 thompsoncenter arms acquisition 04 increase predominately 3225000 incurred fcpa investigation employee defense costs incomeloss operations following table sets forth certain information regarding incomeloss operations fiscal years ended april 30 2011 2010 2009 dollars thousands fiscal 2011 incomeloss operations compared fiscal decline income operations firearm division resulted decline modern sporting rifle sales subsequent yearlong surge consumer demand november 2008 presidential election corresponding increase promotional costs spur sales reduced pricing several product lines addition increased spending related doj sec matters costs associated relocation hunting product production rochester new hampshire facility springfield massachusetts facility contributed reduction operating profit excluding impact impairment charge recorded fiscal 2011 discussed loss operations security solutions division 7717000 compared unfavorably income operations 2198000 primarily due increase operating expenses designed stabilize business spur growth enhance controls estimating contract execution fiscal 2010 incomeloss operations compared fiscal excluding impact impairment charge recorded fiscal 2009 discussed income operations firearm division 40074000 15198000 611 higher operating income 24876000 fiscal 2009 predominantly due increased products services sold improved margins offset impact fcpa costs operating expenses incomeexpense following table sets forth certain information regarding incomeexpense fiscal years ended april 30 2011 2010 2009 dollars thousands fiscal 2011 2010 incomeexpense included 3060000 9587000 respectively income associated revaluation 4080000 shares common stock related july 2009 acquisition swss see note 2 consolidated financial statements contained elsewhere report excluding income remaining incomeexpense represented among things unrealized gains losses foreign exchange contracts interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2011 2010 2009 dollars thousands interest expense increased fiscal 2011 compared fiscal 2010 due early retirement 500 million senior convertible notes resulted 476000 writeoff debt refinancing costs debt exchanged 500 million 95 senior notes resulting higher interest expense primarily fourth quarter fiscal 2011 exchange senior convertible notes higher coupon 95 senior notes made impending december 2011 date holders senior convertible notes could require us repurchase senior convertible notes well remove dilutive effects senior convertible notes interest expense decreased fiscal 2010 result repayment 4814000 longterm debt december 2009 overall increased cash balances throughout fiscal year income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2011 2010 2009 dollars thousands income tax expense fiscal 2011 included effect changes temporary differences book value tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled 8764000 valuation allowance april 30 2011 federal net operating loss carryforwards amounting 1601000 april 30 2011 obtained 8215000 additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 net operating loss carryforwards april 30 2011 expire fiscal year 2021 internal revenue code section 382 limits utilization losses approximately 403000 fiscal 2012 108000 per subsequent year possible future substantial changes ownership could occur could result reduction loss carryforwards pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards could utilized adjustments reserves book versus tax difference amortization intangible assets increased overall net deferred tax asset 8764000 april 30 2011 10938000 state net operating loss carryforwards april 30 2011 4591000 state net operating loss carryforwards april 30 2010 1739000 1218000 state tax credit carryforwards april 30 2011 2010 respectively april 30 2011 valuation allowances 26000 445000 705000 provided deferred tax assets federal capital loss carryforward state net operating losses state tax credits respectively anticipate using prior expiration april 30 2010 valuation losses 26000 650000 provided deferred tax assets federal capital loss carryforward state tax credits respectively increase valuation allowance deferred tax assets state net operating losses credits related mainly operations franklin tennessee valuation allowance provided deferred federal income tax assets april 30 2011 2010 believe likely assets realized order utilize unreserved portion net operating loss carryforwards minimum level annual taxable income would achieve must equal exceed amount federal net operating carryforwards fiscal years 2012 2021 believe achievement level taxable income likely based historical performance future projections including new product offerings pricing decisions marketing efforts expected spending levels net incomeloss following table sets forth certain information regarding net incomeloss related per share data fiscal years ended april 30 2011 2010 2009 dollars thousands except per share data fiscal 2011 net incomeloss compared fiscal 2010 excluding impact impairment charge recorded fiscal 2011 goodwill intangible assets related july 2009 acquisition swss well 3060000 9587000 favorable adjustments revaluation common stock related acquisition fiscal 2011 2010 respectively net income 2003000 fiscal 2011 significantly net income 22923000 fiscal 2010 20920000 reduction net income resulted 6708000 increase doj sec investigation costs fiscal 2011 9198000 increase operating expenses security solutions division reduction gross profit margin firearm division due increasing price competitiveness subsequent post november 2008 election surge costs associated relocation production hunting product line springfield massachusetts facility excluding impact fair value adjustment impairment charge diluted earnings per share would 003 038 fiscal 2011 fiscal 2010 respectively 918 decrease yearonyear fiscal 2010 net incomeloss compared fiscal 2009 excluding 9587000 favorable adjustment revaluation common stock related july 2009 acquisition swss fiscal 2010 well impact impairment charge recorded fiscal 2009 goodwill intangible assets related 2007 acquisition thompsoncenter arms net income fiscal 2010 increased 10653000 868 fiscal 2009 net income increase due increased sales margin firearm business offset increased costs associated fcpa matter acquisition costs expensed fiscal year loss recorded swss due acquisition accounting amortization excluding impact fair value adjustment diluted earnings per share would 038 026 fiscal 2010 fiscal 2009 respectively 462 increase spite 6000000share offering may 2009 issuance 5600000 shares connection completion swss acquisition july 2009 liquidity capital resources principal cash requirements finance growth operations including acquisitions service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2011 2010 2009 dollars thousands operating activities represent principal source cash flow cash flow operating activities increased significantly fiscal 2011 fiscal 2010 levels spite reduction profitability due 7327000 reduction accounts receivable 10861000 increase accounts payable 8892000 increase accrued taxes income accounts receivable declined compared prior fiscal year primarily result timing fourth quarter sales accounts payable high end fiscal 2011 primarily due significant capital spending incurred late fourth quarter meet requirements massachusetts economic development incentive program granted us 4400000 refundable tax credits capital spending qualified property exceeded 110 million accrued taxes income increased result change federal excise tax deposit requirements biweekly quarterly allowing first calendar quarterly payment made may 2 2011 end fiscal year addition fiscal 2010 income tax payments significantly higher result higher taxable income cash flows operating activities decreased significantly fiscal 2010 fiscal 2009 levels largely result impact fiscal 2009 spike consumer demand reducing year end accounts receivable inventory april 30 2009 accounts receivable increased 14872000 due relatively high april firearm sales acquisition swss inventory increased 5024000 fiscal 2010 primarily due slowdown consumer demand allowed replenishment firearm safety stock cash paid income taxes represented significant increase fiscal 2010 significant increase profitability consolidated company cash used investing activities lower fiscal 2011 fiscal 2010 primarily fiscal 2010 included 21074000 invested july 2009 acquisition swss partially offset increased capital spending property equipment 3522000 cash used investing activities higher fiscal 2010 fiscal 2009 due 21074000 invested july 2009 acquisition swss increased capital spending 7395000 cash used financing activities fiscal 2011 reflected net exchange 50000000 senior convertible notes 95 senior notes borrowing activity compared fiscal 2010 included 20333000 longterm debt repayments offset 35017000 proceeds issuance 6000000 shares common stock cash provided financing activities fiscal 2010 favorable compared fiscal 2009 due lower longterm debt repayments totaling approximately 14376000 fiscal 2009 repayment 7000000 revolving line borrowings addition proceeds share issuances fiscal 2010 2971000 higher proceeds received fiscal 2009 april 30 2011 open letters credit aggregating 810000 april 30 2011 58292000 cash equivalents hand 120000000 revolving line credit td bank na balance outstanding april 30 2011 credit agreement td bank contains financial covenants relating maintaining maximum leverage minimum debt service coverage indenture relating senior convertible notes contains financial covenant relating maximum additional indebtedness indenture relating 95 senior notes contains financial covenant relating times interest earned compliance debt covenants april 30 2011 based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions anticipate holders entire 30000000 principal amount outstanding senior convertible notes require us repurchase senior convertible notes cash december 15 2011 intend utilize cash hand borrowings credit agreement make payments matters inflation believe inflation material impact us fiscal 2011 2010 2009 critical accounting policies use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter estimates respect adequacy insurance reserves significant estimates include gross margin percentage completion inprocess security solutions projects accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory forfeiture rates stockbased awards asset impairments medical claims payable actual results could differ estimates revenue recognition firearm segment recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured security solutions segment recognize revenue fixedprice installation contracts using percentageofcompletion method measured percentage costs incurred date total costs contract product sales account substantial portion firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed determine percentageofcompletion comparing cost incurred date estimated total cost required complete project consider costs incurred date reliable available measure progress projects make adjustments estimates complete periods facts resulting change become known estimate indicates loss incurred record loss period identified reliable estimates cannot made recognize revenue upon completion significant judgment involved estimation process contract different assumptions could yield materially different results delays installation process could negatively affect operations given period increasing volatility revenue recognition revenue conformity accounting principles generally accepted united states requires us make judgments affect timing amount reported revenue recognize trademark licensing revenue individual licensees quarterly basis based historical experience expected cash receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectability exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2011 minimum royalties collected future amounted 2236000 valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks tradenames amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets exception goodwill intangible assets indefinite lives initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance asc 350 intangiblesgoodwill test goodwill intangible assets indefinite lives impairment annual basis end fiscal third quarter annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 respect criteria necessary evaluate number reporting units exist based review segment reporting topic asc 2801050 determined operate three reporting units one springfield massachusetts houlton maine facilities second rochester new hampshire facility third swss determined operate two segments one firearm companies second security solutions subsidiary swss april 30 2011 goodwill recorded books based combination factors occurring fiscal 2011 including federal corporate budgetary constraints increased price competition low barrier entry factors determined indicators impairment goodwill intangible assets existed swss reporting unit result conducted evaluation goodwill intangible assets associated acquisition reporting unit based earnings cash flow forecast next ten years fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 83865000 fiscal 2011 based combination factors occurring fiscal 2009 including economic environment market conditions hunting industry determined indicators impairment goodwill intangible assets existed rochester new hampshire reporting unit result conducted evaluation goodwill intangible assets associated acquisition reporting unit based lower order intake fiscal 2009 lower expected operating profits cash flows reporting unit earnings forecast next ten years revised fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 41173000 fiscal 2009 periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affecting swss rochester new hampshire reporting units required us test impairment longlived assets pertaining reporting units fiscal 2011 2009 respectively based assessments recorded impairment charges 6637000 57070000 respectively reflect excess carrying value longlived intangible assets discounted cash flows impairment charges taken fiscal 2010 based review longlived assets utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting units’ expected longterm operating cash performance approach also mitigates impact cyclical trends occur industries fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percentage revenue decline future years due improved utilization resulting lean initiatives believe days sales outstanding decline grow also assumed economic downturn markets contracted long term however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges goodwill acquired intangibles completed significant business acquisition fiscal 2010 resulted significant goodwill intangible asset balances business strategy contemplates may make additional acquisitions future accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally determine fair value reporting unit purposes first step annual goodwill impairment test based market value prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs related evaluation recorded considered probable reasonably estimable april 30 2011 estimated range reasonably possible additional losses zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made april 30 2011 reserve 2077000 environmental matters recorded undiscounted basis inventory value firearm inventories consisting primarily finished firearm components finished firearms related products accessories security solutions inventory consisting primarily mechanical electrical components required installation products lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide lifetime warranty original purchaser new firearm products provide warranties two years materials workmanship security solutions projects includes products purchased us thirdparty manufacturers provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes workers’ compensation firearm business selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis security solutions business maintains separate workers’ compensation insurance policy stockbased compensation account stockbased employee compensation arrangements accordance provisions asc 718 calculating compensation cost date grant using blackscholes method amortize compensation expense vesting period estimate fair value stock option purchase employee stock purchase program date grant using blackscholes option pricing model discounted estimated forfeiture rate using riskfree interest rate expected term expected volatility dividend yield variables stock price date grant recent accounting pronouncements nature impact recent accounting pronouncements discussed note 3 consolidated financial statements commencing page report incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2011 dollars thousands december 15 2006 issued sold aggregate 800 million senior convertible notes qualified institutional buyers pursuant terms conditions indenture securities purchase agreement dated december 15 2006 notes convertible shares common stock initially conversion price approximately 1234 per share subject adjustment certain events 810636 shares per 1000 principal amount notes may converted time notes pay interest june 15 december 15 year annual rate 4 unpaid principal amount december 15 2011 may election redeem portion notes redemption price 100 principal amount notes plus accrued unpaid interest closing price common stock fewer 20 trading days period 30 consecutive trading days exceeds 150 applicable conversion price notes december 15 2011 may redeem election portion notes redemption price 100 principal amount notes plus accrued unpaid interest holders notes may require us repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company price 100 principal amount notes plus accrued unpaid interest including contingent interest redeemed us repaid pursuant holders’ right require repurchase notes mature december 15 2026 fiscal 2011 exchanged 500 million senior convertible notes 500 million 95 senior notes included 312 million shortterm debt obligation 12 million contractually obligated interest payments pertaining 300 million outstanding senior convertible notes amount represents interest payments december 15 2011 first redemption milestone may required pay additional interest subsequent december 15 2011 redemption date however due uncertainty subsequent interest payments reflected table included longterm debt obligation 224 million contractually obligated interest payments pertaining 500 million 95 senior notes represents interest payments january 14 2016 offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report results swss security solutions division previously reported separate business segment presented discontinued operations consolidated statements operations comprehensive incomeloss periods presented see note 3discontinued operations notes consolidated financial statements discontinued operations page 29 additional information regarding discontinued operations unless otherwise indicated reference income statement items management’s discussion analysis financial condition results operations refers results continuing operations 2012 highlights fiscal 2012 net sales 4120 million represented increase 204 fiscal 2011 net sales firearm sales accounted 956 total net sales fiscal 2012 income continuing operations fiscal 2012 264 million 040 per fully diluted share compared income continuing operations 81 million 013 per fully diluted share fiscal 2011 operating results fiscal 2012 affected numerous factors including following • 204 increase net sales resulted higher order intake increased production capacity meet large consumer demand polymer handguns modern sporting rifles increase also driven generally higher consumer demand firearms 2012 accumulated backlog 4390 million april 30 2012 continue look opportunities address backlog increasing production capacity additional capital spending outsourcing • introduction new products last several years positive impact business particular increased volumes smaller sized pistols mp branded polymer products modern sporting rifles positive impact net sales gross margins fiscal 2012 increased consumer demand customer acceptance • completed restructuring plan move production hunting products rochester new hampshire springfield massachusetts facility resulting 30 million relocation costs 25 million attributed cost sales 493000 related operating expenses incurred 317000 higher consolidation costs fiscal 2012 fiscal 2011 246000 higher cost sales 71000 higher operating expenses restructuring also resulted reduction gross profit negative impact lost efficiencies hunting firearms • legal consulting costs 40 million 59 million lower 99 million costs incurred prior year related doj sec investigations referenced item 1a “risk factors” business one world’s leading manufacturers firearms sell products smith wesson brand mp brand thompsoncenter brand walther brand manufacture wide array handguns modern sporting rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market manufacture firearm products facilities springfield massachusetts houlton maine plan continue offer products leverage 160 year old “smith wesson” brand capitalize goodwill developed historic american tradition expanding consumer awareness products produce addition pursue opportunities license name trademarks third parties use association products services key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding large nonrecurring items nongaap financial metric evaluate performance evaluate various firearm products measurements cost per unit produced units produced per day incoming orders per day key industry data handguns subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun sales increased 50 consumers purchased handguns fear prohibition handgun ownership sales levels returned pre1992 levels grew normal industry growth rates late calendar 2008 sales increased appears fears surrounding crime terrorism economic downturn change white house administration like increase 1992 increase sales temporary nature sales returned normal levels fiscal 2010 appears sales recently increased social acceptance awareness current media outlets also believe variety products available market attractive price points maintain contributes increased market share estimate 18 share us consumer market handguns compares approximately 10 period acquired smith wesson corp 2001 approximately 16 1990s results operations net sales following table sets forth certain information regarding net product services sales fiscal years ended april 30 2012 2011 2010 dollars thousands fiscal 2012 net sales compared fiscal 2011 net sales fiscal 2012 increased 204 prior fiscal year able address increased consumer demand increases production capacity particularly handgun products saw net sales increase 251 prior fiscal year noticeably polymer pistol products walther net sales declined 150 prior fiscal year increased competition small frame concealed carry products rimfire products net sales modern sporting rifles rebounded 2012 net sales category increasing 941 million current fiscal year primarily strong demand sport model introduced late fiscal 2011 hits attractive price point hunting firearms net sales lower prior fiscal year result lower orders black powder products constrained bolt action rifle sales service thompsoncenter arms venture rifle recall productivity efficiency losses completed move hunting production springfield massachusetts facility parts accessories sales increased 87 primarily volume increases handgun category modern sporting rifles order backlog april 30 2012 4390 million 2523 million higher end fiscal 2011 2405 million higher end third quarter fiscal 2012 primarily result backlog generated new products increased consumer demand handgun modern sporting rifle products orders received yet shipped could cancelled particularly demand suddenly decrease therefore backlog may indicative future sales particularly since order demand currently exceeds manufacturing capacity net sales sporting goods distribution channel 3670 million 695 million 234 increase sales 2974 million fiscal 2011 primarily driven increased customer demand polymer pistols modern sporting rifles net sales professional channels 450 million 259000 06 increase fiscal 2011 net sales 448 million law enforcement channel net sales higher part increased shipments polymer pistol products state agencies massachusetts vermont state police well increase handcuffs shipments california state police international sales include consumerrelated sales declined fiscal 2011 variable nature international agency sales exacerbated result focus fewer larger international customers fiscal 2011 net sales compared fiscal 2010 net sales fiscal 2011 decreased orders returned normal levels compared strong consumer demand occurred november 2008 presidential election handgun net sales increased 56 prior fiscal year customer acceptance smaller concealed carry personal protection handgun products newly introduced walther net sales declined 127 prior fiscal year increased competition small frame concealed carry products sales modern sporting rifles product line impacted reduction consumer demand declined 375 prior fiscal year however sales within product line favorably impacted fourth quarter fiscal 2011 introduction new model hit attractive price points hunting product sales increased 114 prior fiscal year increased bolt action rimfire black powder net sales net sales sporting goods distribution channel 2974 million 11 million 04 increase sales 2963 million fiscal 2010 net sales professional channels 448 million 168 million 273 decrease fiscal 2010 sales 616 million law enforcement channel net sales lower part reduced shipments state local government agencies international sales declined fiscal 2010 sales result substantial changes made foreign sales personnel foreign representatives modifications made foreign sales processes determination sell products certain foreign countries cost sales gross profit following table sets forth certain information regarding cost sales gross profit fiscal years ended april 30 2012 2011 2010 dollars thousands fiscal 2012 cost sales gross profit compared fiscal 2011 gross profit fiscal 2012 increased prior fiscal year primarily increase sales volume polymer products modern sporting rifles noted resulting corresponding improvement manufacturing absorption addition also less inventory reserve adjustments lower product liabilityrelated legal fees reductions offset 16 million increased warranty costs associated recall thompsoncenter arms venture rifles manufactured since product’s introduction mid 2009 10 million increased consulting services procurement cost savings initiatives period fiscal 2011 cost sales gross profit compared fiscal 2010 gross profit fiscal 2011 decreased prior fiscal year decrease sales volume addition gross profit percentage net sales decreased result targeted price repositioning strategy several products aimed increasing market share repositioning resulted onetime credit 32 million certain distributors large retailers protect inventory distribution channel price reduction also negatively impacted gross margin addition gross profit negatively impacted additional promotional activity prior price repositioning fiscal 2011 increased distributor incentives second half fiscal year 33 million 23 million costs associated consolidation hunting production rochester new hampshire facility springfield massachusetts facility related production labor inefficiencies associated restructuring operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2012 2011 2010 dollars thousands fiscal 2012 operating expenses compared fiscal 2011 research development expenses relatively flat prior fiscal year increased salary benefit costs offset reduced consulting services reduced selling marketing expenses primarily result 13 million reduction consulting outside services result cost cutting initiatives implemented late fiscal 2011 reduced spending improvements made fiscal 2011 customer acceptance process market research consulting licensing consulting general administrative costs relatively flat compared prior fiscal year representing reductions associated 59 million reduced legal consulting fees related investigation doj sec matters 10 million reduced bad debt expense 812000 reduced legal fees international trade commission “itc” action several black powder competitors fiscal 2011 reduced consulting expenses internal audit activities amounts offset 40 million higher profit sharing 803000 higher stockbased compensation expense 36 million higher management incentive compensation accrual operating expenses percentage net sales decreased 52 predominately reduced costs related doj sec matters cost cutting initiatives put place late fiscal 2011 increased net sales fiscal 2011 operating expenses compared fiscal 2010 increase research development expenses prior fiscal year primarily due increased test samples support new product development increase selling marketing expenses result increased consulting outside services 24 million included improvements discussed well advertising 11 million support new product launches cooperative advertising cost sharing agreements several large retail customers increase general administrative costs prior fiscal year included 62 million legal consulting fees related investigation doj sec matters 803000 bad debt costs 812000 legal fees related filing itc action several black powder competitors 10 million severance costs 810000 consulting fees related internal audit activities amounts offset 31 million lower profit sharing 16 million lower stockbased compensation expense 24 million lower management incentive compensation operating expenses percentage net sales increased 32 predominately due 67 million increase costs related doj sec matters severance costs related production move hunting products springfield massachusetts facility costs associated itc filing operating income continuing operations following table sets forth certain information regarding operating income continuing operations fiscal years ended april 30 2012 2011 2010 dollars thousands fiscal 2012 operating income continuing operations compared fiscal 2011 significant increase operating income continuing operations resulted increased sales volumes corresponding impacts improved absorption costcutting initiatives noted addition decreased spending related doj sec matters reduced spending associated relocation hunting production rochester new hampshire facility springfield massachusetts facility contributed increase operating income fiscal 2011 operating income continuing operations compared fiscal 2010 decline operating income continuing operations resulted decline modern sporting rifle sales subsequent yearlong surge consumer demand november 2008 presidential election corresponding increase promotional costs spur sales reduced pricing several products addition increased spending related doj sec matters costs associated relocation hunting production rochester new hampshire facility springfield massachusetts facility contributed reduction operating income interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2012 2011 2010 dollars thousands interest expense increased fiscal 2012 compared fiscal 2011 increased interest expense related 95 senior notes bear interest rate 95 per annum compared former 40 senior convertible notes “convertible notes” bore interest rate 40 per annum december 2011 required repurchase 297 million convertible notes redeemed remaining 334000 convertible notes january 2012 also amortized additional 563000 debt issuance costs wrote connection reducing line credit october 2011 interest expense increased fiscal 2011 early retirement 500 million convertible notes resulted 476000 writeoff debt refinancing costs debt exchanged 500 million 95 senior notes resulting higher interest expense primarily fourth quarter fiscal 2011 exchange convertible notes higher coupon 95 senior notes made impending december 2011 date holders convertible notes could require us repurchase convertible notes well remove dilutive effects convertible notes income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2012 2011 2010 dollars thousands income tax expense fiscal 2012 included effect changes temporary differences book value tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled 82 million valuation allowance april 30 2012 federal net operating loss carryforwards amounting 865000 16 million 16 million april 30 2012 2011 2010 respectively obtained 82 million additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 net operating loss carryforwards april 30 2012 expire fiscal 2020 internal revenue code section 382 limits utilization losses approximately 108000 fiscal 2013 subsequent year possible future substantial changes ownership could occur could result reduction loss carryforwards pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards could utilized adjustments reserves book versus tax difference amortization intangible assets increased overall net deferred tax asset 64 million april 30 2011 82 million april 30 2012 194 million and109 million state net operating loss carryforwards april 30 2012 2011 respectively state net operating loss carryforwards expire april 30 2015 april 30 2032 19 million 17 million state tax credit carryforwards april 30 2012 2011 respectively state tax credit carryforwards expire april 30 2014 april 30 2025 april 30 2012 valuation allowances 827000 11 million provided deferred tax assets state net operating losses state tax credits respectively anticipate using prior expiration 239000 valuation allowance provided state deferred tax assets anticipate realize benefit april 30 2011 valuation allowances 26000 445000 705000 provided deferred tax assets federal capital loss carryforwards state net operating losses state tax credits respectively increase valuation allowance deferred tax assets state net operating losses credits deferred tax assets related mainly discontinued operations tennessee valuation allowance provided deferred federal income tax assets april 30 2012 2011 believe likely assets realized order utilize unreserved portion net operating loss carryforwards minimum level annual taxable income would achieve must equal exceed amount federal net operating carryforwards fiscal 2013 2020 management believes achievement level taxable income likely based historical performance future projections including new product offerings pricing decisions marketing efforts expected spending levels income continuing operations following table sets forth certain information regarding income continuing operations related per share data fiscal years ended april 30 2012 2011 2010 dollars thousands except per share data fiscal 2012 income continuing operations compared fiscal 2011 income continuing operations 264 million fiscal 2012 184 million higher 81 million recorded fiscal 2011 income continuing operations increased primarily increased net sales volumes corresponding gross profit also experienced significantly less professional consulting fees realized benefit lower tax rate tax planning initiatives fiscal 2012 fiscal 2011 income continuing operations compared fiscal 2010 income continuing operations 81 million fiscal 2011 significantly net income 220 million fiscal 2010 139 million reduction income continuing operations resulted 67 million increase doj sec investigation costs fiscal 2011 reduction gross profit increasing price competitiveness subsequent post november 2008 election surge costs associated relocation hunting operations springfield massachusetts facility discontinued operations following summary operating results discontinued operations security solutions division fiscal years ended april 30 2012 2011 2010 dollars thousands except per share data net sales discontinued operations fiscal 2012 decreased 386 fiscal 2011 resulting primarily reduced delayed demand federal budget constraints loss discontinued operations fiscal 2012 included 55 million noncash charge related expected loss sale tangible intangible assets loss discontinued operations significantly lower fiscal 2012 due inclusion 905 million impairment charge related goodwill intangible assets recorded fiscal 2011 addition fiscal 2011 included 31 million income associated reduction contingent consideration shares held issuance former stockholders connection acquisition swss excluding loss sale fiscal 2012 adjusted loss would 66 million excluding impairment charge income valuation contingent consideration adjusted loss fiscal 2011 would 30 million adjusted loss discontinued operations 36 million higher fiscal 2012 significant reduction sales related impact gross margin along additional severance costs associated planned divestiture business reductions partially offset reduced operating expenses costcutting initiatives reduction payroll benefit costs resulting lower headcount liquidity capital resources principal cash requirements finance growth operations including potential acquisitions service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2012 2011 2010 dollars thousands operating activities represent principal source cash flow cash flows operating activities lower fiscal 2012 compared fiscal 2011 85 million reduction accounts payable able pay balances cash position year end 79 million increase inventories increased production capacity preparation new product introduced late fiscal 2012 72 million decrease accrued taxes income timing federal excise tax payments reductions operating activities offset 78 million reduction accounts receivable efforts reduce amount time sales remain accounts receivable 48 million reduction income tax receivable related timing income tax payments 40 million increase accrued profit sharing increase profitability continuing operations addition fiscal 2012 income tax payments significantly higher result higher taxable income cash flows operating activities increased significantly fiscal 2011 fiscal 2010 levels spite reduction profitability 73 million reduction accounts receivable 109 million increase accounts payable 89 million increase accrued taxes income accounts receivable declined compared prior fiscal year primarily result timing fourth quarter sales accounts payable high end fiscal 2011 primarily due significant capital spending incurred late fourth quarter meet requirements massachusetts economic development incentive program granted us 44 million refundable tax credits capital spending qualified property exceeded 110 million accrued taxes income increased result change federal excise tax deposit requirements biweekly quarterly allowing first calendar quarterly payment made may 2 2011 end fiscal year addition fiscal 2010 income tax payments significantly higher result higher taxable income cash used investing activities lower fiscal 2012 fiscal 2011 primarily 60 million reduction capital spending compared fiscal 2011 started increase production capacity additional spending related edip refundable tax credit obligation late fiscal 2011 reduction partially offset 500000 proceeds sale foundry business estimated take 41 million complete current construction progress cash used investing activities lower fiscal 2011 fiscal 2010 primarily fiscal 2010 included 211 million invested july 2009 acquisition swss partially offset increased capital spending property equipment 35 million cash used financing activities fiscal 2012 included repurchase 300 million convertible notes 19 million cash paid debt issue costs associated exchange convertible notes 95 senior notes late fiscal 2011 offset proceeds 44 million refundable tax credit received massachusetts economic development incentive program compared fiscal 2011 included net exchange 500 million convertible notes 95 senior notes may june 2012 purchased total 64 million 95 senior notes utilizing cash hand paid 550000 interest premium relating purchases april 30 2012 open letters credit aggregating 12 million cash used financing activities fiscal 2011 reflected net exchange 500 million convertible notes 95 senior notes borrowing activity compared fiscal 2010 included 203 million longterm debt repayments offset 350 million proceeds issuance 60 million shares common stock april 30 2012 567 million cash equivalents hand restricted cash totaling 33 million april 30 2012 25 million acts compensating balance line credit dated december 7 2010 812000 related environmental remediation required performed accordance credit facility td bank 600 million revolving line credit td bank na “td bank” balance outstanding april 30 2012 fiscal 2012 repurchased 300 million convertible notes cash hand credit agreement td bank contains financial covenants relating maintaining maximum leverage minimum debt service coverage indenture relating 95 senior notes contains financial covenant relating times interest earned compliance debt covenants april 30 2012 based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained matters inflation believe inflation material impact us fiscal 2012 2011 2010 critical accounting policies use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter estimates respect adequacy insurance reserves significant estimates include gross margin percentage completion inprocess security solutions projects accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory allowance doubtful accounts income tax expense forfeiture rates stockbased awards asset impairments medical claims payable loss sale discontinued operations actual results could differ estimates revenue recognition firearm products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured discontinued security solutions segment recognize revenue fixedprice installation contracts using percentageofcompletion method measured percentage costs incurred date total costs contract noted revenue security solutions division classified discontinued operations product sales account substantial portion firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed determine percentageofcompletion comparing cost incurred date estimated total cost required complete project consider costs incurred date reliable available measure progress projects make adjustments estimates complete periods facts resulting change become known estimate indicates loss incurred record loss period identified reliable estimates cannot made recognize revenue upon completion significant judgment involved estimation process contract different assumptions could yield materially different results delays installation process could negatively affect operations given period increasing volatility revenue recognition revenue conformity accounting principles generally accepted united states requires us make judgments affect timing amount reported revenue recognize trademark licensing revenue individual licensees quarterly basis based historical experience expected cash receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectability exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2012 minimum royalties collected future amounted 22 million valuation longlived tangible intangible assets significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks tradenames amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance accounting standards codification “asc” 350 intangiblesgoodwill test intangible assets indefinite lives impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 respect criteria necessary evaluate number reporting units exist based review segment reporting topic asc 2801050 determined operate continuing operations one reporting unit springfield massachusetts houlton maine facilities april 30 2012 goodwill recorded books continuing operations based combination factors occurred fiscal 2011 including federal corporate budgetary constraints increased price competition low barrier entry factors determined indicators impairment goodwill intangible assets existed discontinued security solutions division result conducted evaluation goodwill intangible assets associated acquisition business based earnings cash flow forecast next 10 years fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss discontinued operations 839 million fiscal 2011 periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affected discontinued security solutions division required us test impairment longlived assets pertaining business fiscal 2011 based assessment recorded impairment charge discontinued operations 66 million reflect excess carrying value longlived intangible assets discounted cash flows impairment charges taken fiscal 2012 2011 2010 continuing operations based review longlived assets utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting units’ expected longterm operating cash performance approach also mitigates impact cyclical trends occur industries fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percentage revenue decline future years due improved utilization resulting lean initiatives believe days sales outstanding decline grow also assumed current economic downturn markets contracted long term however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs related evaluation recorded considered probable reasonably estimable april 30 2012 estimated range reasonably possible additional losses zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made march 30 2012 entered purchase sale agreement land building located rochester new hampshire pursuant agreed indemnify buyer losses arising among things environmental conditions related thompsoncenter arms’ manufacturing activities april 30 2012 reserve 21 million including 15 million relating land building located rochester new hampshire environmental matters recorded undiscounted basis believe likelihood environmental remediation costs exceeding amount accrued remote inventory value firearm inventories consisting primarily finished firearm components finished firearms related products accessories security solutions inventory consisting primarily mechanical electrical components required installation products lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide lifetime warranty original purchaser new firearm products provide warranties two years materials workmanship security solutions projects includes products purchased us thirdparty manufacturers provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes workers’ compensation selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis stockbased compensation account stockbased employee compensation arrangements accordance provisions asc 718 calculating compensation cost date grant using blackscholes method stock options purchases employee stock purchase plan montecarlo method performancebased restricted stock units “psus” amortize compensation expense vesting period estimate fair value stock option purchase employee stock purchase plan date grant using blackscholes option pricing model discounted estimated forfeiture rate using riskfree interest rate expected term expected volatility dividend yield variables estimate fair value psu award date grant using montecarlo model using grant date market value common stock nasdaq composite index russell 2000 index “rut” expected volatilities common stock nasdaq composite index rut correlation coefficient common stock nasdaq composite index rut riskfree interest rate dividend yield recent accounting pronouncements nature impact recent accounting pronouncements discussed note 2 consolidated financial statements commencing page report incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2012 dollars thousands fiscal 2011 exchanged 500 million convertible notes 500 million 95 senior notes included longterm debt obligation 176 million contractually obligated interest payments pertaining 500 million 95 senior notes represents interest payments january 14 2016 october 28 2011 entered saleleaseback agreement included sale certain machinery equipment leased total 35 million machinery equipment increase production capacity lease effective interest rate 576 payable 60 monthly installments fiscal 2017 included capital lease obligation 597000 contractually obligated interest payments pertaining 35 million capital lease offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report results swss former security solutions division previously reported separate business segment presented discontinued operations consolidated statements income comprehensive income periods presented see note 4 discontinued operations notes consolidated financial statements discontinued operations additional information regarding discontinued operations unless otherwise indicated reference income statement items management’s discussion analysis financial condition results operations refers results continuing operations 2014 highlights fiscal 2014 net sales 6266 million represented increase 67 fiscal 2013 net sales noted walther net sales 360 million less prior fiscal year primarily ended exclusive us importer distributor agreement walther end fiscal 2013 excluding walther sales increased 751 million 138 prior fiscal year income continuing operations fiscal 2014 886 million 147 per fully diluted share compared income continuing operations 814 million 122 per fully diluted share fiscal 2013 operating results fiscal 2014 affected numerous factors including following • 138 increase net sales excluding walther primarily driven ability respond consistently increased consumer demand past year 162 increase firearm units produced particularly mp branded polymer products smaller size pistols sales also impacted favorably price increases certain products strategic change production mix • introduction new products last several years combined increased production volumes mp branded polymer pistols positive impact net sales gross margins fiscal 2014 addition increased consumer demand certain products increased customer acceptance firearms attributed sales gross margin • gross margin increased 42 percentage points prior fiscal year primarily result additional manufacturing capacity resulting increased sales volume higher margin products termination walther distribution agreement lower gross margins improvement manufacturing fixedcost absorption exceeded volumerelated spending reduced recall expenses lower promotional spending also implemented new pricing discount structure selected products improved net sales gross profit • invested 304 million upgrade erp system sap including 123 million support maintenance expenses recorded general administration expense intend continue investing improving systems order enhance efficiency improve information reporting strengthen internal controls • sold aggregate 471 million 5875 senior notes due 2017 various qualified institutional buyers exchange approximately 428 million outstanding 95 senior notes held existing holders notes also issued additional 529 million new 5875 senior notes cash remaining 712000 95 senior notes outstanding exchange noted extinguished via legal defeasance recorded 43 million interest expense 795000 debt issuance writeoff costs retire outstanding 95 senior notes fiscal 2014 business one world’s leading manufacturers firearms sell products smith wesson brand mp brand thompsoncenter arms brand manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns handcuffs united states manufacture firearm products facilities springfield massachusetts houlton maine addition purchase net assets ttpp may 2014 begin offering injection molded parts firearm nonfirearm customers plan continue offer products leverage 160 year old “smith wesson” brand capitalize goodwill developed historic american tradition expanding consumer awareness products produce key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding large nonrecurring items nongaap financial metric evaluate performance evaluate various firearm products measurements gross margin per unit produced units produced per day revenue trade channel incoming orders per day key industry data firearms subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun sales increased 50 consumers purchased handguns fear prohibition handgun ownership sales levels returned pre1992 levels grew normal industry growth rates late calendar 2008 sales increased appears fears surrounding crime terrorism economic downturn change white house administration like increase 1992 increase sales temporary nature sales returned normal levels fiscal 2010 late calendar 2012 early calendar 2013 orders increased rapidly appears response fears renewed legislative activity surrounding restrictions sale makeup firearms addition appears sales products recently increased ability increase production capacity service orders increased consumer demand caused increased social acceptance firearms also believe variety products offer attractive price points maintain important factors increasing market share based data calendar 2013 estimate 16 share us consumer market handguns compares approximately 10 period acquired smith wesson corp 2001 results operations net sales following table sets forth certain information regarding net product services sales fiscal years ended april 30 2014 2013 2012 dollars thousands fiscal 2014 net sales compared fiscal 2013 net sales fiscal 2014 increased 67 prior fiscal year able address increased consumer demand particularly handgun products saw net sales increase 303 prior fiscal year handgun net sales driven primarily increased production volumes mp branded polymer pistol products smaller sized pistols revolvers net sales long guns decreased 239 million 133 prior fiscal year primarily reduced bolt action rifle sales serviced thompsoncenter arms bolt action rifle recall reduced sales rimfire mp rifles caused primarily ammunition constraints lower rifle sales offset increased sales centerfire mp rifles including mp rifle newly introduced 2013 addition fiscal 2013 implemented new pricing discount structure improved net sales walther net sales 360 million 864less prior fiscal year primarily ended exclusive us importer distributor agreement walther end fiscal 2013 walther net sales fiscal 2014 related products manufacture behalf walther houlton maine facility agreement expired april 30 2014 net sales positively impacted price increase january 2014 selected number products total increases pricing favorably impacted net sales compared prior fiscal year 12 increases number units sold impacted net sales 66 new products defined new sku shipped prior fiscal year represented 22 total net sales fiscal year ended april 30 2014 order backlog april 30 2014 2304 million 6469 million lower end fiscal 2013 orders received yet shipped could cancelled particularly demand suddenly decrease therefore backlog time may indicative future sales fiscal 2013 believe number firearm retailers may placed orders exceeded actual requirements likely orders resulted distributors placing excess orders us inflating backlog april 30 2013 backlog amounts include distributor importer relationship walther continued end fiscal 2013 net sales sporting goods distribution channel excluding walther products 5559 million 739 million 153 increase sales 4820 million excluding walther products fiscal 2013 primarily driven increased handgun sales increased production capacity satisfy demand net sales professional channels exclude walther products include federal international law enforcement sales 650 million 12 million 19 increase fiscal 2013 net sales 638 million increased sales professional channels primarily result increased handgun sales law enforcement customers fiscal 2013 net sales compared fiscal 2012 net sales fiscal 2013 increased 426 fiscal 2012 able address increased consumer demand prior two years 404 increase firearm units produced fiscal 2013 handgun products sales saw net sales increase 361 fiscal year 2012 driven primarily capacity increases polymer pistol products growth concealed carry marketplace strong consumer demand mp rifles including full size sport 22 caliber long gun models increased net sales category 750 fiscal 2013 also experienced productivity efficiency gains completed move production hunting products springfield massachusetts facility resulting increased unit sales bolt action rifles addition fiscal 2013 implemented new pricing discount structure improved net sales walther net sales increased 289 fiscal 2012 additional promotions product availability market high consumer demand net sales sporting goods distribution channel 4820 million 1470 million 439 increase sales 3350 million fiscal 2012 primarily driven increased customer demand polymer pistols long guns increase production capacity net sales professional channels include federal international law enforcement sales 638 million 191 million 427 increase fiscal 2012 net sales 447 million increased orders professional channels primarily result increased net sales polymer products long guns law enforcement well increased international shipments puerto rico canada amounts include distributor importer business walther terminated end fiscal 2013 manufacturing arrangement walther ppk handguns ended end fiscal 2014 cost sales gross profit following table sets forth certain information regarding cost sales gross profit fiscal years ended april 30 2014 2013 2012 dollars thousands fiscal 2014 cost sales gross profit compared fiscal 2013 gross profit fiscal 2014 increased prior fiscal year primarily increase sales volume strategic change production mix higher margin polymer pistol products capacity increases offset spending increases period overall gross profit percentage increased 42 percentage points prior fiscal year improved mix contributing 07 percentage points 37 million gross margin increase volume polymer pistols produced offset lower margin products walther products improved manufacturing efficiency absorption increased production benefitted gross margin 31 percentage points 317 million reduced spending promotions improved gross profit margin 07 percentage points 46 million 2013 change pricing discount structure combined january 2014 price increase selected products increased gross margin percentage 06 percentage points 69 million increased manufacturing volumerelated spending negatively impacted gross profit percentage 18 percentage point 116 million mentioned incurred 30 million warranty costs associated thompsoncenter arms bolt action rifle recall fiscal 2013 negatively impacted gross margins 05 prior fiscal year fiscal 2013 cost sales gross profit compared fiscal 2012 gross profit fiscal 2013 increased fiscal 2012 primarily increase sales volume shift product mix higher margin polymer pistol products long guns result increased capacity meet demand increased gross profit also result increased production volumes favorable production mix resulted corresponding improvement manufacturing fixedcost absorption increase along increased manufacturing efficiencies resulted 55 percentage point 846 million gross profit increase partially offset increased volumerelated spending 46 million 07 percentage points fiscal 2013 incurred 30 million warranty costs associated thompsoncenter arms bolt action rifle recall fiscal 2012 incurred 16 million warranty costs associated thompsoncenter arms venture rifle recall fiscal 2013 unfavorable impact bolt action rifle recall offset costs incurred fiscal 2012 relating prior year recall resulted unfavorable impact gross profit 02 percentage points 14 million fiscal 2013 fiscal 2012 also incurred 23 million costs associated consolidation hunting production rochester new hampshire springfield massachusetts facility completed prior fiscal year incur costs fiscal 2013 favorably impacted gross profit 04 percentage points 24 million favorable currency exchange gains 04 percentage points 26 million international purchases products manufactured walther facilities pricing increases selection products benefitted gross margin 10 percentage points 87 million operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2014 2013 2012 dollars thousands fiscal 2014 operating expenses compared fiscal 2013 research development expenses increased 858000 compared fiscal 2013 primarily 466000 additional salary benefit costs 209000 additional depreciation expense selling marketing expenses increased 34 million primarily result 25 million related new retail sales associate rewards program 599000 additional trade show expenses due timing general administrative costs increased 186 million prior year 42 million increased salary benefits expense additional headcount support business growth management incentive accruals 41 million additional stockbased compensation expense primarily related options rsus psus granted employees late fiscal 2013 early fiscal 2014 15 million additional profit sharing expense result increased eligible compensation 13 million additional depreciation expense 72 million additional consulting fees primarily associated support employee training new sap system operating expenses percentage net sales increased 28 predominately increased spending new dealer incentive program servicing new erp system additional stockbased compensation expense mentioned fiscal 2013 operating expenses compared fiscal 2012 research development costs fiscal 2013 relatively flat compared fiscal 2012 increased salary benefit costs offset reduced consulting expenses selling marketing expenses decreased 13 million fiscal 2013 largely due 10 million reduction consulting outside services relating market research 873000 reduction sample costs fiscal 2012 general administrative costs fiscal 2013 increased fiscal 2012 15 million additional profit sharing expense 25 million increased incentive accruals 19 million additional stockbased compensation expense primarily related options rsus psus granted employees late fiscal 2012 12 million additional bad debt expense offset 25 million reduced legal consulting fees 23 million related investigation doj sec matters 988000 employeerelated costs resulting severance benefits paid former president chief executive officer prior year operating expenses percentage net sales fiscal 2013 decreased 56 predominately increased volume require corresponding increase operating expenses addition reduced market research sample costs reduced costs related doj sec matters partially offset increased employee costs operating income continuing operations following table sets forth certain information regarding operating income continuing operations fiscal years ended april 30 2014 2013 2012 dollars thousands fiscal 2014 operating income continuing operations compared fiscal 2013 fiscal 2014 operating income continuing operations increased 182 million prior fiscal year primarily increased sales volume increased production capacity related gross profit corresponding impact improved favorable fixedcost absorption increased manufacturing efficiencies price increases selected products offset 268 increase operating expenses primarily expenses associated new retail sales associate rewards program trade show expenses administrative costs relating support employee training new erp system additional stockbased compensation expense primarily rsus psus granted employees late fiscal 2013 early fiscal 2014 salary benefit costs additional depreciation expense increased capital expenditures fiscal 2013 operating income continuing operations compared fiscal 2012 fiscal 2013 increased sales 42 increasing operating expenses 3 thus increase operating income continuing operations resulted increased sales volumes improved manufacturing fixedcost absorption favorable production mix increased manufacturing efficiencies price increases selected products also experienced reduced plant consolidation costs result moving production hunting products springfield massachusetts facility fiscal 2012 reduced legal consulting fees doj sec matters well related improvements made customer acceptance process foreign markets partially offset increased employee costs associated increased profitability costs associated recall thompsoncenter arms bolt action rifles noted expenseincome following table sets forth certain information regarding expenseincome fiscal years ended april 30 2014 2013 2012 dollars thousands expense 22 million fiscal 2014 primarily result 20 million expense recorded based pending resolution sec investigation future agreement subject final review approval sec commissioners income fiscal 2013 2012 relates primarily rental income recorded result agreement buyer foundry business fiscal 2012 interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2014 2013 2012 dollars thousands interest expense increased fiscal 2014 prior fiscal year primarily result servicing 1000 million 5875 senior notes compared exchanged 436 million 95 senior notes prior fiscal year result exchange incurred 43 million bond premium 795000 debt issuance writeoff costs retire outstanding 95 senior notes interest expense decreased fiscal 2013 compared fiscal 2012 repurchase 300 million 40 senior convertible notes “convertible notes” fiscal 2012 reduced amortization connection write debt issuance costs result reduction line credit prior fiscal year reduction interest expense offset 552000 additional bond premium 173000 debt issuance writeoff costs retire 64 million 95 senior notes fiscal 2013 income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2014 2013 2012 dollars thousands income tax expense fiscal 2014 included effect changes temporary differences book value tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled 57 million valuation allowance april 30 2014 federal net operating loss carryforwards amounting 649000 757000 865000 april 30 2014 2013 2012 respectively net operating loss carryforwards april 30 2014 expire fiscal 2020 internal revenue code section 382 limits utilization losses approximately 108000 fiscal 2015 subsequent year possible future substantial changes ownership could occur could result reduction loss carryforwards pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards could utilized adjustments book versus tax difference inventory deferred compensation increased overall net deferred tax asset 42 million april 30 2013 57 million april 30 2014 162 million 231 million state net operating loss carryforwards april 30 2014 2013 respectively state net operating loss carryforwards expire april 30 2015 april 30 2033 26 million 23 million state tax credit carryforwards april 30 2014 2013 respectively state tax credit carryforwards expire april 30 2023 april 30 2025 expiration date april 30 2014 valuation allowances 686000 17 million provided deferred tax assets state net operating losses state tax credits respectively anticipate using prior expiration 12000 valuation allowance provided state deferred tax assets anticipate realize benefit april 30 2013 valuation allowances 973000 15 million provided deferred tax assets federal capital loss carryforwards state net operating losses state tax credits respectively 20000 valuation allowance provided state deferred tax assets anticipate realize benefit valuation allowance provided deferred federal income tax assets april 30 2015 2013 believe likely assets realized order utilize unreserved portion net operating loss carryforwards minimum level annual taxable income would achieve must equal exceed amount federal net operating carryforwards fiscal 2015 2020 management believes achievement level taxable income likely based historical performance future projections including new product offerings pricing decisions marketing efforts expected spending levels income continuing operations following table sets forth certain information regarding income continuing operations related per share data fiscal years ended april 30 2014 2013 2012 dollars thousands except per share data fiscal 2014 income continuing operations compared fiscal 2013 income continuing operations 886 million fiscal 2014 72 million higher 814 million recorded prior fiscal year primarily increased sales volumes corresponding gross profit well new pricing discount structure resulted improved profitability net income per basic diluted share continuing operations fiscal 2014 favorably impacted result completed tender offer open market purchases common stock occurred december 2012 august january 2014 totaling 1350 million average price 1101 per share 123 million shares fiscal 2013 income continuing operations compared fiscal 2012 income continuing operations 814 million fiscal 2013 550 million higher 264 million recorded fiscal 2012 income continuing operations favorably impacted items noted fiscal 2014 also experienced less legal consulting fees reduced interest expense offset increased employee costs related improved profitability recall bolt action rifles net income per basic diluted share continuing operations fiscal 2013 favorably impacted result repurchase 200 million common stock repurchase program discontinued operations following summary operating results discontinued operations security solutions division fiscal years ended april 30 2014 2013 2012 dollars thousands except per share data completed disposition swss july 26 2012 result net sales discontinued operations fiscal 2014 loss income taxes fiscal 2014 related primarily legal fees associated retained liabilities favorable income tax benefit fiscal 2014 result reversal uncertain tax position whose statute limitations expired loss discontinued operations lower fiscal 2013 compared fiscal 2012 due reduced operating expenses completed divestiture business fiscal 2014 2013 recognized 523000 295000 respectively licensing revenue relating licensing agreement futurenet years ended april 30 2013 2012 recognized loss sale disposal group 12 million 55 million respectively included loss discontinued operations liquidity capital resources principal cash requirements finance growth operations including potential acquisitions investments service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2014 2013 2012 dollars thousands operating activities operating activities represent principal source cash flow cash flows operating activities fiscal 2014 902 million 79 million lower prior fiscal year primarily result 237 million increase inventory levels accommodate customer demand polymer pistol products increased long gun finished goods inventory due bolt action rifle recall ammunition constraints adjustments book versus tax difference inventory deferred compensation increased overall net deferred tax asset 15 million addition accounts receivable increased 96 million result increased net sales volume timing customer payments cash provided operating activities fiscal 2014 favorably impacted 106 million increase net income 50 million increase amortization depreciation expense increased capital spending particularly spending related new erp system 41 million increase stockbased compensation expense relating awards issued employees end fiscal 2013 beginning fiscal 2014 65 million increase accounts payable due timing inventory purchases fiscal 2013 generated 981 million cash operating activities increase 607 million 374 million cash generated operating activities fiscal 2012cash generated fiscal 2013 primarily 626 million increase net income well 38 million increase management incentive accruals cash provided operating activities unfavorably impacted 77 million increase inventory levels increased parts purchases related capacity increases polymer pistol long gun products cash provided operating activities also unfavorably impacted 53 million reduced accrued expenses including reduced accruals distributor incentives addition fiscal 2013 income tax payments higher result higher taxable income investing activities cash used investing activities increased 297 million fiscal 2014 compared fiscal 2013 result increased capital spending 119 million period 93 million deposits machinery equipment also impacting increase cash used investing activities 75 million proceeds received sale discontinued operations 10 million proceeds sale land building located rochester new hampshire fiscal 2013 major capital expenditures fiscal 2014 relate increasing capacity existing products improving production efficiencies tooling new product offerings implementation new sap system various projects designed upgrade manufacturing technology estimated take 404 million complete current capital expenditures progress cash used investing activities increased 195 million fiscal 2013 compared fiscal 2012 result increased capital spending 277 million fiscal 2012 partially offset 75 million received sale discontinued operations 10 million proceeds sale land building located rochester new hampshire noted financing activities cash used financing activities 592 million fiscal 2014 compared 214 million fiscal 2013 primarily result completed tender offer stock repurchases described cash used financing activities offset 564 million net proceeds related issuance new 5875 senior notes exchange 95 senior notes paid 43 million interest 38 million debt issuance costs relating exchange shortterm bank borrowings fiscal 2014 2013 april 30 2014 open letters credit aggregating 11 million cash used financing activities 214 million fiscal 2013 compared 256 million fiscal 2012 usage fiscal 2013 primarily related stock repurchase program discussed purchased 200 million common stock open market utilizing cash hand also purchased 64 million 95 senior notes open market utilizing cash hand paid 552000 interest relating purchases 95 senior notes offset 48 million proceeds exercise options acquire common stock including purchases common stock employee stock purchase plan espp cash used financing activities fiscal 2012 included repurchase 300 million convertible notes offset proceeds 44 million form refundable tax credit received massachusetts economic development incentive program fiscal 2013 board directors authorized repurchase 350 million common stock subject certain conditions open market privately negotiated transactions prior june 30 2013 repurchased 2099603 shares common stock fiscal 2013 200 million utilizing cash hand leaving 150 million common stock authorized purchased fiscal 2014 board authorized repurchase 1150 million common stock 750 million authorized repurchase tender offer remainder could repurchased open market privately negotiated transactions 1150 million authorization replaced stock repurchase program authorized fiscal 2013 fiscal 2014 repurchased 1417233 shares common stock pursuant tender offer expired july 23 2013 156 million 8740471 shares common stock open market 994 million utilizing cash hand completed 1150 million stock repurchase program fees expenses incurred related tender offer open market purchases 887000 recorded treasury stock march 28 2014 board directors authorized repurchase 300 million common stock subject certain conditions open market privately negotiated transactions commencing earlier may 1 2014 may 2014 repurchased approximately 203000 shares common stock 30 million utilizing cash hand relating recent stock repurchase program april 30 2014 689 million cash equivalents hand fiscal 2014 completed authorized stock repurchase programs repurchasing 160 million common stock tender offer 999 million common stock open market utilizing cash hand 750 million revolving line credit lenders upon borrowings april 30 2014 credit agreement lenders contains financial covenants relating maintaining maximum leverage minimum debt service coverage 5875 senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2014 fiscal 2014 sold aggregate 471 million 5875 senior notes due 2017 various qualified institutional buyers exchange approximately 428 million outstanding 95 senior notes held existing holders notes also issued additional 529 million new 5875 senior notes cash remaining 712000 95 senior notes outstanding exchange noted extinguished via legal defeasance fiscal 2014 result transaction indebtedness increased 564 million debt service requirements increased 18 million per annum 5875 senior notes sold pursuant terms conditions indenture exchange purchase agreements 5875 senior notes bear interest rate 5875 per annum payable june 15 december 15 year beginning december 15 2013 recorded 43 million interest expense relating exchange defeasance 95 senior notes amortized 795000 debt issue costs related exchange defeasance fiscal 2014 time prior june 15 2015 may option upon less 30 60 days’ prior notice redeem portion 5875 senior notes redemption price 100 principal amount 5875 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 5875 senior notes net cash proceeds one equity offerings redemption price 105875 principal amount 5875 senior notes plus accrued unpaid interest redemption date provided case foregoing clause least 65 aggregate original principal amount 5875 senior notes remains outstanding redemption occurs within 60 days closing equity offering june 15 2015 may option upon less 30 60 days’ prior notice redeem portion 5875 senior notes redemption price 1029375 principal amount 5875 senior notes redeemed 12month period beginning june 15 2015 b 100 principal amount 5875 senior notes redeemed 12month period beginning june 15 2016 plus either case accrued unpaid interest 5875 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5875 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5875 senior notes mature june 15 2017 5875 senior notes general unsecured obligations company 5875 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens share repurchases limited lesser 300 million fiscal year ii 750 consolidated net income previous four consecutive published fiscal quarters beginning quarter ended july 31 2013 addition allowed purchase additional 850 million shares fiscal 2014 accordance agreement lenders limitation indebtedness 5875 senior notes indenture applicable time consolidated coverage ratio set forth 5875 senior notes indenture us restricted subsidiaries less 300 100 general set forth 5875 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense april 30 2014 750 million unsecured revolving credit facility expandable accordion feature may certain circumstances increased 250 million increments maximum loan 1750 million credit facility replaced prior 600 million credit facility mature december 15 2016 credit facility bears interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio election proceeds new credit facility used general corporate purposes based upon current working capital position current operating plans purchase substantially net assets ttpp mentioned potential repurchase 300 million common stock authorized stock repurchase plan expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained inflation believe inflation material impact us fiscal 2014 2013 2012 critical accounting policies use estimates preparation financial statements preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation expense environmental liability excess obsolete inventory allowance doubtful accounts income tax expense including deferred tax asset valuation forfeiture rates stockbased awards medical claims payable actual results could differ estimates revenue recognition firearm products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed customer acceptance received also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenue individual licensees based historical experience expected cash receipts licensees licensing revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensees’ products insufficient historical experience believe reasonable assurance collectability exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2014 minimum royalties collected future amounted 56 million valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets property plant equipment patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified impairment charges taken fiscal 2014 2013 2012 continuing operations based review longlived assets product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs related evaluation recorded considered probable reasonably estimable april 30 2014 believe provided adequate reserves defense costs environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made april 30 2014 reserve 623000 environmental matters recorded undiscounted basis believe likelihood environmental remediation costs exceeding amount accrued remote inventory value firearm inventories consisting primarily finished firearm components finished firearms related products accessories security solutions inventory consisting primarily mechanical electrical components required installation products lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide limited one year warranty lifetime service policy original purchaser new firearm products provide warranties two years materials workmanship security solutions projects includes products purchased us thirdparty manufacturers provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes workers’ compensation selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis stockbased compensation account stockbased employee compensation arrangements accordance provisions asc 718 calculating compensation cost date grant using blackscholes method stock options purchases employee stock purchase plan montecarlo method marketcondition performancebased restricted stock units “psus” amortize compensation expense vesting period estimate fair value stock option purchase employee stock purchase plan date grant using blackscholes option pricing model discounted estimated forfeiture rate using riskfree interest rate expected term expected volatility dividend yield variables estimate fair value psu award date grant using montecarlo model using grant date market value common stock nasdaq composite index russell 2000 index “rut” expected volatilities common stock nasdaq composite index rut correlation coefficient common stock nasdaq composite index rut riskfree interest rate dividend yield recent accounting pronouncements nature impact recent accounting pronouncements discussed note 2 consolidated financial statements incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2014 dollars thousands fiscal 2014 sold aggregate 1000 million 5875 senior notes various qualified institutional buyers exchange approximately 428 million 95 senior notes held existing holders notes purchase certain holders additional 5875 senior notes cash included longterm debt obligation 125 million contractually obligated interest payments pertaining 1000 million remaining balance 5875 senior notes represents interest payments june 15 2017 fiscal 2012 entered saleleaseback agreement included sale certain machinery equipment leased total 35 million machinery equipment increase production capacity lease effective interest rate 576 payable 60 monthly installments fiscal 2017 included capital lease obligation 265000 contractually obligated interest payments pertaining 35 million capital lease offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report results swss former security solutions division presented discontinued operations consolidated statements income periods presented see note 4 discontinued operations notes consolidated financial statements additional information regarding discontinued operations unless otherwise indicated reference income statement items management’s discussion analysis financial condition results operations refers results continuing operations may 5 2014 completed drp acquisition expanded capabilities include custom injection molding services rapid prototyping tooling december 11 2014 completed bti acquisition bti based columbia missouri leading provider hunting shooting accessories offers innovative highquality products several brands results operations fiscal year ended april 30 2015 include activity period subsequent respective drp bti acquisitions subsequent bti acquisition began reporting results operations two segments 1 accessories representing bti 2 firearms representing operations 2015 highlights fiscal 2015 net sales 5519 million represented decrease 119 fiscal 2014 net sales net sales firearm division decreased 152 5312 million prior fiscal year accessories division generated 206 million net sales 37 total net sales following bti acquisition december 11 2014 income continuing operations fiscal 2015 498 million 090 per fully diluted share compared income continuing operations 886 million 147 per fully diluted share fiscal 2014 operating results fiscal 2015 affected numerous factors including following · 152 decrease firearm net sales primarily driven lower consumer demand excess distributor retailer inventories firearm industry following surge demand prior fiscal year lower demand excess channel inventories primarily impacted sales long guns specifically modern sporting rifles partially offset increased bolt action single shot hunting rifle sales fiscal 2015 consumer demand handguns reflected nics background checks increased fiscal 2014 led increased sales small concealed carry polymer pistols revolvers however increased sales offset decrease sales larger frame mp branded polymer pistols portion increased consumer demand handguns satisfied excess channel inventory drp bti acquisitions resulted 57 increase total net sales fiscal 2015 reduction units produced result lower demand excess channel inventories negatively impacted firearm net sales 166 · gross margin decreased 60 percentage points prior fiscal year primarily result combination reduced sales volumes highermargin products higher manufacturingrelated spending relative sales volumes additional promotional product discounts unfavorable manufacturing fixedcost absorption fiscal 2015 result bti acquisition recorded 42 million increased cost goods sold related stepup inventory negatively impacted gross margin accessories division 201 percentage points total company 08 percentage points entire stepup inventory expensed fiscal 2015 · income continuing operations negatively impacted increased depreciation expense result increased capital spending including transition erp system sap fiscal 2014 acquisitionrelated costs incurred fiscal 2015 · fiscal 2015 completed recent stock repurchase program repurchasing 21 million shares common stock 300 million utilizing cash hand positive impact diluted earnings per share continuing operations business one world’s leading manufacturers firearms manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles single shot rifles handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market beginning fiscal 2015 also leading provider shooting reloading gunsmithing gun cleaning supplies sell products smith wesson mp thompsoncenter arms caldwell shooting supplies wheeler engineering tipton gun cleaning supplies frankford arsenal reloading tools lockdown vault accessories hooyman premium tree saws bogpod golden rod moisture control brands manufacture firearm products facilities springfield massachusetts houlton maine deep river connecticut develop market accessories products facility columbia missouri plan continue capitalize goodwill developed historic 163 year old “smith wesson” brand well wellknown brands expanding consumer awareness products produce key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also track return invested capital use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding certain nonoperational items nongaap financial metric supplemental measure performance order provide investors improved understanding underlying performance trends evaluate various firearm products measurements gross margin per unit produced units produced per day revenue trade channel incoming orders per day evaluate various accessories products measurements incoming orders per day sales customer gross margin product line key industry data firearms subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun sales increased 50 consumers purchased handguns fear prohibition handgun ownership sales levels returned pre1992 levels grew normal industry growth rates late calendar 2008 sales increased appears fears surrounding crime terrorism economic downturn change white house administration similar increase 1992 increase sales temporary nature sales returned normal levels fiscal 2010 late calendar 2012 early calendar 2013 orders increased rapidly appeared response fears renewed legislative activity surrounding restrictions sale makeup firearms although believe fear additional legislation around firearm restrictions still exists demand firearms returned normal levels fiscal 2015 believe expanding base consumers variety products offer attractive price points maintain important factors achieve goal increase market share based data calendar 2014 estimate 20 share us consumer market handguns compares approximately 10 period acquired smith wesson corp 2001 results operations net sales following table sets forth certain information regarding net sales fiscal years ended april 30 2015 2014 2013 dollars thousands fiscal 2015 net sales compared fiscal 2014 net sales firearm division fiscal 2015 decreased 152 prior fiscal year although consumer demand handguns reflected nics background checks increased fiscal 2014 believe portion consumer demand satisfied excess channel inventory thus handgun sales decreased 275 million 65 prior fiscal year decrease sales larger frame mp branded polymer pistol products partially offset increased sales small concealed carry polymer pistols revolvers net sales long guns decreased 651 million 419 prior fiscal year primarily reduced sales modern sporting rifles result lower demand partially offset increased lower price point sport rifle sales well bolt action singleshot hunting rifle sales products services net sales increased 56 prior fiscal year primarily result sales injection molding products following drp acquisition early fiscal 2015 represented 20 firearm net sales well increased handcuff sales firearm net sales positively impacted price increase january 2014 selected number products total price increases favorably impacted firearm net sales fiscal 2015 compared prior fiscal year 03 decreases number units sold impacted firearm net sales 166 new products defined new sku shipped prior year represented 174 firearm net sales fiscal 2015 net sales accessories division following bti acquisition december 2014 represented 37 total net sales fiscal 2015 firearm segment order backlog april 30 2015 1694 million 610 million lower end fiscal 2014 accessories segment order backlog april 30 2015 98 million allow orders received yet shipped cancelled cancellations likely periods following surges demand therefore backlog may indicative future sales net sales sporting goods distribution channel excluding walther products fiscal 2015 4851 million 708 million 127 decrease sales 5559 million fiscal 2014 primarily result reduced sales mp branded polymer pistols hunting modern sporting rifles partially offset increased revolver sales 187 million sales sporting goods distribution channel accessories division excluding accessories division net sales sporting goods distribution channel 4663 million fiscal 2015 decrease 161 firearm net sales professional channels exclude walther products include international law enforcement sales 644 million 598000 09 decrease fiscal 2014 net sales 650 million accessories division generated 19 million international sales professional channels fiscal 2015 fiscal 2014 net sales compared fiscal 2013 net sales fiscal 2014 increased 67 fiscal 2013 able address increased consumer demand particularly handgun products saw net sales increase 303 fiscal 2013 handgun net sales fiscal 2014 driven primarily increased production volumes mp branded polymer pistol products smaller sized pistols revolvers net sales long guns fiscal 2014 decreased 239 million 133 fiscal 2013 primarily reduced bolt action rifle sales serviced thompsoncenter arms bolt action rifle recall reduced sales rimfire mp rifles caused primarily ammunition constraints lower rifle sales offset increased sales centerfire mp rifles including mp rifle newly introduced 2013 addition fiscal 2013 implemented new pricing discount structure improved net sales walther net sales fiscal 2014 360 million 864 less fiscal 2013 primarily ended exclusive us importer distributor agreement walther end fiscal 2013 walther net sales fiscal 2014 related products manufactured behalf walther houlton maine facility agreement expired april 30 2013 fiscal 2014 net sales positively impacted price increase january 2014 selected number products total increases pricing favorably impacted fiscal 2014 net sales compared fiscal 2013 12 increases number units sold favorably impacted net sales 66 new products defined new sku shipped prior fiscal year represented 22 total net sales fiscal 2014 net sales sporting goods distribution channel fiscal 2014 excluding walther products 5559 million 739 million 153 increase sales 4820 million fiscal 2013 primarily driven increased handgun sales increased production capacity satisfy demand net sales professional channels fiscal 2014 exclude walther products include federal international law enforcement sales 650 million 12 million 19 increase fiscal 2013 net sales 638 million increased sales professional channels primarily result increased handgun sales law enforcement customers cost sales gross profit following table sets forth certain information regarding cost sales gross profit fiscal years ended april 30 2015 2014 2013 dollars thousands fiscal 2015 cost sales gross profit compared fiscal 2014 gross margin fiscal 2015 decreased 60 percentage points prior fiscal year primarily result combination reduced sales volumes highermargin products higher spending relative sales volumes additional promotional product discounts unfavorable manufacturing fixedcost absorption fiscal 2015 additional spending relative sales volume unfavorable manufacturing fixedcost absorption negatively impacted gross margin 54 percentage points 674 million additional promotional product discounts resulted 11 percentage point 59 million reduction gross margin price increases made early calendar 2014 selected firearm products increased gross margin 02 percentage points 19 million drp acquisition resulted favorable impact 03 percentage points gross margin fiscal 2015 result bti acquisition required record 42 million increased cost goods sold related stepup inventory negatively impacted gross margin division 201 percentage points total company 08 percentage points fiscal 2014 cost sales gross profit compared fiscal 2013 gross profit fiscal 2014 increased fiscal 2013 primarily increase sales volume strategic change production mix higher margin polymer pistol products capacity increases offset spending increases fiscal 2014 overall gross margin increased 42 percentage points fiscal 2013 improved mix contributing 07 percentage points 37 million gross margin increase volume polymer pistols produced offset lower margin products walther products improved manufacturing efficiency absorption increased production benefitted gross margin 31 percentage points 317 million reduced spending promotions improved gross margin 07 percentage points 46 million 2013 change pricing discount structure combined january 2014 price increase selected products increased gross margin 06 percentage points 69 million increased manufacturing volumerelated spending negatively impacted gross margin 18 percentage point 116 million fiscal 2013 incurred 30 million warranty costs associated thompsoncenter arms bolt action rifle recall negatively impacted gross margin 05 year operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2015 2014 2013 dollars thousands fiscal 2015 operating expenses compared fiscal 2014 firearm division research development expenses increased 753000 prior fiscal year primarily increased expenses related new product development testing materials selling marketing expenses relatively flat prior fiscal year decreases salary benefit costs offset additional coop advertising promotional expenses general administrative costs decreased 130 million prior fiscal year reflected 75 million reduction eliminating management incentive compensation expense 48 million reduction profit sharing expense 37 million reduction stockbased compensation expense 32 million reduction professional fees primarily relating consulting services training postimplementation support erp system partially offset 21 million acquisitionrelated costs 17 million additional depreciation expense general administrative expenses accessories division 63 million included 36 million intangible amortization expense result bti acquisition fiscal 2014 operating expenses compared fiscal 2013 research development expenses fiscal 2014 increased 858000 compared fiscal 2013 primarily 466000 additional salary benefit costs 209000 additional depreciation expense selling marketing expenses increased 34 million fiscal 2014 primarily result 25 million additional advertising expense marketing programs dealers 599000 additional trade show expenses due timing general administrative costs fiscal 2014 increased 186 million fiscal 2013 primarily 42 million increased salary benefits expense additional headcount support business growth management incentive accruals 41 million additional stockbased compensation expense primarily related options rsus psus granted employees late fiscal 2013 early fiscal 2014 15 million additional profit sharing expense result increased eligible compensation 13 million additional depreciation expense 72 million additional consulting fees primarily associated support employee training erp system operating expenses percentage net sales increased 28 predominately increased spending new dealer incentive program servicing erp system additional stockbased compensation expense mentioned operating income continuing operations following table sets forth certain information regarding operating income continuing operations fiscal years ended april 30 2015 2014 2013 dollars thousands fiscal 2015 operating income continuing operations compared fiscal 2014 fiscal 2015 operating income continuing operations declined 614 million compared prior fiscal year primarily lower sales modern sporting rifles large frame mp branded polymer pistols related operating profit impacts higher spending unfavorable manufacturing fixedcost absorption reduced net sales increased advertising promotional spending additional depreciation expense increased capital expenditures acquisitionrelated costs loss operations related accessories division primarily due fair value inventory stepup expensed fiscal 2015 well amortization intangibles recorded result bti acquisition fiscal 2014 operating income continuing operations compared fiscal 2013 fiscal 2014 operating income continuing operations increased 182 million fiscal 2013 primarily increased sales volume result increased production capacity related gross profit corresponding impact improved favorable fixedcost absorption increased manufacturing efficiencies price increases selected products partially offset 268 increase operating expenses primarily expenses associated marketing programs dealers trade show expenses administrative costs relating support employee training erp system additional stockbased compensation expense primarily rsus psus granted employees late fiscal 2013 early fiscal 2014 salary benefit costs additional depreciation expense increased capital expenditures expenseincome following table sets forth certain information regarding expenseincome fiscal years ended april 30 2015 2014 2013 dollars thousands expense fiscal 2014 included 20 million expense related resolution sec investigation interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2015 2014 2013 dollars thousands interest expense decreased fiscal 2015 compared prior fiscal year primarily result 43 million bond premium 795000 debt issuance write costs incurred retire thenoutstanding 95 senior notes due 2016 95 senior notes fiscal 2014 interest expense fiscal 2015 also included additional interest expense service 750 million 5000 senior notes outstanding fiscal 2014 well amortization debt issuance costs interest expense increased fiscal 2014 fiscal 2013 primarily result servicing 1000 million 5875 senior notes compared exchanged 436 million 95 senior notes fiscal 2013 well additional bond premium debt issuance writeoff costs recorded retire outstanding 95 senior notes described income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2015 2014 2013 dollars thousands income tax expense fiscal 2015 decreased 192 million prior fiscal year lower operating profit effect changes temporary differences book value tax bases assets liabilities amounts reflected balance net deferred tax liabilities totaled 175 million valuation allowance april 30 2015 addition effective tax rate fiscal year ended april 30 2015 3671 increase 153 effective tax rate 3518 fiscal year ended april 30 2014 federal net operating loss carryforwards amounting 541000 649000 757000 april 30 2015 2014 2013 respectively net operating loss carryforwards april 30 2015 expire fiscal 2020 internal revenue code section 382 limits utilization losses approximately 108000 fiscal 2015 subsequent year possible future substantial changes ownership could occur could result reduction loss carryforwards pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards could utilized net deferred taxes decreased net asset 57 million april 30 2014 net liability 175 million april 30 2015 primarily difference book versus tax basis intangible assets recorded result drp bti acquisitions fiscal 2015 well difference book versus tax depreciation 168 million 162 million state net operating loss carryforwards april 30 2015 2014 respectively state net operating loss carryforwards expire april 30 2016 april 30 2033 30 million 26 million state tax credit carryforwards april 30 2015 2014 respectively state tax credit carryforwards expire april 30 2018 april 30 2025 expiration date april 30 2015 valuation allowances 700000 19 million provided deferred tax assets state net operating losses state tax credits respectively anticipate using prior expiration april 30 2014 valuation allowances 686000 17 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration material valuation allowances provided deferred federal income tax assets april 30 2015 2014 believe likely assets realized income continuing operations following table sets forth certain information regarding income continuing operations related per share data fiscal years ended april 30 2015 2014 2013 dollars thousands except per share data fiscal 2015 income continuing operations compared fiscal 2014 income continuing operations 498 million fiscal 2015 388 million lower 886 million prior fiscal year primarily lower sales volumes corresponding decrease gross profit unfavorable manufacturing spending additional advertising promotional expense additional depreciation expense increased capital expenditures acquisitionrelated costs income per share continuing operations fiscal 2015 favorably impacted 002 open market purchases common stock occurred fiscal 2015 stock repurchase program also favorable impact income per share continuing operations 004 per share result drp acquisition income per share continuing operations fiscal 2015 negatively impacted 012 per share result increased cost goods sold fair value inventory stepup acquisitionrelated costs additional intangible amortization expense result drp bti acquisitions completed fiscal 2015 excluding expenses inventory stepup amortization intangible assets fiscal 2015 acquisitions favorable impact income per share continuing operations fiscal 2014 income continuing operations compared fiscal 2013 income continuing operations 886 million fiscal 2014 72 million higher 814 million recorded fiscal 2013 primarily increased sales volumes corresponding gross profit well pricing discount structure fiscal 2014 resulted improved profitability net income per basic diluted share continuing operations fiscal 2014 favorably impacted result completed tender offer open market purchases common stock occurred december 2012 august january 2014 totaling 1350 million average price 1101 per share 123 million shares liquidity capital resources principal cash requirements finance growth operations including capital expenditures potential acquisitions service existing debt capital expenditures enhancements manufacturing flexibility tooling new product offerings various information technology projects represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2015 2014 2013 dollars thousands operating activities operating activities represent principal source cash flow cash flows operating activities fiscal 2015 1148 million 246 million higher prior fiscal year primarily result following 257 million decrease inventory levels result initiative reduce finished parts inventory well reduced manufacturing volumes decrease accounts receivable 110 million due timing customer payments lower sales volumes 92 million increase amortization depreciation expense increased capital spending result acquisitions lower income tax payments lower taxable income cash operating activities negatively impacted 73 million reduced accounts payable result reduced manufacturing purchases 95 million reduction payroll accruals due lower profitrelated compensation accruals 49 million reduction profit sharing accruals result lower operating profits compared prior fiscal year cash flows operating activities fiscal 2014 902 million 79 million lower fiscal 2013 primarily result 237 million increase inventory levels accommodate customer demand polymer pistol products increased long gun finished goods inventory due bolt action rifle recall ammunition constraints adjustments book versus tax difference inventory deferred compensation increased overall net deferred tax asset 15 million fiscal 2014 addition accounts receivable increased 96 million result increased net sales volume timing customer payments cash provided operating activities fiscal 2014 favorably impacted 106 million increase net income 50 million increase amortization depreciation expense increased capital spending particularly spending related erp system 41 million increase stockbased compensation expense relating awards issued employees end fiscal 2013 beginning fiscal 2014 65 million increase accounts payable due timing inventory purchases investing activities cash used investing activities 1861 million 1234 million higher fiscal 2015 compared prior fiscal year primarily result 1354 million payments bti acquisition acquire substantially net assets hooyman llc discussed note 2 consolidated financial statements 238 million payment drp acquisition partially offset 35 million refunds deposits machinery equipment also recorded capital spending 282 million reduction 251 million compared prior fiscal year major capital expenditures fiscal 2015 primarily related enhancements manufacturing flexibility tooling new product offerings various information technology projects cash used investing activities increased 297 million fiscal 2014 compared fiscal 2013 result increased capital spending 119 million fiscal 2014 93 million deposits machinery equipment also impacting increase cash used investing activities fiscal 2013 75 million proceeds received sale discontinued operations 10 million proceeds sale land building located rochester new hampshire fiscal 2013 financing activities cash provided financing activities 446 million fiscal 2015 compared cash used financing activities 592 million fiscal 2014 cash provided financing activities primarily result 750 million proceeds related issuance 5000 senior notes partially offset completed 300 million stock repurchase program also paid 24 million debt issuance costs related 5000 senior notes issuance discussed note 5 consolidated financial statements cash used financing activities 592 million fiscal 2014 compared 214 million fiscal 2013 primarily result completed tender offer stock repurchases described cash used financing activities offset 564 million net proceeds related issuance new 5875 senior notes exchange 95 senior notes paid 43 million interest 38 million debt issuance costs relating exchange past three fiscal years board directors authorized repurchase 1650 million common stock multiple stock repurchase programs completed april 30 2015 since fiscal 2013 repurchased 129 million shares common stock open market 1494 million 14 million shares common stock pursuant tender offer 156 million utilizing cash hand november 25 2014 partially exercised accordion feature line credit increase 500 million 1250 million december 11 2014 borrowed 1000 million expanded line credit fund bti acquisition repaid entire 1000 million borrowings line credit fourth quarter fiscal 2015 april 13 2015 exercised remaining 500 million expansion accordion feature credit agreement increase line credit available us 1750 million april 30 2015 1750 million revolving line credit borrowings open letters credit aggregating 11 million discussed june 2015 entered new credit agreement consists revolving line credit term loan replaced existing 1750 million credit facility april 30 2015 422 million cash equivalents hand fiscal 2014 sold aggregate 471 million 5875 senior notes various qualified institutional buyers exchange approximately 428 million thenoutstanding 95 senior notes held existing holders notes also issued additional 529 million new 5875 senior notes cash remaining 712000 95 senior notes outstanding exchange noted extinguished via legal defeasance fiscal 2014 result transaction indebtedness increased 564 million debt service requirements increased 18 million per annum 5875 senior notes sold pursuant terms conditions indenture exchange purchase agreements 5875 senior notes bore interest rate 5875 per annum payable june 15 december 15 year beginning december 15 2013 recorded 43 million interest expense relating exchange defeasance 95 senior notes amortized 795000 debt issue costs related exchange defeasance fiscal 2014 discussed 5875 senior notes redeemed june 15 2015 proceeds term loan entered part new credit facility fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 5000 senior notes various institutional investors pursuant terms conditions indenture 5000 senior notes indenture collectively indenture governing 5875 senior notes senior notes indentures purchase agreements 5000 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 time prior july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 100 principal amount 5000 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 5000 senior notes net cash proceeds one equity offerings redemption price 105000 principal amount 5000 senior notes plus accrued unpaid interest redemption date provided case foregoing clause least 65 aggregate original principal amount 5000 senior notes remains outstanding redemption occurs within 60 days closing equity offering july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 102500 principal amount 5000 senior notes redeemed 12month period beginning july 15 2016 b 100 principal amount 5000 senior notes redeemed 12month period beginning july 15 2017 plus either case accrued unpaid interest 5000 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5000 senior notes holders 5000 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5000 senior notes mature july 15 2018 5000 senior notes general unsecured obligations company 5000 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 5000 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 5000 senior notes indenture 5000 senior notes lifetime aggregate limit addition 5000 senior notes indenture provides exceptions restricted payments covenant independent 5000 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 5000 senior notes aggregate amount exceed 750 million limitation indebtedness 5000 senior notes indenture applicable time consolidated coverage ratio set forth 5000 senior notes indenture us restricted subsidiaries less 300 100 general set forth 5000 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense june 15 2015 entered new credit agreement credit agreement consists 1750 million revolving line credit 1050 million term loan mature june 15 2020 used proceeds term loan redeem entire 1000 million outstanding principal balance 5875 senior notes plus accrued unpaid interest redemption date june 2015 see note 5 notes payable notes consolidated financial statements additional information regarding new credit facility credit agreement contains financial covenants relating maintaining maximum leverage minimum debt service coverage senior notes indentures contain financial covenant relating times interest earned compliance debt covenants april 30 2015 proceeds new revolving line credit used general corporate purposes based upon current working capital position current operating plans repurchase 1000 million 5875 senior notes expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained inflation believe inflation material impact us fiscal 2015 2014 2013 critical accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation expense excess obsolete inventory allowance doubtful accounts income tax expense including deferred tax asset valuation forfeiture rates stockbased awards actual results could differ estimates revenue recognition firearm accessories products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets property plant equipment patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following · significant underperformance relative historical projected future operating results · significant changes manner use assets strategy overall business · significant negative industry economic trends · significant decline stock price sustained period · decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified impairment charges taken continuing operations fiscal 2015 2014 2013 based review longlived assets accordance accounting standards codification asc 350 intangiblesgoodwill test intangible assets indefinite lives impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate continuing operations two reporting units one springfield massachusetts houlton maine deep river connecticut facilities second columbia missouri facility april 30 2015 recorded 754 million goodwill 138 million recorded time drp acquisition 616 million recorded time bti acquisition periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis impairment charges taken continuing operations fiscal 2015 2014 2013 based review longlived assets utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting unit’s expected longterm operating cash performance approach also mitigates impact cyclical trends occur industry fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percent revenue decline future years improved utilization resulting lean initiatives believe days sales outstanding decline increase revenues also assumed markets contracted long term current economic downturn however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges inventories value firearm inventories consisting primarily finished firearms firearm components related products well accessories inventories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide limited one year warranty lifetime service policy original purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted trade receivables extend credit domestic customers foreign distributors based financial condition sometimes offer discounts early payment invoices believe extension credit advisable rely either prepayment letter credit write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements required asc 74010 accounting income taxes record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position unaware recent expected future changes tax laws would material impact financial statements measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes stockbased compensation account stockbased employee compensation arrangements accordance provisions asc 718 calculating compensation cost date grant using blackscholes method stock options purchases espp grant date fair value rsus montecarlo method marketcondition psus amortize compensation expense vesting period estimate fair value stock option purchase espp date grant using blackscholes option pricing model discounted estimated forfeiture rate using riskfree interest rate expected term expected volatility dividend yield variables estimate fair value rsu award date grant using grant date fair value discounted estimated forfeiture rate applicable factor related holding period estimate fair value psu award date grant using montecarlo model using grant date market value common stock russell 2000 index rut expected volatilities common stock rut correlation coefficient common stock rut riskfree interest rate dividend yield recent accounting pronouncements nature impact recent accounting pronouncements discussed note 3 consolidated financial statements incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2015 thousands fiscal 2015 issued aggregate 750 million 5000 senior notes various institutional investors included longterm debt obligation 120 million contractually obligated interest payments pertaining 750 million remaining balance 5000 senior notes represents interest payments july 15 2018 fiscal 2014 sold aggregate 1000 million 5875 senior notes various qualified institutional buyers exchange approximately 428 million 95 senior notes held holders notes purchase certain holders additional 5875 senior notes cash included longterm debt obligation 66 million contractually obligated interest payments pertaining 1000 million balance 5875 senior notes represents interest payments june 15 2017 june 15 2015 entered new credit facility consists 1750 million revolving line credit 1050 million term loan mature june 15 2020 used proceeds term loan redeem entire 1000 million outstanding principal balance 5875 senior notes plus accrued interest unpaid interest redemption date june 2015 offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report results swss former security solutions division presented discontinued operations consolidated statements income fiscal years ending april 30 2015 2014 see note 4 discontinued operations notes consolidated financial statements additional information regarding discontinued operations unless otherwise indicated reference income statement items management’s discussion analysis financial condition results operations refers results continuing operations may 5 2014 completed drp acquisition expanded capabilities include custom injection molding services rapid prototyping tooling december 11 2014 completed bti acquisition bti based columbia missouri leading provider hunting shooting accessories offers innovative highquality products several brands results operations fiscal year ended april 30 2015 include activity period subsequent respective drp bti acquisitions subsequent bti acquisition began reporting results operations two segments 1 accessories representing bti 2 firearms representing operations 2016 highlights fiscal 2016 net sales 7229 million represented increase 310 fiscal 2015 net sales net sales firearm division increased 238 prior fiscal year 6576 million net sales accessories division 653 million fiscal 2016 compared net sales 206 million prior fiscal year following bti acquisition december 11 2014 income continuing operations fiscal 2016 940 million 168 per fully diluted share compared income continuing operations 498 million 090 per fully diluted share fiscal 2015 operating results fiscal 2016 affected numerous factors including following · 238 increase firearm net sales driven primarily ongoing increased consumer interest firearms occurred past several years reflected higher national instant criminal background check system nics well impact news events current political environment appears increased demand second half fiscal year also believe new products product line extensions mp branded products specifically small concealed carry polymer pistols annual promotional programs time helped stimulate demand products increased consumer demand resulted reduced overall firearm inventory distributors spite increased shipments majority products sporting goods channel able address increased demand second half fiscal 2016 built finished goods inventory slower summer months able ramp production outsourcing well shift production better match output products demand principal products demand handgun category included lower price point fullsize polymer pistols small concealed carry polymer pistols revolvers long guns principal products demand certain lower price point modern sporting rifles bolt action hunting rifles new products defined new sku shipped prior year represented 192 firearm revenue fiscal 2016 included smith wesson branded sport series target pistol mp branded sport model modern sporting rifle new performance center mp branded ported concealed carry pistol many product line extensions mp branded products drp bti acquisitions represented 103 total net sales fiscal 2016 increase units produced satisfy increased consumer demand increased firearm net sales 235 · gross margin increased 53 percentage points prior fiscal year primarily result combination higher sales volumes increased demand favorable manufacturing fixedcost absorption offset higher manufacturingrelated spending relative sales volumes additional promotional product discounts accessories division recorded gross margin 499 90 basis point favorable impact total company gross margin · income continuing operations increased 441 million 886 primarily result higher sales volumes gross margin described combined additional sales margin related december 2014 bti acquisition net corresponding increase bti operating expenses including acquisition related amortization addition operating expenses higher fiscal 2016 increased profit sharing management incentive partially offset lower professional acquisition related expenses interest expense higher fiscal 2016 result costs associated retiring 5875 senior notes exchange lower cost term loan described · june 15 2015 entered new credit agreement credit agreement provides 1750 million revolving line 1050 million term loan mature june 15 2020 used proceeds term loan redeem entire 1000 million outstanding principal balance 5875 senior notes plus accrued unpaid interest redemption date june 18 2015 entered interest rate swap agreement expires june 15 2020 covering 1050 million floating rate debt term loan july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 notional amount interest rate swap 1050 million aggregate fair value 13 million april 30 2016 swap combined applicable margin based consolidated leverage ratio january 31 2016 effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2016 interest rate term loan 306 business one world’s leading manufacturers firearms provider quality accessory products shooting hunting rugged outdoor enthusiast manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles single shot rifles handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market also leading provider shooting hunting outdoor accessories including reloading gunsmithing gun cleaning supplies tree saws vault accessories sell products smith wesson mp thompsoncenter arms caldwell shooting supplies wheeler engineering tipton gun cleaning supplies frankford arsenal reloading tools lockdown vault accessories hooyman premium tree saws bogpod golden rod moisture control brands manufacture firearm products facilities springfield massachusetts houlton maine deep river connecticut develop market accessories products facility columbia missouri plan continue capitalize goodwill developed historic 164 year old “smith wesson” brand well wellknown brands expanding consumer awareness products produce key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also track return invested capital use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding certain nonoperational items nongaap financial metric supplemental measure performance order provide investors improved understanding underlying performance trends evaluate various firearm products measurements gross margin per unit produced units produced per day revenue trade channel incoming orders per day evaluate various accessories products measurements incoming orders per day sales customer gross margin product line key industry data firearms subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun sales increased 50 consumers purchased handguns fear prohibition handgun ownership sales levels returned pre1992 levels grew normal industry growth rates late calendar 2008 sales increased appears fears surrounding crime terrorism economic downturn change white house administration similar increase 1992 increase sales temporary nature sales returned normal levels fiscal 2010 late calendar 2012 early calendar 2013 orders increased rapidly appeared response fears renewed legislative activity surrounding restrictions sale makeup firearms returned normal levels fiscal 2015 orders increased fiscal 2016 appears related ongoing increased consumer interest firearms occurred past several years addition consumer reaction news events current political environment believe expanding base consumers variety products offer attractive price points maintain important factors achieve goal increase market share based data calendar 2015 estimate 19 share us consumer market handguns compares approximately 10 period acquired smith wesson corp 2001 results operations net sales following table sets forth certain information regarding net sales fiscal years ended april 30 2016 2015 2014 dollars thousands following table sets forth certain information regarding trade channel net sales fiscal years ended april 30 2016 2015 2014 dollars thousands include domestic handgun long gun parts revenue sporting goods distribution channel include international law enforcement handgun long gun handcuff revenue professional channel include specialty services plastic injection molding revenue products services effective october 1 2015 thompsoncenter accessories transitioned firearms sporting goods distribution channel accessories division accessories division net sales fiscal 2016 fiscal 2015 primarily sporting goods distribution channel following table sets forth certain information regarding firearm units shipped trade channel fiscal years ended april 30 2016 2015 2014 units thousands fiscal 2016 net sales compared fiscal 2015 net sales firearm division fiscal 2016 increased 238 prior fiscal year driven primarily ongoing increased consumer interest firearms occurred past several years reflected higher nics well impact news events current political environment impacting second half fiscal year also believe new products product line extensions mp branded products specifically small concealed carry polymer pistols annual promotional programs time helped stimulate demand products increased consumer demand resulted reduced overall firearm inventory distribution channels despite increased shipments majority products sporting goods distribution channel able address increased demand second half fiscal year built finished goods inventory slower summer months able ramp production outsourcing well shift production better match output products demand handgun revenue increased 899 million 227 prior fiscal year primarily due increased consumer demand concealed carry products resulted increased unit shipments small concealed carry polymer pistols sporting goods distribution channel principal handgun products highest demand included lower price point fullsize polymer pistols small concealed carry polymer pistols revolvers long gun revenue increased 374 million 415 prior fiscal year result introduction new lower price point modern sporting rifle increased demand sporting goods channel supported increased nics checks long guns increases market share supported dealer distributor data principal long gun products demand certain lower price point modern sporting rifles bolt action hunting rifles products services revenue flat compared prior fiscal year new products defined new sku shipped prior year represented 192 firearm revenue fiscal 2016 included smith wesson branded sport series target pistol mp branded sport model modern sporting rifle new performance center mp branded ported concealed carry pistol many product line extensions mp branded products total price increases favorably impacted firearm revenue fiscal 2016 compared prior fiscal year 30 basis points increases number units sold impacted firearm revenue 235 accessories division revenue 653 million increase 446 million revenue 206 million prior fiscal year fiscal 2015 19 weeks revenue following bti acquisition december 2014 firearm segment order backlog april 30 2016 3044 million 1350 million higher end fiscal 2015 accessories segment order backlog april 30 2016 66 million 32 million lower end fiscal 2015 allow orders received yet shipped cancelled cancellations likely periods following surges demand therefore backlog may indicative future sales although revenue handguns increased 227 handgun unit shipments sporting goods distribution channel increased 317 prior fiscal year result increased shipments promotional products lowered average selling price long gun unit shipments sporting goods distribution channel increased 518 prior fiscal year primarily driven increased demand two key products lower price point mp sport rifle thompsoncenter bolt action hunting rifle professional channel unit shipments lower prior fiscal year lower mp pistol sales law enforcement agencies well lower international shipments canada italy thailand result economic conditions delayed export licenses fiscal 2015 net sales compared fiscal 2014 net sales firearm division fiscal 2015 decreased 152 prior fiscal year although consumer demand handguns reflected nics background checks increased fiscal 2014 believe portion consumer demand satisfied excess channel inventory thus handgun revenue decreased 275 million 65 prior fiscal year decrease sales larger frame mp branded polymer pistol products partially offset increased sales small concealed carry polymer pistols revolvers revenue long guns decreased 651 million 419 prior fiscal year primarily reduced sales modern sporting rifles result lower demand partially offset increased lower price point sport rifle sales well bolt action singleshot hunting rifle sales products services revenue increased 56 prior fiscal year primarily result sales injection molding products following drp acquisition early fiscal 2015 represented 20 firearm revenue well increased handcuff sales firearm revenue positively impacted price increase january 2014 selected number products total price increases favorably impacted firearm revenue fiscal 2015 compared prior fiscal year 03 decreases number units sold impacted firearm revenue 166 new products defined new sku shipped prior year represented 174 firearm revenue fiscal 2015 accessories division revenue following bti acquisition december 2014 represented 37 total revenue fiscal 2015 handgun unit shipments sporting goods distribution channel decreased 94 fiscal 2015 compared fiscal 2014 primarily result reduced shipments mp branded polymer pistols partially offset increased unit shipments revolvers long gun unit shipments sporting goods distribution channel decreased 355 fiscal 2015 compared fiscal 2014 primarily lower shipments modern sporting rifles professional channel unit shipments relatively flat fiscal 2015 compared fiscal 2014 cost sales gross profit following table sets forth certain information regarding cost sales gross profit fiscal years ended april 30 2016 2015 2014 dollars thousands fiscal 2016 cost sales gross profit compared fiscal 2015 gross margin fiscal 2016 increased 53 percentage points prior fiscal year primarily increased production volumes improved manufacturing fixedcost absorption aggregate 65 percentage point favorable impact increased production volume favorable manufacturing fixedcost absorption partially offset higher manufacturing spending relative sales volumes additional expense recorded result promotional product discounts combined yielded 31 percentage point reduction gross margin contributed improved production volumes favorable absorption addition recorded inventory adjustments resulted favorable impact gross margin 50 basis points gross margin accessories division favorably impacted total company gross margin 90 basis points fiscal 2016 spite sales thompsoncenter accessories transitioned accessories division october 1 2015 generally lower gross margins gross profit accessories division fiscal 2015 included 42 million increased cost goods sold fair value stepup inventory result bti acquisition prior fiscal year negatively impacted gross margin division 201 percentage points fiscal 2015 cost sales gross profit compared fiscal 2014 gross margin fiscal 2015 decreased 60 percentage points prior fiscal year primarily result combination reduced sales volumes highermargin products higher spending relative sales volumes additional promotional product discounts unfavorable manufacturing fixedcost absorption fiscal 2015 additional spending relative sales volume unfavorable manufacturing fixedcost absorption negatively impacted gross margin 54 percentage points 674 million additional promotional product discounts resulted 11 percentage point 59 million reduction gross margin price increases made early calendar 2014 selected firearm products increased gross margin 20 basis points 19 million drp acquisition resulted favorable impact 30 basis points gross margin fiscal 2015 result bti acquisition required record 42 million increased cost goods sold related stepup inventory negatively impacted gross margin division 201 percentage points total company 80 basis points operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2016 2015 2014 dollars thousands fiscal 2016 operating expenses compared fiscal 2015 research development expenses increased 31 million prior fiscal year primarily 12 million increased salaries benefits management incentive accruals 732000 increased depreciation expense machinery equipment new product development well 12 million increased expenses largely due full versus partial year bti selling marketing expenses increased 62 million prior fiscal year result accessories division 19 weeks expenses prior fiscal year result timing bti acquisition addition increases salary benefits management incentive accruals almost entirely offset reduced advertising promotional expenses excluding 115 million increase general administrative expense impact caused full year bti expenses subsequent december 2014 bti acquisition general administrative costs increased 91 million prior fiscal year primarily result 57 million increase salary benefits management incentive accruals 53 million increased profit sharing accruals partially offset 26 million lower professional acquisition related expenses 18 million insurance recovery fiscal 2016 partial reimbursement defense costs incurred prior fiscal years related previously resolved matter fiscal 2015 operating expenses compared fiscal 2014 research development expenses increased 13 million prior fiscal year primarily increased expenses related new product development testing materials selling marketing expenses increased 25 million prior fiscal year primarily additional coop advertising promotional expenses offset decreases salary benefit costs general administrative costs decreased 66 million prior fiscal year reflected 75 million reduction eliminating management incentive compensation expense 48 million reduction profit sharing expense 37 million reduction stockbased compensation expense 32 million reduction professional fees primarily relating consulting services training postimplementation support erp system partially offset 36 million intangible amortization expense result bti acquisition 21 million acquisitionrelated costs 17 million additional depreciation expense operating income continuing operations following table sets forth certain information regarding operating income continuing operations fiscal years ended april 30 2016 2015 2014 dollars thousands fiscal 2016 operating income continuing operations compared fiscal 2015 fiscal 2016 operating income continuing operations increased 690 million prior fiscal year primarily higher sales production volumes firearm products related gross margin impacts well increased sales margin impacts owning bti full year partially offset increased promotional product expense higher manufacturing spending relative revenue increased profitrelated compensation expense additional intangible amortization recorded result bti acquisition fiscal 2015 operating income continuing operations compared fiscal 2014 fiscal 2015 operating income continuing operations declined 614 million compared prior fiscal year primarily lower sales modern sporting rifles large frame mp branded polymer pistols related operating profit impacts higher spending unfavorable manufacturing fixedcost absorption reduced net sales increased advertising promotional spending additional depreciation expense increased capital expenditures acquisitionrelated costs expenseincome following table sets forth certain information regarding expenseincome fiscal years ended april 30 2016 2015 2014 dollars thousands expense fiscal 2014 included 20 million expense related resolution sec investigation interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2016 2015 2014 dollars thousands interest expense increased 24 million primarily result 29 million senior note call premium write 17 million unamortized debt issuance costs expensed connection replacing thenoutstanding 1000 million 5875 senior notes june 15 2015 replaced 1050 million floating interest rate term loan fixed 306 entering interest rate swap agreement additional expense call premium debt issuance write costs offset lower interest rate debt subsequent credit facility restructure interest expense decreased fiscal 2015 compared prior fiscal year primarily result 43 million bond premium 795000 debt issuance write costs incurred retire thenoutstanding 95 senior notes due 2016 95 senior notes fiscal 2014 interest expense fiscal 2015 also included additional interest expense service 750 million 5000 senior notes outstanding fiscal 2014 well amortization debt issuance costs income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2016 2015 2014 dollars thousands income tax expense fiscal 2016 increased 222 million prior fiscal year higher operating profit partially offset decrease effective tax rate effective tax rate fiscal year ended april 30 2016 3524 decrease 147 effective tax rate 3671 fiscal year ended april 30 2015 due proportionately larger increase permanent book versus tax differences well reduction state taxes income continuing operations following table sets forth certain information regarding income continuing operations related per share data fiscal years ended april 30 2016 2015 2014 dollars thousands except per share data fiscal 2016 income continuing operations compared fiscal 2015 income continuing operations 940 million fiscal 2016 441 million higher 498 million prior fiscal year primarily higher revenue gross margin described combined full year operating results bti addition operating expenses higher current fiscal year increased profit sharing management incentive partially offset lower professional acquisition related expenses interest expense higher current fiscal year result retiring 5875 senior notes exchange lower cost term loan increased call premium debt issuance write costs result retiring 5875 senior notes well additional intangible amortization expense recorded result bti acquisition negatively impacted net income per diluted share 017 per share combined fiscal 2015 income continuing operations compared fiscal 2014 income continuing operations 498 million fiscal 2015 388 million lower 886 million prior fiscal year primarily lower sales volumes corresponding decrease gross profit unfavorable manufacturing spending additional advertising promotional expense additional depreciation expense increased capital expenditures acquisitionrelated costs income per share continuing operations fiscal 2015 favorably impacted 002 open market purchases common stock occurred fiscal 2015 stock repurchase program also favorable impact income per share continuing operations 004 per share result drp acquisition income per share continuing operations fiscal 2015 negatively impacted 012 per share result increased cost goods sold fair value inventory stepup acquisitionrelated costs additional intangible amortization expense result drp bti acquisitions completed fiscal 2015 excluding expenses inventory stepup amortization intangible assets fiscal 2015 acquisitions favorable impact income per share continuing operations liquidity capital resources principal cash requirements finance growth operations including capital expenditures potential acquisitions service existing debt capital expenditures enhancements manufacturing flexibility tooling new product offerings various information technology projects represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2016 2015 2014 dollars thousands operating activities operating activities represent principal source cash flow cash flows operating activities fiscal 2016 1686 million 538 million higher prior fiscal year cash generated operating activities fiscal 2016 favorably impacted increased net income 547 million depreciation amortization 130 million increased accounts payable resulting effort procurement negotiate longer terms suppliers well timing inventory purchases 112 million higher payroll accruals increased management incentive accruals 53 million higher profit sharing accruals higher operating profit partially offset 23 million increased accounts receivable related timing firearms sales cash flows operating activities fiscal 2015 1148 million 246 million higher prior fiscal year primarily result following 257 million decrease inventory levels result initiative reduce finished parts inventory well reduced manufacturing volumes decrease accounts receivable 110 million due timing customer payments lower sales volumes 92 million increase amortization depreciation expense increased capital spending result acquisitions lower income tax payments lower taxable income cash operating activities negatively impacted 73 million reduced accounts payable result reduced manufacturing purchases 95 million reduction payroll accruals due lower profitrelated compensation accruals 49 million reduction profit sharing accruals result lower operating profits compared prior fiscal year investing activities cash used investing activities 320 1541 million lower fiscal 2016 compared prior fiscal year primarily 1592 million payments made acquisitions prior fiscal year compared 12 million current fiscal year slightly offsetting impact acquisitions increase cash used deposits machinery current year 26 million compared prior fiscal year addition recorded capital spending 295 million increase 13 million compared prior fiscal year major capital expenditures fiscal 2016 primarily related enhancements manufacturing flexibility tooling new product offerings various information technology projects cash used investing activities 1861 million 1234 million higher fiscal 2015 compared prior fiscal year primarily result 1354 million payments bti acquisition acquire substantially net assets hooyman llc 238 million payment drp acquisition partially offset 35 million refunds deposits machinery equipment also recorded capital spending 282 million reduction 251 million compared prior fiscal year financing activities cash provided financing activities 125 million 321 million lower fiscal 2016 compared prior fiscal year cash provided financing activities current fiscal year primarily impacted receiving 113 million proceeds exercise options acquire common stock 1050 million borrowings new term loan entirely offset retirement 1000 million outstanding principal balance 5875 senior notes june 2015 subsequent quarterly payments term loan totaling 47 million paid 10 million debt issuance costs related credit agreement discussed cash provided financing activities 446 million fiscal 2015 compared cash used financing activities 592 million fiscal 2014 cash provided financing activities primarily result 750 million proceeds related issuance 5000 senior notes partially offset completed 300 million stock repurchase program also paid 24 million debt issuance costs related 5000 senior notes issuance discussed note 6 consolidated financial statements past three fiscal years board directors authorized repurchase 1950 million common stock multiple stock repurchase programs 500 million remained authorized repurchase subject certain conditions open market privately negotiated transactions april 30 2016 since fiscal 2014 repurchased 108 million shares common stock open market 1294 million 14 million shares common stock pursuant tender offer 156 million utilizing cash hand fiscal 2015 partially exercised accordion feature line credit increase 500 million 1250 million december 11 2014 borrowed 1000 million expanded line credit fund bti acquisition repaid entire 1000 million borrowings line credit fourth quarter fiscal 2015 april 13 2015 exercised remaining 500 million expansion accordion feature credit agreement increase line credit available us 1750 million june 15 2015 entered credit agreement provides 1750 million revolving line 1050 million term loan mature june 15 2020 borrowings revolving line 1003 million outstanding term loan april 30 2016 used proceeds term loan redeem entire 1000 million outstanding principal balance outstanding 5875 senior notes plus accrued unpaid interest redemption date june 2015 see note 6 notes payable financing arrangements notes consolidated financial statements additional information regarding credit facility additional proceeds credit facility expected used general corporate purposes june 18 2015 entered interest rate swap agreement expires june 15 2020 covering 1050 million floating rate debt term loan july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 notional amount interest rate swap 1050 million aggregate fair value 13 million april 30 2016 swap combined applicable margin based consolidated leverage ratio january 31 2016 effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2016 interest rate term loan 306 expect interest rate swap material effect earnings within next 12 months fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 5000 senior notes various institutional investors pursuant terms conditions indenture 5000 senior notes indenture collectively indenture governing 5875 senior notes senior notes indentures purchase agreements 5000 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 time prior july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 100 principal amount 5000 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 5000 senior notes net cash proceeds one equity offerings redemption price 105000 principal amount 5000 senior notes plus accrued unpaid interest redemption date provided case foregoing clause least 65 aggregate original principal amount 5000 senior notes remains outstanding redemption occurs within 60 days closing equity offering july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 102500 principal amount 5000 senior notes redeemed 12month period beginning july 15 2016 b 100 principal amount 5000 senior notes redeemed 12month period beginning july 15 2017 plus either case accrued unpaid interest 5000 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5000 senior notes holders 5000 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5000 senior notes mature july 15 2018 5000 senior notes general unsecured obligations company 5000 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 5000 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 5000 senior notes indenture 5000 senior notes lifetime aggregate limit addition 5000 senior notes indenture provides exceptions restricted payments covenant independent 5000 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 5000 senior notes aggregate amount exceed 750 million limitation indebtedness 5000 senior notes indenture applicable time consolidated coverage ratio set forth 5000 senior notes indenture us restricted subsidiaries less 300 100 general set forth 5000 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense credit agreement contains financial covenants relating maintaining maximum leverage minimum debt service coverage 5000 senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2016 april 30 2016 1913 million cash equivalents hand based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained inflation believe inflation material impact us fiscal 2016 2015 2014 critical accounting policies revenue recognition firearm accessories products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets property plant equipment patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following · significant underperformance relative historical projected future operating results · significant changes manner use assets strategy overall business · significant negative industry economic trends · significant decline stock price sustained period · decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified impairment charges recorded fiscal 2016 2015 2014 based review longlived tangible intangible assets accordance accounting standards codification asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate operations two reporting units firearms accessories april 30 2016 recorded 764 million goodwill 138 million recorded result drp acquisition 626 million recorded result bti acquisition subsequent acquisitions bti estimate fair value firearms accessories business units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing reporting units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics reporting unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values reporting units foregoing assumptions could deviate materially actual results based annual impairment assessment determined fair value firearms accessories reporting units significantly excess respective book values inventories value firearm inventories consisting primarily finished firearms firearm components related products well accessories inventories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide limited one year warranty lifetime service policy original purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted recent accounting pronouncements nature impact recent accounting pronouncements discussed note 3 consolidated financial statements incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2016 thousands fiscal 2016 entered credit facility consists 1750 million revolving line 1050 million term loan mature june 15 2020 used proceeds term loan redeem outstanding 1000 million principal balance 5875 senior notes plus accrued interest unpaid interest redemption date june 2015 included longterm debt obligation 111 million contractually obligated interest payments pertaining 1003 million remaining balance term loan represents interest payments july 15 2020 fiscal 2015 issued aggregate 750 million 5000 senior notes various institutional investors included longterm debt obligation 83 million contractually obligated interest payments pertaining 750 million remaining balance 5000 senior notes represents interest payments july 15 2018 offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis financial condition results operations conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report may 5 2014 completed drp acquisition expanded capabilities include custom injection molding services rapid prototyping tooling december 11 2014 completed bti acquisition bti based columbia missouri leading provider hunting shooting accessories offers innovative highquality products several brands results operations fiscal year ended april 30 2015 include activity period subsequent respective drp bti acquisitions fiscal 2017 acquired substantially net assets taylor brands llc ultimate survival technologies inc well issued outstanding stock crimson trace corporation aggregate 2111 million net cash acquired subject certain adjustments utilizing cash hand taylor brands llc based kingsport tennessee operating bti tools llc designer distributor highquality knives specialty tools accessories licensee wholly owned subsidiary smith wesson corp crimson trace corporation based wilsonville oregon leading provider laser sight tactical light products consumers law enforcement security agencies military agencies around globe ultimate survival technologies inc based jacksonville florida operating ultimate survival technologies llc ust provider highquality survival camping equipment including led lights allweather fire starters unbreakable signal mirrors premium outdoor cutting tools first aid kits survival kits camp kitchen products results operations fiscal year ended april 30 2017 include activity period subsequent respective acquisition dates taylor brands llc crimson trace corporation ultimate survival technologies inc collectively refer acquisitions taylor brands llc crimson trace corporation ust 2017 acquisitions report results operations two segments 1 firearms 2 outdoor products accessories previously referred accessories segment effective october 1 2015 thompsoncenter accessories business transitioned firearms segment outdoor products accessories segment comparison purposes reclassified revenue cost sales thompsoncenter accessories products fiscal year ended april 30 2016 firearms segment historically presented products services outdoor products accessories segment results swss llc former security solutions division presented discontinued operations consolidated statements income fiscal year ended april 30 2015 unless otherwise indicated reference income statement items management’s discussion analysis financial condition results operations refers results continuing operations 2017 highlights operating results fiscal 2017 included following • total net sales 9032 million increase 1803 million 249 fiscal 2016 net sales • net sales firearms segment 7730 million increase 1209 million 185 prior fiscal year • net sales outdoor products accessories segment 1302 million increase 593 million 838 prior fiscal year primarily revenue generated result 2017 acquisitions • gross margin 415 increase 90 basis points prior fiscal year • income continuing operations 1279 million increase 339 million 361 prior fiscal year • net income per diluted share 225 increase 057 339 prior fiscal year • repurchased 26 million shares common stock open market completing initially authorized 500 million stock repurchase plan effective march 27 2017 board directors approved new program repurchase 500 million companys outstanding shares common stock time march 28 2019 • october 27 2016 entered second amendment existing credit agreement lenders expand unsecured revolving line 3500 million option increase credit commitment additional 1500 million extended maturity revolving line october 27 2021 key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also track return invested capital use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding certain nonoperational items nongaap financial metric supplemental measure performance order provide investors improved understanding underlying performance trends evaluate firearm products measurements gross margin per unit produced units produced per day revenue trade channel incoming orders per day evaluate outdoor products accessories products measurements incoming orders per day sales gross margin customer brand external factors impact firearm industry firearm industry subject many external factors past significantly increased volatility revenue generated companies within industry factors include among others fears surrounding crime terrorism tragic news events potential restrictions sale makeup firearms legislative regulatory actions economic changes political environment although external factors created demand surges volatility firearms market often making difficult predict demand believe external factors also likely contributed longterm increase consumer interest firearms increased consumer interest helped firearm industry generate ten year compound annual growth rate units 110 according us bureau alcohol tobacco firearms explosives atf believe expanding base consumers combined strong brand recognition attractive price points important factors goal continue increasing market share based data calendar 2015 estimate 196 share us consumer market handguns compares approximately 10 period prior acquisition smith wesson corp 2001 addition increased consumer interest combined efforts increase revenue market share products generated ten year compound annual growth rate revenue 124 firearm business results operations net sales following table sets forth certain information regarding net sales fiscal years ended april 30 2017 2016 2015 dollars thousands following table sets forth certain information regarding trade channel net sales fiscal years ended april 30 2017 2016 2015 dollars thousands include domestic handgun long gun parts revenue well revenue outdoor products accessories sporting goods distribution channel include international law enforcement handgun long gun handcuff revenue professional channel include specialty services plastic injection molding revenue products services following table sets forth certain information regarding firearm units shipped trade channel fiscal years ended april 30 2017 2016 2015 units thousands fiscal 2017 net sales compared fiscal 2016 net sales firearms segment increased 185 shipments stronger earlier fiscal year consumer demand firearms stronger may including november month record number firearm purchases indicated adjusted background checks reported national instant criminal background check system nics believe strong consumer demand first seven months fiscal year result ongoing increased consumer interest firearms occurred past several years increased concern regarding additional firearms laws regulations impact news events including terrorism high levels adjusted nics checks rapidly declined december remained lower prior year february firearm retailers indicated soft retail environment potentially result excess inventory reduced concern regarding additional firearm laws regulations total adjusted nics checks march april however returned positive trend flexible manufacturing strategy firearms intended keep factories full utilization changes demand able accomplish increasing production capacity outsourcing times strong demand reducing level outsourcing softer demand environments given lower adjusted nics checks market conditions occurred second half year began take actions reduce reliance outsourcing accordance strategy however since reduction efforts must done responsibly regard outsourcing suppliers experienced buildup inventory demand firearms declined inventory levels internally distribution channel excess customer demand may negatively impact operating results difficult forecast potential impact distributor inventories future revenues income operating results impacted many factors including news events political events consumer tastes handgun revenue increased 712 million 147 prior fiscal year primarily due increased consumer demand concealed carry fullsize polymer pistol products resulted increased unit shipments pistol products sporting goods distribution channel principal products demand handgun category included second generation mp branded fullsize polymer pistol small concealed carry polymer pistols smith wesson branded sport series pistols revolvers long gun revenue increased 520 million 408 prior fiscal year result increased demand sporting goods distribution channel supported market share gains driven shift consumer demand toward modern sporting rifles principal product demand long gun category mp branded sport model modern sporting rifle products services revenue relatively flat compared prior fiscal year new firearm products represented 272 firearm revenue fiscal 2017 included second generation mp branded polymer pistol many product line extensions mp branded products total price increases favorably impacted firearm revenue fiscal 2017 compared prior fiscal year 60 basis points increases number units sold impacted firearm revenue 194 outdoor products accessories segment net sales increased 838 compared prior fiscal year primarily 2017 acquisitions segment fiscal 2017 acquisitions generated revenue 611 million subsequent respective acquisition dates represented 68 total net sales fiscal 2017 470 outdoor products accessories net sales excluding acquisitions organic revenue outdoor products accessories segment declined 25 primarily driven reduced shipments two key internet retailers believe negatively impacted inventory reduction initiatives order timing however outthedoor consumer sales retailers outdoor products accessories increased last fiscal year firearms segment order backlog april 30 2017 964 million decline 2080 million end fiscal 2016 primarily due lower demand later fiscal year increase distributor inventory outdoor products accessories segment order backlog april 30 2017 125 million 59 million higher end fiscal 2016 increase 16 million organic remainder result 2017 acquisitions allow orders received yet shipped cancelled cancellations likely periods following surges demand therefore backlog may indicative future sales handgun shipments sporting goods distribution channel increased 201 primarily result increased demand conceal carry second generation fullsize polymer pistols revenue handguns increased 147 prior fiscal year long gun unit shipments sporting goods distribution channel increased 348 prior fiscal year primarily increased orders lower price point mp sport rifles revenue long guns increased 408 prior fiscal year higher unit rate handguns long guns occurred result increased shipments promotional products professional channel unit shipments higher prior fiscal year primarily increased mp modern sporting rifle sales law enforcement agencies distributors well higher international shipments canada france fiscal 2016 net sales compared fiscal 2015 net sales firearm segment fiscal 2016 increased 228 fiscal 2015 driven primarily ongoing increased consumer interest firearms occurred past several years reflected higher nics well impact news events political environment impacting second half fiscal 2016 also believe new products product line extensions mp branded products specifically small concealed carry polymer pistols annual promotional programs period helped stimulate demand products increased consumer demand resulted reduced overall firearm inventory distribution channels despite increased shipments majority products sporting goods distribution channel able address increased demand second half fiscal 2016 built finished goods inventory slower summer months able ramp production outsourcing well shift production better match output products demand handgun revenue increased 899 million 227 fiscal 2015 primarily due increased consumer demand concealed carry products resulted increased unit shipments small concealed carry polymer pistols sporting goods distribution channel principal handgun products highest demand included lower price point fullsize polymer pistols small concealed carry polymer pistols revolvers long gun revenue increased 374 million 415 fiscal 2015 result introduction new lower price point modern sporting rifle increased demand sporting goods channel supported increased nics checks long guns increased market share supported dealer distributor data principal long gun products demand certain lower price point modern sporting rifles bolt action hunting rifles products services revenue flat compared fiscal 2015 new products represented 192 firearm revenue fiscal 2016 included smith wesson branded sport series target pistol mp branded sport model modern sporting rifle new performance center mp branded ported concealed carry pistol many product line extensions mp branded products total price increases favorably impacted firearm revenue fiscal 2016 compared fiscal 2015 30 basis points increases number units sold impacted firearm revenue 235 outdoor products accessories segment revenue 708 million increase 502 million revenue 206 million fiscal 2015 fiscal 2015 19 weeks revenue bti following bti acquisition december 2014 although revenue handguns increased 227 handgun unit shipments sporting goods distribution channel increased 317 fiscal 2015 result increased shipments promotional products lowered average selling price long gun unit shipments sporting goods distribution channel increased 518 fiscal 2015 primarily driven increased demand two key products lower price point mp sport rifle thompsoncenter bolt action hunting rifle professional channel unit shipments lower fiscal 2015 lower mp pistol sales law enforcement agencies well lower international shipments canada italy thailand result economic conditions delayed export licenses cost sales gross profit following table sets forth certain information regarding cost sales gross profit fiscal years ended april 30 2017 2016 2015 dollars thousands fiscal 2017 cost sales gross profit compared fiscal 2016 gross margin fiscal 2017 increased 90 basis points prior fiscal year firearms segment gross margin increased 80 basis points primarily increased production volumes improved manufacturing fixedcost absorption aggregate 35 favorable impact total company gross margin addition price increases reduced warranty expense changes provisions prior year product recall reserves favorable purchase price variances inventory adjustments aggregate 13 favorable impact total gross margin increases partially offset higher manufacturing spending relative revenue additional expense recorded result promotional product discounts contributed improved sales volumes favorable absorption combined yielded 43 unfavorable impact total gross margin outdoor products accessories segment gross margin fiscal 2017 included 47 million additional cost goods sold acquisitionrelated amortization result 2017 acquisitions 36 negative impact gross margin segment excluding acquisitionrelated costs 26 increase due aggregate gross margins newly acquired businesses historically higher organic gross margins outdoor products accessories business fiscal 2016 cost sales gross profit compared fiscal 2015 gross margin fiscal 2016 increased 53 fiscal 2015 primarily increased production volumes improved manufacturing fixedcost absorption aggregate 65 favorable impact increased production volume favorable manufacturing fixedcost absorption partially offset higher manufacturing spending relative sales volumes additional expense recorded result promotional product discounts combined yielded 31 reduction gross margin contributed improved production volumes favorable absorption addition recorded inventory adjustments resulted favorable impact gross margin 50 basis points gross margin outdoor products accessories segment favorably impacted total company gross margin 70 basis points fiscal 2016 spite sales thompsoncenter accessories transitioned outdoor products accessories segment fiscal 2016 generally lower gross margins gross profit outdoor products accessories segment fiscal 2015 included 42 million increased cost goods sold fair value stepup inventory result bti acquisition fiscal 2015 negatively impacted gross margin segment 201 operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2017 2016 2015 dollars thousands fiscal 2017 operating expenses compared fiscal 2016 operating expenses increased 402 million prior fiscal year due 313 million additional operating expenses related 2017 acquisitions included 86 million expenses support selling marketing initiatives 218 million general administrative expenses included acquired general administrative costs 83 million additional acquired intangible asset amortization expense 38 million acquisitionrelated costs organic general administrative expenses increased result 18 million increased stock compensation expense 16 million increased profit sharing expense addition fiscal 2016 expenses reduced 18 million insurance recovery prior year fiscal 2016 operating expenses compared fiscal 2015 research development expenses increased 31 million fiscal 2015 primarily 12 million increased salaries benefits management incentive accruals 732000 increased depreciation expense machinery equipment new product development well 12 million increased expenses largely due full versus partial year bti selling marketing expenses increased 62 million fiscal 2015 result accessories division 19 weeks expenses fiscal 2015 result timing bti acquisition addition increases salary benefits management incentive accruals almost entirely offset reduced advertising promotional expenses excluding 115 million increase general administrative expense impact caused full year bti expenses subsequent december 2014 bti acquisition general administrative costs increased 91 million fiscal 2015 primarily result 57 million increase salary benefits management incentive accruals 53 million increased profit sharing accruals partially offset 26 million lower professional acquisition related expenses 18 million insurance recovery fiscal 2016 partial reimbursement defense costs incurred prior fiscal years related previously resolved matter operating income continuing operations following table sets forth certain information regarding operating income continuing operations fiscal years ended april 30 2017 2016 2015 dollars thousands fiscal 2017 operating income continuing operations compared fiscal 2016 fiscal 2017 operating income continuing operations increased 413 million prior fiscal year primarily higher sales production volumes firearm products related operating profit impacts favorable manufacturing fixedcost absorption partially offset increased promotional product expense higher manufacturing spending relative revenue increased stock compensation expense increased professional acquisitionrelated expenses increased acquired intangible asset amortization increased profit sharing expenses fiscal 2016 operating income continuing operations compared fiscal 2015 fiscal 2016 operating income continuing operations increased 690 million fiscal 2015 primarily higher sales production volumes firearm products related gross margin impacts well increased sales margin impacts owning bti full year partially offset increased promotional product expense higher manufacturing spending relative revenue increased profitrelated compensation expense additional intangible amortization recorded result bti acquisition interest expenseincome following table sets forth certain information regarding interest expense fiscal years ended april 30 2017 2016 2015 dollars thousands interest expense declined 49 million prior fiscal year result refinancing thenoutstanding 1000 million 5875 senior notes june 18 2015 1050 million floating interest rate term loan fixed 331 entering interest rate swap agreement connection redemption 5875 senior notes prior fiscal year recorded 29 million bond call premium wrote 17 million unamortized debt issuance costs prior fiscal year interest expense fiscal 2016 increased 26 million fiscal 2015 primarily result 29 million senior note call premium writeoff 17 million unamortized debt issuance costs described additional expense call premium debt issuance writeoff costs offset lower interest rate debt subsequent credit facility restructure income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2017 2016 2015 dollars thousands fiscal 2017 income tax expense increased 123 million prior fiscal year higher operating profit decrease effective tax rate prior year comparable period result adoption new asu 201609 compensation stock compensation reduced effective tax rate 17 income tax expense fiscal 2016 increased 222 million prior fiscal year higher operating profit partially offset decrease effective tax rate effective tax rate fiscal year ended april 30 2016 3524 decrease 147 effective tax rate 3671 fiscal year ended april 30 2015 due proportionately larger increase permanent book versus tax differences well reduction state taxes income continuing operations following table sets forth certain information regarding income continuing operations related per share data fiscal years ended april 30 2017 2016 2015 dollars thousands except per share data fiscal 2017 income continuing operations compared fiscal 2016 income continuing operations 1279 million fiscal 2017 339 million higher 940 million prior fiscal year primarily higher revenue gross margin firearms segment lower interest expense acquisitionrelated expenses result 2017 acquisitions negatively impacted net income per diluted share 020 per share fiscal 2016 income continuing operations compared fiscal 2015 income continuing operations 940 million fiscal 2016 441 million higher 499 million fiscal 2015 primarily higher revenue gross margin described combined full year operating results bti addition operating expenses higher fiscal 2016 increased profit sharing management incentive partially offset lower professional acquisition related expenses interest expense higher fiscal 2016 result redeeming 5875 senior notes exchange lower cost term loan increased senior notes call premium debt issuance write costs result retiring 5875 senior notes well additional intangible amortization expense recorded result bti acquisition negatively impacted net income per diluted share 017 per share liquidity capital resources principal cash requirements finance growth operations including capital expenditures potential acquisitions service existing debt capital expenditures enhancements manufacturing flexibility tooling new product offerings various information technology projects represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2017 2016 2015 dollars thousands operating activities operating activities represent principal source cash flow cash generated operating activities fiscal 2017 1236 million 450 million lower prior fiscal year cash generated operating activities fiscal 2017 favorably impacted net income 1781 million depreciation amortization 212 million increased accrued expenses primarily increased promotional product accruals partially offset 222 million increased inventory primarily firearms temporary inventory build result decline demand second half year 407 million increased accounts receivable timing shipments late year combined addition new distributor promotional shipments longer credit terms 137 million reduced accrued income taxes timing estimated federal income tax payments cash flows generated operating activities fiscal 2016 1686 million 538 million higher fiscal 2015 cash generated operating activities fiscal 2016 favorably impacted increased net income 547 million depreciation amortization 130 million increased accounts payable resulting longer terms certain suppliers well timing inventory purchases 112 million higher payroll accruals increased management incentive accruals 53 million higher profit sharing accruals higher operating profit partially offset 23 million increased accounts receivable related timing firearm sales investing activities cash used investing activities 2437 million 2118 million higher prior fiscal year primarily 2111 million payments 2017 acquisitions also recorded capital expenditures 349 million fiscal 2017 increase 54 million prior fiscal year noted major capital expenditures fiscal 2017 primarily related enhancements manufacturing flexibility tooling new product offerings various information technology projects including completed implementation sap enterprise resource planning system columbia missouri location cash used investing activities 320 million 1541 million lower fiscal 2016 compared fiscal 2015 primarily 1592 million payments made acquisitions fiscal 2015 compared 12 million fiscal 2016 slightly offsetting impact acquisitions increase cash used deposits machinery fiscal 2016 26 million compared fiscal 2015 addition recorded capital spending 295 million increase 13 million compared fiscal 2015 financing activities cash used financing activities 96 million 221 million lower cash provided financing activities 125 million prior fiscal year cash used financing activities fiscal 2017 primarily result principal payments term loan completion 500 million authorized stock repurchase program payments employee withholding tax related vesting restricted stock units offset 500 million borrowings line credit cash provided financing activities 125 million 321 million lower fiscal 2016 compared fiscal 2015 cash provided financing activities fiscal 2016 primarily impacted receiving 113 million proceeds exercise stock options acquire common stock 1050 million borrowings new term loan entirely offset retirement 1000 million outstanding principal balance 5875 senior notes june 2015 subsequent quarterly payments term loan totaling 47 million paid 10 million debt issuance costs related credit agreement discussed past three fiscal years board directors authorized subject certain conditions repurchase 1300 million common stock multiple stock repurchase programs open market privately negotiated transactions 500 million remained authorized repurchase april 30 2017 since fiscal 2015 repurchased 47 million shares common stock open market 800 million utilizing combination cash hand borrowings line credit june 15 2015 entered credit agreement provides 1750 million revolving line 1050 million term loan mature june 15 2020 borrowings revolving line 940 million outstanding term loan april 30 2017 used proceeds term loan redeem entire 1000 million outstanding principal balance outstanding 5875 senior notes plus accrued unpaid interest redemption date june 2015 see note 5 notes loans payable financing arrangements notes consolidated financial statements additional information regarding credit facility additional proceeds credit facility expected used general corporate purposes june 18 2015 entered interest rate swap agreement expires june 15 2020 covering 1050 million floating rate debt term loan july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 notional amount interest rate swap 1050 million aggregate fair value 571000 april 30 2017 swap combined applicable margin based consolidated leverage ratio january 31 2016 effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2017 interest rate term loan 306 expect interest rate swap material effect earnings within next 12 months october 27 2016 entered second amendment existing credit agreement lenders expand unsecured revolving line 3500 million option increase credit commitment additional 1500 million extended maturity revolving line october 27 2021 500 million borrowings revolving line april 30 2017 changes described amendment remain subject terms credit agreement amended incurred 525000 debt issuance costs related amendment fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 5000 senior notes various institutional investors pursuant terms conditions indenture 5000 senior notes indenture collectively indenture governing 5875 senior notes senior notes indentures purchase agreements 5000 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 102500 principal amount 5000 senior notes redeemed 12month period beginning july 15 2016 b 100 principal amount 5000 senior notes redeemed 12month period beginning july 15 2017 plus either case accrued unpaid interest 5000 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5000 senior notes holders 5000 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5000 senior notes mature july 15 2018 5000 senior notes general unsecured obligations company 5000 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 5000 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 5000 senior notes indenture 5000 senior notes lifetime aggregate limit addition 5000 senior notes indenture provides exceptions restricted payments covenant independent 5000 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 5000 senior notes aggregate amount exceed 750 million limitation indebtedness 5000 senior notes indenture applicable time consolidated coverage ratio set forth 5000 senior notes indenture us restricted subsidiaries less 300 100 general set forth 5000 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense credit agreement contains financial covenants relating maintaining maximum leverage minimum debt service coverage 5000 senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2017 april 30 2017 616 million cash equivalents hand based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained inflation believe inflation material impact us fiscal 2017 2016 2015 critical accounting policies revenue recognition firearm outdoor products accessories products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets property plant equipment patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified impairment charges recorded fiscal 2017 2016 2015 based review longlived tangible intangible assets accordance accounting standards codification asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value operating unit carrying amounts including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate operations two reporting segments firearms outdoor products accessories firearms reporting segment also one operating segment outdoor products accessories reporting segment two operating segments accessories electrooptics aggregated one reporting segment april 30 2017 recorded 1690 million goodwill estimate fair value firearms accessories electrooptics operating units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing operating units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics reporting unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values operating units valuation date firearms operating unit 138 million goodwill fair value significantly exceeded carrying value accessories operating segment 1099 million goodwill fair value exceeded carrying value approximately 16 electrooptics operating unit 453 million goodwill fair value exceeded carrying value 11 although concluded impairment goodwill associated operating units april 30 2017 continue closely monitor performance related market conditions future indicators potential impairment reassess accordingly foregoing assumptions could deviate materially actual results inventories value inventories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory past history expected future usage warranty generally provide limited one year warranty lifetime service policy original purchaser new firearm products either provide limited one year limited lifetime warranty program original purchaser accessories products repair replace electrooptics products parts found defective normal use service item equivalent value option without charge warranty period provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted recent accounting pronouncements nature impact recent accounting pronouncements discussed note 3 consolidated financial statements incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2017 thousands fiscal 2016 entered credit facility consisted 1750 million revolving line 1050 million term loan mature june 15 2020 fiscal 2017 entered second amendment existing credit agreement lenders expand unsecured revolving line 3500 million option increase credit commitment additional 1500 million extended maturity revolving line october 27 2021 500 million borrowings revolving line april 30 2017 used proceeds term loan redeem outstanding 1000 million principal balance 5875 senior notes plus accrued interest unpaid interest redemption date june 2015 included longterm debt obligation 81 million contractually obligated interest payments pertaining 940 million remaining balance term loan represents interest payments july 15 2020 fiscal 2015 issued aggregate 750 million 5000 senior notes various institutional investors included longterm debt obligation 45 million contractually obligated interest payments pertaining 750 million remaining balance 5000 senior notes represents interest payments july 15 2018 offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis financial condition results operations conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report fiscal 2017 three separate transactions acquired 1 substantially net assets taylor brands llc 2 substantially assets ultimate survival technologies inc referred ultimate survival technologies llc ust 3 issued outstanding stock crimson trace corporation aggregate purchase price 2111 million net cash acquired subject certain adjustments utilizing cash hand taylor brands llc integrated battenfeld technologies business operates columbia missouri leading provider highquality knives specialty tools accessories crimson trace corporation based wilsonville oregon leading provider laser sight tactical light products consumers law enforcement security agencies military agencies worldwide ust based jacksonville florida provider highquality survival camping equipment including led lights allweather fire starters unbreakable signal mirrors premium outdoor cutting tools first aid kits survival kits camp kitchen products results operations fiscal year ended april 30 2017 include activity period subsequent respective acquisition dates taylor brands llc crimson trace corporation ust collectively refer acquisitions taylor brands llc crimson trace corporation ust 2017 acquisitions fiscal 2018 two separate transactions acquired substantially net assets gemini technologies incorporated gemtech bubba blade branded products assets fish tales llc aggregate purchase price two acquisitions 231 million subject certain adjustments utilizing combination cash hand borrowings revolving line credit gemtech based meridian idaho provider quality suppressors accessories consumer law enforcement military markets fish tales llc based oro valley arizona provider premium sportsman knives tools fishing hunting including premium knife brand bubba blade results operations fiscal year ended april 30 2018 include activity period subsequent respective acquisition dates gemtech fish tales llc collectively refer acquisitions gemtech fish tales llc products 2018 acquisitions report results operations two segments 1 firearms 2 outdoor products accessories effective october 1 2015 thompsoncenter accessories business transitioned firearms segment outdoor products accessories segment comparison purposes reclassified revenue cost sales thompsoncenter accessories products fiscal year ended april 30 2016 firearms segment historically presented products services outdoor products accessories segment 2018 highlights operating results fiscal 2018 included following • total net sales 6069 million decrease 2963 million 328 prior fiscal year • firearms segment gross sales 4525 million included 38 million intersegment revenue decrease 3241 million 417 prior fiscal year • outdoor products accessories segment gross sales 1717 million included 138 million intersegment revenue increase 310 million 22 prior fiscal year primarily revenue generated result acquisitions fiscal 2017 2018 organic gross sales segment grew 12 • gross margin 323 decrease 92 percentage points prior fiscal year • net income 201 million decrease 1077 million 843 prior fiscal year • net income per diluted share 037 decrease 188 836 prior fiscal year december 22 2017 tax cuts jobs act tax reform enacted united states tax reform significantly revises corporate federal income tax among things lowering corporate federal income tax rates limiting various deductions repealing domestic manufacturing deduction expect see net benefits lower federal income tax rate although offsetting effects components tax reform february 28 2018 issued aggregate 750 million 5000 senior notes due 2020 senior notes used proceeds 2020 senior notes redeem 5000 senior notes due 2018 senior notes march 8 2018 2020 senior notes substantially terms conditions redeemed 5000 senior notes key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also track return invested capital use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding certain nonoperational items nongaap financial metric supplemental measure performance order provide investors improved understanding underlying performance trends evaluate firearm products measurements gross margin per unit produced units produced per day revenue trade channel incoming orders per day evaluate outdoor products accessories products measurements incoming orders per day sales gross margin customer brand external factors impact firearm industry firearm industry subject many external factors past significantly increased volatility revenue generated companies within industry factors include among others fears surrounding crime terrorism tragic news events potential restrictions sale makeup firearms legislative regulatory actions economic changes social political environment including presidential elections see item ia risk factors discussion external factors impact firearm industry although external factors created demand surges volatility firearms market often making difficult predict demand believe external factors also likely contributed longterm increase consumer interest firearms increased consumer interest helped firearm industry generate tenyear compound annual growth rate units 120 according us bureau alcohol tobacco firearms explosives atf believe expanding base consumers combined strong brand recognition attractive price points important factors goal continue increasing market share based data calendar 2016 estimate 167 share us consumer market handguns compares approximately 10 period prior acquisition smith wesson corp 2001 results operations net sales following table sets forth certain information regarding net sales fiscal years ended april 30 2018 2017 2016 dollars thousands following table sets forth certain information regarding trade channel net sales fiscal years ended april 30 2018 2017 2016 dollars thousands include domestic handgun long gun parts revenue well revenue outdoor products accessories sporting goods distribution channel include international law enforcement handgun long gun handcuff revenue professional channel include specialty services plastic injection molding revenue products services following table sets forth certain information regarding firearm units shipped trade channel fiscal years ended april 30 2018 2017 2016 units thousands fiscal 2018 net sales compared fiscal 2017 net sales firearms segment fiscal 2018 decreased 419 fiscal 2017 lower shipments across nearly product categories customer orders softened light excessive channel inventories beginning fiscal year combined lower consumer demand potentially result reduced political pressure firearm laws regulations indicated 89 reduction adjusted background checks reported national instant criminal background check system nics also believe demand first half prior fiscal year heighted primarily news events including terrorism well political environment may caused concerns related potential firearm ownership restrictions leading presidential election addition success promotions certain products fourth fiscal quarter ended april 30 2017 exceeded expectations may pulled forward shipments prior fiscal year contributing reduced firearm orders first half fiscal 2018 lower customer orders heightened channel inventories required us take actions reduce manufacturing production outsourcing actions take time experienced buildup inventory first half fiscal 2018 result actions combined traditional upswing sales seasonally occurs fall hunting holiday seasons additional orders winter distributor buying group shows new product introductions fourth fiscal quarter inventory levels declined second half fiscal 2018 addition distributor inventory also declined result increased pull firearm products distribution channel fourth fiscal quarter anticipate inventory levels increase first quarter fiscal 2019 seasonal trends planned inventory build reduce risk shipping complications time national logistics facility boone county missouri becomes operational inventory levels internally distribution channel excess demand may impact future operating results difficult forecast potential impact distributor inventories future revenue income demand impacted many factors including seasonality new product introductions news events social political climate consumer tastes handgun product revenue decreased 2303 million 414 prior fiscal year lower demand majority products revenue long guns decreased 894 million 498 prior fiscal year result lower demand modern sporting rifles offset increased revenue certain thompsoncenter arms branded hunting rifles new products represented 292 firearm revenue fiscal 2018 included new concealed carry mp branded polymer pistol many product line extensions mp thompsoncenter arms branded products price increases favorably impacted firearm revenue 01 fiscal 2018 compared prior fiscal year reduction number units sold negatively impacted firearm revenue 406 total unit shipments handguns declined slower rate decline revenue handguns result promotional product shipments period lowered average selling price total unit shipments long guns declined substantially slower rate decline revenue result promotional product shipments fiscal 2018 product mix primarily driven lower demand higher priced modern sporting rifles offset increased shipments certain lower priced thompsoncenter arms branded hunting rifles outdoor products accessories segment net sales fiscal 2018 increased 213 prior fiscal year primarily net sales generated 2017 acquisitions 2018 acquisitions inorganic revenue totaled 279 million 177 net sales segment organic revenue relatively flat prior fiscal year net sales outdoor products accessories segment 260 total net sales compared 144 prior fiscal year firearms segment order backlog april 30 2018 961 million relatively flat end fiscal 2017 outdoor products accessories segment order backlog april 30 2018 143 million 18 million higher end fiscal 2017 allow orders received yet shipped cancelled therefore backlog may indicative future sales fiscal 2017 net sales compared fiscal 2016 net sales firearms segment fiscal 2017 increased 185 fiscal 2016 shipments stronger earlier fiscal 2017 consumer demand firearms stronger may including november month record number firearm purchases indicated adjusted nics checks believe strong consumer demand first seven months fiscal 2017 result ongoing increased consumer interest firearms occurred preceding several years increased concern regarding additional firearms laws regulations impact news events including terrorism high levels adjusted nics checks rapidly declined december remained lower prior year february firearm retailers indicated soft retail environment potentially result excess inventory reduced concern regarding additional firearm laws regulations total adjusted nics checks march april 2017 however returned positive trend handgun revenue increased 712 million 147 fiscal 2016 primarily increased consumer demand concealed carry fullsize polymer pistol products resulted increased unit shipments pistol products sporting goods distribution channel principal products demand handgun category included secondgeneration mp branded fullsize polymer pistol small concealed carry polymer pistols smith wesson branded sport series pistols revolvers long gun revenue increased 520 million 408 fiscal 2016 result increased demand sporting goods distribution channel supported market share gains driven shift consumer demand toward modern sporting rifles principal product demand long gun category mp branded sport model modern sporting rifle products services revenue relatively flat compared fiscal 2016 new firearm products represented 272 firearm revenue fiscal 2017 included secondgeneration mp branded polymer pistol many product line extensions mp branded products total price increases favorably impacted firearm revenue 06 fiscal 2017 compared fiscal 2016 increases number units sold impacted firearm revenue 194 outdoor products accessories segment net sales increased 838 compared fiscal 2016 primarily 2017 acquisitions fiscal 2017 acquisitions generated revenue 611 million subsequent respective acquisition dates represented 68 total net sales fiscal 2017 470 outdoor products accessories net sales excluding acquisitions organic revenue outdoor products accessories segment declined 25 primarily driven reduced shipments two key internet retailers believe negatively impacted inventory reduction initiatives order timing however outthedoor consumer sales retailers outdoor products accessories increased fiscal 2016 handgun shipments sporting goods distribution channel increased 201 primarily result increased demand conceal carry secondgeneration fullsize polymer pistols revenue handguns increased 147 fiscal 2016 long gun unit shipments sporting goods distribution channel increased 348 fiscal 2016 primarily increased orders lower price point mp sport rifles revenue long guns increased 408 fiscal 2016 higher unit rate handguns long guns occurred result increased shipments promotional products professional channel unit shipments higher fiscal 2016 primarily increased mp modern sporting rifle sales law enforcement agencies distributors well higher international shipments canada france cost sales gross profit following table sets forth certain information regarding cost sales gross profit fiscal years ended april 30 2018 2017 2016 dollars thousands fiscal 2018 cost sales gross profit compared fiscal 2017 gross margin fiscal 2018 firearms segment decreased 133 prior fiscal year primarily combination reduced sales volumes across nearly product categories additional promotional product discounts unfavorable manufacturing fixedcost absorption inventory valuation adjustments unfavorable manufacturing fixedcost absorption lower sales volumes inventory valuation adjustments additional promotional product discounts negatively impacted gross margin 185 partially offset favorable manufacturing spending favorably impacted gross margin 59 gross margin fiscal 2018 outdoor products accessories segment decreased 07 prior fiscal year fiscal 2017 included 47 million increased cost goods sold fair value stepup inventory backlog expense result 2017 acquisitions yielded 36 unfavorable impact gross margin segment excluding expense prior fiscal year gross margin decreased 43 fiscal 2018 inorganic gross margin negatively impacted outdoor products accessories segment gross margin 10 primarily gross margin survival products generally lower products segment partially offset higher gross margin electrooptic products organic gross margins decreased 33 prior fiscal year resulting costs related recall certain electrooptics products yielded 10 unfavorable impact gross margin combined change product mix promotional activity outdoor products accessories segment favorably impacted total company gross margin 49 fiscal 2018 fiscal 2017 cost sales gross profit compared fiscal 2016 gross margin fiscal 2017 increased 09 fiscal 2016 firearms segment gross margin increased 08 primarily increased production volumes improved manufacturing fixedcost absorption aggregate 35 favorable impact total company gross margin addition price increases reduced warranty expense changes provisions fiscal 2016 product recall reserves favorable purchase price variances inventory adjustments aggregate 13 favorable impact total gross margin increases partially offset higher manufacturing spending relative revenue additional expense recorded result promotional product discounts contributed improved sales volumes favorable absorption collectively yielded 43 unfavorable impact total gross margin outdoor products accessories segment gross margin fiscal 2017 included 47 million additional cost goods sold acquisitionrelated amortization result 2017 acquisitions 36 negative impact gross margin segment excluding acquisitionrelated costs 26 increase due aggregate gross margins newly acquired businesses historically higher organic gross margins outdoor products accessories business operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2018 2017 2016 dollars thousands fiscal 2018 operating expenses compared fiscal 2017 operating expenses decreased 66 million prior fiscal year research development expenses increased primarily 11 million additional operating expenses relating acquired companies selling marketing expenses increased 47 million additional operating expenses relating acquired companies 44 million increased advertising expenses related coop advertising rebate expenses 21 million increased sales representative commission expenses partially offset 21 million decreased management incentives travel entertainment expenses general administrative expenses decreased primarily 185 million decrease profitrelated compensation costs 31 million decrease acquisitionrelated costs well due cost reduction initiatives partially offset 106 million additional operating expenses relating acquired companies 13 million increased professional fees travel entertainment expenses fiscal 2017 operating expenses compared fiscal 2016 operating expenses increased 402 million fiscal 2016 313 million additional operating expenses related 2017 acquisitions included 86 million expenses support selling marketing initiatives 218 million general administrative expenses included acquired general administrative costs 83 million additional acquired intangible asset amortization expense 38 million acquisitionrelated costs organic general administrative expenses increased result 18 million increased stock compensation expense 16 million increased profit sharing expense addition fiscal 2016 expenses reduced 18 million insurance recovery fiscal 2016 partial reimbursement defense costs incurred prior fiscal years related previously resolved matter operating income following table sets forth certain information regarding operating income fiscal years ended april 30 2018 2017 2016 dollars thousands fiscal 2018 operating income compared fiscal 2017 fiscal 2018 operating income 270 million decrease 1729 million prior year primarily reduced sales volumes firearm products related operating profit impacts unfavorable manufacturing fixedcost absorption additional operating expenses related 2017 acquisitions 2018 acquisitions increased advertising rebate sales representative commission expenses partially offset reduced general administrative expenses related profitrelated compensation expense lower acquisitionrelated costs fiscal 2017 operating income compared fiscal 2016 fiscal 2017 operating income increased 413 million fiscal 2016 primarily higher sales production volumes firearm products related operating profit impacts favorable manufacturing fixedcost absorption partially offset increased promotional product expense higher manufacturing spending relative revenue increased stock compensation expense increased professional acquisitionrelated expenses increased acquired intangible asset amortization increased profit sharing expense incomeexpense following table sets forth certain information regarding operating incomeexpense fiscal years ended april 30 2018 2017 2016 dollars thousands incomeexpense increased 18 million prior fiscal year result recording 16 million reduction contingent consideration liability connection acquisition ust expect acquired business achieve performance metrics interest expenseincome following table sets forth certain information regarding interest expense fiscal years ended april 30 2018 2017 2016 dollars thousands interest expense increased 26 million prior fiscal year higher interest payments service borrowings outstanding revolving line credit recorded 226000 unamortized debt issuance costs connection redemption 2018 senior notes interest expense declined 49 million fiscal 2016 result refinancing thenoutstanding 1000 million 5875 senior notes due 2017 5875 senior notes june 18 2015 1050 million floating interest rate term loan fixed 331 entering interest rate swap agreement connection redemption 5875 senior notes fiscal 2016 recorded 29 million bond call premium wrote 17 million unamortized debt issuance costs fiscal 2016 income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2018 2017 2016 dollars thousands recorded income tax benefit 25 million fiscal 2018 compared tax expense 635 million prior fiscal year primarily impact tax reform lower operating profit effective tax rates 143 332 fiscal 2018 2017 respectively estimate impact tax reform based currently available information interpretations law benefit 87 million majority tax benefit due remeasurement deferred tax assets liabilities lower enacted corporate federal tax rates cash impact fiscal 2018 actual impact tax reform may differ estimate possibly materially among things changes interpretations assumptions made guidance may issued actions may take result tax reform excluding impact tax reform discrete items effective tax rate fiscal year ended april 30 2018 354 fiscal 2017 income tax expense increased 123 million fiscal 2016 higher operating profit decrease effective tax rate fiscal 2016 result adoption new asu 201609 compensation stock compensation reduced effective tax rate 17 net income following table sets forth certain information regarding net income related per share data fiscal years ended april 30 2018 2017 2016 dollars thousands except per share data fiscal 2018 net income compared fiscal 2017 net income 201 million fiscal 2018 1077 million lower net income 1279 million prior fiscal year primarily lower firearm revenue negative impacts gross margin discussed increased operating expenses resulting 2017 acquisitions 2018 acquisitions acquisitionrelated expenses result 2018 acquisitions negatively impacted net income per diluted share 001 per share offset favorable impact lower effective tax rate result tax reform lower profitrelated compensation expense acquisitionrelated expenses fiscal 2017 net income compared fiscal 2016 net income 1279 million fiscal 2017 339 million higher 940 million fiscal 2016 primarily higher revenue gross margin firearms segment lower interest expense acquisitionrelated expenses result 2017 acquisitions negatively impacted net income per diluted share 020 per share liquidity capital resources principal cash requirements 1 finance growth operations including working capital expenditures 2 service existing debt 3 fund potential acquisitions capital expenditures material handling equipment capital projects support national logistics facility various information technology projects tooling new product offerings represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2018 2017 2016 dollars thousands operating activities operating activities represent principal source cash flow cash provided operating activities 616 million fiscal 2018 620 million lower prior fiscal year cash generated operating activities fiscal 2018 favorably impacted net income 722 million depreciation amortization well 514 million decrease accounts receivable due lower sales volume reduction promotional term offerings cash generated operating activities partially offset 170 million increase inventory lower firearm sales volumes demand 225 million lower profitrelated compensation accruals 210 million reduced accounts payable result reduced manufacturing purchases 86 million reduction accrued expenses decreased promotional product discounts rebate accruals anticipate inventory levels increase first quarter fiscal 2019 due seasonal trends planned inventory build reduce risk shipping complications time national logistics facility becomes operational cash generated operating activities fiscal 2017 1236 million 450 million lower fiscal 2016 cash generated operating activities fiscal 2017 favorably impacted net income 1781 million depreciation amortization 212 million increased accrued expenses primarily increased promotional product accruals partially offset 222 million increased inventory primarily firearms temporary inventory build result decline demand second half year 407 million increased accounts receivable timing shipments late year combined addition new distributor promotional shipments longer credit terms 137 million reduced accrued income taxes timing estimated federal income tax payments investing activities cash used investing activities fiscal 2018 422 million 2016 million lower prior fiscal year primarily due 1880 million higher spending prior fiscal year acquisition businesses recorded capital expenditures 185 million fiscal 2018 decrease 166 million prior fiscal year building national logistics facility treated capital lease recorded construction progress offset capital lease payable throughout building construction impact cash flow april 30 2018 recorded 220 million construction progress included property plant equipment consolidated balance sheet costs incurred builder relating purchase land costs related design construction building offset 220 million capital lease payable included noncurrent liabilities consolidated balance sheet total cost building estimated 450 million 500 million expect approximately 300 million 350 million recorded right use asset consolidated balance sheet construction complete addition expect spend 250 million 300 million related material handling equipment information technology systems capital projects support national logistics facility cash used investing activities fiscal 2017 2437 million 2118 million higher fiscal 2016 primarily 2111 million payments 2017 acquisitions also recorded capital expenditures 349 million fiscal 2017 increase 54 million fiscal 2016 noted major capital expenditures fiscal 2017 primarily related enhancements manufacturing flexibility tooling new product offerings various information technology projects including completed implementation sap enterprise resource planning system columbia missouri location financing activities cash used financing activities 322 million fiscal 2018 increase 226 million compared cash used financing activities 96 million fiscal 2017 cash used financing activities fiscal 2018 primarily result net reduction revolving line 250 million payments employee withholding tax related vested restricted stock units principal payments term loan cash used financing activities 96 million fiscal 2017 221 million lower cash provided financing activities 125 million fiscal 2016 cash used financing activities fiscal 2017 primarily result principal payments term loan completion 500 million authorized stock repurchase program payments employee withholding tax related vesting restricted stock units offset 500 million borrowings revolving line past four fiscal years board directors authorized subject certain conditions repurchase 1000 million common stock multiple stock repurchase programs open market privately negotiated transactions 500 million remained authorized repurchase april 30 2018 fiscal 2017 repurchased 26 million shares common stock open market 500 million utilizing combination cash hand borrowings revolving line repurchase shares common stock fiscal 2018 june 15 2015 entered credit agreement provides us 1750 million revolving line 1050 million term loan term loan matures june 15 2020 revolving line matures october 27 2021 250 million borrowings revolving line 877 million outstanding term loan april 30 2018 june 2015 used proceeds term loan redeem entire 1000 million outstanding principal balance outstanding 5875 senior notes plus accrued unpaid interest redemption date see note 5 notes loans payable financing arrangements notes consolidated financial statements additional information regarding credit facility additional proceeds credit facility expected used general corporate purposes june 18 2015 entered interest rate swap agreement expires june 15 2020 covering 1050 million floating rate debt term loan july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 notional amount interest rate swap 1050 million aggregate fair value 21 million april 30 2018 swap combined applicable margin based consolidated leverage ratio april 30 2018 effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2018 interest rate term loan 414 expect interest rate swap material effect earnings within next 12 months october 27 2016 entered second amendment existing credit agreement lenders expand unsecured revolving line 3500 million option increase credit commitment additional 1500 million extended maturity revolving line october 27 2021 changes described amendment remain subject terms credit agreement amended incurred 525000 debt issuance costs related amendment fiscal 2015 issued aggregate 750 million 2018 senior notes various institutional investors pursuant terms conditions indenture purchase agreements 2018 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 2018 senior notes discussed 2018 senior notes redeemed march 8 2018 proceeds issuance 5000 senior notes due 2020 part redemption fiscal 2018 wrote 226000 debt issuance costs related 2018 senior notes february 28 2018 issued aggregate 750 million 2020 senior notes various institutional investors pursuant terms conditions indenture 2020 senior notes indenture purchase agreements 2020 senior notes bear interest rate 5000 per annum payable february 28 august 28 year beginning august 28 2018 used proceeds 2020 senior notes offering redeem outstanding 2018 senior notes incurred 158000 debt issuance costs related issuance 2020 senior notes time prior february 28 2019 may option upon less 30 60 days’ prior notice redeem portion 2020 senior notes redemption price 102500 principal amount 2020 senior notes redeemed plus accrued unpaid interest applicable redemption date february 28 2019 may option upon less 30 60 days’ prior notice redeem portion 2020 senior notes redemption price 100000 principal amount 2020 senior notes redeemed plus accrued unpaid interest applicable redemption date subject certain restrictions conditions may required make offer repurchase 2020 senior notes holders 2020 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 2020 senior notes mature august 28 2020 senior notes general unsecured obligations company 2020 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 2020 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 2020 senior notes indenture 2020 senior notes lifetime aggregate limit addition 2020 senior notes indenture provides exceptions restricted payments covenant independent 2020 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 2020 senior notes aggregate amount exceed 750 million limitation indebtedness 2020 senior notes indenture applicable time consolidated coverage ratio set forth 2020 senior notes indenture us restricted subsidiaries less 300 100 general set forth 2020 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense credit agreement credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage 2020 senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2018 april 30 2018 489 million cash equivalents hand based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity construction logistics facility acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained inflation believe inflation material impact us fiscal 2018 2017 2016 critical accounting policies revenue recognition firearm outdoor products accessories products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets property plant equipment patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified material impairment charges recorded fiscal 2018 2017 2016 based review longlived tangible intangible assets accordance accounting standards codification asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value operating unit carrying amounts including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate operations two reporting segments firearms outdoor products accessories firearms reporting segment also one operating segment outdoor products accessories reporting segment two operating segments accessories electrooptics aggregated one reporting segment april 30 2018 recorded 1913 million goodwill estimate fair value firearms accessories electrooptics operating units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing operating units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics reporting unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values operating units fair values reporting units reflect decrease federal statutory income tax rate result tax reform recently enacted united states valuation date firearms operating unit 185 million goodwill fair value significantly exceeded carrying value outdoor products accessories operating segment 1198 million goodwill fair value exceeded carrying value 20 electrooptics operating unit 530 million goodwill fair value exceeded carrying value 16 although concluded impairment goodwill associated operating units april 30 2018 continue closely monitor performance related market conditions future indicators potential impairment reassess accordingly assumptions determine fair value could deviate materially actual results forecasts used support fair value asset carrying values may change future could result noncash charges could adversely affect financial results operations specifically relates outdoor products accessories electrooptics operating units inventories value inventories lower cost using firstin firstout fifo method net realizable value allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory past history expected future usage warranty generally provide limited one year warranty lifetime service policy original purchaser new firearm products either provide limited one year limited lifetime warranty program original purchaser accessories products repair replace electrooptics products parts found defective normal use service item equivalent value option without charge warranty period provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize could adversely impacted recent accounting pronouncements nature impact recent accounting pronouncements discussed note 3 significant accounting policies consolidated financial statements incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2018 thousands included table 220 million capital lease payable related purchase land costs related design construction national logistics facility incurred builder 250 million borrowings revolving line april 30 2018 matures october 27 2021 addition approximately 73 million contractually obligated interest payments pertaining 877 million remaining balance term loan represents interest payments july 15 2020 also included approximately 88 million contractually obligated interest payments pertaining 750 million 2020 senior notes represents interest payments august 28 2020 offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis financial condition results operations conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report fiscal 2017 three separate transactions acquired 1 substantially net assets taylor brands llc 2 substantially assets ultimate survival technologies inc referred ultimate survival technologies llc ust 3 issued outstanding stock crimson trace corporation aggregate purchase price 2111 million net cash acquired subject certain adjustments utilizing cash hand taylor brands llc integrated battenfeld technologies business operates columbia missouri leading provider highquality knives specialty tools accessories crimson trace corporation based wilsonville oregon leading provider laser sight tactical light products consumers law enforcement security agencies military agencies worldwide ust based jacksonville florida provider highquality survival camping equipment including led lights allweather fire starters unbreakable signal mirrors premium outdoor cutting tools first aid kits survival kits camp kitchen products results operations fiscal year ended april 30 2017 include activity period subsequent respective acquisition dates taylor brands llc crimson trace corporation ust collectively refer acquisitions taylor brands llc crimson trace corporation ust 2017 acquisitions fiscal 2018 two separate transactions acquired substantially net assets gemini technologies incorporated gemtech bubba blade branded products assets fish tales llc aggregate purchase price two acquisitions 231 million subject certain adjustments utilizing combination cash hand borrowings revolving line credit gemtech integrated smith wesson business operates springfield massachusetts provider quality suppressors accessories consumer law enforcement military markets fish tales llc fully integrated battenfeld technologies business operates columbia missouri facility provider premium sportsman knives tools fishing hunting including premium knife brand bubba blade collectively refer acquisitions gemtech bubba blade branded products 2018 acquisitions january 2019 acquired substantially laserlyte branded products assets laserlyte pl industries inc purchase price 20 million subject certain adjustments utilizing cash hand pl industries provider laser training sighting products consumer market laserlyte business fully integrated crimson trace business operates wilsonville oregon facility acquisition material impact condensed consolidated financial statements period presented report results operations two segments 1 firearms 2 outdoor products accessories 2019 highlights operating results fiscal 2019 included following • total net sales 6383 million increase 314 million 52 prior fiscal year • firearms segment gross sales 4813 million included 29 million intersegment revenue increase 285 million 63 prior fiscal year • outdoor products accessories segment gross sales 1773 million included 175 million intersegment revenue increase 56 million 33 prior fiscal • gross margin 354 increased 310 basis points prior fiscal year • combination factors occurring firearms industry last years including changes political environment reduced overall demand firearms accessories attached firearms laser sights resulted us lowering longrange sales volume operating profit cash flow forecasts former electrooptics operating unit based forecasts felt important seek efficiencies operating unit increase operating performance result decided combine operating unit outdoor products accessories operating unit lowered forecasts decision reorganize operating units caused us evaluate fair value operating units based results evaluation recorded 104 million noncash impairment goodwill outdoor products accessories segment • net income fiscal 2019 negatively impacted 104 million impairment goodwill fiscal 2018 net income positively impacted onetime tax reform benefit 87 million net income fiscal 2019 184 million decrease 17 million 85 prior fiscal year net income per diluted share fiscal 2019 033 decrease 004 108 prior fiscal year key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also track return invested capital use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding certain nonoperational items nongaap financial metric supplemental measure performance order provide investors improved understanding underlying performance trends evaluate firearm products measurements gross margin per unit produced units produced per day revenue trade channel incoming orders per day evaluate outdoor products accessories products measurements incoming orders per day sales gross margin customer brand external factors impact firearm industry firearm industry subject many external factors past significantly increased volatility revenue generated companies within industry factors include among others fears surrounding crime terrorism tragic news events potential restrictions sale makeup firearms actual potential legislative judicial regulatory actions economic changes social political environment including presidential elections see item ia risk factors discussion external factors impact firearm industry although external factors created demand surges volatility firearms market often make difficult predict demand believe external factors also likely contributed longterm increase consumer interest firearms increased consumer interest helped firearm industry generate tenyear compound annual growth rate units approximately 76 according us bureau alcohol tobacco firearms explosives atf believe expanding base consumers combined strong brand recognition attractive price points important factors goal continue increasing market share based data calendar 2017 estimate 145 share us consumer market handguns results operations net sales following table sets forth certain information regarding net sales fiscal years ended april 30 2019 2018 2017 dollars thousands following table sets forth certain information regarding trade channel net sales fiscal years ended april 30 2019 2018 2017 dollars thousands include domestic handgun long gun parts revenue well revenue outdoor products accessories sporting goods distribution channel include international law enforcement handgun long gun handcuff revenue professional channel include manufacturing services plastic injection molding revenue products services following table sets forth certain information regarding firearm units shipped trade channel fiscal years ended april 30 2019 2018 2017 units thousands fiscal 2019 net sales compared fiscal 2018 firearms revenue handguns increased 106 million 33 fiscal 2018 primarily result lower consumer rebates polymer pistols recognition deferred revenue shipments promotional products higher demand concealed carry mp branded polymer pistols revolvers partially offset lower shipments performance center branded polymer pistols actual unit shipments sporting goods channel handgun products increased 13 fiscal 2018 primarily result increased demand certain handgun products successful seasonal promotional programs including promotion bundled one handgun products shooting accessories product although overall consumer demand handguns decreased 89 fiscal 2018 indicated adjusted background checks reported national instant criminal background check system nics believe consistent demand broad array quality products offer combined normalized level distributor inventory rather sharp decline inventory prior year positive impact fiscal 2019 results revenue long guns increased 175 million 194 fiscal 2018 partially replenishment inventory specifically sport model modern sporting rifle sporting goods channel several successful promotional programs including promotion bundled firearm shooting accessory products result believe increased market share long guns products services revenue increased 14 million 43 prior year primarily higher sales parts handcuffs new products defined new sku shipped prior year represented 201 firearm revenue fiscal 2019 included new concealed carry performance center mp branded polymer pistol many new product line extensions mp thompsoncenter arms branded products increase number units sold favorably impacted firearm revenue 10 firearm inventory levels decreased fiscal 2019 result increased shipments fulfill seasonal promotional programs increased demand modern sporting rifles offset increased inventory reduce risk potential shipping disruptions national logistics facility boone county missouri becomes fully operational firearms fiscal 2020 inventory levels internally distribution channel excess demand may negatively impact future operating results difficult forecast potential impact distributor inventories future revenue income since demand impacted many factors including seasonality new product introductions news events political events consumer tastes firearms segment order backlog april 30 2019 2018 392 million 961 million respectively decrease order backlog prior fiscal year primarily normalization channel inventories timing order fulfillment allow orders received yet shipped cancelled therefore backlog may indicative future sales outdoor products accessories net sales outdoor products accessories segment fiscal 2019 increased 19 million 12 fiscal 2018 net sales increased primarily market acceptance newly introduced accessories products past several years increased revenue strategic retailers including internet retailers partially offset lower electrooptics products revenue result general decline firearm market conditions mentioned new products outdoor products accessories segment represented 62 segment’s revenue fiscal 2019 included 300 new products net sales outdoor products accessories segment 250 total company net sales compared 260 fiscal 2018 outdoor products accessories inventory levels increased fiscal 2019 primarily increased inventory purchases mitigate tariff costs expect inventory levels continue increase anticipation additional tariff costs early fiscal 2020 planned inventory build reduce risk potential shipping disruptions transition outdoor products accessories business national logistics facility boone county missouri fiscal 2020 outdoor products accessories segment order backlog april 30 2019 127 million 16 million lower end fiscal 2018 allow orders received yet shipped cancelled therefore backlog may indicative future sales fiscal 2018 net sales compared fiscal 2017 firearms net sales firearms segment fiscal 2018 decreased 419 fiscal 2017 lower shipments across nearly product categories customer orders softened light excessive channel inventories beginning fiscal year combined lower consumer demand potentially result reduced political pressure firearm laws regulations indicated 89 reduction total adjusted background checks reported national instant criminal background check system nics also believe demand first half fiscal 2017 heighted primarily news events including terrorism well political environment may caused concerns related potential firearm ownership restrictions leading presidential election addition success promotions certain products fourth fiscal quarter ended april 30 2017 exceeded expectations may pulled forward shipments prior fiscal year contributing reduced firearm orders first half fiscal 2018 handgun product revenue decreased 2303 million 414 fiscal 2017 lower demand majority products revenue long guns decreased 894 million 498 fiscal 2017 result lower demand modern sporting rifles offset increased revenue certain thompsoncenter arms branded hunting rifles new products represented 292 firearm revenue fiscal 2018 included new concealed carry mp branded polymer pistol many product line extensions mp thompsoncenter arms branded products price increases favorably impacted firearm revenue 01 fiscal 2018 compared fiscal 2017 reduction number units sold negatively impacted firearm revenue 406 total unit shipments handguns declined slower rate decline revenue handguns result promotional product shipments period lowered average selling price total unit shipments long guns declined substantially slower rate decline revenue result promotional product shipments fiscal 2018 product mix primarily driven lower demand higher priced modern sporting rifles offset increased shipments certain lower priced thompsoncenter arms branded hunting rifles firearms segment order backlog april 30 2018 961 million relatively flat end fiscal 2017 allow orders received yet shipped cancelled therefore backlog may indicative future sales outdoor products accessories outdoor products accessories segment net sales fiscal 2018 increased 213 fiscal 2017 primarily net sales generated 2017 acquisitions 2018 acquisitions revenue acquisitions totaled 279 million 177 net sales segment organic revenue relatively flat fiscal 2017 net sales outdoor products accessories segment 260 total net sales compared 144 fiscal 2017 outdoor products accessories segment order backlog april 30 2018 143 million 18 million higher end fiscal 2017 allow orders received yet shipped cancelled therefore backlog may indicative future sales cost sales gross profit following table sets forth certain information regarding cost sales gross profit fiscal years ended april 30 2019 2018 2017 dollars thousands fiscal 2019 cost sales gross profit compared fiscal 2018 gross margin fiscal 2019 firearms segment increased 45 prior fiscal year primarily combination lower promotional product discounts consumer rebates lower manufacturing spending favorably impacted gross margin 69 favorable impacts gross margin partially offset inventory valuation reserves related manufacturing capitalization variance lower cost market adjustments unfavorable manufacturing fixedcost absorption unfavorable product mix negatively impacted gross margin 25 gross margin fiscal 2019 outdoor products accessories segment remained flat compared prior fiscal year favorable impacts gross margin included changes customer mix yielded higher gross margins lower promotional activity offset unfavorable product mix outdoor products accessories segment favorably impacted total company gross margin 35 fiscal 2019 fiscal 2018 cost sales gross profit compared fiscal 2017 gross margin fiscal 2018 firearms segment decreased 133 fiscal 2017 primarily combination reduced sales volumes across nearly product categories additional promotional product discounts unfavorable manufacturing fixedcost absorption inventory valuation adjustments unfavorable manufacturing fixedcost absorption lower sales volumes inventory valuation adjustments additional promotional product discounts negatively impacted gross margin 185 partially offset favorable manufacturing spending favorably impacted gross margin 59 gross margin fiscal 2018 outdoor products accessories segment decreased 07 fiscal 2017 fiscal 2017 included 47 million increased cost goods sold fair value stepup inventory backlog expense result 2017 acquisitions yielded 36 unfavorable impact gross margin segment excluding expense fiscal 2017 gross margin decreased 43 fiscal 2018 inorganic gross margin negatively impacted outdoor products accessories segment gross margin 10 primarily gross margin survival products generally lower products segment partially offset higher gross margin electrooptic products organic gross margins decreased 33 fiscal 2017 resulting costs related recall certain electrooptics products yielded 10 unfavorable impact gross margin combined change product mix promotional activity outdoor products accessories segment favorably impacted total company gross margin 49 fiscal 2018 operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2019 2018 2017 dollars thousands fiscal 2019 operating expenses compared fiscal 2018 excluding impact goodwill impairment described operating expenses increased 91 million fiscal 2018 research development expenses increased 15 million result increased compensationrelated expenses professional fees selling marketing expenses increased primarily result 19 million increased compensationrelated expenses increased travel entertainment expenses partially offset decreased advertising expenses commission costs professional fees general administrative expenses increased 61 million 89 million increased compensationrelated expenses well increased depreciation expenses related national logistics facility increases partially offset 23 million decreased professional fees lower donations national rifle association 950000 decreased travel entertainment related expenses decreased acquisitionrelated costs fiscal 2018 operating expenses compared fiscal 2017 operating expenses decreased 66 million fiscal 2017 research development expenses increased primarily 11 million additional operating expenses relating acquired companies selling marketing expenses increased 47 million additional operating expenses relating acquired companies 44 million increased advertising expenses related coop advertising rebate expenses 21 million increased sales representative commission expenses partially offset 21 million decreased management incentives travel entertainment expenses general administrative expenses decreased primarily 185 million decrease profitrelated compensation costs 31 million decrease acquisitionrelated costs well due cost reduction initiatives partially offset 106 million additional operating expenses relating acquired companies 13 million increased professional fees travel entertainment expenses operating income following table sets forth certain information regarding operating income fiscal years ended april 30 2019 2018 2017 dollars thousands fiscal 2019 operating income compared fiscal 2018 excluding impact goodwill impairment described operating income fiscal 2019 485 million increase 214 million 791 fiscal 2018 primarily combination lower promotional product discounts lower consumer rebates lower manufacturing spending decreased professional fees lower donations national rifle association decreased travel entertainment related expenses decreased acquisitionrelated costs increases operating income partially offset unfavorable inventory valuation adjustments manufacturing fixedcost absorption increased compensationrelated expenses increased depreciation expenses related national logistics facility fiscal 2018 operating income compared fiscal 2017 fiscal 2018 operating income 270 million decrease 1729 million fiscal 2017 primarily reduced sales volumes firearm products related operating profit impacts unfavorable manufacturing fixedcost absorption additional operating expenses related 2017 acquisitions 2018 acquisitions increased advertising rebate sales representative commission expenses partially offset reduced general administrative expenses related profitrelated compensation expense lower acquisitionrelated costs incomeexpense following table sets forth certain information regarding operating incomeexpense fiscal years ended april 30 2019 2018 2017 dollars thousands fiscal 2018 recorded adjustment 16 million contingent consideration liability connection acquisition ultimate survival technologies inc interest expenseincome following table sets forth certain information regarding interest expense fiscal years ended april 30 2019 2018 2017 dollars thousands interest expense decreased 18 million prior fiscal year lower overall outstanding debt fiscal 2019 income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2019 2018 2017 dollars thousands recorded income tax expense 103 million fiscal 2019 versus income tax benefit 25 million fiscal 2018 primarily impact tax reform prior year effective tax rates 359 143 fiscal 2019 2018 respectively effective tax rate fiscal 2019 excludes noncash goodwill impairment charge discrete item recorded income tax benefit 25 million fiscal 2018 compared tax expense 635 million fiscal 2017 primarily impact tax reform lower operating profit effective tax rates 143 332 fiscal 2018 2017 respectively estimated impact tax reform based currently available information interpretations law benefit 87 million majority tax benefit due remeasurement deferred tax assets liabilities lower enacted corporate federal tax rates cash impact fiscal 2018 excluding impact tax reform discrete items effective tax rate fiscal year ended april 30 2018 354 net income following table sets forth certain information regarding net income related per share data fiscal years ended april 30 2019 2018 2017 dollars thousands except per share data fiscal 2019 net income compared fiscal 2018 excluding impact tax reform prior fiscal year goodwill impairment current fiscal year net income 288 million fiscal 2019 compared 114 million fiscal 2018 increase 174 million 1526 increase net income primarily due increased revenue combination lower promotional product discounts consumer rebates lower manufacturing spending decreased professional fees lower donations national rifle association favorable impacts net income partially offset unfavorable inventory valuation adjustments manufacturing fixedcost absorption increased compensationrelated expenses increased depreciation expenses related national logistics facility fiscal 2018 net income compared fiscal 2017 net income 201 million fiscal 2018 1077 million lower net income 1279 million fiscal 2017 primarily lower firearm revenue negative impacts gross margin discussed increased operating expenses resulting 2017 acquisitions 2018 acquisitions acquisitionrelated expenses result 2018 acquisitions negatively impacted net income per diluted share 001 per share offset favorable impact lower effective tax rate result tax reform lower profitrelated compensation expense lower acquisitionrelated expenses liquidity capital resources principal cash requirements 1 finance growth operations including working capital expenditures 2 service existing debt 3 fund potential acquisitions capital expenditures tooling new product offerings various information technology projects manufacturing machinery replacements upgrades represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2019 2018 2017 dollars thousands operating activities operating activities represent principal source cash flow cash provided operating activities 575 million fiscal 2019 42 million lower prior fiscal year cash generated operating activities fiscal 2019 favorably impacted net income 723 million depreciation amortization 110 million increased payroll incentives due increased management incentive accruals 104 million noncash goodwill impairment charge outdoor products accessories segment cash provided operating activities negatively impacted 290 million increased accounts receivable due timing customer shipments 105 million increased inventory primarily due increased inventory purchases mitigate tariff costs related outdoor products accessories products 72 million reduction accrued expenses decreased promotional product discounts consumer rebate accruals anticipate inventory levels increase first quarter fiscal 2020 due seasonal trends purchases mitigate additional tariff costs expected early fiscal 2020 planned inventory build reduce risk shipping complications transition outdoor products accessories products national logistics facility fiscal 2020 cash provided operating activities 616 million fiscal 2018 620 million lower fiscal 2017 cash generated operating activities fiscal 2018 favorably impacted net income 722 million depreciation amortization well 514 million decrease accounts receivable due lower sales volume reduction promotional term offerings cash generated operating activities partially offset 170 million increase inventory lower firearm sales volumes demand 225 million lower profitrelated compensation accruals 210 million reduced accounts payable result reduced manufacturing purchases 86 million reduction accrued expenses decreased promotional product discounts rebate accruals investing activities cash used investing activities fiscal 2019 348 million 73 million lower prior fiscal year primarily due 213 million spending business acquisitions prior fiscal year partially offset higher spending capital expenditures fiscal 2019 compared prior fiscal year recorded capital expenditures 339 million 155 million prior fiscal year primarily spending related national logistics facility completed fiscal 2019 excluding spending related national logistics facility recorded capital expenditures 165 million decrease 20 million prior fiscal year fiscal 2019 acquired substantially laserlyte branded products assets pl industries inc purchase price 20 million subject certain adjustments utilizing cash hand cash used investing activities fiscal 2018 422 million 2016 million lower fiscal 2017 primarily due 1880 million higher spending prior fiscal year acquisition businesses recorded capital expenditures 185 million fiscal 2018 decrease 166 million fiscal 2017 began building national logistics facility fiscal 2018 treated capital lease recorded construction progress offset capital lease payable throughout building construction april 30 2018 recorded 220 million construction progress included property plant equipment consolidated balance sheet costs incurred builder relating purchase land costs related design construction building offset 220 million capital lease payable included noncurrent liabilities consolidated balance sheet fiscal 2018 financing activities cash used financing activities 305 million fiscal 2019 relatively flat prior fiscal year cash used financing activities fiscal 2019 2018 primarily result reducing outstanding borrowings revolving line 250 million principal payments term loan cash used financing activities 322 million fiscal 2018 increase 226 million compared cash used financing activities 96 million fiscal 2017 capital lease fiscal 2017 announced plan establish national logistics facility boone county missouri ultimately plan rely logistics facility substantially product distribution fiscal 2018 broke ground new 633000 square foot facility completed november 2018 become fully operational fiscal 2020 part completion building entered lease agreement developer building 462 million lease effective interest rate approximately 50 payable 240 monthly installments fiscal 2039 leases accounted provisions asc 84010 leases requires leases evaluated classified operating capital leases financial reporting purposes based evaluation asc 84010 determined lease qualified capital lease net present value future lease payments exceeded 90 fair market value leased building pledged secure amounts outstanding included 681000 shortterm capital lease obligation accrued expenses 454 million longterm capital lease obligation condensed consolidated balance sheet credit facilities june 15 2015 entered credit agreement provides us 1750 million revolving line 1050 million term loan term loan matures june 15 2020 revolving line matures october 27 2021 borrowings revolving line 814 million outstanding term loan april 30 2019 see note 6 notes loans payable financing arrangements notes consolidated financial statements additional information regarding credit facility proceeds credit facility expected used general corporate purposes june 18 2015 entered interest rate swap agreement expires june 15 2020 covering 1050 million floating rate debt term loan july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 notional amount interest rate swap 1050 million aggregate fair value 710000 april 30 2019 swap combined applicable margin based consolidated leverage ratio april 30 2019 effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2019 interest rate term loan 448 expect interest rate swap material effect earnings within next 12 months october 27 2016 entered second amendment existing credit agreement lenders expand unsecured revolving line 3500 million option increase credit commitment additional 1500 million extended maturity revolving line october 27 2021 changes described amendment remain subject terms credit agreement amended incurred 525000 debt issuance costs related amendment 2018 senior notes fiscal 2015 issued aggregate 750 million 2018 senior notes various institutional investors pursuant terms conditions indenture purchase agreements 2018 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 2018 senior notes discussed 2018 senior notes redeemed march 8 2018 proceeds issuance 5000 senior notes due 2020 part redemption fiscal 2018 wrote 226000 debt issuance costs related 2018 senior notes 2020 senior notes february 28 2018 issued aggregate 750 million 2020 senior notes various institutional investors pursuant terms conditions indenture 2020 senior notes indenture purchase agreements 2020 senior notes bear interest rate 5000 per annum payable february 28 august 28 year beginning august 28 2018 used proceeds 2020 senior notes offering redeem outstanding 2018 senior notes incurred 158000 debt issuance costs related issuance 2020 senior notes february 28 2019 may option upon less 30 60 days’ prior notice redeem portion 2020 senior notes redemption price 100000 principal amount 2020 senior notes redeemed plus accrued unpaid interest applicable redemption date subject certain restrictions conditions may required make offer repurchase 2020 senior notes holders 2020 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 2020 senior notes mature august 28 2020 senior notes general unsecured obligations company 2020 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 2020 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 2020 senior notes indenture 2020 senior notes lifetime aggregate limit addition 2020 senior notes indenture provides exceptions restricted payments covenant independent 2020 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 2020 senior notes aggregate amount exceed 750 million limitation indebtedness 2020 senior notes indenture applicable time consolidated coverage ratio set forth 2020 senior notes indenture us restricted subsidiaries less 300 100 general set forth 2020 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense credit agreement credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage 2020 senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2019 share repurchase programs fiscal 2017 repurchased 26 million shares common stock open market 500 million utilizing combination cash hand borrowings revolving line fiscal 2019 remaining 500 million outstanding authorized share repurchase programs expired repurchase shares common stock fiscal 2019 2018 april 30 2019 410 million cash equivalents hand based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity costs enhance equipment software logistics facility acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained inflation believe inflation material impact us fiscal 2019 2018 2017 critical accounting policies revenue recognition recognize revenue accordance provisions accounting standards update asu revenue contracts customers topic 606 became effective us may 1 2018 generally performance obligations satisfied revenue recognized risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance instances sales include multiple performance obligations common instances relates sales promotion programs customers entitled receive free goods based upon purchase products fulfillment free goods responsibility instances allocate revenue promotional sales based estimated level participation sales promotional program timing shipment products included promotional program including free goods revenue recognized proportionally performance obligation satisfied based relative transaction price product net change contract liabilities given period reported increase decrease sales product sales generally sold free board fob shipping point provide payment terms commercial customers ranging 20 90 days product shipment discount available customers early payment contracts discounted terms transaction price determined upon establishment contract contains final terms sale including description quantity price product purchased estimate variable consideration relative amount cash discounts customers likely entitled instances provide longer payment terms particularly relates hunting dating programs represent payment terms due fall certain orders hunting products received spring summer consider extended terms significant financing component contract payment terms less one year cases consider costs related shipping handling cost fulfilling contract customer valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets goodwill property plant equipment developed technology customer relationships patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified accordance asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value operating units carrying amounts assess whether impairment present reviewed provisions asc 35020 respect criteria necessary evaluate number reporting units exist prior years concluded three operating units reviewing asc 35020 firearms outdoor products accessories electrooptics however combination factors occurring firearms industry last years including changes political environment reduced overall demand firearms accessories attached firearms laser sights resulted us lowering longrange sales volume operating profit cash flow forecasts electrooptics operating unit based forecasts felt important seek efficiencies operating unit increase operating performance result decided combine electrooptics operating unit outdoor products accessories operating unit lowered forecasts decision reorganize operating units caused us evaluate fair value operating units utilizing forecasts evaluation recorded 104 million impairment goodwill electrooptics operating unit three months ended january 31 2019 impairment recorded outdoor products accessories reporting segment based review asc 35020 subsequent reorganization electrooptics outdoor products accessories determined two operating units firearms outdoor products accessories estimate fair value firearms outdoor products accessories operating units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing operating units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internally developed forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics operating unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values operating units recognize impairment loss goodwill implied fair value goodwill less carrying value valuation date firearms operating unit 190 million goodwill fair value significantly exceeded carrying value outdoor products accessories operating unit 1554 million goodwill fair value significantly exceeded carrying value although concluded additional impairment goodwill associated operating units april 30 2019 continue closely monitor performance related market conditions future indicators potential impairment reassess accordingly assumptions related development fair value could deviate materially actual results forecasts used support asset carrying values may change future could result noncash charges would adversely affect financial results operations specifically relates outdoor products accessories operating units evaluated operating units concluded fair value exceeded carrying amount remeasurement goodwill classified level 3 fair value assessment described note 12 fair value measurement due significance unobservable inputs developed using companyspecific information inventories value inventories lower cost using firstin firstout fifo method net realizable value allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory past history expected future usage warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products either provide limited oneyear threeyear lifetime full lifetime warranty program original purchaser accessories products also repair replace certain products parts found defective normal use service item equivalent value option without charge warranty period provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize could adversely impacted recent accounting pronouncements nature impact recent accounting pronouncements discussed note 3 significant accounting policies consolidated financial statements incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2019 thousands borrowings revolving line april 30 2019 addition approximately 41 million contractually obligated interest payments pertaining 814 million remaining balance term loan represents interest payments july 15 2020 also included table approximately 50 million contractually obligated interest payments pertaining 750 million 2020 senior notes represents interest payments august 28 2020 fiscal 2019 entered 454 million capital lease obligation related purchase land costs related design construction national logistics facility 324 million contractually obligated interest payments pertaining outstanding capital lease obligation offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis financial condition results operations conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report results operations two segments 1 firearms 2 outdoor products accessories 2020 highlights operating results fiscal 2020 included following • consolidated net sales 6784 million increase 401 million 63 prior year • firearms segment gross sales 5296 million included 36 million intersegment revenue increase 483 million 100 prior fiscal year primarily increased consumer demand change timing federal excise tax obligation resulted increase revenue corresponding increase cost sales change direct result opening distribution center june 2019 resulted tax trade bureau denying petition requiring us assess federal excise tax first transfer firearm starting june 2019 began transferring completed firearms new distribution center became required assess federal excise tax point previously assessed federal excise tax point sale thirdparty customers allowing us reduce invoice value firearms federal excise tax assessed tax cost inventory distribution center results sales customers related cost sales increased tax amount change impact gross profit dollars reduces gross margin percentage impact fiscal year ended april 30 2020 firearms segment 375 million increase sales cost sales decrease gross margin 240 basis points • opa segment gross sales 1675 million included 151 million intersegment revenue decrease 98 million 55 prior fiscal year decrease sales primarily decline sales branded camping accessory products due one large retailer accelerating strategy towards private label brand lower oem sales laser products addition experienced reduced orders result recent bankruptcies financial instability certain customers several factors related covid19 pandemic resulted reduced foot traffic “stay home” orders reduced customer orders sporting goods store closures many states negative impacts partially offset sales growth ecommerce resulting shift online orders • consolidated gross margin 346 decrease 80 basis points prior fiscal year excluding impact change federal excise tax firearms segment gross margin would 366 increase 120 basis points prior fiscal year • march 23 2020 determined business outdoor products accessories segment expected negatively impacted several factors related covid19 pandemic including major online retail customer’s decision halt delay nonessential product orders covid19related supply chain issues well covid19related “stay home” orders sporting goods store closures reduced retail foot traffic many states based factors expect reduced cash flows outdoor products accessories segment believe constituted triggering event generally accepted accounting principles based results evaluation recorded noncash impairment charge 987 million goodwill outdoor products accessories segment • company net loss 612 million 111 per diluted share compared net income 184 million 033 per diluted share prior fiscal year net income negatively impacted fiscal 2020 2019 987 104 million impairment goodwill respectively noncash impairment charge described 179 019 negative impact fully diluted earnings per share fiscal 2020 2019 respectively excluding impact noncash goodwill impairment consolidated net income would 86 million 299 prior fiscal year • november 13 2019 announced proceeding plan spinoff outdoor products accessories business separation create independent publicly traded company conduct business believe separating outdoor products accessories business firearm business forming new company conduct outdoor products accessories business enable management team company focus specific strategies including among others 1 structuring business take advantage growth opportunities specific markets 2 tailoring business operation financial model specific longterm strategies 3 aligning external financial resources stock access markets credit insurance factors particular type business view separation best interests company stockholders would create two industryleading companies attributes best position company longterm success preparation separation may 29 2020 changed name smith wesson brands inc june 1 2020 changed name company operate outdoor products accessories business subsidiaries american outdoor brands inc aout connection proposed spinoff expect incur restructuring charges approximately 90 million 120 million relating legal regulatory financial services reorganization restructuring costs startup costs new company thus far incurred 55 million restructuring charges relating spinoff key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also track return invested capital use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding certain nonoperational items nongaap financial metric supplemental measure performance order provide investors improved understanding underlying performance trends evaluate firearm products measurements gross margin per unit produced units produced per day revenue trade channel incoming orders per day evaluate outdoor products accessories products based upon number financial operating measures including sales gross profit gross margin operating expenses operating margin external factors impact firearm industry firearm industry subject many external factors past significantly increased volatility revenue generated companies within industry factors include among others fears surrounding crime terrorism tragic news events potential restrictions sale makeup firearms actual potential legislative judicial regulatory actions economic changes social political environment including presidential elections see item ia risk factors discussion external factors impact firearm industry although external factors created demand surges volatility firearm market often make difficult predict demand believe external factors also likely contributed longterm increase consumer interest firearms increased consumer interest helped firearm industry generate tenyear compound annual growth rate units approximately 56 according us bureau alcohol tobacco firearms explosives atf believe expanding base consumers combined strong brand reputation attractive price points important factors goal continue increasing market share based data calendar 2018 estimate 122 share us consumer market handguns results operations consolidated net sales gross profit following table sets forth certain information regarding consolidated net sales fiscal years ended april 30 2020 2019 2018 dollars thousands fiscal 2020 consolidated net sales gross profit compared fiscal 2019 consolidated net sales increased 401 million 63 fiscal 2019 primarily result change timing federal excise tax obligation resulted 375 million increase revenue corresponding increase cost sales increased consumer demand new products increased demand performance center branded products partially offset lower shipments large frame mp branded polymer pistols medium frame revolvers firearms segment outdoor products accessories segment net sales decreased 74 million 47 result decreased shipments shooting hunting electrooptics camping products partially offset increases demand cutlery consolidated gross margin negatively impacted 200 basis points result change federal excise tax treatment described excluding treatment consolidated gross margin increased 120 basis points prior fiscal year primarily reduction material costs due sourcing initiatives favorable manufacturing fixed cost absorption shipping costs included cost sales prior fiscal year included operating expenses startup new distribution center favorable inventory valuation adjustments lower manufacturing spending firearms segment unfavorable impacts included lower margin contribution outdoor products accessories segment primarily due increased tariffs higher promotional product discounts firearms segment fiscal 2019 consolidated net sales gross profit compared fiscal 2018 consolidated net sales fiscal 2019 increased 314 million 52 fiscal 2018 primarily result lower consumer rebates polymer pistols recognition deferred revenue shipments promotional products higher demand concealed carry mp branded polymer pistols revolvers partially offset lower shipments performance center branded polymer pistols firearms segment opa segment net sales increased primarily market acceptance newly introduced accessories products past several years increased revenue strategic retailers including internet retailers partially offset lower electrooptics products revenue consolidated gross margin fiscal 2019 increased 320 basis points fiscal 2018 primarily combination lower promotional product discounts consumer rebates lower manufacturing spending firearms segment changes customer mix lower promotional activity offset unfavorable product mix opa segment firearms segment revenue gross profit following table sets forth certain information regarding firearms segment revenue gross profit fiscal years ended april 30 2020 2019 2018 dollars thousands following table sets forth certain information regarding firearm units shipped trade channel fiscal years ended april 30 2020 2019 2018 units thousands firearms segment fiscal 2020 revenue gross profit compared fiscal 2019 revenue handguns increased 538 million 160 fiscal 2019 increases revenue included change 284 million federal excise tax treatment described increased consumer demand new products increased shipments performance center branded products partially offset lower shipments large frame mp branded polymer pistols medium frame revolvers unit shipments sporting goods consumer channel increased 97 fiscal 2019 increased firearm demand indicated 266 increase adjusted background checks handguns reported nics including significant increase fourth quarter likely related concerns regarding covid19 pandemic believe percentage increase sales match nics fulfillment consumer demand customer’s inventory particularly strategic retailers reporting changes certain states fulfillment demand fourth quarter likely impacted state sales restrictions revenue long guns decreased 62 million 57 fiscal 2019 spite 91 million increase revenue related federal excise tax primarily due reduced hunting rifle sales result clearing discontinued products channel anticipation new products introduced late third fiscal quarter addition spite late fourth quarter increase sales mp branded modern sporting rifles yearoveryear result lower demand first nine months fiscal year combined lower promotional activity products fulfillment demand customer inventory believe percentage decrease sales long guns likely match 132 increase reported nics decline hunting rifle sales fulfillment consumer demand customer’s inventory combination reporting changes nics certain states decreased promotional activity particularly first half fiscal year products services revenue increased 644000 18 fiscal 2019 primarily increased demand handcuffs magazines new products defined new sku shipped prior year represented 282 firearm revenue 12 months ended april 30 2020 included new concealed carry mp branded polymer pistol many new product line extensions promotional products bundle kits mp performance center thompsoncenter arms branded products gross margin fiscal 2020 firearms segment negatively impacted 240 basis points result change federal excise tax treatment described gross margin dollars impacted tax treatment excluding treatment gross margin firearms segment would increased 320 basis points prior fiscal year due combination factors including 44 million shipping costs included cost sales prior fiscal year included operating expenses due startup new distribution center negatively impacted gross margin 80 basis points reduction material costs due sourcing initiatives favorable inventory valuation adjustments related release year end manufacturing variance accruals improved manufacturing fixed cost absorption lower manufacturing spending price increases favorably impacted firearms gross margin 520 basis points favorable impacts firearms gross margin partially offset increased standards related material labor cost increases increased promotional product discounts firearm inventory levels increased slightly fiscal 2020 due primarily change timing related federal excise tax inventory increased inventory 54 million combined increase raw materials work process resulting increase production meet demand near end fiscal year related covid19 pandemic increases almost entirely offset 19 decrease finished goods units shipments fourth fiscal quarter increased meet demand inventory levels internally distribution channel excess demand may negatively impact future operating results difficult forecast potential impact distributor inventories future revenue income since demand impacted many factors including seasonality new product introductions news events political events consumer tastes firearms segment order backlog april 30 2020 2019 957 million 392 million respectively allow orders received yet shipped cancelled therefore backlog may indicative future sales firearms segment fiscal 2019 revenue gross profit compared fiscal 2018 revenue handguns increased 106 million 33 fiscal 2018 primarily result lower consumer rebates polymer pistols recognition deferred revenue shipments promotional products higher demand concealed carry mp branded polymer pistols revolvers partially offset lower shipments performance center branded polymer pistols actual unit shipments sporting goods channel handgun products increased 13 fiscal 2018 primarily result increased demand certain handgun products successful seasonal promotional programs including promotion bundled one handgun products shooting accessories product although overall consumer demand handguns decreased 89 fiscal 2018 indicated adjusted background checks reported nics believe consistent demand broad array quality products offer combined normalized level distributor inventory rather sharp decline inventory prior year positive impact fiscal 2019 results revenue long guns increased 175 million 194 fiscal 2018 partially replenishment inventory specifically sport model modern sporting rifle sporting goods channel several successful promotional programs including promotion bundled firearm shooting accessory products result believe increased market share long guns products services revenue increased 14 million 43 prior year primarily higher sales parts handcuffs new products defined new sku shipped prior year represented 201 firearm revenue fiscal 2019 included new concealed carry performance center mp branded polymer pistol many new product line extensions mp thompsoncenter arms branded products increase number units sold favorably impacted firearm revenue 10 firearms segment order backlog april 30 2019 2018 392 million 961 million respectively decrease order backlog prior fiscal year primarily normalization channel inventories timing order fulfillment outdoor products accessories segment revenue gross profit following table sets forth certain information regarding outdoor products accessories segment revenue gross profit fiscal years ended april 30 2020 2019 2018 dollars thousands outdoor products accessories segment fiscal 2020 revenue gross profit compared fiscal 2019 revenue outdoor products accessories segment decreased 98 million 55 fiscal 2019 primarily 40 million reduced sales oem customers laser products 43 million decline sales branded camping accessory products result one large retailer accelerating strategy towards private label brand 24 million lower intercompany sales addition experienced reduced orders result recent bankruptcies financial instability certain customers several factors related covid19 pandemic including major online retail customer’s decision halt delay nonessential product orders covid19related supply chain issues covid19related “stay home” orders sporting goods store closures significantly reduced retail foot traffic many states reduced orders result covid19 pandemic partially offset 68 million increased sales growth ecommerce shift online orders new products represented 140 outdoor products accessories segment revenue fiscal 2020 net sales outdoor products accessories segment 225 total company net sales compared 250 fiscal 2019 gross margin fiscal 2020 outdoor products accessories segment declined 380 basis points compared prior year primarily unfavorable variance capitalization costs capitalized fiscal 2019 expensed fiscal 2020 caused reduction laser manufacturing fiscal 2019 higher tariff costs imported goods outdoor products accessories segment inventory relatively flat compared fiscal 2019 believe inventory levels enabled us maintain minimal disruption covid19 pandemic responses suppliers possible however worsening conditions increased fears pandemic could renewed prolonged effect manufacturing employment china travel china restrictions imports could longerterm effect sales profitability future periods outdoor products accessories segment order backlog april 30 2020 18 million 109 million lower end fiscal 2019 allow orders received yet shipped cancelled therefore backlog may indicative future sales outdoor products accessories segment fiscal 2019 net sales gross profit compared fiscal 2018 net sales outdoor products accessories segment fiscal 2019 increased 19 million 12 fiscal 2018 net sales increased primarily market acceptance newly introduced accessories products past several years increased revenue strategic retailers including internet retailers partially offset lower electrooptics products revenue result general decline firearm market conditions mentioned new products outdoor products accessories segment represented 62 segment’s revenue fiscal 2019 included 300 new products net sales outdoor products accessories segment 250 total company net sales compared 260 fiscal 2018 gross margin fiscal 2019 outdoor products accessories segment remained flat compared fiscal 2018 favorable impacts gross margin included changes customer mix yielded higher gross margins lower promotional activity offset unfavorable product mix outdoor products accessories segment order backlog april 30 2019 127 million 16 million lower end fiscal 2018 consolidated operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2020 2019 2018 dollars thousands fiscal 2020 operating expenses compared fiscal 2019 excluding impact goodwill impairment fiscal 2020 2019 described operating expenses increased 71 million prior fiscal year selling marketing distribution expenses increased 173 million partially result startup new distribution center first quarter fiscal 2020 included approximately 44 million costs would included cost sales prior year well additional costs related compensation benefits depreciation property taxes security addition increased coop advertising expenses firearms segment related strategic customers additional targeted customer promotions outdoor products accessories segment increases related development ecommerce initiative resulted increased spending prior fiscal year general administrative expenses decreased 97 million primarily result decreased compensation related expenses connection separation former president chief executive officer decreased compensation related expenses decreased costs due closure jacksonville florida facility reduction allowance doubtful accounts combined amounted 171 million decrease general administrative expenses decreases partially offset increased depreciation compensationrelated expenses related new distribution center increased expenses related planned spinoff outdoor products accessories business amounted 55 million described increased spending relating maintaining safe operational work environment throughout covid19 pandemic amounted 25 million increased professional fees fiscal 2019 operating expenses compared fiscal 2018 excluding impact goodwill impairment described operating expenses increased 91 million fiscal 2018 research development expenses increased 15 million result increased compensationrelated expenses professional fees selling marketing expenses increased primarily result 19 million increased compensationrelated expenses increased travel entertainment expenses partially offset decreased advertising expenses commission costs professional fees general administrative expenses increased 61 million 89 million increased compensationrelated expenses well increased depreciation expenses related national logistics facility increases partially offset 23 million decreased professional fees lower donations national rifle association 950000 decreased travel entertainment related expenses decreased acquisitionrelated costs consolidated operating lossincome following table sets forth certain information regarding operating income fiscal years ended april 30 2020 2019 2018 dollars thousands fiscal 2020 operating lossincome compared fiscal 2019 excluding impact goodwill impairment fiscal 2020 2019 described operating income fiscal 2020 would 498 million increase 14 million 29 prior fiscal year primarily favorable manufacturing fixed cost absorption favorable inventory valuation adjustments lower manufacturing spending firearms segment decreased compensation related expenses connection separation former president chief executive officer decreased costs result closure jacksonville florida facility increases operating income partially offset increased promotional product discounts targeted customer promotions firearms segment increased coop advertising expenses related strategic customers increased expenses related development ecommerce initiative increased depreciation compensationrelated expenses related new distribution center increased expenses related planned spinoff outdoor products accessories business increased expenses related covid19 pandemic fiscal 2019 operating income compared fiscal 2018 excluding impact goodwill impairment described operating income fiscal 2019 485 million increase 214 million 791 fiscal 2018 primarily combination lower promotional product discounts lower consumer rebates lower manufacturing spending decreased professional fees lower donations national rifle association decreased travel entertainment related expenses decreased acquisitionrelated costs increases operating income partially offset unfavorable inventory valuation adjustments manufacturing fixedcost absorption increased compensationrelated expenses increased depreciation expenses related national logistics facility incomeexpense following table sets forth certain information regarding operating incomeexpense fiscal years ended april 30 2020 2019 2018 dollars thousands fiscal 2018 recorded reduction 16 million contingent consideration liability connection acquisition ultimate survival technologies inc consolidated interest expenseincome following table sets forth certain information regarding interest expense fiscal years ended april 30 2020 2019 2018 dollars thousands interest expense increased 19 million prior fiscal year result interest recorded related capital lease new distribution center additional borrowings outstanding fiscal year interest expense decreased 18 million fiscal 2018 fiscal 2019 lower overall outstanding debt fiscal 2019 consolidated income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2020 2019 2018 dollars thousands recorded income tax expense 13 million fiscal 2020 91 million lower prior fiscal year primarily decreased profitability effective tax rates 21 359 fiscal 2020 2019 respectively effective tax rate fiscal 2020 2019 excludes noncash goodwill impairment charge discrete item recorded income tax expense 103 million fiscal 2019 versus income tax benefit 25 million fiscal 2018 primarily impact tax reform prior year effective tax rates 359 143 fiscal 2019 2018 respectively effective tax rate fiscal 2019 excludes noncash goodwill impairment charge discrete item consolidated net lossincome following table sets forth certain information regarding net income related per share data fiscal years ended april 30 2020 2019 2018 dollars thousands except per share data fiscal 2020 net lossincome compared fiscal 2019 excluding impact goodwill impairment fiscal 2020 2019 net income increased 86 million 016 per diluted share prior fiscal year primarily result reasons discussed well increased interest expense increased interest capital lease new distribution center additional borrowings outstanding fiscal 2019 net income compared fiscal 2018 excluding impact tax reform fiscal 2018 goodwill impairment fiscal 2019 net income 288 million fiscal 2019 compared 114 million fiscal 2018 increase 174 million 1526 increase net income primarily due increased revenue combination lower promotional product discounts consumer rebates lower manufacturing spending decreased professional fees lower donations national rifle association favorable impacts net income partially offset unfavorable inventory valuation adjustments manufacturing fixedcost absorption increased compensationrelated expenses increased depreciation expenses related national logistics facility liquidity capital resources principal cash requirements 1 finance growth operations including working capital expenditures 2 service existing debt 3 fund spinoff outdoor products accessories business capital expenditures material handling equipment capital projects support national logistics facility various information technology projects tooling new product offerings represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2020 2019 2018 dollars thousands operating activities operating activities represent principal source cash flow cash provided operating activities 950 million fiscal 2020 375 million higher prior fiscal year cash generated operating activities fiscal 2020 favorably impacted postponement 151 million federal excise tax payments result covid19 incremental 204 million decrease accounts receivable due timing shipments customer payments incremental 101 million decrease inventory prior year due increased firearms shipments favorable impacts partially offset incremental 178 million decreased payroll incentive accruals due payment higher management incentive bonuses year separation former president chief executive officer anticipate inventory levels firearms segment remain relatively flat slightly first quarter fiscal 2021 ramp production meet current consumer demand expect inventory levels outdoor products accessories increase first quarter fiscal 2021 due seasonal demand requirements cash provided operating activities 575 million fiscal 2019 42 million lower fiscal 2018 cash generated operating activities fiscal 2019 favorably impacted net income 723 million depreciation amortization 110 million increased payroll incentives due increased management incentive accruals 104 million noncash goodwill impairment charge outdoor products accessories segment cash provided operating activities negatively impacted 290 million increased accounts receivable due timing customer shipments 105 million increased inventory primarily due increased inventory purchases mitigate tariff costs related outdoor products accessories products 72 million reduction accrued expenses decreased promotional product discounts consumer rebate accruals investing activities cash used investing activities fiscal 2020 140 million 209 million lower fiscal 2019 recorded capital expenditures 139 million fiscal 2020 200 million lower fiscal 2019 due increased spending prior year related national distribution center cash used investing activities fiscal 2019 348 million 73 million lower fiscal 2018 primarily due 213 million spending business acquisitions prior fiscal year partially offset higher spending capital expenditures fiscal 2019 compared fiscal 2018 recorded capital expenditures 339 million 155 million fiscal 2018 primarily spending related national logistics facility completed fiscal 2019 excluding spending related national logistics facility recorded capital expenditures 165 million decrease 20 million fiscal 2018 fiscal 2019 acquired substantially laserlyte branded products assets pl industries inc purchase price 20 million subject certain adjustments utilizing cash hand financing activities cash provided financing activities 34 million fiscal 2020 compared cash usage 305 million fiscal 2019 cash generated operations earmarked investments business would typically used reduce balance revolving credit facility solely precaution related covid19 pandemic see regarding repayment term loan senior notes proceeds revolving line fiscal 2020 cash used financing activities 305 million fiscal 2019 relatively flat prior fiscal year cash used financing activities fiscal 2019 2018 primarily result reducing outstanding borrowings revolving line 250 million principal payments term loan capital lease fiscal 2017 announced plan establish national logistics facility boone county missouri rely logistics facility substantially product distribution fiscal 2018 broke ground new 633000 square foot facility completed november 2018 became fully operational fiscal 2020 part completion building entered lease agreement developer building 462 million lease effective interest rate approximately 50 payable 240 monthly installments fiscal 2039 upon commencement lease accounted lease finance lease provisions asc 842 leases building pledged secure amounts outstanding fiscal 2020 paid 900000 principal payments relating capital lease november 2019 announced plan spin outdoor products accessories business company resulting two independent companies smith wesson brands inc would encompass firearm business american outdoor brands inc would encompass outdoor products accessories business lease currently held corporation named smith wesson brands inc expected remain way spinoff expected however american outdoor brands inc become sublessor facility although negotiations matters yet completed credit facilities june 15 2015 certain domestic subsidiaries entered unsecured credit facility credit agreement td bank na lenders included 1750 million revolving line credit revolving line 1050 million term loan term loan term loan paid full november 19 2019 proceeds revolving line revolving line provides availability general corporate purposes borrowings bear interest variable rate equal libor prime plus applicable margin based consolidated leverage ratio election october 27 2016 entered second amendment credit agreement second amendment among things increased revolving line 3500 million increased option expand credit commitment additional 1500 million extended maturity revolving line june 15 2020 october 27 2021 november 22 2019 entered fifth amendment credit agreement fifth amendment among things provides lenders’ consent spinoff outdoor products accessories business provided certain financial conditions satisfied including x granting lenders security interest assets remaining business reducing revolving line 2500 million time spinoff z reducing option expand credit agreement 500 million time spinoff changes described second fifth amendments otherwise remain subject terms credit agreement described april 30 2020 1600 million borrowings outstanding revolving line bore interest 295 equal libor rate plus applicable margin required obtain interest rate protection term loan covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement required us pay interest defined rate 156 receiving interest defined variable rate equal onemonth libor rate swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan subject change based changes consolidated leverage ratio accordance repayment term loan november 19 2019 interest rate swap terminated resulting realized gain approximately 40000 2018 senior notes fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 senior notes various institutional investors pursuant terms conditions indenture purchase agreements 2018 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 2018 senior notes discussed 2018 senior notes redeemed march 8 2018 proceeds issuance 5000 senior notes due 2020 part redemption fiscal 2018 wrote 226000 debt issuance costs related 2018 senior notes 2020 senior notes february 28 2018 issued aggregate 750 million 5000 senior notes due 2020 senior notes various institutional investors pursuant terms conditions indenture 2020 senior notes indenture purchase agreements 2020 senior notes bore interest rate 5000 per annum payable february 28 august 28 year beginning august 28 2018 incurred 158000 debt issuance costs related issuance 2020 senior notes january 6 2020 redemption date redeemed 100 principal amount 2020 senior notes plus accrued unpaid interest including redemption date proceeds revolving line part redemption wrote 42000 debt issuance costs related 2020 senior notes credit agreement credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage compliance debt covenants april 30 2020 share repurchase programs repurchase shares common stock fiscal 2020 2019 2018 april 30 2020 1254 million cash equivalents hand based upon current working capital position current operating plans expected business conditions believe existing capital resources credit facilities adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity costs enhance equipment software logistics facility acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained addition operational needs described time separation intend contribute 250 million cash outdoor products accessories business inflation believe inflation material impact us fiscal 2020 2019 2018 critical accounting policies revenue recognition recognize revenue accordance provisions accounting standards update asu revenue contracts customers topic 606 became effective us may 1 2018 generally performance obligations satisfied revenue recognized risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance instances sales include multiple performance obligations common instances relates sales promotion programs entitle customers receive free goods based upon purchase products fulfillment free goods responsibility instances allocate revenue promotional sales based estimated level participation sales promotional program timing shipment products included promotional program including free goods recognize revenue proportionally performance obligation satisfied based relative transaction price product net change contract liabilities given period reported increase decrease sales product sales generally sold free board fob shipping point provide payment terms commercial customers ranging 20 90 days product shipment discount available certain cases early payment contracts discounted terms determine transaction price upon establishment contract contains final terms sale including description quantity price product purchased estimate variable consideration relative amount cash discounts customers likely entitled instances provide longer payment terms particularly relates hunting dating programs represent payment terms due fall certain orders hunting products received spring summer consider extended terms significant financing component contract payment terms less one year cases consider costs related shipping handling cost fulfilling contract customer valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets goodwill property plant equipment developed technology customer relationships patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified accordance asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value operating units carrying amounts assess whether impairment present reviewed provisions asc 35020 respect criteria necessary evaluate number reporting units exist based review concluded two operating units reviewing asc 35020 firearms outdoor products accessories estimate fair value firearms outdoor products accessories operating units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing operating units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internally developed forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics operating unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values operating units recognize impairment loss goodwill implied fair value goodwill less carrying value valuation date february 1 2020 firearms operating unit 190 million goodwill fair value significantly exceeded carrying value outdoor products accessories operating unit 1632 million goodwill fair value exceeded carrying value approximately 15 march 23 2020 determined business outdoor products accessories segment expected negatively impacted several factors related covid19 pandemic including major online retail customer’s decision halt delay nonessential product orders covid19related supply chain issues well covid19related “stay home” orders sporting goods store closures reduced retail foot traffic many states given extreme market volatility relied solely income approach derive current value outdoor products accessories segment based factors expect reduced cash flows outdoor products accessories segment believe constituted triggering event generally accepted accounting principles based results evaluation recorded noncash impairment charge 987 million goodwill outdoor products accessories segment april 30 2020 outdoor products accessories operating unit 646 million goodwill although concluded additional impairment goodwill associated operating units april 30 2020 continue closely monitor performance related market conditions future indicators potential impairment reassess accordingly assumptions related development fair value could deviate materially actual results forecasts used support asset carrying values may change future could result noncash charges would adversely affect financial results operations remeasurement goodwill classified level 3 fair value assessment described note 13 fair value measurement due significance unobservable inputs developed using companyspecific information inventories value inventories lower cost using firstin firstout fifo method net realizable value allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory past history expected future usage warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products either provide limited oneyear threeyear lifetime full lifetime warranty program original purchaser accessories products also repair replace certain products parts found defective normal use service item equivalent value option without charge warranty period provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize could adversely impacted recent accounting pronouncements nature impact recent accounting pronouncements discussed note 3 significant accounting policies consolidated financial statements incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2020 thousands 1600 million borrowings revolving line april 30 2020 fiscal 2019 entered 454 million capital lease obligation related purchase land costs related design construction national logistics facility 301 million contractually obligated interest payments pertaining outstanding capital lease obligation offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following discussion analysis conjunction consolidated financial statements related notes contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report overview highlights fiscal 2006 net product services sales approximately 1579 million represented increase 274 fiscal 2005 firearms sales approximately 1474 million core business increased 298 net income fiscal 2006 increased 3452623 658 fiscal 2005 number initiatives took place fiscal 2006 contributed improvement results including following • introduced mp pistol series polymer frame pistol designed specifically law enforcement military markets underserved recent years • introduced mp 15 tactical rifle represents first effort diversify beyond handgun market tactical rifle market one segment within rifle shotgun market “long guns” domestic long gun market 10 billion 60 greater domestic handgun market research indicates smith wesson name strong long gun market • increased emphasis federal government sales led four orders us government afghanistan national police border patrol sigma orders totaled approximately 200 million approximately 100 million shipped fiscal 2006 balance ship first half fiscal 2007 • successfully transitioned consumer sales force combination employees manufacturers’ representatives allemployee consumer sales force six months prior transition consumer sales 8 yearoveryear third quarter fiscal 2006 first quarter employee sales force sales 24 fourth quarter 32 • expanded law enforcement military sales efforts fiscal 2006 hired director law enforcement sales director federal government sales also added four new salesmen law enforcement sales force • invested 155 million machinery equipment directed expanding pistol business pistol category represents 75 domestic handgun market pistol sales fiscal 2006 grew 69 restatementsec inquiry august 2003 amended various reports previously filed sec modify certain accounting matters related acquisition smith wesson corp restated form 10ksb report fiscal year ended april 30 2002 well form 10qsb reports quarters ended july 31 2001 2002 october 31 2001 2002 january 31 2002 2003 form 10ksb report fiscal year ended april 30 2003 filed december 2003 included restated financial statements fiscal 2002 amended form 10qsb reports july october quarters filed january 2004 amended form 10qsb reports january quarters filed march 2004 sec conducting informal inquiry regarding circumstances surrounding restatement cooperating fully sec inquiry still ongoing management objectives fiscal 2005 added several new senior managers company including new chief executive officer december 2004 new management team assessing business including extensive market research smith wesson brand firearms market competitors research determined smith wesson brand stands safety security protection sport management team decided focus strategy around four items future ventures licensing opportunities fit umbrella safety security protection sport view opportunities company extend beyond handguns belief supported brand research identified several areas smith wesson brand strong recognition among prospective buyers continue focus handguns increased emphasis military law enforcement markets also look beyond handguns using safety security protection sport guide determining business expansion business one largest handgun manufacturers world offer one broadest lines handguns industry product line consists revolvers pistols fiscal 2006 entered long gun market introduction mp 15 rifles also one largest manufacturers handcuffs restraints united states key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use ebitda earnings interest taxes depreciation amortization evaluate performance evaluate various product lines measurements cost per unit produced units produced per day incoming orders per day key industry data handgun market united states remained relatively constant past 10 years handguns subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill 1992 1994 period us handgun market increased 50 consumers purchased handguns fear prohibition handgun ownership market levels returned pre1992 levels remained relatively unchanged within us handgun market approximately 75 market pistols 25 revolvers largest manufacturer revolver market believe third largest manufacturer pistol market little market data available firearms industry federal excise tax collections represent best measurement us market share us government issues information quarterly basis comparing tax payment reported collection estimate market share based upon recent data believe approximately 22 share us consumer market handguns compares 10 period acquired smith wesson corp also compares favorably market share figures 1990s estimated 16 market share results operations net product services sales following table set forth certain information relative net product services sales fiscal years ended april 30 2006 2005 2004 fiscal 2006 net product services sales compared fiscal recorded net product services sales 157874717 fiscal 2006 increase 33910744 274 fiscal 2005 firearms sales increased 33875064 298 total handgun unit sales fiscal 2006 approximately 414000 units increase 282 fiscal 2005 sales approximately 323000 units nonfirearm sales fiscal 2006 increased 35680 03 compared fiscal 2005 result higher demand handcuffs partially offset lower specialty services sales revolver sales increased 7420175 137 fiscal 2006 61441295 sale small frame revolvers fueled increase revolver sales increase number states passing concealed carry laws increased demand smaller revolvers personal protection sales extra large frame revolvers slightly result introduction model 460 revolver order backlog 6280980 april 30 2006 pistol sales 48927710 19976852 690 higher fiscal 2005 increase pistol sales attributable sigma pistol sales us government afghanistan national police border patrol well introduction mp pistol order backlog 21111169 april 30 2006 january 2006 introduced mp15 tactical rifle first venture longgun market sales fiscal 2006 totaled 1963676 production ramped course fourth quarter rifle backlog 8188834 april 30 2006 exclusive us distributor walther firearms walther sales totaled 15975179 fiscal 2006 decrease 1333261 77 compared previous fiscal year decrease walther sales attributable lower demand p99 pistol g22 rifle sales ppk pistol manufacture houlton maine 12 including engraved 75th anniversary model walther order backlog 3445409 april 30 2006 performance center sales fiscal 2006 increased 734936 87 9219736 custom variations model 500 model 460 revolver responsible increase sales performance center order backlog 2521553 april 30 2006 engraving sales fiscal 2006 increased 4304683 6009751 2525 increase sales results emphasis profitable segment highend highmargin engraved handguns nonfirearms sales increased 35680 03 fiscal 2006 result higher handcuff sales partially offset lower specialty services sales handcuff sales increased 824909 194 result increased sales efforts specialty services sales reflected lower demand forging heattreating services sales within consumer market channel accounted approximately 1191 million 175 million 172 increase fiscal 2005 consumer sales approximately 1016 million sales state local federal government agencies 212 million 99 million 872 increase fiscal 2005 international sales 176 million 67 million 611 increase fiscal 2005 fiscal 2005 net product services sales compared fiscal recorded net product services sales 123963973 fiscal 2005 increase 6071466 52 fiscal 2004 firearms sales increased 11277896 110 total handgun unit sales fiscal 2005 approximately 323000 units increase 77 fiscal 2004 sales approximately 300000 units nonfirearm sales fiscal 2005 declined 5206430 334 compared fiscal 2004 result lower demand handcuffs decision exit certain noncore businesses revolver sales increased 6378711 134 fiscal 2005 54021120 continued success model 500 revolver fueled increase revolver sales sold 27700 model 500 revolvers fiscal 2005 generating approximately 176 million sales revolver order backlog 12251811 april 30 2005 pistol sales fiscal 2005 28950858 2011102 75 higher compared fiscal 2004 increase pistol sales attributable aggressive pricing strategy sigma pistol sales sw1911 accounted approximately 38 million increase pistol sales fiscal 2004 sigma pistol sales increased approximately 30000 units fiscal 2004 approximately 46000 units fiscal 2005 increase sales 36 million partially offsetting gains two areas decline traditional metal frame pistols lower sw99 pistol sales higher cost traditional pistols puts us competitive disadvantage particularly foreign competitors whose labor costs lower pistol order backlog 6082826 april 30 2005 walther sales totaled 17308440 fiscal 2005 increase 129257 08 previous fiscal year increase walther sales attributable introduction g22 rifle walther order backlog 1977404 april 30 2005 performance center sales increased 1099246 149 fiscal 2005 8484800 custom variations model 500 sw1911 responsible increase sales performance center order backlog 2120714 april 30 2005 engraving sales fiscal 2005 increased 1419891 fiscal 2004 increased emphasis profitable segment highend highmargin engraved handguns nonfirearms sales fiscal 2005 declined 5206430 334 compared fiscal 2004 sales result lower handcuff sales discontinuation certain product lines part decision focus core business decline handcuff sales result lower demand domestically competitive pressure lowcost providers internationally fiscal 2004 closed optics business sold remaining inventory sales fiscal 2004 included 1777958 optics sales also sold identikit business early fiscal 2005 fiscal 2004 sales included 469786 relative identikit business license revenue following table sets forth certain information relative license revenue fiscal years ended april 30 2006 2005 2004 license revenue fiscal 2006 increased 349830 192 fiscal 2005 increase license revenue result additional royalty payments following audit determined one licensees underpaid royalties due us fiscal 2005 reached agreement one licensees regarding termination agreement licensee agreed pay 175000 buyout future minimum guaranteed payments onetime benefit recur fiscal 2006 continue focus areas synergy core products brand customer base license revenue fiscal 2005 increased 201949 124 fiscal 2004 increase license revenue resulted new licensees added year cost revenue gross profit following table sets forth certain information regarding cost revenue gross profit fiscal years ended april 30 2006 2005 2004 gross profit fiscal 2006 49606999 8718981 213 increase fiscal 2005 gross profit percentage net revenue declined 325 fiscal 2005 310 fiscal 2006 cost revenue sold fiscal 2005 included approximately 41 million favorable insurancerelated adjustments reimbursement defense costs previously paid us higher sales volume responsible increase gross profit partially offsetting increase higher sales increased depreciation expense higher utility costs depreciation expense included cost revenue increased 1370061 1937103 fiscal 2005 3307164 fiscal 2006 result increased capital expenditures past two years utility costs increased substantially second half fiscal 2006 result rising oil prices impact hurricane katrina utility costs charged cost revenue increased 2637985 fiscal 2005 3712583 fiscal 2006 1074598 407 increase increases cost raw materials minimized combination alternative suppliers process changes warranty expense declined fiscal 2006 276356 180 1539400 fiscal 2005 1263044 fiscal 2006 despite higher sales volume reflecting lower cost revolver repairs gross profit fiscal 2005 increased 1758103 45 fiscal 2004 mentioned cost products services sold fiscal 2005 included approximately 41 million favorable insurance related adjustments reimbursement defense costs previously paid us gross profit percentage net product sales license revenue declined 327 fiscal 2004 325 fiscal 2005 decline gross margin percentage attributable number factors substantial increase capital expenditures led significant increase depreciation expense depreciation expense included cost revenue increased 876997 1060106 fiscal 2004 1937103 fiscal 2005 fiscal 2005 also incurred additional 802820 manufacturing consulting fees relative studies manufacturing processes january 2005 moved several production departments sevenday workweek required hiring approximately 25 additional production workers incurred additional 200001 costs preparation move sevenday workweek addition incurred production inefficiencies higher normal scrap result startup new production schedule operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2006 2005 2004 operating expenses fiscal 2006 increased 5355653 180 fiscal 2005 operating expenses net 3087810 reduction environmental reserves brought completion remediation property sold city springfield february 2003 purchase sale agreement called remediation costs paid buyer maintained reserve books remediation completed may 2005 spending environmental adjustment increased 8443463 284 selling marketing expenses increased 2964732 fiscal 2006 incurred 2196010 additional salaries fringe benefits result expansion sales marketing efforts including switch employee sales force combination direct sales personnel manufacturers’ representatives also incurred 638635 additional travel expense primarily resulting switch away manufacturers’ representatives saved 1067723 commissions independent sales representatives result transition also incurred additional 1201459 advertising expense result promotional costs related introduction mp pistol nascar sponsorship higher coop advertising costs related increased sales volume general administrative expenses fiscal 2006 5373485 higher previous year salaries fringes increased 2615563 previous year number includes 175 million senior middle management bonuses 398000 payroll taxes related warrants exercised september two former officers stock option expense 2139693 increase 1513543 fiscal 2005 expense 626150 increase stock option expense primarily related increase stock price full year impact options granted new employees second half fiscal 2005 also incurred approximately 12 million consulting fees relative implementation internal controls compliance reporting requirements section 404 sarbanesoxley act 2002 operating expenses fiscal 2005 decreased 4612199 134 fiscal 2004 fiscal 2004 operating expenses included 1977537 related disposed crossings catalog advanced technology divisions 1000931 related restructuring costs relative closing corporate office scottsdale 2494729 related legal accounting fees relative restatement financial statements fiscal 2002 first three quarters fiscal 2003 sec inquiry total 5473197 expenses fiscal 2004 recur fiscal 2005 fiscal 2005 operating expenses included 1137143 recruiting relocation expenses chief executive officer several senior management additions increase 752880 fiscal 2004 spending recruiting relocation stock option expense calculated sfas 123r totaled 626150 fiscal 2005 compared 819507 fiscal 2004 profit sharing expense 2403019 fiscal 2005 130989 higher compared fiscal 2004 spending result increased profits income operations following table sets forth certain information regarding income operations fiscal years ended april 30 2006 2005 2004 operating income 14544319 fiscal 2006 increase 3363328 301 compared operating income 11180991 fiscal 2005 increase operating income attributable higher sales volume partially offset higher depreciation utility expense well higher spending selling marketing general administrative expenses fiscal 2006 included 3087810 environmental reserve reduction fiscal 2005 included 41 million onetime insurance adjustments refunds operating income 11180991 fiscal 2005 increase 6370302 1324 compared operating income 4810689 fiscal 2004 increase operating income primarily due 41 million favorable insurance adjustments refunds well reduction operating expenses fiscal 2004 number onetime expenses totaling 5473197 recur fiscal 2005 incomeexpense income totaled 745577 fiscal 2006 compared expense 120373 fiscal 2005 865950 improvement included income 462358 exchange gains related purchase inventory walther also received refund 126006 industry dues expense totaled 120373 fiscal 2005 compared expense 1302959 fiscal 2004 realized 435815 gain sale identikit business fiscal 2005 partially offsetting gain 682927 exchange losses related purchase inventory walther interest income 112322 fiscal 2006 decline 177879 fiscal 2005 due refinancing occurred january 2005 approximately 227 million cash held collateral debt prior january 2005 refinancing cash used repay debt part refinancing interest income 290201 fiscal 2005 represented decline 28667 compared 318868 fiscal 2004 due reduced cash available investment interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2006 2005 2004 interest expense declined 1037351 fiscal 2006 due refinancing completed january 2005 interest expense declined 665002 fiscal 2005 due refinancing mentioned income taxes income tax expense fiscal 2006 5062617 compared income tax expense 3426490 fiscal 2005 income tax benefit 346062 fiscal 2004 tax provision fiscal 2006 included federal state deferred tax rate change 358688 tax provision fiscal 2005 included 155512 adjustment resulting writeoff internal revenue code section 382 limitation federal net operating loss carryforward 457388 60826 tax expense related tax adjustments exercises employee stock options sfas 123r tax benefit fiscal 2004 primarily attributable federal net operating loss adjustments reversal 135856 state tax valuation allowance fiscal 2004 tax provision included 416193 benefit federal net operating loss adjustments benefit related filing amended fiscal 2003 2002 federal income tax returns recognize tax deductions warrant option exercises previously entitled deductions complied federal statutory reporting requirements subsequently complied reporting requirements therefore entitled realize tax benefits related warrant option exercises income tax expense includes deferred income taxes arising temporary differences financial reporting tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled approximately 107 million valuation allowance april 30 2006 assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered valuation allowance established deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position valuation allowance provided deferred federal income tax assets april 30 2006 2005 2004 believe likely assets realized however maintain valuation allowance approximately 42000 300000 500000 provided state deferred tax assets april 30 2006 2005 2004 respectively valuation allowance specifically relates state net operating loss carryforwards uncertainty related recognition benefit attributable state net operating losses reached conclusions considering changes business well availability taxable income prior carryback years tax planning strategies likelihood generating future taxable income exclusive reversing temporary differences carryforwards differences forecasted actual future operating results could adversely impact ability realize deferred tax assets federal net operating loss carryforwards amounting 42 million 109 million 168 million april 30 2006 2005 2004 respectively net operating loss carryforward april 30 2006 expires fiscal years 2019 2020 section 382 limits utilization losses 108161 per year effective april 30 2005 determined 457388 net operating loss carryforwards expire unutilized therefore related deferred tax asset 155512 reversed tax expense fiscal 2005 possible future substantial changes ownership could occur could result additional ownership changes pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards utilized federal net operating losses account 12 million total net deferred tax asset 107 million 33 million 139 million deferred tax assets april 30 2006 2005 respectively state net operating loss carryforwards amounted 12 million 65 million 121 million april 30 2006 2005 2004 respectively expire fiscal 2006 fiscal 2008 certain state provisions may limit ability utilize state net operating losses given year certain events occur including cumulative changes ownership interests threeyear period opinion due uncertainty realization benefit state net operating losses valuation allowance maintained deferred tax assets october 22 2004 american jobs creation act ajca signed law ajca provides deduction income qualified domestic production activity qpa phased 2005 2010 pursuant fasb staff position 1091 “application sfas 109 accounting income taxes tax deduction qualified production activity provided ajca 2004” effect deduction reported period claimed tax return qpa deduction expected available us starting fiscal 2007 deduction available year tax loss taxable income due operating loss carryforwards net operating loss carryforwards analysis required order determine timing impact qpa financial statements return qpa ajca provides twoyear transition existing extraterritorial income exclusion eti tax benefit foreign sales world trade organization wto ruled illegal export subsidy eti benefit fully phased us fiscal 2007 eti benefit us approximately 55000 40000 fiscal 2006 2005 respectively net income following table sets forth certain information regarding net income related per share data fiscal years ended april 30 2006 2005 2004 increase net income net income per share fiscal 2006 attributable 274 increase sales 3087810 onetime benefit reduction environmental reserves 1037351 reduction interest expense driven refinancing took place january 2005 fiscal 2005 results also reflected 41 million benefit agreement reached one insurance carriers included net cash refund approximately 20 million increase net income net income per share fiscal 2005 resulted primarily reduction operating expenses fiscal 2004 spending included 1977537 related discontinued crossings catalog advanced technology divisions 1000931 related restructuring costs relative closing corporate office scottsdale 2494729 related legal accounting fees relative restatement financial statements fiscal 2002 first three quarters fiscal 2003 sec inquiry liquidity capital resources principal cash requirements finance growth firearms licensing operations service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain information relative cash flow fiscal years ended april 30 2006 2005 2004 operating activities represent principal source cash flow cash flow operating activities increased 6049174 fiscal 2006 compared fiscal 2005 improvement operating cash flow fiscal 2006 attributable improved profitability enhanced use tax loss carryforwards noncash expenses depreciation stockbased compensation expense also significant impact fiscal 2006 results depreciation amortization increased 1609925 stockbased compensation expense 2887904 higher substantial increase accounts receivable april 30 2006 reflected record sales month april 2006 sales month 256 million 116 million higher april 2005 fiscal 2005 cash flow operating activities increased 5420383 compared fiscal 2004 improvement operating cash flow attributable improved profitability enhanced utilization tax loss carryforwards accounts receivable improved substantially year result collecting open receivable fiscal 2004 fourth quarter sales promotion inventories increased 4003818 result increased volume replenishing finished goods inventory depleted normal levels fourth quarter fiscal 2004 cash used investing activities totaled 15602109 fiscal 2006 compared 16139844 provided investing activities fiscal 2005 decrease 31741953 capital expenditures 15592203 fiscal 2006 compared 8423144 fiscal 2005 fiscal 2005 collateralized cash deposits totaling 22673059 used repay debt part refinancing completed january 2005 intend spend 130 million capital expenditures fiscal 2007 fiscal 2005 cash provided investing activities totaled 16139844 compared cash use 6913125 fiscal 2004 increase 23052969 collateralized cash deposits decreased 22673059 result refinancing completed january 2005 capital expenditures 8423144 fiscal 2005 2746530 higher fiscal 2004 capital expenditures 5676614 cash used financing activities totaled 196678 fiscal 2006 compared cash used financing activities 23968476 fiscal 2005 improvement 23771798 fiscal 2006 sold 6000000 shares common stock private equity placement proceeds sale 24375943 proceeds sale used repurchase 8970300 warrants purchase common stock two former officers company cost 23950701 proceeds exercise common stock warrants totaled 1729096 fiscal 2006 compared 980981 fiscal 2005 fiscal 2005 completed refinancing resulted repaying 270 million note tomkins corporation combination collateralized cash deposits proceeds 180 million note obtained banknorth na 23231193 increase cash used financing activities fiscal 2005 resulted repayment 270 million tomkins note well refinancing banknorth debt january 2005 incurred 654843 costs relative refinancing effort april 30 2006 open letters credit aggregating 4098515 april 30 2006 731306 cash equivalents hand 17000000 revolving line credit banknorth outstanding balance april 30 2006 matters inflation believe inflation material impact us fiscal 2006 2005 2004 critical accounting policies use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter estimates respect adequacy insurance reserves significant estimates assumptions used us preparation financial statements relate reserves established uncollectible accounts receivable obsolete slow moving inventory certain accrued liabilities including product environmental warranty liabilities workers’ compensation revenue recognition primarily recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account substantial portion revenues recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenues accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenues individual licensees quarterly basis based actual receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenues payable calendar quarter basis recognize fees received upon initial signing license agreements revenues result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore initially recognize minimum royalty payments instead record revenue minimum royalty paid april 30 2006 minimum royalties collected future amounted approximately 66 million product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs result evaluation recorded considered probable reasonably estimable time estimated range reasonably possible additional losses term defined statement financial accounting standards “sfas” 5 “accounting contingencies” zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made april 30 2006 reserve 603274 environmental matters recorded undiscounted basis inventory value inventories primarily consisting finished firearms components finished firearms related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide lifetime warranty “original” purchaser new firearms products provide estimated warranty obligations period recognize related revenue quantify record estimate warranty related costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign distributors based financial condition offer discounts early payment extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying currently enacted tax laws workers’ compensation selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis stockbased compensation account stockbased employee compensation arrangements accordance provisions sfas 123r “sharedbased payment revised” sfas 123r compensation cost calculated date grant using black scholes method compensation expense amortized vesting period fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables recent accounting pronouncements may 2005 fasb issued sfas 154 “accounting changes error corrections” replacement accounting principles board “apb” opinion 20 “accounting changes” fasb statement 3 “reporting accounting changes interim financial statements” statement applies accounting reporting voluntary accounting principle changes corrections errors sfas 154 requires changes retrospectively applied financial statements previous periods unless impracticable determine either periodspecific effects cumulative effect change sfas 154 carries forward many provisions apb 20 sfas 3 without change including provisions related reporting change accounting estimate change reporting entity correction error reporting accounting changes interim financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 believe adoption sfas 154 significant impact financial position results operations cash flows impact adopting sfas 154 depends events could occur future periods therefore cannot determined event occurs future period february 2006 fasb issued sfas 155 “accounting certain hybrid financial instruments” amends sfas 133 “accounting derivative instruments hedging activities” sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year expect adoption sfas 155 material impact financial position results operation cash flows march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” sfas 156 requires separately recognized servicing rights initially measured fair value practicable addition statement permits entity choose two measurement methods amortization method fair value measurement method class separately recognized servicing assets liabilities new accounting standard effective january 1 2007 adoption sfas 156 expected impact financial position results operations cash flows contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2006 offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7aitem 7 management’s discussion analysis financial condition results operations read following management’s discussion analysis conjunction consolidated financial statements related notes thereto contained elsewhere report discussion contains forwardlooking statements involve risks uncertainties assumptions actual results may differ materially anticipated forwardlooking statements result variety factors including set forth item 1a “risk factors” elsewhere report results swss security solutions division previously reported separate business segment presented discontinued operations consolidated statements incomeloss comprehensive incomeloss periods presented see note 3 discontinued operations notes consolidated financial statements discontinued operations page 40 additional information regarding discontinued operations unless otherwise indicated reference income statement items management’s discussion analysis financial condition results operations refers results continuing operations 2013 highlights fiscal 2013 net sales 5875 million represented increase 426 fiscal 2012 net sales income continuing operations fiscal 2013 814 million 122 per fully diluted share compared income continuing operations 264 million 040 per fully diluted share fiscal 2012 operating results fiscal 2013 affected numerous factors including following • 426 increase net sales primarily driven ability respond consistently increased consumer demand past two years 404 increase firearm units produced spite increase capacity backlog increased 4210 million excluding walther orders end fiscal 2012 8773 million excluding walther orders end fiscal 2013 believe contributing factor increase backlog limited supply products sporting goods channel dealers also believe may number firearm retailers placed orders distributors exceed retailers’ actual requirements continue look opportunities address increased backlog increasing production capacity additional capital spending outsourcing components parts • introduction new products last several years combined increased production volumes mp branded polymer pistols modern sporting rifles positive impact net sales gross margins fiscal 2013 addition increased consumer demand believe caused increased customer acceptance firearms well fear current potential legislative restrictions sale makeup firearms attributed sales gross margin • gross profit increased 61 percentage points prior fiscal year primarily result gained manufacturing efficiencies favorable production mix resulted corresponding improvement manufacturing fixedcost absorption also implemented new pricing discount structure selected products improved net sales gross profit • legal consulting costs 12 million 28 million lower 40 million costs incurred prior year related doj sec investigations referenced item 1a “risk factors” business one world’s leading manufacturers firearms sell products smith wesson brand mp brand thompsoncenter arms brand performance center brand manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns handcuffs united states manufacture firearm products facilities springfield massachusetts houlton maine plan continue offer products leverage 160 year old “smith wesson” brand capitalize goodwill developed historic american tradition expanding consumer awareness products produce especially mp branded products addition pursue limited opportunities license name trademarks third parties use association products services key performance indicators evaluate performance business based upon operating profit includes net sales cost sales selling administrative expenses certain components income expense also use adjusted ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding large nonrecurring items nongaap financial metric evaluate performance evaluate various firearm products measurements gross margin per unit produced units produced per day incoming orders per day key industry data firearms subject legislative actions past market reacted actions substantial increase sales early 1990s period leading shortly enactment brady bill period 1992 1994 us handgun sales increased 50 consumers purchased handguns fear prohibition handgun ownership sales levels returned pre1992 levels grew normal industry growth rates late calendar 2008 sales increased appears fears surrounding crime terrorism economic downturn change white house administration like increase 1992 increase sales temporary nature sales returned normal levels fiscal 2010 late calendar 2012 early calendar 2013 orders increased rapidly appears response fears renewed legislative activity surrounding restrictions sale makeup firearms addition appears sales products recently increased ability increase production capacity service orders increased consumer demand caused increased social acceptance firearms also believe variety products offer attractive price points maintain contributes likely increasing market share estimate 17 share us consumer market handguns compares approximately 10 period acquired smith wesson corp 2001 results operations net sales following table sets forth certain information regarding net product services sales fiscal years ended april 30 2013 2012 2011 dollars thousands fiscal 2013 net sales compared fiscal 2012 net sales fiscal 2013 increased 426 prior fiscal year able address increased consumer demand past two years 404 increase firearm units produced handgun products sales saw net sales increase 361 prior fiscal year driven primarily capacity increases polymer pistol products growth concealed carry marketplace strong consumer demand mp rifles including full size sport 22 caliber long gun models increased net sales category 750 current fiscal year also experienced productivity efficiency gains completed move production hunting products springfield massachusetts facility last year resulting increased unit sales bolt action rifles addition fiscal 2013 implemented new pricing discount structure improved net sales walther net sales increased 289 prior fiscal year additional promotions product availability market high consumer demand order backlog april 30 2013 8773 million 4563 million higher end fiscal 2012 2193 million higher end third quarter fiscal 2013 primarily result backlog generated new products sales increased consumer demand firearms orders received yet shipped could cancelled particularly demand suddenly decrease addition backlog exceeds annual manufacturing capacity therefore backlog may indicative future sales end fiscal 2013 limited supply products sporting goods channel dealers believe number firearm retailers placed orders distributors exceed retailers’ actual requirements possibility excess orders may resulted may continue result distributors placing excess orders us thereby potentially inflating backlog net sales sporting goods distribution channel 4820 million 1470 million 439 increase sales 3350 million fiscal 2012 primarily driven increased customer demand polymer pistols long guns increase production capacity net sales professional channels include federal international law enforcement sales 638 million 191 million 427 increase fiscal 2012 net sales 447 million increased orders professional channels primarily result increased net sales polymer products long guns law enforcement well increased international shipments puerto rico canada amounts include distributor importer business walther terminated end fiscal 2013 manufacturing arrangement walther ppk handguns end fiscal 2014 fiscal 2012 net sales compared fiscal 2011 net sales fiscal 2012 increased 204 fiscal 2011 able address increased consumer demand increases production capacity particularly handgun products saw net sales increase 251 fiscal 2011 noticeably polymer pistol products net sales long guns increased 327 fiscal 2012 primarily strong demand mp sport model introduced late fiscal 2012 hits attractive price point offset lower orders black powder products long gun net sales constrained bolt action rifle sales service thompsoncenter arms venture rifle recall productivity efficiency losses completed move hunting production springfield massachusetts facility walther net sales declined 150 fiscal 2011 increased competition small frame concealed carry products rimfire products services net sales increased 68 primarily volume increases noted net sales sporting goods distribution channel excluding walther 3350 million 753 million 290 increase sales 2597 million fiscal 2011 excluding walther primarily driven increased customer demand polymer pistols modern sporting rifles net sales professional channels excluding walther 447 million 171000 04 increase fiscal 2011 net sales 445 million excluding walther law enforcement channel net sales higher part increased shipments polymer pistol products state agencies massachusetts vermont state police well increase handcuffs shipments california state police international sales include consumerrelated sales declined fiscal 2011 variable nature international agency sales exacerbated result focus fewer larger international customers cost sales gross profit following table sets forth certain information regarding cost sales gross profit fiscal years ended april 30 2013 2012 2011 dollars thousands fiscal 2013 cost sales gross profit compared fiscal 2012 gross profit fiscal 2013 increased prior fiscal year primarily increase sales volume shift product mix higher margin polymer pistol products long guns result increased capacity meet demand increased gross profit also result increased production volumes favorable production mix resulted corresponding improvement manufacturing fixedcost absorption increase along increased manufacturing efficiencies resulted 55 percentage point 846 million gross profit increase partially offset increased volumerelated spending 46 million 07 percentage points fiscal 2013 incurred 30 million warranty costs associated thompsoncenter arms bolt action rifle recall fiscal 2012 incurred 16 million warranty costs associated thompsoncenter arms venture rifle recall fiscal 2013 unfavorable impact bolt action rifle recall offset costs incurred fiscal 2012 relating prior year recall resulted unfavorable impact gross profit 02 percentage points 14 million fiscal 2013 fiscal 2012 also incurred 23 million costs associated consolidation hunting production rochester new hampshire springfield massachusetts facility completed prior fiscal year incur costs fiscal 2013 favorably impacted gross profit 04 percentage points 24 million favorable currency exchange gains 04 percentage points 26 million international purchases products manufactured walther facilities pricing increases selection products benefitted gross margin 10 percentage points 87 million fiscal 2012 cost sales gross profit compared fiscal 2011 gross profit fiscal 2012 increased fiscal 2011 primarily increase sales volume polymer products long guns noted resulting corresponding improvement manufacturing absorption addition also less inventory reserve adjustments lower product liabilityrelated legal fees reductions offset 16 million increased warranty costs associated recall thompsoncenter arms venture rifles manufactured since product’s introduction mid 2009 10 million increased consulting services procurement cost savings initiatives fiscal 2012 operating expenses following table sets forth certain information regarding operating expenses fiscal years ended april 30 2013 2012 2011 dollars thousands operating expenses compared fiscal 2012 research development costs relatively flat compared fiscal 2012 increased salary benefit costs offset reduced consulting expenses selling marketing expenses decreased 13 million largely due 10 million reduction consulting outside services relating market research 873000 reduction sample costs prior year general administrative costs increased prior year 15 million additional profit sharing expense 25 million increased incentive accruals 19 million additional stockbased compensation expense primarily related options rsus psus granted employees late fiscal 2012 12 million additional bad debt expense offset 25 million reduced legal consulting fees 23 million related investigation doj sec matters 988000 employeerelated costs resulting severance benefits paid former president chief executive officer prior year operating expenses percentage net sales decreased 56 predominately increased volume require corresponding increase operating expenses addition reduced market research sample costs reduced costs related doj sec matters partially offset increased employee costs fiscal 2012 operating expenses compared fiscal 2011 research development expenses fiscal 2012 relatively flat compared fiscal 2011 slight increase due salary benefit costs reduced selling marketing expenses primarily result 13 million reduction consulting outside services result cost cutting initiatives implemented late fiscal 2011 reduced spending improvements made fiscal 2011 customer acceptance process market research consulting licensing consulting general administrative costs relatively flat compared fiscal 2011 representing reductions associated 59 million reduced legal consulting fees related investigation doj sec matters 10 million reduced bad debt expense 812000 reduced legal fees international trade commission “itc” action several black powder competitors fiscal 2011 reduced consulting expenses internal audit activities amounts offset 40 million higher profit sharing 803000 higher stockbased compensation expense 36 million higher management incentive compensation accrual operating expenses percentage net sales decreased 52 predominately reduced costs related doj sec matters cost cutting initiatives put place late fiscal 2011 increased net sales operating income continuing operations following table sets forth certain information regarding operating income continuing operations fiscal years ended april 30 2013 2012 2011 dollars thousands fiscal 2013 operating income continuing operations compared fiscal 2012 fiscal 2013 increased sales 42 increasing operating expenses 3 thus increase operating income continuing operations resulted increased sales volumes improved manufacturing fixedcost absorption favorable production mix increased manufacturing efficiencies price increases selected products also experienced reduced plant consolidation costs result moving production hunting products springfield massachusetts facility prior year reduced legal consulting fees doj sec matters well related improvements made customer acceptance process foreign markets partially offset increased employee costs associated increased profitability costs associated recall thompsoncenter arms bolt action rifles noted fiscal 2012 operating income continuing operations compared fiscal 2011 significant increase operating income continuing operations resulted increased sales volumes corresponding impact improved absorption costcutting initiatives addition decreased spending related doj sec matters reduced spending associated relocation hunting production rochester new hampshire facility springfield massachusetts facility contributed increase operating income interest expense following table sets forth certain information regarding interest expense fiscal years ended april 30 2013 2012 2011 dollars thousands interest expense decreased fiscal 2013 compared prior fiscal year repurchase 300 million 40 senior convertible notes “convertible notes” fiscal 2012 reduced amortization connection write debt issuance costs result reduction line credit prior fiscal year reduction interest expense offset 552000 additional bond premium 173000 debt issuance writeoff costs recorded order retire 64 million 95 senior notes fiscal 2013 interest expense increased fiscal 2012 compared fiscal 2011 increased interest expense related 95 senior notes bear interest rate 95 per annum compared convertible notes bore interest rate 40 per annum december 2011 required repurchase 297 million convertible notes redeemed remaining 334000 convertible notes january 2012 also amortized additional 563000 debt issuance costs wrote connection reducing line credit october 2011 income tax expense following table sets forth certain information regarding income tax expense fiscal years ended april 30 2013 2012 2011 dollars thousands income tax expense fiscal 2013 included effect changes temporary differences book value tax bases assets liabilities net operating loss carryforwards amounts reflected balance net deferred tax assets totaled 42 million valuation allowance april 30 2013 federal net operating loss carryforwards amounting 757000 865000 16 million april 30 2013 2012 2011 respectively net operating loss carryforwards april 30 2013 expire fiscal 2020 internal revenue code section 382 limits utilization losses approximately 108000 fiscal 2014 subsequent year possible future substantial changes ownership could occur could result reduction loss carryforwards pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards could utilized adjustments reserves book versus tax difference depreciation fixed assets decreased overall net deferred tax asset 82 million april 30 2012 42 million april 30 2013 231 million 194 million state net operating loss carryforwards april 30 2013 2012 respectively state net operating loss carryforwards expire april 30 2015 april 30 2033 23 million 19 million state tax credit carryforwards april 30 2013 2012 respectively state tax credit carryforwards expire april 30 2015 april 30 2025 expiration date april 30 2013 valuation allowances 973000 15 million provided deferred tax assets state net operating losses state tax credits respectively anticipate using prior expiration 20000 valuation allowance provided state deferred tax assets anticipate realize benefit april 30 2012 valuation allowances 827000 11 million provided deferred tax assets federal capital loss carryforwards state net operating losses state tax credits respectively 239000 valuation allowance provided state deferred tax assets anticipate realize benefit valuation allowance provided deferred federal income tax assets april 30 2013 2012 believe likely assets realized order utilize unreserved portion net operating loss carryforwards minimum level annual taxable income would achieve must equal exceed amount federal net operating carryforwards fiscal 2014 2020 management believes achievement level taxable income likely based historical performance future projections including new product offerings pricing decisions marketing efforts expected spending levels income continuing operations following table sets forth certain information regarding income continuing operations related per share data fiscal years ended april 30 2013 2012 2011 dollars thousands except per share data fiscal 2013 income continuing operations compared fiscal 2012 income continuing operations 814 million fiscal 2013 550 million higher 264 million recorded prior fiscal year income continuing operations increased primarily increased sales volumes corresponding gross profit well new pricing discount structure resulted improved profitability also experienced less legal consulting fees reduced interest expense offset increased employee costs related improved profitability recall bolt action rifles net income per basic diluted share continuing operations fiscal 2013 favorably impacted 001 result repurchase 200 million common stock repurchase program fiscal 2012 income continuing operations compared fiscal 2011 income continuing operations 264 million fiscal 2012 184 million higher 81 million recorded fiscal 2011 income continuing operations increased primarily increased net sales volumes corresponding gross profit also experienced significantly less professional consulting fees realized benefit lower tax rate tax planning initiatives fiscal 2012 discontinued operations following summary operating results discontinued operations security solutions division fiscal years ended april 30 2013 2012 2011 dollars thousands except per share data completed disposition swss july 26 2012 result net sales discontinued operations fiscal 2013 decreased 240 million fiscal 2012 net sales discontinued operations fiscal 2012 decreased 193 million primarily reduced delayed demand federal budget constraints loss discontinued operations lower fiscal 2013 due reduced operating expenses completed divestiture business loss discontinued operations fiscal 2012 included 55 million noncash charge related expected loss sale tangible intangible assets loss discontinued operations lower fiscal 2012 due inclusion 905 million impairment charge related goodwill intangible assets recorded fiscal 2011 addition fiscal 2011 included 31 million income associated reduction contingent consideration shares held issuance former stockholders connection acquisition swss excluding loss sale fiscal 2012 adjusted loss would 66 million excluding impairment charge income valuation contingent consideration adjusted loss fiscal 2011 would 30 million adjusted loss discontinued operations 36 million higher fiscal 2012 significant reduction sales related impact gross margin along additional severance costs associated planned divestiture business reductions partially offset reduced operating expenses costcutting initiatives reduction payroll benefit costs resulting lower headcount july 10 2012 entered asset purchase agreement futurenet group inc futurenet providing futurenet acquire substantially assets assume certain liabilities swss purchase price 79 million including 400000 working capital adjustment addition signed licensing agreement futurenet use swss trade name period two years subsequent sale fiscal 2013 recognized 295000 licensing revenue relating licensing agreement futurenet noted completed disposition july 26 2012 connection divestiture swss sold net assets 130 million incurred 16 million closingrelated costs including 655000 legal professional investment banking fees 918000 severance employeerelated costs years ended april 30 2013 2012 recognized loss sale disposal group 12 million 55 million respectively included net income liquidity capital resources principal cash requirements finance growth operations including potential acquisitions investments service existing debt capital expenditures new products capacity expansion process improvements represent important cash needs following table sets forth certain cash flow information fiscal years ended april 30 2013 2012 2011 dollars thousands operating activities operating activities represent principal source cash flow fiscal 2013 generated 981 million cash operating activities increase 607 million 374 million cash generated operating activities fiscal 2012 cash generated fiscal 2013 primarily 626 million increase net income well 38 million increase management incentive accruals cash provided operating activities unfavorably impacted 77 million increase inventory levels increased parts purchases related capacity increases polymer pistol long gun products cash provided operating activities also unfavorably impacted 53 million reduced accrued expenses including reduced accruals distributor incentives addition fiscal 2013 income tax payments higher result higher taxable income cash flows operating activities lower fiscal 2012 compared fiscal 2011 87 million reduction accounts payable able pay balances cash position year end 92 million increase inventories increased production capacity preparation new product introduced late fiscal 2012 72 million decrease accrued taxes income timing federal excise tax payments reductions operating activities offset 51 million reduction accounts receivable efforts reduce amount time sales remain accounts receivable 48 million reduction income tax receivable related timing income tax payments 40 million increase accrued profit sharing increase profitability continuing operations investing activities cash used investing activities increased 195 million fiscal 2013 compared fiscal 2012 result increased capital spending 277 million fiscal 2012 partially offset 75 million received sale discontinued operations noted 10 million proceeds sale land building located rochester new hampshire major capital expenditures fiscal 2013 relate increasing capacity existing products improving production efficiencies tooling new product offerings implementation new erp system various projects designed upgrade manufacturing technology estimated take 128 million complete current construction progress including 39 million costs complete erp implementation cash used investing activities lower fiscal 2012 fiscal 2011 primarily 61 million reduction capital spending compared fiscal 2011 started increase production capacity additional spending related edip refundable tax credit obligation late fiscal 2011 reduction partially offset 500000 proceeds sale foundry business financing activities cash used financing activities 214 million fiscal 2013 compared 256 million fiscal 2012 usage fiscal 2013 primarily related stock repurchase program discussed purchased 200 million common stock open market utilizing cash hand also purchased 64 million 95 senior notes open market utilizing cash hand 436 million 95 senior notes outstanding april 30 2013 paid 552000 interest relating purchases 95 senior notes offset 48 million proceeds exercise options acquire common stock including purchases common stock employee stock purchase plan espp april 30 2013 open letters credit aggregating 11 million cash used financing activities fiscal 2012 included repurchase 300 million convertible notes 19 million cash paid debt issue costs associated exchange convertible notes 95 senior notes late fiscal 2011 offset proceeds 44 million form refundable tax credit received massachusetts economic development incentive program compared fiscal 2011 included net exchange 500 million convertible notes 95 senior notes fiscal 2013 board directors authorized repurchase 350 million common stock subject certain conditions open market privately negotiated transactions prior june 30 2013 repurchased 2099603 shares common stock fiscal 2013 200 million utilizing cash hand leaving 150 million common stock authorized purchased may 28 2013 board authorized repurchase 1000 million common stock 750 million authorized repurchase tender offer remaining 250 million together amount unused tender offer designated repurchase common stock open market privately negotiated transactions 1000 million authorization replaces stock repurchase program authorized 2012 set expire june 17 2014 commenced tender offer june 17 2013 purchase 7500000 shares common stock price 1000 per share tender offer scheduled expire 1200 midnight new york city time evening july 15 2013 subject right extend offer anticipate obtain funds necessary purchase shares tender offer pay related fees expenses available cash equivalents april 30 2013 1005 million cash equivalents hand restricted cash totaling 33 million april 30 2013 25 million served compensating balance line credit dated december 7 2010 812000 related environmental remediation required performed accordance credit facility td bank na lenders “lenders” 600 million revolving line credit lenders balance outstanding april 30 2013 fiscal 2013 purchased 64 million 95 senior notes open market utilizing cash hand credit agreement lenders contains financial covenants relating maintaining maximum leverage minimum debt service coverage indenture relating 95 senior notes contains financial covenant relating times interest earned compliance debt covenants april 30 2013 june 2013 sold aggregate 1000 million 5875 senior notes due 2017 various qualified institutional buyers exchange approximately 428 million outstanding 95 senior notes existing holders notes purchase certain holders additional 5875 senior notes cash result transaction indebtedness increased 571 million debt service requirements increased 18 million per annum 5875 senior notes sold pursuant terms conditions indenture exchange purchase agreements 5875 senior notes bear interest rate 5875 per annum payable june 15 december 15 year beginning december 15 2013 time prior june 15 2015 may option upon less 30 60 days’ prior notice redeem portion 5875 senior notes redemption price 100 principal amount 5875 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 5875 senior notes net cash proceeds one equity offerings redemption price 105875 principal amount 5875 senior notes plus accrued unpaid interest redemption date provided case foregoing clause least 65 aggregate original principal amount 5875 senior notes remains outstanding redemption occurs within 60 days closing equity offering june 15 2015 may option upon less 30 60 days’ prior notice redeem portion 5875 senior notes redemption price 1029375 principal amount 5875 senior notes redeemed 12month period beginning june 15 2015 b 100 principal amount 5875 senior notes redeemed 12month period beginning june 15 2016 plus either case accrued unpaid interest 5875 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5875 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5875 senior notes mature june 15 2017 based upon current working capital position current operating plans potential repurchase 1000 million authorized stock repurchase plan expected business conditions believe existing capital resources credit facilities including 1000 million 5875 senior notes sold june 2013 adequate fund operations including outstanding debt commitments next 12 months apart major acquisitions future capital requirements depend many factors including net sales timing extent spending support product development efforts expansion sales marketing activities timing introductions new products enhancements existing products costs ensure access adequate manufacturing capacity acquisitions strategic investments may determine make equity debt financing may available us acceptable terms sufficient funds available acceptable terms ability take advantage unexpected business opportunities respond competitive pressures could limited severely constrained matters inflation believe inflation material impact us fiscal 2013 2012 2011 critical accounting policies use estimates preparation financial statements preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation expense environmental liability excess obsolete inventory allowance doubtful accounts income tax expense including deferred tax asset valuation forfeiture rates stockbased awards medical claims payable actual results could differ estimates revenue recognition firearm products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured revenue security solutions business reclassified discontinued operations product sales account firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed customer acceptance received also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenue individual licensees based historical experience expected cash receipts licensees licensing revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensees’ products insufficient historical experience believe reasonable assurance collectability exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2013 minimum royalties collected future amounted 56 million valuation longlived tangible intangible assets significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance accounting standards codification “asc” 350 intangiblesgoodwill test intangible assets indefinite lives impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 respect criteria necessary evaluate number reporting units exist based review segment reporting topic asc 2801050 determined operate continuing operations one reporting unit springfield massachusetts houlton maine facilities april 30 2013 goodwill recorded books continuing operations based combination factors occurred fiscal 2011 including federal corporate budgetary constraints increased price competition low barrier entry factors determined indicators impairment goodwill intangible assets existed discontinued security solutions division result conducted evaluation goodwill intangible assets associated acquisition business based earnings cash flow forecast next 10 years fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss related discontinued operations 839 million fiscal 2011 periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affected discontinued security solutions division required us test impairment longlived assets pertaining business fiscal 2011 based assessment recorded impairment charge related discontinued operations 66 million reflect excess carrying value longlived intangible assets discounted cash flows impairment charges taken fiscal 2013 2012 2011 continuing operations based review longlived assets product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost products services sold evaluation based upon information regarding potential existing product liability cases future costs related evaluation recorded considered probable reasonably estimable april 30 2013 estimated range reasonably possible additional losses zero environmental liability provide reserves potential environmental obligations consider probable reasonable estimates obligations made year ended april 30 2013 completed sale land building located rochester new hampshire environmental reserve maintained property relieved result purchase sale agreement april 30 2013 reserve 577000 environmental matters recorded undiscounted basis believe likelihood environmental remediation costs exceeding amount accrued remote inventory value firearm inventories consisting primarily finished firearm components finished firearms related products accessories security solutions inventory consisting primarily mechanical electrical components required installation products lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage warranty generally provide lifetime warranty original purchaser new firearm products provide warranties two years materials workmanship security solutions projects includes products purchased us thirdparty manufacturers provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted allowance doubtful accounts extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes workers’ compensation selfinsured retentions deductibles workers’ compensation liability estimated premiums incurred losses actuarially determined recorded undiscounted basis stockbased compensation account stockbased employee compensation arrangements accordance provisions asc 718 calculating compensation cost date grant using blackscholes method stock options purchases employee stock purchase plan montecarlo method performancebased restricted stock units “psus” amortize compensation expense vesting period estimate fair value stock option purchase employee stock purchase plan date grant using blackscholes option pricing model discounted estimated forfeiture rate using riskfree interest rate expected term expected volatility dividend yield variables estimate fair value psu award date grant using montecarlo model using grant date market value common stock nasdaq composite index russell 2000 index “rut” expected volatilities common stock nasdaq composite index rut correlation coefficient common stock nasdaq composite index rut riskfree interest rate dividend yield recent accounting pronouncements nature impact recent accounting pronouncements discussed note 2 consolidated financial statements commencing page report incorporated herein reference contractual obligations commercial commitments following table sets forth summary material contractual obligations commercial commitments april 30 2013 dollars thousands fiscal 2011 exchanged 500 million convertible notes 500 million 95 senior notes fiscal 2012 repurchased total 64 million 95 senior notes open market utilizing cash hand included longterm debt obligation 112 million contractually obligated interest payments pertaining 436 million remaining balance 95 senior notes represents interest payments january 14 2016 june 2013 sold aggregate 1000 million 5875 senior notes various qualified institutional buyers exchange approximately 428 million 95 senior notes existing holders notes purchase certain holders additional 5875 senior notes cash fiscal 2012 entered saleleaseback agreement included sale certain machinery equipment leased total 35 million machinery equipment increase production capacity lease effective interest rate 576 payable 60 monthly installments fiscal 2017 included capital lease obligation 419000 contractually obligated interest payments pertaining 35 million capital lease offbalance sheet arrangements transactions arrangements relationships unconsolidated entities reasonably likely affect liquidity capital resources special purpose limited purpose entities provide offbalance sheet financing liquidity market credit risk support engage leasing hedging research development services relationships expose us liability reflected face financial statements item 7a item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar portion gross product sales three 12 months ended april 30 2004 48 million 193 million respectively representing approximately 143 161 respectively aggregate gross revenues came sale goods purchased wholly partially european manufacturer euros annually purchase approximately 10 million inventory european supplier exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce gross profit 10 million inventory approximately 1 million effort offset risk unfavorable foreign exchange fluctuations enter euro forward contracts forward contracts entered past three fiscal years consist following three 12 months ended april 30 2004 experienced net gains 70344 321398 respectively hedging transactions executed period effort limit exposure fluctuations eurodollar exchange rate april 30 2004 forward contracts totalling 37 million euros remaining fair market value 40456 item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar portion gross revenues three twelve months ended april 30 2005 50 million 170 million respectively representing approximately 135 134 respectively aggregate gross revenues came sale goods purchased wholly partially european manufacturer euros annually purchase approximately 10 million inventory european supplier exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce company’s gross profit 10 million inventory approximately 1 million effort offset risks unfavorable foreign exchange fluctuations entered euro participating forward options would purchase euros turn would used pay european manufacturer april 30 2005 outstanding contracts remaining balance 45 million euros contracts 750000 euros per month last month expiring october 2005 participating forward options provide full protection us depreciation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay euros average rate euro weakens average rate would pay 50 euros average rate remaining 50 euros paid spot rate option unless used prior expiration date converted expiration date forward contract due needed month slight charge rate three twelve months ended april 30 2005 experienced net gain 663 127498 respectively contracts executed period effort limit exposure fluctuations euro dollar exchange rate april 30 2005 participating forward options totaling 45 million euros remaining reported liability 63659 item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar portion gross revenues three 12 months ended april 30 2007 47 million 182 million respectively representing approximately 72 84 respectively aggregate gross revenues came sale goods purchased wholly partially european manufacturer euros annually purchase approximately 100 million inventory european supplier exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce gross profit 100 million inventory approximately 1 million effort offset risks unfavorable foreign exchange fluctuations periodically enter euro participating forward options purchase euros used pay european manufacturer april 30 2007 outstanding contracts remaining balance 40 million euros contracts 500000 euros per month last expiring december 2007 participating forward options provide full protection us depreciation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros average rate remaining 50 euros paid spot rate option unless used first day converted forward contract due needed month slight charge rate three 12 months ended april 30 2007 experienced net loss 6350 gain 15604 respectively foreign exchange transactions executed period effort limit exposure fluctuations eurodollar exchange rate april 30 2007 participating forward options totaling 40 million euros remaining reported asset 125000 item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar portion gross revenue three 12 months ended april 30 2008 67 million 216 million respectively representing approximately 96 95 respectively aggregate gross revenue came sale goods purchased wholly partially european manufacturer euros annually purchase approximately 150 million inventory european supplier exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce gross profit 150 million inventory approximately 15 million effort offset risks unfavorable foreign exchange fluctuations periodically enter euro participating forward options purchase euros used pay european manufacturer april 30 2008 outstanding contracts remaining balance 12 million euros contracts 600000 euros per month last expiring june 30 2008 participating forward options provide full protection us depreciation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros average rate remaining 50 euros paid spot rate option unless used first day converted forward contract due needed month slight charge rate three 12 months ended april 30 2008 experienced net gain 78000 294000 respectively foreign exchange transactions executed period effort limit exposure fluctuations eurodollar exchange rate foreign exchange loss 700700 fiscal 2008 result unfavorable agreed upon exchange rates one supplier reported net gain experienced forward contracts april 30 2008 participating forward options totaling 12 million euros remaining reported asset 97000 item 8item 7a quantitative qualitative disclosure market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar portion gross revenue three 12 months ended april 30 2009 115 million 315 million respectively representing approximately 116 106 respectively aggregate gross revenue came sale goods purchased wholly partially european manufacturer euros annually purchase approximately 200 million inventory european supplier exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce gross profit 200 million inventory approximately 20 million effort offset risks unfavorable foreign exchange fluctuations periodically enter euro participating forward options purchase euros used pay european manufacturer april 30 2009 forward contracts remaining last contract exhausted april 2009 continue review dollareuro relationship purchase euros spot rate time determine foreign exchange risk best mitigated entering one forward contracts participating forward options provide full protection us depreciation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros average rate remaining 50 euros paid spot rate option unless used first day converted forward contract due needed month slight charge rate three 12 months ended april 30 2009 experienced net unfavorable opportunity cost 304000 613000 respectively foreign exchange transactions executed period effort limit exposure fluctuations eurodollar exchange rate item 8item 7a quantitative qualitative disclosure market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar portion gross revenue three months fiscal year ended april 30 2010 120 million 405 million respectively representing approximately 110 96 respectively aggregate gross revenue came sale goods purchased wholly partially european manufacturer euros annually purchase approximately 250 million inventory european supplier exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce gross profit 250 million inventory approximately 25 million effort offset risks unfavorable foreign exchange fluctuations periodically enter euro participating forward options purchase euros used pay european manufacturer april 30 2010 outstanding forward contracts remaining balance 14 million euros approximately 21 million contracts 700000 euros per month last expiring june 30 2010 subsequent april 30 2010 entered new contracts totaling 129 million euros approximately 164 million expire varying rates 500000 16 million euros per month april 30 2011 participating forward options provide full protection us depreciation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros average rate remaining 50 euros paid spot rate option unless used first day converted forward contract due needed month slight charge rate three months fiscal year ended april 30 2010 experienced net unfavorable cost approximately 212000 127000 respectively foreign exchange transactions executed period effort limit exposure fluctuations eurodollar exchange rate item 8item 7a quantitative qualitative disclosure market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar portion gross revenue three months fiscal year ended april 30 2011 136 million 346 million respectively representing approximately 121 93 respectively aggregate gross firearm revenue came sale goods purchased wholly partially european manufacturer euros annually purchase approximately 250 million inventory european supplier exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce gross profit 250 million inventory approximately 25 million effort offset risks unfavorable foreign exchange fluctuations periodically enter euro forward contracts commit purchase minimum amount euros used pay european manufacturer april 30 2011 forward contracts outstanding forward contracts provide protection us depreciation us dollar euro fiscal year ended april 30 2011 experienced net gain 689000 foreign exchange transactions executed period effort limit exposure fluctuations eurodollar exchange rate item 8item 7a quantitative qualitative disclosure market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar annually purchase 230 million inventory european supplier portion gross sales three months fiscal year ended april 30 2012 99 million 288 million respectively representing approximately 73 68 respectively aggregate net sales came sales goods purchased wholly partially european manufacturer euros exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce gross profit 230 million inventory approximately 23 million item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar annual inventory purchases 82 million european supplier portion gross sales three months fiscal year ended april 30 2014 17 million 57 million respectively representing approximately 10 09 respectively aggregate gross sales came sales goods purchased whole part european manufacturer euros exposes us risk foreign exchange rate fluctuations end fiscal 2013 ended exclusive us importer distributor agreement european supplier however continue purchase european supplier fiscal 2015 existing production rights agreement estimate inventory purchases fiscal 2015 approximately 17 million planned reduction purchases european supplier fiscal 2015 10 drop value us dollar relation euro would material business item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates variable interest rate associated credit facility bore interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio april 30 2015 borrowings outstanding borrowings would borne interest rate 425 per annum selected prime rate option range 218 228 per annum selected libor rate option additionally incur market risk related changes value euro relative us dollar annual inventory purchases 950000 european supplier portion gross sales three months fiscal year ended april 30 2015 460000 22 million respectively representing approximately 025 040 respectively aggregate gross sales came sales goods purchased whole part european manufacturer euros exposes us risk foreign exchange rate fluctuations end fiscal 2013 ended exclusive us importer distributor agreement european supplier however continue purchase limited products supplier end fiscal 2017 minimal purchases planned european supplier fiscal 2016 10 drop value us dollar relation euro would material business item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates variable interest rate associated credit agreement consists 1750 million revolving line credit 1050 million term loan bear interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio april 30 2016 borrowings outstanding revolving line borrowings would borne interest rate 400 per annum selected prime rate option range 194 213 per annum selected libor rate option required obtain fixed interest rate protection term loan covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement expires june 15 2020 covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan 306 subject change based consolidated leverage ratio item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates variable interest rate associated credit agreement consists 3500 million revolving line credit 1050 million term loan bear interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio april 30 2017 500 million borrowings outstanding revolving line bore interest 249 equal libor rate plus applicable margin required obtain fixed interest rate protection covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement expires june 15 2020 covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan 306 subject change based consolidated leverage ratio item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates variable interest rate associated credit agreement consists 3500 million revolving line credit 1050 million term loan bear interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio april 30 2018 250 million borrowings outstanding revolving line bore interest 415 equal libor rate plus applicable margin required obtain fixed interest rate protection covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement expires june 15 2020 covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan 414 subject change based consolidated leverage ratio item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates variable interest rate associated credit agreement consists 3500 million revolving line credit 1050 million term loan bear interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio april 30 2019 borrowings outstanding revolving line borrowings would bore interest 448 equal libor rate plus applicable margin required obtain fixed interest rate protection covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement expires june 15 2020 covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2019 interest rate term loan 448 item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates variable interest rate associated credit agreement consists 3500 million revolving line credit bears interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio april 30 2020 1600 million borrowings outstanding revolving line bore interest 295 item 8item 7a quantitative qualitative disclosures market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar portion gross revenues three 12 months ended april 30 2006 47 million 147 million respectively representing approximately 89 92 respectively aggregate gross revenues came sale goods purchased wholly partially european manufacturer euros annually purchase approximately 10 million inventory european supplier exposes us risk foreign exchange rate fluctuations 10 drop value us dollar relation euro would extent covered price adjustments reduce gross profit 10 million inventory approximately 1 million effort offset risks unfavorable foreign exchange fluctuations entered euro participating forward options purchase euros used pay european manufacturer april 30 2006 outstanding contracts remaining balance 36 million euros contracts 600000 euros per month last expiring october 2006 participating forward options provide full protection us depreciation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros average rate remaining 50 euros paid spot rate option unless used first day converted forward contract due needed month slight charge rate three 12 months ended april 30 2006 experienced net loss 30291 339209 respectively foreign exchange transactions executed period effort limit exposure fluctuations eurodollar exchange rate april 30 2006 participating forward options totaling 36 million euros remaining reported asset 54483 item 8item 7a quantitative qualitative disclosure market risk enter market risk sensitive instruments trading purposes principal market risk relates changes value euro relative us dollar historically annual inventory purchases 363 million european supplier portion gross sales three months fiscal year ended april 30 2013 61 million 382 million respectively representing approximately 34 63 respectively aggregate gross sales came sales goods purchased whole part european manufacturer euros exposes us risk foreign exchange rate fluctuations end fiscal 2013 ended exclusive us importer distributor agreement european supplier however continue purchase european supplier fiscal 2014 existing production rights agreement terminate end fiscal 2014 estimate inventory purchases fiscal 2014 approximately 65 million planned reduction purchases european supplier fiscal 2014 10 drop value us dollar relation euro would material business item 8 item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made consolidated financial statements notes thereto report thereon commencing page report consolidated financial statements notes report incorporated herein reference item 9item 8 financial statements supplementary data reference made financial statements notes thereto report thereon commencing page report financial statements notes report incorporated herein reference item 9 item 15 exhibits financial statement schedules reports form 8k financial statements financial statement schedules financial statements listed index financial statements page report none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation date july 12 2004 roy c cuny roy c cuny president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated smith wesson holding corporation subsidiaries consolidated financial statements years ended april 30 2004 2003 2002 index report independent registered public accounting firm board directors stockholders smith wesson holding corporation opinion financial statements listed index appearing item 8 page present fairly material respects consolidated financial position smith wesson holding corporation subsidiaries april 30 2004 2003 consolidated results operations cash flows three years period ended april 30 2004 conformity accounting principles generally accepted united states america financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp hartford connecticut july 13 2004 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements operations comprehensive income accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements notes consolidated financial statements 1 organization incorporated june 17 1991 state nevada development stage company number years effective october 20 1998 acquired assets safthammer inc changed name safthammer corporation acquisition accounted purchase method issued 1331250 shares common stock safthammer acquisition resulted total 1864038 shares common stock issued outstanding smith wesson corp incorporated laws state delaware january 13 1987 smith wesson corp predecessors business since 1852 since formation undergone several ownership changes june 9 1987 tomkins corporation “tomkins” company organized laws state delaware subsidiary ukbased tomkins plc acquired smith wesson corp lear siegler may 11 2001 purchased outstanding stock smith wesson corp tomkins 15000000 accordingly operations smith wesson corp included financial statements period may 11 2001 april 30 2002 see note 2 “acquisition smith wesson corp” special meeting stockholders held february 14 2002 stockholders approved change company’s name “smith wesson holding corporation” 2 acquisition smith wesson corp acquisition purchase price paid us smith wesson corp follows purchase price resulted negotiations tomkins us acquisition accounted purchase method pursuant apb 16 “business combinations” summary net assets acquired follows acquisition note pursuant acquisition agreement tomkins issued promissory note amount 10 million partial consideration acquisition smith wesson corp note due may 11 2002 uncollateralized bore interest 9 per annum march 2002 obtained bank loan see note 16 paid entire loan balance tomkins note acquisition agreement required us guarantee obligations smith wesson corp tomkins promissory note issued april 30 1997 smith wesson corp tomkins “tomkins note” tomkins note originally amount 73830000 due april 30 2004 bore interest rate 9 per annum prior acquisition tomkins contributed 23830000 tomkins note capital smith wesson corp leaving balance 50000000 immediately subsequent acquisition paid 20000000 tomkins note repaid additional 2000000 outstanding principal balance april 2003 another 1000000 july 2003 outstanding principal balance tomkins note april 30 2004 27000000 interest rate 9 per annum current terms tomkins note follows note due may 11 2011 b unpaid principal balance payable 84 equal monthly payments commenced may 11 2004 c dividends declared paid smith wesson corp us may exceed 1800000 per year smith wesson may merge liquidate windup dissolve transfer pledge assets e event default tomkins note tomkins note accelerated become due payable full immediately addition change control company smith wesson corp result tomkins note becoming due payable full immediately melby loan obtained financing amount 5 million individual pursuant promissory note loan agreement dated may 6 2001 us individual “melby note” interest accrued melby note rate 12 per annum maturity may 15 2002 terms melby note prepaid annual interest 600000 rate 12 may 14 2001 related loan also granted warrants described purchase aggregate approximately 8700000 shares common stock exercise prices ranging 040 per share 200 per share consideration melby loan issued colton melby formerly president chief operating officer currently director company common stock purchase warrant dated may 6 2001 “melby warrant” melby warrant provided mr melby purchase 7094500 shares common stock exercise price 40 per share subject adjustment set forth therein anytime date issuance six years date issuance also consideration melby loan issued common stock purchase warrants dated may 11 2001 three affiliates mr melby “affiliate warrants” affiliate warrants provided holder purchase time date issuance one year date issuance 300000 shares common stock exercise price 80 per share exercised may 21 2001 b 200 per share exercised may 22 2001 june 30 2001 c 500 per share exercised june 30 2001 portion finder’s fee arranging melby loan issued common stock purchase warrants dated may 11 2001 two unrelated parties “finders warrants” finders warrants provided holder purchase 354725 shares common stock exercise price 100 per share time date issuance two years date issuance relied upon section 42 securities act respect issuance warrants underlying shares warrants exercised full including way repayment melby note 3 significant accounting policies preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenues expenses reporting periods actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training centre gmbh germany smith wesson distributing inc united states smith wesson inc united states lost coast ventures inc inactive significant intercompany accounts transactions eliminated consolidation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts cash equivalents cash equivalents include highly liquid debt instruments original maturities three months less collateralizing corporate obligations terms bank loan required maintain portion investments collateral loan formula specified loan agreement accordingly allocated portion money market funds satisfy collateral requirements presented amounts accompanying balance sheet noncurrent collateralized cash deposits concentration maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts marketable securities marketable securities consist mutual funds accordance statement financial accounting standards 115 “accounting certain investments debt equity securities” determine appropriate classification debt equity securities presented marketable securities time purchase reevaluate designation balance sheet date currently classify marketable securities availableforsale securities classified availableforsale required reported fair value unrealized gains losses net taxes excluded earnings shown separately component accumulated comprehensive income within stockholders’ equity realized gains losses sale securities availableforsale determined using specific identification method trade receivables extend credit domestic customers foreign distributors based financial condition discounts offered early payment extension credit advisable rely either prepayment letter credit past due balances placed collection outside agency 90 days balances deemed uncollectible agency written allowance doubtful accounts concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents shortterm investments trade receivables place cash equivalents shortterm investments highquality financial institutions instruments concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral inventories consisting primarily finished firearms components finished firearms related products accessories valued lower cost market using firstin firstout fifo method allowance potential nonsaleable inventory due excess stock obsolescence provided based upon detailed review inventory components past history expected future usage deferred revenues deferred revenues represent deposits prepayments customers products services revenue yet recognizable risks rewards ownership yet transferred customer expect earned revenues fully within 12month period recognized revenues time also offered promotion distributors provided free gun purchase five others portion revenue deferred recognized free gun shipped comprehensive income statement financial accounting standards board 130 requires companies report components comprehensive income financial statements including nonowner transactions events impact equity even items directly affect net income loss comprehensive income loss consists net income loss unrealized gains losses available sale securities accordingly consolidated statements operations comprehensive income loss presented property plant equipment property plant equipment consisting land building improvements machinery equipment computers furniture fixtures recorded cost depreciated using straightline method estimated useful lives expenditures maintenance repairs charged earnings incurred additions renewals betterments capitalized property equipment retired otherwise disposed related cost accumulated depreciation removed respective accounts gain loss included operations summary estimated useful lives follows capitalize machinery equipment tooling dies fixtures depreciate period exceeding five years goodwill intangible assets goodwill represents costs excess fair values assigned underlying net assets acquired companies goodwill historically amortized straightline basis periods exceeding 25 years effective july 1 2001 adopted provisions statement financial accounting standards 142 “goodwill intangible assets” fas 142 require goodwill certain intangible assets indefinite lives recorded result business combinations completed june 30 2001 amortized effective january 1 2002 adopted additional provisions fas 142 require goodwill recorded business combinations completed june 30 2001 certain intangible assets deemed indefinite lives longer amortized goodwill intangible assets indefinite lives subject annual impairment tests intangible assets amortized estimated useful lives range three 30 years see note 12 additional information regarding goodwill intangible assets valuation longlived assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values would reduced fair value adjusted carrying value would become asset’s new cost basis fair value determined primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved revenue recognition recognize revenue earnings process complete risks rewards ownership transferred customer generally upon shipment recognize tooling forging heat treating finishing plating engineering support revenues accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize licensing revenue use identikit software subscription period recognize trademark licensing revenues individual licensees quarterly basis based actual receipts due licensees date financial statements revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenues payable calendar quarter basis fees received upon initial signing license agreements recognized revenues extent costs incurred result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore initially recognize minimum royalty payments instead record revenue period minimum royalty becomes due payable also believe due factors noted allowance “uncollectible minimum royalties” cannot reasonably estimated april 30 2004 future minimum royalties amounted approximately 57 million next five fiscal years follows segment information adopted provisions sfas 131 “disclosures segments enterprise related information” sfas 131 requires public companies report financial descriptive information reportable operating segments identify operating segments based internally evaluate separate financial information business activities management responsibility present time believe operate single business segment adoption standard material impact financial statements april 30 2004 2003 2002 material foreign operations following breakdown net product sales research development engage internal external research development order remain competitive exploit possible untapped market opportunities prospective rd projects approved executive management analysis cost benefits associated potential product costs included rd expense could include among items salaries materials utilities administrative costs fiscal 2004 spent approximately 13 million research activities relating development new products 441000 spent connection discontinued advanced technology division fiscal 2003 spent approximately 18 million research activities 528000 related advanced technology fiscal 2002 spent 20 million related core activities annual amounts reimbursed 786534 917701 1272936 fiscal 2004 2003 2002 respectively national institute justice based grants received us development authorized user firearm research development expense shown net reimbursement financial statements earnings per share basic diluted earnings per common share calculated accordance provisions statement financial accounting standards 128 “earnings per share” basic earnings per common share equal income continuing operations net income divided weighted average number common shares outstanding period diluted earnings per common share equal income continuing operations net income divided weighted average number common shares outstanding period including effect stock options stock awards effect dilutive income taxes provision income taxes based upon income reported accompanying financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes accordance statement financial accounting standards 109 “accounting income taxes” deferred taxes measured applying currently enacted tax laws derivative instruments account derivative instruments statement financial accounting standards 133 accounting derivative instruments hedging activities amended fas 133 fas 133 establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value purchase certain finished goods component parts european supplier pay euros purchased foreign exchange contracts minimize impact fluctuations foreign exchange rates elected designate derivative instruments qualifying hedge accounting treatment statement 133 accordingly gains losses derivative contracts expensed currently element incomeexpense fair values derivative financial instruments estimated based exchange rates underlying currencyeuros stock options described note 19 stock option plan employees directors receive options purchase common stock apply apb opinion 25 “accounting stock issued employees” related interpretations accounting stock option plan accordingly compensation cost recognized financial statements following table illustrates effect net income earnings per share compensation cost recognized based fair value options grant dates awards plan consistent statement financial accounting standards 123 “accounting stockbased compensation” using blackscholes fair value method option pricing product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel adjustments provision product liability evaluated ongoing basis charged credited cost sales evaluation based upon information regarding potential existing product liability cases future costs result evaluation recorded considered probable reasonably estimable environmental liability provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made environmental liabilities considered probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party prp ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations currently reserves reviewed additional reserves deletions reserves may occur due specific facts circumstances previously noted warranty generally provide lifetime warranty “original” purchaser firearms products estimated warranty obligations provided period related revenue recognized quantify record estimate warranty related costs based actual historical claims experience current repair costs adjustments made accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted warranty expense fiscal years ended april 30 2004 2003 2002 amounted approximately 1591741 1194328 1021410 respectively changes accrued warranties fiscal years ended april 30 2004 2003 follows sales promotional related expenses net product sales presented financial statements net vendor promotional program costs depend volume sales amounted approximately 234000 410000 146000 fiscal years ended april 30 2004 2003 2002 respectively vendor promotional programs costs depend volume sales costs amounted 197000 845000 336000 fiscal years ended april 30 2004 2003 2002 respectively included selling marketing expenses coop advertising coop advertising program retail level costs amounting 797000 482000 375000 fiscal 2004 2003 2002 respectively included selling marketing expenses shipping handling accompanying financial statements amounts billed customers shipping handling included net product sales costs relating shipping handling charges included cost goods sold insurance reserves “selfinsured” retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 2000000 per occurrence liability estimated premiums incurred losses actuarially determined recorded accompanying consolidated financial statements undiscounted basis recently issued accounting standards december 2003 financial accounting standards board fasb issued statement financial accounting standards 132 “employers’ disclosures pensions postretirement benefits revised 2003” fas 132 revised fas 132 revised requires additional disclosures pension plans postretirement benefit plans compared required original fasb statement 132 disclosures require additional information provided related assets obligations cash flows net periodic benefit cost defined benefit pension plans defined benefit postretirement plans fas 132 revised also requires information provided regarding types plan assets investment strategy measurement dates required disclosures fas 132 revised pertinent us effective annual periods ending december 15 2003 interim periods beginning december 15 2003 adoption standard material impact consolidated financial position results operations cash flows december 2003 fasb issued interpretation 46 “consolidation variable interest entities revised december 2003 interpretation arb 51” interpretation requires variable interest entities consolidated primary beneficiary equity investment risk sufficient permit entity finance activities without support parties equity investors lack certain specified characteristics controlling financial interest currently accounting disclosure requirements provisions interpretation 4 financial instruments marketable securities consist entirely mutual funds considered “available sale” total gross unrealized gainloss marketable securities mutual funds 11489 36543 fiscal years ended april 30 2004 2003 collateralized cash deposits consist entirely money market funds summary money market funds april 30 2004 2003 follows summary collaterized cash deposits april 30 2004 2003 follows current bank loan agreement see note 5 obligates us maintain collateral balance equal face amount bank loan plus open letters credit plus foreign exchange exposure plus automated clearing house “ach” exposure accordingly presented collateralized cash deposits 22673059 21513000 april 30 2004 2003 noncurrent asset accompanying consolidated balance sheet 5 longterm debt financing arrangements bank letters credit facility august 2001 entered agreement general business purpose line credit facility terms agreement may borrow 80 million letters credit outstanding balance accrues interest prime rate 400 april 30 2004 due demand borrow issue letters credit line must automatically pledge assign transfer grant lender continuing lien security interest liquid assets maintained lender april 30 2004 open letters credit aggregating 51 million compared 52 million april 30 2003 bank loan march 2002 entered specific purpose loan agreement bank terms agreement borrowed 150 million pay acquisition note melby note related acquisition smith wesson corp see note 2 outstanding balance 149 million accrues interest rate 585 per annum collateralized liquid assets face aggregate amount obligation interest payable monthly principal payable monthly installments began april 28 2004 due full march 28 2014 monthly combined principal interest payments 166060 tomkins note acquisition agreement related acquisition smith wesson corp requires us guaranty obligations smith wesson corp tomkins promissory note issued april 30 1997 smith wesson corp tomkins “tomkins note” tomkins note originally amount 73830000 due april 30 2004 bore interest rate 9 per annum prior acquisition tomkins contributed 23830000 tomkins note capital smith wesson corp leaving balance 50000000 immediately subsequent acquisition paid 20000000 tomkins note april 2003 made early repayment 2 million tomkins bring principal balance 300 million 280 million july 2003 made another early repayment 1 million tomkins bring principal balance 270 million satisfaction agreement conditions executed guaranty dated may 11 2001 favor tomkins terms tomkins note amended follows e event default tomkins note tomkins note become due payable full immediately addition change control company smith wesson corp result tomkins note becoming due payable full immediately total longterm debt maturing fiscal 2005 2006 2007 2008 2009 thereafter 40 million 44 million 48 million 52 million 56 million 180 million respectively carrying amounts notes payable april 30 2004 2003 follows 6 accounts receivable major customers one customer accounted approximately 13 11 net product sales fiscal years ended april 30 2004 2003 respectively customer owed us approximately 1797000 9 total accounts receivable april 30 2004 1163000 8 total accounts receivable april 30 2003 7 international sales sell products worldwide breakdown international export sales accounted approximately 10 15 16 net product sales fiscal years ended april 30 2004 2003 2002 respectively follows 8 incomeexpense summary incomeexpense items fiscal years ended april 30 2004 2003 follows 9 advertising costs advertising costs consisting primarily magazine advertisements printed materials expensed incurred fiscal years ended april 30 2004 2003 2002 advertising expenses amounted approximately 5175000 4171000 2555000 respectively 10 property plant equipment summary property plant equipment april 30 2004 2003 follows depreciation expense amounted 1682109 969779 393911 fiscal years ended april 30 2004 2003 2002 respectively 11 inventories summary inventories stated lower cost market april 30 2004 2003 follows changes reserve obsolete excess inventory fiscal years ended april 30 2004 2003 follows 12 intangible assets intangible assets recorded cost arose acquisition smith wesson corp patents amortized using straightline method estimated useful lives ranging 10 20 years summary intangible assets follows amortization expense amounted 23405 17895 41661 fiscal years ended april 30 2004 2003 2002 respectively fiscal 2003 remaining unamortized balance tradenames 800000 eliminated result reversal tax valuation allowance amortization expense patents approximate 24000 annually next five fiscal years 13 noncurrent liabilities noncurrent liabilities consist following april 30 2004 2003 severance payments continue january 2009 14 derivative financial instruments hedging activities effective may 1 2002 adopted statement financial accounting standards “statement” 133 “accounting derivative instruments hedging activities” amended standard establishes accounting reporting standards requiring derivative instruments including certain derivative instruments embedded contracts recorded balance sheet either assets liabilities measured fair value also requires changes derivative instrument’s fair value recognized currently earnings unless specific hedge accounting criteria met special accounting qualifying hedges allows derivative instrument’s gains losses offset related results hedged item income statement requires company must formally document designate assess effectiveness transactions receive hedge accounting use forward contracts reduce risk unfavorable price movements relating payment euros purchases inventory carl walther gmbh germany order apply hedge accounting statement 133 company required establish document inception hedge nature hedge method use assessing effectiveness hedging derivative measurement approach determining ineffective portion hedge elected designate derivative instruments qualifying hedge accounting treatment statement 133 result beginning may 1 2002 changes fair value derivatives recognized immediately earnings fair values derivative financial instruments estimated based quoted market prices underlying commodities cumulative effect adjustment relating adoption statement 133 outstanding derivatives april 30 2002 fair value outstanding derivatives liability approximately 40000 april 30 2004 approximately 187000 april 30 2003 15 related party transactions april 1 2000 acquired 50 interest walther usa llc joint venture carl walther usa llc member contributed 50000 walther usa purchased sold “walther” brand handguns worldwide neither management control walther usa provided limited procurement employee support services accordingly joint venture accounted equity method accounting whereby recorded share net income loss members walther usa llc chose december 31 fiscal year end however recorded share net income loss consistent april 30 yearend effective january 1 2002 members agreed dissolve walther usa llc operations joint venture ceased acquired firearms inventory cost affairs joint venture wound final settlements parties reached january 2003 summary transactions walther usa llc follows carl walther gmbh carl walther gmbh sells products us neither management control carl walther gmbh summary transactions carl walther gmbh follows 16 selfinsurance reserves april 30 2004 2003 reserves workers’ compensation product liability totaling approximately 14426858 23119038 respectively 12104222 16518617 respectively classified noncurrent included noncurrent liabilities remaining amounts 2322636 6600421 respectively included accrued expenses accompanying consolidated balance sheet believe reserves adequate exists possibility ultimate liabilities exceed estimates amounts charged expense 583813 262065 fiscal years ended april 30 2004 2003 respectively following summary activity workers’ compensation product liability reserves fiscal years ended april 30 2004 2003 policy provide estimate loss result expected adverse findings legal settlements losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis april 30 2004 2003 product liabilities approximately 135 million 225 million respectively consisting entirely expected legal defense costs addition recorded receivables insurance carrier related liabilities 83 million 153 million april 30 2004 2003 respectively 17 restructuring dispositions january 2004 decided close scottsdale corporate office transfer executive office functions along licensing operations springfield massachusetts facility also decided discontinue crossings catalog well close advanced technology division result incurred onetime charge approximately 1 million fiscal 2004 severance costs relative closing scottsdale corporate headquarters approximately 804000 remaining 196000 costs discontinue crossings catalog advanced technology businesses summary activity restructuring accrued liability fiscal year ended april 30 2004 follows 18 capital stock common stock connection portion financing used acquire smith wesson corp may 11 2001 granted 8703950 warrants consisting 7094500 lender 900000 affiliates lender 709450 finders fiscal year ended april 30 2003 options warrants exercised follows october 2002 issued 67117 shares common stock market value 89266 employee stock purchase plan underlying value shares 76012 november 2002 issued 4700 shares common stock market value 8037 employee settle 5875 compensation due shares valued 125 per share november 2002 issued 50000 shares common stock unrelated third party part litigation settlement february 2003 issued 165032 shares common stock individual upon exercise warrant exercise price 100 per share march 2003 issued aggregate 300000 shares common stock two unrelated parties upon exercise warrants exercise price 50 per share march 2003 issued 149681 shares common stock former executive officer company upon exercise warrant exercise price 100 per share march 2003 issued 24000 shares common stock market value 40800 former employee upon exercise options granted employee company underlying value shares 19440 march 2003 issued 10000 shares common stock market value 15700 current director company upon exercise options granted underlying value shares 11800 april 2003 issued 42666 shares common stock market value 65279 former employee upon exercise options granted employee company underlying value shares 34560 april 2003 issued 122819 shares common stock market value 192826 employee stock purchase plan underlying value shares 139893 fiscal year ended april 30 2004 options warrants exercised follows july 2003 issued 10000 shares common stock market value 18800 unrelated third party upon exercise options underlying value 11500 difference recorded consulting expense september 2003 issued 10000 shares common stock market value 19000 unrelated third party upon exercise options underlying value 17200 difference recorded consulting expense october 2003 issued 116752 shares common stock market value 220661 employee stock purchase plan underlying value shares 133593 november 2003 issued 5000 shares common stock market value 10900 unrelated third party upon exercise options underlying value 8600 difference recorded consulting expense january 2004 issued 10000 shares common stock market value 15000 former employee upon exercise options granted employee company underlying value shares 8100 february 2004 issued 10000 shares common stock market value 16100 former employee upon exercise options granted employee company underlying value shares 8100 march 2004 issued 5075 shares common stock market value 8628 current employee upon exercise options granted underlying value shares 4110 april 2004 issued 109344 shares common stock market value 183681 employee stock purchase plan underlying value shares 124136 april 2004 issued 40000 shares common stock market value 77010 current former employees upon exercise options granted employees company underlying value shares 37877 following table provides reconciliation income loss amounts shares used determine basic diluted earnings loss per share options purchase 116666 shares common stock excluded fiscal 2004 computation diluted earnings per shares average exercise price greater average market price common shares end year options purchase 50000 shares common stock excluded fiscal 2003 computation diluted earnings per shares average exercise price greater average market price common shares end year options warrants purchase 12709450 shares common stock excluded fiscal 2002 computation diluted earnings per share effect would antidilutive stock warrants issued warrants related financing debt used acquisition smith wesson corp incentive bonuses employees directors compensation outside consultants fiscal 2002 consideration past services company including services rendered connection acquisition smith wesson corp issued common stock purchase warrant dated may 11 2001 approved board directors april 24 2001 mitchell saltz formerly chief executive officer currently director company “saltz warrant” saltz warrant entitles mr saltz purchase 5000000 shares common stock exercise price 089 per share subject adjustment set forth therein anytime date issuance five years date issuance relied upon section 42 securities act respect issuance saltz warrant underlying shares consideration past services company including services rendered connection acquisition smith wesson corp issued common stock purchase warrant dated may 11 2001 formerly approved board directors april 24 2001 robert l scott former officer current director company “scott warrant” scott warrant entitles mr scott purchase 5000000 shares common stock exercise price 89 per share subject adjustment set forth therein anytime date issuance five years date issuance relied upon section 42 securities act respect issuance scott warrant underlying shares following outlines activity related warrants periods indicated 19 stock option employee stock purchase plans employee stock option plan “the sop” plan authorizes issuance 10000000 shares common stock upon exercise options granted plan board directors committee established board administers sop selects recipients options granted determines number options awarded options granted sop exercisable price determined board directors time grant event less fair market value grants options may made employees directors without regard performance measures options issued pursuant sop nontransferable subject forfeiture term sop unless previously terminated board 10 years may 14 2011 options granted sop become exercisable period longer 10 years unless otherwise specified board directors board committee resolution authorizing option date grant option deemed date upon board directors board committee authorizes granting option generally options vest period three years instances reduced fiscal years ended april 30 2004 2003 granted 340000 1202500 options respectively sop number weighted average exercise prices options granted sop fiscal years ended april 30 2004 2003 2002 follows summary stock options outstanding exercisable april 30 2004 follows employee stock purchase plan “the espp” authorizes sale 10000000 shares common stock employees espp commenced june 24 2002 continues effect term 10 years unless sooner terminated espp implemented series offering periods 24 months duration reduced six months duration october 11 2004 new offering periods commencing april 1 october 1 year time times may determined board directors purchase price must equal 85 fair market value common stock offering date purchase date whichever lower participant may elect payroll deductions made payday offering period amount less 1 20 greater percentage board may establish time offering date participant’s compensation payday offering period first offering period began june 24 2002 continued march 31 2004 offering period consists four consecutive purchase periods six months’ duration last day purchase period purchase date purchase period purchase period commencing april 1 ends next september 30 purchase period commencing october 1 ends next march 31 board directors power change duration andor frequency offering purchase periods respect future offerings purchases without stockholder approval change announced least five days prior scheduled beginning first offering period affected maximum number shares employee may purchase period 12500 shares options rights participate espp nontransferable subject forfeiture accordance espp guidelines event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2004 2003 226096 189936 shares respectively purchased espp total authorized 10000000 shares apply apb 25 accounting stock compensation plans compensation cost recognized effect net income earnings per share compensation cost recognized based fair value options grant dates awards plans consistent statement financial accounting standards 123 “accounting stock based compensation” using blackscholes fair value method option pricing detailed footnote 3 “stock options” purpose computing pro forma effects stock compensation fair value accounting method fair value stock option grant espp purchase estimated date grant using blackscholes option pricing model weightedaverage fair value stock options granted fiscal 2004 2003 146 110 respectively weightedaverage fair value espp shares granted fiscal 2004 2003 58 54 respectively following weightedaverage assumptions used stock option grants espp purchases following periods 20 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed approximately 580000 fiscal year ended april 30 2004 557000 fiscal year ended april 30 2003 573000 fiscal year ended april 30 2002 noncontributory profit sharing plan also noncontributory profit sharing plan employees eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes defined plan year fiscal 2004 plan contribute approximately 2272000 contributed approximately 1621000 fiscal year ended april 30 2003 approximately 820000 fiscal year ended april 30 2002 contributions funded fiscal yearend 21 postemployment postretirement deferred compensation postretirement medical program certain obligations terminated program provided health care retirees age 65 employees designated combined age years service grandfathered program grandfathered provision provides varying degrees coverage based upon years service currently six retirees covered program 14 active employees grandfathered program postretirement medical liability based upon reports provided independent actuary postretirement medical liability approximately 313000 april 30 2004 approximately 366000 april 30 2003 following tables sets forth postretirement medical life plan’s status amounts recognized retirement incentive program net periodic postretirement benefit expenseincome includes following components weighted average discount rate used determining actuarial present value projected benefit obligation 550 468 fiscal 2004 fiscal 2003 respectively measurement purposes 11 annual rate increase per capita cost covered health care benefits assumed fiscal 2004 rate grading ultimate rate 5 fiscal 2003 11 annual rate increase per capita cost covered health care benefits assumed rate assumed decrease gradually 40 2008 fiscal years ended april 30 2004 2003 1 increase decrease assumed health care cost trend rate would immaterial affect aggregate service interest cost components net periodic postretirement health care benefit costs accumulated postretirement benefit obligation health care benefits estimated future benefit payments follows 2004 32627 2005 38655 2006 50182 2007 35743 2008 30320 2009 2013 47180 22 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax basis assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date reconciliation provision income taxes statutory rates provision consolidated financial statement follows federal state income tax expensebenefit 4217 fiscal 2004 11935 fiscal 2003 0 fiscal 2002 allocated comprehensive income fiscal 2004 tax provision includes 416193 benefit federal net operating loss adjustments benefit relates filing amended fiscal 2003 2002 federal income tax returns recognize tax deductions warrant option exercises previously entitled deductions complied federal statutory reporting requirements subsequently complied reporting requirements entitled realize tax benefits relating warrant option exercises fourth quarter fiscal 2003 released federal state valuation allowance amounts 127 million 800000 respectively portion tax benefit resulting release valuation allowance recorded intangible assets accordance statement financial accounting standards 109 paragraph 30 although realization deferred tax assets assured assessed positive evidence including forecasts future taxable income support realization net deferred tax assets negative evidence including tax losses recent years concluded likely exception state net operating loss carryforwards deferred tax assets realized realization depends generating sufficient future taxable income periods temporary differences become deductible prior expiration net operating loss carryforwards amount deferred tax asset considered realizable could reduced near term estimates future taxable income carryforward period reduced differences forecasted actual future operating results could adversely impact ability realize deferred tax assets income tax provision benefit consists following tax benefit associated exercise employee nonqualified stock options increased amount deferred tax asset fiscal 2004 40527 result utilization less net operating loss carryforwards fiscal 2004 0 fiscal 2003 2002 future tax benefits deferred tax liabilities related temporary differences following federal net operating loss carryforwards amounting 150 million 139 million 133 million april 30 2004 2003 2002 respectively utilization losses may limited certain federal statutory provisions conjuction acquisition smith wesson corp may cumulative change ownership threeyear period pursuant section 382 internal revenue code additional analysis still required order conclude whether section 382 change occurred however provisions expected impair ability realize assets prior expiration federal net operating losses account 51 million total net deferred tax asset 135 million 47 million 132 million deferred tax assets april 30 2004 2003 respectively net operating loss carryforwards scheduled expire following years state net operating loss carryforwards amounted 121 million 151 million 151 million april 30 2004 2003 2002 respectively expire fiscal 2004 fiscal 2006 certain state provisions may limit ability utilize state net operating losses given year certain events occur including cumulative changes ownership interests threeyear period opinion due uncertainty realization benefit state net operating losses valuation allowance maintained deferred tax assets sfas 109 requires valuation allowance recognized deferred tax asset acquired entity’s deductible temporary differences operating loss tax credit carryforwards acquisition date tax benefits items first recognized financial statements shall applied first reduce goodwill related acquisition second reduce noncurrent intangible assets related acquisition third reduce income tax expense noncurrent intangible assets reduced approximately 800000 fiscal year ended april 30 2003 accordance standard remaining 135 million april 30 2003 change valuation allowance recorded reduction income tax expense 23 commitments contingencies litigation together firearms manufacturers certain related organizations codefendant various legal proceedings involving product liability claims aware product liability claims including allegations defective product design manufacturing negligent marketing andor distribution firearms leading personal injury including wrongful death lawsuits claims based principally theory “strict liability” also may based negligence breach warranty legal theories many lawsuits punitive damages well compensatory damages demanded aggregate claimed amounts currently exceed product liability accruals applicable insurance coverage believe every case allegations defective product design unfounded accident results therefrom due negligence misuse firearm claimant third party recovery us addition also codefendant various legal proceedings brought certain cities municipalities counties numerous firearms manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties shootings complaints municipalities seek damages among things costs medical care police emergency services public health services maintenance courts prisons services certain instances plaintiffs seek recover decreases property values loss business within city due increased criminal violence addition nuisance abatement andor injunctive relief sought change design manufacture marketing distribution practices various defendants suits allege among claims strict liability negligence design products public nuisance negligent entrustment negligent distribution deceptive fraudulent advertising violation consumer protection statutes conspiracy concert action theories monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect consolidated financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgment intend vigorously defend time estimated range reasonably possible additional losses term defined sfas 5 zero range reasonably possible loss relating unfavorable outcomes cannot made however product liability cases dollar amount damages claimed amount damages claimed totaled 454 million april 30 2004 903 million april 30 2003 set forth indication possible maximum liability might required incur cases regardless likelihood reasonable probability amount awarded claimants result adverse judgments sustained appeal fiscal years ended april 30 2004 2003 paid 15 million 22 million respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 16039 207500 respectively fiscal years settlement fees relative product liability cases recorded liability defense costs level reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets sec investigation sec conducting investigation determine whether violations federal securities laws connection matters relating restatement consolidated financial statements fiscal 2002 first three quarters fiscal 2003 continue discussions sec intend continue cooperate fully sec environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act “rcra” place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject five release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency “epa” andor individual states cercla state equivalent one site reserves 39 million april 30 2004 38 million noncurrent remediation sites referred believe time frame remediation currently indeterminable therefore time frame payment remediation likewise currently indeterminable thus making net present value calculation irrelevant estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used doe insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority “sra” 175 million resulting net gain 17 million terms sale included cash payment 750000 closing promissory note remaining 10 million note collateralized mortgage sold property note due 2022 accrues interest fixed rate 60 per annum sra public body politic corporate created pursuant massachusetts general laws property excess land adjacent manufacturing office facility 85 acres includes three five previously disclosed release areas identified soil groundwater contamination mcp property acquired sra defined “brownfield” comprehensive environmental response compensation liability act “cercla” believe sra plans create light industrial commercial use development park property sra support city springfield received governmental “brownfield” grants loans facilitate remediation development property although entered certain environmental agreements contractual assurances sra associated sale revised environmental reserve determine revision necessary monitor progress sra remediation development property sra’s progress success brownfield redevelopment property specifically approval remediation governing authorities allow us review environmental reserve determine revision necessary based upon previously identified specific facts circumstances may revise environmental reserve future revision could significant impact earnings period revision made based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company contracts employment agreements entered employment agreements certain officers managers retain service ordinary course business also entered severance agreements certain officers managers affected restructuring discontinuance certain businesses see footnote 17 agreements various distribution agreements various third parties ordinary course business rental leases lease office space scottsdale operating nonrenewing lease expires may 2005 also lease photocopiers springfield location various expiration dates april 30 2004 lease commitment next five fiscal years follows lease expense fiscal years ended april 30 2004 2003 2002 approximately 151153 147110 102243 respectively 24 quarterly financial information following table summarizes quarterly financial results fiscal 2004 fiscal 2003 opinion adjustments necessary present fairly information quarters reflected quarterly per share data add full year due rounding 25 subsequent events june 3 2004 completed sale certain net assets associated identikit product line copia partners llc dba indentikit solutions limited liability company whose principals former employees 300000 cash 6 license fee future net revenue defined product line effective date sale may 1 2004 terms agreement retain ownership tradename identikit granted buyer ten year renewable license 26 predecessor financial statements unaudited financial statements smith wesson corp “sw” presented may 11 2001 13day period ended presented sw predecessor smith wesson holding corporation “swhc” swhc previously filed form 8ka report dated july 30 2001 containing financial statements sw april 28 2001 year ended sw acquired may 11 2001 smith wesson corp subsidiary consolidated unaudited statement operations 13day period ended may 11 2001 accompanying notes integral part consolidated financial statements smith wesson corp subsidiary consolidated unaudited statement cash flows 13day period ended may 11 2001 accompanying notes integral part consolidated financial statements smith wesson corp subsidiary consolidated financial statements 13day period ended may 11 2001 notes consolidated financial statements 1 organization business activity organization sw incorporated laws state delaware january 13 1987 sw predecessors business since 1852 since formation undergone several ownership changes prior incorporation january 13 1987 smith wesson corp operated division lear siegler june 9 1987 tomkins corporation “tomkins” company organized laws state delaware subsidiary ukbased tomkins plc acquired outstanding stock sw lier siegler may 11 2001 safthammer corporation purchased outstanding stock sw tomkins 15000000 see note 13 “subsequent events” principles consolidation accompanying consolidated financial statements include accounts sw wholly owned subsidiaries smith wesson firearms training centre gmbh germany smith wesson distributing inc united states smith wesson inc united states significant intercompany accounts transactions eliminated consolidation business activity sw manufactures firearms related products accessories sale registered distributors sportsmen collectors public safety officials military agencies united states also sells distributors throughout world sw two manufacturing facilities springfield massachusetts houlton maine used primarily manufacture firearms however sw also uses machinetooling capabilities springfield facility manufacture assemble bicycles handcuffs golf club heads component parts various industries 2 summary significant accounting policies fiscal year end sw’s fiscal year ends saturday closest april 30 accompanying consolidated financial statements 13day period april 29 2001 may 11 2001 use estimates preparation financial statements preparation financial statements conformity accounting principles generally accepted united states requires sw make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts income expenses reporting periods operating results future could vary amounts derived estimates assumptions addition future facts circumstances could alter management’s estimates respect adequacy insurance reserves significant estimates assumptions used sw preparation financial statements relate reserves established uncollectible accounts receivable obsolete slow moving inventory certain accrued liabilities including product environmental warranty liabilities workers’ compensation revenue recognition sw recognizes revenue earnings process complete risks rewards ownership transferred customer generally upon shipment sw recognizes tooling forging heat treating finishing plating engineering support revenues acceptance customer contingencies material performance obligations exist collectibility reasonably assured thereby sw earned right receive retain payments services performed billed sw recognizes licensing revenue use identikit software subscription period net loss per share basic net loss per share calculated based upon weighted average number common shares outstanding period diluted net loss per share determined dividing net loss weighted average number common shares outstanding plus dilutive effect stock options warrants convertible securities basic diluted net loss per share thirteenday period ended may 11 2001 dilutive securities period recent accounting pronouncements statement financial accounting standards “sfas” 133 accounting derivative instruments hedging activities issued june 1998 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts collectively referred derivatives hedging activities sfas 133 initially effective fiscal quarters fiscal years beginning june 15 1999 july 1999 sfas 137 accounting derivative instruments hedging activities deferral effective date fasb statement 133 issued delays effective date sfas 133 fiscal years beginning june 15 2000 sw adopted new standard january 1 2001 adoption material effect sw’s financial position results operations cash flows december 1999 sec staff issued staff accounting bulletin sab 101 revenue recognition financial statements became effective december 2000 sab 101 summarizes sec staff’s views applying generally accepted accounting principles revenue recognition financial statements application sab material effect sw’s revenue recognition policies march 2000 financial accounting standards board fasb issued interpretation 44 accounting principles board opinion 25 accounting certain transactions involving stock compensation among things addressed accounting consequences modification reduces exercise price fixed stock option award otherwise known repricing exercise price fixed stock option award reduced award must accounted variable stock option plan date modification date award exercised forfeited expires unexercised exercise price stock option reduced fair value consideration required paid grantee upon exercise less potentially less fair value consideration required paid pursuant option award’s original terms requirements concerning modifications fixed stock option awards directly indirectly reduce exercise price option award apply modifications made december 15 1998 applied prospectively july 1 2000 adoption interpretation impact sw’s financial statements january 2001 financial standards board emerging issues task force issued eitf 0027 effective convertible debt instruments issued november 16 2000 pronouncement requires use intrinsic value method recognition detachable imbedded equity features included indebtedness requires amortization amount associated convertibility feature life debt instrument rather period instrument first becomes convertible inasmuch debt instruments entered prior november 16 2000 debt discount relating beneficial conversion feature previously recognized expense accordance eitf 985 impact financial statements eitf 0027 could impact future financial statements sw enter agreements one customer accounted approximately 13 sw’s net sales 13day period ended may 11 2001 customer owed sw approximately 254000 may 11 2001 4 international sales sw sells products worldwide breakdown international export sales accounted approximately 8 net sales 13day period ended may 11 2001 follows 5 advertising costs advertising costs consisting primarily magazine advertisements printed materials expensed incurred 13day period ended may 11 2001 advertising expenses amounted approximately 64000 contributory defined investment plan sw offers contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 15 annual pay sw matching 50 first 6 combined pre posttax compensation sw contributions made end month sw make contribution 13day period ended may 11 2001 noncontributory profit sharing plan sw also noncontributory profit sharing plan employees eligible may 1 following completion full fiscal year continuous service sw contributes 15 net operating profit interest taxes defined plan year sw make contribution 13day period ended may 11 2001 postretirement medical program sw certain obligations terminated program provided healthcare retirees age 65 employees designated combined age years service grandfathered program grandfather provision provides varying degrees coverage based upon years service currently 15 retirees covered program 21 active employees grandfathered program postretirement medical liability based upon reports provided independent consultant postretirement medical liability may 11 2001 amounted approximately 506000 included accrued liabilities accompanying balance sheet following table sets forth postretirement medical life plan’s status amounts recognized sw’s retirement incentive program financial position may 11 2001 follows net periodic postretirement benefit cost income 13day period ended may 11 2001 zero 7 subsequent events acquisition pursuant stock purchase agreement “acquisition agreement” dated may 11 2001 tomkins corporation “tomkins” safthammer corporation safthammer acquired issued outstanding shares sw result acquisition sw became wholly owned subsidiary safthammer changed corporate name smith wesson holding corporation safthammer paid 15 million exchange issued outstanding shares smith wesson follows • 5 million paid closing purchase price result negotiations safthammer tomkins acquisition note pursuant acquisition agreement swhc issued promissory note amount 10 million partial consideration acquisition sw note due may 11 2002 unsecured bore interest 9 per annum tomkins note acquisition agreement required swhc guaranty sw’s obligations tomkins promissory note issued april 30 1997 sw tomkins “tomkins note” tomkins note originally amount 73830000 due april 30 2004 bore interest rate 9 per annum prior acquisition tomkins contributed capital sw 23830000 tomkins note thereafter leaving balance 50000000 immediately subsequent acquisition sw paid 20000000 tomkins note outstanding principal balance tomkins note 30 million satisfaction condition swhc executed guaranty favor tomkins dated may 11 2001 terms tomkins note amended follows c dividends declared paid sw swhc may exceed 1800000 per year sw may liquidate windup dissolve transfer pledge assets e event default tomkins note tomkins note accelerated become due payable full immediately loan initial payment 5 million obtained loan individual pursuant promissory note loan agreement dated may 6 2001 swhc individual “note” interest accrued note rate 12 per annum maturity may 15 2002 pursuant terms note swhc prepaid annual interest 600000 latter five business days consummation acquisition may 15 2001 prepayment consented tomkinsitem 15 exhibits financial statement schedules reports form 8k financial statements financial statement schedules financial statements listed index financial statements page report b reports form 8k none c exhibits 1 incorporated reference proxy statement schedule 14a filed sec august 11 2004 2 incorporated reference company’s form 8k filed sec april 4 2000 3 incorporated reference proxy statement schedule 14a filed sec december 28 2001 4 filed herewith 5 incorporated reference company’s form 10qsb filed sec august 13 2001 6 incorporated reference company’s form 10qsb filed sec september 14 2001 7 incorporated reference company’s form 8k filed sec january 18 2005 8 incorporated reference company’s form 10ksb filed sec december 16 2002 9 incorporated reference company’s form 10k report filed sec july 13 2004 10 incorporated reference company’s form 8k report filed sec december 6 2004 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation michael f golden michael f golden president chief executive officer date august 15 2005 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated item 15 exhibits financial statements schedules smith wesson holding corporation subsidiaries report independent registered public accounting firm board directors stockholders smith wesson holding corporation opinion financial statements listed index appearing item 15a 1 present fairly material respects consolidated financial position smith wesson holding corporation subsidiaries april 30 2005 2004 consolidated results operations cash flows three years period ended april 30 2005 conformity accounting principles generally accepted united states america addition opinion financial statement schedule appearing item 15a 2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 24 consolidated financial statements company restated financial statements correct errors accounting certain stock awards adopt statement financial accounting standards 123r “sharebased payment revised 2004” pricewaterhousecoopers llp hartford connecticut august 15 2005 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements operations comprehensive income accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization incorporated june 17 1991 state nevada development stage company number years effective october 20 1998 acquired assets safthammer inc changed name safthammer corporation acquisition accounted purchase method issued 1331250 shares common stock safthammer acquisition resulted total 1864038 shares common stock issued outstanding smith wesson corp incorporated laws state delaware january 13 1987 smith wesson corp predecessors business since 1852 since formation undergone several ownership changes june 9 1987 tomkins corporation “tomkins” company organized laws state delaware subsidiary ukbased tomkins plc acquired smith wesson corp lear siegler may 11 2001 purchased outstanding stock smith wesson corp tomkins 15000000 see note 2 “acquisition smith wesson corp” special meeting stockholders held february 14 2002 stockholders approved change company’s name “smith wesson holding corporation” 2 acquisition smith wesson corp acquisition purchase price paid us smith wesson corp follows 5 million paid closing cash see “melby loan” 10 million due may 11 2002 pursuant terms uncollateralized promissory note issued us tomkins “acquisition note” providing interest rate 9 per year receivable 464500 due tomkins us purchase price resulted negotiations tomkins us acquisition accounted purchase method pursuant apb 16 “business combinations” summary net assets acquired follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued acquisition note pursuant acquisition agreement tomkins issued promissory note amount 10 million partial consideration acquisition smith wesson corp march 2002 obtained bank loan see note 5 paid entire loan balance tomkins note acquisition agreement required us guarantee obligations smith wesson corp tomkins promissory note issued april 30 1997 smith wesson corp tomkins “tomkins note” tomkins note originally amount 73830000 due april 30 2004 bore interest rate 9 per annum prior acquisition tomkins contributed 23830000 tomkins note capital smith wesson corp leaving balance 50000000 immediately subsequent acquisition paid 20000000 tomkins note repaid additional 2000000 outstanding principal balance april 2003 another 1000000 july 2003 repaid remaining balance january 2005 melby loan obtained financing amount 5 million individual pursuant promissory note loan agreement dated may 6 2001 us individual “melby note” interest accrued melby note rate 12 per annum maturity may 15 2002 terms melby note prepaid annual interest 600000 rate 12 may 14 2001 related loan also granted warrants described purchase aggregate approximately 8700000 shares common stock exercise prices ranging 040 per share 200 per share consideration melby loan issued colton melby formerly president chief operating officer currently director company common stock purchase warrant dated may 6 2001 “melby warrant” melby warrant provided mr melby purchase 7094500 shares common stock exercise price 40 per share subject adjustment set forth therein anytime date issuance six years date issuance also consideration melby loan issued common stock purchase warrants dated may 11 2001 three affiliates mr melby “affiliate warrants” affiliate warrants provided holder purchase time date issuance one year date issuance 300000 shares common stock exercise price 80 per share exercised may 21 2001 b 200 per share exercised may 22 2001 june 30 2001 c 500 per share exercised june 30 2001 portion finder’s fee arranging melby loan issued common stock purchase warrants dated may 11 2001 two unrelated parties “finders warrants” finders warrants provided holder purchase 354725 shares common stock exercise price 100 per share time date issuance two years date issuance relied upon section 42 securities act respect issuance warrants underlying shares warrants exercised full including way repayment melby note 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states america requires us make estimates smith wesson holding corporation subsidiaries notes consolidated financial statements continued assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenues expenses reporting periods significant estimates include accruals warranty product liability workers compensation environmental liability excess obsolete inventory medical claims payable actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training centre gmbh germany smith wesson distributing inc united states smith wesson inc united states lost coast ventures inc inactive significant intercompany accounts transactions eliminated consolidation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts cash equivalents cash equivalents include highly liquid debt instruments maturities three months less date purchase collateralizing corporate obligations maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts marketable securities marketable securities fiscal 2004 consisted mutual funds accordance statement financial accounting standards 115 “accounting certain investments debt equity securities” determine appropriate classification debt equity securities presented marketable securities time purchase reevaluate designation balance sheet date marketable securities classified availableforsale securities classified availableforsale required reported fair value unrealized gains losses net taxes excluded earnings shown separately component accumulated comprehensive income within stockholders’ equity realized gains losses sale securities availableforsale determined using specific identification method trade receivables extend credit domestic customers foreign distributors based financial condition discounts offered early payment extension credit advisable rely either prepayment letter credit past due balances placed collection outside agency 90 days balances deemed uncollectible us written allowance doubtful accounts concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents shortterm investments trade receivables place cash equivalents shortterm investments highquality financial institutions instruments concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral inventories consisting primarily finished firearms components finished firearms related products accessories valued lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence provided based upon detailed review inventory components past history expected future usage deferred revenues deferred revenues represent deposits prepayments customers products services revenue yet recognizable risks rewards ownership yet transferred customer expect earned revenues fully within 12month period recognized revenues time smith wesson holding corporation subsidiaries notes consolidated financial statements continued fiscal 2004 offered promotion distributors provided free gun purchase six others portion revenue deferred recognized free gun shipped comprehensive income statement financial accounting standards 130 “reporting comprehensive income” requires companies report components comprehensive income financial statements including nonowner transactions events impact equity even items directly affect net income loss comprehensive income loss consists net income loss unrealized gains losses available sale securities net tax accordingly consolidated statements operations comprehensive income loss presented property plant equipment property plant equipment consisting land building improvements machinery equipment computers furniture fixtures recorded cost depreciated using straightline method estimated useful lives expenditures maintenance repairs charged earnings incurred additions renewals betterments capitalized property equipment retired otherwise disposed related cost accumulated depreciation removed respective accounts gain loss included operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets intangible assets amortized estimated useful lives range three 30 years see note 12 additional information regarding intangible assets valuation longlived assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values would reduced fair value adjusted carrying value would become asset’s new cost basis fair value determined primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved determined impairments longlived assets fiscal 2005 2004 2003 revenue recognition recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment substantial portion revenues product sales also provide tooling forging heat treating finishing plating engineering support services customers recognize revenues accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenues individual licensees quarterly basis based actual receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenues payable calendar quarter basis fees received upon initial signing license agreements recognized revenues result smith wesson holding corporation subsidiaries notes consolidated financial statements continued combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore initially recognize minimum royalty payments instead record revenue minimum royalty paid april 30 2005 minimum royalties collected future amounted approximately 61 million follows segment information statement financial accounting standards 131 “disclosures segments enterprise related information” requires public companies report financial descriptive information reportable operating segments identify operating segments based internally evaluate separate financial information business activities management responsibility present time believe operate single business segment april 30 2005 2004 2003 material foreign operations research development engage internal external research development rd order remain competitive exploit possible untapped market opportunities prospective rd projects approved executive management analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs fiscal 2005 spent approximately 386000 research activities relating development new products fiscal 2004 spent approximately 13 million research activities 441000 related discontinued advanced technology product line fiscal 2003 spent 18 million 528000 related advanced technology annual amounts reimbursed 187000 787000 918000 fiscal 2005 2004 2003 respectively national institute justice based grants received us development authorized user firearm grants expired fiscal 2005 research development expense recorded net reimbursement financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements continued earnings per share basic diluted earnings per common share calculated accordance provisions statement financial accounting standards 128 “earnings per share” basic earnings per common share equal net income divided weighted average number common shares outstanding period diluted earnings per common share equal net income divided weighted average number common shares outstanding period including effect stock options stock warrants effect dilutive following table provides reconciliation restated income loss amounts see note 24 shares used determine basic diluted earnings loss per share options purchase 313685 shares common stock excluded fiscal 2005 computation diluted earnings per share effect would antidilutive options purchase 116666 shares common stock excluded fiscal 2004 computation diluted earnings per share effect would antidilutive options purchase 50000 shares common stock excluded fiscal 2003 computation diluted earnings per share effect would antidilutive income taxes provision income taxes based upon income reported accompanying financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes deferred taxes measured applying currently enacted tax laws derivative instruments account derivative instruments statement financial accounting standards 133 accounting derivative instruments hedging activities amended sfas 133 sfas 133 establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value stock options warrants described notes 18 19 issued stock warrants stock option plans employees directors receive options purchase common stock fourth quarter fiscal 2005 early adopted statement financial accounting standards 123r “sharebased payment revised 2004” sfas 123r utilizing modified retrospective application method periods presented prior early adoption sfas 123r applied provisions apb opinion 25 “accounting stock issued employees” related interpretations apb 25 impact early adoption sfas 123r stock options warrants disclosed detail note 24 product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel exclusive insurance reimbursements adjustments provision product liability evaluated ongoing basis charged credited cost sales evaluation based upon information regarding potential existing product smith wesson holding corporation subsidiaries notes consolidated financial statements continued liability cases future costs result evaluation recorded considered probable reasonably estimable certain product liability costs subject reimbursement insurance carriers environmental liability provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made environmental liabilities considered probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party prp ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations currently reserves reviewed additional reserves deletions reserves may occur due specific facts circumstances previously noted environmental expense income fiscal years ended april 30 2005 2004 2003 amounted approximately 44500 11045 0 respectively warranty generally provide lifetime warranty “original” purchaser new firearms products estimated warranty obligations provided period related revenue recognized quantify record estimate warranty related costs based actual historical claims experience current repair costs adjustments made accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted warranty expense fiscal years ended april 30 2005 2004 2003 amounted 1539400 1591741 1194328 respectively change accrued warranties fiscal years ended april 30 2005 2004 follows sales promotional related expenses net product sales presented financial statements net customer promotional program costs depend volume sales amounted approximately 437000 234000 410000 fiscal years ended april 30 2005 2004 2003 respectively customer promotional programs costs depend volume sales costs amounted approximately 182000 197000 845000 fiscal years ended april 30 2005 2004 2003 respectively included selling marketing expenses smith wesson holding corporation subsidiaries notes consolidated financial statements continued coop advertising coop advertising program retail level costs amounting approximately 670000 797000 482000 fiscal 2005 2004 2003 respectively expensed selling marketing expenses shipping handling accompanying financial statements amounts billed customers shipping handling included net product sales costs relating shipping handling charges included cost goods sold insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 2000000 per occurrence liability estimated premiums incurred losses actuarially determined recorded accompanying consolidated financial statements undiscounted basis recently issued accounting standards november 2004 financial accounting standards board fasb issued statement financial accounting standards 151 “inventory costs amendment arb 43 chapter 4” fas 151 fas 151 clarifies accounting abnormal amounts idle facility expense freight handling costs wasted material additionally fas 151 requires allocation fixed production overhead inventory based normal capacity production facilities provisions fas 151 applicable inventory costs incurred fiscal years beginning june 15 2005 adoption statement expected material effect company’s consolidated financial position results operations cash flows december 2004 fasb issued statement financial accounting standards 153 “exchanges nonmonetary assets amendment apb opinion 29” fas 153 statement eliminates exception measure exchanges fair value exchanges similar productive assets replaces general exception exchange transactions commercial substance fas 153 effective nonmonetary exchanges fiscal periods beginning june 15 2005 adoption statement expected material effect company’s consolidated financial position results operations cash flows reclassification financial information certain prior year components consolidated financial statements reclassified consistent current year presentation 4 financial instruments marketable securities consist entirely mutual funds “available sale” change unrealized gain loss marketable securities mutual funds 0 11489 36543 fiscal years ended april 30 2005 2004 2003 collateralized cash deposits consist entirely money market funds summary money market funds april 30 2005 2004 follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued collaterized cash deposits required april 30 2005 2004 follows prior bank loan agreement see note 5 obligated us maintain collateral balance equal face amount bank loan plus open letters credit plus foreign exchange exposure plus automated clearing house “ach” exposure accordingly presented collateralized cash deposits 22673059 april 30 2004 noncurrent asset accompanying consolidated balance sheet part refinancing completed january 2005 collateralized cash deposits utilized reduce outstanding debt see note 5 longterm debt financing arrangements debt refinancing january 2005 completed refinancing existing debt utilizing receivables inventory equipment collateral financing obtained banknorth previous loans result refinancing able repay tomkins note interest rate 9 per year restrictive covenants along previously existing loans banknorth used cash collateralizing existing line credit banknorth toward repayment tomkins note new bank credit facility consists following 1 revolving line credit maximum amount lesser 17 million b 85 net amount borrower’s eligible receivables ii plus lesser 6 million 70 eligible raw materials inventory plus iii 60 eligible finished goods inventory iv 40 eligible finished parts inventory available september 30 2007 working capital needs revolving line credit bears interest variable rate equal prime libor plus 250 basis points 250 basis point libor spread may reduced meet certain targets respect maximum leverage amounts outstanding april 30 2005 2 sevenyear 121 million term loan bears interest rate 623 per annum monthly payment 178671 final payment due january 11 2012 3 tenyear 59 million term loan bearing interest rate 685 per annum monthly payment 45525 december 11 2014 balloon payment due january 11 2015 3975611 4 5 million credit arrangement capital expenditures commencing may 1 2005 bear interest variable rate april 30 2006 equal either prime libor plus 250 basis points 250 basis point libor spread may reduced meet certain targets respect maximum leverage either variable rate equal libor plus 250 basis points 250 basis point libor spread may reduced meet certain targets respect maximum leverage fixed rate equal federal home loan bank boston rate april 30 2006 plus 200 basis points case applicable rate selected us aggregate availability equipment line credit loan cease april 30 2006 time unpaid outstanding principal balance smith wesson holding corporation subsidiaries notes consolidated financial statements continued interest become due payable monthly installments period seven years amounts outstanding april 30 2005 debt issuance costs related aforementioned refinancing amounted 654843 33352 amortized expense fiscal year ended april 30 2005 future amortization expense follows fiscal year 2006 114002 2007 110717 2008 97466 2009 82865 2010 67602 thereafter 148839 bank loan repaid january 2005 march 2002 entered specific purpose loan agreement bank terms agreement borrowed 150 million pay acquisition note melby note related acquisition smith wesson corp see note 2 outstanding balance 149 million april 30 2004 accrued interest rate 585 per annum collateralized liquid assets face aggregate amount obligation note repaid january 2005 part debt refinancing tomkins note repaid january 2005 acquisition agreement related acquisition smith wesson corp required us guaranty obligations smith wesson corp tomkins promissory note issued april 30 1997 smith wesson corp tomkins “tomkins note” tomkins note originally amount 73830000 due april 30 2004 bore interest rate 9 per annum prior acquisition tomkins contributed 23830000 tomkins note capital smith wesson corp leaving balance 50000000 immediately subsequent acquisition paid 20000000 tomkins note april 2003 made early repayment 20 million tomkins bring principal balance 300 million 280 million july 2003 made another early repayment 1 million tomkins bring principal balance 270 million note repaid january 2005 part debt refinancing total longterm debt maturing fiscal 2006 2007 2008 2009 2010 thereafter 16 million 17 million 18 million 19 million 20 million 86 million respectively carrying amounts notes payable april 30 2005 2004 follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued new credit facility banknorth contains financial covenants relating maintaining minimum ebitda maximum leverage minimum debt service coverage maximum capital expenditures compliance debt covenants 2005 bank letters credit facility april 30 2005 open letters credit aggregating 51 million compared 51 million april 30 2004 6 accounts receivable major customers one customer accounted approximately 10 13 11 net product sales fiscal years ended april 30 2005 2004 2003 respectively customer owed us approximately 1848000 10 total accounts receivable april 30 2005 1797000 9 total accounts receivable april 30 2004 7 international sales sell products worldwide breakdown international export sales accounted approximately 9 10 15 net product sales fiscal years ended april 30 2005 2004 2003 respectively follows 8 income expense details income expense fiscal years ended april 30 2005 2004 2003 follows 9 advertising costs advertising costs consisting primarily magazine advertisements printed materials expensed incurred fiscal years ended april 30 2005 2004 2003 advertising expenses amounted approximately 6154000 5175000 4171000 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued 10 property plant equipment summary property plant equipment april 30 2005 2004 follows depreciation expense amounted 2702831 1682109 969779 fiscal years ended april 30 2005 2004 2003 respectively 11 inventories summary inventories stated lower cost market april 30 2005 2004 follows changes reserve excess obsolete inventory fiscal years ended april 30 2005 2004 follows 12 intangible assets intangible assets recorded cost arose principally acquisition smith wesson corp patents amortized using straightline method estimated useful lives ranging three 20 years smith wesson holding corporation subsidiaries notes consolidated financial statements continued summary intangible assets follows amortization expense amounted 20732 23405 17895 fiscal years ended april 30 2005 2004 2003 respectively amortization expense patents approximate 25400 annually next five fiscal years 13 assets consist following april 30 2005 2004 14 noncurrent liabilities noncurrent liabilities consist following april 30 2005 2004 severance payments continue january 2009 15 derivative financial instruments hedging activities purchase certain finished goods component parts european supplier pay euros purchased foreign exchange contracts minimize impact fluctuations foreign exchange rates elected designate derivative instruments qualifying hedge accounting treatment sfas 133 accordingly gains losses derivative contracts expensed currently element income expense fair values derivative financial instruments estimated based exchange rates underlying currency fair value outstanding derivatives liability approximately 64000 april 30 2005 40000 april 30 2004 current derivative instruments expire october 2005 smith wesson holding corporation subsidiaries notes consolidated financial statements continued 16 selfinsurance reserves april 30 2005 2004 reserves workers’ compensation product liability medicaldental costs totaling 10658339 15584507 respectively 6723647 12483123 respectively classified noncurrent included noncurrent liabilities remaining amounts 3934692 3101384 respectively included accrued expenses accompanying consolidated balance sheet believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 4993438 5454233 fiscal years ended april 30 2005 2004 respectively following summary activity workers’ compensation product liability medicaldental reserves fiscal years ended april 30 2005 2004 policy provide estimate loss result expected adverse findings legal settlements losses probable reasonably estimable also policy accrue reasonably estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis april 30 2005 2004 accrued reserves product liability approximately 80 million 136 million respectively approximately 55 million 115 million respectively noncurrent consisting entirely expected legal defense costs 17 restructuring dispositions january 2004 decided close scottsdale corporate office transfer executive office functions along licensing operations springfield massachusetts facility also decided discontinue crossings catalog well discontinue advanced technology product line result incurred onetime charge approximately 10 million fiscal 2004 severance costs relative closing scottsdale corporate headquarters approximately 804000 remaining 196000 costs discontinue crossings catalog advanced technology product lines summary activity accrued restructuring liability fiscal year ended april 30 2005 follows june 3 2004 completed sale certain net assets associated identikit product line copia partners llc dba identikit solutions limited liability company whose principals former employees 300000 cash 6 license fee future net revenue defined product smith wesson holding corporation subsidiaries notes consolidated financial statements continued line effective date sale may 1 2004 terms agreement retain ownership tradename identikit granted buyer 10year renewable license gain sale product line amounted approximately 436000 18 capital stock common stock issued fiscal year ended april 30 2005 issued 647216 shares common stock market value 1238072 current former employees upon exercise options granted employees company proceeds exercise shares 736406 fiscal year ended april 30 2005 issued 191002 shares common stock market value 373798 employee stock purchase plan proceeds exercise shares 244575 fiscal year ended april 30 2005 issued 200000 shares common stock market value 498000 former employee current director upon cashless exercise warrants granted employee company fiscal year ended april 30 2004 issued 65075 shares common stock market value 116738 current former employees upon exercise options granted employees company proceeds exercise shares 58187 fiscal year ended april 30 2004 issued 226096 shares common stock market value 404342 employee stock purchase plan proceeds exercise shares 257729 fiscal year ended april 30 2004 issued 25000 shares common stock market value 48700 unrelated third party upon exercise options proceeds exercise shares 37300 difference recorded consulting expense october 2002 issued 67117 shares common stock market value 89266 employee stock purchase plan proceeds exercise shares 76012 november 2002 issued 4700 shares common stock market value 8037 employee settle 5875 compensation due shares valued 125 per share november 2002 issued 50000 shares common stock unrelated third party part litigation settlement february 2003 issued 165032 shares common stock individual upon exercise warrant exercise price 100 per share march 2003 issued aggregate 300000 shares common stock two unrelated parties upon exercise warrants exercise price 50 per share march 2003 issued 149681 shares common stock former executive officer company upon exercise warrant exercise price 100 per share march 2003 issued 24000 shares common stock market value 40800 former employee upon exercise options granted employee company proceeds exercise shares 19440 march 2003 issued 10000 shares common stock market value 15700 current director company upon exercise options granted proceeds exercise shares 11800 smith wesson holding corporation subsidiaries notes consolidated financial statements continued april 2003 issued 42666 shares common stock market value 65279 former employee upon exercise options granted employee company proceeds exercising shares 34560 april 2003 issued 122819 shares common stock market value 192826 employee stock purchase plan proceeds exercising shares 139893 stock warrants issued fiscal 2002 issued warrants related financing debt used acquisition smith wesson corp incentive bonuses employees directors compensation outside consultants consideration past services company including services rendered connection acquisition smith wesson corp issued common stock purchase warrant dated may 11 2001 approved board directors april 30 2001 mitchell saltz formerly chief executive officer currently director company “saltz warrant” saltz warrant contained cashless exercise provision entitles mr saltz purchase 5000000 shares common stock exercise price 089 per share subject adjustment set forth therein time date issuance five years date issuance relied upon section 42 securities act respect issuance saltz warrant underlying shares consideration past services company including services rendered connection acquisition smith wesson corp issued common stock purchase warrant dated may 11 2001 approved board directors april 30 2001 robert l scott former officer current director company “scott warrant” scott warrant contained cashless exercise provision entitles mr scott purchase 5000000 shares common stock exercise price 089 per share subject adjustment set forth therein time date issuance five years date issuance relied upon section 42 securities act respect issuance scott warrant underlying shares following outlines activity related warrants periods indicated smith wesson holding corporation subsidiaries notes consolidated financial statements continued 19 stock option employee stock purchase plans two employee stock option plans “the sops” 2001 stock option plan 2004 incentive compensation plan new grants 2001 stock option plan made following approval 2004 incentive compensation plan september 13 2004 annual meeting shareholders new grants covering participants issued 2004 incentive compensation plan 2004 incentive compensation plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock available issuance pursuant options granted acquire common stock direct granting restricted common stock deferred stock granting stock appreciation rights granting dividend equivalents board directors committee established board administers sops selects recipients options granted determines number grants awarded options granted sops exercisable price determined board committee time grant event less fair market value grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture unless terminated earlier board directors 2004 incentive compensation plan terminate time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan unless otherwise specified board directors board committee resolution authorizing option date grant option deemed date upon board directors board committee authorizes granting option generally options vest period three years vested options exercisable period 10 years issue shares common stock upon exercise options years ended april 30 2005 2004 2003 granted 1015000 options 145000 2001 stock option plan 370000 options 2004 incentive compensation plan 500000 options separate grant 340000 options 2001 stock option plan 1202500 options 2001 stock option plan respectively number weighted average exercise prices options granted sops separate grant fiscal years ended april 30 2005 2004 2003 follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued summary stock options outstanding vested exercisable april 30 2005 follows aggregate intrinsic value outstanding options vested exercisable options april 30 2005 3799010 2459669 respectively employee stock purchase plan “the espp” authorizes sale 10000000 shares common stock employees espp commenced june 24 2002 continues effect term 10 years unless sooner terminated espp implemented series offering periods two years duration four sixmonth purchase periods offering period plan amended september 2004 future offering periods commencing october 1 2004 offering period six months consistent six month purchase period purchase price 85 fair market value common stock offering date purchase date whichever lower participant may elect payroll deductions made payday offering period amount less 1 20 greater percentage board may establish time offering date participant’s compensation payday offering period last day offering period purchase date offering period offering period commencing april 1 ends next september 30 offering period commencing october 1 ends next march 31 board directors power change duration andor frequency offering purchase periods respect future offerings purchases without stockholder approval change announced least five days prior scheduled beginning first offering period affected maximum number shares employee may purchase period 12500 shares options rights participate espp nontransferable subject forfeiture accordance espp guidelines event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2005 2004 2003 191002 226096 189936 shares respectively purchased espp total authorized 10000000 shares smith wesson holding corporation subsidiaries notes consolidated financial statements continued sfas 123r fair value stock options warrants calculated using black scholes method time options granted amount amortized vesting period option warrant espp fair value determined beginning purchase period amortized term offering period following assumptions used valuing options warrants espp estimate expected volatility using historical stock values equivalent term fair value stock option espp purchase estimated date grant using blackscholes option pricing model weightedaverage fair value stock options granted fiscal 2005 2004 2003 127 146 110 respectively weightedaverage fair value espp shares granted fiscal 2005 2004 2003 073 076 070 recorded compensation cost stock option employee stock purchase plans approximately 626000 820000 1654000 fiscal 2005 2004 2003 respectively related income tax benefit fiscal 2005 2004 2003 230000 300000 605000 intrinsic value options warrants exercised fiscal 2005 2004 2003 approximately 951000 205000 690000 respectively total fair value shares vested fiscal 2005 2004 2003 approximately 40 million 27 million 15 million respectively fiscal 2005 2004 modifications certain options 12 terminating employees made extend exercise period vested options resulted additional compensation expense recorded approximately 49000 51000 respectively april 30 2005 total unrecognized compensation cost option espp awards approximately 12 million recognized 47 years 40000 recognized 4 years respectively 20 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined preand posttax compensation contributed approximately 618000 fiscal year ended april 30 2005 580000 fiscal year ended april 30 2004 557000 fiscal year ended april 30 2003 smith wesson holding corporation subsidiaries notes consolidated financial statements continued noncontributory profit sharing plan also noncontributory profit sharing plan employees eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes defined plan year fiscal 2005 plan contribute approximately 2403000 contributed approximately 2272000 fiscal year ended april 30 2004 approximately 1621000 fiscal year ended april 30 2003 contributions funded fiscal yearend 21 postemployment postretirement deferred compensation postretirement medical program certain obligations terminated program provides health care retirees age 65 employees designated combined age years service grandfathered program grandfathered provision provides varying degrees coverage based upon years service currently four retirees covered program 12 active employees grandfathered program postretirement medical liability based upon reports provided independent actuary postretirement medical liability approximately 227000 april 30 2005 approximately 313000 april 30 2004 following tables sets forth postretirement medical life plan’s status amounts recognized retirement incentive program net periodic postretirement benefit income includes following components weighted average discount rate used determining actuarial present value projected benefit obligation 520 550 april 30 2005 2004 respectively measurement purposes 11 annual rate increase per capita cost covered health care benefits assumed fiscal 2005 rate grading ultimate rate 5 fiscal 2013 smith wesson holding corporation subsidiaries notes consolidated financial statements continued fiscal 2004 9 annual rate increase per capita cost covered health care benefits assumed fiscal 2004 rate grading ultimate rate 5 fiscal 2008 fiscal years ended april 30 2005 2004 1 increase decrease assumed health care cost trend rate would immaterial affect aggregate service interest cost components net periodic postretirement health care benefit costs accumulated postretirement benefit obligation health care benefits estimated future benefit payments follows 2006 49000 2007 56000 2008 39000 2009 34000 2010 20000 2011 2015 41000 impact medicare prescription drug improvement modernization act 2003 reflected april 30 2005 plan immaterial amount post65 drug benefits likely would qualify federal subsidy period 22 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax basis assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date reconciliation provision income taxes statutory rates provision consolidated financial statements follows federal state income tax expensebenefit 0 fiscal 2005 4217 fiscal 2004 11935 fiscal 2003 allocated comprehensive income fiscal 2004 tax provision includes 416193 benefit federal net operating loss adjustments benefit relates filing amended fiscal 2003 2002 federal income tax returns recognize tax deductions warrant option exercises previously entitled deductions complied federal statutory reporting requirements subsequently complied smith wesson holding corporation subsidiaries notes consolidated financial statements continued reporting requirements entitled realize tax benefits relating warrant option exercises fourth quarter fiscal 2003 reversed federal state valuation allowances amounts 150 million 10 million respectively portion tax benefit resulting reversal valuation allowance recorded intangible assets accordance statement financial accounting standards 109 paragraph 30 although realization deferred tax assets assured assessed positive evidence including forecasts future taxable income support realization net deferred tax assets negative evidence including tax losses recent years concluded likely exception state net operating loss carryforwards deferred tax assets realized realization depends generating sufficient future taxable income periods temporary differences become deductible prior expiration net operating loss carryforwards amount deferred tax asset considered realizable could reduced near term estimates future taxable income carryforward period reduced differences forecasted actual future operating results could adversely impact ability realize deferred tax assets income tax provision benefit consists following deferred tax assets relating tax benefits employee stock option grants reduced reflect exercises fiscal 2005 2004 exercises resulted tax deductions excess previously recorded benefits based option value time grant “windfalls” although additional tax benefits “windfalls” reflected net operating tax loss carryforwards pursuant sfas 123r additional tax benefit associated windfall recognized deduction reduces taxes payable accordingly since tax benefit reduce current taxes payable fiscal 2005 2004 due net operating loss carryforwards “windfall” tax benefits reflected net operating losses deferred tax assets fiscal 2005 2004 windfalls included net operating loss carryforwards reflected deferred tax assets fiscal 2005 2004 02 million 0 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued future tax benefits deferred tax liabilities related temporary differences following federal net operating loss carrforwards amounting 109 million 163 million 168 million april 30 2005 2004 2003 respectively analysis performed pursuant internal revenue code section 382 fiscal 2005 determined ownership change occurred pursuant section 382 calendar year ended december 31 2000 result ownership change use net operating losses 36 million incurred prior ownership change limited 100000 annually subject increases builtin gains result determined 457388 net operating loss carryforwards expire unutilized therefore related deferred tax asset 155512 reversed tax expense possible future substantial changes ownership could occur could result additional ownership changes pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforwards utilized federal net operating losses account 33 million total net deferred tax asset 139 million 51 million 169 million deferred tax assets april 30 2005 2004 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued net operating loss carryforwards scheduled expire following years state net operating loss carryforwards amounted 65 million 121 million 151 million april 30 2005 2004 2003 respectively expire fiscal 2005 fiscal 2006 certain state provisions may limit ability utilize state net operating losses given year certain events occur including cumulative changes ownership interests threeyear period opinion due uncertainty realization benefit state net operating losses valuation allowance maintained deferred tax assets sfas 109 requires valuation allowance recognized deferred tax asset acquired entity’s deductible temporary differences operating loss tax credit carryforwards acquisition date tax benefits items first recognized financial statements shall applied first reduce goodwill related acquisition second reduce noncurrent intangible assets related acquisition third reduce income tax expense noncurrent intangible assets reduced approximately 800000 fiscal year ended april 30 2003 accordance standard remaining 152 million april 30 2003 change valuation allowance recorded reduction income tax expense 23 commitments contingencies litigation together firearms manufacturers certain related organizations codefendant various legal proceedings involving product liability claims aware product liability claims including allegations defective product design manufacturing negligent marketing andor distribution firearms leading personal injury including wrongful death lawsuits claims based principally theory “strict liability” also may based negligence breach warranty legal theories many lawsuits punitive damages well compensatory damages demanded aggregate claimed amounts currently exceed product liability accruals applicable insurance coverage believe every case allegations defective product design unfounded accident results therefrom due negligence misuse firearm claimant third party recovery us addition also codefendant various legal proceedings brought certain cities municipalities counties numerous firearms manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties shootings complaints municipalities seek damages among things costs medical care police emergency services public health services maintenance courts prisons services certain instances plaintiffs seek recover decreases property values loss business within city due increased criminal violence addition nuisance abatement andor injunctive relief sought change design manufacture marketing distribution practices various defendants suits allege among claims strict liability negligence design products public nuisance negligent entrustment negligent distribution deceptive fraudulent advertising violation consumer protection statutes conspiracy concert action theories smith wesson holding corporation subsidiaries notes consolidated financial statements continued monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect consolidated financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgment intend vigorously defend time estimated range reasonably possible additional losses term defined sfas 5 zero range reasonably possible loss relating unfavorable outcomes cannot made however product liability cases dollar amount damages claimed amount damages claimed totaled 434 million april 30 2005 454 million april 30 2004 set forth indication possible maximum liability might required incur cases regardless likelihood reasonable probability amount awarded claimants result adverse judgments sustained appeal fiscal years ended april 30 2005 2004 2003 paid 4535 16 million 19 million respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 0 16039 207500 respectively fiscal years settlement fees relative product liability cases fiscal 2005 2004 2003 recorded reduction cost goods sold 2938982 40388 1421857 respectively recognize changes product municipal litigation liability income due reduction reserves due favorable outcomes product municipal cases well reflect initiation insurance coverage fiscal 2005 2003 recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets sec investigation sec conducting investigation determine whether violations federal securities laws connection matters relating restatement consolidated financial statements fiscal 2002 first three quarters fiscal 2003 continue discussions sec intend continue cooperate fully sec environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act “rcra” place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects smith wesson holding corporation subsidiaries notes consolidated financial statements continued required remediate hazardous waste facilities currently designated sites springfield massachusetts subject five release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency “epa” andor individual states cercla state equivalent one site reserves 37 million april 30 2005 36 million noncurrent remediation sites referred believe time frame remediation currently indeterminable therefore time frame payment remediation likewise currently indeterminable thus making net present value calculation irrelevant estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority “sra” 175 million resulting net gain 17 million terms sale included cash payment 750000 closing promissory note remaining 10 million note collateralized mortgage sold property note due 2022 accrues interest fixed rate 60 per annum sra public body politic corporate created pursuant massachusetts general laws property excess land adjacent manufacturing office facility 85 acres includes three five previously disclosed release areas identified soil groundwater contamination mcp property acquired sra defined “brownfield” comprehensive environmental response compensation liability act “cercla” believe sra plans create light industrial commercial use development park property sra support city springfield received governmental “brownfield” grants loans facilitate remediation development property although entered certain environmental agreements contractual assurances sra associated sale revised environmental reserve determine revision necessary monitor progress sra remediation development property sra’s progress success brownfield redevelopment property specifically approval remediation governing authorities allow us review environmental reserve determine revision necessary based upon previously identified specific facts circumstances may revise environmental reserve future revision could significant impact earnings period revision made based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environ smith wesson holding corporation subsidiaries notes consolidated financial statements continued mental regulation become burdensome future development would material adverse effect company contracts employment agreements entered employment agreements certain officers managers retain service ordinary course business also entered severance agreements certain officers managers affected restructuring discontinuance certain businesses see footnote 17 agreements distribution agreements various third parties ordinary course business rental leases lease office space scottsdale operating nonrenewing lease expires may 2005 also lease photocopiers springfield location various expiration dates april 30 2005 lease commitments approximately follows lease expense fiscal years ended april 30 2005 2004 2003 approximately 181000 151000 147000 respectively relocating new scottsdale location august 1 2005 recently entered 65month lease agreement said property lease expense fiscal year 2006 approximately 46000 2007 69000 2008 71000 2009 73000 2010 75000 thereafter 45000 24 restatement correct accounting certain stock awards apb 25 adopt statement financial standards 123r sharebased payment revised 2004 yearend closing process determined compensation cost certain warrants issued two former employees may 2001 included cashless exercise feature adjusted subsequent periods 2005 increases decreases quoted market value stock addition fiscal 2004 2005 record compensation cost resulting modification certain vested stock options terminating employees pretax impact statement operations transactions apb 25 increase decrease previously reported general administrative expense fiscal 2004 2003 2995251 9251497 respectively impact restatement abp 25 disclosed yearend closing process also elected early adopt statement financial accounting standards 123r “sharebased payment revised 2004” sfas 123r utilizing modified retrospective application method periods statement 123 effective impact adoption sfas 123r april 30 2002 increase additional paidin capital reduce smith wesson holding corporation subsidiaries notes consolidated financial statements continued retained earnings 7053510 adjustment deferred tax assets since recorded full valuation allowance net deferred tax assets effect early adoption sfas 123r income taxes income tax benefit expense net income cash flow operations cash flow financing activities basic fully diluted earnings per share disclosed quarterly impacts correcting accounting stock awards apb 25 adoption sfas 123r disclosed note 25 smith wesson holding corporation subsidiaries notes consolidated financial statements continued 25 quarterly financial information unaudited following quarterly financial information restated correct errors accounting certain stock awards apb 25 early adopt sfas 123r described note 24 opinion adjustments necessary present fairly information quarters reflected 1 quarterly per share data may add full year due rounding schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2005 2004 2003 1 represents reduction accrued product liability corresponding reduction insurance carrier reimbursement receivable 2 represents reimbursement insurance carrier claims excess retention index exhibits 1 incorporated reference proxy statement schedule 14a filed sec august 11 2004 2 incorporated reference company’s form 8k filed sec april 4 2000 3 incorporated reference proxy statement schedule 14a filed sec december 28 2001 4 filed herewith 5 incorporated reference company’s form 10qsb filed sec august 13 2001 6 incorporated reference company’s form 10qsb filed sec september 14 2001 7 incorporated reference company’s form 8k filed sec january 18 2005 8 incorporated reference company’s form 10ksb filed sec december 16 2002 9 incorporated reference company’s form 10k report filed sec july 13 2004 10 incorporated reference company’s form 8k report filed sec december 6 2004item 15 exhibits financial statement schedules financial statements financial statement schedules financial statements listed index financial statements page report b exhibits application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec december 18 2006 2 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 3 incorporated reference registrant’s form 8a filed sec august 25 2005 4 incorporated reference registrant’s form 10k filed sec july 14 2006 5 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 6 incorporated reference registrant’s form 8k filed sec may 29 2001 7 incorporated reference registrant’s form 8k filed sec december 18 2006 8 incorporated reference registrant’s form s8 333128804 filed sec october 4 2005 9 incorporated reference registrant’s proxy statement schedule 14a filed sec december 28 2001 10 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 11 incorporated reference registrant’s form 8k filed sec may 19 2006 12 incorporated reference registrant’s form 10qsb filed sec august 13 2001 13 incorporated reference registrant’s form 10qsb filed sec september 14 2001 14 incorporated reference registrant’s form 8k filed sec november 15 2006 15 incorporated reference registrant’s form 8k filed sec january 18 2005 16 incorporated reference registrant’s form 10ksb filed sec december 18 2003 17 incorporated reference registrant’s form 10k filed sec july 16 2004 18 incorporated reference registrant’s form 10q filed sec march 17 2006 19 incorporated reference registrant’s form 8k filed sec february 23 2006 20 incorporated reference registrant’s form 10q filed sec march 10 2005 21 incorporated reference registrant’s form 8k filed sec april 24 2007 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation michael f golden michael f golden president chief executive officer date july 16 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated item 15 exhibits financial statements schedules smith wesson holding corporation subsidiaries management’s report internal control financial reporting management smith wesson holding corporation responsible establishing maintaining adequate internal control financial reporting term defined exchange act rule 13a15f participation chief executive officer chief financial officer management conducted evaluation effectiveness company’s internal control financial reporting april 30 2007 required rule 13a15c securities exchange act 1934 company utilized criteria framework established committee sponsoring organizations coso treadway commission internal control integrated framework performing assessment based evaluation management concluded company’s internal control financial reporting effective april 30 2007 internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles inherent limitations internal control financial reporting may prevent detect misstatements management excluded evaluation internal control financial reporting bear lake acquisition corp acquired january 3 2007 included fiscal year 2007 consolidated financial statements smith wesson holding corporation subsidiaries since date acquisition constituted approximately 553 consolidated assets april 30 2007 approximately 95 net revenue year ended smith wesson holding corporation’s independent auditor bdo seidman llp independent registered public accounting firm audited management’s assessment effectiveness company’s internal control financial reporting april 30 2007 stated report appears page 53 annual report form 10k michael f golden michael f golden president chief executive officer john kelly john kelly chief financial officer treasurer report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries april 30 2007 2006 related consolidated statements income comprehensive income stockholders’ equity cash flows years ended also audited schedule listed accompanying index years ended april 30 2007 2006 financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2007 2006 results operations cash flows years ended conformity accounting principles generally accepted united states america also opinion schedule referred presents fairly material respects information years ended april 30 2007 2006 set forth therein also audited accordance standards public company accounting oversight board united states effectiveness smith wesson holding corporation’s internal control financial reporting april 30 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated july 16 2007 expressed unqualified opinion thereon bdo seidman llp boston massachusetts july 16 2007 report independent registered public accounting firm board directors stockholders smith wesson holding corporation opinion consolidated statements income comprehensive income changes stockholders’ equity cash flows year ended april 30 2005 present fairly material respects consolidated results operations cash flows smith wesson holding corporation subsidiaries year ended april 30 2005 conformity accounting principles generally accepted united states america addition opinion financial statement schedule valuation qualifying accounts year ended april 30 2005 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audit conducted audit statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audit provides reasonable basis opinion pricewaterhousecoopers llp pricewaterhousecoopers llp hartford connecticut august 15 2005 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements income comprehensive income accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows smith wesson holding corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash activities january 3 2007 acquired bear lake acquisition corp subsidiaries note 2 accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization largest manufacturer handguns united states largest us exporter handguns manufacture revolvers pistols related products accessories sale primarily gun enthusiasts collectors hunters sportsmen protection focused individuals public safety agencies officers military agencies united states throughout world may 11 2001 purchased outstanding stock smith wesson corp ukbased tomkins smith wesson corp predecessors business since 1852 january 3 2007 purchased outstanding stock bear lake acquisition corp see note 2 acquisition accounted purchase method accounting accordingly results operations acquired business included consolidated financial statements since acquisition date 2 acquisition bear lake acquisition corp thompsoncenter arms january 3 2007 completed acquisition outstanding capital stock bear lake acquisition corp subsidiaries including thompsoncenter arms company inc aggregate purchase price 1035 million consisted 1020 million cash 15 million estimated direct acquisition costs thompsoncenter arms recognized brand hunting enthusiasts leading position black powder segment long gun market addition leadership position long gun market thompsoncenter arms also brings expertise long gun barrel manufacturing assist us plans expand long gun market acquisition accounted purchase method pursuant sfas 141 “business combinations” currently finalizing valuation assets acquired liabilities assumed therefore fair values set forth subject adjustment additional information obtained following table summarizes allocation purchase price thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued agreement bear lake acquisition corp indemnified us losses arising environmental conditions related manufacturing activities purchase price 80 million placed escrow account pending environmental remediation study manufacturing site rochester new hampshire presently possible estimate ultimate amount remediation costs april 30 2007 231000 escrow released conduct safety environmental testing believe likelihood environmental remediation costs exceeding amount escrow remote customer relationships amortized proration expected yearly revenue generated customer lists acquired finitelived identifiable intangible assets amortized straightline basis following identifiable intangible assets acquired respective weighted average lives dollars thousands 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenues expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory medical claims payable actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training centre gmbh germany smith wesson distributing inc united states smith wesson inc united states smith wesson technology llc inactive smith wesson interactive management llc inactive smith wesson licensing llc inactive lost coast ventures inc inactive thompson center holding corporation kw thompson tool company inc thompsoncenter arms company inc ol development inc bear lake holdings inc inactive fox ridge outfitters inc year end wholly owned subsidiaries smith wesson corp thompsoncenter arms company inc april 29 2007 oneday variance reported fiscal year end april 30 2007 variance create material difference financials statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2007 periods presented included significant intercompany accounts transactions eliminated consolidation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts due shortterm nature derivative instruments account derivative instruments sfas 133 “accounting derivative instruments hedging activities” amended sfas 133 establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either smith wesson holding corporation subsidiaries notes consolidated financial statements continued assets liabilities balance sheet measure fair value purchased foreign exchange forward contracts minimize impact fluctuations foreign exchange rates note 14 cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts trade receivables extend credit domestic customers foreign distributors based financial condition offer discounts early payment determine extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 10 7 net product sales fiscal years ended april 30 2007 2006 2005 respectively customer owed us approximately 45 million 9 total accounts receivable april 30 2007 28 million 10 total accounts receivable april 30 2006 inventories value inventories consisting primarily finished firearms components finished firearms related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage comprehensive income statement financial accounting standards “sfas” 130 “reporting comprehensive income” requires companies report components comprehensive income financial statements including nonowner transactions events impact equity even items directly affect net income loss comprehensive income loss consists net income loss unrealized gains losses available sale securities net tax presented consolidated statements income comprehensive income property plant equipment record property plant equipment consisting land building improvements machinery equipment computers furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range three 20 years see note 10 additional information regarding intangible assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued valuation longlived assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values would reduced fair value adjusted carrying value would become asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved determined impairments longlived assets fiscal 2007 2006 2005 revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account substantial portion revenues recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenues accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademarklicensing revenues individual licensees based historical experience expected cash receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenues payable calendar quarter basis recognize revenues nonrefundable license fees received upon initial signing license agreements future service required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility future license amounts exist based results past payment performance licensees general therefore initially recognize minimum royalty payments upon contract signing instead record revenue monthly minimum royalty reasonably estimated month payment assured april 30 2007 estimated minimum royalties collected future amounted approximately 68 million follows segment information sfas 131 “disclosures segments enterprise related information” requires public companies report financial descriptive information reportable operating segments identify operating segments based internally evaluate separate financial information business activities management responsibility present time believe operate single business segment april 30 2007 2006 2005 material personnel facilities operating outside united states smith wesson holding corporation subsidiaries notes consolidated financial statements continued following breakdown net product sales research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities executive management approves prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs fiscal 2007 spent approximately 1248000 research activities relating development new products fiscal 2006 spent approximately 349000 research activities fiscal 2005 spent approximately 386000 research activities amount fiscal 2005 reimbursed 187000 national institute justice based grants received us development authorized user firearm grants expired fiscal 2005 record research development expense net reimbursement accompanying consolidated statements income earnings per share calculate basic diluted earnings per common share accordance provisions sfas 128 “earnings per share” basic earnings per common share equals net income divided weighted average number common shares outstanding period diluted earnings per common share equals net income divided weighted average number common shares outstanding period including effect outstanding stock options warrants stockbased instruments effect dilutive following table provides reconciliation income amounts weighted average number common equivalent shares used determine basic diluted earnings per share fiscal 2007 6485084 shares common stock issuable upon conversion 800 million convertible notes excluded fiscal 2007 computation diluted earnings per share effect would antidilutive options warrants purchase 1278893 313685 shares common stock smith wesson holding corporation subsidiaries notes consolidated financial statements continued excluded fiscal 2006 2005 computation diluted earnings per share respectively effect would antidilutive noted notes 16 18 issued warrants purchase 1320000 shares common stock fiscal 2006 classified liability balance sheet february 28 2006 see note 18 marked market changes fair value reported net income year ended april 30 2006 marktomarket adjustment increased net income 81174 calculation earnings per share consider stock warrants equity include diluted shares effect dilutive accordance emerging issues task force eitf topic d72 paragraph 29 sfas 128 adjusted net income basic earnings per share numerator purpose computing diluted earnings per share valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets including goodwill intangible assets indefinite lives susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology customer relationships patents trademarks tradenames finitelived intangible assets amortized based upon patterns economic benefits customer relationships expected utilized values intangible assets exception goodwill intangible assets indefinite lives initially determined riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance sfas 142 “goodwill intangible assets” test goodwill intangible assets indefinite lives impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions sfas 142 respect criteria necessary evaluate number reporting units exist based review determined operate one reporting unit based assessment impairment charges history result impairment evaluation goodwill indefinitelived intangible assets sfas 142 accordance sfas 144 “accounting impairment disposal longlived assets” periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis impairment charges taken fiscal 2007 2006 2005 based review longlived assets sfas 144 significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization smith wesson holding corporation subsidiaries notes consolidated financial statements continued management reporting structure well events circumstances including limited technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit andor c changes previous assumptions estimates turn could significant impact consolidated financial statements accelerated amortization andor impairment charges accounting acquisition completed significant business acquisition fiscal 2007 resulted significant goodwill intangible asset balances future business strategy contemplates may continue pursue additional acquisitions future accounting acquisitions involves significant judgments estimates primarily limited fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally sfas 142 determine fair value reporting unit purposes first step annual goodwill impairment test based market value prior future acquisitions accretive results operations expected market value declines dramatically determine one reporting unit may required complete second step requires significant judgments estimates may result material impairment charges period determined income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying currently enacted tax laws stock options warrants described notes 16 17 issued stock warrants stock option plan employees directors receive options purchase common stock stockbased compensation fourth quarter fiscal 2005 adopted sfas 123r “sharebased payment” revised 2004 utilizing modified retrospective application method periods presented prior adoption sfas 123r applied provisions apb opinion 25 “accounting stock issued employees related interpretations” product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments provision product liability ongoing basis charge credit cost sales exclusive insurance reimbursements make evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain product liability costs subject reimbursement insurance carriers environmental liability accordance sop 961 “environmental remediation liabilities” provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party prp ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted smith wesson holding corporation subsidiaries notes consolidated financial statements continued following constitutes summary environmental liability reserve april 30 2007 2006 environmental reserve increases decreases fiscal years ended april 30 2007 2006 2005 amounted approximately 90000 31 million 45000 respectively february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority sra property excess land adjacent manufacturing office facility 85 acres includes three five previously disclosed release areas identified soil groundwater contamination mcp specifically south field west field fire pond property acquired sra defined “brownfield” cercla sra support city springfield received governmental “brownfield” grants loans remediate development property remediation property completed quarter ended july 31 2005 consequently eliminated reserves related property fiscal year ended april 30 2006 reserve adjustment totaled approximately 31 million included reduction operating expenses warranty generally provide lifetime warranty “original” purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted warranty expense fiscal years ended april 30 2007 2006 2005 amounted 1931346 1263000 1539400 respectively following sets forth change accrued warranties fiscal years ended april 30 2007 2006 2005 sales promotional related expenses accordance eitf issue 0109 “accounting consideration given vendor customer including reseller vendor’s product” present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted approximately 1243000 318000 437000 fiscal years ended april 30 2007 2006 2005 respectively customer promotional programs whose costs depend volume sales costs amounted approximately 43000 41000 182000 fiscal smith wesson holding corporation subsidiaries notes consolidated financial statements continued years ended april 30 2007 2006 2005 respectively included selling marketing expenses coop advertising program retail level expensed costs amounting approximately 796000 1064000 670000 fiscal 2007 2006 2005 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net product services sales included costs relating shipping handling charges cost products services sales insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 20 million per occurrence liability estimated premiums incurred losses recorded accompanying consolidated financial statements undiscounted basis recently issued accounting pronouncements february 2006 financial accounting standards board “fasb” issued statement financial accounting standards “sfas” 155 “accounting certain hybrid financial instruments” amends sfas 133 “accounting derivative instruments hedging activities” sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 earlier adoption permitted provided yet issued financial statements including interim periods fiscal year expect adoption sfas 155 material impact financial position results operations cash flows june 2006 fasb ratified consensus emerging issues task force “eitf” issue 0603 “how taxes collected customers remitted governmental authorities presented income statement” scope eitf issue 0603 includes tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added universal service fund “usf” contributions excise taxes task force affirmed conclusion entities present taxes income statement either gross net basis based accounting policy disclosed pursuant apb opinion 22 “disclosure accounting policies” taxes significant presented gross basis amounts taxes disclosed consensus eitf issue 0603 effective interim annual reporting periods beginning december 15 2006 currently evaluating impact eitf issue 0603 need change manner record gross receipts expected change would material impact total revenue expenses operating income net income would affected june 2006 fasb issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance fasb statement 109 “accounting income taxes” fin 48 prescribes recognition threshold measurement tax position taken expected taken tax return fin 48 effective fiscal years beginning december 15 2006 currently evaluating impact adoption fin 48 financial statements march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” sfas 156 requires separately recognized servicing rights initially measured fair value practicable addition statement permits entity choose two measurement methods amortization method fair value measurement method class separately recognized servicing assets liabilities new accounting standard effective january 1 2007 adoption sfas 156 expected impact financial position results operations cash flows smith wesson holding corporation subsidiaries notes consolidated financial statements continued september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years earlier application encouraged yet determined effect adoption sfas 157 financial position results operations cash flows september 2006 fasb issued sfas 158 “employers’ accounting defined benefit pension postretirement plan amendment fasb statements 87 88 106 132r” sfas 158 requires employer recognize overfunded underfunded status defined benefit postretirement plan multiemployer plan asset liability statement financial position recognize changes funded status year changes occur comprehensive income sfas 158 also requires measurement defined benefit plan assets obligations fiscal year end addition footnote disclosures common stock publicly traded equity security required recognize funded status defined benefit pension plans provide required footnote disclosures end fiscal year ending april 30 2007 effect adopting sfas adjustment accumulated comprehensive income 72651 september 2006 fasb issued fasb staff position aug air1 “fsp” “accounting planned major maintenance activities” eliminates accrueinadvance method acceptable method accounting planned major maintenance activities fsp applicable fiscal years beginning december 15 2006 requires retrospective application financial statements presented believe impact adoption fsp material impact financial statements september 2006 sec issued sab 108 “considering effects prior year misstatements quantifying misstatements current year financial statements” provide guidance consideration effects prior year misstatements quantifying current year misstatements purpose materiality assessment sab 108 companies evaluate misstatement based impact current year income statement well cumulative effect correcting misstatements existed prior years existing current year’s ending balance sheet sab 108 effective fiscal years ending november 15 2006 adoption sab 108 effect consolidated financial statements december 2006 fasb issued fsp eitf 00192 “accounting registration payment arrangements” fsp eitf 00192 specifies contingent obligation make future payments otherwise transfer consideration registration payment arrangement whether issued separate agreement included provision financial instrument agreement separately recognized measured accordance fasb statement 5 “accounting contingencies” registration payment arrangements financial instruments subject arrangements entered prior issuance fsp eitf 00192 guidance shall effective financial statements issued fiscal years beginning december 15 2006 evaluating impact fsp eitf 00192 may consolidated financial statements february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” permits entities choose measure eligible items fair value specified election dates unrealized gains losses items fair value option elected reported earnings subsequent reporting date following balance sheet items within scope sfas 159 • recognized financial assets financial liabilities unless special exception applies • firm commitments would otherwise recognized inception involve financial instruments smith wesson holding corporation subsidiaries notes consolidated financial statements continued • nonfinancial insurance contracts • financial instruments resulting separation embedded nonfinancial derivative instrument nonfinancial hybrid instrument sfas 159 effective fiscal years beginning november 2007 early adoption possible subject certain requirements expect adoption sfas 159 material impact consolidated financial statements 4 longterm debt financing arrangements credit facilities january 2005 refinanced existing debt utilizing receivables inventory property plant equipment collateral financing obtained td banknorth previous loans amended arrangement november 2006 april 30 2007 credit facility consisted following 1 amended revolving line credit maximum amount lesser 17 million b sum 85 net amount eligible accounts plus ii lesser 6 million b1 60 smith wesson corp’s “swc” eligible finished goods inventory plus 2 70 swc’s eligible raw materials plus 3 40 swc’s eligible finished parts inventory line credit available september 30 2007 working capital needs bears interest variable rate equal prime libor amounts outstanding april 30 2007 2 sevenyear 121 million term loan bears interest rate 623 per annum monthly payment 178671 final payment due january 11 2012 3 tenyear 59 million term loan bears interest rate 685 per annum monthly payment 45525 december 11 2014 balloon payment due january 11 2015 3975611 4 amended equipment line credit 5 million capital expenditures would bear interest variable rate equal prime libor april 2007 time swc would elect pay either variable rate equal libor fixed rate equal federal home loan bank boston rate april 30 2007 plus 175 per annum aggregate availability amended equipment line credit ceased april 30 2007 amounts outstanding april 30 2007 5 300 million acquisition loan commitment bearing interest variable rate equal prime libor plus rate amount based leverage ratio april 30 2007 libor plus 175 per annum 280 million outstanding acquisition loan april 30 2007 interest must paid principal conversion date november 8 2008 time 160th outstanding principal plus interest due monthly maturity date november 8 2013 addition credit facility td banknorth entered revolving line credit thompsoncenter arms citizens bank massachusetts maximum amount lesser 150 million b 80 eligible receivables ii plus lesser 60 million 60 eligible finished goods 15 raw material inventory 750000 coming advances raw material minus iii letter credit exposure revolving line bears interest variable rate equal prime libor plus 250 basis points amounts outstanding april 30 2007 convertible debt december 15 2006 issued aggregate 800 million senior convertible notes “notes” maturing december 15 2026 qualified institutional buyers pursuant terms conditions securities purchase agreement indenture used net proceeds notes together 280 million acquisition line credit fund acquisition bear lake acquisition corp subsidiaries including thompsoncenter arms smith wesson holding corporation subsidiaries notes consolidated financial statements continued notes bear interest rate 4 per annum payable june 15 december 15 year required pay additional interest notes default certain obligations registration rights agreement covering resale notes common stock issuable upon conversion notes registration rights agreement required securities exchange commission declare registration statement covering notes common stock issuable upon conversion notes effective june 14 2007 registration become effective june 26 2007 additional interest approximately 260000 accrued notes convertible shares common stock initially conversion rate 810636 shares per 1000 principal amount notes total 6485084 shares equivalent initial conversion price 12336 per share notes may converted time december 15 2009 december 15 2011 may redeem portion notes closing price common stock exceeds 150 applicable conversion price notes fewer 20 trading days period 30 consecutive trading days december 15 2011 may redeem portion notes noteholders may require us repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company defined indenture covering notes general unsecured obligations ranking senior right payment subordinated indebtedness ranking pari passu unsecured unsubordinated indebtedness time following effectiveness registration statement filed covering resale notes common stock issuable upon conversion notes closing price common stock exceeds 200 applicable conversion price notes least 30 trading days period 40 consecutive trading days agreed incur additional indebtedness excess greater 1 62000000 available existing credit facility senior lender 2 three times ltm ebtida defined indenture covering notes time additional debt incurred including amounts outstanding credit facility td banknorth evaluated conversion features notes provisions eitf 985 “accounting convertible securities beneficial conversion features contingently adjustable conversion ratios” eitf 0027 “application issue 985 certain convertible instruments” determined beneficial conversion feature existed analyzed provisions notes sfas 133 “accounting derivative instruments hedging activities” eitf 0019 “accounting derivative financial instruments index potentially settled company’s stock” determined features instruments requiring bifurcation debt issuance costs related fiscal 2005 refinancing td banknorth amounted 654843 classified assets 71492 amortized expense fiscal year ended april 30 2007 debt issuance costs amortized using effective interest rate method future amortization expense follows fiscal year 2008 62935 2009 53507 2010 43652 2011 33176 2012 22434 thereafter 40948 incurred approximately 43 million debt issuance costs associated issuance notes costs amortized straightline basis december 15 2011 date first redemption year ended april 30 2007 amortized 322284 interest expense incurred 283574 debt issuance costs associated 280 million acquisition line td banknorth costs amortized straightline basis 20 years life acquisition line year ended april 30 2007 amortized 13666 interest expense incurred 24641 debt issuance costs associated line credit citizens bank costs amortized straight line basis one year ended april 30 2007 amortized 2053 interest expense addition debt extinguished january 2005 recognized expense year ended april 30 2006 approximately 232000 related unamortized debt issue costs written retirement date total longterm debt maturing fiscal 2008 2009 2010 2011 2012 thereafter 29 million 43 million 76 million 78 million 74 million 934 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued carrying amounts notes payable april 30 2007 2006 follows credit facility td banknorth contains financial covenants relating maintaining minimum ebitda maximum leverage minimum debt service coverage maximum capital expenditures compliance debt covenants april 30 2007 letters credit april 30 2007 open letters credit aggregating 36 million workers’ compensation bond self insurance 35 million making majority amount 5 international sales sell products worldwide following sets forth breakdown export sales accounted approximately 8 11 9 net product sales fiscal years ended april 30 2007 2006 2005 respectively individual foreign country accounted 10 net revenue smith wesson holding corporation subsidiaries notes consolidated financial statements continued 6 income expense following sets forth details income expense fiscal years ended april 30 2007 2006 2005 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials incurred fiscal years ended april 30 2007 2006 2005 advertising expenses included selling marketing expenses amounted approximately 9466000 7355000 6154000 respectively 8 property plant equipment following summarizes property plant equipment april 30 2007 2006 depreciation expense amounted approximately 53 million 40 million 27 million fiscal years ended april 30 2007 2006 2005 respectively estimated cost complete construction progress approximately 71 million 9 inventories following sets forth summary inventories stated lower cost market april 30 2007 2006 smith wesson holding corporation subsidiaries notes consolidated financial statements continued 10 intangible assets record intangible assets cost intangible assets consist customer relationships developed technology order backlog trademarks tradenames patents obtained principally acquisitions thompsoncenter arms company inc smith wesson corp amortize patents developed technology using straightline method estimated useful lives ranging three 20 years amortize customer relationships proration expected yearly revenue generated customer lists acquired currently estimated 20 years following presents summary intangible assets amortization expense excluding amortization deferred financing costs amounted 1664944 28754 20732 fiscal years ended april 30 2007 2006 2005 respectively amortization expense approximate 4331000 annually next five fiscal years 11 assets consisted following april 30 2007 2006 12 receivables insurance carriers following summarizes activity receivables insurance carriers fiscal years ended april 30 2007 2006 smith wesson holding corporation subsidiaries notes consolidated financial statements continued outstanding balance april 30 2007 4689284 750000 current assets 3939284 noncurrent assets april 30 2006 4737406 900000 current assets 3837406 noncurrent assets october 2004 one insurance carriers agreed pay portion past future defense costs relative municipal litigation result receivable insurers increased 2118828 fiscal year ended april 30 2005 reflect agreement insurance carriers paid defense costs 48122 630748 fiscal years ended april 30 2007 2006 respectively 13 noncurrent liabilities following sets forth noncurrent liabilities april 30 2007 2006 severance represents annual stipends defray medical costs former employees continuing january 2009 14 derivative financial instruments hedging activities purchase certain finished goods component parts european supplier pay euros purchased foreign exchange participating forward contracts minimize impact fluctuations foreign exchange rates participating forward contracts provide full protection us devaluation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros purchased average rate remaining 50 paid spot rate elected designate derivative instruments qualifying hedge accounting treatment sfas 133 accordingly record gains losses derivative contracts element income expense reporting period based change estimated fair value contracts estimate fair values derivative financial instruments based exchange rates underlying currencyeuros fair value outstanding derivatives asset approximately 125000 april 30 2007 54000 april 30 2006 current derivative instruments outstanding april 30 2007 expire december 2007 15 selfinsurance reserves april 30 2007 2006 reserves workers’ compensation product liability medicaldental costs totaling approximately 116 million 96 million respectively 70 million 60 million respectively classified noncurrent included noncurrent liabilities remaining amounts approximately 46 million 36 million respectively included accrued expenses accompanying consolidated balance sheets believe reserves adequate smith wesson holding corporation subsidiaries notes consolidated financial statements continued possible ultimate liabilities exceed estimates amounts charged expense 67 million 54 million 60 million fiscal years ended april 30 2007 2006 2005 respectively following summary activity workers’ compensation product liability medicaldental reserves fiscal years ended april 30 2007 2006 2005 policy provide estimate loss result expected adverse findings legal settlements product liability workers’ compensation losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2007 2006 accrued reserves product liability approximately 90 million 75 million respectively approximately 61 million 51 million respectively noncurrent consisting entirely expected legal defense costs addition april 30 2007 2006 recorded receivables insurance carriers related liabilities 47 million 47 million 39 million 38 million respectively classified assets remaining amounts 750000 900000 respectively classified current assets 16 capital stock common stock issued fiscal year ended april 30 2007 issued 379309 shares common stock market value approximately 39 million current former employees upon exercise options granted employees company proceeds exercise shares 616780 fiscal year ended april 30 2007 issued 93344 shares common stock market value approximately 13 million employee stock purchase plan proceeds exercise shares 721395 fiscal year ended april 30 2007 issued 1200000 shares common stock market value approximately 136 million upon exercise outstanding warrants purchase price shares 6012235 fiscal year ended april 30 2006 issued 368958 shares common stock current former employees upon exercise options granted employees company proceeds exercise shares 392763 fiscal year ended april 30 2006 issued 137868 shares common stock employee stock purchase plan proceeds exercise shares 419901 smith wesson holding corporation subsidiaries notes consolidated financial statements continued fiscal year ended april 30 2006 issued 829700 shares common stock former employees upon exercise warrants issued employees company purchase price shares 738433 discussed note 18 also issued 6000000 shares common stock private placement transaction fiscal year ended april 30 2006 fiscal year ended april 30 2005 issued 647216 shares common stock current former employees upon exercise options granted employees company proceeds exercise shares 736406 fiscal year ended april 30 2005 issued 191002 shares common stock employee stock purchase plan proceeds exercise shares 244575 fiscal year ended april 30 2005 issued 200000 shares common stock former employee current director upon cashless exercise warrants issued employee company stock warrants issued repurchased fiscal 2002 issued warrants related financing debt used acquisition smith wesson corp incentive bonuses employees directors compensation outside consultants consideration past services company including services rendered connection acquisition smith wesson corp issued common stock purchase warrant dated may 11 2001 robert l scott former officer current director company “scott warrant” value warrant expensed upon issuance scott warrant contained cashless exercise provision entitled mr scott purchase 5000000 shares common stock exercise price 089 per share subject adjustment set forth therein time date issuance five years date issuance year ended april 30 2005 mr scott exercised 311250 warrants cashless basis resulting issuance 200000 shares common stock result april 30 2005 unexercised saltz scott warrants 9688750 shown table subsequently may 2005 mr scott determined exercise warrants gross basis paid 089 cash exercise price 200000 shares received result mr scott exercised 200000 warrants gross exercise basis rather 311250 warrants cashless exercise basis result reinstated 111250 warrants unexercised warrants may 2005 may 2005 amended scott warrants issued mitchell saltz another form officer current director “saltz warrants” eliminating cashless exercise feature permitted warrants net share settled effect modification determined cause incremental compensation cost subsequently mr saltz exercised warrants purchase 500000 shares mr scott exercised warrants purchase 329700 shares gross basis purchase price 738433 resulting 8970300 unexercised warrants september 12 2005 september 12 2005 entered agreement messrs saltz scott tendered unexercised warrants purchase 8970300 shares us exchange cash payment 267 per share 23950701 total market value time therefore repurchase purchase warrants september 12 2005 result additional compensation expense smith wesson holding corporation subsidiaries notes consolidated financial statements continued following outlines activity related warrants periods indicated 17 stock option employee stock purchase plans two employee stock option plans “the sops” 2001 stock option plan 2004 incentive stock plan new grants 2001 stock option plan made following approval 2004 incentive stock plan september 13 2004 annual meeting stockholders new grants covering participants issued 2004 incentive stock plan 2004 incentive stock plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock plan allows granting options acquire common stock granting restricted common stock deferred stock granting restricted stock units granting stock appreciation rights granting dividend equivalents board directors committee established board administers sops selects recipients awards granted determines grants awarded options granted sops exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture unless terminated earlier board directors 2004 incentive stock plan terminate earlier 1 ten years date later occur original date plan approved board directors stockholders whichever earlier ii date increase number shares reserved issuance plan approved board directors long increase also approved stockholders 2 time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award generally awards vest period three years awards exercisable period ten years plan also allows grants awards nonemployees board granted past separate option grant outside 2004 incentive stock plan 500000 shares made michael golden connection employment president chief executive officer fiscal year ended april 30 2005 smith wesson holding corporation subsidiaries notes consolidated financial statements continued number shares weighted average exercise prices options granted sops separate grant fiscal years ended april 30 2007 2006 2005 follows april 30 2007 8340263 shares available grant 2004 incentive stock plan summary stock options outstanding vested exercisable april 30 2007 follows aggregate intrinsic value outstanding options vested exercisable april 30 2007 28365746 19351340 respectively employee stock purchase plan “espp” authorizes sale 10000000 shares common stock employees espp commenced june 24 2002 continues effect term ten years unless sooner terminated espp implemented series offering periods two years duration four sixmonth purchase periods offering period plan amended september 2004 future offering periods commencing october 1 2004 offering period six months consistent six month purchase period purchase price 85 fair market value common stock offering date purchase date whichever lower participant may elect payroll deductions made payday offering period amount less 1 20 greater percentage board may establish time offering date participant’s compensation payday offering period last day offering period purchase date offering period offering period commencing april 1 ends next september 30 offering period commencing october 1 ends next march 31 board directors power change duration andor frequency offering purchase periods respect future offerings purchases without stockholder approval change announced least five days prior scheduled beginning first offering period affected maximum number shares employee may purchase period 12500 shares options rights participate espp nontransferable subject forfeiture accordance espp guidelines event certain corporate transactions option outstanding smith wesson holding corporation subsidiaries notes consolidated financial statements continued espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2007 2006 2005 93344 137868 191002 shares respectively purchased espp year ended april 30 2005 adopted sfas 123r “sharebased payment” requires measurement cost employee services received exchange award equity instrument based grantdate fair value award elected modified retrospective application method adopting sfas 123r resulted restatement prior period amounts order present comparable compensation data accordance sfas 123r calculated fair value stock options warrants issued employees using blackscholes model time options warrants granted amount amortized vesting period option warrant espp fair value determined beginning purchase period amortized term offering period following assumptions used valuing options espp estimate expected volatility using past historical volatility expected term fair value stock option espp purchase estimated date grant using black scholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table weightedaverage fair value stock options granted fiscal 2007 2006 2005 954 355 127 respectively weightedaverage fair value espp shares granted fiscal 2007 2006 2005 422 128 073 respectively year ended april 30 2007 granted 437000 restricted stock units rsus consisting shares restricted common stock subject timebased vesting current employees april 30 2007 425000 restricted stock units outstanding 12000 cancelled due employee terminations aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees approximately 811131 twelve months ended april 30 2007 april 30 2007 approximately 22 million unrecognized compensation cost related unvested rsus cost expected recognized weighted average 12 years recorded stockbased compensation expense related sfas 123r approximately 2740000 2258000 626000 fiscal 2007 2006 2005 respectively stockbased compensation expense included general administrative expenses intrinsic value options warrants exercised fiscal 2007 2006 2005 approximately 17457000 4443000 951000 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued total fair value shares vested fiscal 2007 2006 2005 approximately 194 million 93 million 40 million respectively fiscal 2005 modifications certain options 12 terminating employees made extend exercise period vested options resulted additional compensation expense recorded approximately 49000 modifications options fiscal 2007 2006 april 30 2007 total unamortized fair value stock options approximately 899000 recognized remaining vesting period two years august 1 2005 granted option purchase 25000 shares common stock consultant fully vested four months later november 30 2005 year ended april 30 2006 recorded estimated fair value option grant totaling approximately 118000 general administrative expenses accompanying statement income estimated fair value option grant using blackscholes optionpricing model following assumptions volatility 75 riskfree interest rate 432 expected life ten years dividend yield 0 18 private placement offering september 12 2005 completed sale aggregate 6000000 shares common stock “shares” warrants purchase additional 1200000 shares common stock “warrants” sale made institutional investors reliance upon exemption registration requirements section 42 securities act 1933 rule 506 regulation act “private placement” received gross proceeds 26160000 cash sale securities agreed promptly file registration statement securities exchange commission register shares common stock issuable upon exercise warrants “registration statement” exercise price warrants 533 per share warrants became exercisable beginning march 12 2006 fully exercised fiscal 2007 incurred issuance costs 2972056 including issuance warrant purchase 120000 shares common stock placement agent initial fair value 384000 exercise price placement agent’s warrants 436 per share terms placement agent’s warrant substantially warrants sold investors except became exercisable march 12 2006 expires september 12 2010 proceeds private placement used repurchase outstanding common stock warrants held mitchell saltz robert l scott directors company general working capital also entered agreement messrs saltz scott colton r melby another director company pursuant messrs saltz scott melby agreed sell us discretion certain circumstances aggregate 1200000 shares common stock requested us price per share 533 equivalent exercise price warrants call right determined meet requirements asset sfas 133 “accounting derivative instruments hedging activities” shares repurchased pursuant right fiscal 2007 terms securities purchase agreement among us investors private placement required pay penalties fail meet obligations register shares issuable upon exercise warrants specifically following events “event” occurs required pay cash partial liquidated damages equivalent 1 per month thenoutstanding principal amount aggregate purchase price private placement investors fail file registration statement registering shares issuable upon exercise warrant registration statement declared effective prior dates specified securities purchase agreement ii certain exceptions investor permitted sell registered securities registration statement reason smith wesson holding corporation subsidiaries notes consolidated financial statements continued five trading days calendar quarter iii certain exceptions common stock listed quoted suspended trading eligible market period three trading days calendar quarter iv fail deliver certificate evidencing securities investor within three days delivery certificate required exercise rights investor pursuant warrants otherwise suspended reason v fail available sufficient number authorized unissued otherwise unreserved shares common stock available issue shares upon exercise warrants result registration rights penalties accordance emerging issues task force “eitf” issue 0019 “accounting derivative financial stock” recorded initial fair value warrants placement agent’s warrants date issuance totaling 1188000 financial instrument liabilities 804000 384000 respectively value shares recorded temporary equity accordance eitf topic d98 “classification measurement redeemable securities” quarter ended january 31 2006 due large part increase value common stock january 31 march 1 approximately 9 determined appropriate reevaluate accounting treatment shares warrants issued connection private placement connection evaluation utilized services independent valuation service provider order determine quantify difference fair value registered versus unregistered share common stock march 1 2006 valuation performed using blackscholes model resulted restricted stock discount approximately 25 versus total penalty 19 maximum amount damages could required pay march 1 2006 determined would economically compelled pay penalty rather settling retiring shares warrants therefore march 1 2006 reclassified shares warrants temporary equity liabilities respectively permanent equity warrants classified liability february 28 2006 accordance eitf 0019 subsequent changes fair value recorded consolidated statement income comprehensive income general administrative expenses total fair value warrants 1059600 february 28 2006 year ended april 30 2006 related decrease fair value warrants totaling 128400 recorded credit general administrative expenses following assumptions used determining fair value outstanding warrants issued investors placement agent connection private placement year ended april 30 2006 april 30 2007 1200000 investor warrants exercised 120000 placement agent warrants still outstanding 19 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed approximately 901000 fiscal year ended april 30 2007 696000 fiscal year ended april 30 2006 618000 fiscal year ended april 30 2005 smith wesson holding corporation subsidiaries notes consolidated financial statements continued noncontributory profit sharing plan noncontributory profit sharing plan employees eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes defined plan year fiscal 2007 plan contribute approximately 48 million contributed approximately 25 million fiscal year ended april 30 2006 approximately 24 million fiscal year ended april 30 2005 contributions funded fiscal yearend also defined contribution profit sharing plan covering substantially thompsoncenter arms employees based certain eligibility criteria board directors discretion determines contributions made net income thompsoncenter arms assumed 800000 liability related plan january 3 2007 expect make payment employees fiscal 2008 20 postemployment postretirement deferred compensation postretirement medical program certain obligations terminated program provides health care retirees age 65 employees designated combined age years service grandfathered program grandfather provision provides varying degrees coverage based upon years service currently seven retirees covered program eight active employees grandfathered program postretirement medical liability based upon reports provided independent actuary postretirement medical liability approximately 230000 april 30 2007 approximately 233000 april 30 2006 sfas 158 requires measure funded status plan year end date became effective fiscal 2007 effect statement reflected following presentation defined benefit plans upon adoption standard recorded increase 72651 accumulated comprehensive income thus reducing accrued postretirement liability following table sets forth postretirement medical amounts recognized postretirement medical benefit plan current portion postretirement medical plan april 30 2007 2006 21014 42719 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued net periodic postretirement benefit lossincome includes following components weighted average discount rate used determining actuarial present value projected benefit obligation 51 57 april 30 2007 2006 respectively measurement purposes 9 annual rate increase per capita cost covered health care benefits assumed fiscal 2007 rate grading ultimate rate 50 fiscal 2014 fiscal 2005 10 annual rate increase per capita cost covered health care benefits assumed fiscal 2006 rate grading ultimate rate 5 fiscal 2013 fiscal years ended april 30 2007 2006 1 increase decrease assumed health care cost trend rate would immaterial effect aggregate service interest cost components net periodic postretirement health care benefit costs accumulated postretirement benefit obligation health care benefits estimated future benefit payments follows 2008 38000 2009 33000 2010 21000 2011 27000 2012 9000 2013 2017 19000 postretirement pension plan senior executive supplemental retirement plan “executive plan” certain thompsoncenter arms officers covered six current former executives april 30 2007 benefits plan paid monthly currently monthly benefit 2863 adjusted annually based percent change cpi urban consumers ten years following retirement officer director unfunded nonqualified noncontributory plan whereby future obligations paid company april 30 2007 979618 accrued financial statements based upon present value estimated future obligation using discount rate 5436 remaining months commitment case current executive expected retirement date estimated future benefit payments follows 2008 137000 2009 126000 2010 103000 2011 103000 2012 103000 thereafter 650000 executive plan may also required continue pay thompsoncenter arms’ portion health insurance premiums offered employees retiree becomes eligible medicare april 30 2007 four individuals receiving cash payments plan none eligible receive health insurance benefit two current employees eligible receive health insurance portion plan upon retirement based independent analysis done determine future liability plan accrued 17403 expensed 4351 postretirement medical cost year ended april 30 2007 valuation used active census data net periodic postretirement benefit cost fiscal 2007 uses disclosure discount rate 575 impact medicare prescription drug improvement modernization act 2003 reflected april 30 2007 plan immaterial amount post65 drug benefits likely would qualify federal subsidy period 21 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years smith wesson holding corporation subsidiaries notes consolidated financial statements continued differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date income tax expense consists following presents reconciliation provision income taxes statutory rates provision consolidated financial statements deferred tax assets relating tax benefits employee stock option grants reduced reflect exercises fiscal 2007 2006 2005 exercises resulted tax deductions excess previously recorded benefits based option value time grant “windfalls” pursuant sfas 123r additional tax benefit associated “windfall” recognized deduction reduces taxes payable fiscal 2007 2006 since tax benefit reduce current taxes payable due net operating loss utilization “windfall” tax benefits remaining net operating loss carryforwards however since tax benefit reduce current taxes payable fiscal 2005 due net operating loss carryforwards “windfall” tax benefits reflected net operating losses deferred tax assets fiscal 2005 windfalls included net operating loss carryforwards reflected deferred tax assets fiscal 2005 200000 smith wesson holding corporation subsidiaries notes consolidated financial statements continued future tax benefits deferred tax liabilities related temporary differences following net tax assets liabilities changed substantially year ended april 30 2007 primarily result acquisition bear lake acquisition corp january 2007 required fasb statement 109 recorded tax assets liabilities temporary differences book value tax bases assets liabilities purchase date federal net operating loss carryforwards amounting 25 million 42 million 109 million april 30 2007 2006 2005 respectively april 30 2007 net operating loss expires years 2019 2020 utilization losses limited section 382 internal revenue code 108161 per year fiscal 2005 determined 457388 net operating loss carryforwards expire unutilized therefore related deferred tax asset 155512 reversed tax expense fiscal 2005 possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 ownership change occur would annual limitation remaining tax loss carryforward federal net operating losses reduced overall net deferred tax liability 157 million 324977 april 30 2007 increased net deferred tax asset 107 million 12 million april 30 2006 state net operating loss carryforwards amounted 12 million 65 million april 30 2006 2005 respectively state net operating loss carryforwards april 30 2007 reserved smith wesson holding corporation subsidiaries notes consolidated financial statements continued approximately 26000 noncurrent deferred taxes capital loss carryforward anticipate using prior expiration 22 commitments contingencies litigation together firearms manufacturers certain related organizations codefendant various legal proceedings involving product liability claims aware product liability claims including allegations defective product design manufacturing negligent marketing andor distribution firearms leading personal injury including wrongful death lawsuits claims based principally theory “strict liability” also may based negligence breach warranty legal theories many lawsuits punitive damages well compensatory damages demanded aggregate claimed amounts currently exceed product liability accruals applicable insurance coverage believe every case allegations defective product design unfounded accident results therefrom due negligence misuse firearm claimant third party recovery us addition also codefendant various legal proceedings brought certain cities municipalities counties numerous firearms manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties shootings complaints municipalities seek damages among things costs medical care police emergency services public health services maintenance courts prisons services certain instances plaintiffs seek recover decreases property values loss business within city due increased criminal violence addition nuisance abatement andor injunctive relief sought change design manufacture marketing distribution practices various defendants suits allege among claims strict liability negligence design products public nuisance negligent entrustment negligent distribution deceptive fraudulent advertising violation consumer protection statutes conspiracy concert action theories monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect consolidated financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgment intend vigorously defend time estimated range reasonably possible additional losses term defined sfas 5 “loss contingencies” zero range reasonably possible losses relating unfavorable outcomes cannot made fiscal years ended april 30 2007 2006 2005 paid 65798 0 4535 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 25000 15000 0 respectively fiscal years settlement fees relative product liability cases fiscal 2007 2006 2005 recorded expense income 159052 87734 29 million respectively recognize changes product municipal litigation liability income fiscal 2005 due reduction reserves due favorable outcomes product municipal cases well reflect initiation insurance coverage recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued rulings following cases pending april 30 2007 district columbia et al v beretta usa corp et al superior court district columbia district columbia nine individual plaintiffs seek unspecified amount compensatory exemplary damages certain injunctive relief december 16 2002 superior court district columbia granted defendants’ motion judgment 22 pleadings entirety january 14 2003 plaintiffs filed notice appeal district columbia court appeals court appeals issued decision affirmed dismissal plaintiffs’ common law negligence public nuisance claims reversed dismissal statutory strict liability count individual plaintiffs court also reversed dismissal statutory strict liability count district columbia extent district seeks subrogated damages named individuals incurred medical expenses plaintiffs defendants filed separate petitions rehearing may 13 2004 oral argument held dc court appeals january 11 2005 april 21 2005 dc court appeals issued opinion affirming earlier decision july 20 2005 defendants filed petition writ certiorari united states supreme court october 3 2005 supreme court denied defendants’ petition certiorari october 26 2005 filed answer third amended complaint october 27 2005 defendants filed motion judgment pleadings based protection lawful commerce arms act “plcaa” november 10 2005 status conference held judge brooke hedge set briefing schedule defendants’ motion stayed discovery pending decision defendants’ motion plaintiff’s opposition defendants’ motion filed december 19 2005 defendants’ reply filed february 2 2006 united states department justice filed brief defending constitutionality protection lawful commerce arms act january 30 2006 oral argument held march 10 2006 may 22 2006 court granted defendants’ motion judgment pleadings dismissed case entirety june 20 2006 plaintiffs filed notices appeal november 2 2006 plaintiffs filed opening briefs defendants’ government’s briefs filed january 16 2007 plaintiffs’ reply filed february 28 2007 briefing completed dc court appeals march 28 2007 oral argument yet scheduled city gary indiana mayor scott l king v smith wesson corp et al lake superior court indiana plaintiff’s complaint alleges public nuisance negligent distribution marketing negligent design seeks unspecified amount compensatory punitive damages certain injunctive relief defendants’ motion dismiss plaintiff’s complaint granted counts january 11 2001 september 20 2002 indiana court appeals issued opinion affirming trial court’s dismissal plaintiff’s claims manufacturer defendants december 23 2003 indiana supreme court issued decision plaintiff’s petition transfer reversing decision court appeals remanding case trial court held plaintiff allowed proceed public nuisance negligence claims defendants negligent design claim manufacturer defendants filed answer plaintiff’s amended complaint january 30 2004 november 23 2005 defendants filed motion dismiss based protection lawful commerce arms act plaintiffs’ opposition defendants’ motion dismiss filed february 22 2006 oral argument held may 10 2006 decision issued date trial scheduled begin june 15 2009 october 23 2006 court denied defendants’ motion dismiss november 21 2006 defendants filed motion requesting certification interlocutory appeal court’s order denying defendant’s motion dismiss based plcaa court granted defendant’s motion certified case appeal day filed february 5 2007 court appeals accepted jurisdiction appeal defendants filed notice appeal court appeals february 5 2007 discovery stayed trial scheduled begin june 15 2009 plaintiff’s response filed may 22 2007 defendants’ reply filed june 21 2007 oral argument yet scheduled city new york et al v arms technology inc et al united states district court eastern district new york complaint alleges defendants created contributed maintained public nuisance city new york allegedly negligent marketing distribution practices plaintiff seeks injunctive relief defendants’ petition writ mandamus requiring recusal judge smith wesson holding corporation subsidiaries notes consolidated financial statements continued weinstein denied second circuit court appeals may 21 2004 april 8 2004 trial court denied plaintiff’s motion strike defendants’ jury demands granted defendants seventh amendment jury april 12 2004 trial court denied defendants’ motion dismiss answer second amended complaint filed may 17 2004 june 14 2004 court entered order releasing certain atf trace data june 22 2004 defendants filed motion certify court’s order interlocutory appeal july 6 2004 court entered order denying immediate separate appeal defendants july 16 2004 atf filed petition writ mandamus second circuit court appeals seeking review judge weinstein’s june 14 2004 order releasing certain trace data august 24 2004 second circuit issued order denying atf’s petition writ mandamus september 20 2004 court entered protective order confidential documents depositions three former employees held june 2005 october 26 2005 defendants filed motion dismiss based plcaa november 11 2005 court stayed november 28 2005 trial date december 2 2005 court denied defendants’ motion dismiss finding plcaa inapplicable claims brought plaintiff court certified matter interlocutory appeal continued stay litigation pending determination second circuit applicability legislation december 13 2005 defendants filed appeal second circuit court appeals february 8 2006 district court issued rule show cause case dismissed based language 2006 appropriations act provides atf trace data shall admissible civil proceedings hearing held court march 3 2006 address whether court authority consider appropriations issue pendency second circuit appeal march 7 2006 court issued order finding retains jurisdiction ordered parties submit briefs april 7 2006 address applicability constitutionality 2006 appropriations act march 7 2006 second circuit accepted defendants’ appeal issued scheduling order defendants filed brief support appeal may 8 2006 plaintiff filed brief july 6 2006 july 11 2006 new york attorney general filed amicus brief supporting city’s crossappeal reversal portion district court’s decision addressing constitutionality plcaa defendants august 7 2006 reply plaintiff’s brief april 27 2006 pendency appeal judge weinstein issued order holding 2006 appropriations act preclude admissibility atf trace data proceeding may 11 2006 defendants filed petition permission file interlocutory appeal order second circuit elected stay decision whether accept interlocutory appeal pending resolution plcaa appeal tenedora tuma sa v smith wesson corp civil commercial court first district court first instance national district santo domingo dominican republic plaintiff commenced suit submitting request preliminary reconciliation hearing two preliminary reconciliation hearings reconciliation committee issued certificate lack agreement thereafter summons notice claim issued us january 17 2000 plaintiff alleged terminated distributor agreement without cause sought damages approximately 600000 alleged violations dominican republic law 173 protection importers merchandise products briefing merits completed trial court november 2002 june 7 2004 court granted motion dismiss entirety notification judgment filed august 10 2004 september 9 2004 plaintiff purportedly appealed decision march 3 2005 informed hearing held court appeals october 27 2004 without notification counsel us merits plaintiff’s appeal taken advisement court june 23 2005 hearing held wherein attempted reopen appeal based lack service appeal papers us november 11 2005 court appeals rendered final decision court refused plaintiff’s arguments appeal upheld petitions confirming aspects judgment rendered court first instance favor january 12 2006 plaintiff appealed supreme court dominican republic response filed february 10 2006 hearing held supreme court dominican republic october 11 2006 wherein parties presented final arguments decision issued date smith wesson holding corporation subsidiaries notes consolidated financial statements continued peter edward fudali v smith wesson corp et al frederick county court maryland plaintiff’s complaint filed march 4 1999 stems incident occurred march 8 1996 complaint alleges revolver discharged unexpectedly plaintiff preparing shoot revolver neighbor’s backyard causing fragments metal burning gunpowder strike forehead eye complaint asserts claims negligence strict liability seeks compensatory damages 20 million dollars plus costs fees court entered order granting summary judgment favor however waiting court’s ruling certification dismissal final order oren gorden v smith wesson corp et al territorial court virgin islands district st crois complaint filed january 19 2001 seeks unspecified compensatory damages personal injuries allegedly sustained mr gorden complaint alleges mr gorden’s smith wesson handgun malfunctioned exploded tried load filed answer denying allegations liability november 17 2003 firearm issue case lost transit commercial carrier returned us plaintiff april 21 2004 court denied motion summary judgment extended pretrial deadlines mediation conducted april 13 2005 expert discovery ongoing trial postponed new trial date scheduled court following cases related thompsoncenter arms acquired january 3 2007 exception bailey case following cases active time acquisition ted amanda fink v thompsoncenter arms company inc et al circuit court calhoun county alabama complaint filed april 10 2006 seeks unspecified compensatory punitive damages personal injuries allegedly sustained mrs fink using thompsoncenter arms rifle plaintiffs name defendants thompsoncenter arms manufacturer ammunition retailer rifle ammunition plaintiffs allege rifle ammunition defective design manufacture defects rendered rifle ammunition unreasonably dangerous alabama extended manufacturer’s liability doctrine plaintiffs allege defendants negligently andor wantonly designed manufactured sold imported andor distributed products breached implied warranties merchantability plaintiffs may 12 2006 thompsoncenter arms filed answer denying liability damages allegations discovery ongoing trial yet scheduled clinton rebecca stroklund v thompsoncenter arms company inc et al united states district court district north dakota northwestern division amended complaint alleges december 4 2004 mr stroklund’s rifle catastrophically exploded resulting loss left hand complaint seeks unspecified damages excess 75000 thompsoncenter arms company inc bullet manufacturer powder manufacturer alleging negligence products liability breach warranty products liability cause action includes claims design defect manufacturing defect failure properly warn instruct july 5 2006 thompsoncenter arms filed answer plaintiffs’ amended complaint denying allegations liability fact discovery completed expert discovery ongoing thompsoncenter arms filed motion summary judgment june 15 2007 trial scheduled begin september 17 2007 herbert mindy wilson v thompsoncenter arms company inc united states district court eastern district louisiana state court petition filed november 4 2005 alleges mr wilson sustained eye injuries using thompsoncenter arms muzzleloader matter subsequently removed united states district court plaintiffs assert product liability claims plaintiffs seeking unspecified amount compensatory damages december 13 2005 thompsoncenter arms filed answer denying allegations liability discovery complete thompsoncenter arms filed motion summary judgment resulted dismissal design manufacturing based claims court still considering dismissal remaining warnings claim trial scheduled begin november 5 2007 brian ward v thompsoncenter arms company inc et al fortysixth circuit court otsego county michigan complaint filed october 16 2006 alleges plaintiff sustained eye injuries smith wesson holding corporation subsidiaries notes consolidated financial statements continued using thompsoncenter arms rifle plaintiff asserts product liability claims thompsoncenter arms retailer based negligence warranty principles plaintiff seeking unspecified amount compensatory damages november 15 2006 thompsoncenter arms filed answer denying allegations liability discovery ongoing trial yet scheduled andrew bailey v thompsoncenter arms company inc court common pleas knox county ohio complaint matter previously dismissed without prejudice refiled may 11 2007 plaintiff asserts product liability claims relating catastrophic failure plaintiff’s muzzleloader plaintiff seeks unspecified damages excess 25000 jurisdictional limit june 6 2007 thompsoncenter arms filed answer plaintiff’s refiled complaint denying allegations liability discovery ongoing trial yet scheduled sec investigation sec conducting investigation determine whether violations federal securities laws connection matters relating restatement consolidated financial statements fiscal 2002 first three quarters fiscal 2003 although fully cooperated sec matter sec may determine violated federal securities laws cannot predict investigation completed outcome sec determines violated federal securities laws may face sanctions including monetary penalties injunctive relief addition incurring legal costs company well result reimbursement obligations several current former officers continue discussions sec intend continue cooperate fully sec environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act “rcra” place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject two release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency “epa” andor individual states cercla state equivalent one site reserves 652000 april 30 2007 577000 noncurrent remediation sites referred believe time frame remediation currently indeterminable therefore time frame payment remediation likewise currently indeterminable thus making net present value calculation impracticable estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations smith wesson holding corporation subsidiaries notes consolidated financial statements continued available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority “sra” 175 million resulting net gain 17 million terms sale included cash payment 750000 closing promissory note remaining 10 million note collateralized mortgage sold property note due 2022 accrued interest fixed rate 60 per annum note paid full sra october 2006 85 acres known environmental liabilities related past operating practices sales price reflected issues buyer springfield redevelopment authority sra agency city springfield obtained governmental grants help defray costs related property time sale decrease reserves waiting remediation would eliminate potential liability completed remediation completed sra may 2005 reduced environmental reserves 31 million quarter ended july 31 2005 pursuant merger agreement signed december 15 2006 effective january 3 2007 completed acquisition bear lake acquisition corp subsidiaries including thompsoncenter arms company inc 102000000 cash agreement former stockholders bear lake acquisition corp indemnified us losses arising among things environmental conditions related manufacturing activities purchase price 80 million placed escrow account portion applied environmental remediation manufacturing site rochester new hampshire presently possible estimate ultimate amount remediation costs potential uses escrow approximately 177000 reserves related safety environment testing april 30 2007 believe likelihood environmental remediation costs exceeding amount available escrow remote based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities raw materials components supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many materials used production products available limited number suppliers cases longterm supply contracts suppliers smith wesson holding corporation subsidiaries notes consolidated financial statements continued contracts employment agreements entered employment agreements certain officers managers retain service ordinary course business agreements distribution agreements various third parties ordinary course business gun manufacturer enter settlement agreements city boston public health commission us department housing urban development hud relating manner selling handguns settlement agreement dated march 17 2000 us department treasury hud formally rescinded hud settlement placed substantial restrictions obligations operation business including restrictions design manufacture marketing distribution firearm products subsequently signed two states 11 cities counties signing hud settlement lawsuits filed us nine 11 cities counties signed hud settlement among terms hud settlement provided city county party hud settlement lawsuit pending us would dismiss us prejudice lawsuit subject consent order august 10 2005 none nine cities counties signed hud settlement dismissed us prejudice lawsuit subject consent order hud settlement believe hud settlement legally binding numerous reasons including lack consideration received us entering settlement assurance given however position hud settlement legally binding would ultimately prevail subsequent litigation received confirmation hud settlement enforced indication hud settlement formally rescinded enforced restrictions contained hud settlement could substantially impair ability compete particularly since none competitors subject restrictions rental leases lease office space scottsdale operating lease expires january 2011 photocopiers springfield rochester locations various expiration dates modular building space rochester location expires january 2009 vehicles national sales force april 30 2007 lease commitments approximately follows rent expense fiscal years ended april 30 2007 2006 2005 approximately 413000 215000 181000 respectively relocated new scottsdale location august 1 2005 entered 65month lease agreement space lease expense fiscal year 2007 approximately 69000 2008 71000 2009 73000 2010 75000 2011 45000 smith wesson holding corporation subsidiaries notes consolidated financial statements continued 23 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2007 fiscal 2006 opinion adjustments necessary present fairly information quarters reflected 24 pro forma results unaudited following table reflects unaudited pro forma results operations assuming thompsoncenter arms acquisition occurred may 1 2005 thousands except per share data schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2007 2006 2005 1 decrease product liability offset corresponding reduction receivable insurance carrier assets current assets 2 increase 2007 valuation accounts represents acquired balances january 3 2007 relating thompsoncenter arms acquisition 3 increase 1395852 product liability represents acquired balance january 3 2007 relating thompsoncenter arms acquisition offset 48122 decrease offset corresponding reduction receivable insurance carrier 4 represents reimbursement insurance carrier claims excess retentionitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2008 2007 2006 set forth page report b exhibits management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec december 18 2006 2 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 3 incorporated reference registrant’s form 8k filed sec december 5 2007 4 incorporated reference registrant’s form 8a filed sec august 25 2005 5 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 6 incorporated reference registrant’s form 8k filed sec may 29 2001 7 incorporated reference registrant’s form 8k filed sec december 18 2006 8 incorporated reference registrant’s form 10qsb filed sec august 13 2001 9 incorporated reference registrant’s form s8 333128804 filed sec october 4 2005 10 incorporated reference registrant’s form 8k filed sec november 16 2007 11 incorporated reference registrant’s form 10qsb filed sec september 14 2001 12 incorporated reference registrant’s proxy statement schedule 14a filed sec december 28 2001 13 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 14 incorporated reference registrant’s form 10ksb filed sec december 18 2003 15 incorporated reference registrant’s form 10k filed sec july 16 2004 16 incorporated reference registrant’s form 10q filed sec march 10 2005 17 incorporated reference registrant’s form 10q filed sec march 17 2006 18 incorporated reference registrant’s form 8k filed sec may 19 2006 19 incorporated reference registrant’s form 8k filed sec december 6 2007 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation michael f golden michael f golden president chief executive officer date june 27 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated index consolidated financial statements smith wesson holding corporation subsidiaries management’s report internal control financial reporting management smith wesson holding corporation responsible establishing maintaining adequate internal control financial reporting term defined exchange act rule 13a15f participation chief executive officer chief financial officer management conducted evaluation effectiveness company’s internal control financial reporting april 30 2008 required rule 13a15c securities exchange act 1934 company utilized criteria framework established committee sponsoring organizations coso treadway commission internal control integrated framework performing assessment based evaluation management concluded company’s internal control financial reporting effective april 30 2008 internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles inherent limitations internal control financial reporting may prevent detect misstatements smith wesson holding corporation’s independent auditor bdo seidman llp independent registered public accounting firm audited effectiveness company’s internal control financial reporting april 30 2008 stated report appears item 9a page 56 annual report form 10k michael f golden michael f golden president chief executive officer john kelly john kelly chief financial officer treasurer report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries april 30 2008 2007 related consolidated statements income comprehensive income stockholders’ equity cash flows three years period ended april 30 2008 also audited schedule listed accompanying index years ended april 30 2008 2007 2006 financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2008 2007 results operations cash flows three years period ended april 30 2008 conformity accounting principles generally accepted united states america also opinion schedule referred presents fairly material respects information years ended april 30 2008 2007 2006 set forth therein also audited accordance standards public company accounting oversight board united states effectiveness smith wesson holding corporation’s internal control financial reporting april 30 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated june 27 2008 expressed unqualified opinion thereon bdo seidman llp bdo seidman llp boston massachusetts june 27 2008 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements income comprehensive income accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows smith wesson holding corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash activities january 3 2007 acquired bear lake acquisition corp subsidiaries note 2 accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization one world’s leading manufacturers firearms manufacture wide array pistols revolvers tactical rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters protection focused individuals law enforcement agencies officers military agencies united states throughout world manufacture products facilities springfield massachusetts houlton maine rochester new hampshire also market shotguns manufactured specifications dedicated facilities strategic alliance addition pursue opportunities license name trademarks third parties use association products services may 11 2001 purchased outstanding stock smith wesson corp ukbased tomkins smith wesson corp predecessors business since 1852 january 3 2007 purchased outstanding stock bear lake acquisition corp see note 2 acquisition accounted purchase method accounting accordingly results operations acquired business included consolidated financial statements since acquisition date 2 acquisition bear lake acquisition corp thompsoncenter arms january 3 2007 completed acquisition outstanding capital stock bear lake acquisition corp subsidiaries including thompsoncenter arms company inc aggregate purchase price 1035 million consisted 1020 million cash 15 million estimated direct acquisition costs thompsoncenter arms brand recognized hunting enthusiasts leading position black powder segment long gun market addition leadership position long gun market thompsoncenter arms also brings expertise long gun barrel manufacturing assist us plans expand long gun market see note 24 pro forma income statement information related acquisition accounted purchase method pursuant statement financial accounting standards “sfas” 141 “business combinations” balances recorded fiscal 2007 adjusted fiscal 2008 changes deferred taxes reduction estimated state tax rates partially offset adjustments product liability workers compensation legal reserves smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table summarizes allocation purchase price thousands agreement bear lake acquisition corp indemnified us losses arising environmental conditions related manufacturing activities purchase price 80 million placed escrow account pending environmental remediation study manufacturing site rochester new hampshire currently possible estimate ultimate amount remediation costs april 30 2008 approximately 693000 escrow spent safety environmental testing remediation activities believe likelihood environmental remediation costs exceeding amount escrow remote amortize customer relationships proportion expected yearly revenue generated customer lists acquired finitelived identifiable intangible assets amortized straightline basis following identifiable intangible assets acquired respective weighted average lives dollars thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory forfeiture rates stockbased awards medical claims payable actual results could differ estimates reclassification certain amounts presented prior periods’ consolidated financial statements related accounts payable accrued expenses deferred tax valuation allowance reclassified conform current periods’ presentation addition noncash disclosure related acquisition thompsoncenter arms adjusted include accrued transaction costs principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training centre gmbh germany thompson center holding corporation kw thompson tool company inc thompsoncenter arms company inc ol development inc bear lake holdings inc inactive fox ridge outfitters inc yearend wholly owned subsidiaries smith wesson corp thompsoncenter arms company inc april 27 2008 april 29 2007 threeday oneday variance reported fiscal year ends april 30 2008 april 30 2007 respectively variances create material difference financials statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2008 april 30 2007 periods presented included significant intercompany accounts transactions eliminated consolidation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature derivative instruments account derivative instruments sfas 133 “accounting derivative instruments hedging activities” amended sfas 133 establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value purchased foreign exchange forward contracts minimize impact fluctuations foreign exchange rates note 14 cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts trade receivables extend credit domestic customers foreign distributors based financial condition offer discounts early payment determine extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited smith wesson holding corporation subsidiaries notes consolidated financial statements continued large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 9 10 net product sales fiscal years ended april 30 2008 2007 2006 respectively customer owed us approximately 44 million 8 total accounts receivable april 30 2008 45 million 9 total accounts receivable april 30 2007 inventories value inventories consisting primarily finished firearms components finished firearms related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage comprehensive income sfas 130 “reporting comprehensive income” requires companies report components comprehensive income financial statements including nonowner transactions events impact equity even items directly affect net income loss comprehensive income loss consists net income loss unrealized gains losses available sale securities net tax presented consolidated statements income comprehensive income years ended april 30 2008 2007 2006 comprehensive income equal net income property plant equipment record property plant equipment consisting land building improvements machinery equipment computers furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range four months 20 years see note 10 additional information regarding intangible assets valuation longlived assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values would reduced fair value adjusted carrying value would become asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved determined impairments longlived assets fiscal 2008 2007 2006 revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured report revenues net shipping costs revenuebased taxes including sales use federal excise taxes applicable product sales account substantial portion revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support smith wesson holding corporation subsidiaries notes consolidated financial statements continued services customers recognize revenue accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademarklicensing revenue individual licensees based historical experience expected cash receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize revenue nonrefundable license fees received upon initial signing license agreements future service required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility future license amounts exist therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly royalty reasonably estimated month payment assured april 30 2008 estimated minimum royalties collected future amounted approximately 81 million follows segment geographic information sfas 131 “disclosures segments enterprise related information” requires public companies report financial descriptive information reportable operating segments identify operating segments based internally evaluate separate financial information business activities management responsibility present time believe operate single business segment april 30 2008 2007 2006 material personnel facilities operating outside united states following breakdown net product sales research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities executive management approves prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs smith wesson holding corporation subsidiaries notes consolidated financial statements continued fiscal 2008 spent approximately 1947000 research activities relating development new products fiscal 2007 spent approximately 1248000 research activities fiscal 2006 spent approximately 349000 research activities earnings per share calculate basic diluted earnings per common share accordance provisions sfas 128 “earnings per share” basic earnings per common share equals net income divided weighted average number common shares outstanding period diluted earnings per common share equals net income divided weighted average number common shares outstanding period including effect outstanding stock options warrants stockbased instruments effect dilutive following table provides reconciliation income amounts weighted average number common equivalent shares used determine basic diluted earnings per share fiscal 2008 2007 6485084 shares common stock issuable upon conversion 800 million convertible notes excluded fiscal 2008 2007 computation diluted earnings per share effect would antidilutive options warrants purchase 216000 0 1278893 shares common stock excluded fiscal 2008 2007 2006 computation diluted earnings per share respectively effect would antidilutive noted notes 16 18 issued warrants purchase 1320000 shares common stock fiscal 2006 classified liability balance sheet february 28 2006 see note 18 marked market changes fair value reported net income year ended april 30 2006 marktomarket adjustment increased net income 81174 calculation earnings per share consider stock warrants equity include diluted shares effect dilutive accordance emerging issues task force eitf topic d72 paragraph 29 sfas 128 adjusted net income basic earnings per share numerator purpose computing diluted earnings per share valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets including goodwill intangible assets indefinite lives susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets goodwill developed technology customer relationships patents trademarks tradenames amortize finitelived intangible assets based upon patterns expect utilize economic benefits values intangible assets exception goodwill intangible assets indefinite lives initially determined riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results smith wesson holding corporation subsidiaries notes consolidated financial statements continued • significant changes manner use acquired assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance sfas 142 “goodwill intangible assets” test goodwill intangible assets indefinite lives impairment annual basis end third fiscal quarter annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions sfas 142 respect criteria necessary evaluate number reporting units exist based review determined operate one reporting unit based assessment impairment charges history result impairment evaluation goodwill indefinitelived intangible assets sfas 142 accordance sfas 144 “accounting impairment disposal longlived assets” periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis impairment charges taken fiscal 2008 2007 2006 based review longlived assets sfas 144 significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including limited technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit andor c changes previous assumptions estimates turn could significant impact consolidated financial statements accelerated amortization andor impairment charges changes carrying amount goodwill year ended april 30 2008 follows purchase accounting adjustments year ended april 30 2008 primarily related impact deferred taxes reduction estimated state tax rates partially offset adjustments product liability workers compensation legal reserves accounting acquisition completed significant business acquisition fiscal 2007 resulted significant goodwill intangible asset balances business strategy contemplates may pursue additional acquisitions future accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally sfas 142 determine fair value reporting unit purposes first step annual goodwill impairment test based market value prior future acquisitions accretive results operations expected market value declines dramatically determine one reporting unit may required complete second step requires significant judgments estimates may result material impairment charges period determined income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes stock options warrants described notes 16 17 issued stock warrants stock option plan employees directors receive options purchase common stock stockbased compensation fourth quarter fiscal 2005 adopted sfas 123r “sharebased payment” revised 2004 utilizing modified retrospective application method periods presented prior adoption sfas 123r applied provisions apb opinion 25 “accounting stock issued employees related interpretations” product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments provision product liability ongoing basis charge credit cost sales exclusive insurance reimbursements make evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain product liability costs subject reimbursement insurance carriers environmental liability accordance sop 961 “environmental remediation liabilities” provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party prp ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted following constitutes summary environmental liability reserve april 30 2008 2007 environmental reserve increases decreases fiscal years ended april 30 2008 2007 2006 amounted approximately 29000 90000 31 million respectively rochester reserve relating smith wesson holding corporation subsidiaries notes consolidated financial statements continued environmental testing remediation associated acquisition thompsoncenter arms paid directly administrative agent holding escrow see note 22 reserve required books february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority “sra” property excess land adjacent manufacturing office facility 85 acres includes three five previously disclosed release areas identified soil groundwater contamination mcp specifically south field west field fire pond property acquired sra defined “brownfield” cercla sra support city springfield received governmental “brownfield” grants loans remediate development property remediation property completed quarter ended july 31 2005 consequently eliminated reserves related property fiscal year ended april 30 2006 reserve adjustment totaled approximately 31 million included reduction operating expenses warranty generally provide lifetime warranty “original” purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted warranty expense fiscal years ended april 30 2008 2007 2006 amounted 1788279 1931346 1263000 respectively following sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2008 2007 2006 sales promotional related expenses accordance eitf issue 0109 “accounting consideration given vendor customer including reseller vendor’s product” present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted approximately 8516000 1243000 318000 fiscal years ended april 30 2008 2007 2006 respectively customer promotional programs whose costs depend volume sales costs amounted approximately 0 43000 41000 fiscal years ended april 30 2008 2007 2006 respectively included selling marketing expenses coop advertising program retail level expensed costs amounting approximately 921000 796000 1064000 fiscal 2008 2007 2006 respectively selling marketing expenses april 30 2008 accrued promotion costs totaled 4092523 included accrued expenses balance sheet amounts april 30 2008 2007 5 total current liabilities therefore disclosure regarding accrued expenses required shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net product services sales included costs relating shipping handling charges cost products services sales smith wesson holding corporation subsidiaries notes consolidated financial statements continued insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 20 million per occurrence liability estimated premiums incurred losses recorded accompanying consolidated financial statements undiscounted basis recently issued accounting pronouncements september 2006 financial accounting standards board “fasb” issued sfas 157 “fair value measurements” sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years earlier application encouraged yet determined effect adoption sfas 157 financial position results operations cash flows february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” permits entities choose measure eligible items fair value specified election dates unrealized gains losses items fair value option elected reported earnings subsequent reporting date following balance sheet items within scope sfas 159 • recognized financial assets financial liabilities unless special exception applies • firm commitments would otherwise recognized inception involve financial instruments • nonfinancial insurance contracts • financial instruments resulting separation embedded nonfinancial derivative instrument nonfinancial hybrid instrument sfas 159 effective fiscal years beginning november 2007 early adoption possible subject certain requirements expect adoption sfas 159 material impact consolidated financial statements december 2007 fasb issued sfas 141 revised “business combinations” “sfas 141r” sfas 141r changes accounting business combinations including measurement acquirer shares issued consideration business combination recognition contingent consideration accounting preacquisition gain loss contingencies recognition capitalized inprocess research development accounting acquisitionrelated restructuring cost accruals treatment acquisition related transaction costs recognition changes acquirer’s income tax valuation allowance sfas 141r effective fiscal years beginning december 15 2008 early adoption prohibited december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 establishes accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 effective fiscal years beginning december 15 2008 expect adoption sfas 160 material impact consolidated financial statements december 2007 fasb ratified consensus reached eitf issue 0701 “accounting collaborative arrangements related development commercialization intellectual property” eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf issue 9919 “reporting smith wesson holding corporation subsidiaries notes consolidated financial statements continued revenue gross principal versus net agent” accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf issue 0701 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date expect adoption eitf 0701 material impact consolidated financial statements march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities amendment fasb statement 133” statement requires entities utilize derivative instruments provide qualitative disclosures objectives strategies using instruments well details creditriskrelated contingent features contained within derivatives also requires entities disclose additional information amounts location derivatives located within financial statements provisions sfas 133 applied impact hedges entity’s financial position financial performance cash flows statement effective fiscal years interim periods beginning november 15 2008 early application encouraged expect adoption sfas 161 material impact consolidated financial statements may 2008 fasb issued fasb staff position “fsp” apb 14a “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” staff position requires entities convertible debt instruments may settled entirely partially cash upon conversion separately account liability equity components instrument manner reflects issuer’s economic interest cost effect proposed new rules debentures equity component would included paidincapital section shareholders’ equity entity’s consolidated balance sheet value equity component would treated original issue discount purposes accounting debt component convertible debt fsp effective fiscal years beginning december 15 2008 interim periods within fiscal years retrospective application required early adoption permitted currently evaluating proposed new rules impact financial condition results operations recently adopted accounting standards february 2006 fasb issued sfas 155 “accounting certain hybrid financial instruments” amends sfas 133 “accounting derivative instruments hedging activities” sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 adoption sfas 155 impact financial position results operations cash flows june 2006 fasb ratified consensus eitf issue 0603 “how taxes collected customers remitted governmental authorities presented income statement” scope eitf issue 0603 includes tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added universal service fund “usf” contributions excise taxes task force affirmed conclusion entities present taxes income statement either gross net basis based accounting policy disclosed pursuant apb opinion 22 disclosure accounting policies taxes significant presented gross basis amounts taxes smith wesson holding corporation subsidiaries notes consolidated financial statements continued disclosed consensus eitf issue 0603 effective interim annual reporting periods beginning december 15 2006 required eitf issue 0603 adopted new accounting standard interim period beginning may 1 2007 adoption eitf issue 0603 impact financial position results operations cash flows june 2006 fasb issued fasb interpretation “fin” 48 “accounting uncertainty income taxes interpretation fasb statement 109” fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance fasb statement 109 “accounting income taxes” fin 48 prescribes recognition threshold measurement tax position taken expected taken tax return adopted fin 48 may 1 2007 see note 21 information pertaining effects adoption september 2006 fasb issued fsp aug air1 “accounting planned major maintenance activities” eliminates accrueinadvance method acceptable method accounting planned major maintenance activities fsp applicable fiscal years beginning december 15 2006 requires retrospective application financial statements presented adoption fsp material impact financial position results operations cash flows december 2006 fasb issued fsp eitf 00192 “accounting registration payment arrangements” fsp eitf 00192 specifies contingent obligation make future payments otherwise transfer consideration registration payment arrangement whether issued separate agreement included provision financial instrument agreement separately recognized measured accordance fasb statement 5 “accounting contingencies” registration payment arrangements financial instruments subject arrangements entered prior issuance fsp eitf 00192 guidance effective financial statements issued fiscal years beginning december 15 2006 adoption fsp eitf 00192 material impact financial position results operations cash flows 4 longterm debt financing arrangements credit facilities pursuant credit agreement dated november 30 2007 “loan agreement” guarantor along certain direct indirect subsidiaries including smith wesson corp “swc” thompson center arms company inc “tca” borrowers refinanced existing credit facilities toronto dominion texas llc “lender” among things increase acquisition line credit 70 million consolidate increase revolving lines credit 40 million april 30 2008 credit facility included following 1 700 million acquisition loan commitment bearing interest variable rate equal prime libor plus rate amount based leverage ratio april 30 2008 rate effect libor plus 30 per annum 280 million outstanding acquisition loan april 30 2008 bearing interest rate 573 per annum interest scheduled paid principal conversion date november 30 2009 time 160th outstanding principal plus interest due monthly maturity date november 30 2014 balance loan paid full may 2008 proceeds stock offering refer note 16 acquisition loan terminated expect incur 485000 noncash charge first quarter fiscal 2009 associated writeoff unamortized debt acquisition costs result decision terminate retired line credit 2 revolving line credit maximum amount lesser 40 million b sum 80 net amount swc’s tca’s eligible accounts receivable defined loan agreement plus ii lesser 12 million b 60 swc’s tca’s eligible inventory defined loan agreement line credit available november 30 2012 working capital needs amended revolving line credit bears interest libor variable rate equal prime smith wesson holding corporation subsidiaries notes consolidated financial statements continued election april 30 2008 based borrowing base 40 million available borrowings 70 million outstanding bearing interest rate 575 per annum 3 49month 78 million term loan bearing interest rate 623 per annum 73 million outstanding april 30 2008 monthly payment 178647 final payment due january 30 2012 4 85month 55 million term loan bears interest rate 685 per annum 54 million outstanding april 30 2008 monthly payment 45527 december 30 2014 3975611 balloon payment due january 30 2015 june 2008 made 4367000 payment loan funded partially proceeds stock offering refer note 16 rest cash operations security credit facility lender first priority lien personal property real estate assets including intangible assets constituting intellectual property “smith wesson” trade name may prepay whole part loans interest rates determined reference prime rate interest accrued date prepayment amount prepaid without penalty premium loans fixed rate interest determined reference libor interest rate may prepaid provided reimburse lender costs associated making payments dates specified loan agreement ii borrowing converting libor loan date borrowing conversion dates specified loan agreement received waiver 2 prepayment penalty associated repayment acquisition line credit described convertible debt december 15 2006 issued aggregate 800 million senior convertible notes “notes” maturing december 15 2026 qualified institutional buyers pursuant terms conditions securities purchase agreement indenture used net proceeds notes together 280 million acquisition line credit fund acquisition bear lake acquisition corp subsidiaries including thompsoncenter arms notes bear interest rate 4 per annum payable june 15 december 15 year required pay additional interest notes default certain obligations registration rights agreement covering resale notes common stock issuable upon conversion notes registration rights agreement required securities exchange commission declare registration statement covering notes common stock issuable upon conversion notes effective june 14 2007 registration become effective june 26 2007 additional interest approximately 260000 accrued notes convertible shares common stock initially conversion rate 810636 shares per 1000 principal amount notes total 6485084 shares equivalent initial conversion price 12336 per share notes may converted time december 15 2009 december 15 2011 may redeem portion notes closing price common stock exceeds 150 applicable conversion price notes fewer 20 trading days period 30 consecutive trading days december 15 2011 may redeem portion notes noteholders may require us repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company defined indenture covering notes general unsecured obligations ranking senior right payment subordinated indebtedness ranking pari passu unsecured unsubordinated indebtedness time following effectiveness registration statement filed covering resale notes common stock issuable upon conversion notes closing price common stock exceeds 200 applicable conversion price notes least 30 trading days period 40 consecutive trading days smith wesson holding corporation subsidiaries notes consolidated financial statements continued agreed incur additional indebtedness excess greater 1 62000000 available existing credit facility senior lender 2 three times ltm ebtida defined indenture covering notes time additional debt incurred including amounts outstanding credit facility td banknorth evaluated conversion features notes provisions eitf 985 “accounting convertible securities beneficial conversion features contingently adjustable conversion ratios” eitf 0027 “application issue 985 certain convertible instruments” determined beneficial conversion feature existed analyzed provisions notes sfas 133 “accounting derivative instruments hedging activities” eitf 0019 “accounting derivative financial instruments index potentially settled company’s stock” determined features instruments requiring bifurcation debt issuance costs related fiscal 2005 refinancing td banknorth amounted 654843 classified assets 96930 amortized expense fiscal year ended april 30 2008 debt issuance costs amortized using effective interest rate method addition debt extinguished january 2005 recognized expense year ended april 30 2006 approximately 232000 related unamortized debt issue costs written retirement date future amortization expense follows fiscal year 2009 41741 2010 34238 2011 26244 2012 18108 2013 15278 thereafter 23663 incurred approximately 4336647 debt issuance costs associated issuance notes costs amortized straightline basis december 15 2011 date first redemption year ended april 30 2008 amortized 870294 interest expense incurred 283574 debt issuance costs associated original 280 million acquisition line td banknorth additional 573986 incurred part november 30 2007 toronto dominion texas llc refinance costs amortized straightline basis seven years life acquisition line year ended april 30 2007 amortized 72724 interest expense incurred 62260 debt issuance costs associated line credit citizens bank costs amortized straight line basis one year line credit terminated november 30 2007 remaining unamortized balance written total amount amortized interest expense fiscal 2008 60208 total longterm debt maturing fiscal 2009 2010 2011 2012 2013 thereafter 1920000 4367000 7768000 7542000 5832000 93265000 respectively carrying amounts notes payable april 30 2008 2007 follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued credit facility toronto dominion contains financial covenants relating maintaining minimum ebitda maximum leverage minimum debt service coverage maximum capital expenditures compliance debt covenants april 30 2008 letters credit april 30 2008 open letters credit aggregating 3726396 workers’ compensation bond self insurance 3500000 making majority amount 5 international sales sell products worldwide following sets forth breakdown export sales accounted approximately 8 11 net product sales fiscal years ended april 30 2008 2007 2006 respectively individual foreign country accounted 10 net revenue 6 income expense following sets forth details income expense fiscal years ended april 30 2008 2007 2006 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials incurred fiscal years ended april 30 2008 2007 2006 advertising expenses included selling marketing expenses amounted approximately 13977000 9466000 7355000 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued 8 property plant equipment following summarizes property plant equipment april 30 2008 2007 depreciation expense amounted 7286305 5349029 4044289 fiscal years ended april 30 2008 2007 2006 respectively estimated cost complete construction progress approximately 2400000 9 inventories following sets forth summary inventories stated lower cost market april 30 2008 2007 10 intangible assets record intangible assets cost intangible assets consist customer relationships developed technology order backlog trademarks tradenames patents obtained principally acquisitions thompsoncenter arms smith wesson corp amortize patents developed technology using straightline method estimated useful lives ranging four months 20 years amortize customer relationships proration expected yearly revenue generated customer lists acquired currently estimated 20 years smith wesson holding corporation subsidiaries notes consolidated financial statements continued following presents summary intangible assets amortization expense excluding amortization deferred financing costs amounted 4163281 1664944 28754 fiscal years ended april 30 2008 2007 2006 respectively amortization expense approximate 4331000 annually next five fiscal years 11 assets consisted following april 30 2008 2007 12 receivables insurance carriers discussed notes 15 22 party several lawsuits related use products carry insurance would cover certain legal defense costs related matters record receivable insurance carriers collection insurance proceeds probable following summarizes activity receivables insurance carriers fiscal years ended april 30 2008 2007 outstanding balance april 30 2008 4664629 90000 current assets 4574629 noncurrent assets april 30 2007 4689284 750000 current assets 3939284 noncurrent assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued october 2004 one insurance carriers agreed pay portion past future defense costs relative municipal litigation insurance carriers paid defense costs 24655 48122 fiscal years ended april 30 2008 2007 respectively 13 noncurrent liabilities following sets forth noncurrent liabilities april 30 2008 2007 14 derivative financial instruments hedging activities purchase certain finished goods component parts european supplier pay euros purchased foreign exchange participating forward contracts minimize impact fluctuations foreign exchange rates participating forward contracts provide full protection us devaluation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros purchased average rate remaining 50 paid spot rate elected designate derivative instruments qualifying hedge accounting treatment sfas 133 accordingly record gains losses derivative contracts element income expense reporting period based change estimated fair value contracts estimate fair values derivative financial instruments based exchange rates underlying currencyeuros fair value outstanding derivatives asset approximately 97000 april 30 2008 125000 april 30 2007 current derivative instruments outstanding april 30 2008 expire june 2008 15 selfinsurance reserves april 30 2008 2007 reserves workers’ compensation product liability medicaldental costs totaling 11452185 11641763 respectively 6866603 7154546 respectively classified noncurrent included noncurrent liabilities 4720623 4622258 respectively included accrued expenses accompanying consolidated balance sheets addition 135041 excess workers’ compensation receivable classified asset believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 7769682 6671336 5396743 fiscal years ended april 30 2008 2007 2006 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued following summary activity workers’ compensation product liability medicaldental reserves fiscal years ended april 30 2008 2007 2006 policy provide estimate loss result expected adverse findings legal settlements product liability workers’ compensation losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2008 2007 accrued reserves product liability 8617122 8951097 respectively 5850098 6077653 respectively noncurrent consisting entirely expected legal defense costs addition april 30 2008 2007 recorded receivables insurance carriers related liabilities 4664629 4689284 respectively 4574629 3939284 respectively classified assets remaining amounts 90000 750000 respectively classified current assets 16 capital stock common stock issued may 23 2008 completed stock offering 6250000 shares common stock yielded net proceeds approximately 319 million allowed us repay 28 million acquisition loan financed portion thompsoncenter arms acquisition fiscal year ended april 30 2008 issued 522435 shares common stock market value approximately 83 million current former employees upon exercise options granted employees company proceeds exercise shares 1316161 fiscal year ended april 30 2008 issued 34857 shares common stock cashless exercise 50000 outstanding warrants market value approximately 740000 purchase price shares 218000 fiscal year ended april 30 2008 issued 147817 shares common stock market value approximately 13 million employee stock purchase plan proceeds exercise shares 917408 fiscal year ended april 30 2007 issued 379309 shares common stock market value approximately 39 million current former employees upon exercise options granted employees company proceeds exercise shares 616780 fiscal year ended april 30 2007 issued 93344 shares common stock market value approximately 13 million employee stock purchase plan proceeds exercise shares 721395 smith wesson holding corporation subsidiaries notes consolidated financial statements continued fiscal year ended april 30 2007 issued 1200000 shares common stock market value approximately 136 million upon exercise outstanding warrants purchase price shares 6012235 fiscal year ended april 30 2006 issued 368958 shares common stock current former employees upon exercise options granted employees company proceeds exercise shares 392763 fiscal year ended april 30 2006 issued 137868 shares common stock employee stock purchase plan proceeds exercise shares 419901 fiscal year ended april 30 2006 issued 829700 shares common stock former employees upon exercise warrants issued employees company purchase price shares 738433 discussed note 18 also issued 6000000 shares common stock private placement transaction fiscal year ended april 30 2006 stock warrants issued repurchased fiscal 2002 issued warrants related financing debt used acquisition smith wesson corp incentive bonuses employees directors compensation outside consultants consideration past services company including services rendered connection acquisition smith wesson corp issued common stock purchase warrant dated may 11 2001 robert l scott former officer current director company “scott warrant” value warrant expensed upon issuance scott warrant contained cashless exercise provision entitled mr scott purchase 5000000 shares common stock exercise price 089 per share subject adjustment set forth therein time date issuance five years date issuance year ended april 30 2005 mr scott exercised 311250 warrants cashless basis resulting issuance 200000 shares common stock result april 30 2005 unexercised saltz scott warrants 9688750 shown table subsequently may 2005 mr scott determined exercise warrants gross basis paid 089 cash exercise price 200000 shares received result mr scott exercised 200000 warrants gross exercise basis rather 311250 warrants cashless exercise basis result reinstated 111250 warrants unexercised warrants may 2005 may 2005 amended scott warrants issued mitchell saltz another former officer current director “saltz warrants” eliminating cashless exercise feature permitted warrants net share settled effect modification determined cause incremental compensation cost subsequently mr saltz exercised warrants purchase 500000 shares mr scott exercised warrants purchase 329700 shares gross basis purchase price 738433 resulting 8970300 unexercised warrants september 12 2005 september 12 2005 entered agreement messrs saltz scott tendered unexercised warrants purchase 8970300 shares us exchange cash payment 267 per share 23950701 total market value time therefore repurchase warrants september 12 2005 result additional compensation expense smith wesson holding corporation subsidiaries notes consolidated financial statements continued following outlines activity related warrants periods indicated 17 stock option employee stock purchase plans two employee stock option plans “sops” 2001 stock option plan 2004 incentive stock plan new grants 2001 stock option plan made following approval 2004 incentive stock plan september 13 2004 annual meeting stockholders new grants covering participants issued 2004 incentive stock plan 2004 incentive stock plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock plan allows granting options acquire common stock granting restricted common stock deferred stock granting restricted stock units granting stock appreciation rights granting dividend equivalents board directors committee established board administers sops selects recipients awards granted determines grants awarded options granted sops exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture unless terminated earlier board directors 2004 incentive stock plan terminate earlier 1 ten years date later occur original date plan approved board directors stockholders whichever earlier ii date increase number shares reserved issuance plan approved board directors long increase also approved stockholders 2 time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award generally awards vest period three years awards exercisable period ten years plan also allows grants awards nonemployees board granted past separate option grant outside 2004 incentive stock plan 500000 shares made michael golden connection hiring president chief executive officer fiscal year ended april 30 2005 smith wesson holding corporation subsidiaries notes consolidated financial statements continued number shares weighted average exercise prices options granted sops separate grant fiscal years ended april 30 2008 2007 2006 follows april 30 2008 3896234 shares available grant 2004 incentive stock plan summary stock options outstanding vested exercisable april 30 2008 follows aggregate intrinsic value outstanding options vested exercisable april 30 2008 8135088 7968509 respectively employee stock purchase plan “espp” authorizes sale 10000000 shares common stock employees espp commenced june 24 2002 continues effect term ten years unless sooner terminated espp implemented series offering periods two years duration four sixmonth purchase periods offering period plan amended september 2004 future offering periods commencing october 1 2004 offering period six months consistent six month purchase period purchase price 85 fair market value common stock offering date purchase date whichever lower participant may elect payroll deductions made payday offering period amount less 1 20 greater percentage board may establish time offering date participant’s compensation payday offering period last day offering period purchase date offering period offering period commencing april 1 ends next september 30 offering period commencing october 1 ends next march 31 board directors power change duration andor frequency offering purchase periods respect future offerings purchases without stockholder approval change announced least five days prior scheduled beginning first offering period affected maximum number shares employee may purchase period 12500 shares options rights participate espp nontransferable subject forfeiture accordance espp guidelines event certain corporate transactions option outstanding espp assumed equivalent smith wesson holding corporation subsidiaries notes consolidated financial statements continued option substituted successor corporation parent subsidiary successor corporation fiscal 2008 2007 2006 147817 93344 137868 shares respectively purchased espp year ended april 30 2005 adopted sfas 123r “sharebased payment” requires measurement cost employee services received exchange award equity instrument based grantdate fair value award elected modified retrospective application method adopting sfas 123r resulted restatement prior period amounts order present comparable compensation data accordance sfas 123r calculated fair value stock options warrants issued employees using blackscholes model time options warrants granted amount amortized vesting period option warrant espp fair value determined beginning purchase period amortized term offering period following assumptions used valuing options espp estimate expected volatility using past historical volatility expected term fair value stock option espp purchase estimated date grant using black scholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table weightedaverage fair value stock options granted fiscal 2008 2007 2006 374 954 355 respectively weightedaverage fair value espp shares granted fiscal 2008 2007 2006 317 422 128 respectively year ended april 30 2008 granted 334500 restricted stock units rsus consisting shares restricted common stock subject timebased vesting current employees also granted 5000 shares nonemployees april 30 2008 560418 restricted stock units outstanding 82748 cancelled due employee terminations aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees nonemployees approximately 2836774 12 months ended april 30 2008 april 30 2008 approximately 2571000 unrecognized compensation cost related unvested rsus cost expected recognized weighted average 095 years smith wesson holding corporation subsidiaries notes consolidated financial statements continued summary activity unvested rsu’s fiscal 2008 follows year ended april 30 2007 granted 437000 restricted stock units rsus consisting shares restricted common stock subject timebased vesting current employees april 30 2007 425000 restricted stock units outstanding 12000 cancelled due employee terminations aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees approximately 811131 12 months ended april 30 2007 april 30 2007 approximately 22 million unrecognized compensation cost related unvested rsus cost expected recognized weighted average 12 years recorded stockbased compensation expense related sfas 123r approximately 4885000 2740000 2258000 fiscal 2008 2007 2006 respectively stockbased compensation expense included general administrative expenses intrinsic value options warrants exercised fiscal 2008 2007 2006 approximately 12822000 17457000 4443000 respectively total fair value shares vested fiscal 2008 2007 2006 approximately 7969000 19400000 9300000 respectively modifications options fiscal 2008 2007 2006 april 30 2008 total unamortized fair value stock options approximately 648000 recognized remaining vesting period 25 years november 12 2007 granted option purchase 216000 shares common stock ceo fully vests three years resulted valuation approximately 809000 estimate fair value option grant using blackscholes option pricing model following assumptions volatility 617 risk free interest rate 421 expected life three years dividend yield 0 august 1 2005 granted option purchase 25000 shares common stock consultant fully vested four months later november 30 2005 year ended april 30 2006 recorded estimated fair value option grant totaling approximately 118000 general administrative expenses accompanying statement income estimated fair value option grant using blackscholes optionpricing model following assumptions volatility 75 riskfree interest rate 432 expected life ten years dividend yield 0 18 private placement offering september 12 2005 completed sale aggregate 6000000 shares common stock “shares” warrants purchase additional 1200000 shares common stock “warrants” sale made institutional investors reliance upon exemption registration requirements section 42 securities act 1933 rule 506 regulation act “private smith wesson holding corporation subsidiaries notes consolidated financial statements continued placement” received gross proceeds 26160000 cash sale securities agreed promptly file registration statement securities exchange commission register shares common stock issuable upon exercise warrants “registration statement” exercise price warrants 533 per share warrants became exercisable beginning march 12 2006 fully exercised fiscal 2007 incurred issuance costs 2972056 including issuance warrant purchase 120000 shares common stock placement agent initial fair value 384000 exercise price placement agent’s warrants 436 per share terms placement agent’s warrant substantially warrants sold investors except became exercisable march 12 2006 expires september 12 2010 proceeds private placement used repurchase outstanding common stock warrants held mitchell saltz robert l scott directors company general working capital also entered agreement messrs saltz scott colton r melby former director company pursuant messrs saltz scott melby agreed sell us discretion certain circumstances aggregate 1200000 shares common stock requested us price per share 533 equivalent exercise price warrants call right determined meet requirements asset sfas 133 “accounting derivative instruments hedging activities” shares repurchased pursuant right fiscal 2007 terms securities purchase agreement among us investors private placement required pay penalties fail meet obligations register shares issuable upon exercise warrants specifically following events “event” occurs required pay cash partial liquidated damages equivalent 1 per month thenoutstanding principal amount aggregate purchase price private placement investors fail file registration statement registering shares issuable upon exercise warrant registration statement declared effective prior dates specified securities purchase agreement ii certain exceptions investor permitted sell registered securities registration statement reason five trading days calendar quarter iii certain exceptions common stock listed quoted suspended trading eligible market period three trading days calendar quarter iv fail deliver certificate evidencing securities investor within three days delivery certificate required exercise rights investor pursuant warrants otherwise suspended reason v fail available sufficient number authorized unissued otherwise unreserved shares common stock available issue shares upon exercise warrants result registration rights penalties accordance eitf issue 0019 “accounting derivative financial stock” recorded initial fair value warrants placement agent’s warrants date issuance totaling 1188000 financial instrument liabilities 804000 384000 respectively value shares recorded temporary equity accordance eitf topic d98 “classification measurement redeemable securities” quarter ended january 31 2006 due large part increase value common stock january 31 march 1 approximately 9 determined appropriate reevaluate accounting treatment shares warrants issued connection private placement connection evaluation utilized services independent valuation service provider order determine quantify difference fair value registered versus unregistered share common stock march 1 2006 valuation performed using blackscholes model resulted restricted stock discount approximately 25 versus total penalty 19 maximum amount damages could required pay march 1 2006 determined would economically compelled pay penalty rather settling retiring shares warrants therefore march 1 2006 reclassified shares warrants temporary equity liabilities respectively permanent equity warrants classified liability february 28 2006 accordance eitf 0019 subsequent changes fair value recorded consolidated statement income comprehensive income general administrative expenses total fair value warrants 1059600 february 28 2006 smith wesson holding corporation subsidiaries notes consolidated financial statements continued year ended april 30 2006 related decrease fair value warrants totaling 128400 recorded credit general administrative expenses following assumptions used determining fair value outstanding warrants issued investors placement agent connection private placement year ended april 30 2006 april 30 2008 1200000 investor warrants exercised 70000 placement agent warrants still outstanding 19 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed approximately 1028000 fiscal year ended april 30 2008 901000 fiscal year ended april 30 2007 696000 fiscal year ended april 30 2006 noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield houlton employees eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes defined plan year fiscal 2008 plan contribute approximately 36 million contributed approximately 48 million fiscal year ended april 30 2007 approximately 25 million fiscal year ended april 30 2006 contributions funded fiscal yearend also defined contribution profit sharing plan covering substantially thompsoncenter arms employees based certain eligibility criteria board directors discretion determines contributions made net income thompsoncenter arms fiscal 2008 plan contribute 500000 assumed 800000 liability related plan january 3 2007 made payment employees fiscal 2008 20 postemployment postretirement deferred compensation postretirement medical program certain obligations terminated program provides health care retirees age 65 employees designated combined age years service grandfathered program grandfather provision provides varying degrees coverage based upon years service currently four retirees covered program five active employees grandfathered program postretirement medical liability based upon reports provided independent actuary gross postretirement medical liability approximately 206000 april 30 2008 approximately 230000 april 30 2007 sfas 158 requires measure funded status plan yearend date became effective fiscal 2007 effect statement reflected following presentation defined benefit plans upon adoption standard recorded increase 72651 accumulated comprehensive income thereby reducing accrued postretirement liability smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table sets forth postretirement medical amounts recognized postretirement medical benefit plan current portion postretirement medical plan april 30 2008 2007 2006 43810 21014 42719 respectively fiscal 2008 gross benefit payments administrative fees paid less retiree contributions resulting net increase benefit obligation 6663 net periodic postretirement benefit loss includes following components weighted average discount rate used determining actuarial present value projected benefit obligation 60 51 april 30 2008 2007 respectively measurement purposes 9 annual rate increase per capita cost covered health care benefits assumed fiscal 2008 2007 rate grading ultimate rate 50 fiscal 2014 10 annual rate increase per capita cost covered health care benefits assumed fiscal 2006 rate grading ultimate rate 5 fiscal 2013 fiscal years ended april 30 2008 2007 1 increase decrease assumed health care cost trend rate would immaterial effect aggregate service interest cost components net periodic postretirement health care benefit costs accumulated postretirement benefit obligation health care benefits estimated future benefit payments follows 2009 32610 2010 20782 2011 26747 2012 9172 2013 3284 2014 2018 20249 postretirement pension plan senior executive supplemental retirement plan “executive plan” certain thompsoncenter arms officers covered four current former executives april 30 2008 benefits plan paid monthly currently monthly benefit 2940 adjusted annually based percent change cpi urban consumers ten years following retirement officer director unfunded nonqualified noncontributory plan pay future obligations april 30 2008 703315 accrued noncurrent liabilities financial statements based upon present value estimated future obligation using discount rate 40 remaining months commitment case current executive expected retirement date estimated future benefit payments smith wesson holding corporation subsidiaries notes consolidated financial statements continued follows 2009 141137 2010 117614 2011 105853 2012 105853 2013 105853 thereafter 241109 executive plan may also required continue pay thompsoncenter arms’ portion health insurance premiums offered employees retiree becomes eligible medicare april 30 2008 four individuals receiving cash payments plan none eligible receive health insurance benefit impact medicare prescription drug improvement modernization act 2003 reflected april 30 2008 plan immaterial amount post65 drug benefits likely would qualify federal subsidy period 21 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date income tax expense consists following smith wesson holding corporation subsidiaries notes consolidated financial statements continued following presents reconciliation provision income taxes statutory rates provision consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements continued future tax benefits deferred tax liabilities related temporary differences following federal net operating loss carryforwards amounting 2393636 2501797 4200000 april 30 2008 2007 2006 respectively april 30 2008 net operating loss expires years 2019 2020 utilization losses limited section 382 internal revenue code 108161 per year possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 ownership change occur would annual limitation remaining tax loss carryforward federal net operating losses reduced overall net deferred tax liability 10269005 837774 april 30 2008 15673011 324977 april 30 2007 state net operating loss carryforwards amounted 1200000 april 30 2006 state net operating loss carryforwards april 30 2008 2007 reserved approximately 26000 noncurrent deferred taxes capital loss carryforward anticipate using prior expiration adopted fasb interpretation 48 “fin 48” “accounting uncertainty income taxes interpretation fasb statement 109” may 1 2007 required fin 48 cumulative effect applying smith wesson holding corporation subsidiaries notes consolidated financial statements continued provisions interpretation recorded 94685 charge retained earnings balance may 1 2007 reclassification sfas 5 reserves 586450 85062 adjustment goodwill additional 56564 income tax expense april 30 2008 gross taxaffected unrecognized tax benefits approximately 944000 recognized would favorably impact effective tax rate addition april 30 2008 approximately 152000 accrued interest penalties related uncertain tax positions reconciliation beginning ending amount unrecognized tax benefits follows full value unrecognized tax benefits classified noncurrent income tax liabilities payment cash anticipated within one year balance sheet date fiscal 2009 expect incur additional interest outstanding tax accounts partially offset resolution one state nexus issue don’t expect either change material interest penalties related income tax liabilities included income tax expense balance accrued interest penalties included total 944000 liability recorded consolidated balance sheet noncurrent liabilities april 30 2008 approximately 152000 limited exception subject us federal state local nonus income tax audits tax authorities several years currently income tax examination number state federal tax authorities anticipate audits completed end fiscal 2009 22 commitments contingencies litigation together firearms manufacturers certain related organizations codefendant various legal proceedings involving product liability claims aware product liability claims including allegations defective product design manufacturing negligent marketing andor distribution firearms leading personal injury including wrongful death lawsuits claims based principally theory “strict liability” also may based negligence breach warranty legal theories many lawsuits punitive damages well compensatory damages demanded aggregate claimed amounts currently exceed product liability accruals applicable insurance coverage believe every case various allegations described unfounded addition accident results due negligence misuse firearm claimant third party recovery us addition codefendant various legal proceedings brought certain cities municipalities counties numerous firearms manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties shootings complaints municipalities seek damages among things costs medical care police emergency services public health services maintenance courts prisons services certain instances plaintiffs seek recover decreases property values loss business within city due increased criminal violence addition nuisance abatement andor injunctive relief sought change design manufacture marketing distribution practices various defendants suits allege among claims strict liability negligence design products public nuisance negligent entrustment negligent distribution deceptive fraudulent advertising violation consumer protection statutes conspiracy concert action theories believe smith wesson holding corporation subsidiaries notes consolidated financial statements continued every case various allegations described unfounded addition accident results due negligence misuse firearm third party recovery us chairman board chief executive officer chief financial officer named three similar purported securities class action lawsuits complaints actions consolidated one action brought individually behalf persons purchased securities company june 15 2007 december 6 2007 plaintiffs seek unspecified damages alleged violations section 10b section 20a exchange act plan file motion dismiss litigation also involved two purported stockholder derivative lawsuits superior court commonwealth massachusetts consolidated another purported derivative action brought us district court district nevada stayed pending massachusetts action actions brought plaintiffs behalf company certain officers directors complaints seek assert state law claims including alleged breach fiduciary duties waste corporate assets unjust enrichment arising earnings guidance june 2007 september 2007 reduction earnings guidance october 2007 december 2007 decision january 2008 suspend guidance confirm prior guidance certain market conditions settled certain sales stock putative plaintiffs seek unspecified damages behalf company individual defendants intend defend vigorously class action derivative lawsuits assurance however pay significant damages amounts settlement insurance coverage unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgments intend vigorously defend time estimated range reasonably possible additional losses term defined sfas 5 “loss contingencies” relating unfavorable outcomes cannot made fiscal years ended april 30 2008 2007 2006 paid 406432 65798 0 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 462500 25000 15000 respectively fiscal years settlement fees relative product liability cases fiscal 2008 2007 2006 recorded expense 330753 159052 87734 respectively recognize changes product municipal litigation liability recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets new cases william hwang v smith wesson holding corp et al joe cranford v smith wesson holding corp et al joanne trudelle v smith wesson holding corp et al united states district court district massachusetts springfield april 15 2008 three cases consolidated caption smith wesson holding corp securities litigation three abovereferenced cases purported securities class smith wesson holding corporation subsidiaries notes consolidated financial statements continued action lawsuits brought individually behalf persons purchased securities company june 15 2007 december 6 2007 plaintiffs seek unspecified damages us officers directors alleged violations sections 10b 20a exchange act february 11 2008 plaintiffs abovereferenced actions filed motions consolidation actions appoint lead class plaintiffs lead counsel pursuant private securities litigation reform act 1995 “pslra” oklahoma firefighters pension retirement system appointed lead plaintiff putative class may 30 2008 lead plaintiff oklahoma firefighters pension retirement system filed consolidated class action complaint seeking unspecified damages us several officers directors alleged violations sections 10b 20a exchange act responsive pleading currently due july 14 2008 aaron sarnacki v smith wesson holding corp et al ben mahnkey v smith wesson holding corp et al superior court commonwealth massachusetts hampden county two cases cited purported derivative actions brought plaintiffs behalf company certain officers directors complaints seek assert statelaw claims including alleged breach fiduciary duties waste corporate assets unjust enrichment arising earnings guidance june 2007 september 2007 reduction earnings guidance october 2007 december 2007 decision january 2008 suspend guidance confirm prior guidance certain market conditions settled certain sales stock putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees march 24 2008 parties submitted joint motion consolidate two actions granted court april 22 2008 plaintiffs filed consolidated derivative complaint sets forth substantially allegations original complaints may 23 2008 individual defendants moved dismiss consolidated derivative complaint plaintiffs’ opposition motions due june 27 2008 cary green v smith wesson holding corp et al united states district court district nevada action also purported derivative action brought plaintiffs behalf company certain officers directors complaints seek assert claims substantially identical asserted earlierfiled massachusetts superior court actions based substantially identical allegations putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees april 29 2008 parties submitted court entered joint stipulation stay action entirety thirty days united states district court district massachusetts issues ruling motion dismiss complaint filed william hwang v smith wesson holding corp et al joe cranford v smith holding corp et al joanne trudelle v smith wesson holding corp et al paul “rob” lewis v smith wesson corp et al superior court washington king county state washington complaint filed march 20 2007 alleges plaintiff sustained eye injuries april 23 2004 using smith wesson 9mm pistol plaintiff seeks unspecified damages us ammunition manufacturer sellers firearm ammunition complaint alleges negligence design manufacturing defects failure warn breach warranty april 30 2007 filed answer plaintiff’s complaint denying allegations liability may 1 2007 codefendant filed motion change venue court denied motion change venue summary judgment granted favor ammunition manufacturer case proceeding discovery us seller firearm discovery set close august 8 2008 trial matter set begin september 8 2008 jesse james kay james v thompsoncenter arms company inc et al 151st judicial district harris county texas district court petition filed september 24 2007 alleges plaintiff jesse james sustained eye injuries using thompsoncenter arms rifle plaintiffs seek unspecified amount compensatory damages thompsoncenter arms us sellerdistributor firearm plaintiffs allege negligence design manufacturing defects failure warn breach warranty october 17 2007 defendant filed answer plaintiffs’ complaint denying allegations liability plaintiffs tentatively smith wesson holding corporation subsidiaries notes consolidated financial statements continued agreed proper party answer currently required determined proper party 30 days file answer discovery ongoing trial scheduled begin january 20 2009 cases dismissed resolved clinton rebecca stroklund v thompsoncenter arms company inc et al united states district court district north dakota northwestern division amended complaint alleged december 4 2004 mr stroklund’s rifle catastrophically exploded resulting loss left hand complaint sought unspecified damages thompsoncenter arms bullet manufacturer powder manufacturer alleging negligence products liability breach warranty products liability cause action included claims design defect manufacturing defect failure properly warn instruct case settled within limits selfinsured retention herbert mindy wilson v thompsoncenter arms company inc united states district court eastern district louisiana state court petition filed november 4 2005 alleged mr wilson sustained eye injuries using thompsoncenter arms muzzleloader matter subsequently removed united states district court plaintiffs asserted product liability claims plaintiffs seeking unspecified amount compensatory damages thompsoncenter arms filed motion summary judgment resulted dismissal design manufacturing based claims case settled within limits selfinsured retention ted amanda fink v thompson centerarms company inc et al circuit court calhoun county alabama complaint filed april 10 2006 sought unspecified compensatory punitive damages personal injuries allegedly sustained mrs fink using thompsoncenter arms rifle plaintiffs named defendants thompsoncenter arms manufacturer ammunition retailer rifle ammunition plaintiffs alleged rifle ammunition defective design manufacture defects rendered rifle ammunition unreasonably dangerous alabama extended manufacturer’s liability doctrine “aemld” plaintiffs alleged defendants “negligently andor wantonly designed manufactured sold imported andor distributed” products breached implied warranties merchantability plaintiffs may 12 2006 thompsoncenter arms filed answer denying liability damages allegations plaintiff deposed february 18 2008 case settled within limits selfinsured retention peter edward fudali v smith wesson corp et al frederick county court maryland plaintiff’s complaint filed march 4 1999 stems incident occurred march 8 1996 complaint alleges revolver discharged unexpectedly plaintiff preparing shoot revolver neighbor’s backyard causing fragments metal burning gunpowder strike forehead eye complaint asserts claims negligence strict liability seeks compensatory damages 20 million plus costs fees court entered order granting summary judgment favor case closed cases appeal district columbia et al v beretta usa corp et al superior court district columbia district columbia nine individual plaintiffs seek unspecified amount compensatory exemplary damages certain injunctive relief december 16 2002 superior court district columbia granted defendants’ motion judgment 22 pleadings entirety january 14 2003 plaintiffs filed notice appeal district columbia court appeals court appeals issued decision affirmed dismissal plaintiffs’ common law negligence public nuisance claims reversed dismissal statutory strict liability count individual plaintiffs court also reversed dismissal statutory strict liability count district columbia extent district seeks subrogated smith wesson holding corporation subsidiaries notes consolidated financial statements continued damages named individuals incurred medical expenses plaintiffs defendants filed separate petitions rehearing may 13 2004 oral argument held dc court appeals january 11 2005 april 21 2005 dc court appeals issued opinion affirming earlier decision july 20 2005 defendants filed petition writ certiorari united states supreme court october 3 2005 supreme court denied defendants’ petition certiorari october 26 2005 filed answer third amended complaint october 27 2005 defendants filed motion judgment pleadings based protection lawful commerce arms act “plcaa” november 10 2005 status conference held judge brooke hedge set briefing schedule defendants’ motion stayed discovery pending decision defendants’ motion plaintiff’s opposition defendants’ motion filed december 19 2005 defendants’ reply filed february 2 2006 united states department justice filed brief defending constitutionality plcaa january 30 2006 oral argument held march 10 2006 may 22 2006 court granted defendants’ motion judgment pleadings dismissed case entirety june 20 2006 plaintiffs filed notices appeal november 2 2006 plaintiffs filed opening briefs defendants’ governments’ briefs filed january 16 2007 plaintiffs’ reply filed february 28 2007 briefing completed dc court appeals march 28 2007 oral argument held november 20 2007 january 10 2008 dc court appeals issued opinion affirming trial court’s dismissal plaintiffs’ case pursuant plcaa february 25 2008 plaintiffs filed petition rehearing june 9 2008 dc court appeals denied plaintiffs petition rehearing plaintiffs 90 days file petition writ certiorari us supreme court city gary indiana mayor scott l king v smith wesson corp et al lake superior court indiana plaintiff’s complaint alleges public nuisance negligent distribution marketing negligent design seeks unspecified amount compensatory punitive damages certain injunctive relief defendants’ motion dismiss plaintiff’s complaint granted counts january 11 2001 september 20 2002 indiana court appeals issued opinion affirming trial court’s dismissal plaintiff’s claims manufacturer defendants december 23 2003 indiana supreme court issued decision plaintiff’s petition transfer reversing decision court appeals remanding case trial court held plaintiff allowed proceed public nuisance negligence claims defendants negligent design claim manufacturer defendants filed answer plaintiff’s amended complaint january 30 2004 november 23 2005 defendants filed motion dismiss based plcaa plaintiffs’ opposition defendants’ motion dismiss filed february 22 2006 oral argument held may 10 2006 october 23 2006 court denied defendants’ motion dismiss november 21 2006 defendants filed motion requesting certification interlocutory appeal court’s order denying defendant’s motion dismiss based plcaa court granted defendant’s motion certified case appeal day filed february 5 2007 court appeals accepted jurisdiction appeal defendants filed notice appeal court appeals february 5 2007 oral argument held indiana court appeals october 1 2007 october 29 2007 indiana court appeals issued decision affirming trial court’s denial defendants’ motion judgment pleadings based plcaa court affirmed different grounds holding statute apply city gary’s case court address constitutional claims november 28 2007 defendants filed petition rehearing indiana court appeals january 9 2008 court appeals issued order denying defendants’ motion rehearing february 7 2008 defendants filed petition transfer indiana supreme court plaintiff’s response defendants’ petition transfer indiana supreme court filed trial scheduled begin june 15 2009 city new york et al v arms technology inc et al united states district court eastern district new york complaint alleges defendants created contributed maintained public nuisance city new york allegedly negligent marketing distribution practices plaintiff seeks injunctive relief defendants’ petition writ mandamus requiring recusal judge weinstein denied second circuit court appeals may 21 2004 april 8 2004 trial court smith wesson holding corporation subsidiaries notes consolidated financial statements continued denied plaintiff’s motion strike defendants’ jury demands granted defendants seventh amendment jury april 12 2004 trial court denied defendants’ motion dismiss answer second amended complaint filed may 17 2004 june 14 2004 court entered order releasing certain atf trace data june 22 2004 defendants filed motion certify court’s order interlocutory appeal july 6 2004 court entered order denying immediate separate appeal defendants july 16 2004 atf filed petition writ mandamus second circuit court appeals seeking review judge weinstein’s june 14 2004 order releasing certain trace data august 24 2004 second circuit issued order denying atf’s petition writ mandamus september 20 2004 court entered protective order confidential documents depositions three former employees held june 2005 october 26 2005 defendants filed motion dismiss based plcaa november 11 2005 court stayed november 28 2005 trial date december 2 2005 court denied defendants’ motion dismiss finding plcaa inapplicable claims brought plaintiff court certified matter interlocutory appeal continued stay litigation pending determination second circuit applicability legislation december 13 2005 defendants filed appeal second circuit court appeals february 8 2006 district court issued rule show cause case dismissed based language 2006 appropriations act provides atf trace data shall admissible civil proceedings hearing held court march 3 2006 address whether court authority consider appropriations issue pendency second circuit appeal march 7 2006 court issued order finding retains jurisdiction ordered parties submit briefs april 7 2006 address applicability constitutionality appropriations act march 7 2006 second circuit accepted defendants’ appeal issued scheduling order defendants filed brief support appeal may 8 2006 plaintiff filed brief july 6 2006 july 11 2006 new york attorney general filed amicus brief supporting city’s crossappeal reversal portion district court’s decision addressing constitutionality plcaa april 27 2006 pendency appeal judge weinstein issued order holding 2006 appropriations act preclude admissibility atf trace data proceeding may 11 2006 defendants filed petition permission file interlocutory appeal order pursuant 28 usc § 1292 second circuit elected stay decision whether accept interlocutory appeal pending resolution plcaa appeal oral argument held second circuit september 21 2007 april 20 2008 second circuit affirmed district court’s decision respect constitutionality plcaa reversed denial defendants’ motion dismiss basis claim restricting provisions plcaa june 16 2008 plaintiff filed petition seeking rehearing second circuit decision issued date tenedora tuma sa v smith wesson corp civil commercial court first district court first instance national district santo domingo dominican republic plaintiff commenced suit submitting request preliminary reconciliation hearing two preliminary reconciliation hearings reconciliation committee issued certificate lack agreement thereafter summons notice claim issued us january 17 2000 plaintiff alleged terminated distributor agreement without cause sought damages approximately 600000 alleged violations dominican republic law 173 protection importers merchandise products briefing merits completed trial court november 2002 june 7 2004 court granted motion dismiss entirety notification judgment filed august 10 2004 september 9 2004 plaintiff purportedly appealed decision march 3 2005 informed hearing held court appeals october 27 2004 without notification counsel us merits plaintiff’s appeal taken advisement court june 23 2005 hearing held wherein attempted reopen appeal based lack service appeal papers us november 11 2005 court appeals rendered final decision court refused plaintiff’s arguments appeal upheld petitions confirming aspects judgment rendered court first instance favor january 12 2006 plaintiff appealed supreme court dominican republic response filed february 10 2006 hearing held supreme smith wesson holding corporation subsidiaries notes consolidated financial statements continued court dominican republic october 11 2006 wherein parties presented final arguments decision issued date pending cases oren gorden v smith wesson corp et al territorial court virgin islands district st crois complaint filed january 19 2001 seeks unspecified compensatory damages personal injuries allegedly sustained mr gorden complaint alleges mr gorden’s smith wesson handgun malfunctioned exploded tried load filed answer denying allegations liability november 17 2003 firearm issue case lost transit commercial carrier returned us plaintiff april 21 2004 court denied motion summary judgment extended pretrial deadlines mediation conducted april 13 2005 expert discovery ongoing status conference held october 29 2007 new trial date scheduled court brian ward v thompsoncenter arms company inc et al fortysixth circuit court otsego county michigan complaint filed october 16 2006 alleges plaintiff sustained eye injuries using thompsoncenter arms rifle plaintiff asserts product liability claims thompsoncenter arms retailer based negligence warranty principles plaintiff seeking unspecified amount compensatory damages november 15 2006 thompsoncenter arms filed answer denying allegations liability expert discovery ongoing trial yet scheduled andrew bailey v thompsoncenter arms company inc court common pleas knox county ohio complaint matter previously dismissed without prejudice refiled may 11 2007 plaintiff asserts product liability claims relating catastrophic failure plaintiff’s muzzleloader plaintiff seeks unspecified damages excess 25000 jurisdictional limit june 6 2007 thompsoncenter arms filed answer plaintiff’s refiled complaint denying allegations liability discovery ongoing trial yet scheduled sec investigation sec conducting investigation determine whether violations federal securities laws connection matters relating restatement consolidated financial statements fiscal 2002 first three quarters fiscal 2003 although fully cooperated sec matter sec may determine violated federal securities laws cannot predict investigation completed outcome sec determines violated federal securities laws may face sanctions including monetary penalties injunctive relief addition incurring legal costs company well result reimbursement obligations several current former officers continue discussions sec intend continue cooperate fully sec may 8 2008 received notice intent division enforcement staff sec recommend sec authorize administrative ceaseanddesist proceedings us prohibit future violations periodic reporting record keeping internal controls provisions federal securities laws staff recommending imposition monetary sanctions remedies us purported violations arose accounting adjustments made us fiscal 2002 first three quarters fiscal 2003 resulted restatement 2002 quarterly fiscal yearend financial statements quarterly report period ended january 31 2003 believe staff’s current recommendation ultimately authorized sec material impact financial position bureau alcohol tobacco firearms explosives “batf” audit batf asserting various violations us gun control act 1968 attendant rules regulations following onpremises inspection springfield massachusetts facility alleged violations relate inventory record keeping reporting obligations batf significant authority including smith wesson holding corporation subsidiaries notes consolidated financial statements continued authority revoke firearm importer manufacturer licenses willful violations cooperating fully batf resolve compliance issues may raised environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act “rcra” place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject two release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency “epa” andor individual states cercla state equivalent one site reserves 644534 april 30 2008 577000 noncurrent remediation sites referred believe time frame remediation currently indeterminable therefore time frame payment remediation likewise currently indeterminable thus making net present value calculation impracticable estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority “sra” 175 million resulting net gain 17 million terms sale included cash payment 750000 closing promissory note remaining 10 million note collateralized mortgage sold property note due 2022 accrued interest fixed rate 60 per annum note paid full sra october 2006 85 acres known environmental liabilities related past operating practices sales price reflected issues buyer springfield redevelopment authority sra agency city springfield obtained governmental grants help defray costs related property time sale decrease reserves waiting remediation would eliminate potential liability completed remediation completed sra may 2005 reduced environmental reserves 31 million quarter ended july 31 2005 smith wesson holding corporation subsidiaries notes consolidated financial statements continued pursuant merger agreement signed december 15 2006 effective january 3 2007 completed acquisition bear lake acquisition corp subsidiaries including thompsoncenter arms company inc 102000000 cash agreement former stockholders bear lake acquisition corp indemnified us losses arising among things environmental conditions related manufacturing activities purchase price 80 million placed escrow account portion applied environmental remediation manufacturing site rochester new hampshire presently possible estimate ultimate amount remediation costs potential uses escrow april 30 2008 approximately 693000 escrow spent safety environmental testing remediation activities believe likelihood environmental remediation costs exceeding amount available escrow remote based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities raw materials components supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many materials used production products available limited number suppliers cases longterm supply contracts suppliers contracts employment agreements entered employment agreements certain officers managers retain service ordinary course business agreements distribution agreements various third parties ordinary course business gun manufacturer enter settlement agreements city boston public health commission us department housing urban development hud relating manner selling handguns settlement agreement dated march 17 2000 us department treasury hud formally rescinded hud settlement placed substantial restrictions obligations operation business including restrictions design manufacture marketing distribution firearm products subsequently signed two states 11 cities counties signing hud settlement lawsuits filed us nine 11 cities counties signed hud settlement among terms hud settlement provided city county party hud settlement lawsuit pending us would dismiss us prejudice lawsuit subject consent order august 10 2005 none nine cities counties signed hud settlement dismissed us prejudice lawsuit subject consent order hud settlement believe hud settlement legally binding numerous reasons including lack consideration received us entering settlement assurance given however position hud settlement legally binding would ultimately prevail subsequent litigation smith wesson holding corporation subsidiaries notes consolidated financial statements continued received confirmation hud settlement enforced indication hud settlement formally rescinded enforced restrictions contained hud settlement could substantially impair ability compete particularly since none competitors subject restrictions rental leases lease office space scottsdale arizona farmington new hampshire operating leases expire january 2011 october 2008 respectively photocopiers springfield rochester locations various expiration dates modular building space rochester location expires january 2009 vehicles national sales force april 30 2008 lease commitments approximately follows rent expense fiscal years ended april 30 2008 2007 2006 approximately 561000 413000 215000 respectively relocated new scottsdale location august 1 2005 entered 65month lease agreement space lease expense fiscal year 2008 approximately 71000 2009 73000 2010 75000 2011 45000 february 29 2008 sublet part scottsdale location global alert llc company partly owned member board directors sublease remaining term original lease reduce lease expense approximately 30000 2009 32000 2010 20000 2011 23 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2008 fiscal 2007 opinion adjustments necessary present fairly information quarters reflected smith wesson holding corporation subsidiaries notes consolidated financial statements continued 24 pro forma results unaudited following table reflects unaudited pro forma results operations assuming thompsoncenter arms acquisition occurred may 1 2005 thousands except per share data schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2008 2007 2006 1 decrease product liability offset corresponding reduction receivable insurance carrier assets current assets 2 increase 2007 valuation accounts represents acquired balances january 3 2007 relating thompsoncenter arms acquisition 3 increase 1395852 product liability represents acquired balance january 3 2007 relating thompsoncenter arms acquisition offset 48122 decrease offset corresponding reduction receivable insurance carrier 4 decrease 234239 product liability represents adjustment acquisition accounting relating thompsoncenter arms acquisition 24311 decrease offset corresponding reduction receivable insurance carrieritem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2009 2008 2007 set forth page report b exhibits management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec december 18 2006 2 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 3 incorporated reference registrant’s form 8k filed sec december 5 2007 4 incorporated reference registrant’s form 8a filed sec august 25 2005 5 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 6 incorporated reference registrant’s form 8k filed sec may 29 2001 7 incorporated reference registrant’s form 8k filed sec december 18 2006 8 incorporated reference registrant’s form 10qsb filed sec august 13 2001 9 incorporated reference registrant’s form s8 333128804 filed sec october 4 2005 10 incorporated reference registrant’s form 8k filed sec november 16 2007 11 incorporated reference registrant’s form 10qsb filed sec september 14 2001 12 incorporated reference registrant’s proxy statement schedule 14a filed sec december 28 2001 13 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 14 incorporated reference registrant’s form 10ksb filed sec december 18 2003 15 incorporated reference registrant’s form 10k filed sec july 16 2004 16 incorporated reference registrant’s form 10q filed sec march 10 2005 17 incorporated reference registrant’s form 10q filed sec march 17 2006 18 incorporated reference registrant’s form 8k filed sec may 19 2006 19 incorporated reference registrant’s form 8k filed sec december 6 2007 20 incorporated reference registrant’s form 8k filed sec july 3 2008 21 incorporated reference registrant’s form 8k filed sec september 25 2008 22 incorporated reference registrant’s form 8k filed sec november 5 2008 23 incorporated reference registrant’s form 8k filed sec march 17 2009 24 incorporated reference registrant’s form 8k filed sec june 19 2009 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation michael f golden michael f golden president chief executive officer date june 30 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated index consolidated financial statements smith wesson holding corporation subsidiaries management’s report internal control financial reporting management smith wesson holding corporation “company” responsible establishing maintaining adequate internal control financial reporting term defined rule 13a15f securities exchange act 1934 participation chief executive officer chief financial officer management conducted evaluation effectiveness company’s internal control financial reporting april 30 2009 required rule 13a15c securities exchange act 1934 company utilized criteria framework established committee sponsoring organizations coso treadway commission internal control integrated framework performing assessment based evaluation management concluded company’s internal control financial reporting effective april 30 2009 internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles inherent limitations internal control financial reporting may prevent detect misstatements smith wesson holding corporation’s independent auditor bdo seidman llp independent registered public accounting firm audited effectiveness company’s internal control financial reporting april 30 2009 stated report appears item 9a page 48 annual report form 10k michael f golden michael f golden president chief executive officer william f spengler william f spengler executive vice president chief financial officer treasurer report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries april 30 2009 2008 related consolidated statements incomeloss comprehensive incomeloss stockholders’ equity cash flows three years period ended april 30 2009 also audited schedule listed accompanying index years ended april 30 2009 2008 2007 financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2009 2008 results operations cash flows three years period ended april 30 2009 conformity accounting principles generally accepted united states america also opinion schedule referred presents fairly material respects information years ended april 30 2009 2008 2007 set forth therein also audited accordance standards public company accounting oversight board united states effectiveness smith wesson holding corporation’s internal control financial reporting april 30 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated june 30 2009 expressed unqualified opinion thereon bdo seidman llp bdo seidman llp boston massachusetts june 30 2009 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements incomeloss comprehensive incomeloss accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows smith wesson holding corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash activities january 3 2007 acquired bear lake acquisition corp subsidiaries note 2 accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements dollars thousands except share data 1 organization one world’s leading manufacturers firearms manufacture wide array pistols revolvers tactical rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters protection focused individuals law enforcement agencies officers military agencies united states throughout world manufacture products facilities springfield massachusetts houlton maine rochester new hampshire addition pursue opportunities license name trademarks third parties use association products services may 11 2001 purchased outstanding stock smith wesson corp ukbased tomkins smith wesson corp predecessors business since 1852 january 3 2007 purchased outstanding stock bear lake acquisition corp known thompson center holding corporation see note 2 acquisition accounted purchase method accounting accordingly results operations acquired business included consolidated financial statements since acquisition date 2 acquisition bear lake acquisition corp thompsoncenter arms january 3 2007 completed acquisition outstanding capital stock bear lake acquisition corp subsidiaries including thompsoncenter arms company inc aggregate purchase price 103500 consisted 102000 cash 1500 estimated direct acquisition costs thompsoncenter arms brand recognized hunting enthusiasts leading position black powder segment long gun market addition leadership position long gun market thompsoncenter arms also brings expertise long gun barrel manufacturing assist us plans expand long gun market see note 24 pro forma income statement information related acquisition accounted purchase method pursuant statement financial accounting standards “sfas” 141 “business combinations” balances recorded fiscal 2007 adjusted fiscal 2008 changes deferred taxes reduction estimated state tax rates partially offset adjustments product liability workers’ compensation legal reserves smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following table summarizes allocation purchase price agreement bear lake acquisition corp indemnified us losses arising environmental conditions related manufacturing activities purchase price 8000 placed escrow account pending environmental remediation study manufacturing site rochester new hampshire november 2008 2500 escrow account released sellers currently working remediation action plan sellers order remediate environmental contamination found site currently possible estimate ultimate amount remediation costs april 30 2009 approximately 1221 escrow spent safety environmental testing remediation activities believe likelihood environmental remediation costs exceeding amount escrow remote amortize customer relationships proportion expected yearly revenue generated customer lists acquired amortize finitelived identifiable intangible assets straightline basis following smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data identifiable intangible assets acquired respective weighted average lives prior impairment charge recorded fiscal 2009 see note 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory forfeiture rates stockbased awards asset impairments medical claims payable actual results could differ estimates reclassification certain amounts presented prior periods’ consolidated financial statements related inventory revenue accrued expenses reclassified conform current periods’ presentation principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training centre gmbh germany thompson center holding corporation kw thompson tool company inc thompsoncenter arms company inc ol development inc bear lake holdings inc inactive fox ridge outfitters inc yearend wholly owned subsidiaries smith wesson corp thompsoncenter arms company inc may 3 2009 april 27 2008 threeday variance reported fiscal year ends april 30 2009 april 30 2008 respectively variances create material difference financial statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2009 april 30 2008 periods presented included significant intercompany accounts transactions eliminated consolidation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature derivative instruments account derivative instruments sfas 133 “accounting derivative instruments hedging activities” amended sfas 133 establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value purchased foreign exchange forward contracts minimize impact fluctuations foreign exchange rates see note 14 cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data trade receivables extend credit domestic customers foreign distributors based financial condition offer discounts early payment determine extension credit advisable rely either prepayment letter credit sometimes place past due balances collection outside agency 90 days write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts using knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 11 9 10 net product sales fiscal years ended april 30 2009 2008 2007 respectively customer owed us approximately 3092 6 total accounts receivable april 30 2009 4443 8 total accounts receivable april 30 2008 inventories value inventories consisting primarily finished firearm components finished firearms related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage comprehensive income sfas 130 “reporting comprehensive income” requires companies report components comprehensive income financial statements including nonowner transactions events impact equity even items directly affect net income loss comprehensive income loss consists net income loss unrealized gains losses available sale securities net tax presented consolidated statements income comprehensive income years ended april 30 2009 2008 2007 comprehensive income equal net income property plant equipment record property plant equipment consisting land building improvements machinery equipment computers furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range four months 20 years see note 10 additional information regarding intangible assets valuation longlived assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data asset group discounted using interest rate commensurate risk involved noted determined 98243 impairment longlived assets fiscal 2009 revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured report revenue net shipping costs revenuebased taxes including sales use federal excise taxes applicable product sales account substantial portion revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademarklicensing revenue individual licensees based historical experience expected cash receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future service required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility future license amounts exist therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly royalty reasonably estimated month payment assured april 30 2009 estimated minimum royalties collected future amounted approximately 7283 follows segment geographic information sfas 131 “disclosures segments enterprise related information” requires public companies report financial descriptive information reportable operating segments identify operating segments based internally evaluate separate financial information business activities management responsibility present time believe operate single business segment april 30 2009 2008 2007 material personnel facilities outside united states sales outside united states detailed note 5 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following breakdown net sales research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities executive management approves prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs fiscal 2009 spent approximately 2906 research activities relating development new products fiscal 2008 spent approximately 1946 research activities fiscal 2007 spent approximately 1248 research activities earnings per share calculate basic diluted earnings per common share accordance provisions sfas 128 “earnings per share” basic earnings per common share equals net income divided weighted average number common shares outstanding period diluted earnings per common share equals net income divided weighted average number common shares outstanding period including effect outstanding stock options warrants stockbased instruments effect dilutive following table provides reconciliation incomeloss amounts weighted average number common equivalent shares used determine basic diluted earnings per share thousands except per share data fiscal 2009 2008 2007 6485084 shares common stock issuable upon conversion 80000 convertible notes excluded computation diluted earnings per share effect would antidilutive options warrants purchase 1903363 216000 0 shares respectively common stock excluded fiscal 2009 2008 2007 computation diluted earnings per share effect would antidilutive valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology customer relationships patents trademarks tradenames amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data exception goodwill intangible assets indefinite lives initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance sfas 142 “goodwill intangible assets” test goodwill intangible assets indefinite lives impairment annual basis end fiscal third quarter annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions sfas 142 respect criteria necessary evaluate number reporting units exist based review sfas 131 “disclosures segments enterprise related information” determined operate two reporting units one springfield massachusetts houlton maine facilities second rochester new hampshire facility goodwill recorded books associated rochester new hampshire reporting unit arose acquisition thompsoncenter arms january 3 2007 based combination factors occurring fiscal 2009 including current economic environment market conditions hunting industry determined indicators impairment goodwill intangible assets existed rochester new hampshire reporting unit result conducted evaluation assets pursuant sfas 142 based lower order intake past several quarters lower expected operating profits cash flows reporting unit earnings forecast next ten years revised fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 41173 three months ended october 31 2008 accordance sfas 144 “accounting impairment disposal longlived assets” periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affecting rochester new hampshire reporting unit required us test impairment longlived assets pertaining location second quarter fiscal 2009 based assessment sfas 144 recorded impairment charge 57070 reflect excess carrying value longlived intangible assets discounted cash flows impairment charges taken fiscal 2008 2007 based review longlived assets sfas 144 see note 10 intangible assets significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates turn could additional impact consolidated financial statements accelerated amortization impairment charges changes carrying amount goodwill year ended april 30 2009 follows accounting acquisition completed significant business acquisition fiscal 2007 resulted significant goodwill intangible asset balances business strategy contemplates may consummate additional acquisitions future accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally sfas 142 determine fair value reporting unit purposes first step annual goodwill impairment test based market value prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes stock options warrants described notes 16 17 issued stock warrants stock option plan employees directors receive options purchase common stock stockbased compensation product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments provision product liability ongoing basis charge credit cost sales exclusive insurance reimbursements make evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain product liability costs subject reimbursement insurance carriers environmental liability accordance sop 961 “environmental remediation liabilities” provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party prp ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted environmental reserve increases fiscal years ended april 30 2009 2008 2007 amounted approximately 172 29 90 respectively rochester reserve relating environmental testing remediation associated acquisition thompsoncenter arms paid directly administrative agent holding escrow see note 22 reserve required books warranty generally provide lifetime warranty “original” purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted warranty expense fiscal years ended april 30 2009 2008 2007 amounted 6079 1874 1931 respectively following sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2009 2008 2007 sales promotional related expenses accordance eitf issue 0109 “accounting consideration given vendor customer including reseller vendor’s product” present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted approximately 10464 8516 1243 fiscal years ended april 30 2009 2008 2007 respectively coop advertising program retail level expensed costs amounting approximately 918 921 796 fiscal 2009 2008 2007 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net product services sales included costs relating shipping handling charges cost products services sales insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 2000 per occurrence liability estimated premiums incurred losses recorded accompanying consolidated financial statements undiscounted basis recently issued accounting standards december 2007 fasb issued sfas 141 revised “business combinations” sfas 141r changes accounting business combinations including measurement acquirer shares issued consideration business combination recognition contingent consideration accounting preacquisition gain loss contingencies recognition capitalized inprocess research development accounting acquisitionrelated restructuring cost accruals smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data treatment acquisition related transaction costs recognition changes acquirer’s income tax valuation allowance sfas 141r effective fiscal years beginning december 15 2008 early adoption prohibited although adoption sfas 141r impact current consolidated financial statements expect affect accounting treatment future acquisitions may consummate december 2007 fasb issued sfas 160 “noncontrolling interests consolidated financial statements amendment arb 51” sfas 160 establishes accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 effective fiscal years beginning december 15 2008 expect adoption sfas 160 material impact consolidated financial statements december 2007 fasb ratified consensus reached eitf issue 0701 “accounting collaborative arrangements related development commercialization intellectual property” eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenue costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf issue 9919 “reporting revenue gross principal versus net agent” accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf issue 0701 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date expect adoption eitf 0701 impact consolidated financial statements april 2008 fasb issued fasb staff position “fsp” 1423 “determination useful life intangible assets” fsp 1423 amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset sfas 142 “goodwill intangible assets” fsp 1423 effective financial statements issued fiscal years beginning december 15 2008 well interim periods within fiscal years currently process evaluating impact adopting pronouncement may 2008 fasb issued fsp apb 141 “accounting convertible debt instruments may settled cash upon conversion including partial cash settlement” staff position requires entities convertible debt instruments may settled entirely partially cash upon conversion separately account liability equity components instrument manner reflects issuer’s economic interest cost effect proposed new rules debentures equity component would included paidincapital section shareholders’ equity entity’s consolidated balance sheet value equity component would treated original issue discount purposes accounting debt component convertible debt fsp effective fiscal years beginning december 15 2008 interim periods within fiscal years retrospective application required early adoption permitted currently evaluating proposed new rules impact consolidated financial statements may 2008 fasb issued sfas 162 “the hierarchy generally accepted accounting principles” statement identifies sources accounting principles framework selecting principles used preparation financial statements presented conformity generally accepted accounting principles united states statement effective 60 days following sec’s approval public smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data company accounting oversight board amendments au section 411 “the meaning present fairly conformity generally accepted accounting principles” expect sfas 162 material impact consolidated financial statements june 2008 fasb ratified eitf issue 0705 “determining whether instrument embedded feature indexed entity’s stock” addresses accounting certain instruments derivatives sfas 133 “accounting derivative instruments hedging activities” pronouncement specific guidance provided regarding requirements entity consider embedded features indexed entity’s stock issue effective fiscal years beginning december 15 2008 currently process evaluating impact adopting pronouncement april 2009 fasb issued fsp 141r1 “accounting assets acquired liabilities assumed business combination arise contingencies” fsp requires assets acquired liabilities assumed business combination arise contingencies recognized fair value fair value reasonably estimated fsp effective fiscal years beginning december 15 2008 although adoption fsp141r1 impact current consolidated financial statements expect affect accounting treatment future acquisitions may consummate april 2009 fasb issued fsp 1574 “determining fair value volume level activity asset liability significantly decreased identifying transactions orderly” fsp 1574 provides guidance determine fair value assets liabilities sfas 157 current economic environment reemphasizes objective fair value measurement remains exit price conclude significant decrease volume level activity asset liability relation normal market activities quoted market values may representative fair value may conclude change valuation technique use multiple valuation techniques may appropriate fsp 1574 effective interim annual periods ending june 15 2009 expect fsp 1574 material impact consolidated financial statements april 2009 fasb issued fsp 1152 fsp 1242 “recognition presentation otherthantemporary impairments” fsp 1152 fsp 1242 amend otherthantemporary impairment guidance debt securities improve presentation disclosure otherthantemporary impairments debt equity securities financial statements fsp 1152 fsp 1242 effective reporting periods ending june 15 2009 expect either fsp’s material impact consolidated financial statements april 2009 fasb issued fsp 1071 apb 281 “interim disclosures fair value financial instruments” fsp 1071 apb 281 amend sfas 107 “disclosures fair value financial instruments” require disclosures fair value financial instruments interim well annual financial statements fsp also amends apb opinion 28 “interim financial reporting” require disclosures interim financial statements fsp 1071 apb 281 effective reporting periods ending june 15 2009 expect pronouncements impact consolidated financial statements may 2009 fasb issued sfas 165 “subsequent events” “sfas 165” sfas 165 establishes general standards accounting disclosure events occur balance sheet data financial statements issued sfas 165 effective interim annual financial periods ending june 15 2009 currently evaluating impact statement recently adopted accounting standards september 2006 fasb issued sfas 157 “fair value measurements” sfas 157 establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements standard applies whenever standards require permit assets liabilities measured fair value standard expand use fair value new circumstances sfas 157 effective financial statements issued fiscal years beginning november 15 2007 interim periods within fiscal years fasb provided oneyear deferral smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data implementation nonfinancial assets liabilities earlier application encouraged adopted required provisions sfas 157 may 1 2008 adoption sfas 157 impact consolidated financial statements information adoption required provisions sfas 157 see note 14 february 2007 fasb issued sfas 159 “the fair value option financial assets financial liabilities including amendment fasb statement 115” permits entities choose measure eligible items fair value specified election dates unrealized gains losses items fair value option elected reported earnings subsequent reporting date following balance sheet items within scope sfas 159 • recognized financial assets financial liabilities unless special exception applies • firm commitments would otherwise recognized inception involve financial instruments • nonfinancial insurance contracts • financial instruments resulting separation embedded nonfinancial derivative instrument nonfinancial hybrid instrument sfas 159 became effective fiscal years beginning november 2007 elect measure items fair value already recorded therefore adoption sfas 159 impact consolidated financial statements october 2008 fasb issued fsp 1573 “determining fair value financial asset market asset active” fsp 1573 clarifies application sfas 157 inactive market demonstrated fair value financial asset determined market financial asset inactive fsp 1573 effective upon issuance including prior periods financial statements issued adoption provisions impact consolidated financial statements march 2008 fasb issued sfas 161 “disclosures derivative instruments hedging activities amendment fasb statement 133” statement requires entities utilize derivative instruments provide qualitative disclosures objectives strategies using instruments well details creditriskrelated contingent features contained within derivatives also requires entities disclose additional information amounts location derivatives located within financial statements provisions sfas 133 applied impact hedges entity’s financial position financial performance cash flows statement effective fiscal years interim periods beginning november 15 2008 early application encouraged adoption sfas 161 impact consolidated financial statements see note 14 required disclosures 4 longterm debt financing arrangements credit facilities pursuant credit agreement dated november 30 2007 guarantor along certain direct indirect subsidiaries including smith wesson corp “swc” thompsoncenter arms “tca” borrowers refinanced existing credit facilities among things increase acquisition line credit 70000 consolidate increase revolving lines credit 40000 may 2008 utilized proceeds 2008 stock offering repay 28000 outstanding balance acquisition line terminated acquisition line incurred 485 noncash charge associated writeoff unamortized debt acquisition costs result decision terminate line credit pursuant amendment credit agreement dated october 31 2008 td bank na “lender” became sole lender successor administrative agent credit facility amendment also documented termination acquisition line credit increased second third fiscal quarter 2009 leverage ratio 3251 released smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data security intellectual property pursuant second amendment credit agreement dated march 12 2009 increased leverage ratio 3501 fiscal quarters ended april 30 2009 july 31 2009 october 31 2009 january 31 2010 april 30 2010 ratio returning 3251 subsequent quarters april 30 2009 credit agreement included following 1 revolving line credit maximum amount lesser 40000 b sum 80 net amount swc’s tca’s eligible accounts receivable defined credit agreement plus ii lesser 12000 b 60 swc’s tca’s eligible inventory defined credit agreement revolving line credit provides availability november 30 2012 working capital needs revolving line credit bears interest libor variable rate equal prime election april 30 2009 40000 available borrowings outstanding borrowings would borne interest rate 325 per annum 2 49month 7800 term loan bearing interest rate 623 per annum 5397 outstanding april 30 2009 monthly payment 179 final payment due january 30 2012 3 85month 5500 term loan bears interest rate 685 per annum 587 outstanding april 30 2009 monthly payment 46 may 31 2010 june 2008 made 4367 payment loan funded partially proceeds may 2008 stock offering rest cash operations security credit facility lender first priority lien personal property real estate assets may prepay whole part loans interest rates determined reference prime rate interest accrued date prepayment amount prepaid without penalty premium loans fixed rate interest determined reference libor interest rate may prepaid provided reimburse lender costs associated making payments dates specified credit agreement ii borrowing converting libor loan date borrowing conversion dates specified credit agreement received waiver 2 prepayment penalty associated repayment acquisition line credit described credit agreement contains various covenants including certain financial covenants met april 30 2009 convertible debt december 15 2006 issued aggregate 80000 4 senior convertible notes “notes” maturing december 15 2026 qualified institutional buyers pursuant terms conditions securities purchase agreement indenture used net proceeds notes together 28000 acquisition line credit fund acquisition bear lake acquisition corp subsidiaries including thompsoncenter arms notes bear interest rate 4 per annum payable june 15 december 15 year registration rights agreement covering resale notes common stock issuable upon conversion notes required sec declare registration statement covering notes common stock issuable upon conversion notes effective june 14 2007 registration become effective june 26 2007 additional interest approximately 260 accrued notes convertible shares common stock initially conversion rate 810636 shares per 1000 principal amount notes total 6485084 shares equivalent initial conversion price 12336 per share notes may converted time december 15 2009 december 15 2011 may redeem portion notes redemption price 100 principal amount notes plus accrued unpaid interest closing price common stock exceeds 150 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data applicable conversion price notes fewer 20 trading days period 30 consecutive trading days december 15 2011 may redeem portion notes noteholders may require us repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company defined indenture covering notes general unsecured obligations ranking senior right payment subordinated indebtedness ranking pari passu unsecured unsubordinated indebtedness time closing price common stock exceeds 200 applicable conversion price notes least 30 trading days period 40 consecutive trading days agreed incur additional indebtedness excess greater 1 62000 available existing credit facility lender 2 three times ltm ebitda defined indenture covering notes time additional debt incurred including amounts outstanding credit facility lender evaluated conversion features notes provisions eitf 985 “accounting convertible securities beneficial conversion features contingently adjustable conversion ratios” eitf 0027 “application issue 985 certain convertible instruments” determined beneficial conversion feature existed analyzed provisions notes sfas 133 “accounting derivative instruments hedging activities” eitf 0019 “accounting derivative financial instruments index potentially settled company’s stock” determined features instruments requiring bifurcation debt issuance costs related fiscal 2005 refinancing td bank amounted 655 classified assets 42 amortized expense fiscal year ended april 30 2009 debt issuance costs amortized using effective interest rate method future amortization expense follows fiscal year 2010 38 2011 26 2012 18 2013 15 2014 14 thereafter 9 incurred approximately 4337 debt issuance costs associated issuance notes costs amortized straightline basis december 15 2011 date first redemption year ended april 30 2009 amortized 867 interest expense related notes total incurred 933 debt issuance costs associated november 2007 refinancing credit facility subsequent two modifications october 2008 march 2009 fiscal 2009 wrote approximately 485 unamortized debt issuance cost attributed acquisition line credit paid full may 2008 formally closed october 2008 remaining costs associated td bank lines amortized straightline basis seven years life revolving loan year ended april 30 2009 amortized 66 interest expense total amount amortized interest expense debt issuance costs fiscal 2009 1465 total longterm debt maturing fiscal 2010 2011 2012 thereafter 2378 2041 1565 80000 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data carrying amounts notes payable april 30 2009 2008 follows credit agreement td bank contains financial covenants relating maintaining maximum leverage minimum debt service coverage compliance debt covenants april 30 2009 letters credit april 30 2009 open letters credit aggregating 3805 workers’ compensation bond self insurance 3500 making majority amount 5 international sales sell products worldwide following sets forth breakdown export sales accounted approximately 7 8 net sales fiscal years ended april 30 2009 2008 2007 respectively individual foreign country accounted 10 net revenue smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 6 income expense following sets forth details income expense fiscal years ended april 30 2009 2008 2007 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements incurred fiscal years ended april 30 2009 2008 2007 advertising expenses included selling marketing expenses amounted approximately 13842 13977 9466 respectively 8 property plant equipment following summarizes property plant equipment april 30 2009 2008 depreciation expense amounted 8729 7286 5349 fiscal years ended april 30 2009 2008 2007 respectively estimated cost complete construction progress approximately 4600 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 9 inventories following sets forth summary inventories stated lower cost market april 30 2009 2008 10 intangible assets record intangible assets cost intangible assets consist customer relationships developed technology order backlog trademarks tradenames patents amortize patents developed technology using straightline method estimated useful lives ranging four months 20 years amortize customer relationships proration expected yearly revenue generated customer lists acquired currently estimated 20 years following presents summary intangible assets noted note 3 fiscal 2009 became aware impairment intangible assets caused us write 57070 net value assets amortization expense excluding amortization deferred financing costs amounted 2475 4163 1665 fiscal years ended april 30 2009 2008 2007 respectively expect amortization expense approximate 636 annually next five fiscal years smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 11 assets consisted following april 30 2009 2008 12 receivables insurance carriers discussed notes 15 22 party lawsuits related use products carry insurance would cover certain legal defense costs related matters record receivable insurance carriers collection insurance proceeds probable following summarizes activity receivables insurance carriers fiscal years ended april 30 2009 2008 outstanding balance april 30 2009 2060 25 current assets 2035 noncurrent assets april 30 2008 4665 90 current assets 4575 noncurrent assets october 2004 one insurance carriers agreed pay portion past future defense costs relating municipal litigation insurance carriers paid defense costs 76 24 fiscal years ended april 30 2009 2008 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 13 accrued expenses following sets forth accrued expenses april 30 2009 2008 14 derivative financial instruments hedging activities effective may 1 2008 implemented sfas 157 “fair value measurement” financial assets liabilities remeasured reported fair value reporting periodend date nonfinancial assets liabilities remeasured reported fair value least annually accordance provisions fasb staff position “fsp” fas 1572 “effective date fasb statement 157” elected defer implementation sfas 157 relates nonfinancial assets nonfinancial liabilities recognized disclosed fair value financial statements nonrecurring basis may 1 2009 evaluating impact standard nonfinancial assets liabilities adoption sfas 157 financial assets liabilities nonfinancial assets liabilities remeasured reported fair value least annually impact financial results financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability examples include interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability include certain securities derivatives smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities following table presents information assets liabilities measured fair value recurring basis april 30 2009 indicates fair value hierarchy valuation techniques utilized determine fair value purchase certain finished goods component parts european supplier pay euros purchased foreign exchange participating forward contracts minimize impact fluctuations foreign exchange rates participating forward contracts provide full protection us devaluation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros purchased average rate remaining 50 paid spot rate elected designate derivative instruments qualifying hedge accounting treatment sfas 133 accordingly record gains losses derivative contracts element income expense reporting period based change estimated fair value contracts estimate fair values derivative financial instruments based exchange rates underlying currencyeuros following table presents information derivatives outstanding april 30 2009 2008 following table presents information effect derivative instruments financial performance years ended april 30 2009 2008 15 selfinsurance reserves april 30 2009 2008 reserves workers’ compensation product liability medicaldental costs totaling 10985 11587 respectively 5344 6866 respectively classified noncurrent included noncurrent liabilities 5641 4721 respectively included accrued expenses accompanying consolidated balance sheets addition april 30 2009 2008 324 135 respectively excess workers’ compensation receivable classified asset believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 12704 7769 6671 fiscal years ended april 30 2009 2008 2007 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following summary activity workers’ compensation product liability medicaldental reserves fiscal years ended april 30 2009 2008 2007 policy provide estimate loss result expected adverse findings legal settlements product liability workers’ compensation losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2009 2008 accrued reserves product liability 6879 8617 respectively 3461 5850 respectively noncurrent consisting entirely expected legal defense costs addition april 30 2009 2008 recorded receivables insurance carriers related liabilities 2060 4665 respectively 2035 4575 respectively classified assets remaining amounts 25 90 respectively classified current assets 16 capital stock common stock issued may 12 2009 completed stock offering 6000000 shares common stock yielded net proceeds approximately 35000 used corporate purposes may include purchase additional equipment expand manufacturing capacity satisfy product demand repurchase outstanding debt strategic relationships acquisitions fiscal year ended april 30 2009 issued 429499 shares common stock market value 2433 current former employees upon exercise options granted employees company proceeds exercise shares 465 fiscal year ended april 30 2009 issued 278260 shares common stock market value 1374 employee stock purchase plan proceeds exercise shares 846 may 23 2008 completed stock offering 6250000 shares common stock yielded net proceeds 32046 allowed us repay 28000 acquisition loan financed portion thompson center holding corporation acquisition fiscal year ended april 30 2008 issued 522435 shares common stock market value approximately 8300 current former employees upon exercise options granted employees company proceeds exercise shares 1317 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data fiscal year ended april 30 2008 issued 34857 shares common stock cashless exercise 50000 outstanding warrants market value approximately 740 purchase price shares 218 fiscal year ended april 30 2008 issued 147817 shares common stock market value approximately 1300 employee stock purchase plan proceeds exercise shares 917 fiscal year ended april 30 2007 issued 379309 shares common stock market value approximately 3900 current former employees upon exercise options granted employees company proceeds exercise shares 617 fiscal year ended april 30 2007 issued 93344 shares common stock market value approximately 1300 employee stock purchase plan proceeds exercise shares 721 fiscal year ended april 30 2007 issued 1200000 shares common stock market value approximately 13600 upon exercise outstanding warrants purchase price shares 6012 stock warrants issued repurchased described note 18 september 12 2005 conjunction sale 6000000 shares common stock issued investors placement agent warrants purchase 1200000 120000 shares common stock respectively following outlines activity related warrants periods indicated 17 stock option employee stock purchase plans two employee stock option plans “sops” 2001 stock option plan 2004 incentive stock plan new grants 2001 stock option plan made following approval 2004 incentive stock plan september 13 2004 annual meeting stockholders new grants covering participants issued 2004 incentive stock plan 2004 incentive stock plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock plan allows granting options acquire common stock granting restricted common stock deferred stock granting restricted stock units granting stock appreciation rights granting dividend equivalents board directors committee established board administers sops selects recipients awards granted determines smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data grants awarded options granted sops exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture unless terminated earlier board directors 2004 incentive stock plan terminate earlier 1 ten years date later occur original date plan approved board directors stockholders whichever earlier ii date increase number shares reserved issuance plan approved board directors long increase also approved stockholders 2 time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award generally awards vest period three years awards exercisable period ten years plan also allows grants awards nonemployees board granted past separate option grant outside 2004 incentive stock plan 500000 shares made michael f golden connection hiring president chief executive officer fiscal year ended april 30 2005 number shares weighted average exercise prices options granted sops separate grant fiscal years ended april 30 2009 2008 2007 follows april 30 2009 4335119 shares available grant 2004 incentive stock plan summary stock options outstanding vested exercisable april 30 2009 follows aggregate intrinsic value outstanding options vested exercisable april 30 2009 5852 5440 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data employee stock purchase plan “espp” authorizes sale 10000000 shares common stock employees espp commenced june 24 2002 continues effect term ten years unless sooner terminated espp implemented series offering periods two years duration four sixmonth purchase periods offering period plan amended september 2004 future offering periods commencing october 1 2004 offering period six months consistent six month purchase period purchase price 85 fair market value common stock offering date purchase date whichever lower participant may elect payroll deductions made payday offering period amount less 1 20 greater percentage board may establish time offering date participant’s compensation payday offering period last day offering period purchase date offering period offering period commencing april 1 ends next september 30 offering period commencing october 1 ends next march 31 board directors power change duration andor frequency offering purchase periods respect future offerings purchases without stockholder approval change announced least five days prior scheduled beginning first offering period affected maximum number shares employee may purchase period 12500 shares options rights participate espp nontransferable subject forfeiture accordance espp guidelines event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2009 2008 2007 278260 147817 93344 shares respectively purchased espp year ended april 30 2005 adopted sfas 123r “sharebased payment” requires measurement cost employee services received exchange award equity instrument based grantdate fair value award elected modified retrospective application method adopting sfas 123r resulted restatement prior period amounts order present comparable compensation data accordance sfas 123r calculated fair value stock options warrants issued employees using blackscholes model time options warrants granted amount amortized vesting period option warrant espp fair value determined beginning purchase period amortized term offering period following assumptions used valuing options espp estimate expected volatility using past historical volatility expected term fair value stock option espp purchase estimated date grant using black scholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table weightedaverage fair value stock options granted fiscal 2009 2008 2007 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 414 374 954 respectively weightedaverage fair value espp shares granted fiscal 2009 2008 2007 175 317 422 respectively year ended april 30 2009 granted 6000 restricted stock units rsu’s subject timebased vesting current employees also granted 15000 rsu’s nonemployees april 30 2009 346944 rsu’s outstanding 85748 canceled due employee terminations 53334 performancebased rsu’s canceled failure satisfy performance targets aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsu’s certain employees nonemployees approximately 1086 year ended april 30 2009 april 30 2009 approximately 757 unrecognized compensation cost related unvested rsu’s cost expected recognized weighted average 056 years summary activity unvested rsu’s fiscal 2009 2008 follows year ended april 30 2008 granted 334500 rsu’s subject timebased vesting current employees also granted 5000 rsu’s nonemployees april 30 2008 560418 rsu’s outstanding 82748 cancelled due employee terminations aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsu’s certain employees nonemployees approximately 2837 12 months ended april 30 2008 april 30 2008 approximately 2571 unrecognized compensation cost related unvested rsu’s cost expected recognized weighted average 095 years year ended april 30 2007 granted 447400 restricted stock units rsus consisting shares restricted common stock subject timebased vesting current employees april 30 2007 432900 restricted stock units outstanding 14500 cancelled due employee terminations aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees approximately 811 twelve months ended april 30 2007 april 30 2007 approximately 2248 unrecognized compensation cost related unvested rsus cost expected recognized weighted average 12 years recorded stockbased compensation expense related sfas 123r approximately 3307 4885 2740 fiscal 2009 2008 2007 respectively stockbased compensation expense included general administrative expenses intrinsic value options warrants exercised fiscal 2009 2008 2007 approximately 12043 12822 17457 respectively total fair value shares vested fiscal 2009 2008 2007 approximately 5440 7969 19400 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data modifications options warrants rsu’s fiscal 2009 2008 2007 april 30 2009 total unamortized fair value stock options approximately 1280 recognized remaining vesting period 30 years november 12 2007 granted option purchase 216000 shares common stock michael f golden fully vests three years resulted valuation approximately 809 estimated fair value option grant using blackscholes option pricing model following assumptions volatility 617 risk free interest rate 421 expected life three years dividend yield 0 august 1 2005 granted option purchase 25000 shares common stock consultant fully vested four months later november 30 2005 year ended april 30 2006 recorded estimated fair value option grant totaling approximately 118 general administrative expenses accompanying statement income estimated fair value option grant using blackscholes optionpricing model following assumptions volatility 75 riskfree interest rate 432 expected life ten years dividend yield 0 18 warrants september 12 2005 completed sale aggregate 6000000 shares common stock “shares” warrants purchase additional 1200000 shares common stock “warrants” incurred issuance costs included issuance warrant purchase 120000 shares common stock placement agent initial fair value 384 exercise price placement agent’s warrants 436 per share terms placement agent’s warrant substantially warrants sold investors except became exercisable march 12 2006 expires september 12 2010 april 30 2009 1200000 investor warrants exercised 70000 placement agent warrants still outstanding 19 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed approximately 1194 fiscal year ended april 30 2009 1028 fiscal year ended april 30 2008 901 fiscal year ended april 30 2007 noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine employees eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes defined plan year fiscal 2009 plan contribute approximately 6248 contributed approximately 3539 fiscal year ended april 30 2008 approximately 4803 fiscal year ended april 30 2007 contributions funded fiscal yearend also defined contribution profit sharing plan covering substantially thompsoncenter arms employees based certain eligibility criteria board directors discretion determines contributions made net income thompsoncenter arms fiscal 2009 plan make payments plan fiscal 2008 paid 500 assumed 800 liability related plan january 3 2007 made payment plan fiscal 2008 20 postemployment postretirement deferred compensation postretirement medical program certain obligations terminated program provides health care retirees age 65 employees designated combined age years service grandfathered program grandfather provision provides varying degrees coverage based smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data upon years service currently one retiree covered program three active employees grandfathered program postretirement medical liability based upon reports provided independent actuary gross postretirement medical liability approximately 128 april 30 2009 approximately 206 april 30 2008 sfas 158 became effective fiscal 2007 requires measure funded status plan yearend date effect statement reflected following presentation defined benefit plans upon adoption standard recorded increase 73 accumulated comprehensive income thereby reducing accrued postretirement liability year ended april 30 2007 following table sets forth postretirement medical amounts recognized postretirement medical benefit plan current portion postretirement medical plan april 30 2009 2008 2007 136 44 21 respectively fiscal 2008 gross benefit payments administrative fees paid less retiree contributions resulting net increase benefit obligation 6 net periodic postretirement benefit loss includes following components weighted average discount rate used determining actuarial present value projected benefit obligation 72 60 april 30 2009 2008 respectively measurement purposes 9 annual rate increase per capita cost covered health care benefits assumed fiscal 2009 2008 2007 rate grading ultimate rate 50 fiscal 2014 fiscal years ended april 30 2009 2008 1 increase decrease assumed health care cost trend rate would immaterial effect aggregate service interest cost components net periodic postretirement health care benefit costs accumulated postretirement benefit obligation health care benefits estimated future benefit payments follows 2010 13 2011 21 2012 6 thereafter 0 postretirement pension plan senior executive supplemental retirement plan “executive plan” certain thompsoncenter arms officers covered four current former executives april 30 2009 benefits plan paid monthly currently monthly benefit 3063 adjusted annually based percent change cpi urban consumers ten years following retirement officer director smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data unfunded nonqualified noncontributory plan pay future obligations april 30 2009 123 accrued liabilities 523 accrued noncurrent liabilities financial statements based upon present value estimated future obligation using discount rate 247 remaining months commitment estimated future benefit payments follows 2010 123 2011 110 2012 110 2013 110 2014 92 thereafter 159 executive plan may also required continue pay thompsoncenter arms’ portion health insurance premiums offered employees retiree becomes eligible medicare april 30 2009 four individuals receiving cash payments plan none eligible receive health insurance benefit 21 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date income tax expense consists following smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following presents reconciliation provision income taxes statutory rates provision consolidated financial statements future tax benefits deferred tax liabilities related temporary differences following smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data federal net operating loss carryforwards amounting 2285 2394 2502 april 30 2009 2008 2007 respectively april 30 2009 net operating loss expires years 2019 2020 utilization losses limited section 382 internal revenue code 108 per year possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 ownership change occur would annual limitation remaining tax loss carryforward federal net operating losses increased overall net deferred tax asset 13648 800 april 30 2009 federal net operating losses reduced overall net deferred tax liability 10269 838 april 30 2008 state net operating loss carryforwards april 30 2009 2008 reserved approximately 26 noncurrent deferred taxes capital loss carryforward anticipate using prior expiration smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data adopted fasb interpretation 48 “fin 48” “accounting uncertainty income taxes interpretation fasb statement 109” may 1 2007 required fin 48 cumulative effect applying provisions interpretation recorded 95 charge retained earnings balance may 1 2007 reclassification sfas 5 reserves 586 85 adjustment goodwill additional 57 income tax expense april 30 2009 2008 gross taxaffected unrecognized tax benefits approximately 929 944 respectively recognized would favorably impact effective tax rate addition april 30 2009 2008 approximately 201 152 respectively accrued interest penalties related uncertain tax positions recorded noncurrent liabilities reconciliation beginning ending amount unrecognized tax benefits follows full value unrecognized tax benefits classified noncurrent income tax liabilities payment cash anticipated within one year balance sheet date fiscal 2010 expect incur additional interest outstanding tax accounts don’t expect change material interest penalties related income tax liabilities included income tax expense limited exception subject us federal state local nonus income tax audits tax authorities several years currently income tax examination internal revenue service tax year ended april 30 2007 anticipate audit completed end fiscal 2010 22 commitments contingencies litigation together firearm manufacturers certain related organizations codefendant various legal proceedings involving product liability claims aware product liability claims including allegations defective product design manufacturing negligent marketing andor distribution firearms leading personal injury including wrongful death lawsuits claims based principally theory “strict liability” also may based negligence breach warranty legal theories many lawsuits punitive damages well compensatory damages demanded aggregate claimed amounts currently exceed product liability accruals applicable insurance coverage believe every case various allegations described unfounded addition accident results due negligence misuse firearm claimant third party recovery us addition codefendant legal proceedings brought city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties shootings city’s complaint seeks money damages among things costs investigating crime preventing crime costs medical care police emergency services decreases property values addition nuisance abatement andor injunctive relief sought change design manufacture marketing distribution practices various defendants suit alleges public nuisance negligent distribution marketing negligent design believe various allegations described unfounded addition accidents results due negligence misuse firearm third party recovery us smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data chairman board chief executive officer former chief financial officer named three similar purported securities class action lawsuits complaints actions consolidated one action brought individually behalf persons purchased securities company june 15 2007 december 6 2007 plaintiffs seek unspecified damages alleged violations section 10b section 20a exchange act filed motion dismiss litigation court dismissed chairman board litigation also involved purported stockholder derivative lawsuit us district court district nevada action brought plaintiffs behalf company certain officers directors case stayed pending decision shareholder case outlined intend defend vigorously class action derivative lawsuits assurance however pay significant damages amounts settlement insurance coverage unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgments intend vigorously defend time estimated range reasonably possible additional losses term defined sfas 5 “loss contingencies” relating unfavorable outcomes cannot made fiscal years ended april 30 2009 2008 2007 paid 1323 406 66 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 0 463 25 respectively fiscal years settlement fees relative product liability cases fiscal 2009 2008 2007 recorded expense 1642 331 159 respectively recognize changes product municipal litigation liability recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets new cases scott c worrall v smith wesson corp et al superior court state indiana county vigo complaint filed january 9 2009 alleges plaintiff sustained eye injuries january 9 2007 using smith wesson model 22a1 firearm plaintiff seeks unspecified damages us seller firearm complaint alleges negligence strict liability design manufacturing defects failure warn breach warranty february 18 2009 filed motion dismiss plaintiff’s complaint may 1 2009 court granted motion dismiss without prejudice may 19 2009 plaintiff filed amended complaint may 29 2009 filed answer plaintiff’s amended complaint discovery ongoing trial set date chester wolfe et al v smith wesson holding corporation etl al common pleas court miami county ohio complaint filed december 16 2008 alleges plaintiff sustained amputation left thumb december 25 2007 operating smith wesson model 460 revolver due gas escaping barrel cylinder gap front revolver plaintiffs allege products liability asserting claims design smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data manufacturing defect failure warn loss consortium plaintiffs seek damages excess 25000 january 14 2009 filed answer denying plaintiffs’ allegations discovery ongoing trial scheduled begin march 2 2010 michael robinson v smith wesson corp superior court judicial district new london new london connecticut complaint filed may 8 2009 seeks recover damages personal injuries allegedly sustained plaintiff march 18 2007 plaintiff seeks unspecified monetary punitive damages us subsequent seller firearm plaintiff claims injured walther ppks firearm allegedly manufactured distributed us accidentally discharged relates us plaintiff alleges design manufacturing defect failure warn negligence breach warranty walther ppks pistol defective discharged without trigger pulled plaintiff also asserts claim temporary permanent injunction prevent us modifying firearm question february 20 2009 announced recall walther ppks pistols manufactured us correct condition may occur certain pistols evaluate impact condition led recall firearm answer plaintiff’s complaint due july 2 2009 cases dismissed resolved donald j roden v smith wesson holding corporation united states district court montana billings division mr roden former employee alleges termination violated montana wrongful discharge employment act december 11 2008 case settled within limits selfinsured retention aaron sarnacki v smith wesson holding corp et al ben mahnkey v smith wesson holding corp et al superior court commonwealth massachusetts hampden county two cases cited purported derivative actions brought plaintiffs behalf company certain officers directors may 23 2008 individual defendants moved dismiss consolidated derivative complaint january 6 2009 court granted motion dismiss prejudice plaintiff’s deadline appeal passed appeal filed edward j robinson rebecca robinson v apex oil company smith wesson corp et al circuit court third judicial circuit madison county illinois complaint filed july 31 2008 names us 28 corporations defendants plaintiff alleges 29 defendants responsible exposing plaintiff benzenecontaining products time employment 1961 2005 relates us plaintiff alleges employed assembly line worker machine operator plant alton illinois operated us time employment plaintiff alleges exposed benzenecontaining products work place asserts negligence claim us past employers well strict liability claims numerous corporations alleged sold benzenecontaining products used work place complaint served august 14 2008 october 21 2008 filed motion dismiss january 23 2009 plaintiffs voluntarily withdrew claim us without prejudice district columbia et al v beretta usa corp et al superior court district columbia october 27 2005 defendants filed motion judgment pleadings based protection lawful commerce arms act “plcaa” may 22 2006 court granted defendants’ motion judgment pleadings dismissed case entirety january 10 2008 dc court appeals issued opinion affirming trial court’s dismissal plaintiffs’ case pursuant plcaa october 23 2008 plaintiffs filed petition writ certiorari united states supreme court march 9 2009 united states supreme court denied plaintiff’s petition certiorari smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data city new york et al v arms technology inc et al united states district court eastern district new york complaint alleges defendants created contributed maintained public nuisance city new york allegedly negligent marketing distribution practices october 26 2005 defendants filed motion dismiss based plcaa december 2 2005 court denied defendants’ motion dismiss finding plcaa inapplicable claims brought plaintiff december 13 2005 defendants filed appeal second circuit court appeals april 20 2008 second circuit affirmed district court’s decision respect constitutionality plcaa reversed denial defendants’ motion dismiss basis claim restricting provisions plcaa october 20 2008 plaintiff filed petition writ certiorari united states supreme court february 4 2009 defendants filed opposition plaintiff’s petition march 9 2009 united states supreme court denied plaintiffs’ petition certiorari cases appeal tenedora tuma sa v smith wesson corp civil commercial court first district court first instance national district santo domingo dominican republic plaintiff commenced suit submitting request preliminary reconciliation hearing two preliminary reconciliation hearings reconciliation committee issued certificate lack agreement thereafter summons notice claim issued us january 17 2000 plaintiff alleged terminated distributor agreement without cause sought damages approximately 600 alleged violations dominican republic law 173 protection importers merchandise products briefing merits completed trial court november 2002 june 7 2004 court granted motion dismiss entirety notification judgment filed august 10 2004 september 9 2004 plaintiff purportedly appealed decision march 3 2005 informed hearing held court appeals october 27 2004 without notification counsel us merits plaintiff’s appeal taken advisement court june 23 2005 hearing held wherein attempted reopen appeal based lack service appeal papers us november 11 2005 court appeals rendered final decision court refused plaintiff’s arguments appeal upheld petitions confirming aspects judgment rendered court first instance favor january 12 2006 plaintiff appealed supreme court dominican republic response filed february 10 2006 hearing held supreme court dominican republic october 11 2006 wherein parties presented final arguments decision issued date city gary indiana mayor scott l king v smith wesson corp et al lake superior court indiana plaintiff’s complaint alleges public nuisance negligent distribution marketing negligent design seeks unspecified amount compensatory punitive damages certain injunctive relief defendants’ motion dismiss plaintiff’s complaint granted counts january 11 2001 september 20 2002 indiana court appeals issued opinion affirming trial court’s dismissal plaintiff’s claims manufacturer defendants december 23 2003 indiana supreme court issued decision plaintiff’s petition transfer reversing decision court appeals remanding case trial court held plaintiff allowed proceed public nuisance negligence claims defendants negligent design claim manufacturer defendants filed answer plaintiff’s amended complaint january 30 2004 november 23 2005 defendants filed motion dismiss based plcaa plaintiffs’ opposition defendants’ motion dismiss filed february 22 2006 oral argument held may 10 2006 october 23 2006 court denied defendants’ motion dismiss november 21 2006 defendants filed motion requesting certification interlocutory appeal court’s order denying defendant’s motion dismiss based plcaa court granted defendant’s motion certified case appeal day filed february 5 2007 court appeals accepted jurisdiction appeal defendants filed notice appeal court appeals february 5 2007 oral argument held smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data indiana court appeals october 1 2007 october 29 2007 indiana court appeals issued decision affirming trial court’s denial defendants’ motion judgment pleadings based plcaa court affirmed different grounds holding statute apply city gary’s case court address constitutional claims november 28 2007 defendants filed petition rehearing indiana court appeals january 9 2008 court appeals issued order denying defendants’ motion rehearing february 7 2008 defendants filed petition transfer indiana supreme court plaintiff’s response defendants’ petition transfer indiana supreme court filed january 12 2009 indiana supreme court denied defendants’ petition transfer jurisdiction defendants’ deadline appeal united states supreme court expired april 9 2009 defendants elected ask court review indiana court appeals’ october 29 2007 decision trial currently scheduled pending cases smith wesson holding corp securities litigation case consolidation following three cases william hwang v smith wesson holding corp et al joe cranford v smith wesson holding corp et al joanne trudelle v smith wesson holding corp et al pending united states district court district massachusetts springfield purported securities class action lawsuit brought individually behalf persons purchased securities company june 15 december 6 2007 putative plaintiffs seek unspecified damages us certain officers directors alleged violations sections 10b 20a exchange act february 11 2008 plaintiffs abovereferenced actions filed motions consolidation actions appoint lead class plaintiffs lead counsel pursuant private securities litigation reform act 1995 “pslra” oklahoma firefighters pension retirement system appointed lead plaintiff putative class may 30 2008 lead plaintiff oklahoma firefighters pension retirement system filed consolidated class action complaint seeking unspecified damages us several officers directors alleged violations sections 10b 20a exchange act august 28 2008 named officers directors moved dismiss consolidated amended complaint fails state claim federal securities laws pslra putative class lead plaintiff submitted opposition motion october 28 2008 filed reply opposition december 12 2008 hearing held motion dismiss january 12 2009 march 26 2009 motion granted mr monheit denied remaining defendants cary green v smith wesson holding corp et al united states district court district nevada action purported derivative action brought plaintiffs behalf company certain officers directors complaints seek assert claims including alleged breach fiduciary duties waste corporate assets unjust enrichment putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees april 29 2008 parties submitted court entered joint stipulation stay action entirety 30 days united states district court district massachusetts issues ruling motion dismiss complaint filed smith wesson holding corp securities litigation march 26 2009 motion case granted mr monheit denied remaining defendants june 11 2009 filed motion dismiss decision issued date oren gorden v smith wesson corp et al territorial court virgin islands district st crois complaint filed january 19 2001 seeks unspecified compensatory damages personal injuries allegedly sustained mr gorden complaint alleges mr gorden’s smith wesson handgun malfunctioned exploded tried load filed answer denying allegations liability november 17 2003 firearm issue case lost transit commercial carrier returned us plaintiff april 21 2004 court denied motion summary judgment extended smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data pretrial deadlines mediation conducted april 13 2005 expert discovery ongoing status conference held october 29 2007 trial scheduled begin september 28 2009 paul “rob” lewis v smith wesson corp et al superior court washington king county state washington complaint filed march 20 2007 alleges plaintiff sustained eye injuries april 23 2004 using smith wesson 9mm pistol plaintiff seeks unspecified damages us ammunition manufacturer sellers firearm ammunition complaint alleges negligence design manufacturing defects failure warn breach warranty april 30 2007 filed answer plaintiff’s complaint denying allegations liability may 1 2007 codefendant filed motion change venue court denied motion change venue ammunition manufacturer filed granted summary judgment leaving us seller firearm remaining defendants case granting summary judgment favor ammunition manufacturer however trial court also ruled remaining defendants could claim argue attempt attribute fault trial directly indirectly express implied part manufacturer ammunition plaintiff using time incident issue case august 29 2008 washington court appeals heard petition discretionary review filed behalf challenging ruling september 2 2008 washington court appeals denied petition discretionary review september 4 2008 seller firearm ammunition settled plaintiff leaving us remaining defendant case trial matter set begin september 8 2008 however trial ultimately continued allow court resolve certain pretrial issues including admissibility evidence ammunition failure cause incident december 2 2008 plaintiff filed motion vacate summary judgment dismissing ammunition manufacturer defendant case pretrial conference held december 9 2008 april 10 2009 court vacated ammunition manufacturer’s summary judgment defendant case trial rescheduled january 2 2010 roger foltz v smith wesson corp united states district court northern district texas civil action filed april 7 2008 district court dallas county texas alleges plaintiff sustained amputation portion left index finger april 8 2006 operating smith wesson model 460 revolver due gas escaping barrel cylinder gap front revolver plaintiff asserted unspecified claim money damages seeking recover physical pain mental emotional anguish medical expenses incurred result incident filed answer complaint may 13 2008 denying liability plaintiff may 20 2008 matter removed united states district court northern district texas mediation conducted october 21 2008 january 14 2009 filed motion summary judgment decision issued motion date trial rescheduled october 5 2009 steve j bezet v smith wesson corp united states district court middle district louisiana complaint filed october 24 2008 alleges plaintiff sustained personal injuries february 8 2008 result accidental discharge smith wesson model 4006 pistol plaintiff seeks damages amount 1150000 compensation medical expenses loss earning capacity conscious pain suffering disability allegedly sustained plaintiff complaint asserts claims negligence strict liability december 16 2008 filed partial motion dismiss answer plaintiff’s complaint denying allegations liability march 10 2009 court granted motion dismiss dismissed plaintiff’s nonlouisiana products liability claims prejudice discovery ongoing trial yet scheduled todd brown kathy brown v smith wesson corp united states district court western district arkansas complaint filed july 18 2008 asserts claims negligence strict liability breach warranty plaintiff seeks unspecified money damages plaintiff claims using smith wesson model 460 revolver december 26 2007 sustained injuries left hand firing revolver plaintiff alleges failed provide adequate warnings regarding risk personal injury smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data associated gases escaping barrel cylinder gap revolver firing filed answer complaint august 14 2008 denying plaintiff’s allegations liability discovery ongoing trial scheduled september 28 2009 jeremy hunter alysha hunter v smith wesson corp et al united states district court southern district illinois civil action filed september 9 2008 seeks recover damages personal injuries allegedly sustained plaintiff september 25 2006 plaintiff seeks unspecified money damages us holster manufacturer seller holster seller firearm plaintiff claims injured duty police officer granite city illinois walther ppks firearm allegedly manufactured distributed us accidentally discharged relates us plaintiff alleges walther ppks pistol defective firearm safety mechanisms failed prevent pistol discharging without trigger pulled october 22 2008 filed answer plaintiff’s complaint denying allegations liability case removed united states district court southern district illinois february 20 2009 announced recall walther ppks pistols manufactured us correct condition may occur certain pistols continue evaluate impact condition led recall firearm discovery ongoing trial scheduled february 16 2010 mark lee v smith wesson corp et al court common pleas richland county ohio civil action filed november 11 2008 alleges plaintiff sustained injury right eye november 11 2006 operating smith wesson model 460 xvr revolver plaintiff seeks unspecified damages us seller firearm complaint alleges incident occurred cylinder revolver swung upon firing allowing gases particles escape firearm firing complaint asserts claims negligence strict liability breach warranty january 2 2009 filed motion strike partial motion dismiss certain portions plaintiff’s complaint january 9 2009 motion denied court february 4 2009 filed answer plaintiff’s complaint discovery ongoing trial scheduled march 2 2010 brian ward v thompsoncenter arms company inc et al fortysixth circuit court otsego county michigan complaint filed october 16 2006 alleges plaintiff sustained eye injuries using thompsoncenter arms rifle plaintiff asserts product liability claims thompsoncenter arms retailer based negligence warranty principles plaintiff seeking unspecified amount compensatory damages november 15 2006 thompsoncenter arms filed answer denying allegations liability february 2 2009 plaintiff filed second amended complaint february 17 2009 filed answer plaintiff’s complaint expert discovery ongoing trial yet scheduled jesse james kay james v thompsoncenter arms company inc et al 151st judicial district harris county texas district court petition filed september 24 2007 alleges plaintiff jesse james sustained eye injuries using thompsoncenter arms rifle plaintiffs seek unspecified amount compensatory damages thompsoncenter arms us sellerdistributor firearm plaintiffs allege negligence design manufacturing defects failure warn breach warranty october 17 2007 defendant filed answer plaintiffs’ complaint denying allegations liability plaintiffs tentatively agreed proper party answer currently required determined proper party 30 days file answer discovery ongoing trial rescheduled december 7 2009 sec investigation sec conducted investigation determine whether violations federal securities laws connection matters relating restatement consolidated financial statements fiscal 2002 first three quarters fiscal 2003 june 18 2009 sec notified us completed investigation recommending enforcement action us smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data bureau alcohol tobacco firearms explosives “atf” audit atf asserted various instances failure comply gun control act 1968 attendant rules regulations following onpremises inspection springfield massachusetts facility asserted violations related inventory record keeping reporting obligations resolved compliance issues raised atf agreed commence recommend licensing proceedings us result conduct known resolution included various measures designed achieve goal positioning forefront industry compliance efforts connection resolving matter agreed among things maintain internal compliance department ensure compliance firearms laws agreed extra compliance inspections agreed continue work atf following internal compliance processes agreed institute various inventory record keeping tracking reporting procedures addition agreed pay settlement amount 500 payable 200 march 14 2009 150 january 14 2010 january 14 2011 april 30 2009 march payment remitted atf remaining amounts payable recorded 150 current liabilities 150 noncurrent liabilities environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act “rcra” place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject two release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency “epa” andor individual states cercla state equivalent one site reserves 754 april 30 2009 577 noncurrent remediation sites referred believe time frame remediation currently indeterminable therefore time frame payment remediation likewise currently indeterminable thus making net present value calculation impracticable estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority “sra” 1750 resulting net gain 1700 terms sale included cash payment 750 closing promissory note remaining 1000 note collateralized mortgage sold property note due 2022 accrued interest fixed rate 60 per annum note paid full sra fiscal 2007 85 acres known environmental liabilities related past operating practices sales price reflected issues buyer sra agency city springfield obtained governmental grants help defray costs related property time sale decrease reserves waiting remediation would eliminate potential liability completed remediation completed sra may 2005 reduced environmental reserves 3100 quarter ended july 31 2005 pursuant merger agreement signed december 15 2006 effective january 3 2007 completed acquisition bear lake acquisition corp subsidiaries including thompsoncenter arms company inc 102000 cash agreement former stockholders bear lake acquisition corp indemnified us losses arising among things environmental conditions related manufacturing activities purchase price 8000 placed escrow account portion applied environmental remediation manufacturing site rochester new hampshire november 2008 2500 escrow account released sellers currently working remediation action plan sellers order remediate environmental contamination found site presently possible estimate ultimate amount remediation costs potential uses escrow april 30 2009 approximately 1221 escrow spent safety environmental testing remediation activities believe likelihood environmental remediation costs exceeding amount available escrow remote based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities raw materials components supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many materials used production products available limited number suppliers cases longterm supply contracts suppliers contracts employment agreements entered employment agreements certain officers managers retain service ordinary course business agreements distribution agreements various third parties ordinary course business smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data rental leases lease office space scottsdale arizona operating lease expires january 2011 machinery photocopiers springfield houlton rochester locations various expiration dates modular building space rochester location expires january 2010 vehicles national sales force april 30 2009 lease commitments approximately follows rent expense fiscal years ended april 30 2009 2008 2007 approximately 804 561 413 respectively relocated new scottsdale location august 1 2005 entered 65month lease agreement space lease expense fiscal year 2009 approximately 73 2010 75 2011 45 february 29 2008 sublet part scottsdale location global alert llc company partly owned member board directors sublease remaining term original lease reduce lease expense approximately 32 2010 20 2011 23 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2009 fiscal 2008 opinion adjustments necessary present fairly information quarters reflected smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 24 subsequent event june 18 2009 announced entered material definitive agreement acquire universal safety response inc “usr” usr based franklin tennessee sells installs perimeter security products military large corporate customers usr’s business model product line broad customer base allow us expand new markets security industry 25 pro forma results unaudited following table reflects unaudited pro forma results operations assuming thompsoncenter arms acquisition occurred may 1 2006 schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2009 2008 1 decrease product liability offset corresponding reduction receivable insurance carrier assets current assets 2 increase 2007 valuation accounts represents acquired balances january 3 2007 relating thompsoncenter arms acquisition 3 increase 1396 product liability represents acquired balance january 3 2007 relating thompsoncenter arms acquisition offset 48 decrease offset corresponding reduction receivable insurance carrier 4 decrease 234 product liability represents adjustment acquisition accounting relating thompsoncenter arms acquisition 24 decrease offset corresponding reduction receivable insurance carrier 5 increase workers’ compensation offset corresponding increase excess workers’ compensation insurance receivable assetsitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2010 2009 2008 set forth page report b exhibits management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec december 18 2006 2 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 3 incorporated reference registrant’s form 8k filed sec december 5 2007 4 incorporated reference registrant’s form 8a filed sec august 25 2005 5 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 6 incorporated reference registrant’s form 8k filed sec may 29 2001 7 incorporated reference registrant’s form 8k filed sec december 18 2006 8 incorporated reference registrant’s form 10qsb filed sec august 13 2001 9 incorporated reference registrant’s form s8 333128804 filed sec october 4 2005 10 incorporated reference registrant’s form 8k filed sec november 16 2007 11 incorporated reference registrant’s form 10qsb filed sec september 14 2001 12 incorporated reference registrant’s proxy statement schedule 14a filed sec december 28 2001 13 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 14 incorporated reference registrant’s form 10ksb filed sec december 18 2003 15 incorporated reference registrant’s form 10k filed sec july 16 2004 16 incorporated reference registrant’s form 10q filed sec march 10 2005 17 incorporated reference registrant’s form 10q filed sec march 17 2006 18 incorporated reference registrant’s form 8k filed sec may 19 2006 19 incorporated reference registrant’s form 8k filed sec december 6 2007 20 incorporated reference registrant’s form 8k filed sec july 3 2008 21 incorporated reference registrant’s form 8k filed sec september 25 2008 22 incorporated reference registrant’s form 8k filed sec november 5 2008 23 incorporated reference registrant’s form 8k filed sec march 17 2009 24 incorporated reference registrant’s form 8k filed sec june 19 2009 25 incorporated reference registrant’s form 10k filed sec june 30 2009 26 incorporated reference registrant’s form 8k filed sec july 24 2009 27 incorporated reference registrant’s form 8k filed sec december 9 2009 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation michael f golden michael f golden president chief executive officer date june 30 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated index consolidated financial statements smith wesson holding corporation subsidiaries management’s report internal control financial reporting management smith wesson holding corporation “company” responsible establishing maintaining adequate internal control financial reporting term defined rule 13a15f securities exhange act 1934 participation chief executive officer chief financial officer management conducted evaluation effectiveness company’s internal control financial reporting april 30 2010 required rule 13a15c securities exchange act 1934 company utilized criteria framework established committee sponsoring organizations coso treadway commission internal control integrated framework performing assessment based evaluation management concluded company’s internal control financial reporting effective april 30 2010 internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles inherent limitations internal control financial reporting may prevent detect misstatements management excluded evaluation internal control financial reporting universal safety response inc “usr” acquired july 20 2009 included fiscal year 2010 consolidated financial statements company since date acquisition usr constituted approximately 79 consolidated assets april 30 2010 approximately 119 net sales year ended management assess effectiveness internal control financial reporting usr size complexity acquisition company’s independent auditor bdo seidman llp independent registered public accounting firm audited effectiveness company’s internal control financial reporting april 30 2010 stated report appears item 9a commencing page 51 annual report form 10k michael f golden michael f golden president chief executive officer william f spengler william f spengler executive vice president chief financial officer treasurer report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries april 30 2010 2009 related consolidated statements incomeloss comprehensive incomeloss stockholders’ equity cash flows three years period ended april 30 2010 also audited schedule listed accompanying index years ended april 30 2010 2009 2008 financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2010 2009 results operations cash flows three years period ended april 30 2010 conformity accounting principles generally accepted united states america also opinion schedule referred presents fairly material respects information years ended april 30 2010 2009 2008 set forth therein also audited accordance standards public company accounting oversight board united states effectiveness smith wesson holding corporation’s internal control financial reporting april 30 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated june 30 2010 expressed unqualified opinion thereon bdo seidman llp bdo seidman llp boston massachusetts june 30 2010 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements incomeloss comprehensive incomeloss accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows smith wesson holding corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash activities january 3 2007 acquired bear lake acquisition corp subsidiaries note 3 july 20 2009 acquired universal safety response inc note 2 accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements dollars thousands except share data 1 organization usbased global provider products services safety security protection sport one world’s leading manufacturers firearms manufacture wide array revolvers pistols tactical rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world also leading turnkey provider perimeter security solutions protect control access key military governmental corporate facilities manufacture firearm products facilities springfield massachusetts houlton maine rochester new hampshire manufacture assemble perimeter security products facilities franklin tennessee addition pursue opportunities license name trademarks third parties use association products services may 11 2001 acquired outstanding stock smith wesson corp ukbased tomkins smith wesson corp predecessors business since 1852 january 3 2007 acquired outstanding capital stock thompson center holding corporation formerly bear lake acquisition corp subsidiaries collectively “thompsoncenter arms” including thompsoncenter arms company inc “tca” see note 3 acquisition accounted purchase method accounting accordingly results operations acquired business included consolidated financial statements since acquisition date july 20 2009 acquired outstanding capital stock universal safety response inc “usr” see note 2 acquisition accounted purchase method accounting accordingly results operations acquired business included consolidated financial statements since acquisition date reported perimeter security division discussed note 24 2 acquisition universal safety response inc july 20 2009 acquired outstanding capital stock usr acquisition usr designed leverage usr’s business model product line broad customer base enable us expand new markets security industry two usr’s former stockholders originally dissented acquisition november 17 2009 settled former stockholders terms given former stockholders usr acquisition initial purchase price 59253 consisted 21062 cash 38191 common stock paid closing stock valued based closing stock price date issued 5492286 shares issued stock price 686 107714 shares issued stock price 477 addition former stockholders usr right earn 4080000 shares common stock usr achieves certain ebitdas targets defined calendar years 2009 2010 based usr’s actual calendar year 2009 results additional shares earned paid calendar 2009 results ebitdas period 8000 threshold achieve distribution ebitdas calendar year 2010 exceeds 15000 former stockholders usr earn full 4080000 shares prorated reduction shares earned ebitdas less 15000 shares earned ebitdas less 12000 closing date contingent consideration assigned fair value 27824 4001522 shares closing share price 686 july 20 2009 78478 shares closing share price 477 november 17 2009 valuation established accordance business combinations topic accounting standards codification “asc” 805202520 april 30 2010 liability adjusted fair value 18238 classified entirely current liability although expect former stockholders earn full 4080000 shares based usr achieving highest level ebitdas target calendar year 2010 results amended agreement us former stockholders whereby receive full 4080000 shares see note 26 9587 income associated reduction contingent consideration versus value smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data recorded date closing recorded income see note 25 pro forma income statement information related acquisition usr based franklin tennessee provides turnkey perimeter security solutions protect control access key military governmental corporate facilities acquisition usr designed leverage usr’s business model product line broad customer base expand new markets security industry initial asset liability allocations made acquisition date adjusted fiscal 2010 changes valuation allowance bad debt changes estimates percentage completion changes deferred taxes reflect book tax return reconciliation adjustments valuation accounts following table summarizes estimated fair values assets acquired liabilities assumed acquisition date well measurement period adjustments described smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data included general administrative costs 586 acquisitionrelated costs incurred fiscal 2010 additional 12 stock issuance costs related acquisition usr incurred recorded additional paidin capital fiscal 2010 none 10077 accounts receivable subject asc 31030 accounting certain loans debt securities acquired transfer receivables recorded fair value equal gross contractual amounts receivable less allowance doubtful accounts 273 expect contractual cash flows net allowance doubtful accounts fully collected goodwill deductible tax purposes fully allocated perimeter security segment see note 4 amortize customer relationships developed technology proportion expected yearly revenue generated customer lists acquired products expected sold amortize order backlog contract lives executed trademarks tradenames expected indefinite life following identifiable intangible assets acquired respective weighted average lives 3 acquisition bear lake acquisition corp january 3 2007 acquired outstanding capital stock thompsoncenter arms aggregate purchase price 103500 consisted 102000 cash 1500 direct acquisition costs thompsoncenter arms brand recognized hunting enthusiasts leading position black powder segment longgun market addition leadership position hunting rifle market thompsoncenter arms also brings expertise longgun barrel manufacturing smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following table summarizes allocation purchase price agreement related acquisition thompsoncenter arms former stockholders bear lake acquisition corp indemnified us losses arising environmental conditions related thompsoncenter arms’ manufacturing activities purchase price 8000 placed escrow account pending environmental remediation study manufacturing site rochester new hampshire november 2008 2500 escrow account released former stockholders bear lake acquisition corp currently working remediation action plan former stockholders bear lake acquisition corp order remediate environmental contamination found site currently possible estimate ultimate amount remediation costs april 30 2010 approximately 1367 escrow spent safety environmental testing remediation activities believe likelihood environmental remediation costs exceeding amount escrow remote amortize customer relationships proportion expected yearly revenue generated customer lists acquired amortize finitelived identifiable intangible assets straightline basis following smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data identifiable intangible assets acquired respective weighted average lives prior impairment charge recorded fiscal 2009 see note 4 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include gross margin percentage completion inprocess perimeter security projects accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory forfeiture rates stockbased awards asset impairments medical claims payable actual results could differ estimates reclassification certain amounts presented prior periods’ consolidated financial statements related inventory revenue foreign currency transactions reclassified conform current periods presentation principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training centre gmbh germany thompson center holding corporation kw thompson tool company inc thompsoncenter arms company inc ol development inc bear lake holdings inc inactive fox ridge outfitters inc universal safety response inc fiscal yearend wholly owned subsidiaries smith wesson corp thompsoncenter arms company inc universal safety response inc may 2 2010 may 3 2009 twoday threeday variance reported fiscal year ends april 30 2010 april 30 2009 respectively variances create material difference financial statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2010 april 30 2009 periods presented included significant intercompany accounts transactions eliminated consolidation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature derivative instruments account derivative instruments asc 81510 establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value purchased foreign exchange forward contracts minimize impact fluctuations foreign exchange rates see note 14 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2010 exceeded federally insured limits 39542 trade receivables extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 8 11 9 net product sales fiscal years ended april 30 2010 2009 2008 respectively customer owed us approximately 6881 9 total accounts receivable april 30 2010 3092 6 total accounts receivable april 30 2009 inventories value firearm inventories consisting primarily finished firearm components finished firearms related products accessories perimeter security inventory consisting primarily mechanical electrical components required installation products lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage comprehensive income asc 22010 requires companies report components comprehensive income financial statements including nonowner transactions events impact equity even items directly affect net income loss years ended april 30 2010 2009 2008 comprehensive income equal net income property plant equipment record property plant equipment consisting land building improvements machinery equipment computers furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range four months 20 years see note 11 additional information regarding intangible assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data valuation longlived assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved noted determined 98243 impairment longlived assets fiscal 2009 revenue recognition firearm products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured perimeter security products services recognize revenue fixedprice contracts using percentageofcompletion method measured percentage costs incurred date total costs contract product sales account substantial portion firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenue individual licensees quarterly basis based historical experience expected cash receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2010 minimum royalties collected future amounted approximately 6026 follows segment information regarding segments presented note 24 geographic information april 30 2010 2009 2008 material personnel facilities outside united states sales outside united states detailed note 6 research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities executive management smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data approves prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs spent approximately 4299 2906 1946 research activities relating development new products fiscal years ended april 30 2010 2009 2008 respectively earnings per share calculate basic diluted earnings per common share accordance provisions asc 26010 basic earnings per common share equals net income divided weighted average number common shares outstanding period diluted earnings per common share equals net income divided weighted average number common shares outstanding period including effect outstanding stock options warrants stockbased instruments effect dilutive following table provides reconciliation incomeloss amounts weighted average number common equivalent shares used determine basic diluted earnings per share thousands except per share data fiscal 2009 2008 6485084 shares common stock issuable upon conversion 80000 senior convertible notes excluded computation diluted earnings per share effect would antidilutive options warrants purchase 691553 1903363 216000 shares respectively common stock excluded fiscal 2010 2009 2008 computations diluted earnings per share effect would antidilutive valuation longlived tangible intangible assets goodwill significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks tradenames amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets exception goodwill intangible assets indefinite lives initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified test goodwill intangible assets indefinite lives impairment annual basis end fiscal third quarter annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 respect criteria necessary evaluate number reporting units exist based review segment reporting topic asc 2801050 determined operate three reporting units one springfield massachusetts houlton maine facilities second rochester new hampshire facility third usr determined operate two segments one firearm companies second perimeter security subsidiary usr goodwill recorded books april 30 2010 associated usr arose acquisition usr july 20 2009 based combination factors occurring fiscal 2009 including economic environment market conditions hunting industry determined indicators impairment goodwill intangible assets existed rochester new hampshire reporting unit result conducted evaluation goodwill intangible assets associated acquisition reporting unit based lower order intake fiscal 2009 lower expected operating profits cash flows reporting unit earnings forecast next ten years revised fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 41173 three months ended october 31 2008 periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affecting rochester new hampshire reporting unit required us test impairment longlived assets pertaining location second quarter fiscal 2009 based assessment recorded impairment charge 57070 reflect excess carrying value longlived intangible assets discounted cash flows impairment charges taken fiscal 2010 based review longlived assets based review goodwill indefinitelived intangible assets perimeter security reporting unit february 1 2010 utilizing discounted cash flow method discount rate 235 determined fair value goodwill exceeded carrying value unit 11 fair value indefinitelived assets substantially excess carrying value april 30 2010 goodwill reporting unit 83865 represents entire amount goodwill recorded books utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting units’ expected longterm operating cash performance approach also mitigates impact cyclical trends occur industries fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percent revenue decline future years due improved utilization resulting lean initiatives believe days sales outstanding decline grow also assumed economic downturn markets contracted long term however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges changes carrying amount goodwill year ended april 30 2010 follows accounting acquisitions completed significant business acquisition fiscal 2007 another fiscal 2010 resulted significant goodwill intangible asset balances business strategy contemplates may consummate additional acquisitions future accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally determine fair value reporting unit purposes first step annual goodwill impairment test based income approach prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes stock options awards warrants described notes 17 18 issued stock warrants incentive stock plan employees directors receive options purchase common stock stockbased awards municipal product liability provide reserves municipal potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data provision municipal product liability ongoing basis charge credit cost sales exclusive insurance reimbursements make evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain municipal product liability costs subject reimbursement insurance carriers environmental liability provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party “prp” ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted environmental reserve increases fiscal years ended april 30 2010 2009 2008 amounted approximately 0 172 29 respectively rochester new hampshire reserve relating environmental testing remediation associated acquisition thompsoncenter arms paid directly administrative agent holding escrow see note 22 reserve required books warranty generally provide lifetime warranty “original” purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted warranty expense fiscal years ended april 30 2010 2009 2008 amounted 3004 6079 1874 respectively following sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2010 2009 2008 sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted approximately 9181 10464 8516 fiscal years ended april 30 2010 2009 2008 respectively coop advertising program retail level expensed costs amounting approximately 1729 918 921 fiscal 2010 2009 2008 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net product services sales included costs relating shipping handling charges cost products services sold smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 2000 per occurrence record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis recently issued accounting standards march 2010 financial accounting standards board “fasb” issued accounting standards update “asu” 201011 derivatives hedging asc topic 815 scope exception related credit derivatives asu 201011 asu 201011 clarifies embedded creditderivative features related transfer credit risk form subordination one financial instrument another subject potential bifurcation separate accounting asu 201011 also provides guidance whether embedded creditderivative features financial instruments issued structures collateralized debt obligations subject bifurcations separate accounting asu 201011 effective beginning company’s first fiscal quarter beginning june 15 2010 early adoption permitted expect adoption guidance impact consolidated financial statements january 2010 fasb issued asu 201006 fair value measurements disclosures asc topic 820 improving disclosures fair value measurements amendments update require new disclosures transfers levels 1 fair value determined based quoted prices active markets identical assets liabilities 2 fair value determined based significant observable inputs separate disclosures purchases sales issuances settlements relating level 3 measurements also clarifies existing fair value disclosures level disaggregation inputs valuation techniques used measure fair value except detailed level 3 rollforward disclosures new standard effective interim annual reporting periods beginning december 31 2009 requirement provide detailed disclosures purchases sales issuances settlements rollforward activity level 3 fair value measurements effective interim annual reporting periods beginning december 31 2010 expect adoption guidance material impact consolidated financial statements december 2009 fasb issued asu 200917 consolidations topic 810 improvements financial reporting enterprises involved variable interest entities asu 200917 amendments update replace quantitativebased risks rewards calculation determining reporting entity controlling financial interest variable interest entity approach focused identifying reporting entity power direct activities variable interest entity significantly impact entity’s economic performance 1 obligation absorb losses entity 2 right receive benefits entity approach expected primarily qualitative effective identifying reporting entity controlling financial interest variable interest entity amendments update also require additional disclosures reporting entity’s involvement variable interest entities enhance information provided users financial statements standard effective fiscal years beginning december 15 2009 expect adoption guidance impact consolidated financial statements december 2009 fasb issued asu 200916 transfers servicing topic 860 accounting transfers financial assets asu 200916 amendments update improve financial reporting eliminating exceptions qualifying specialpurpose entities consolidation guidance exception permitted sale accounting certain mortgage securitizations transferor surrendered control transferred financial assets addition amendments require enhanced disclosures risks transferor continues exposed continuing involvement transferred financial assets comparability consistency accounting transferred financial assets also improved clarifications requirements isolation limitations portions financial assets eligible sale accounting standard effective january 1 2010 applies adoption smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data statement financial accounting standards “sfas” 166 amends adoption standard impact consolidated financial statements october 2009 fasb issued asu 200915 accounting ownshare lending arrangements contemplation convertible debt issuance financing asu 200915 asu 200915 provides guidance equityclassified sharelending arrangements entity’s shares executed contemplation convertible debt offering financing standard effective fiscal years beginning december 15 2009 interim periods within years arrangements outstanding beginning fiscal years adoption standard impact consolidated financial statements october 2009 fasb issued asu 200914 software topic 985 certain revenue arrangements include software elements consensus fasb eitf asu 200914 asu 200914 changes accounting model revenue arrangements include tangible products software elements amendments update provide additional guidance determine software relating tangible product also would excluded scope software revenue recognition guidance amendments update also provide guidance vendor allocate arrangement consideration deliverables arrangement includes tangible products software well arrangements deliverables included excluded scope software revenue recognition guidance standard effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 adoption standard impact consolidated financial statements october 2009 fasb issued asu 200913 revenue recognition topic 650 multipledeliverable revenue arrangements consensus fasb eitf asu 200913 asu 200913 separate multipledeliverable revenue arrangements update establishes selling price hierarchy determining selling price deliverable amendments update replace term “fair value” revenue allocation guidance “selling price” clarify allocation revenue based entityspecific assumptions rather assumptions marketplace participant amendments update eliminate residual method allocation require arrangement consideration allocated inception arrangement deliverables using relative selling price method amendments update require vendor determine best estimated selling price manner consistent used determine price sell deliverable standalone basis standard effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 currently evaluating potential impact standard consolidated financial statements june 2009 fasb issued sfas 166 accounting transfers financial assets amendment sfas 140 codified asc 8601065 statement eliminates concept qualifying specialpurpose entity changes requirements derecognizing financial assets requires additional disclosures order enhance information reported users financial statements providing greater transparency transfers financial assets including securitization transactions entity’s continuing involvement exposure risks related transferred financial assets statement effective fiscal years beginning november 15 2009 adoption standard impact consolidated financial statements june 2009 fasb issued sfas 167 amendments fasb interpretation 46r codified asc 81010 guidance revision preexisting guidance pertaining consolidation disclosures variable interest entities specifically changes reporting entity determines entity insufficiently capitalized controlled voting similar rights consolidated determination whether reporting entity required consolidate another entity based among things entity’s purpose design reporting entity’s ability direct activities entity significantly impact entity’s economic performance guidance require reporting entity smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data provide additional disclosures involvement variable interest entities significant changes risk exposure due involvement reporting entity required disclose involvement variable interest entity affects reporting entity’s financial statements guidance effective start reporting entity’s first fiscal year beginning november 15 2009 early application permitted expect adoption guidance impact consolidated financial statements recently adopted accounting standards september 2009 fasb issued asu 200912 fair value measurements disclosure asu 200912 standard provides additional guidance using net asset value per share provided investee estimating fair value alternate investment readily determinable fair value enhances disclosures concerning investments examples alternate investments within scope standard include investments hedge funds private equity real estate venture capital partnerships standard effective interim annual periods ending december 15 2009 adoption guidance impact consolidated financial statements august 2009 fasb issued asu 200905 measuring liabilities fair value asu 200905 asu 200905 amends accounting standards codification topic 820 fair value measurements specifically asu 200905 provides clarification circumstances quoted price active market identical liability available reporting entity required measure fair value using one following methods valuation technique uses quoted price identical liability traded asset quoted prices similar liabilities similar liabilities traded assets andor ii valuation technique consistent principles topic 820 codification eg income approach market approach asu 200905 also clarifies estimating fair value liability reporting entity required adjust include inputs relating existence transfer restrictions liability standard effective first reporting period including interim periods beginning issuance adoption guidance impact consolidated financial statements june 2009 fasb issued sfas 168 fasb accounting standards codification hierarchy generally accepted accounting principles replacement fasb statement 162 statement modifies gaap hierarchy establishing two levels gaap authoritative nonauthoritative accounting literature effective july 2009 fasb asc also known collectively “codification” considered single source authoritative us accounting reporting standards except additional authoritative rules interpretive releases issued sec nonauthoritative guidance literature would include among things fasb concepts statements american institute certified public accountants issue papers technical practice aids accounting textbooks codification developed organize gaap pronouncements topic users easily access authoritative accounting guidance organized topic subtopic section paragraph identified numerical designation statement effective financial statements interim annual reporting periods ending september 15 2009 accounting references updated therefore sfas references replaced asc references december 2007 fasb issued sfas 141 revised business combinations primarily codified business combinations topic asc 805 guidance changes accounting business combinations including measurement acquirer shares issued consideration business combination recognition contingent consideration accounting preacquisition gain loss contingencies recognition capitalized inprocess research development accounting acquisitionrelated restructuring cost accruals treatment acquisition related transaction costs recognition changes acquirer’s income tax valuation allowance guidance effective fiscal years beginning december 15 2008 early adoption prohibited although adoption guidance impact historical consolidated financial statements acquisition usr july 20 2009 accounted guidance smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements amendment arb 51 primarily codified consolidations topic asc 8101065 guidance establishes accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary guidance effective fiscal years beginning december 15 2008 adoption guidance impact consolidated financial statements december 2007 fasb ratified consensus reached emerging issues task force “eitf” eitf issue 0701 accounting collaborative arrangements related development commercialization intellectual property primarily codified collaborative arrangements topic asc 80810 eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenue costs incurred third parties connection collaborative arrangements would presented gross net based criteria asc 60545 revenue recognition topic accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure guidance applies entire collaborative agreement guidance effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date adoption guidance impact consolidated financial statements april 2008 fasb issued fsp 1423 determination useful life intangible assets primarily codified intangibles goodwill topic asc 3503050 guidance amends factors considered developing renewal extension assumptions used determine useful life recognized intangible asset guidance effective financial statements issued fiscal years beginning december 15 2008 well interim periods within fiscal years adoption guidance impact consolidated financial statements may 2008 fasb issued fsp apb 141 accounting convertible debt instruments may settled cash upon conversion including partial cash settlement primarily codified debt conversion options topic asc 4702025 guidance requires entities convertible debt instruments may settled entirely partially cash upon conversion separately account liability equity components instrument manner reflects issuer’s economic interest cost effect proposed new rules debentures equity component would included paidincapital section shareholders’ equity entity’s consolidated balance sheet value equity component would treated original issue discount purposes accounting debt component convertible debt guidance effective fiscal years beginning december 15 2008 interim periods within fiscal years retrospective application required adoption guidance impact consolidated financial statements june 2008 fasb ratified eitf issue 0705 determining whether instrument embedded feature indexed entity’s stock primarily codified derivatives hedging topic asc 81540 guidance addresses accounting certain instruments derivatives pronouncement specific guidance provided regarding requirements entity consider embedded features indexed entity’s stock guidance effective fiscal years beginning december 15 2008 although adoption guidance impact historical smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data consolidated financial statements acquisition usr july 20 2009 relates contingent consideration accounted pronouncement april 2009 fasb issued fsp 141r1 accounting assets acquired liabilities assumed business combination arise contingencies primarily codified business combinations topic 80520 guidance requires assets acquired liabilities assumed business combination arise contingencies recognized fair value fair value reasonably estimated guidance effective fiscal years beginning december 15 2008 although adoption guidance impact historical consolidated financial statements acquisition usr july 20 2009 accounted pronouncement april 2009 fasb issued fsp 1574 determining fair value volume level activity asset liability significantly decreased identifying transactions orderly primarily codified fair value measurements disclosures topic asc 8201065 section provides guidance determine fair value assets liabilities asc 820 current economic environment reemphasizes objective fair value measurement remains exit price conclude significant decrease volume level activity asset liability relation normal market activities quoted market values may representative fair value may conclude change valuation technique use multiple valuation techniques may appropriate guidance effective interim annual periods ending june 15 2009 adoption guidance impact consolidated financial statements april 2009 fasb issued fsp 1152 fsp 1242 recognition presentation otherthantemporary impairments primarily codified investments debt equity securities topic asc 3201065 guidance amends otherthantemporary impairment guidance debt securities improve presentation disclosure otherthantemporary impairments debt equity securities financial statements guidance effective reporting periods ending june 15 2009 neither pronouncements impact consolidated financial statements april 2009 fasb issued fsp 1071 apb 281 interim disclosures fair value financial instruments primarily codified financial instruments topic asc 8251065 guidance amends prior guidance require disclosures fair value financial instruments interim well annual financial statements guidance effective reporting periods ending june 15 2009 disclosures consolidated financials statements comply pronouncements may 2009 fasb issued sfas 165 subsequent events primarily codified subsequent events topic asc 855 guidance establishes general standards accounting disclosure events occur balance sheet data financial statements issued guidance effective interim annual financial periods ending june 15 2009 adoption guidance impact consolidated financial statements 5 longterm debt financing arrangements credit facilities pursuant credit agreement dated november 30 2007 guarantor along certain direct indirect subsidiaries including smith wesson corp “swc” tca borrowers refinanced existing credit facility among things increase acquisition line credit 70000 consolidate increase revolving lines credit 40000 may 2008 utilized proceeds 2008 stock offering repay 28000 outstanding balance acquisition line terminated acquisition line incurred 485 noncash charge associated writeoff unamortized debt acquisition costs result decision terminate acquisition line pursuant amendment credit agreement dated october 31 2008 td bank na became sole lender successor administrative agent credit smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data facility amendment also documented termination acquisition line credit increased second third fiscal quarter 2009 leverage ratio 3251 released security interest intellectual property pursuant second amendment credit agreement dated march 12 2009 increased leverage ratio 3501 fiscal quarters ending april 30 2009 july 31 2009 october 31 2009 january 31 2010 april 30 2010 ratio returning 3251 subsequent quarters pursuant third amendment credit agreement dated july 20 2009 added usr coborrower pledged assets associated business security obligations credit facility december 1 2009 paid full two term loans 4814 cash operations pursuant fourth amendment credit agreement dated december 3 2009 increased revolving line credit 60000 extended agreement november 30 2013 april 30 2010 credit facility included revolving line credit maximum amount lesser 60000 b sum 80 net amount swc’s tca’s usr’s eligible accounts receivable defined credit agreement plus ii lesser 15000 b 60 swc’s tca’s usr’s eligible inventory defined credit agreement revolving line credit provides availability november 30 2013 working capital needs revolving line credit bears interest libor variable rate equal prime election april 30 2010 adjustment 3892 standby letters credit 50910 available borrowings outstanding borrowings would borne interest rate 325 per annum security credit facility td bank first priority lien personal property real estate assets may prepay whole part loans interest rates determined reference prime rate interest accrued date prepayment amount prepaid without penalty premium loans fixed rate interest determined reference libor interest rate may prepaid provided reimburse lender costs associated making payments dates specified credit agreement ii borrowing converting libor loan date borrowing conversion dates specified credit agreement received waiver 2 prepayment penalty associated repayment acquisition line credit described convertible debt december 15 2006 issued aggregate 80000 4 senior convertible notes “notes” maturing december 15 2026 qualified institutional buyers pursuant terms conditions securities purchase agreement indenture used net proceeds notes together 28000 acquisition line credit fund acquisition thompsoncenter arms notes bear interest rate 4 per annum payable june 15 december 15 year notes convertible shares common stock initially conversion rate 810636 shares per 1000 principal amount notes total 6485084 shares equivalent initial conversion price 12336 per share notes may converted time december 15 2011 may redeem portion notes redemption price 100 principal amount notes plus accrued unpaid interest closing price common stock exceeds 150 applicable conversion price notes fewer 20 trading days period 30 consecutive trading days december 15 2011 may redeem portion notes noteholders may require us repurchase part notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company defined indenture covering notes general unsecured obligations ranking senior right payment subordinated indebtedness ranking pari passu unsecured unsubordinated indebtedness time closing price common stock exceeds 200 applicable conversion price notes least 30 trading days period 40 consecutive trading days agreed incur additional indebtedness excess greater 1 62000 available existing credit facility 2 three times ltm ebitda smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data defined indenture covering notes time additional debt incurred including amounts outstanding credit facility evaluated conversion features notes determined beneficial conversion feature existed features instruments requiring bifurcation debt issuance costs related refinancings td bank amounted 655 recorded assets costs amortized expense life loans using effective interest rate method december 2009 loans related costs paid full time remaining balance expensed resulting fiscal 2010 expense 118 incurred approximately 4337 debt issuance costs associated issuance notes costs amortized straightline basis approximates effective interest rate method december 15 2011 date first redemption year ended april 30 2010 amortized 867 interest expense related notes total incurred 1014 debt issuance costs associated november 2007 refinancing credit facility subsequent four modifications october 2008 march 2009 july 2009 december 2009 remaining costs associated td bank line amortized straightline basis four years life revolving loan year ended april 30 2010 amortized 115 interest expense total amount amortized interest expense debt issuance costs fiscal 2010 1100 future amortization debt issuance costs follows fiscal year 2011 949 fiscal 2012 624 fiscal 2013 82 fiscal 2014 48 longterm debt represents notes mature fiscal 2027 subject early noteholder rights require us repurchase notes carrying amounts notes payable april 30 2010 2009 follows credit agreement td bank contains financial covenants relating maintaining maximum leverage minimum debt service coverage convertible debt agreement related notes contains financial covenant relating maximum additional indebtedness compliance debt covenants april 30 2010 letters credit april 30 2010 outstanding letters credit aggregating 3892 workers’ compensation bond self insurance 3500 making majority amount smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 6 international sales sell products worldwide following sets forth breakdown export sales accounted approximately 7 8 net sales fiscal years ended april 30 2010 2009 2008 respectively individual foreign country accounted 10 net revenue 7 income expense following sets forth details income expense fiscal years ended april 30 2010 2009 2008 8 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements incurred fiscal years ended april 30 2010 2009 2008 advertising expenses included selling marketing expenses amounted approximately 13880 13842 13977 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 9 property plant equipment following summarizes property plant equipment april 30 2010 2009 estimated cost complete construction progress approximately 3924 depreciation expense amounted 10023 8729 7286 fiscal years ended april 30 2010 2009 2008 respectively following table summarizes depreciation amortization expense includes amortization intangibles debt financing costs line item fiscal years ended april 30 2010 2009 2008 respectively 10 inventories following sets forth summary inventories stated lower cost market april 30 2010 2009 11 intangible assets record intangible assets cost intangible assets consist customer relationships developed technology order backlog trademarks tradenames patents software amortize patents developed technology using straightline method estimated useful lives ranging four months 20 years amortize smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data customer relationships proration expected yearly revenue generated customer lists acquired currently estimated 20 years following presents summary intangible assets amortization expense excluding amortization deferred financing costs amounted 2500 2475 4163 fiscal years ended april 30 2010 2009 2008 respectively noted note 4 fiscal 2009 became aware impairment intangible assets caused us write 57070 net value assets expect amortization expense approximate 1100 annually next five fiscal years 12 receivables insurance carriers discussed notes 15 22 party lawsuits related use firearm products carry insurance covers certain legal defense costs related matters record receivable insurance carriers collection insurance proceeds probable following summarizes activity receivables insurance carriers fiscal years ended april 30 2010 2009 outstanding balance april 30 2010 2009 2060 25 current assets 2035 noncurrent assets october 2004 one insurance carriers agreed pay portion past future defense costs relating municipal litigation insurance carriers paid defense costs fiscal 2010 fiscal 2009 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 13 accrued expenses following sets forth accrued expenses april 30 2010 2009 14 fair value measurement may 1 2008 adopted provisions sfas 157 fair value measurement primarily codified fair value measurements disclosures topic asc 82010 financial assets liabilities adopted provisions asc 82010 nonfinancial assets nonfinancial liabilities previously deferred fasb staff position “fsp” 1572 asc 8201065 may 1 2009 asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability examples include interest rate currency swaps smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities following table presents information assets liabilities measured fair value recurring basis april 30 2010 indicates fair value hierarchy valuation techniques utilized determine fair value purchase certain finished goods component parts european supplier pay euros routinely purchase foreign exchange participating forward contracts minimize impact fluctuations foreign exchange rates participating forward contracts provide full protection us devaluation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros purchased average rate remaining 50 paid spot rate elected designate derivative instruments qualifying hedge accounting treatment asc 8152025 accordingly record gains losses derivative contracts element income expense reporting period based change estimated fair value contracts determine fair values derivative financial instruments based exchange rates euro quoted active markets acquired business combinations longlived tangible assets recorded cost depreciated useful lives indefinitelived intangible assets goodwill acquired business combinations tested impairment annual basis february 1st annual tests indicators potential impairment exist following table presents information derivatives outstanding april 30 2010 2009 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following table presents information effect derivative instruments financial performance years ended april 30 2010 2009 15 selfinsurance reserves april 30 2010 2009 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 9694 10985 respectively 4760 5344 respectively classified noncurrent included noncurrent liabilities 4934 5641 respectively included accrued expenses accompanying consolidated balance sheets addition april 30 2010 2009 446 324 respectively excess workers’ compensation receivable classified asset believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 10250 12704 7769 fiscal years ended april 30 2010 2009 2008 respectively following summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2010 2009 2008 policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2010 2009 accrued reserves product municipal litigation liabilities 5760 6879 respectively 2983 3461 respectively noncurrent consisting entirely expected legal defense costs addition april 30 2010 2009 recorded receivables insurance carriers related liabilities 2060 respectively 2035 year classified assets remaining amount 25 classified current assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 16 capital stock common stock issued fiscal year ended april 30 2010 issued 126499 shares common stock market value 734 current former employees upon exercise options granted employees company proceeds exercise shares 190 fiscal year ended april 30 2010 issued 280438 shares common stock market value 1226 employee stock purchase plan proceeds purchase shares 1042 may 12 2009 completed stock offering 6000000 shares common stock yielded net proceeds 35017 july 2009 issued 5492286 shares common stock conjunction acquisition usr november 2009 issued 107714 shares common stock conjunction acquisition usr see note 2 fiscal year ended april 30 2009 issued 429499 shares common stock market value 2433 current former employees upon exercise options granted employees company proceeds exercise shares 465 fiscal year ended april 30 2009 issued 278260 shares common stock market value 1374 employee stock purchase plan proceeds purchase shares 846 may 23 2008 completed stock offering 6250000 shares common stock yielded net proceeds 32046 allowed us repay 28000 acquisition loan financed portion thompsoncenter arms acquisition fiscal year ended april 30 2008 issued 522435 shares common stock market value approximately 8300 current former employees upon exercise options granted employees company proceeds exercise shares 1317 fiscal year ended april 30 2008 issued 34857 shares common stock cashless exercise 50000 outstanding warrants market value approximately 740 purchase price shares 218 fiscal year ended april 30 2008 issued 147817 shares common stock market value approximately 1300 employee stock purchase plan proceeds purchase shares 917 stock warrants issued repurchased described note 18 september 12 2005 conjunction sale 6000000 shares common stock issued investors placement agent warrants purchase 1200000 120000 shares common stock respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following outlines activity related warrants periods indicated intrinsic value warrants outstanding exercisable april 30 2010 immaterial 17 stock option employee stock purchase plans two stock option plans “sops” 2001 stock option plan 2004 incentive stock plan new grants 2001 stock option plan made since approval 2004 incentive stock plan september 13 2004 annual meeting stockholders new grants covering participants issued 2004 incentive stock plan 2004 incentive stock plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock plan allows granting options acquire common stock granting restricted common stock deferred stock granting restricted stock units granting stock appreciation rights granting dividend equivalents board directors committee established board administers sops selects recipients awards granted determines grants awarded options granted sops exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture unless terminated earlier board directors 2004 incentive stock plan terminate earlier 1 ten years date later occur original date plan approved board directors stockholders whichever earlier ii date increase number shares reserved issuance plan approved board directors long increase also approved stockholders 2 time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award generally awards vest period three years awards exercisable period ten years plan also allows grants awards nonemployees board granted past separate option grant outside 2004 incentive stock plan 500000 shares made michael f golden connection hiring president chief executive officer fiscal year ended april 30 2005 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data number shares weighted average exercise prices options granted sops separate grant fiscal years ended april 30 2010 2009 2008 follows april 30 2010 5205332 shares available grant 2004 incentive stock plan summary stock options outstanding vested exercisable april 30 2010 follows aggregate intrinsic value outstanding options vested exercisable april 30 2010 2699 2590 respectively employee stock purchase plan “espp” authorizes sale 10000000 shares common stock employees espp commenced june 24 2002 continues effect term ten years unless sooner terminated espp implemented series offering periods two years duration four sixmonth purchase periods offering period plan amended september 2004 future offering periods commencing october 1 2004 offering period six months consistent six month purchase period purchase price 85 fair market value common stock offering date purchase date whichever lower participant may elect payroll deductions made payday offering period amount less 1 20 greater percentage board may establish time offering date participant’s compensation payday offering period last day offering period purchase date offering period offering period commencing april 1 ends next september 30 offering period commencing october 1 ends next march 31 board directors power change duration andor frequency offering purchase periods respect future offerings purchases without stockholder approval change announced least five days prior scheduled beginning first offering period affected maximum number shares employee may purchase smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data period 12500 shares total 25 shares based fair market value first day purchase period options rights participate espp nontransferable subject forfeiture accordance espp guidelines event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2010 2009 2008 280438 278260 147817 shares respectively purchased espp measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options warrants issued employees using blackscholes model time options warrants granted amount amortized vesting period option warrant espp fair value determined beginning purchase period amortized term offering period following assumptions used valuing options espp estimate expected volatility using past historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table weightedaverage fair value stock options granted fiscal 2010 2009 2008 400 414 374 respectively weightedaverage fair value espp shares purchased fiscal 2010 2009 2008 143 175 317 respectively year ended april 30 2010 granted aggregate maximum 79800 restricted stock units rsus subject performancebased vesting michael f golden president chief executive officer william f spengler executive vice president chief financial officer also granted 7500 rsus nonemployees year ended april 30 2010 53333 performancebased shares previously awarded michael f golden vested delivered fiscal 2011 may 1 2009 rsus outstanding nonvested april 30 2010 157394 rsus outstanding nonvested april 30 2010 210727 rsus outstanding 98081 canceled due employee terminations aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees nonemployees approximately 423 year ended april 30 2010 april 30 2010 approximately 290 unrecognized compensation cost related unvested rsus cost expected recognized weighted average 090 years smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data summary activity unvested rsus fiscal 2010 2009 2008 follows year ended april 30 2009 granted 6000 rsus subject timebased vesting current employees also granted 15000 rsus nonemployees april 30 2009 346944 rsus outstanding 85748 canceled due employee terminations 53334 performancebased rsus canceled failure satisfy performance targets aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees nonemployees approximately 1086 year ended april 30 2009 april 30 2009 approximately 757 unrecognized compensation cost related unvested rsus cost expected recognized weighted average 056 years year ended april 30 2008 granted 334500 rsus subject timebased vesting current employees also granted 5000 rsus nonemployees april 30 2008 560418 rsus outstanding 82748 cancelled due employee terminations aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees nonemployees approximately 2837 year ended april 30 2008 april 30 2008 approximately 2571 unrecognized compensation cost related unvested rsus cost expected recognized weighted average 095 years recorded stockbased compensation expense approximately 3284 3307 4885 fiscal 2010 2009 2008 respectively stockbased compensation expense included general administrative expenses intrinsic value options warrants exercised fiscal 2010 2009 2008 approximately 543 1969 7305 respectively grant date fair value rsus vested fiscal 2010 2009 2008 approximately 1427 883 2038 respectively modifications options warrants rsus fiscal 2010 2009 2008 april 30 2010 total unamortized fair value stock options approximately 2550 recognized remaining vesting period 30 years november 12 2007 granted option purchase 216000 shares common stock michael f golden fully vests three years resulted valuation approximately 809 estimated fair value option grant using blackscholes option pricing model following assumptions volatility 617 risk free interest rate 421 expected life three years dividend yield 0 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 18 warrants september 12 2005 completed sale aggregate 6000000 shares common stock warrants purchase additional 1200000 shares common stock incurred issuance costs included issuance warrant purchase 120000 shares common stock placement agent initial fair value 384 exercise price placement agent’s warrants 436 per share terms placement agent’s warrant substantially warrants sold investors except became exercisable march 12 2006 expires september 12 2010 april 30 2010 1200000 investor warrants exercised 70000 placement agent warrants still outstanding 19 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed approximately 1559 1194 1028 fiscal years ended april 30 2010 2009 2008 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine employees eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes defined plan year fiscal 2010 plan contribute approximately 7199 contributed approximately 6248 3539 fiscal years ended april 30 2009 2008 respectively contributions funded fiscal yearend also defined contribution profit sharing plan covering substantially thompsoncenter arms employees based certain eligibility criteria board directors discretion determines contributions made net income thompsoncenter arms fiscal 2010 plan make payments plan fiscal 2009 2008 paid 0 500 respectively 20 postemployment postretirement deferred compensation postretirement medical program certain obligations terminated program provides health care retirees age 65 employees designated combined age years service grandfathered program grandfather provision provides varying degrees coverage based upon years service currently one retiree covered program three active employees grandfathered program postretirement medical liability based upon reports provided independent actuary gross postretirement medical liability approximately 73 april 30 2010 approximately 128 april 30 2009 current portion postretirement medical plan april 30 2010 2009 2008 134 136 44 respectively fiscal years ended april 30 2010 2009 1 increase decrease assumed health care cost trend rate would immaterial effect aggregate service interest cost components net periodic postretirement health care benefit costs accumulated postretirement benefit obligation health care benefits estimated future benefit payments follows 2011 21 2012 6 thereafter 0 postretirement pension plan senior executive supplemental retirement plan certain thompsoncenter arms officers covered three former executives april 30 2010 benefits plan paid monthly currently monthly benefit 3063 adjusted annually based percent change cpi urban consumers ten years following retirement officer director smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data unfunded nonqualified noncontributory plan pay future obligations april 30 2010 110 accrued liabilities 427 accrued noncurrent liabilities consolidated financial statements based upon present value estimated future obligation using discount rate 243 remaining months commitment estimated future benefit payments follows 2011 110 2012 110 2013 110 2014 92 2015 74 thereafter 86 plan may also required continue pay thompsoncenter arms’ portion health insurance premiums offered employees retiree becomes eligible medicare april 30 2010 four individuals receiving cash payments plan none eligible receive health insurance benefit 21 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date income tax expense consists following smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following presents reconciliation provision income taxes statutory rates provision consolidated financial statements future tax benefits deferred tax liabilities related temporary differences following smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data federal net operating loss carryforwards amounting 3913 2285 2394 april 30 2010 2009 2008 respectively april 30 2010 net operating loss expires years 2019 2020 obtained 8215000 additional loss carryforwards acquisition usr july 20 2009 utilization losses limited section 382 internal revenue code 8136 fiscal 2010 295 fiscal 2011 108 per subsequent year possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 ownership change occur would annual limitation remaining tax loss carryforward federal net operating losses amortization intangible assets decreased overall net deferred tax asset 5364 8284 april 30 2010 federal net operating losses reduced overall net deferred tax liability 13648 800 april 30 2009 3120 state net operating loss carryforwards april 30 2010 state net operating loss carryforwards april 30 2009 reserved approximately 26 noncurrent deferred taxes capital loss carryforward anticipate using prior expiration april 30 2010 2009 gross taxaffected unrecognized tax benefits approximately 1923 929 respectively recognized would favorably impact effective tax rate included unrecognized tax benefits april 30 2010 2009 approximately 179 201 respectively accrued interest penalties related uncertain tax positions recorded noncurrent liabilities smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data reconciliation beginning ending amount unrecognized tax benefits follows full value unrecognized tax benefits classified noncurrent income tax liabilities payment cash anticipated within one year balance sheet date fiscal 2011 expect incur additional interest outstanding tax accounts don’t expect change material interest penalties related income tax liabilities included income tax expense limited exception subject us federal state local nonus income tax audits tax authorities several years recently completed income tax examination internal revenue service tax year ended april 30 2007 resulted material adjustments 22 commitments contingencies litigation together firearm manufacturers certain related organizations codefendant various legal proceedings involving product liability claims aware product liability claims including allegations defective product design manufacturing negligent marketing andor distribution firearms leading personal injury including wrongful death lawsuits claims based principally theory “strict liability” also may based negligence breach warranty legal theories many lawsuits punitive damages well compensatory damages demanded aggregate claimed amounts currently exceed product liability accruals applicable insurance coverage believe every case various allegations described unfounded addition accident results due negligence misuse firearm claimant third party recovery us addition codefendant legal proceedings brought city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties shootings city’s complaint seeks money damages among things costs investigating crime preventing crime costs medical care police emergency services decreases property values addition nuisance abatement andor injunctive relief sought change design manufacture marketing distribution practices various defendants suit alleges public nuisance negligent distribution marketing negligent design believe various allegations described unfounded addition accidents results due negligence misuse firearm third party recovery us chairman board chief executive officer former chief financial officer named three similar purported securities class action lawsuits subsequently consolidated one action plaintiffs seek damages alleged violations section 10b section 20a exchange act smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data march 26 2009 court dismissed chairman board litigation may 11 2010 court certified consolidated action consisting class persons purchased securities june 15 2007 december 6 2007 suffered damage result court scheduled discovery concerning facts action ended may 28 2010 examination experts put forth parties ends october 1 2010 parties october 29 2010 move summary disposition case involved two purported stockholder derivative lawsuits brought us district court district massachusetts actions brought putative plaintiffs behalf company certain officers directors december 15 2009 court ordered actions consolidated january 29 2010 plaintiffs filed verified consolidated shareholder complaint “consolidated complaint” moved dismiss consolidated complaint march 31 2010 plaintiffs opposed motion may 28 2010 hearing matter court currently scheduled occur july 15 2010 vigorously defending class action derivative lawsuits assurance however pay significant damages amounts settlement insurance coverage unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgments intend vigorously defend time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made fiscal years ended april 30 2010 2009 2008 paid 1047 1323 406 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 1097 0 463 respectively fiscal years settlement fees relative product liability cases fiscal 2010 recorded income 74 recognize changes product liability municipal litigation liability fiscal 2009 2008 recorded expense 1642 331 respectively recognize changes product municipal litigation liability recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets new cases adam coffey v smith wesson corp united states district court northern district ohio suit filed state court ohio may 7 2010 removed united states district court june 9 2010 service process plaintiff claims walther ppks1 accidentally discharged unloading plaintiff alleges bullet entered left palm exiting back reentering left thigh complaint asserts counts product liability negligence failure warn plaintiff seeks compensatory punitive damages filed partial motion dismiss common law counts negligence negligent design failure warn based ohio revised code motion pending case management conference scheduled july 8 2010 trial scheduled date smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data dan mosqueda v smith wesson corp et al united states district court southern district mississippi plaintiff claims model ppk unexpectedly discharged without trigger pulled causing injuries damages complaint plaintiff alleges firearm discharged severing femoral artery causing permanent nerve damage original complaint plaintiff brought claims negligent design manufacture sale negligent failure warn recall strict liability complaint seeks damages lost wages loss enjoyment life emotional distress compensatory damages physical disability scarring punitive damages case management conference scheduled august 4 2010 discovery ongoing trial scheduled date jd nelson et al v smith wesson corp et al united states district court district alaska suit filed state court alaska june 3 2009 removed united states district court january 25 2010 service process plaintiffs claim minorplaintiff kariel young rendered quadriplegic result discharge round ammunition 22 caliber smith wesson revolver complaint alleges negligence strict liability breach warranty ultra hazardous activities claims unspecified consumer protection laws plaintiffs seek damages emotional distress compensatory damages punitive damages filed motion dismiss complaint plaintiffs sought remand case state court plaintiffs’ motion remand denied may 5 2010 may 18 2010 court granted motion dismiss dismissed plaintiffs’ case entirety june 1 2010 plaintiffs filed motion reconsideration june 14 2010 plaintiffs’ motion reconsideration denied court plaintiff filed appeal ninth circuit court appeals june 18 2010 jeremy mccutchen v thompsoncenter arms company inc et al district court harris county texas complaint filed december 21 2009 asserts claims strict liability breach warranty negligence failure warn plaintiff seeks unspecified money damages plaintiff claims using thompsoncenter arms rifle december 22 2007 firearm allegedly malfunctioned causing injury filed answer plaintiff’s complaint january 29 2010 denying allegations liability discovery ongoing trial scheduled begin march 21 2011 steve michelle santoyo v bear lake holdings inc dba thompsoncenter arms et al united states district court western district missouri complaint filed circuit court boone county missouri february 11 2010 asserts claims strict liability negligence failure warn negligently supplying dangerous instrumentality loss consortium punitive damages plaintiffs seek unspecified money damages plaintiff steve santoyo claims using thompsoncenter arms black diamond muzzleloader november 28 2008 firearm allegedly malfunctioned causing injury march 15 2010 removed case district court march 22 2010 filed response plaintiffs’ complaint march 27 2010 plaintiff filed motion remand case back circuit court april 14 2010 opposed plaintiffs’ motion remand june 15 2010 court denied plaintiff’s motion remand discovery ongoing trial scheduled begin august 22 2011 cases dismissed resolved scott c worrall v smith wesson corp et al superior court state indiana county vigo february 25 2010 case settled within limits selfinsured retention roger foltz v smith wesson corp united states district court northern district texas august 24 2009 court granted motion dismiss dismissed case entirety plaintiff’s deadline appeal expired plaintiff appeal jesse james kay james v thompsoncenter arms company inc et al 151st judicial district harris county texas october 28 2009 case settled within limits selfinsured retention smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data paul “rob” lewis v smith wesson corp et al superior court washington king county state washington november 13 2009 case settled within limits selfinsured retention steve j bezet v smith wesson corp united states district court middle district louisiana november 16 2009 case settled within limits selfinsured retention jeremy hunter alysha hunter v smith wesson corp et al united states district court southern district illinois august 14 2009 case settled within limits selfinsured retention cary green v smith wesson holding corp et al united states district court district nevada march 3 2010 court dismissed action prejudice plaintiffs’ deadline appeal expired plaintiffs appeal kelly cousins v smith wesson corp united states district court eastern district louisiana march 24 2010 case settled within limits selfinsured retention cases appeal tenedora tuma sa v smith wesson corp civil commercial court first district court first instance national district santo domingo dominican republic plaintiff commenced suit submitting request preliminary reconciliation hearing two preliminary reconciliation hearings reconciliation committee issued certificate lack agreement thereafter summons notice claim issued us january 17 2000 plaintiff alleged terminated distributor agreement without cause sought damages approximately 600 alleged violations dominican republic law 173 protection importers merchandise products briefing merits completed trial court november 2002 june 7 2004 court granted motion dismiss entirety notification judgment filed august 10 2004 september 9 2004 plaintiff purportedly appealed decision march 3 2005 informed hearing held court appeals october 27 2004 without notification counsel us merits plaintiff’s appeal taken advisement court june 23 2005 hearing held wherein attempted reopen appeal based lack service appeal papers us november 11 2005 court appeals rendered final decision court refused plaintiff’s arguments appeal upheld petitions confirming aspects judgment rendered court first instance favor january 12 2006 plaintiff appealed supreme court dominican republic response filed february 10 2006 hearing held supreme court dominican republic october 11 2006 wherein parties presented final arguments decision issued date pending cases city gary indiana mayor scott l king v smith wesson corp et al lake superior court indiana plaintiff’s complaint alleges public nuisance negligent distribution marketing negligent design seeks unspecified amount compensatory punitive damages certain injunctive relief defendants’ motion dismiss plaintiff’s complaint granted counts january 11 2001 september 20 2002 indiana court appeals affirmed trial court’s dismissal plaintiff’s claims december 23 2003 indiana supreme court reversed decision remanded case trial court held plaintiff allowed proceed public nuisance negligence claims defendants negligent design claim manufacturer defendants filed answer plaintiff’s amended complaint january 30 2004 november 23 2005 defendants filed motion dismiss based plcaa october 23 2006 court denied defendants’ motion dismiss october 29 2007 indiana court appeals affirmed trial court’s denial defendants’ motion judgment pleadings based plcaa smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data court affirmed different grounds holding statute apply city gary’s case court address constitutional claims february 7 2008 defendants filed petition transfer indiana supreme court january 12 2009 indiana supreme court denied defendants’ petition transfer jurisdiction defendants’ deadline appeal united states supreme court expired april 9 2009 defendants elected ask court review indiana court appeals’ october 29 2007 decision trial currently scheduled smith wesson holding corp securities litigation case consolidation following three cases william hwang v smith wesson holding corp et al joe cranford v smith wesson holding corp et al joanne trudelle v smith wesson holding corp et al pending united states district court district massachusetts springfield purported securities class action lawsuit brought individually behalf persons purchased securities company june 15 december 6 2007 putative plaintiffs seek unspecified damages us certain officers directors alleged violations sections 10b 20a exchange act oklahoma firefighters pension retirement system appointed lead plaintiff putative class may 30 2008 lead plaintiff oklahoma firefighters pension retirement system filed consolidated class action complaint seeking unspecified damages us several officers directors alleged violations sections 10b 20a exchange act august 28 2008 named officers directors moved dismiss consolidated amended complaint fails state claim federal securities laws pslra putative class lead plaintiff submitted opposition motion october 28 2008 march 26 2009 motion granted mr monheit denied remaining defendants may 11 2010 court certified consolidated action consisting class persons purchased securities company june 15 2007 december 6 2007 suffered damage result court scheduled discovery concerning facts action ended may 28 2010 examination experts put forth parties ends october 1 2010 parties october 29 2010 move summary disposition case trial scheduled begin february 7 2011 art bundy v smith wesson holding corp et al dwight nance v smith wesson holding corp et al united states district court district massachusetts actions filed october 15 2009 purported derivative actions brought two separate plaintiffs behalf company certain officers directors complaints allege officer director defendants breached fiduciary duties providing misleading statements concerning company’s earnings business prospects fiscal year 2008 complaints also assert june 14 2007 december 6 2007 officer director defendants provided false statements company’s financial results putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees motion consolidate two actions granted december 15 2009 january 29 2010 plaintiffs filed verified consolidated shareholder derivative complaint “consolidated complaint” moved dismiss consolidated complaint march 31 2010 plaintiffs opposed motion may 28 2010 hearing motion scheduled july 15 2010 michael robinson v smith wesson corp superior court judicial district new london connecticut complaint filed may 8 2009 seeks recover damages personal injuries allegedly sustained plaintiff march 18 2007 complaint seeks unspecified monetary punitive damages us subsequent seller firearm plaintiff claims injured walther ppks firearm allegedly manufactured distributed us accidentally discharged complaint asserts claims strict liability failure warn negligence breach warranty discovery ongoing pretrial conference scheduled january 20 2011 time final trial date set oren gorden v smith wesson corp et al territorial court virgin islands district st croix complaint filed january 19 2001 seeks unspecified compensatory damages personal smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data injuries allegedly sustained mr gorden complaint alleges mr gorden’s smith wesson handgun malfunctioned exploded tried load filed answer denying allegations liability november 17 2003 firearm issue case lost transit commercial carrier returned us plaintiff april 21 2004 court denied motion summary judgment mediation conducted april 13 2005 expert discovery ongoing status conference held october 29 2007 trial scheduled may 10 2010 set aside new trial date scheduled todd brown kathy brown v smith wesson corp united states district court western district arkansas complaint filed july 18 2008 asserts claims negligence strict liability breach warranty plaintiff seeks unspecified money damages plaintiff claims using smith wesson model 460 revolver december 26 2007 sustained injuries left hand firing revolver plaintiff alleges failed provide adequate warnings regarding risk personal injury associated gases escaping barrel cylinder gap revolver firing filed answer complaint august 14 2008 denying plaintiff’s allegations liability discovery ongoing trial scheduled begin august 23 2010 mark lee v smith wesson corp et al court common pleas richland county ohio civil action filed november 11 2008 alleges plaintiff sustained injury right eye november 11 2006 operating smith wesson model 460 xvr revolver plaintiff seeks unspecified damages us seller firearm complaint alleges incident occurred cylinder revolver swung open upon firing allowing gases particles escape firearm firing complaint asserts claims negligence strict liability breach warranty january 2 2009 filed motion strike partial motion dismiss certain portions plaintiff’s complaint january 9 2009 motion denied court february 4 2009 filed answer plaintiff’s complaint discovery ongoing trial rescheduled september 7 2010 chester wolfe et al v smith wesson holding corporation et al common pleas court miami county ohio complaint filed december 16 2008 alleges plaintiff sustained amputation left thumb december 25 2007 operating smith wesson model 460 revolver due gas escaping barrel cylinder gap front revolver plaintiffs allege products liability asserting claims design manufacturing defect failure warn loss consortium plaintiffs seek damages excess 25000 january 14 2009 filed answer denying plaintiffs’ allegations december 11 2009 plaintiff withdrew case dealer leaving us defendant case december 21 2009 removed case federal court discover ongoing trial scheduled begin august 15 2011 brian ward v thompsoncenter arms company inc et al fortysixth circuit court otsego county michigan complaint filed october 16 2006 alleges plaintiff sustained eye injuries using thompsoncenter arms rifle plaintiff asserts product liability claims thompsoncenter arms retailer based negligence warranty principles plaintiff seeking unspecified amount compensatory damages november 15 2006 thompsoncenter arms filed answer denying allegations liability february 2 2009 plaintiff filed second amended complaint february 17 2009 filed answer plaintiff’s complaint october 9 2009 filed motion summary judgment october 21 2009 plaintiff opposed motion hearing motion summary judgment held november 3 2009 expert discovery ongoing case evaluation required michigan court held november 13 2009 panel recommended settlement favor plaintiff amount 325000 rejected proposed settlement award december 12 2009 court granted motion summary judgment manufacturing defect failure recall failure test claims denied motion design defect claims theories riskutility failure warn settlement conference scheduled august 5 2010 postponed plaintiff’s counsel retiring neither settlement conference trial rescheduled smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data foreign corrupt practices act fcpa january 19 2010 us department justice “doj” unsealed indictments 22 individuals law enforcement military equipment industries one vice presidentsales international us law enforcement charged indictment also served grand jury subpoena production documents always taken continue take seriously obligation industry leader foster responsible ethical culture includes adherence laws industry regulations united states abroad although cooperating fully doj matter undertaken comprehensive review company policies procedures doj may determine violated fcpa laws cannot predict investigation completed outcome could additional indictments company officers employees doj determines violated fcpa laws employee convicted fcpa violations may face sanctions including significant civil criminal penalties addition could prevented bidding domestic military government contracts could risk debarment us department state also face increased legal expenses could see increase cost international business could also see private civil litigation arising result outcome investigation addition responding investigation may divert time attention management normal business operations regardless outcome investigation publicity surrounding investigation potential risks associated investigation could negatively impact perception company investors customers others sec investigation subsequent end fiscal 2010 received letter staff sec giving notice sec conducting nonpublic factfinding inquiry determine whether violations federal securities laws appears civil inquiry triggered part doj investigation potential fcpa violations always taken continue take seriously obligation industry leader foster responsible ethical culture includes adherence laws industry regulations united states abroad although cooperating fully sec matter sec may determine violated federal securities laws cannot predict inquiry completed outcome sec determines violated federal securities laws may face injunctive relief disgorgement illgotten gains sanctions including fines penalties may forced take corrective actions could increase costs otherwise adversely affect business results operations liquidity also face increased legal expenses could see increase cost business could also see private civil litigation arising result outcome inquiry addition responding inquiry may divert time attention management normal business operations regardless outcome inquiry publicity surrounding inquiry potential risks associated inquiry could negatively impact perception company investors customers others bureau alcohol tobacco firearms explosives “atf” audit atf asserted various instances failure comply gun control act 1968 attendant rules regulations following onpremises inspection springfield massachusetts facility asserted violations related inventory record keeping reporting obligations resolved compliance issues raised atf agreed commence recommend licensing proceedings us result conduct known resolution included various measures designed achieve goal positioning forefront industry compliance efforts connection resolving matter agreed among things maintain internal compliance department ensure compliance firearms laws agreed extra compliance inspections agreed continue work atf following internal compliance processes agreed institute various inventory record keeping tracking reporting procedures addition agreed pay settlement amount 500 payable 200 march 14 2009 150 january 14 2010 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data january 14 2011 april 30 2010 first two payments remitted atf remaining amount payable recorded 150 current liabilities environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act “rcra” place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject two release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency “epa” andor individual states cercla state equivalent one site reserves 657 april 30 2010 april 30 2009 577 noncurrent remediation sites referred believe time frame remediation currently indeterminable therefore time frame payment remediation likewise currently indeterminable thus making net present value calculation impracticable estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained pursuant merger agreement related acquisition thompsoncenter arms former stockholders thompson center holding corporation indemnified us losses arising among things environmental conditions related thompsoncenter arms’ manufacturing activities purchase price 8000 placed escrow account portion applied environmental remediation manufacturing site rochester new hampshire november 2008 2500 escrow account released former stockholders thompson center holding corporation currently working yet reached mutually acceptable agreement respect remediation action plan former stockholders thompson center holding corporation order remediate environmental contamination found site remediation costs paid monies released escrow presently possible estimate ultimate amount remediation costs potential uses escrow april 30 2010 approximately 1367 escrow account spent safety environmental testing smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data remediation activities believe likelihood environmental remediation costs exceeding amount available escrow remote based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities raw materials components supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many materials used production products available limited number suppliers cases longterm supply contracts suppliers contracts employment agreements entered employment agreements certain officers managers retain service ordinary course business agreements distribution agreements various third parties ordinary course business rental leases lease office space scottsdale arizona operating lease expires january 2011 office space washington dc expires december 2010 machinery photocopiers springfield houlton rochester locations various expiration dates modular building space rochester location expires january 2011 office warehousing assembly space franklin tennessee expires march 2012 vehicles national sales force april 30 2010 lease commitments approximately follows rent expense fiscal years ended april 30 2010 2009 2008 approximately 1872 804 561 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 23 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2010 fiscal 2009 opinion adjustments necessary present fairly information quarters reflected fourth fiscal quarter 2010 recorded adjustments opening balance sheet accounts related acquisition usr adjustments arose change accounting estimates percentage completion jobs accrual lossmaking contracts related revaluation outstanding backlog effect smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data entries increase goodwill increase deferred revenue increase unbilled receivables reduce backlog addition entries resulted requirement us adjust quarterly information previously presented fiscal 2010 quarterly filings effects adjustment first three quarters fiscal 2010 previously reported follows fourth quarter fiscal 2010 also revised accounting estimates related contracts process april 30 2010 review required us record deferred revenue amount 1964 net impact fourth quarter fiscal 2010 acquisition accounting entries change fourth fiscal quarter estimates decrease revenue 1013 net income 574 addition change valuation usr contingent consideration 2081 reduction fourth quarter fiscal 2010 net income 24 segments two reportable segments firearms perimeter security firearm segment consists products services manufactured sold springfield massachusetts houlton maine rochester new hampshire facilities includes primarily firearms handcuffs related accessories sold distribution chain direct sales consumers international state federal governments perimeter security segment consists products services manufactured sold franklin tennessee facilities includes sales installation perimeter security products military governmental corporate customers operating costs reported based activities performed within segment assets directly used clearly allocable operating segment’s operations segments assets include accounts receivable inventory prepaid expenses deferred tax assets machinery equipment furniture fixtures computer equipment addition included assets firearm segment intangible assets totaling 5498 land buildings leasehold improvements totaling 56717 included assets perimeter security segment goodwill totaling 83865 intangible assets totaling 10721 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data results business segment presented following table year ended april 30 2010 amount includes 1526 amortization intangibles related acquisition accounting 25 pro forma results unaudited following table reflects unaudited pro forma results operations assuming usr acquisition occurred may 1 2007 b amount includes 76477 impairment charges net tax related thompsoncenter arms pro forma net income adjusted reflect amortization intangibles acquisition occurred first day corresponding fiscal year attempt made adjust income statement impact fair value contingent consideration liability recorded nine months ended april 30 2010 26 subsequent event subsequent end fiscal year determined best interests shareholders earn share agreement related acquisition usr deemed earned longer subject calendar year 2010 ebitdas “earn out” criteria initially agreed release additional 4080000 shares subject final audited results ebitdas calendar years 2009 2010 since determined usr business requires additional investment infrastructure best capture fullest market potential perimeter security offering existed acquisition date also subsequent acquisition determined additional opportunities develop new products enter new markets significant potential exist investment develop time sensitive would relate capturing first market potential therefore intend make additional investments current calendar year action would adversely impact “earn out” calculation thereby limit ability implement near term investments accordingly determined release 4080000 earn shares entirety timing contemplated merger agreement early calendar year 2011 longer linked specific ebitdas performance levels calendar years 2009 2010 schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2010 2009 1 decrease product liability offset corresponding reduction receivable insurance carrier assets current assets 2 decrease 234 product liability represents adjustment acquisition accounting relating thompsoncenter arms acquisition 24 decrease offset corresponding reduction receivable insurance carrier 3 increase workers’ compensation offset corresponding increase excess workers’ compensation insurance receivable assets 4 increase allowance doubtful accounts warranty reserve result acquisition usr july 20 2009item 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2011 2010 2009 set forth page report b exhibits exhibit number exhibit 51 agreement respect defense smith wesson firearms litigation dated november 11 200420 55 amendment agreements carl walther gmbh21 56 form restricted stock unit award agreement 2004 incentive stock plan22 62 mortgage security agreement assignment leases rents fixture filing dated november 30 2007 smith wesson corp toronto dominion texas llc administrative agent23 62a amendment 1 mortgage security agreement assignment leases rents fixture filing dated december 7 2010 smith wesson corp td bank na administrative agent24 63 openend mortgage deed security agreement assignment leases rents fixture filing dated november 30 2007 smith wesson corp toronto dominion texas llc administrative agent23 63a amendment 1 openend mortgage deed security agreement assignment leases rents fixture filing dated december 7 2010 smith wesson corp td bank na administrative agent24 64 mortgage security agreement assignment leases rents fixture filing dated november 30 2007 ol development inc toronto dominion texas llc administrative agent23 64a amendment 1 mortgage security agreement assignment leases rents fixture filing dated december 7 2010 ol development inc td bank na administrative agent24 72 form indemnity agreement25 74 irrevocable proxy coupled interest11 77 severance change control agreement dated october 22 2010 smith wesson holding corporation p james debney26 78 amended restated credit agreement dated december 7 2010 among smith wesson holding corporation smith wesson corp thompsoncenter arms company inc universal safety response inc fox ridge outfitters inc bear lake holdings inc kw thompson tool company inc ol development inc thompson center holding corporation smith wesson distributing inc borrowers lender party named therein td bank na administrative agent sovereign bank syndication agent including exhibits schedules thereto24 79 amended restated pledge security agreement dated december 7 2010 among smith wesson holding corporation smith wesson corp thompsoncenter arms company inc thompson center holding corporation universal safety response inc fox ridge outfitters inc kw thompson tool company inc ol development inc bear lake holdings inc smith wesson distributing inc pledgors named therein pledgors td bank na administrative agent including exhibits thereto24 80 revolving line credit notes swingline note dated december 7 2010 smith wesson holding corporation smith wesson corp thompsoncenter arms company inc thompson center holding corporation universal safety response inc fox ridge outfitters inc kw thompson tool company inc ol development inc bear lake holdings inc smith wesson distributing inc borrowers lenders named therein24 81 hazardous materials indemnity agreement dated december 7 2010 smith wesson holding corporation smith wesson corp thompsoncenter arms company inc thompson center holding corporation universal safety response inc fox ridge outfitters inc kw thompson tool company inc ol development inc bear lake holdings inc smith wesson distributing inc indemnitors favor td bank na administrative agent secured parties named therein including exhibits thereto24 management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec december 18 2006 2 incorporated reference registrant’s form 8k filed sec june 19 2009 3 incorporated reference registrant’s form 8k filed sec august 19 2010 4 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 5 incorporated reference registrant’s form 8k filed sec may 6 2011 6 incorporated reference registrant’s form 8a filed sec august 25 2005 7 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 8 incorporated reference registrant’s form 8k filed sec may 29 2001 9 incorporated reference registrant’s form 8k filed sec december 18 2006 10 incorporated reference registrant’s form s3 333153638 filed sec september 23 2008 11 incorporated reference registrant’s form 8k filed sec july 24 2009 12 incorporated reference registrant’s form 8k filed sec january 18 2011 13 incorporated reference registrant’s form 10qsb filed sec august 13 2001 14 incorporated reference registrant’s form 10qsb filed sec september 14 2001 15 incorporated reference registrant’s form s8 333128804 filed sec october 4 2005 16 incorporated reference registrant’s proxy statement schedule 14a filed sec december 28 2001 17 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 18 incorporated reference registrant’s form 10ksb filed sec december 18 2003 19 incorporated reference registrant’s form 10k filed sec july 16 2004 20 incorporated reference registrant’s form 10q filed sec march 10 2005 21 incorporated reference registrant’s form 10q filed sec march 17 2006 22 incorporated reference registrant’s form 8k filed sec may 19 2006 23 incorporated reference registrant’s form 8k filed sec december 6 2007 24 incorporated reference registrant’s form 8k filed sec december 9 2010 25 incorporated reference registrant’s form 10k filed sec june 30 2009 26 incorporated reference registrant’s form 8k filed sec october 25 2010 27 incorporated reference registrant’s form 8k filed sec december 21 2010 28 incorporated reference registrant’s form 8k filed sec january 4 2011 29 incorporated reference registrant’s form 8k filed sec february 16 2011 30 incorporated reference registrant’s form 8k filed sec march 7 2011 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation michael f golden michael f golden president chief executive officer date june 30 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated index consolidated financial statements smith wesson holding corporation subsidiaries report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries “company” april 30 2011 2010 related consolidated statements operations comprehensive incomeloss stockholders’ equity cash flows three years period ended april 30 2011 also audited schedule listed accompanying index three years ended april 30 2011 financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2011 2010 results operations cash flows three years period ended april 30 2011 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness smith wesson holding corporation’s internal control financial reporting april 30 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated june 30 2011 expressed unqualified opinion thereon bdo usa llp bdo usa llp boston massachusetts june 30 2011 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements operations comprehensive incomeloss accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows smith wesson holding corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash activities july 20 2009 acquired smith wesson security solutions inc formerly universal safety response inc note 2 accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements dollars thousands except share data 1 organization usbased global provider products services safety security protection sport one world’s leading manufacturers firearms manufacture wide array handguns modern sporting rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world also leading turnkey provider perimeter security solutions protect control access key military government corporate facilities manufacture firearm products facilities springfield massachusetts houlton maine rochester new hampshire manufacture assemble perimeter security products facilities franklin tennessee addition pursue opportunities license name trademarks third parties use association products services july 20 2009 acquired outstanding capital stock smith wesson security solutions inc formerly universal safety response inc “swss” see note 2 acquisition accounted purchase method accounting accordingly results operations acquired business included consolidated financial statements since acquisition date reported security solutions division discussed note 23 2 acquisition smith wesson security solutions inc formerly universal safety response inc july 20 2009 acquired outstanding capital stock swss acquisition swss designed leverage business model product line broad customer base enable us expand new markets security industry two swss’s former stockholders originally dissented acquisition november 17 2009 settled former stockholders terms given former stockholders swss acquisition initial purchase price 59253 consisted 21062 cash 38191 common stock paid closing stock valued based closing stock price date issued 5492286 shares issued stock price 686 107714 shares issued stock price 477 addition former stockholders swss right earn 4080000 additional shares common stock swss achieved certain ebitdas targets defined calendar years 2009 2010 closing date acquisition contingent consideration assigned fair value 27824 4001522 shares closing share price 686 july 20 2009 78478 shares closing share price 477 november 17 2009 valuation established accordance business combinations topic accounting standards codification “asc” 805202520 based swss’s actual calendar year 2009 results additional shares earned paid calendar 2009 results ebitdas period 8000 threshold achieve distribution august 19 2010 entered waiver amendment merger agreement waive achievement ebitdas target 2010 calendar year condition issuance 4080000 earnout shares instead agreed issue 4080000 shares former stockholders swss march 18 2011 effective august 19 2010 liability adjusted fair value 15178 based closing price 372 per share date reclassified equity 3060 9587 income associated reduction contingent consideration years ended april 30 2011 2010 respectively recorded income see note 14 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following table reflects unaudited pro forma results operations assuming swss acquisition occurred may 1 2008 amount includes 76477 impairment charges net tax related thompsoncenter arms pro forma net incomeloss adjusted reflect amortization intangibles acquisition occurred first day corresponding fiscal year attempt made adjust income statement impact fair value contingent consideration liability recorded year ended april 30 2010 following table summarizes estimated fair values assets acquired liabilities assumed fiscal 2010 incurred 586 acquisitionrelated costs included general administrative costs additional 12 stock issuance costs related acquisition swss incurred recorded additional paidin capital fiscal 2010 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data changes purchase price fiscal 2011 period none 10077 accounts receivable subject asc 31030 accounting certain loans debt securities acquired transfer receivables recorded fair value equal gross contractual amounts receivable less allowance doubtful accounts 273 material contractual receivables net allowance doubtful accounts fully collected amortize customer relationships developed technology proportion expected yearly revenue generated customer lists acquired products expected sold amortize order backlog contract lives executed trademarks tradenames expected indefinite life following table sets forth identifiable intangible assets acquired respective weighted average lives see note 3 regarding impairment goodwill intangibles fiscal 2011 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include gross margin percentage completion inprocess security solutions projects accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory forfeiture rates stockbased awards asset impairments medical claims payable actual results could differ estimates reclassification certain amounts presented prior periods’ consolidated financial statements related deferred tax valuation allowances intangible capital spending reclassified conform current periods presentation principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training centre gmbh germany thompson center holding corporation kw thompson tool company inc thompsoncenter arms company inc ol development inc bear lake holdings inc inactive fox ridge outfitters inc smith wesson security solutions inc fiscal yearend wholly owned subsidiaries smith wesson corp thompsoncenter arms company inc smith wesson security solutions inc may 1 2011 may 2 2010 oneday twoday variance reported fiscal year ends april 30 2011 april 30 2010 respectively variances create material difference consolidated financial statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2011 april 30 2010 periods presented included significant intercompany accounts transactions eliminated consolidation smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature derivative instruments account derivative instruments asc 81510 establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value times purchased foreign exchange forward contracts minimize impact fluctuations foreign exchange rates see note 14 cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2011 accounts exceeded federally insured limits 57783 trade receivables extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 8 11 net product sales fiscal years ended april 30 2011 2010 2009 respectively customer owed us approximately 3211 5 total accounts receivable april 30 2011 6881 9 total accounts receivable april 30 2010 inventories value firearm inventories consisting primarily finished firearm components finished firearms related products accessories security solutions inventory consisting primarily mechanical electrical components required installation products lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage comprehensive incomeloss asc 22010 requires companies report components comprehensive income financial statements including nonowner transactions events impact equity even items directly affect net incomeloss fiscal years ended april 30 2011 2010 2009 comprehensive incomeloss equal net incomeloss property plant equipment record property plant equipment consisting land building improvements machinery equipment computers furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range four months 20 years see note 10 additional information regarding intangible assets revenue recognition firearm products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured security solutions products services recognize revenue fixedprice contracts using percentageofcompletion method measured percentage costs incurred date total costs contract product sales account substantial portion firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed determine percentageofcompletion comparing cost incurred date estimated total cost required complete project consider costs incurred date reliable available measure progress projects make adjustments estimates complete periods facts resulting change become known estimate indicates loss incurred record loss period identified reliable estimates cannot made recognize revenue upon completion significant judgment involved estimation process contract different assumptions could yield materially different results delays installation process could negatively affect operations given period increasing volatility revenue recognition revenue conformity accounting principles generally accepted united states requires us make judgments affect timing amount reported revenue recognize trademark licensing revenue individual licensees quarterly basis based historical experience expected cash receipts licensees licensing revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensees’ products insufficient historical experience believe reasonable assurance collectability exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data revenue monthly minimum royalty reasonably estimated month payment assured april 30 2011 minimum royalties collected future amounted approximately 2236 follows segment information regarding segments presented note 23 geographic information april 30 2011 2010 2009 material personnel facilities outside united states sales outside united states detailed note 5 research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities executive management approves prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs earningsloss per share calculate basic diluted earningsloss per common share accordance provisions asc 26010 basic earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period diluted earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period including effect outstanding stock options warrants stockbased instruments effect dilutive following table provides reconciliation net incomeloss amounts weighted average number common equivalent shares used determine basic diluted earningsloss per common share thousands except per share data fiscal 2011 5515877 shares common stock issuable upon conversion convertible notes defined 2345422 shares common stock reserved issuance former stockholders swss date issuance 1598124 shares common stock issuable upon exercise stock options delivery rsus excluded computation diluted loss per share effect would antidilutive fiscal 2010 691553 shares common stock issuable upon exercise stock options delivery rsus excluded computation diluted loss per share effect would antidilutive fiscal 2009 6485084 shares common stock issuable upon conversion convertible notes smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 1903363 shares common stock issuable upon exercise stock options delivery rsus excluded computation diluted loss per share effect would antidilutive valuation longlived tangible intangible assets goodwill evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved noted determined impairments 90503 98243 related longlived assets fiscal 2011 2009 respectively significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks tradenames amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets exception goodwill intangible assets indefinite lives initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance asc 350 intangiblesgoodwill test goodwill intangible assets indefinite lives impairment annual basis end fiscal third quarter annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including goodwill intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 respect criteria necessary evaluate number reporting units exist based review segment reporting topic asc 2801050 determined operate three reporting units one springfield massachusetts houlton maine facilities second rochester new hampshire facility third swss determined operate two segments one firearm companies second security solutions subsidiary swss april 30 2011 goodwill recorded books based combination factors occurring fiscal 2011 including federal corporate budgetary constraints increased price competition low barrier entry factors determined indicators impairment goodwill intangible assets existed swss reporting unit result conducted evaluation goodwill intangible assets associated acquisition reporting unit based earnings cash flow forecast next ten years fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 83865 fiscal 2011 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data based combination factors occurring fiscal 2009 including economic environment market conditions hunting industry determined indicators impairment goodwill intangible assets existed rochester new hampshire reporting unit result conducted evaluation goodwill intangible assets associated acquisition reporting unit based lower order intake fiscal 2009 lower expected operating profits cash flows reporting unit earnings forecast next ten years revised fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 41173 fiscal 2009 periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affecting swss rochester new hampshire reporting units required us test impairment longlived assets pertaining reporting units fiscal 2011 2009 respectively based assessments recorded impairment charges 6637 57070 respectively reflect excess carrying value longlived intangible assets discounted cash flows impairment charges taken fiscal 2010 based review longlived assets utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting unit’s expected longterm operating cash performance approach also mitigates impact cyclical trends occur business fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percent revenue decline future years due improved utilization resulting lean initiatives believe days sales outstanding decline increase revenues also assumed economic downturn markets contracted long term however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data changes carrying amount goodwill year ended april 30 2011 follows accounting acquisitions completed significant business acquisition fiscal 2007 another fiscal 2010 resulted significant goodwill intangible asset balances business strategy contemplates may consummate additional acquisitions future accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally determine fair value reporting unit purposes first step annual goodwill impairment test based income approach prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes stock options awards warrants described notes 16 17 issued stock warrants incentive stock plan employees directors receive options purchase common stock stockbased awards municipal product liability provide reserves municipal potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments provision municipal product liability ongoing basis charge credit cost sales exclusive insurance reimbursements make evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain municipal product liability costs subject reimbursement insurance carriers environmental liability provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party “prp” ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted environmental reserves increased fiscal years ended april 30 2011 2010 2009 1470 0 172 respectively subsequent release escrow related rochester new hampshire facility established reserve relating environmental testing remediation facility 1470 fiscal 2011 see note 21 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data warranty generally provide lifetime warranty original purchaser new firearm products provide warranties two years materials workmanship security solutions projects includes products purchased us thirdparty manufacturers provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted warranty expense fiscal years ended april 30 2011 2010 2009 amounted 3534 3004 6079 respectively following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2011 2010 2009 sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted 10478 9181 10464 fiscal years ended april 30 2011 2010 2009 respectively coop advertising program retail level expensed costs amounting 2007 1729 918 fiscal 2011 2010 2009 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net product services sales included costs relating shipping handling charges cost products services sold insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 2000 per occurrence record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis recently issued accounting standards june 2011 financial accounting standards board “fasb” issued asu 201105 comprehensive income topic 220 presentation comprehensive income asu 201105 amendments asu require entity present total comprehensive income components net income components comprehensive income either single continuous statement comprehensive income two separate consecutive statements asu 201105 eliminates option present components comprehensive income part statement equity asu 201105 effective fiscal years interim periods within fiscal years beginning december 15 2011 early adoption permitted currently evaluating impact pending adoption asu 201105 consolidated financial statements december 2010 fasb issued asu 201029 business combinations topic 805 disclosure supplementary pro forma information business combinations asu reflects decision reached eitf issue 10g amendments asu affect public entity defined topic 805 business combinations enters business combinations material individual aggregate basis amendments asu specify public entity presents comparative financial statements entity smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data disclose revenue earnings combined entity though business combinations occurred current year occurred beginning comparable prior annual reporting period amendments also expand supplemental pro forma disclosures include description nature amount material nonrecurring pro forma adjustments directly attributable business combination included reported pro forma revenue earnings amendments effective prospectively business combinations acquisition date beginning first annual reporting period beginning december 15 2010 expect adoption asu material effect consolidated financial statements december 2010 fasb issued asu 201028 intangibles goodwill topic 350 perform step 2 goodwill impairment test reporting units zero negative carrying amounts asu reflects decision reached eitf issue 10a amendments asu modify step 1 goodwill impairment test reporting units zero negative carrying amounts reporting units entity required perform step 2 goodwill impairment test likely goodwill impairment exists determining whether likely goodwill impairment exists entity consider whether adverse qualitative factors indicating impairment may exist qualitative factors consistent existing guidance examples require goodwill reporting unit tested impairment annual tests event occurs circumstances change would likely reduce fair value reporting unit carrying amount amendments asu effective fiscal years interim periods within years beginning december 15 2010 expect adoption asu material effect consolidated financial statements recently adopted accounting standards april 2010 fasb issued asu 201013 compensation stock compensation topic 718 effect denominating exercise price sharebased payment award currency market underlying equity security trades asu 201013 asu 201013 clarifies sharebased payment award exercise price denominated currency market substantial portion entity’s equity securities trades considered contain condition market performance service condition therefore award classified liability otherwise qualifies equity asu 201013 effective fiscal years interim periods within fiscal years beginning december 15 2010 early adoption permitted adoption standard impact consolidated financial statements april 2010 fasb issued asu 201017 revenue recognition milestone method topic 605 milestone method revenue recognition asu 201017 asu 201017 allows milestone method acceptable revenue recognition methodology arrangement includes substantive milestones asu 201017 provides definition substantive milestone applied regardless whether arrangement includes single multiple deliverables units accounting asu 201017 limited transactions involving milestones relating research development deliverables asu 201017 also includes enhanced disclosure requirements arrangement individual milestones related contingent consideration information substantive milestones factors considered determination asu 201017 effective prospective basis milestones achieved fiscal years interim periods within years beginning june 15 2010 early adoption permitted adoption standard impact consolidated financial statements march 2010 fasb issued asu 201011 derivatives hedging asc topic 815 scope exception related credit derivatives asu 201011 asu 201011 clarifies embedded creditderivative features related transfer credit risk form subordination one financial instrument another subject potential bifurcation separate accounting asu 201011 also provides guidance whether embedded creditderivative features financial instruments issued structures collateralized debt obligations subject bifurcations separate accounting asu 201011 effective beginning company’s first fiscal quarter beginning june 15 2010 early adoption permitted adoption guidance impact consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data january 2010 fasb issued asu 201006 fair value measurements disclosures asc topic 820 improving disclosures fair value measurements amendments update require new disclosures transfers levels 1 fair value determined based quoted prices active markets identical assets liabilities 2 fair value determined based significant observable inputs separate disclosures purchases sales issuances settlements relating level 3 measurements also clarifies existing fair value disclosures level disaggregation inputs valuation techniques used measure fair value except detailed level 3 rollforward disclosures new standard effective interim annual reporting periods beginning december 31 2009 requirement provide detailed disclosures purchases sales issuances settlements rollforward activity level 3 fair value measurements effective interim annual reporting periods beginning december 31 2010 adoption guidance impact consolidated financial statements october 2009 fasb issued asu 200913 revenue recognition topic 650 multipledeliverable revenue arrangements consensus fasb eitf asu 200913 asu 200913 separate multipledeliverable revenue arrangements update establishes selling price hierarchy determining selling price deliverable amendments update replace term “fair value” revenue allocation guidance “selling price” clarify allocation revenue based entityspecific assumptions rather assumptions marketplace participant amendments update eliminate residual method allocation require arrangement consideration allocated inception arrangement deliverables using relative selling price method amendments update require vendor determine best estimated selling price manner consistent used determine price sell deliverable standalone basis standard effective prospectively revenue arrangements entered materially modified fiscal years beginning june 15 2010 adoption standard impact consolidated financial statements 4 notes payable financing arrangements credit facilities pursuant credit agreement dated november 30 2007 guarantor along certain direct indirect subsidiaries including swc tca borrowers refinanced existing credit facility among things increase acquisition line credit 70000 consolidate increase revolving lines credit 40000 may 2008 utilized proceeds 2008 stock offering repay 28000 outstanding balance acquisition line terminated acquisition line pursuant amendment credit agreement dated january 31 2008 td bank na “td bank” became sole lender successor administrative agent credit facility amendment also documented termination acquisition line credit increased fiscal 2009 second third quarter leverage ratio 3251 released security interest intellectual property pursuant second amendment credit agreement dated march 12 2009 modified leverage ratio 3251 quarters ending april 30 2010 pursuant third amendment credit agreement dated july 20 2009 added swss coborrower pledged assets associated business security obligations credit facility december 1 2009 paid full two term loans 4814 cash operations pursuant fourth amendment credit agreement dated december 3 2009 increased revolving line credit 60000 extended agreement november 30 2013 pursuant amended restated credit agreement dated december 7 2010 increased revolving line credit 120000 removed accounts receivable inventory borrowing base limitations extended agreement december 7 2014 credit facility provides availability december 7 2014 working capital needs revolving line credit bears interest variable rate equal libor prime plus applicable margin based leverage ratio election april 30 2011 borrowings outstanding borrowings would borne interest rate 50 per annum smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data security credit facility td bank first priority lien personal property real estate assets may prepay whole part loans interest rates determined reference prime rate interest accrued date prepayment amount prepaid without penalty premium loans fixed rate interest determined reference libor interest rate may prepaid provided reimburse td bank costs associated making payments dates specified credit agreement ii borrowing converting libor loan date borrowing conversion dates specified credit agreement received waiver 2 prepayment penalty associated repayment acquisition line credit described convertible notes december 15 2006 issued aggregate 80000 4 senior convertible notes “convertible notes” maturing december 15 2026 qualified institutional buyers pursuant terms conditions securities purchase agreement indenture used net proceeds convertible notes together 28000 acquisition line credit fund acquisition thompsoncenter arms noted exchanged total 50000 convertible notes 50000 senior notes defined convertible notes bear interest rate 4 per annum payable june 15 december 15 year holders convertible notes may require us repurchase part convertible notes december 15 2011 december 15 2016 december 15 2021 event fundamental change company defined indenture governing convertible notes classified 30000 outstanding convertible notes short termdebt balance sheet april 30 2011 since holders right require us repurchase convertible notes december 2011 convertible notes convertible shares common stock initially conversion rate 810636 shares per 1 principal amount total 6485084 shares equivalent initial conversion price 12336 per share april 30 2011 taking account exchange agreements defined remaining outstanding convertible notes convertible total 2431906 shares common stock convertible notes may converted time december 15 2011 may redeem portion convertible notes redemption price 100 principal amount convertible notes plus accrued unpaid interest closing price common stock exceeds 150 applicable conversion price convertible notes fewer 20 trading days period 30 consecutive trading days december 15 2011 may redeem portion convertible notes convertible notes general unsecured obligations ranking senior right payment subordinated indebtedness ranking pari passu unsecured unsubordinated indebtedness time closing price common stock exceeds 200 applicable conversion price convertible notes least 30 trading days period 40 consecutive trading days agreed incur additional indebtedness excess greater 1 60000 available credit facility 2 three times ltm ebitda defined indenture governing convertible notes time additional debt incurred including amounts outstanding credit facility evaluated conversion features convertible notes determined beneficial conversion feature existed features instruments requiring bifurcation senior notes january 14 2011 issued aggregate 23155 95 senior notes due 2016 “senior notes” two investors exchange 23155 convertible notes pursuant terms conditions exchange agreement “exchange agreement” indenture “senior notes indenture” february 10 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 2011 march 3 2011 issued aggregate 16788 10057 respectively senior notes additional investors exchange 16788 10057 respectively convertible notes pursuant terms conditions additional exchange agreements senior notes indenture result exchanged total 50000 convertible notes 50000 senior notes senior notes bear interest rate 95 per annum payable june 15 december 15 year time prior january 14 2014 may option redeem portion senior notes redemption price 100 principal amount senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount senior notes net cash proceeds one equity offerings redemption price 10475 principal amount senior notes plus accrued unpaid interest redemption date provided case clause b least 65 aggregate original principal amount senior notes remains outstanding redemption occurs within 60 days closing equity offering january 14 2014 may option redeem portion senior notes redemption price 1 10475 principal amount senior notes redeemed 12month period beginning january 14 2014 2 100 principal amount senior notes redeemed 12month period beginning january 14 2015 plus either case accrued unpaid interest senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase senior notes holders senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase senior notes mature january 14 2016 senior notes general unsecured obligations company senior notes indenture contains certain affirmative negative covenants including limitations restricted payments limitations indebtedness limitations sale assets limitations liens limitation indebtedness senior notes indenture applicable time consolidated coverage ratio set forth senior notes indenture us restricted subsidiaries less 200 100 general set forth senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense evaluated exchanges modification event asc 47060 experiencing financial difficulties exchanges accounted troubled debt restructuring consequently evaluated exchange asc 47050 debtor’s accounting modification exchange debt instruments determine modification substantial conversion feature removed exchange debt modification determined substantial accordingly exchanged convertible notes extinguished fair value senior notes equal carrying value exchanged convertible notes therefore gain loss extinguishment recorded accordance asc 47050 amortized 476 deferred financing costs associated extinguishment interest expense debt issuance costs debt issuance costs related td bank credit facility including related refinancings amounted 2217 recorded assets costs amortized expense life credit facility using straightline method fiscal year ended april 30 2011 amortized 194 interest expense incurred 4337 debt issuance costs associated issuance convertible notes costs amortized straightline basis approximates effective interest rate method december 15 2011 date first redemption fiscal 2011 exchange convertible notes senior notes discussed resulted increased amortization expense 476 fiscal year ended april 30 2011 amortized 1206 interest expense including onetime writeoffs related convertible notes smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data incurred 1778 debt issuance costs associated issuance senior notes costs amortized straightline basis approximates effective interest rate method january 14 2016 date maturity fiscal year ended april 30 2011 amortized 89 interest expense related senior notes total amount amortized interest expense debt issuance costs fiscal 2011 2010 2009 1489 1100 1465 respectively including onetime writeoffs future amortization debt issuance costs follows fiscal year 2012 928 fiscal 2013 724 fiscal 2014 724 fiscal 2015 573 fiscal 2016 246 carrying amounts notes payable april 30 2011 2010 follows credit agreement td bank contains financial covenants relating maintaining maximum leverage minimum debt service coverage indenture governing convertible notes contains financial covenant relating maximum additional indebtedness senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2011 letters credit april 30 2011 outstanding letters credit aggregating 810 5 international sales sell products worldwide following table sets forth breakdown export sales accounted 5 7 net sales fiscal years ended april 30 2011 2010 2009 respectively individual foreign country accounted 10 net sales smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 6 income expense following sets forth details income expense fiscal years ended april 30 2011 2010 2009 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements incurred fiscal years ended april 30 2011 2010 2009 advertising expenses included selling marketing expenses amounted approximately 15443 13880 13842 respectively 8 property plant equipment following table summarizes property plant equipment april 30 2011 2010 estimated cost complete construction progress 5605 depreciation expense amounted 11993 10023 8729 fiscal years ended april 30 2011 2010 2009 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following table summarizes depreciation amortization expense includes amortization intangibles debt financing costs line item fiscal years ended april 30 2011 2010 2009 9 inventories following table sets forth summary inventories stated lower cost market april 30 2011 2010 10 intangible assets record intangible assets cost intangible assets consist customer relationships developed technology order backlog trademarks tradenames patents software amortize patents developed technology using straightline method estimated useful lives ranging four months 20 years amortize customer relationships proration expected yearly revenue generated customer lists acquired currently estimated 20 years following table presents summary intangible assets amortization expense excluding amortization deferred financing costs amounted 1453 2500 2475 fiscal years ended april 30 2011 2010 2009 respectively noted note 3 fiscal 2011 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 2009 became aware impairments intangible assets caused us write 6637 57070 respectively net value assets expect amortization expense approximate 1100 annually next five fiscal years 11 receivables insurance carriers discussed notes 15 21 party lawsuits related use firearm products carry insurance covers certain legal defense costs related matters record receivable insurance carriers collection insurance proceeds probable activity receivable account since fiscal 2009 outstanding balance april 30 2011 2010 2060 25 current assets 2035 noncurrent assets insurance carriers paid defense costs fiscal 2011 2010 12 accrued expenses following table sets forth accrued expenses april 30 2011 2010 13 plant consolidation december 8 2010 implemented restructuring plan firearm division move production hunting product line springfield massachusetts facility close rochester new hampshire facility closure rochester new hampshire facility result termination relocation employees facility increase number employees springfield massachusetts facility approximately 225 fulltime equivalents incur major capital expenditures relating moving equipment processes rochester new hampshire springfield massachusetts improving production efficiencies tooling new product offerings various projects designed increase capacity upgrade manufacturing technology expect complete restructuring plan november 2011 fiscal year ended april 30 2011 recorded 2662 expenses related facilities employee severance including 2240 restructuring expenses costs goods sold excluding impact reduced productivity efficiencies rochester new hampshire facility 422 operating expenses expect smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data record additional 4358 expenses fiscal 2012 including additional 3765 restructuring expenses costs goods sold excluding impact reduced productivity efficiencies rochester new hampshire facility 593 operating expenses completed total amount incurred connection restructuring plan expected 7020 2494 employee severance relocation expenses 4526 facilitiesrelated expenses following table summarizes restructuring liabilities accrued changes amounts year ended april 30 2011 plan discussed thousands december 21 2010 economic development incentive program commonwealth massachusetts awarded refundable economic incentive tax credit “itc” economic assistance coordinating council conjunction plan discussed itc calculated 40 qualified capital expenditures placed service allows refundable tax credit commonwealth massachusetts 4400 fiscal year ended april 30 2011 april 30 2011 placed service 12609 qualified assets recorded maximum 4400 itc contra asset account included property plant equipment 14 fair value measurement may 1 2008 adopted provisions sfas 157 fair value measurement primarily codified fair value measurements disclosures topic asc 82010 financial assets liabilities adopted provisions asc 82010 nonfinancial assets nonfinancial liabilities previously deferred fasb staff position “fsp” 1572 asc 8201065 may 1 2009 asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability examples include interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities following table presents information assets liabilities measured fair value recurring basis april 30 2011 indicates fair value hierarchy valuation techniques utilized determine fair value purchase certain finished goods component parts european supplier pay euros routinely purchase foreign exchange forward contracts minimize impact fluctuations foreign exchange rates forward contracts provide protection us devaluation us dollar euro elected designate derivative instruments qualifying hedge accounting treatment asc 8152025 accordingly record gains losses derivative contracts element income expense reporting period based change estimated fair value contracts determine fair values derivative financial instruments based exchange rates euro quoted active markets acquired business combinations record longlived tangible assets cost depreciate useful lives test indefinitelived intangible assets goodwill acquired business combinations impairment annual basis february 1st annual tests indicators potential impairment exist smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following table presents information derivatives outstanding april 30 2011 2010 following table presents information effect derivative instruments financial performance years ended april 30 2011 2010 2009 15 selfinsurance reserves april 30 2011 2010 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 9456 9694 respectively 4579 4760 respectively classified noncurrent included noncurrent liabilities 2293 2157 respectively included accrued expenses 2584 2777 respectively included accrued productmunicipal liability accompanying consolidated balance sheets addition april 30 2011 2010 221 446 respectively excess workers’ compensation receivable classified asset believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 11461 10250 12704 fiscal years ended april 30 2011 2010 2009 respectively following table summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2011 2010 2009 policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2011 2010 accrued reserves product municipal litigation liabilities 5473 5760 respectively 2889 2983 respectively noncurrent consisting entirely expected legal defense costs addition smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data april 30 2011 2010 recorded receivables insurance carriers related liabilities 2060 year 2035 year classified assets remaining amount 25 classified current assets 16 capital stock common stock issued fiscal year ended april 30 2011 issued 90334 shares common stock market value approximately 330 current former employees upon exercise stock options granted employees company proceeds exercise stock options 144 fiscal year ended april 30 2011 issued 350971 shares common stock market value approximately 1248 employee stock purchase plan “espp” proceeds purchase shares 1062 march 18 2011 issued 4080000 shares common stock former stockholders swss conjunction acquisition swss see note 2 fiscal year ended april 30 2010 issued 126499 shares common stock market value 734 current former employees upon exercise stock options granted employees company proceeds exercise stock options 190 fiscal year ended april 30 2010 issued 280438 shares common stock market value 1226 espp proceeds purchase shares 1042 may 12 2009 completed stock offering 6000000 shares common stock yielded net proceeds 35017 july 2009 issued 5492286 shares common stock conjunction acquisition swss november 2009 issued additional 107714 shares common stock conjunction acquisition swss see note 2 fiscal year ended april 30 2009 issued 429499 shares common stock market value 2433 current former employees upon exercise stock options granted employees company proceeds exercise stock options 465 fiscal year ended april 30 2009 issued 278260 shares common stock market value 1374 espp proceeds purchase shares 846 may 23 2008 completed stock offering 6250000 shares common stock yielded net proceeds 32046 allowed us repay 28000 acquisition loan financed portion thompsoncenter arms acquisition stock warrants issued repurchased september 12 2005 conjunction sale 6000000 shares common stock issued investors placement agent warrants purchase 1200000 120000 shares common stock respectively warrants expired fiscal 2011 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data following table outlines activity related warrants periods indicated 17 stock option employee stock purchase plans two stock option plans “sops” 2001 stock option plan 2004 incentive stock plan new grants 2001 stock option plan made since approval 2004 incentive stock plan september 13 2004 annual meeting stockholders new grants covering participants issued 2004 incentive stock plan 2004 incentive stock plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock plan permits grant options acquire common stock restricted common stock deferred stock restricted stock units “rsus” stock appreciation rights dividend equivalents board directors committee established board administers sops selects recipients awards granted determines grants awarded options granted sops exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture unless terminated earlier board directors 2004 incentive stock plan terminate earlier 1 ten years date later occur original date plan approved board directors stockholders whichever earlier ii date increase number shares reserved issuance plan approved board directors long increase also approved stockholders 2 time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award generally awards vest period three years exercisable period ten years plan also permits grant awards nonemployees board granted past separate option grant outside 2004 incentive stock plan 500000 shares made exercise price 147 per share connection hiring president chief executive officer fiscal year ended april 30 2005 options expire december 6 2014 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data number shares weighted average exercise prices stock options granted sops separate grant fiscal years ended april 30 2011 2010 2009 follows april 30 2011 5892605 shares available grant 2004 incentive stock plan aggregate intrinsic value outstanding options vested april 30 2011 2010 2009 1625 2699 5852 respectively aggregate intrinsic value outstanding options exercisable april 30 2011 2010 2009 1622 2590 5440 respectively espp authorizes sale 10000000 shares common stock employees espp commenced june 24 2002 continues effect term ten years unless sooner terminated espp implemented series offering periods two years duration four sixmonth purchase periods offering period espp amended september 2004 future offering periods commencing october 1 2004 offering period six months consistent six month purchase period purchase price 85 fair market value common stock offering date purchase date whichever lower participant may elect payroll deductions made payday offering period amount less 1 20 greater percentage board may establish time offering date participant’s compensation payday offering period last day offering period purchase date offering period offering period commencing april 1 ends next september 30 offering period commencing october 1 ends next march 31 board directors power change duration andor frequency offering purchase periods respect future offerings purchases without stockholder approval change announced least five days prior scheduled beginning first offering period affected maximum number shares employee may purchase period 12500 shares total 25 shares based fair market value first day purchase period options rights participate espp nontransferable subject forfeiture accordance espp guidelines event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data successor corporation april 30 2011 issued 1895732 shares common stock espp fiscal 2011 2010 2009 350971 280438 278260 shares respectively purchased espp measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options warrants issued employees using blackscholes model time options warrants granted amount amortized vesting period option warrant espp fair value determined beginning purchase period amortized term offering period following assumptions used valuing options espp shares estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table weightedaverage fair value stock options granted fiscal 2011 2010 2009 263 400 414 respectively compensation expense recognized related grants options certain employees 1953 year ended april 30 2011 weightedaverage fair value espp shares purchased fiscal 2011 2010 2009 088 143 175 respectively compensation expense recognized related espp shares purchased 344 year ended april 30 2011 summary activity unvested rsus fiscal 2011 2010 2009 follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data fiscal year ended april 30 2011 granted 127700 rsus aggregate maximum award 240400 rsus current former employees rsus granted certain named executive officers vest based relative performance stock price nasdaq composite index threeyear period aggregate fair market value rsu grants amortized compensation expense vesting period three years fiscal year ended april 30 2011 delivered 67195 shares common stock rsus vested periods total market value 271 year ended april 30 2011 cancelled aggregate 134999 performancebased rsus consisting 53333 performancebased rsus previously granted president chief executive officer financial targets associated rsus met fiscal year ended april 30 2011 ii 40000 performancebased rsus previously granted former executive vice president chief financial officer following termination employment iii 15000 performancebased rsus previously granted former president security solutions division following termination employment iv 26666 performancebased rsus previously granted president chief executive officer financial targets associated rsus met fiscal year ended april 30 2010 compensation expense recognized related grants rsus excluding 905 impact 134999 canceled performancebased rsus previously granted current former employees named 281 year ended april 30 2011 april 30 2011 291 unrecognized compensation cost related unvested rsus much relates performancebased shares cost expected recognized weighted average 20 years fiscal year ended april 30 2010 granted president chief executive officer former executive vice president chief financial officer 47400 rsus aggregate maximum award 79800 rsus subject performancebased vesting also granted 7500 rsus nonemployees year ended april 30 2010 53333 performancebased shares previously awarded president chief executive officer vested delivered fiscal 2011 aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees nonemployees approximately 423 year ended april 30 2010 fiscal year ended april 30 2009 granted 6000 rsus current employees subject timebased vesting also granted 15000 rsus nonemployees april 30 2009 346944 rsus outstanding 85748 canceled due employee terminations 53334 performancebased rsus canceled failure satisfy performance targets aggregate fair market value rsu grants amortized compensation expense vesting period three years compensation expense recognized related grants rsus certain employees nonemployees 1086 year ended april 30 2009 recorded stockbased compensation expense 1680 3284 3307 fiscal 2011 2010 2009 respectively stockbased compensation expense included general administrative expenses intrinsic value options exercised fiscal 2011 2010 2009 186 543 1969 respectively grant date fair value rsus vested fiscal 2011 2010 2009 321 1427 883 respectively material modifications options warrants rsus fiscal 2011 2010 2009 april 30 2011 total unamortized fair value stock options 1433 recognized remaining vesting period 30 years smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 18 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed 991 1559 1194 fiscal years ended april 30 2011 2010 2009 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine employees become eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes defined plan year fiscal 2011 plan contribute approximately 4096 contributed 7165 6248 fiscal years ended april 30 2010 2009 respectively contributions funded fiscal yearend also defined contribution profit sharing plan covering substantially thompsoncenter arms employees based certain eligibility criteria board directors discretion determines contributions made net income thompsoncenter arms fiscal 2011 plan make payments plan fiscal 2010 2009 make payments plan 19 postemployment postretirement deferred compensation postretirement pension plan senior executive supplemental retirement plan certain thompsoncenter arms officers covered three former executives april 30 2011 benefits plan paid monthly currently monthly benefit 3 adjusted annually based percent change cpi urban consumers ten years following retirement officer director unfunded nonqualified noncontributory plan pay future obligations april 30 2011 110 accrued liabilities 329 accrued noncurrent liabilities consolidated financial statements based upon present value estimated future obligation using discount rate 196 remaining months commitment estimated future benefit payments follows 2012 110 2013 110 2014 92 2015 74 2016 61 thereafter 25 plan may also required continue pay thompsoncenter arms’ portion health insurance premiums offered employees retiree becomes eligible medicare april 30 2011 four individuals receiving cash payments plan none eligible receive health insurance benefit 20 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data income tax expensebenefit consists following table presents reconciliation provision income taxes statutory rates provision consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data future tax benefits deferred tax liabilities related temporary differences following required accounting standards codification “asc” topic 74010 record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position aware recent expected future changes tax laws would material impact financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data federal net operating loss carryforwards amounting 1601 april 30 2011 april 30 2011 net operating loss expires 2021 obtained 8215 additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 403 fiscal 2012 108 taxable year thereafter possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 ownership change occur would annual limitation remaining tax loss carryforward adjustments reserves book versus tax difference amortization intangible assets increased overall net deferred tax asset 8764 april 30 2011 10938 4591 state net operating loss carryforwards april 30 2011 2010 respectively state net operating loss carryforwards april 30 2009 1739 1218 state tax credit carryforwards april 30 2011 2010 respectively credits expire april 30 2014 april 30 2025 expiration date april 30 2011 valuation allowances 26 445 705 provided deferred tax assets federal capital loss carryforward state net operating losses state tax credits respectively anticipate using prior expiration april 30 2010 valuation losses 26 650 provided deferred tax assets federal capital loss carryforward state tax credits respectively increase valuation allowance deferred tax assets state net operating losses credits related mainly operations franklin tennessee valuation allowance provided deferred federal income tax assets april 30 2011 2010 believe likely assets realized april 30 2011 2010 gross taxeffected unrecognized tax benefits 1123 1923 respectively 1123 1052 respectively recognized would favorably impact effective tax rate included unrecognized tax benefits april 30 2011 2010 178 179 respectively accrued interest penalties related uncertain tax positions recorded noncurrent liabilities reconciliation beginning ending amount unrecognized tax benefits follows full value unrecognized tax benefits classified noncurrent income tax liabilities payment cash anticipated within one year balance sheet date fiscal 2012 expect incur additional taxes interest penalties uncertain tax positions expect change material interest penalties related income tax liabilities included income tax expense limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2007 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 21 commitments contingencies litigation together certain related organizations codefendant various legal proceedings involving product liability claims aware product liability claims including allegations defective product design manufacturing negligent marketing andor distribution firearms leading personal injury lawsuits claims based principally theory “strict liability” also may based negligence breach warranty legal theories many lawsuits punitive damages well compensatory damages demanded aggregate claimed amounts currently exceed product liability accruals applicable insurance coverage believe various allegations described unfounded addition accident results due negligence misuse firearm claimant third party recovery us addition codefendant legal proceedings brought city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties shootings city’s complaint seeks money damages among things costs investigating crime preventing crime costs medical care police emergency services decreases property values addition nuisance abatement andor injunctive relief sought change design manufacture marketing distribution practices various defendants suit alleges public nuisance negligent distribution marketing negligent design believe various allegations described unfounded addition accidents results due negligence misuse firearm third party recovery us certain officers directors named three similar purported securities class action lawsuits subsequently consolidated one action plaintiffs seek damages alleged violations section 10b section 20a exchange act certified consolidated action consists class persons purchased securities june 15 2007 december 6 2007 march 25 2011 court dismissed case prejudice plaintiff appealing court’s dismissal addition involved several purported stockholder derivative lawsuits actions brought putative plaintiffs behalf company certain officers directors lawsuits based principally theory breach fiduciary duties putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees vigorously defending lawsuits assurance however pay significant damages amounts settlement insurance coverage unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgments intend vigorously defend time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made fiscal years ended april 30 2011 2010 2009 paid 1296 1047 1323 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 70 1097 0 respectively fiscal years settlement fees relative product liability cases smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data fiscal 2011 recorded expense 1009 recognize changes product liability municipal litigation liability fiscal 2010 2009 recorded income expense 74 1642 respectively recognize changes product liability municipal litigation liability recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets new cases norman hart v smith wesson holding corp et al frank holt v smith wesson holding corp et al united states district court district nevada two actions filed september 1 2010 holt september 17 2010 hart purported derivative actions brought two separate plaintiffs behalf company certain officers directors complaints allege inter alia officer director defendants breached fiduciary duties failing 1 institute maintain internal controls permitting us engage systematic violations us foreign corrupt practices act 1977 “fcpa” 2 maintain internal accounting controls despite obligation fcpa 3 take steps prevent purportedly unlawful conduct engaged certain company executives putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees november 15 2010 parties stipulated scheduling order signed court day among things 1 consolidated two cases 2 set forth schedule putative plaintiffs file consolidated amended complaint motion dismiss briefing schedule november 23 2010 defendants removed action district court nevada clark county united states district court district nevada december 8 2010 putative plaintiffs filed ex parte motion extension time file consolidated amended complaint indicating intended file motion remand case back state court district court granted motion december 14 2010 ordered consolidated amended complaint due within 14 days district court ruled thenanticipated motion remand putative plaintiffs filed anticipated motion remand december 21 2010 december 22 2010 defendants filed response motion remand consented remand may 9 2011 case remanded back clark county district court state nevada may 24 2011 putative plaintiffs filed consolidated verified amended complaint june 10 2011 plaintiffs agreed dismiss nevada state court complaint intention refiling similar complaint us district court district massachusetts stipulation reflecting agreement parties currently pending nevada state court aaron sarnacki v smith wesson holding corp et al united states district court district arizona action filed october 28 2010 purported derivative action brought plaintiff behalf company certain officers directors complaint alleges officer director defendants breached fiduciary duties providing misleading statements concerning earnings business prospects fiscal 2008 complaint also asserts june 14 2007 december 6 2007 officer director defendants provided false statements financial results putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees january 13 2011 action transferred united states district court district massachusetts july 1 2011 file answer move dismiss art bundy v smith wesson holding corp et al dwight nance v smith wesson holding corp et al united states district court district massachusetts actions filed january 24 2011 purported derivative actions brought two separate plaintiffs behalf company certain officers directors complaints allege officer director defendants breached fiduciary duties providing misleading statements concerning company’s earnings business smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data prospects fiscal 2008 complaints also assert june 14 2007 december 6 2007 officer director defendants provided false statements company’s financial results putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees charles quasté v smith wesson corporation united states district court eastern district pennsylvania january 14 2011 plaintiff filed amended complaint asserting claims compensatory damage stemming injury allegedly sustained plaintiff using model 460xvr revolver amended complaint asserts claims negligence strict liability breach warranty february 11 2011 filed answer amended complaint denying liability status conference held april 4 2011 discovery ongoing courtordered arbitration hearing scheduled october 18 2011 cybergun sa v smith wesson holding corporation smith wesson corporation commercial court paris france complaint filed january 13 2011 alleges unfair competition damage reputation plaintiff asserts suffered damage image reputation reports allegedly made certain soft air gun web sites previously filed separate trademark infringement unfair competition breach contract action plaintiff united states district court district arizona plaintiff alleges intentionally orchestrated media coverage reported complaint filed separate lawsuit united states plaintiff seeking 450 approximately 668 compensatory damages well 15 approximately 22 court costs initial court conference held june 15 2011 hearing scheduled september 28 2011 smith wesson holding corporation smith wesson corp v cybergun sa et al united states district court district arizona filed action defendants june 17 2010 asserting federal trademark infringement federal unfair competition federal trademark dilution contributory vicarious trademark infringement common law infringement trademark common law unfair competition breach contract following termination trademark license agreement concerning soft air guns defendant cybergun counterclaimed seeking declaratory judgment well counts breach contract breach implied covenant good faith fair dealing tortious interference contractual relations common law unfair competition answered cybergun’s counterclaims denying liability scheduling conference held court november 8 2010 discovery ongoing trial scheduled begin may 8 2012 universal safety response inc v barrier1 systems inc united states district court northern district new york suit filed usr september 1 2010 defendant barrier1 systems inc usr’s complaint alleges defendant’s barrier system infringes patents owned usr october 14 2010 defendant filed counterclaims usr alleging usr’s patents invalid bad faith unfair competition parties seek injunctions unspecified damages attorney’s fees december 1 2010 defendant filed motion transfer venue middle district north carolina december 22 2010 usr opposed defendant’s motion decision issued date discovery ongoing trial scheduled begin january 14 2012 cases dismissed resolved art bundy v smith wesson holding corp et al dwight nance v smith wesson holding corp et al united states district court district massachusetts october 20 2010 court granted motion dismiss dismissed cases without prejudice dan mosqueda v smith wesson corp et al united states district court southern district mississippi november 4 2010 court granted motion summary judgment dismissed case prejudice plaintiff’s deadline appeal expired appeal filed smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data michael robinson v smith wesson corp superior court judicial district new london connecticut november 3 2010 case settled within limits selfinsured retention mark lee v smith wesson corp et al court common pleas richland county ohio civil action filed november 11 2008 alleged plaintiff sustained injury right eye november 11 2006 operating smith wesson model 460 xvr revolver plaintiff sought unspecified damages us seller firearm complaint alleged incident occurred cylinder revolver swung open upon firing allowing gases particles escape firearm firing complaint asserted claims negligence strict liability breach warranty january 2 2009 filed motion strike partial motion dismiss certain portions plaintiff’s complaint january 9 2009 motion denied court february 4 2009 filed answer plaintiff’s complaint august 18 2010 plaintiff filed notice voluntary dismissal without prejudice well notice substitution counsel plaintiff one year refile action adam coffey v smith wesson corp united states district court northern district ohio february 8 2011 case settled within limits selfinsured retention cases appeal ruling following case subject certain pending appeals smith wesson holding corp securities litigation case consolidation following three cases william hwang v smith wesson holding corp et al joe cranford v smith wesson holding corp et al joanne trudelle v smith wesson holding corp et al pending united states district court district massachusetts springfield purported securities class action lawsuit brought individually behalf persons purchased securities company june 15 2007 december 6 2007 putative plaintiffs seek unspecified damages us certain officers directors alleged violations sections 10b 20a exchange act oklahoma firefighters pension retirement system appointed lead plaintiff putative class may 30 2008 lead plaintiff oklahoma firefighters pension retirement system filed consolidated class action complaint seeking unspecified damages us several officers directors alleged violations sections 10b 20a exchange act august 28 2008 named officers directors moved dismiss consolidated amended complaint failed state claim federal securities laws private securities litigation reform act 1995 putative class lead plaintiff submitted opposition motion october 28 2008 march 26 2009 motion granted mr monheit denied remaining defendants may 11 2010 court certified consolidated action consisting class persons purchased securities company june 15 2007 december 6 2007 suffered damage result court scheduled discovery concerning facts action ended may 28 2010 examination experts put forth parties ended october 1 2010 october 29 2010 moved summary disposition case lead plaintiff opposed motion november 22 2010 crossmoved partial summary judgment hearing matter held december 20 2010 march 25 2011 court granted motion summary judgment remaining defendants dismissed consolidated actions prejudice plaintiff filed notice appeal dismissal april 21 2011 plaintiff appealed mr monheit’s dismissal time appeal past plaintiff july 5 2011 file appellant brief jd nelson et al v smith wesson corp et al united states district court district alaska suit filed state court alaska june 3 2009 removed united states district court january 25 2010 service process plaintiffs claimed minorplaintiff kariel young rendered paraplegic result discharge round ammunition 22 caliber smith wesson revolver complaint alleged negligence strict liability breach warranty ultra hazardous activities claims unspecified consumer protection laws plaintiffs sought damages emotional distress compensatory smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data damages punitive damages filed motion dismiss complaint plaintiffs sought remand case state court denied may 5 2010 may 18 2010 court granted motion dismiss dismissed plaintiffs’ case entirety june 1 2010 plaintiffs filed motion reconsideration june 14 2010 plaintiffs’ motion reconsideration denied court plaintiffs filed appeal ninth circuit court appeals june 18 2010 plaintiffs’ brief filed october 12 2010 reply brief filed november 26 2010 december 16 2010 filed answering brief oral argument scheduled august 2011 tenedora tuma sa v smith wesson corp civil commercial court first district court first instance national district santo domingo dominican republic plaintiff commenced suit submitting request preliminary reconciliation hearing two preliminary reconciliation hearings reconciliation committee issued certificate lack agreement thereafter summons notice claim issued us january 17 2000 plaintiff alleged terminated distributor agreement without cause sought damages approximately 600 alleged violations dominican republic law 173 protection importers merchandise products briefing merits completed trial court november 2002 june 7 2004 court granted motion dismiss entirety notification judgment filed august 10 2004 september 9 2004 plaintiff purportedly appealed decision march 3 2005 informed hearing held court appeals october 27 2004 without notification counsel us merits plaintiff’s appeal taken advisement court june 23 2005 hearing held wherein attempted reopen appeal based lack service appeal papers us november 11 2005 court appeals rendered final decision court refused plaintiff’s arguments appeal upheld petitions confirming aspects judgment rendered court first instance favor january 12 2006 plaintiff appealed supreme court dominican republic response filed february 10 2006 hearing held supreme court dominican republic october 11 2006 wherein parties presented final arguments decision issued date pending cases city gary indiana mayor scott l king v smith wesson corp et al lake superior court indiana plaintiff’s complaint alleges public nuisance negligent distribution marketing negligent design seeks unspecified amount compensatory punitive damages certain injunctive relief defendants’ motion dismiss plaintiff’s complaint granted counts january 11 2001 september 20 2002 indiana court appeals affirmed trial court’s dismissal plaintiff’s claims december 23 2003 indiana supreme court reversed decision remanded case trial court held plaintiff allowed proceed public nuisance negligence claims defendants negligent design claim manufacturer defendants filed answer plaintiff’s amended complaint january 30 2004 november 23 2005 defendants filed motion dismiss based protection lawful commerce arms act plcaa october 23 2006 court denied defendants’ motion dismiss october 29 2007 indiana court appeals affirmed trial court’s denial defendants’ motion judgment pleadings based plcaa court affirmed different grounds holding statute apply city gary’s case court address constitutional claims february 7 2008 defendants filed petition transfer indiana supreme court january 12 2009 indiana supreme court denied defendants’ petition transfer jurisdiction defendants’ deadline appeal united states supreme court expired april 9 2009 defendants elected ask court review indiana court appeals’ october 29 2007 decision trial currently scheduled oren gorden v smith wesson corp et al territorial court virgin islands district st croix complaint filed january 19 2001 seeks unspecified compensatory damages personal injuries allegedly sustained mr gorden complaint alleges mr gorden’s smith wesson handgun smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data malfunctioned exploded tried load filed answer denying allegations liability november 17 2003 firearm issue case lost transit commercial carrier returned us plaintiff april 21 2004 court denied motion summary judgment mediation conducted april 13 2005 expert discovery ongoing status conference held october 29 2007 trial scheduled may 10 2010 set aside june 16 2011 parties required submit proposed stipulated scheduling order finalize discovery new trial date scheduled todd brown kathy brown v smith wesson corp united states district court western district arkansas complaint filed july 18 2008 asserts claims negligence strict liability breach warranty plaintiffs seek unspecified money damages plaintiff todd brown claims using smith wesson model 460 revolver december 26 2007 sustained injuries left hand firing revolver plaintiffs allege failed provide adequate warnings regarding risk personal injury associated gases escaping barrel cylinder gap revolver firing filed answer complaint august 14 2008 denying plaintiffs’ allegations liability discovery closed june 24 2010 filed motion summary judgment march 16 2011 court denied motion summary judgment trial scheduled june 27 2011 chester wolfe et al v smith wesson holding corporation et al common pleas court miami county ohio complaint filed december 16 2008 alleges plaintiff sustained amputation left thumb december 25 2007 operating smith wesson model 460 revolver due gas escaping barrel cylinder gap front revolver plaintiffs allege products liability asserting claims design manufacturing defect failure warn loss consortium plaintiffs seek damages excess 25000 january 14 2009 filed answer denying plaintiffs’ allegations december 11 2009 plaintiff withdrew case dealer leaving us defendant case december 21 2009 removed case federal court discovery ongoing courtordered mediation scheduled september 20 2011 trial scheduled begin december 5 2011 brian ward v thompsoncenter arms company inc et al fortysixth circuit court otsego county michigan complaint filed october 16 2006 alleges plaintiff sustained eye injuries using thompsoncenter arms rifle plaintiff asserts product liability claims company retailer based negligence warranty principles plaintiff seeking unspecified amount compensatory damages november 15 2006 filed answer denying allegations liability february 2 2009 plaintiff filed second amended complaint february 17 2009 filed answer plaintiff’s complaint october 9 2009 filed motion summary judgment october 21 2009 plaintiff opposed motion hearing motion summary judgment held november 3 2009 expert discovery ongoing case evaluation required michigan court held november 13 2009 panel recommended settlement favor plaintiff amount 325 rejected proposed settlement award december 12 2009 court granted motion summary judgment manufacturing defect failure recall failure test claims denied motion design defect claims theories riskutility failure warn settlement conference scheduled august 5 2010 postponed plaintiff’s counsel retiring settlement conference held november 2 2010 agreement reached trial scheduled begin may 2012 jeremy mccutchen v thompsoncenter arms company inc et al district court harris county texas complaint filed december 21 2009 asserts claims strict liability breach warranty negligence failure warn plaintiff seeks unspecified money damages plaintiff claims using thompsoncenter arms rifle december 22 2007 firearm allegedly malfunctioned causing injury filed answer plaintiff’s complaint january 29 2010 denying allegations liability discovery ongoing trial scheduled begin october 3 2011 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data steve michelle santoyo v bear lake holdings inc dba thompsoncenter arms et al circuit court boone county missouri complaint filed february 11 2010 asserts claims strict liability negligence failure warn negligently supplying dangerous instrumentality loss consortium punitive damages plaintiffs’ seek unspecified money damages plaintiff steve santoyo claims using thompsoncenter arms black diamond muzzleloader november 28 2008 firearm allegedly malfunctioned causing injury march 15 2010 removed case united states district court western district missouri march 22 2010 filed response plaintiffs’ complaint march 27 2010 plaintiffs filed motion remand case back circuit court april 14 2010 opposed plaintiffs’ motion remand june 15 2010 district court denied plaintiff’s motion remand motion dismiss claims plaintiff michelle santoyo filed july 30 2010 august 9 2010 plaintiffs’ filed motion amend complaint add retailer sold firearm defendant august 18 2010 plaintiff michelle santoyo’s claims dismissed without prejudice discovery ongoing related plaintiff steve santoyo’s claims november 22 2010 district court granted plaintiffs’ motionto add retailer sold firearm defendant addition defendant destroyed diversity jurisdiction district court case remanded circuit court trial scheduled begin december 2011 us department justice “doj” investigation january 19 2010 doj unsealed indictments 22 individuals law enforcement military equipment industries one vice presidentsales international us law enforcement charged indictment also served grand jury subpoena production documents always taken continue take seriously obligation industry leader foster responsible ethical culture includes adherence laws industry regulations united states abroad although cooperating fully doj matter undertaken comprehensive review company policies procedures doj may determine violated fcpa laws cannot predict investigation completed outcome could additional indictments company officers employees doj determines violated fcpa laws former employee convicted fcpa violations may face sanctions including significant civil criminal penalties addition could prevented bidding domestic military government contracts could risk debarment us department state also face increased legal expenses could see increase cost international business could also see private civil litigation arising result outcome investigation addition responding investigation may divert time attention management normal business operations regardless outcome investigation publicity surrounding investigation potential risks associated investigation could negatively impact perception company investors customers others securities exchange commission “sec” investigation subsequent end fiscal 2010 received subpoena staff sec giving notice sec conducting nonpublic factfinding inquiry determine whether violations federal securities laws appears civil inquiry triggered part doj investigation potential fcpa violations always taken continue take seriously obligation industry leader foster responsible ethical culture includes adherence laws industry regulations united states abroad although cooperating fully sec matter sec may determine violated federal securities laws cannot predict inquiry completed outcome sec determines violated federal securities laws may face injunctive relief disgorgement illgotten gains sanctions including fines penalties may forced take corrective actions could increase costs otherwise adversely affect business results operations liquidity also face increased legal smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data expenses could see increase cost business could also see private civil litigation arising result outcome inquiry addition responding inquiry may divert time attention management normal business operations regardless outcome inquiry publicity surrounding inquiry potential risks associated inquiry could negatively impact perception company investors customers others bureau alcohol tobacco firearms explosives “atf” audit atf asserted various instances failure comply gun control act 1968 attendant rules regulations following onpremises inspection springfield massachusetts facility fiscal 2009 asserted violations related inventory record keeping reporting obligations resolved compliance issues raised atf agreed commence recommend licensing proceedings us result conduct known resolution included various measures designed achieve goal positioning forefront industry compliance efforts connection resolving matter agreed among things maintain internal compliance department ensure compliance firearms laws agreed extra compliance inspections agreed continue work atf following internal compliance processes agreed institute various inventory record keeping tracking reporting procedures addition agreed pay settlement amount 500 remitted april 30 2011 environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act “rcra” place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject two release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent one site pursuant merger agreement related acquisition thompsoncenter arms former stockholders thompson center holding corporation agreed indemnify us losses arising among things environmental conditions related thompsoncenter arms’ manufacturing activities purchase price 8000 placed escrow account portion applied environmental remediation manufacturing site rochester new hampshire november 2008 2500 escrow account released former stockholders thompson center holding corporation former stockholders thompson center holding corporation recently entered settlement agreement 1182 released us escrow account remediation costs remainder released former stockholders site remediation costs paid monies released escrow smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data account estimated total site remediation costs 1470 established accrual equal amount 77 reported accrued liabilities remainder noncurrent liabilities believe likelihood environmental remediation costs exceeding amount accrued remote reserves 2077 657 april 30 2011 2010 respectively remediation sites referred believe time frame remediation currently indeterminable april 30 2011 2010 recorded 1970 577 respectively environmental reserve noncurrent liability remaining balances recorded accrued expenses based indeterminable time frame remediation time frame payment remediation likewise currently indeterminable thus making net present value calculation impracticable estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities raw materials components supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many materials used production products available limited number suppliers cases longterm supply contracts suppliers contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business outstanding letters creditrestricted cash open letters credit aggregating 810 april 30 2011 restricted cash totaling 5821 april 30 2011 5009 acts compensating balance line credit dated december 7 2010 812 related environmental remediation required performed accordance credit facility td bank smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data rental leases lease office space scottsdale arizona operating lease expires january 2013 office space washington dc expires december 2011 machinery photocopiers springfield houlton rochester locations various expiration dates modular building space rochester location expires january 2012 office warehousing assembly space franklin tennessee expires march 2018 vehicles national sales force april 30 2011 lease commitments follows rent expense fiscal years ended april 30 2011 2010 2009 2685 1872 804 respectively 22 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2011 fiscal 2010 opinion adjustments necessary present fairly information quarters reflected loss recorded second third quarters fiscal 2011 related primarily impairment goodwill intangible assets described note 3 smith wesson holding corporation subsidiaries notes consolidated financial statements continued dollars thousands except share data 23 segments two reportable segments firearms security solutions firearm segment consists products services manufactured sold springfield massachusetts houlton maine rochester new hampshire facilities includes primarily firearms handcuffs related accessories sold distribution chain direct sales consumers international state federal governments security solutions segment consists products services produced sold franklin tennessee facilities includes sales installation perimeter security products military government corporate customers operating costs reported based activities performed within segment assets directly used clearly allocable operating segment’s operations segments assets include accounts receivable inventory prepaid expenses deferred tax assets machinery equipment furniture fixtures computer equipment addition included assets firearm segment intangible assets totaling 5018 property plant equipment totaling 60789 included assets security solutions segment intangible assets totaling 3674 property plant equipment totaling 1601 results business segment presented following table years ended april 30 2011 2010 schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2011 2010 1 decrease product liability offset corresponding reduction receivable insurance carrier assets current assets 2 increase workers’ compensation offset corresponding increase excess workers’ compensation insurance receivable assets 3 increase allowance doubtful accounts warranty reserve result acquisition swss july 20 2009 4 increase environmental reserve result settlement former owners thompsoncenter arms regarding environmental escrow established acquisition rochester new hampshire facilityitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2012 2011 2010 set forth page report b exhibits management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit  pursuant rule 406t regulation st interactive data files deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections 1 incorporated reference registrant’s form 8k filed sec december 18 2006 2 incorporated reference registrant’s form 8k filed sec june 19 2009 3 incorporated reference registrant’s form 8k filed sec august 19 2010 4 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 5 incorporated reference registrant’s form 8k filed sec may 6 2011 6 incorporated reference registrant’s form 8a filed sec august 25 2005 7 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 8 incorporated reference registrant’s form 8k filed sec may 29 2001 9 incorporated reference registrant’s form 8k filed sec december 18 2006 10 incorporated reference registrant’s form s3 333153638 filed sec september 23 2008 11 incorporated reference registrant’s form 8k filed sec july 24 2009 12 incorporated reference registrant’s form 8k filed sec january 18 2011 13 incorporated reference registrant’s form 10qsb filed sec august 13 2001 14 incorporated reference registrant’s form 10qsb filed sec september 14 2001 15 incorporated reference registrant’s form s8 333128804 filed sec october 4 2005 16 incorporated reference registrant’s proxy statement schedule 14a filed sec december 28 2001 17 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 18 incorporated reference registrant’s form 10ksb filed sec december 18 2003 19 incorporated reference registrant’s form 10k filed sec july 16 2004 20 incorporated reference registrant’s form 10q filed sec march 10 2005 21 incorporated reference registrant’s form 10q filed sec march 17 2006 22 incorporated reference registrant’s form 8k filed sec may 19 2006 23 incorporated reference registrant’s form 8k filed sec december 6 2007 24 incorporated reference registrant’s form 8k filed sec december 9 2010 25 incorporated reference registrant’s form 10k filed sec june 30 2009 26 incorporated reference registrant’s form 8k filed sec october 25 2010 27 incorporated reference registrant’s form 8k filed sec december 21 2010 28 incorporated reference registrant’s form 8k filed sec january 4 2011 29 incorporated reference registrant’s form 8k filed sec february 16 2011 30 incorporated reference registrant’s form 8k filed sec march 7 2011 31 incorporated reference registrant’s form 10q filed sec september 7 2011 32 incorporated reference registrant’s form 8k filed sec september 28 2011 33 incorporated reference registrant’s form 8k filed sec november 2 2011 34 incorporated reference registrant’s form 10q filed sec december 8 2011 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation p james debney p james debney president chief executive officer date june 28 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated index consolidated financial statements smith wesson holding corporation subsidiaries report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries “company” april 30 2012 2011 related consolidated statements operations comprehensive incomeloss changes stockholders’ equity cash flows three years period ended april 30 2012 connection audits consolidated financial statements also audited financial statement schedule listed accompanying index financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall presentation financial statements schedule believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2012 2011 results operations cash flows three years period ended april 30 2012 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states smith wesson holding corporation’s internal control financial reporting april 30 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated june 28 2012 expressed unqualified opinion thereon bdo usa llp boston massachusetts june 28 2012 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements operations comprehensive incomeloss accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows smith wesson holding corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash investing financing activities consolidated statements cash flows accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization one world’s leading manufacturers firearms sell products smith wesson brand mp brand thompsoncenter brand walther brand manufacture wide array handguns modern sporting rifles hunting rifles black powder firearms handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market manufacture firearm products facilities springfield massachusetts houlton maine addition pursue opportunities license name trademarks third parties use association products services 2 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include gross margin percentage completion inprocess security solutions projects accruals warranty product liability workers’ compensation expense environmental liability excess obsolete inventory allowance doubtful accounts income tax expense forfeiture rates stockbased awards asset impairments medical claims payable loss sale discontinued operations actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries including limited smith wesson corp thompsoncenter arms company llc smith wesson security solutions inc “swss” fiscal yearends wholly owned subsidiaries smith wesson corp swss april 29 2012 may 1 2011 may 2 2010 oneday twoday variance reported fiscal year ends april 30 2012 2011 2010 respectively variances create material difference consolidated financial statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2012 april 30 2011 periods presented included significant intercompany accounts transactions eliminated consolidation swss presented discontinued operations consolidated statements operations comprehensive incomeloss periods presented see note 3 additional information regarding discontinued operations unless stated otherwise reference notes consolidated financial statements refer results continuing operations january 3 2007 acquired outstanding capital stock thompson center holding corporation formerly bear lake acquisition corp subsidiaries collectively “thompsoncenter arms” including thompsoncenter arms company inc thompsoncenter arms company llc “tca” fiscal 2012 merged thompson center holding corporation smith wesson corp fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest derivative instruments account derivative instruments accounting standards codification “asc” 81510 fair value measurements disclosure topic establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value times purchased foreign exchange forward contracts minimize impact fluctuations foreign exchange rates see note 14 april 30 2012 2011 foreign exchange forward contracts outstanding cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2012 accounts exceeded federally insured limits 562 million smith wesson holding corporation subsidiaries notes consolidated financial statements trade receivables extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 122 115 107 net product sales fiscal years ended april 30 2012 2011 2010 respectively customer accounted approximately 56 million 117 total accounts receivable april 30 2012 addition one customer accounted 51 million 107 total accounts receivable april 30 2012 inventories value firearm inventories consisting primarily finished firearm components finished firearms related products accessories discontinued security solutions inventory consisting primarily mechanical electrical components required installation products lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment computers furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range eight 20 years see note 10 additional information regarding intangible assets revenue recognition firearm products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured discontinued security solutions products services recognize revenue fixedprice contracts using percentageofcompletion method measured percentage costs incurred date total costs contract revenue security solutions business reclassified discontinued operations product sales account substantial portion firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed determine percentageofcompletion comparing cost incurred date estimated total cost required complete project consider costs incurred date reliable available measure progress projects make adjustments estimates complete periods facts resulting change become known estimate indicates loss incurred record loss period identified reliable estimates cannot made recognize revenue upon completion significant judgment involved estimation process contract different assumptions could yield materially different results delays installation process could negatively affect operations given period increasing volatility revenue recognition revenue conformity accounting principles generally accepted united states requires us make judgments affect timing amount reported revenue smith wesson holding corporation subsidiaries notes consolidated financial statements recognize trademark licensing revenue individual licensees quarterly basis based historical experience expected cash receipts licensees licensing revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensees’ products insufficient historical experience believe reasonable assurance collectability exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2012 minimum royalties collected future amounted approximately 22 million follows dollars thousands segment information historically reported certain financial information two segments firearms security solutions result plan divest swss results operations comprising security solutions segment reported discontinued operations periods presented see note 3discontinued operations additional information geographic information april 30 2012 2011 2010 material personnel facilities outside united states sales outside united states detailed note 6 research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities executive management approves prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs earningsloss per share calculate basic diluted earningsloss per common share accordance provisions asc 26010 earnings per share basic earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period diluted earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive smith wesson holding corporation subsidiaries notes consolidated financial statements following table provides reconciliation net incomeloss amounts weighted average number common equivalent shares used determine basic diluted earningsloss per common share thousands except per share data included calculation diluted earnings per common share years ended april 30 2012 2010 499000 22 million respectively diluted earnings related effect conversion convertible debt fiscal 2012 952483 shares common stock issuable upon exercise stock options excluded computation diluted income per share effect would antidilutive fiscal 2011 5515877 shares common stock issuable upon conversion convertible notes defined 2345422 shares common stock reserved issuance former stockholders swss date issuance 1598124 shares common stock issuable upon exercise stock options excluded computation diluted loss per share effect would antidilutive fiscal 2010 691553 shares common stock issuable upon exercise stock options excluded computation diluted income per share effect would antidilutive valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks tradenames amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets exception goodwill intangible assets indefinite lives initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value smith wesson holding corporation subsidiaries notes consolidated financial statements future adverse changes unforeseeable factors could result impairment charge would materially impact future results operations financial position reporting period identified accordance asc 350 intangiblesgoodwill test intangible assets indefinite lives impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate continuing operations one reporting unit springfield massachusetts houlton maine facilities april 30 2012 goodwill recorded books continuing operations based combination factors occurred fiscal 2011 including federal corporate budgetary constraints increased price competition low barrier entry factors determined indicators impairment goodwill intangible assets existed discontinued security solutions division result conducted evaluation goodwill intangible assets associated acquisition business based earnings cash flow forecast next 10 years fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 839 million fiscal 2011 included results discontinued operations consolidated statements operations comprehensive incomeloss periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affected discontinued security solutions division required us test impairment longlived assets pertaining business fiscal 2011 based assessment recorded impairment charge 66 million included results discontinued operations consolidated statements operations comprehensive incomeloss reflect excess carrying value longlived intangible assets discounted cash flows see note 3discontinued operations additional information see also note 10intangible assets impairment charges taken continuing operations fiscal 2012 2011 2010 based review longlived assets utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting unit’s expected longterm operating cash performance approach also mitigates impact cyclical trends occur industry fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percent revenue decline future years due improved utilization resulting lean initiatives believe days sales outstanding decline increase revenues also assumed current economic downturn markets contracted long term however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges smith wesson holding corporation subsidiaries notes consolidated financial statements accounting acquisitions accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally determine fair value reporting unit purposes first step annual goodwill impairment test based income approach prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes stock options awards described notes 16 17 incentive stock plan employees directors receive options purchase common stock stockbased awards including stock options restricted stock units “rsus” performancebased restricted stock units “psus” municipal product liability provide reserves municipal potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments provision municipal product liability ongoing basis charge credit cost sales exclusive insurance reimbursements make evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain municipal product liability costs subject reimbursement insurance carriers environmental liability provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party “prp” ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted environmental reserve decreased fiscal year ended april 30 2012 29000 fiscal years ended april 30 2011 2010 reserve increased 15 million 0 respectively march 30 2012 entered purchase sale agreement land building located rochester new hampshire pursuant agreed indemnify buyer losses arising among things environmental conditions related thompsoncenter arms’ manufacturing activities subsequent release escrow related rochester new hampshire facility established reserve assets held sale consolidated balance sheet relating environmental testing remediation facility 15 million see note 19 warranty generally provide lifetime warranty original purchaser new firearm products provide warranties two years materials workmanship security solutions projects includes products purchased us thirdparty manufacturers provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted november 11 2011 initiated recall thompsoncenter arms venturetm rifles manufactured since product’s introduction mid2009 april 30 2012 incurred 512000 recall costs estimate remaining cost recall 10 million included accrued warranty balance warranty expense fiscal years ended april 30 2012 2011 2010 amounted 63 million 35 million 30 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2012 2011 2010 dollars thousands sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted 27 million 105 million 92 million fiscal years ended april 30 2012 2011 2010 respectively coop advertising program retail level expensed costs amounting 17 million 20 million 17 million fiscal 2012 2011 2010 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net product services sales included costs relating shipping handling charges cost products services sold insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 20 million per occurrence record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis recently issued accounting standards june 2011 financial accounting standards board “fasb” issued asu 201105 comprehensive income topic 220 presentation comprehensive income amendments asu require entity present total comprehensive income components net income components comprehensive income either single continuous statement comprehensive income two separate consecutive statements asu 201105 eliminates option present components comprehensive income part statement equity asu 201105 effective interim annual periods beginning december 15 2011 december 2011 fasb issued asu 201112 deferral effective date amendments presentation reclassifications items accumulated comprehensive income asu 201105 asu 201112 indefinitely defers certain reclassification adjustment provisions asu 201105 asu 201112 also effective interim annual periods beginning december 15 2011 asus material impact consolidated financial statements already present comprehensive incomeloss consolidated statements operations comprehensive incomeloss 3 discontinued operations fiscal 2010 acquired outstanding capital stock swss initial purchase price 593 million consisted 211 million cash 382 million common stock paid closing addition former stockholders swss right earn 4080000 additional shares common stock swss achieved certain ebitdas earnings interest taxes depreciation amortization stockbased compensation expense excluding large nonrecurring items targets defined calendar years 2009 2010 closing date acquisition contingent consideration assigned fair value 278 million valuation established accordance asc 805202520 business combinations topic based swss’s actual calendar year 2009 results additional shares earned paid calendar 2009 results ebitdas period 80 million threshold achieve distribution august 19 2010 entered waiver amendment merger agreement waive achievement ebitdas target 2010 calendar year condition issuance 4080000 earnout shares instead agreed issue 4080000 shares former stockholders swss march 18 2011 effective august 19 2010 liability adjusted fair value 152 million reclassified equity 31 million 96 million income associated reduction contingent consideration years ended april 30 2011 2010 respectively recorded income discontinued operations noted smith wesson holding corporation subsidiaries notes consolidated financial statements based combination factors occurring since july 2009 acquisition swss including federal corporate budgetary constraints increased price competition fundamental change strategic direction october 5 2011 committed plan divest assets liabilities ongoing operations security solutions division presented assets liabilities separate line assets liabilities held sale consolidated balance sheets operating results swss classified discontinued operations presented separate line consolidated statements operations comprehensive incomeloss periods presented implementing plan divest swss determined fair value business market value business less transaction costs based evaluation recorded loss sale disposal group 55 million included loss discontinued operations made 12 million property plant equipment 32 million intangible assets remainder applied inventory prior decision divest business reported swss separate segment heading security solutions following summary operating results discontinued operations dollars thousands included results operations fiscal 2012 55 million noncash charges related loss sale disposal group divestiture discontinued security solutions division included results operations fiscal 2011 noncash charges related impairment goodwill intangible assets totaling 905 million addition fiscal 2011 recorded income 31 million related reduction acquisition liability related contingent consideration versus value recorded april 30 2010 addition results operations fiscal 2010 include 96 million income related reduction acquisition liability related contingent consideration versus value recorded july 2009 purchase smith wesson holding corporation subsidiaries notes consolidated financial statements net assets liabilities qualify assets liabilities held sale plan complete divestiture within next 12 months following summary assets liabilities included consolidated balance sheets classified assets held sale liabilities held sale dollars thousands included consolidated balance sheet april 30 2011 118 million accounts receivable 51 million inventory 797000 current assets 16 million property plant equipment 37 million intangibles 28 million accounts payable 23 million accrued expenses 244000 accrued warranty related discontinued operations also recorded 10 million related land building located rochester new hampshire related environmental remediation assets held sale consolidated balance sheets see notes 13 20 details related environmental remediation 4 notes payable financing arrangements credit facilities pursuant amended restated credit agreement dated december 7 2010 increased revolving line credit 1200 million removed accounts receivable inventory borrowing base limitations extended agreement december 7 2014 pursuant amendment amended restated credit agreement dated october 28 2011 decreased revolving line credit 600 million result reduction credit facility wrote 563000 debt issuance costs interest expense fiscal 2012 credit facility provides availability december 7 2014 working capital needs revolving line credit bears interest variable rate equal libor prime plus applicable margin based leverage ratio election april 30 2012 borrowings outstanding borrowings would borne interest rate 50 per annum security credit facility td bank first priority lien personal property real estate assets may prepay whole part loans interest rates determined reference prime rate interest accrued date prepayment amount prepaid without penalty premium loans fixed rate interest determined reference libor interest rate may prepaid provided reimburse td bank na “td bank” costs associated making payments dates specified credit agreement ii borrowing converting libor loan date borrowing conversion dates specified credit agreement convertible notes december 15 2006 issued aggregate 800 million 4 senior convertible notes “convertible notes” maturing december 15 2026 qualified institutional buyers pursuant terms conditions securities purchase agreement indenture fiscal 2011 exchanged total 500 million convertible notes 500 million senior notes defined december 15 2011 holders convertible notes required us repurchase 297 million convertible notes january 21 2012 redeemed remaining 334000 convertible notes utilizing cash hand april 30 2012 outstanding convertible notes smith wesson holding corporation subsidiaries notes consolidated financial statements senior notes fiscal 2011 issued aggregate 500 million 95 senior notes due 2016 “senior notes” exchange 500 million convertible notes pursuant terms conditions exchange agreement indenture “senior notes indenture” fiscal 2011 evaluated exchanges modification event asc 47060 troubled debt restructurings debtors experiencing financial difficulties exchanges accounted troubled debt restructuring consequently evaluated exchange asc 47050 debtor’s accounting modification exchange debt instruments determine modification substantial conversion feature removed exchange debt modification determined substantial accordingly exchanged convertible notes extinguished fair value senior notes equal carrying value exchanged convertible notes therefore gain loss extinguishment recorded fiscal 2011 accordance asc 47050 amortized 476000 deferred financing costs associated extinguishment interest expense senior notes bear interest rate 95 per annum payable june 15 december 15 year time prior january 14 2014 may option redeem portion senior notes redemption price 100 principal amount senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount senior notes net cash proceeds one equity offerings redemption price 10475 principal amount senior notes plus accrued unpaid interest redemption date provided case clause b least 65 aggregate original principal amount senior notes remains outstanding redemption occurs within 60 days closing equity offering january 14 2014 may option redeem portion senior notes redemption price 1 10475 principal amount senior notes redeemed 12month period beginning january 14 2014 2 100 principal amount senior notes redeemed 12month period beginning january 14 2015 plus either case accrued unpaid interest senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase senior notes holders senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase senior notes mature january 14 2016 may june 2012 purchased total 64 million senior notes utilizing cash hand paid 550000 interest premium relating purchases senior notes general unsecured obligations company senior notes indenture contains certain affirmative negative covenants including limitations restricted payments limitations indebtedness limitations sale assets limitations liens limitation indebtedness senior notes indenture applicable time consolidated coverage ratio set forth senior notes indenture us restricted subsidiaries less 200 100 general set forth senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense debt issuance costs debt issuance costs related td bank credit facility including related refinancings amounted 22 million recorded assets costs amortized expense life credit facility using straightline method fiscal year ended april 30 2012 amortized total 837000 interest expense including 563000 debt issuance costs wrote connection reducing credit facility incurred 43 million debt issuance costs associated issuance convertible notes amortized costs straightline basis approximates effective interest rate method december 15 2011 date first redemption noted repurchased 300 million convertible notes fiscal 2012 fiscal 2011 exchange convertible notes senior notes discussed resulted increased amortization expense 476000 noted fiscal year ended april 30 2012 amortized 204000 interest expense incurred 18 million debt issuance costs associated issuance senior notes costs amortized straightline basis approximates effective interest rate method january 14 2016 date maturity fiscal year ended april 30 2012 amortized 361000 interest expense smith wesson holding corporation subsidiaries notes consolidated financial statements total amount amortized interest expense debt issuance costs fiscal 2012 2011 2010 14 million 15 million 11 million respectively including writeoffs related extinguishment future amortization debt issuance costs follows fiscal 2013 560000 fiscal 2014 541000 fiscal 2015 464000 fiscal 2016 242000 carrying amounts notes payable april 30 2012 2011 follows dollars thousands td bank credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2012 letters credit april 30 2012 outstanding letters credit aggregating 12 million 5 capital lease october 28 2011 entered saleleaseback agreement included sale certain machinery equipment leased total 35 million machinery equipment increase production capacity lease effective interest rate 576 payable 60 monthly installments fiscal 2017 leases accounted provisions asc 84010 leases requires leases evaluated classified operating capital leases financial reporting purposes based evaluation asc 84010 determined lease qualifies capital lease net present value future lease payments exceed 90 fair market value leased machinery equipment pledged assets financed secure amounts outstanding included 418000 shortterm capital lease obligation accrued expenses 29 million noncurrent liabilities following sets forth future minimum lease payments april 30 2012 dollars thousands smith wesson holding corporation subsidiaries notes consolidated financial statements 6 international sales sell products worldwide following table sets forth breakdown export sales accounted 4 5 8 net sales fiscal years ended april 30 2012 2011 2010 respectively dollars thousands individual foreign country accounted 10 net sales 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements either incurred first time advertising takes place fiscal years ended april 30 2012 2011 2010 advertising expenses included selling marketing expenses amounted 147 million 151 million 139 million respectively 8 property plant equipment following table summarizes property plant equipment april 30 2012 2011 dollars thousands estimated cost complete construction progress 41 million depreciation expense continuing operations amounted 134 million 111 million 95 million fiscal years ended april 30 2012 2011 2010 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements following table summarizes depreciation amortization expense continuing operations includes amortization intangibles debt financing costs line item fiscal years ended april 30 2012 2011 2010 dollars thousands 9 inventories following table sets forth summary inventories stated lower cost market april 30 2012 2011 dollars thousands 10 intangible assets record intangible assets cost intangible assets consist customer relationships developed technology order backlog trademarks tradenames patents software amortize patents developed technology using straightline method estimated useful lives ranging eight 20 years amortize customer relationships proration expected yearly revenue generated customer lists acquired currently estimated 20 years following table presents summary intangible assets dollars thousands amortization expense excluding amortization deferred financing costs amounted 656000 630000 646000 fiscal years ended april 30 2012 2011 2010 respectively expect amortization expense approximately 700000 annually next five fiscal years smith wesson holding corporation subsidiaries notes consolidated financial statements 11 receivables insurance carriers discussed notes 15 19 party lawsuits related use firearm products carry insurance covers certain legal defense costs related matters record receivable insurance carriers collection insurance proceeds probable activity receivable account since fiscal 2009 outstanding balance april 30 2012 2011 21 million 25000 current assets 20 million noncurrent assets insurance carriers paid defense costs fiscal 2012 2011 12 accrued expenses following table sets forth accrued expenses april 30 2012 2011 dollars thousands deferred revenue 17 million relating divestiture security solutions business reclassified liabilities held sale included table 13 plant consolidation december 8 2010 implemented restructuring plan move production hunting products springfield massachusetts facility close rochester new hampshire facility completed restructuring plan november 2011 incurred major capital expenditures relating moving equipment processes rochester new hampshire springfield massachusetts improving production efficiencies purchasing tooling new product offerings various projects designed increase capacity upgrade manufacturing technology connection plant consolidation january 2012 completed sale kw thompson company included foundry operations subsidiary thompsoncenter arms purchase price 900000 upon closing sale agreement issued 400000 note receivable bears interest 4 matures january 2017 recorded 75000 note receivable included current assets 301000 included assets consolidated balance sheets also recorded loss sale business calculated net assets sold excess purchase price 241000 included general administrative expenses consolidated statements operations comprehensive incomeloss business sold included discontinued operations material overall consolidated financial statements land building located rochester new hampshire classified assets held sale consolidated balance sheets accordance asc 3601045 impairment disposal long lived assets net book values assets held sale totaled 25 million stated lower carrying value fair value march 30 2012 entered purchase sale agreement land building located rochester new hampshire purchase sale agreement subject customary closing conditions environmental regulatory clearances scheduled close third quarter fiscal 2013 purchase sale agreement provides indemnify buyer losses arising among things environmental conditions related thompsoncenter arms’ manufacturing activities estimated total site remediation costs 15 million established accrual equal amount offsetting assets held sale consolidated balance sheets smith wesson holding corporation subsidiaries notes consolidated financial statements fiscal year ended april 30 2012 recorded 30 million expenses related facilities employee severance including 25 million restructuring expenses costs goods sold excluding impact reduced productivity efficiencies rochester new hampshire facility 493000 operating expenses anticipate additional expenses relating plant consolidation fiscal 2013 would materially impact financial results total amount incurred connection restructuring plan 56 million 25 million employee severance relocation expenses 31 million facilitiesrelated expenses following table summarizes restructuring liabilities accrued changes amounts year ended april 30 2012 plan discussed dollars thousands december 21 2010 economic development incentive program “edip” commonwealth massachusetts awarded refundable economic incentive tax credit “itc” economic assistance coordinating council conjunction plan discussed itc calculated 40 qualified capital expenditures placed service allows refundable tax credit commonwealth massachusetts 44 million fiscal year ended april 30 2012 april 30 2011 recorded 44 million amount received itc contra asset account included property plant equipment fiscal 2012 received 44 million tax credit compliance written edip investment analysis plan 14 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability examples include interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives smith wesson holding corporation subsidiaries notes consolidated financial statements currently level 2 financial assets liabilities level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities following table presents information assets liabilities measured fair value recurring basis april 30 2012 indicates fair value hierarchy valuation techniques utilized determine fair value dollars thousands 15 selfinsurance reserves april 30 2012 2011 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 90 million 95 million respectively 54 million 46 million respectively classified noncurrent included noncurrent liabilities 22 million 23 million respectively included accrued expenses 14 million 26 million respectively included accrued productmunicipal liability accompanying consolidated balance sheets addition april 30 2012 2011 332000 221000 respectively excess workers’ compensation receivable classified asset believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 114 million 115 million 103 million fiscal years ended april 30 2012 2011 2010 respectively following table summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2012 2011 2010 dollars thousands policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2012 2011 accrued reserves product municipal litigation liabilities 45 million 55 million respectively 31 million 29 million respectively noncurrent consisting entirely expected legal defense costs addition april 30 2012 2011 recorded receivables insurance carriers related liabilities 20 million year 20 million year classified assets remaining amount 25000 classified current assets smith wesson holding corporation subsidiaries notes consolidated financial statements 16 stock option employee stock purchase plans two stock option plans “sops” 2001 stock option plan 2004 incentive stock plan new grants 2001 stock option plan made since approval 2004 incentive stock plan september 13 2004 annual meeting stockholders new grants covering participants issued 2004 incentive stock plan 2004 incentive stock plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock plan permits grant options acquire common stock restricted common stock deferred stock rsus stock appreciation rights dividend equivalents board directors committee established board administers sops selects recipients awards granted determines grants awarded options granted sops exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture unless terminated earlier board directors 2004 incentive stock plan terminate earlier 1 ten years date later occur original date plan approved board directors stockholders whichever earlier ii date increase number shares reserved issuance plan approved board directors long increase also approved stockholders 2 time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award generally awards vest period three years exercisable period ten years plan also permits grant awards nonemployees board granted past separate option grant outside 2004 incentive stock plan 500000 shares made exercise price 147 per share connection hiring former president chief executive officer fiscal year ended april 30 2005 former president chief executive officer resigned september 26 2012 continues service member board directors appointed covice chairman board april 30 2012 350000 options outstanding relating grant expire december 6 2014 smith wesson holding corporation subsidiaries notes consolidated financial statements number shares weighted average exercise prices options granted sops ii separate option grant former president chief executive officer outside sops fiscal years ended april 30 2012 2011 2010 follows april 30 2012 4602033 shares available grant 2004 incentive stock plan use unissued share pool shares issued options restricted share awards espp issuances aggregate intrinsic value outstanding options april 30 2012 2011 2010 160 million 16 million 27 million respectively aggregate intrinsic value outstanding options exercisable april 30 2012 2011 2010 82 million 16 million 26 million respectively aggregate intrinsic value options exercised years ended april 30 2012 2011 2010 982000 186000 543000 respectively april 30 2012 total unamortized fair value options 27 million recognized remaining vesting period 30 years espp commenced june 24 2002 “2001 espp” authorized sale 10000000 shares common stock employees 2001 espp continued effect term 10 years expired offering period ended march 31 2012 options rights participate 2001 espp nontransferable subject forfeiture accordance 2001 espp guidelines april 30 2012 issued 2398630 shares common stock 2001 espp fiscal 2012 2011 2010 502898 350971 280438 shares purchased 2001 espp respectively september 26 2011 stockholders approved 2011 espp replace expiring 2001 espp initially total 6000000 shares common stock reserved 2011 espp includes shares available issuance 2001 espp first offering date 2011 espp exceed 6000000 shares included 2011 espp longer available issuance 2001 espp 2011 espp implemented series successive offering periods maximum duration 12 months fair market value “fmv” per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer 2011 espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period 2011 espp’s effective date april 1 2012 2011 espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase 2011 espp b date determined board directors discretion c march 31 2022 april 30 2012 shares common stock issued 2011 espp smith wesson holding corporation subsidiaries notes consolidated financial statements measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options warrants issued employees using blackscholes model time options warrants granted amount amortized vesting period option warrant 2011 espp fair value determined beginning purchase period amortized term offering period following assumptions used valuing options 2001 espp purchases 12month periods ended april 30 2012 2011 2010 estimate expected volatility using historical volatility expected term fair value stock option 2011 espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table weightedaverage fair value stock options granted fiscal 2012 2011 2010 266 263 400 respectively fiscal 2012 2011 2010 granted 1405600 755600 950500 option shares respectively total stockbased compensation expense including stock options purchases 2001 espp rsu psu awards 25 million 17 million 33 million fiscal years 2012 2011 2010 respectively stockbased compensation expense included general administrative expenses grant servicebased rsus employees consultants grants made cost recipient rsus represent one share common stock carry voting dividend rights rsu grants employees generally vest period three years onethird units vesting anniversary date grant date aggregate fair value rsu grants amortized compensation expense vesting period smith wesson holding corporation subsidiaries notes consolidated financial statements grant psus market conditions executive officers time grant calculate fair value psus using montecarlo simulation incorporate following variables valuation model volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate three year performance period expect pay dividend psus vest fair value psus recognized corresponding threeyear performance period psus maximum aggregate award equal 200 target amount granted number psus may earned depends upon total stockholder return “tsr” common stock compared tsr russell 2000 index “rut” nasdaq composite index “ixic” applicable threeyear performance period stock must outperform rut ixic appropriate 10 order target award earned fiscal year ended april 30 2012 granted 149873 servicebased rsus employees consultants april 24 2012 granted 114000 psus certain executive officers july 12 2011 granted 95200 psus certain executive officers fiscal year ended april 30 2012 cancelled 88700 psus previously granted former president chief executive officer due service period condition met compensation expense recognized related grants rsus psus excluding 180000 impact 88700 cancelled psus 350000 12 months ended april 30 2012 12 months ended april 30 2012 delivered 9500 shares common stock employees consultants vested rsus total market value 43000 fiscal year ended april 30 2011 granted 7500 servicebased rsus consultants 120200 psus certain executive officers delivered 67195 shares common stock total market value 271000 rsus vested period fiscal year ended april 30 2011 cancelled aggregate 134999 psus consisting 53333 psus previously granted former president chief executive officer financial targets associated psus met fiscal year ended april 30 2011 ii 40000 psus previously granted former executive vice president chief financial officer due service period condition met iii 15000 psus previously granted former president swss due service period condition met iv 26666 psus previously granted former president chief executive officer financial targets associated psus met fiscal year ended april 30 2010 compensation expense recognized related grants rsus psus excluding 905000 impact 134999 cancelled psus previously granted former employees named 281000 fiscal year ended april 30 2011 fiscal year ended april 30 2010 granted 7500 rsus consultants granted 39900 psus former president chief executive officer former executive vice president chief financial officer psus granted fiscal year 2010 forfeited due service period condition met smith wesson holding corporation subsidiaries notes consolidated financial statements fiscal year ended april 30 2010 53333 psus previously awarded former president chief executive officer vested delivered fiscal 2011 sharebased compensation expense recognized related rsu psu grants certain employees nonemployees approximately 423000 fiscal year ended april 30 2010 grant date fair value rsus psus vested fiscal 2012 2011 2010 43000 321000 14 million respectively april 30 2012 19 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 23 years summary activity unvested rsus psus fiscal years 2012 2011 2010 follows 17 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed 15 million 991000 16 million fiscal years ended april 30 2012 2011 2010 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine employees become eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes 15 qualifying payroll defined plan year fiscal 2012 plan contribute approximately 80 million contributed 41 million 72 million fiscal years ended april 30 2011 2010 respectively contributions funded fiscal yearend 18 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date smith wesson holding corporation subsidiaries notes consolidated financial statements income tax expense continuing operations consists following dollars thousands following table presents reconciliation provision income taxes continuing operations statutory rates provision consolidated financial statements dollars thousands smith wesson holding corporation subsidiaries notes consolidated financial statements future tax benefits deferred tax liabilities related temporary differences following dollars thousands deferred taxes related stock compensation adjusted amounts reported prior year noted required asc 74010 accounting income taxes record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position management unaware recent expected future changes tax laws would material impact financial statements fiscal 2012 noted amount recorded deferred taxes related warrants repurchased fiscal 2006 inclusion deferred tax asset related warrants longer required released fiscal 2006 order reverse liability properly reflect deferred tax accounts fiscal 2006 fiscal 2011 recorded adjustment april 30 2009 balances follows increasing long term deferred tax liabilities 24 million increasing current deferred tax assets 48000 decreasing additional paidin capital 430000 increasing accumulated deficit 19 million effect adjustments immaterial prior years smith wesson holding corporation subsidiaries notes consolidated financial statements federal net operating loss carryforwards amounting 865000 april 30 2012 expire fiscal 2020 obtained 82 million additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 403000 fiscal 2012 108000 taxable year thereafter possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 internal revenue code ownership change occur could annual limitation remaining tax loss carryforward 194 million 109 million state net operating loss carryforwards april 30 2012 2011 respectively state net operating loss carryforwards expire april 30 2015 april 30 2032 19 million 17 million state tax credit carryforwards april 30 2012 2011 respectively state tax credit carryforwards expire april 30 2014 april 30 2025 expiration date april 30 2012 valuation allowances 827000 11 million provided deferred tax assets state net operating loss carryforward state tax credits respectively anticipate using prior expiration 239000 state deferred tax assets anticipate realize benefit april 30 2011 valuation allowances 26000 445000 705000 provided deferred tax assets federal capital loss carryforward state net operating loss carryforwards state tax credits respectively increase valuation allowance deferred tax assets state net operating losses credits state deferred tax assets related mainly operations tennessee valuation allowance provided deferred federal income tax assets april 30 2012 2011 believe likely assets realized april 30 2012 2011 gross taxeffected unrecognized tax benefits 12 million 11 million respectively entire amounts recognized would favorably impact effective tax rate included unrecognized tax benefits april 30 2012 2011 260000 178000 respectively accrued interest penalties related uncertain tax positions recorded current noncurrent liabilities reconciliation beginning ending amount unrecognized tax benefits follows dollars thousands approximately 386000 unrecognized tax benefits classified current income tax liabilities payment cash anticipated within one year balance sheet date statute expected expire fiscal 2013 expect incur additional taxes interest penalties uncertain tax positions remainder classified noncurrent payment cash anticipated within one year expect change material interest penalties related income tax liabilities included income tax expense limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2008 smith wesson holding corporation subsidiaries notes consolidated financial statements 19 commitments contingencies litigation january 19 2010 doj unsealed indictments 22 individuals law enforcement military equipment industries one former vice presidentsales international us law enforcement charged indictment also served grand jury subpoena production documents always taken continue take seriously obligation industry leader foster responsible ethical culture includes adherence laws industry regulations united states abroad although cooperating fully doj matter undertaken comprehensive review company policies procedures doj may determine violated fcpa laws february 21 2012 doj filed motion dismiss prejudice indictments remaining defendants pending trial including former vice presidentsales international us law enforcement february 24 2012 district court granted motion dismiss cannot predict however investigation completed outcome could additional indictments company officers employees doj determines violated fcpa laws may face sanctions including significant civil criminal penalties addition could prevented bidding domestic military government contracts could risk debarment us department state also face increased legal expenses could see increase cost international business could also see private civil litigation arising result outcome investigation addition responding investigation may divert time attention management normal business operations regardless outcome investigation publicity surrounding investigation potential risks associated investigation could negatively impact perception company investors customers others fiscal 2011 received subpoena staff sec giving notice sec conducting nonpublic factfinding inquiry determine whether violations federal securities laws appears civil inquiry triggered part doj investigation potential fcpa violations although cooperating fully sec matter sec may determine violated federal securities laws cannot predict inquiry completed outcome sec determines violated federal securities laws may face injunctive relief disgorgement illgotten gains sanctions including fines penalties may forced take corrective actions could increase costs otherwise adversely affect business results operations liquidity also face increased legal expenses could see increase cost business could also see private civil litigation arising result outcome inquiry addition responding inquiry may divert time attention management normal business operations regardless outcome inquiry publicity surrounding inquiry potential risks associated inquiry could negatively impact perception company investors customers others involved two purported stockholder derivative lawsuits actions brought putative plaintiffs behalf company certain officers directors employees lawsuits based principally theory breach fiduciary duties putative plaintiffs seek unspecified damages behalf company individual defendants recovery attorneys’ fees defendant approximately nine product liability cases aware approximately 12 product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case brought city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties believe various allegations described unfounded addition accident results due negligence misuse firearm claimant third party recovery us addition involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek unspecified compensatory punitive damages others compensatory damages sought may range less 75000 excess 14 million experience initial demands generally bear reasonable relationship facts circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgments intend vigorously defend fiscal years ended april 30 2012 2011 2010 paid 401000 13 million 10 million respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 105000 70000 11 million respectively fiscal years settlement fees related product liability cases smith wesson holding corporation subsidiaries notes consolidated financial statements recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets fiscal 2012 recorded income 560000 recognize changes product liability municipal litigation liability fiscal 2011 2010 recorded income expense 10 million 74000 respectively recognize changes product liability municipal litigation liability time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject two release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent one site pursuant merger agreement related acquisition thompsoncenter arms former stockholders thompson center holding corporation agreed indemnify us losses arising among things environmental conditions related thompsoncenter arms’ manufacturing activities purchase price 80 million placed escrow account portion applied environmental remediation manufacturing site rochester new hampshire november 2008 25 million escrow account released former stockholders thompson center holding corporation former stockholders thompson center holding corporation entered settlement agreement 12 million released us escrow account remediation costs remainder released former stockholders march 30 2012 entered purchase sale agreement land building located rochester new hampshire pursuant agreed indemnify buyer losses arising among things environmental conditions related thompsoncenter arms’ manufacturing activities estimated total site remediation costs 15 million offset costs assets held sale consolidated balance sheet believe likelihood environmental remediation costs exceeding amount accrued remote april 30 2012 2011 reserves 21 million including 15 million relating land building located rochester new hampshire environmental matters reclassified assets held sale fiscal 2012 remediation sites referred believe time frame remediation currently indeterminable april 30 2012 2011 recorded 577000 20 million respectively environmental reserve noncurrent liabilities remaining balances recorded accrued expenses based indeterminable time frame remediation time frame payment remediation likewise currently indeterminable thus making net present value calculation impracticable estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained smith wesson holding corporation subsidiaries notes consolidated financial statements based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities components parts raw materials supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many components parts raw materials supplies used production products available limited number suppliers cases longterm supply contracts suppliers contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business outstanding letters creditrestricted cash open letters credit aggregating 12 million april 30 2012 restricted cash totaling 33 million april 30 2012 25 million acts compensating balance line credit dated december 7 2010 812000 related environmental remediation required performed accordance credit facility td bank rental leases lease office space scottsdale arizona operating lease expires january 2013 machinery photocopiers springfield houlton locations various expiration dates vehicles national sales force april 30 2012 lease commitments follows dollars thousands rent expense fiscal years ended april 30 2012 2011 2010 23 million 21 million 15 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements 20 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2012 2011 opinion adjustments necessary present fairly information quarters reflected dollars thousands except per share data loss recorded fourth quarter fiscal 2012 related primarily anticipated loss sale discontinued security solutions business loss recorded second third quarters fiscal 2011 related primarily impairment goodwill intangible assets see note 3 details schedule schedulevaluation qualifying accounts valuation qualifying accounts schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2012 2011 2010 1 increase allowance doubtful accounts warranty reserve result acquisition swss july 20 2009 2 increase environmental reserve result settlement former owners thompsoncenter arms regarding environmental escrow established acquisition rochester new hampshire facility 3 decrease environmental reserve result reclassification reserve related rochester new hampshire facility assets held sale 4 decrease inventory reserve warranty reserves result reclassification assets liabilities held sale relate swss disposal groupitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2014 2013 2012 set forth page report b exhibits exhibit number exhibit 22 agreement plan merger dated december 15 2006 among registrant swactc inc bear lake acquisition corp tgv partnerstca investors llc eg kendrick jr gregory j ritz1 28 agreement plan merger dated june 18 2009 among registrant swacusr inc swacusr ii inc universal safety response inc william c cohen jr stockholders’ representative2 28a waiver amendment 1 agreement plan merger dated august 19 2010 among registrant universal safety response inc william c cohen jr stockholders’ representative3 exhibit number exhibit 1078a amendment 1 amended restated credit agreement dated october 28 2011 among smith wesson holding corporation smith wesson corp thompsoncenter arms company inc smith wesson security solutions inc fox ridge outfitters inc bear lake holdings inc kw thompson tool company inc ol development inc thompson center holding corporation smith wesson distributing inc borrowers lender parties named therein td bank na administrative agent sovereign bank syndication agent33 1078b amendment 2 amended restated credit agreement dated april 26 2012 among smith wesson holding corporation smith wesson corp thompsoncenter arms company inc thompson center holding corporation smith wesson security solutions inc fox ridge outfitters inc ol development inc bear lake holdings inc smith wesson distributing inc borrowers td bank na administrative agent lenders named therein35 1079 amended restated pledge security agreement dated december 7 2010 among smith wesson holding corporation smith wesson corp thompsoncenter arms company inc thompson center holding corporation universal safety response inc fox ridge outfitters inc kw thompson tool company inc ol development inc bear lake holdings inc smith wesson distributing inc pledgors named therein pledgors td bank na administrative agent including exhibits thereto24 1080 revolving line credit notes swingline note dated december 7 2010 smith wesson holding corporation smith wesson corp thompsoncenter arms company inc thompson center holding corporation universal safety response inc fox ridge outfitters inc kw thompson tool company inc ol development inc bear lake holdings inc smith wesson distributing inc borrowers lenders named therein24 1081 hazardous materials indemnity agreement dated december 7 2010 smith wesson holding corporation smith wesson corp thompsoncenter arms company inc thompson center holding corporation universal safety response inc fox ridge outfitters inc kw thompson tool company inc ol development inc bear lake holdings inc smith wesson distributing inc indemnitors favor td bank na administrative agent secured parties named therein including exhibits thereto24 1082 environmental reserve account agreement dated december 7 2010 among smith wesson holding corporation smith wesson corp thompsoncenter arms company inc thompson center holding corporation universal safety response inc fox ridge outfitters inc kw thompson tool company inc ol development inc bear lake holdings inc smith wesson distributing inc borrowers lenders named therein td bank na administrative agent including exhibits thereto24 1083 severance change control agreement effective january 3 2011 smith wesson holding corporation jeffrey buchanan27 1083a amended restated severance change control agreement executed december 8 2011 january 3 2011 smith wesson holding corporation jeffrey buchanan34 1084 amended restated employment agreement executed december 31 2010 july 12 2010 michael f golden smith wesson holding corporation28 1084a nonqualified stock option agreement issued december 6 2004 registrant michael f golden15 1085 exchange agreement dated january 14 2011 among smith wesson holding corporation investors named therein12 1086 exchange agreement dated february 10 2011 among smith wesson holding corporation lazard asset management llc29 1087 exchange agreement dated february 10 2011 among smith wesson holding corporation investors named therein29 management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec december 18 2006 2 incorporated reference registrant’s form 8k filed sec june 19 2009 3 incorporated reference registrant’s form 8k filed sec august 19 2010 4 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 5 incorporated reference registrant’s form 8k filed sec may 6 2011 6 incorporated reference registrant’s form 8a filed sec august 25 2005 7 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 8 incorporated reference registrant’s form 8k filed sec may 29 2001 9 incorporated reference registrant’s form 8k filed sec december 18 2006 10 incorporated reference registrant’s form s3 333153638 filed sec september 23 2008 11 incorporated reference registrant’s form 8k filed sec july 24 2009 12 incorporated reference registrant’s form 8k filed sec january 18 2011 13 incorporated reference registrant’s form 10qsb filed sec august 13 2001 14 incorporated reference registrant’s form 10qsb filed sec september 14 2001 15 incorporated reference registrant’s form s8 333128804 filed sec october 4 2005 16 incorporated reference registrant’s proxy statement schedule 14a filed sec december 28 2001 17 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 18 incorporated reference registrant’s form 10ksb filed sec december 18 2003 19 incorporated reference registrant’s form 10k filed sec july 16 2004 20 incorporated reference registrant’s form 10q filed sec march 10 2005 21 incorporated reference registrant’s form 10q filed sec march 17 2006 22 incorporated reference registrant’s form 8k filed sec may 19 2006 23 incorporated reference registrant’s form 8k filed sec december 6 2007 24 incorporated reference registrant’s form 8k filed sec december 9 2010 25 incorporated reference registrant’s form 10k filed sec june 30 2009 26 incorporated reference registrant’s form 8k filed sec october 25 2010 27 incorporated reference registrant’s form 8k filed sec december 21 2010 28 incorporated reference registrant’s form 8k filed sec january 4 2011 29 incorporated reference registrant’s form 8k filed sec february 16 2011 30 incorporated reference registrant’s form 8k filed sec march 7 2011 31 incorporated reference registrant’s form 10q filed sec september 7 2011 32 incorporated reference registrant’s form 8k filed sec september 28 2011 33 incorporated reference registrant’s form 8k filed sec november 2 2011 34 incorporated reference registrant’s form 10q filed sec december 8 2011 35 incorporated reference registrant’s form 10k filed sec june 28 2012 36 incorporated reference registrant’s form s3 filed sec march 18 2013 37 incorporated reference registrant’s form 8ka filed sec june 17 2013 38 incorporated reference registrant’s form 8k filed sec october 1 2013 39 incorporated reference registrant’s form 8k filed sec june 26 2013 40 incorporated reference registrant’s form 8k filed sec august 19 2013 41 incorporated reference registrant’s amendment 2 schedule filed sec july 10 2013 42 incorporated reference registrant’s form 8k filed sec december 20 2013 43 incorporated reference registrant’s form s8 filed sec december 20 2013 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation p james debney p james debney president chief executive officer date june 19 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated index consolidated financial statements smith wesson holding corporation subsidiaries report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries “company” april 30 2014 2013 related consolidated statements income comprehensive income changes stockholders’ equity cash flows three years period ended april 30 2014 connection audits consolidated financial statements also audited financial statement schedule listed accompanying index financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall presentation financial statements schedule believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2014 2013 results operations cash flows three years period ended april 30 2014 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states smith wesson holding corporation’s internal control financial reporting april 30 2014 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso report dated june 19 2014 expressed unqualified opinion thereon bdo usa llp boston massachusetts june 19 2014 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements income comprehensive income accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows smith wesson holding corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash investing financing activities accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization one world’s leading manufacturers firearms manufacture wide array handguns including revolvers pistols long guns including modern sporting bolt action single shot rifles handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market manufacture firearm products facilities springfield massachusetts houlton maine sell products smith wesson mp thompsoncenter arms brands 2 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation expense environmental liability excess obsolete inventory allowance doubtful accounts income tax expense including deferred tax asset valuation forfeiture rates stockbased awards medical claims payable actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries including smith wesson corp thompsoncenter arms company llc swss llc formerly smith wesson security solutions inc “swss” former security solutions division variance fiscal yearend wholly owned subsidiary smith wesson corp reported fiscal yearend april 30 2014 twoday oneday variance fiscal yearends smith wesson corp reported fiscal yearends april 30 2013 2012 respectively variances create material difference consolidated financial statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2014 2013 periods presented included significant intercompany accounts transactions eliminated consolidation swss presented discontinued operations consolidated statements income comprehensive income periods presented see note 4 additional information regarding discontinued operations unless stated otherwise reference consolidated statements income comprehensive income items notes consolidated financial statements refers results continuing operations reclassification certain amounts presented prior years consolidated statements income comprehensive income related stock compensation expense reclassified conform current year’s presentation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2014 accounts exceeded federally insured limits 703 million smith wesson holding corporation subsidiaries notes consolidated financial statements continued trade receivables extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 134 116 122 net sales fiscal years ended april 30 2014 2013 2012 respectively customer accounted approximately 117 million 201 total accounts receivable april 30 2014 55 million 116 total accounts receivable april 30 2013 addition two customers accounted 68 million 62 million 143 131 respectively total accounts receivable april 30 2013 inventories value firearm inventories consisting primarily finished firearms finished firearm components related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment software hardware furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range 12 20 years see note 11 additional information regarding intangible assets revenue recognition firearm products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize smith wesson holding corporation subsidiaries notes consolidated financial statements continued revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenue individual licensees based historical experience expected cash receipts licensees licensing revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensees’ products insufficient historical experience believe reasonable assurance collectability exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2014 minimum royalties collected future amounted approximately 56 million follows dollars thousands segment information historically reported certain financial information two segments firearms security solutions result divestiture swss results operations comprising security solutions segment reported discontinued operations periods presented see note 4 discontinued operations additional information firearm segment determined single operating segment reporting segment based management’s reliance production metrics gross margin per unit produced units produced per day incoming orders per day revenue produced trade channel particular firearm segment geographic information april 30 2014 2013 2012 material personnel facilities outside united states sales outside united states detailed note 7 research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities approve prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs earningsloss per share calculate basic diluted earningsloss per common share accordance provisions asc 26010 earnings per share basic earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period diluted earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table provides reconciliation net incomeloss amounts weighted average number common equivalent shares used determine basic diluted earningsloss per common share thousands except per share data included calculation diluted earnings per common share year ended april 30 2012 499000 diluted earnings related effect conversion convertible debt fiscal 2014 2013 2012 77622 246635 952483 shares common stock respectively issuable upon exercise stock options excluded computation diluted income per share effect would antidilutive valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets property plant equipment patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business smith wesson holding corporation subsidiaries notes consolidated financial statements continued • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified impairment charges taken continuing operations fiscal 2014 2013 2012 based review longlived assets accounting acquisitions accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally determine fair value reporting unit purposes first step annual goodwill impairment test based income approach prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes stock options stockbased awards described note 16 incentive stock plan employees directors receive options purchase common stock stockbased awards including restricted stock units “rsus” performancebased restricted stock units “psus” municipal product liability provide reserves municipal potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments provision municipal product liability ongoing basis charge credit cost sales exclusive insurance reimbursements make evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain municipal product liability costs subject reimbursement insurance carriers environmental liability provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party “prp” ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted fiscal 2013 completed sale land building located rochester new hampshire agreed indemnify buyer losses arising among things environmental conditions related thompsoncenter subsidiaries’ manufacturing activities insurance supplement environmental smith wesson holding corporation subsidiaries notes consolidated financial statements continued remediation costs excess reserves associated land building located rochester new hampshire environmental reserve maintained property relieved result sale agreement property warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted august 22 2013 issued safety alert related mp shieldtm products manufactured prior august 19 2013 june 13 2013 initiated recall thompsoncenter arms bolt action rifles manufactured since products’ introduction 2007 november 11 2011 also initiated recall thompsoncenter arms venture rifles manufactured since product’s introduction mid2009 april 30 2014 incurred 54 million recall safety alert costs estimate remaining cost 33 million recorded accrued warranty balance warranty expense fiscal years ended april 30 2014 2013 2012 amounted 36 million 71 million 63 million respectively following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2014 2013 2012 dollars thousands sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted 16 million 51 million 27 million fiscal years ended april 30 2014 2013 2012 respectively coop advertising program retail level expensed costs amounting 19 million 15 million 17 million fiscal 2014 2013 2012 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net sales included costs relating shipping handling charges including inbound freight charges internal transfer costs distribution network cost goods sold insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 30 million per occurrence record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis general administrative expenses accompanying consolidated financial statements included payroll benefits management administrative employees profit sharing stock compensation expenses information technology costs legal professional fees depreciation furniture fixtures computer equipment reserves bad debts expenses administrative functions general administrative operating expenses smith wesson holding corporation subsidiaries notes consolidated financial statements continued recently issued accounting standards april 2013 financial accounting standards board issued accounting standards update “asu” 201311 income taxes topic 740 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists amendments asu 201311 require companies present unrecognized tax benefit portion thereof reduction deferred tax asset net operating loss nol carryforward similar tax loss tax credit carryforward unless uncertain tax position available reduce would used reduce nol carryforward tax law jurisdiction otherwise unrecognized tax benefit presented gross liability net unrecognized tax benefit deferred tax asset early adoption retrospective application permitted adoption asu material impact consolidated financial statements 3 asset purchase may 5 2014 acquired substantially net assets tri town precision plastics inc ttpp 241 million including 13 million working capital adjustment recorded transaction accordance asc 80520 business combinations ttpp provider custom injection molding services rapid prototyping tooling longstanding supplier polymer frames related components large number firearms including nearly mp models acquisition tttp’s custom polymer injection molding capabilities designed vertically integrate key component manufacturing operations increased flexibility within supply chain following table summarizes estimated preliminary fair values assets acquired liabilities assumed acquisition date dollars thousands included general administrative costs 471000 acquisitionrelated costs incurred fiscal 2014 none 26 million accounts receivable subject asc 31030 receivablesloans debt securities deteriorated credit quality receivables recorded fair value equal gross contractual amounts receivable less allowance doubtful accounts 32000 expect contractual cash flows net allowance doubtful accounts fully collected goodwill deductible tax purposes amortized 15 years result acquisition anticipate identifiable intangible assets relating customer relationships order backlog amortize customer relationships proportion expected yearly revenue smith wesson holding corporation subsidiaries notes consolidated financial statementscontinued generated customer lists acquired products sold amortize order backlog contract lives executed due limited time date acquisition valuation identifiable intangible assets complete therefore impracticable provide values weighted average life pro forma results operations assuming acquisition occurred may 1 2012 required immaterial impact consolidated financial statements periods presented 4 discontinued operations fiscal 2010 acquired outstanding capital stock swss fiscal 2012 committed plan divest assets liabilities ongoing operations security solutions division july 26 2012 completed disposition swss received 75 million cash operating results swss classified discontinued operations presented separate line consolidated statements income comprehensive income periods presented following summary operating results discontinued operations dollars thousands loss income taxes fiscal 2014 related primarily legal fees associated retained liabilities favorable income tax benefit fiscal 2014 result reversal uncertain tax position whose statute limitations expired included results operations fiscal 2013 2012 12 million 55 million respectively noncash charges related loss sale divestiture discontinued security solutions division 5 notes payable financing arrangements credit facilities 750 million unsecured revolving credit facility expandable accordion feature may certain circumstances increased 250 million increments maximum loan 1750 million credit facility replaced prior 600 million credit facility matures december 15 2016 credit facility bears interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio april 30 2014 borrowings outstanding borrowings would borne interest rate 375 per annum selected prime rate option range 165 182 per annum selected libor rate option 95 senior notes fiscal 2011 issued aggregate 500 million 95 senior notes due january 14 2016 “95 senior notes” exchange 500 million convertible notes pursuant terms conditions exchange agreement indenture “senior notes indenture” fiscal 2014 repurchased total 64 million 95 senior notes open market utilizing cash hand paid 552000 interest relating purchases remaining notes retired fiscal year ended april 30 2014 described 5875 senior notes fiscal year 2014 sold aggregate 471 million 5875 senior notes due 2017 “5875 senior notes” various qualified institutional buyers exchange approximately 428 million outstanding 95 senior notes existing holders notes also issued smith wesson holding corporation subsidiaries notes consolidated financial statementscontinued additional 529 million new 5875 senior notes cash remaining 712000 95 senior notes outstanding exchange noted extinguished via legal defeasance three months ended july 31 2013 result transaction indebtedness increased 564 million debt service requirements increased 18 million per annum 5875 senior notes sold pursuant terms conditions indenture “5875 senior notes indenture” exchange purchase agreements 5875 senior notes bear interest rate 5875 per annum payable june 15 december 15 year beginning december 15 2013 time prior june 15 2015 may option upon less 30 60 days’ prior notice redeem portion 5875 senior notes redemption price 100 principal amount 5875 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 5875 senior notes net cash proceeds one equity offerings redemption price 105875 principal amount 5875 senior notes plus accrued unpaid interest redemption date provided case foregoing clause least 65 aggregate original principal amount 5875 senior notes remains outstanding redemption occurs within 60 days closing equity offering june 15 2015 may option upon less 30 60 days’ prior notice redeem portion 5875 senior notes redemption price 1029375 principal amount 5875 senior notes redeemed 12month period beginning june 15 2015 b 100 principal amount 5875 senior notes redeemed 12month period beginning june 15 2016 plus either case accrued unpaid interest 5875 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5875 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5875 senior notes mature june 15 2017 5875 senior notes general unsecured obligations company 5875 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens share repurchases limited lesser 300 million fiscal year ii 750 consolidated net income previous four consecutive published fiscal quarters beginning quarter ended july 31 2013 addition allowed purchase 1150 million shares fiscal 2014 put place cover 750 million tender offer period prior publication july 31 2013 financial statements limitation indebtedness 5875 senior notes indenture applicable time consolidated coverage ratio set forth 5875 senior notes indenture us restricted subsidiaries less 300 100 general set forth 5875 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense debt issuance costs debt issuance costs related credit agreement lenders including related refinancings amounted 26 million recorded assets 380000 13000 recorded fiscal years ended april 30 2014 2013 respectively costs amortized expense life credit facility using straightline method fiscal year ended april 30 2014 amortized total 374000 interest expense incurred 18 million debt issuance costs associated issuance 95 senior notes costs amortized straightline basis approximated effective interest rate method january 14 2016 date maturity noted repurchased 64 million 95 senior notes fiscal 2013 resulting 173000 increased amortization remaining notes retired smith wesson holding corporation subsidiaries notes consolidated financial statementscontinued year ended april 30 2014 noted recorded 43 million interest expense amortized 834000 interest expense including 795000 debt issuance writeoff costs relating exchange defeasance 95 senior notes fiscal 2014 incurred 34 million debt issuance costs associated issuance 5875 senior notes costs amortized straightline basis approximates effective interest rate method june 15 2017 date maturity fiscal year ended april 30 2014 amortized 739000 interest expense relating 5875 senior notes total amount amortized interest expense debt issuance costs fiscal 2014 2013 2012 19 million 680000 14 million respectively including writeoffs related extinguishment april 30 2014 future amortization debt issuance costs follows fiscal 2015 967000 fiscal 2016 967000 fiscal 2017 927000 fiscal 2018 108000 revolving credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage 5875 senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2014 letters credit april 30 2014 outstanding letters credit aggregating 11 million 6 capital lease october 28 2011 entered saleleaseback agreement included sale certain machinery equipment leased total 35 million machinery equipment increase production capacity lease effective interest rate 576 payable 60 monthly installments fiscal 2017 leases accounted provisions asc 84010 leases requires leases evaluated classified operating capital leases financial reporting purposes based evaluation asc 84010 determined lease qualifies capital lease net present value future lease payments exceed 90 fair market value leased machinery equipment pledged assets financed secure amounts outstanding included 469000 shortterm capital lease obligation accrued expenses 20 million noncurrent liabilities following sets forth future minimum lease payments april 30 2014 dollars thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued 7 net sales following table sets forth breakdown net sales fiscal years ended april 30 2014 2013 2012 respectively dollars thousands firearms currently sold smith wesson mp thompsoncenter arms brands addition performance center offers small specialized enhanced models sold smith wesson mp brands depending upon product service customers include distributors federal state municipal law enforcement agencies officers government military agencies businesses retailers consumers sell products worldwide following table sets forth breakdown export net sales included table export net sales accounted 3 4 total net sales fiscal years ended april 30 2014 2013 2012 respectively dollars thousands individual foreign country accounted 10 net sales 8 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements new retail sales associate rewards program either incurred upon first occurrence advertising expense included selling marketing expenses continuing operations fiscal years ended april 30 2014 2013 2012 amounted 195 million 151 million 147 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued 9 property plant equipment following table summarizes property plant equipment april 30 2014 2013 dollars thousands estimated cost complete construction progress 404 million april 30 2014 depreciation tangible assets amortization software expense continuing operations amounted 191 million 154 million 134 million fiscal years ended april 30 2014 2013 2012 respectively following table summarizes depreciation amortization expense continuing operations includes amortization intangibles debt financing costs line item fiscal years ended april 30 2014 2013 2012 dollars thousands 10 inventories following table sets forth summary inventories net reserves stated lower cost market april 30 2014 2013 dollars thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued 11 intangible assets record intangible assets cost intangible assets consist customer relationships trademarks trade names patents amortize patents trademarks trade names using straightline method estimated useful lives ranging 12 20 years amortize customer relationships proration expected yearly revenue generated customer lists acquired currently estimated 20 years following table presents summary intangible assets year ended april 30 2014 2013 dollars thousands amortization expense excluding amortization deferred financing costs amounted 645000 639000 656000 fiscal years ended april 30 2014 2013 2012 respectively expect amortization expense related assets approximately 650000 next two fiscal years 450000 year three 200000 thereafter 12 receivables insurance carriers discussed notes 15 19 party lawsuits related use firearm products carry insurance covers certain legal defense costs related matters record receivable insurance carriers collection insurance proceeds probable outstanding balance april 30 2014 2013 19 million 25000 current assets 19 million noncurrent assets insurance carriers paid municipal related defense costs fiscal 2014 2013 13 accrued expenses following table sets forth accrued expenses april 30 2014 2013 dollars thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued 14 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability examples include interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives currently level 2 financial assets liabilities level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities following table presents information assets liabilities measured fair value recurring basis april 30 2014 2013 indicates fair value hierarchy valuation techniques utilized determine fair value dollars thousands cash equivalents include interest bearing cash money market accounts smith wesson holding corporation subsidiaries notes consolidated financial statements continued 15 selfinsurance reserves april 30 2014 2013 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 92 million 96 million respectively 58 million 57 million respectively classified noncurrent included noncurrent liabilities april 30 2014 2013 24 million 23 million respectively included accrued expenses 10 million 16 million respectively included accrued productmunicipal liability accompanying consolidated balance sheets addition april 30 2014 2013 361000 332000 excess workers’ compensation receivable classified asset believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 107 million 122 million 114 million fiscal years ended april 30 2014 2013 2012 respectively following table summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2014 2013 2012 dollars thousands policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation matters losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2014 2013 accrued reserves product municipal litigation liabilities 39 million 44 million respectively 28 million noncurrent consisting entirely expected legal defense costs addition april 30 2014 2013 recorded receivables insurance carriers related liabilities 19 million nearly classified assets 25000 classified current assets 16 stockholders’ equity treasury stock fiscal 2013 board directors authorized repurchase 350 million common stock subject certain conditions open market privately negotiated transactions prior june 30 2013 repurchased 2099603 shares common stock fiscal 2013 200 million utilizing cash hand leaving 150 million common stock authorized purchased fiscal 2014 board directors authorized repurchase 1150 million common stock 750 million authorized purchase tender offer remainder could repurchased open market privately negotiated transactions 1150 million authorization replaced stock repurchase program authorized fiscal 2013 fiscal 2014 repurchased 1417233 shares common stock pursuant tender offer expired july 23 2013 156 million 8740471 shares common stock open market 994 million case utilizing cash hand completed 1150 million stock repurchase program fees expenses incurred related tender offer smith wesson holding corporation subsidiaries notes consolidated financial statements continued open market purchases 887000 recorded treasury stock march 28 2014 board directors authorized repurchase 300 million common stock subject certain conditions open market privately negotiated transactions commencing earlier may 1 2014 may 2014 repurchased approximately 203000 shares common stock 30 million utilizing cash hand relating recent stock repurchase program leaving 270 million common stock authorized purchased incentive stock employee stock purchase plans two stock plans “sps” 2004 incentive stock plan 2013 incentive stock plan new grants 2004 incentive stock plan made since approval 2013 incentive stock plan september 23 2013 annual meeting stockholders new grants covering participants issued 2013 incentive stock plan 2013 incentive stock plan authorizes issuance 3000000 shares plus shares reserved remained available grant delivery 2004 incentive stock plan september 23 2013 effective date 2013 incentive stock plan permits grant options acquire common stock restricted stock awards restricted stock units “rsus” stock appreciation rights bonus stock awards lieu obligations performance awards dividend equivalents board directors committee established board administers sps selects recipients awards granted determines grants awarded options granted sps exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sps nontransferable subject forfeiture unless terminated earlier board directors 2013 incentive stock plan terminate earliest 1 tenth anniversary effective date 2013 stock plan 2 time shares common stock remain available issuance plan rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award except specific circumstances awards vest period three years exercisable period 10 years plan also permits grant awards nonemployees board granted past separate option grant outside 2004 incentive stock plan 500000 shares made exercise price 147 per share connection hiring former president chief executive officer fiscal year ended april 30 2005 former president chief executive officer retired september 26 2011 continues service member board directors appointed covice chairman board april 30 2014 options outstanding relating grant options exercised smith wesson holding corporation subsidiaries notes consolidated financial statements continued number shares weighted average exercise prices options granted sps ii separate option grant former president chief executive officer outside sops fiscal years ended april 30 2014 2013 2012 follows april 30 2014 6287591 shares available grant 2013 incentive stock plan use unissued share pool shares issued options restricted share awards rsus employee stock purchase plan “espp” issuances aggregate intrinsic value outstanding options april 30 2014 2013 2012 208 million 121 million 160 million respectively aggregate intrinsic value outstanding options exercisable april 30 2014 2013 2012 170 million 87 million 82 million respectively aggregate intrinsic value options exercised years ended april 30 2014 2013 2012 73 million 51 million 982000 respectively april 30 2014 total unrecognized compensation cost outstanding options 326000 recognized remaining weighted average vesting period 048 years september 26 2011 stockholders approved 2011 employee stock purchase plan 2011 espp replace expired 2001 espp authorized sale 6000000 shares common stock employees shares included 2011 espp longer available issuance 2001 espp option rights participate espp nontransferable subject forfeiture accordance espp guidelines current espp implemented series successive offering periods maximum duration 12 months fair market value fmv per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period smith wesson holding corporation subsidiaries notes consolidated financial statements continued fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase espp b date determined board directors discretion c march 31 2022 event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2014 2013 2012 176204 185218 502898 shares respectively purchased espp’s measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options issued employees using blackscholes model time options granted amount amortized vesting period option espp fair value determined beginning purchase period amortized term exercise period following assumptions used valuing options espp purchases years ended april 30 2014 2013 2012 estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table total stockbased compensation expense including stock options purchases espp rsu performancebased rsu “psu” awards 82 million 41 million 25 million fiscal years 2014 2013 2012 respectively year ended april 30 2014 recorded stockbased compensation expense 332000 cost sales 225000 sales marketing 74000 research development 76 million general administrative expenses year ended april 30 2013 recorded stockbased compensation expense 331000 cost sales 92000 sales marketing 39000 research development 37 million general administrative expenses year ended april 30 2012 recorded stockbased compensation expense 83000 cost sales 10000 sales marketing 1000 research development 24 million general administrative expenses grant servicebased rsus employees consultants directors awards made cost recipient rsu represents right acquire one share common stock carry voting dividend rights except specific circumstances rsu grants employees generally vest period three years onethird units vesting anniversary date grant date aggregate fair value rsu grants amortized compensation expense vesting period smith wesson holding corporation subsidiaries notes consolidated financial statements continued grant psus market conditions executive officers grant psus without marketconditions employees executive officers including successful completion specific projects goals implementation new enterprise resource planning “erp” system time grant calculate fair value marketcondition psus using montecarlo simulation incorporate following variables valuation model expected volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate threeyear performance period expect pay dividends foreseeable future marketcondition psus vest fair value psus recognized corresponding threeyear performance period marketcondition psus maximum aggregate award equal 200 target amount granted number marketcondition psus may earned depends upon total stockholder return “tsr” common stock compared tsr russell 2000 index “rut” nasdaq composite index “ixic” applicable threeyear performance period stock must outperform rut ixic applicable 10 order target award vest fiscal year ended april 30 2014 granted 117500 marketcondition psus certain executive officers also granted 565556 servicebased rsus year ended april 30 2014 including 351400 rsus certain executive officers 42238 rsus directors 164918 rsus nonexecutive officer employees 7000 rsus consultants addition granted vested 30000 marketcondition psus officer former officer connection 2010 award achieved maximum aggregate award compensation expense recognized related grants rsus psus 64 million fiscal year ended april 30 2014 fiscal year ended april 30 2014 cancelled 17316 servicebased rsus 9000 psus without marketconditions result service period condition met delivered 457851 shares common stock current employees vested rsus psus total market value 57 million fiscal year ended april 30 2013 granted 152000 marketcondition psus certain executive officers 63050 psus without market conditions employees also granted 320279 servicebased rsus fiscal year ended april 30 2013 including 250250 rsus certain executive officers 35000 rsus directors 28029 rsus nonexecutive officer employees 7000 rsus consultants compensation expense recognized related grants rsus psus 18 million fiscal year ended april 30 2013 smith wesson holding corporation subsidiaries notes consolidated financial statements continued fiscal year ended april 30 2013 delivered 14250 psus without marketconditions current employees total market value 131000 also delivered 69637 shares common stock certain executive officers current employees consultants former employee vested rsus total market value 595000 fiscal year ended april 30 2013 cancelled 16996 servicebased rsus 35000 marketcondition psus result service period condition met 2000 psus without marketcondition result performance condition met fiscal year ended april 30 2012 granted 149873 servicebased rsus employees consultants april 30 2012 granted 209200 marketcondition psus certain executive officers fiscal year ended april 30 2012 cancelled 88700 marketcondition psus previously granted former president chief executive officer result service period condition met compensation expense recognized related grants rsus psus excluding 180000 impact 88700 cancelled psus 350000 12 months ended april 30 2012 12 months ended april 30 2013 delivered 9500 shares common stock employees consultants vested rsus total market value 43000 grant date fair value rsus psus vested fiscal 2014 2013 2012 40 million 726000 43000 respectively summary activity unvested rsus psus fiscal years 2014 2013 2012 follows april 30 2014 54 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 14 years aggregate intrinsic value outstanding rsus psus april 30 2014 2013 2012 71 million 491000 400000 respectively 17 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed 19 million 17 million 15 million fiscal years ended april 30 2014 2013 2012 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine employees become eligible smith wesson holding corporation subsidiaries notes consolidated financial statements continued may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes 15 qualifying payroll defined plan year fiscal 2014 plan contribute approximately 111 million recorded general administrative costs contributed 96 million 80 million fiscal years ended april 30 2013 2012 respectively contributions funded fiscal yearend 18 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date income tax expense continuing operations consists following dollars thousands following table presents reconciliation provision income taxes continuing operations statutory rates provision consolidated financial statements dollars thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued future tax benefits deferred tax liabilities related temporary differences following dollars thousands required asc 74010 accounting income taxes record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position management unaware recent expected future changes tax laws would material impact financial statements federal net operating loss carryforwards amounting 649000 april 30 2014 expire fiscal 2020 obtained 82 million additional loss carryforwards acquisition swss smith wesson holding corporation subsidiaries notes consolidated financial statements continued july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 108000 fiscal 2014 taxable year thereafter possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 internal revenue code ownership change occur could annual limitation remaining tax loss carryforward 162 million 231 million state net operating loss carryforwards april 30 2014 2013 respectively state net operating loss carryforwards expire april 30 2015 april 30 2033 26 million 23 million state tax credit carryforwards april 30 2014 2013 respectively state tax credit carryforwards expire april 30 2023 april 30 2025 expiration date april 30 2014 valuation allowances 686000 17 million provided deferred tax assets state net operating loss carryforward state tax credits respectively anticipate using prior expiration 12000 state deferred tax assets anticipate realize benefit april 30 2013 valuation allowances 973000 15 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration 20000 state deferred tax assets anticipate realize benefit increase valuation allowance deferred tax assets state net operating losses credits state deferred tax assets related mainly operations tennessee valuation allowance provided deferred federal income tax assets april 30 2014 2013 believe likely assets realized april 30 2014 2013 gross taxeffected unrecognized tax benefits 84000 11 million respectively entire amounts recognized would favorably impact effective tax rate included unrecognized tax benefits april 30 2014 2013 15000 270000 respectively accrued interest penalties related uncertain tax positions recorded noncurrent liabilities reconciliation beginning ending amount unrecognized tax benefits follows dollars thousands unrecognized tax benefits classified noncurrent income tax liabilities recorded noncurrent liabilities payment cash anticipated within one year balance sheet date statute expire within one year balance sheet date fiscal 2015 expect incur additional interest penalties uncertain tax positions limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2010 smith wesson holding corporation subsidiaries notes consolidated financial statements continued 19 commitments contingencies litigation january 19 2010 doj unsealed indictments 22 individuals law enforcement military equipment industries one former vice presidentsales international us law enforcement charged indictment also served grand jury subpoena production documents since time doj conducting investigation determine whether violated fcpa cooperated fully doj matter february 21 2012 doj filed motion dismiss prejudice indictments remaining defendants pending trial including former vice presidentsales international us law enforcement february 24 2012 district court granted motion dismiss following extensive investigation evaluation doj declined pursue fcpa charges us closed investigation doj noted “thorough cooperation” correspondence us fiscal 2011 received subpoena staff sec giving notice sec conducting nonpublic factfinding inquiry determine whether violations federal securities laws appears civil inquiry triggered part doj investigation potential fcpa violations cooperating fully sec matter undertaken comprehensive review company policies procedures final stages discussions sec staff brought us close resolution future agreement subject final review approval sec commissioners based upon status current discussions estimated accrued expense approximately 20 million fiscal 2014 recorded expense involved purported stockholder derivative lawsuit actions brought putative plaintiffs behalf company certain officers directors employees lawsuit based principally theory breach fiduciary duties putative plaintiffs seek damages behalf company individual defendants damages sought include equitable andor injunctive relief actions improve corporate governance recovery attorneys’ fees settlement reached previously reported stockholder derivative lawsuit approved court settlement costs related case material impact financial statements fully reserved selfinsured retention remaining value expected covered insurance defendant 16 product liability cases aware approximately six product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case filed august 27 1999 city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties believe various allegations described unfounded addition accident results due negligence misuse firearm claimant third party addition involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek unspecified compensatory punitive damages others compensatory damages sought may range less 75000 excess 14 million experience initial demands generally bear reasonable relationship facts circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims smith wesson holding corporation subsidiaries notes consolidated financial statementscontinued vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims product liability reserves includes amounts defense costs asserted unasserted claims consultation litigation counsel review merit claim concluded unable reasonable estimate probability estimated range reasonably possible losses related material adverse judgments related claims therefore accrued judgments addition future determine loss additional loss excess accrual least reasonably possible material would disclose estimate possible loss range loss estimate could made disclose estimate could made believe provided adequate reserves defense costs intend vigorously defend fiscal years ended april 30 2014 2013 2012 paid 10 million 758000 401000 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 460000 42000 105000 respectively fiscal years settlement fees related product liability cases recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets fiscal 2014 2013 recorded expense 533000 805000 respectively recognize changes product liability municipal litigation liability fiscal 2012 recorded income 560000 recognize changes product liability municipal litigation liability time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made environmental remediation subject numerous federal state local laws regulate health safety workforce well environmental liability including regulations monitored occupational health safety administration osha national fire protection association nfpa department public health dph though exhaustive examples applicable regulations include confined space safety walking working surfaces machine guarding life safety required comply regulations mitigate release environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject two release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate smith wesson holding corporation subsidiaries notes consolidated financial statementscontinued alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent two sites fiscal 2013 completed sale land building located rochester new hampshire pursuant agreed indemnify buyer losses arising among things environmental conditions related thompsoncenter subsidiaries’ manufacturing activities environmental reserve maintained property relieved result purchase sale agreement april 30 2014 2013 respectively recorded 623000 577000 environmental reserve noncurrent liabilities calculated net present value environmental reserve equal carrying value liability recorded books estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained pursuant asset purchase agreement signed may 5 2014 completed acquisition substantially net assets tri town precision plastics inc ttpp 241 million cash including 13 million working capital adjustment agreement former stockholder ttpp indemnified us losses arising among things environmental conditions related manufacturing activities purchase price 30 million placed escrow account portion applied environmental remediation manufacturing site deep river connecticut presently possible estimate ultimate amount remediation costs potential uses escrow believe likelihood environmental remediation costs exceeding amount available escrow remote based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities components parts raw materials supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many components parts raw materials supplies used production products available limited number suppliers cases longterm supply contracts suppliers smith wesson holding corporation subsidiaries notes consolidated financial statementscontinued contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business fiscal 2011 awarded 60 million refundable tax credit massachusetts economic assistance coordinating council economic development incentive program edip credit granted commonwealth massachusetts consideration restructuring plan move production hunting products new hampshire massachusetts subject compliance written edip investment analysis plan including requirement hire 225 employees calendar year 2011 invest 629 million five years qualified depreciable assets significant external factors prevent us maintaining required level employment investment future may required repay part tax credit received end fiscal 2014 recorded total 59 million tax credits including recording receivable 761000 fiscal 2014 compliance written edip investment analysis plan remaining refundable tax credit earned next three years continue comply edip investment analysis plan believe likelihood comply edip investment analysis plan remote rental leases lease office space scottsdale arizona operating lease expires january 2015 machinery photocopiers springfield houlton locations various expiration dates vehicles national sales force april 30 2014 lease commitments follows dollars thousands rent expense fiscal years ended april 30 2014 2013 2012 22 million 22 million 23 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statementscontinued 20 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2014 2013 opinion adjustments necessary present fairly information quarters reflected dollars thousands except per share data gross profit fourth fiscal quarter included 30 million adjustment recall thompsoncenter arms bolt action rifles schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2014 2013 2012 1 decrease municipal liability reserve result expired statute limitations certain cases 2 decrease environmental reserve result reclassification reserve related rochester new hampshire facility assets held sale 3 decrease inventory reserve warranty reserves result reclassification assets liabilities held sale relate swss disposal groupitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2015 2014 2013 set forth page report b exhibits exhibit number exhibit 29 stock purchase sale agreement dated november 25 2014 among registrant clearview battenfeld acquisition company llc members named therein1 31 amended restated articles incorporation2 33b amended restated bylaws3 39a certificate withdrawal certificate designation4 41 form common stock certificate5 430 indenture dated june 17 2014 among registrant bank new york mellon trust company na trustee6 430a first supplemental indenture dated june 26 2014 among registrant bank new york mellon trust company na trustee7 1024a amended restated 2004 incentive stock plan8 1028 amendments 2004 incentive stock plan9 1051 agreement respect defense smith wesson firearms litigation dated november 11 200410 1056 form restricted stock unit award agreement 2004 incentive stock plan11 1072 form indemnity agreement entered following directors executive officers june 29 2009 barry monheit michael f golden robert l scott john b furman mitch saltz marie wadecki jeffrey buchanan november 2009 p james debney july 2011 robert h brust december 14 2011 mark p smith april 24 2013 robert j cicero12 1083a amended restated severance change control agreement executed december 8 2011 january 3 2011 registrant jeffrey buchanan13 1091a amended restated employment agreement executed december 8 2011 september 26 2011 p james debney smith wesson holding corporation13 1095 letter amendment dated september 9 2011 jeffrey buchanan registrant13 1096 letter amendment dated september 9 2011 p james debney smith wesson holding corporation13 1098 form nonqualified stock option award grant notice agreement 2004 incentive stock plan13 1099 form restricted stock unit award grant notice agreement 2004 incentive stock plan13 10100 amended restated 2011 employee stock purchase plan14 10101 form performancebased restricted stock unit award grant notice agreement 2004 incentive stock plan awards made beginning april 201214 exhibit number exhibit 10102 form timebased restricted stock unit award grant notice agreement 2004 incentive stock plan awards made beginning april 201214 10104 credit agreement dated august 15 2014 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc sole lead arranger sole bookrunner including exhibits thereto15 10104a first amendment credit agreement dated november 25 2014 among registrant smith wesson corp guarantors lenders td bank na administrative agent amd swingline lender1 10104b second amendment credit agreement dated april 13 2015 among registrant smith wesson corp guarantors lenders td bank na administrative agent swingline lender16 10106 master letter credit agreement dated august 15 2014 td bank na registrant smith wesson corp modified letter agreement dated august 15 2014 addressed registrant subsidiaries td bank na15 10106a first amendment master letter credit agreement dated june 15 2015 td bank na registrant smith wesson corp 10107 smith wesson holding corporation executive severance pay plan17 10108 adoption agreement smith wesson nonqualified supplemental deferred compensation plan18 10109 smith wesson nonqualified supplemental deferred compensation plan document18 10110 2013 incentive stock plan19 10111 form restricted stock unit award grant notice agreement 2014 incentive stock plan awards made beginning april 201420 10111a form restricted stock unit grant notice agreement 2013 incentive stock plan awards made beginning september 2014 10111b form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 2015 10112 form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201420 10112a form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 2015 10113 credit agreement dated june 15 2015 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents including exhibits thereto letter bdo usa llp securities exchange commission dated june 25 201421 211 subsidiaries registrant 231 consent deloitte touche llp independent registered public accounting firm 232 consent bdo usa llp independent registered public accounting firm exhibit number exhibit 311 rule 13a14a15d14a certification principal executive officer 312 rule 13a14a15d14a certification principal financial officer 321 section 1350 certification principal executive officer 322 section 1350 certification principal financial officer 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec november 26 2014 2 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 3 incorporated reference registrant’s form 8k filed sec march 20 2015 4 incorporated reference registrant’s form 8k filed sec october 1 2013 5 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 6 incorporated reference registrant’s form 8ka filed sec june 17 2013 7 incorporated reference registrant’s form 8k filed sec june 26 2013 8 incorporated reference registrant’s form 8k filed sec september 28 2011 9 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 10 incorporated reference registrant’s form 10q filed sec march 10 2005 11 incorporated reference registrant’s form 8k filed sec may 19 2006 12 incorporated reference registrant’s form 10k filed sec june 30 2009 13 incorporated reference registrant’s form 10q filed sec december 8 2011 14 incorporated reference registrant’s form 10k filed sec june 28 2012 15 incorporated reference registrant’s form 8k filed sec august 19 2013 16 incorporated reference registrant’s form 8k filed sec april 15 2015 17 incorporated reference registrant’s amendment 2 schedule filed sec july 10 2013 18 incorporated reference registrant’s form 8k filed sec december 20 2013 19 incorporated reference registrant’s form s8 filed sec december 20 2013 20 incorporated reference registrant’s form 10k filed sec june 19 2014 21 incorporated reference registrant’s form 8k filed sec june 26 2014 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation p james debney p james debney president chief executive officer date june 22 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature capacity date p james debney president chief executive officer director principal executive officer june 22 2015 p james debney jeffrey buchanan executive vice president chief financial officer treasurer principal accounting financial officer june 22 2015 jeffrey buchanan barry monheit chairman board june 22 2015 barry monheit robert l scott vice chairman board june 22 2015 robert l scott robert h brust director june 22 2015 robert h brust john b furman director june 22 2015 john b furman michael f golden director june 22 2015 michael f golden mitchell saltz director june 22 2015 mitchell saltz marie wadecki director june 22 2015 marie wadecki index consolidated financial statements smith wesson holding corporation subsidiaries page reports independent registered public accounting firms consolidated balance sheets april 30 2015 2014 consolidated statements income years ended april 30 2015 2014 2013 consolidated statements changes stockholders’ equity years ended april 30 2015 2014 2013 consolidated statements cash flows years ended april 30 2015 2014 2013 notes consolidated financial statements schedule ii valuation qualifying accounts years ended april 30 2015 2014 2013 report independent registered public accounting firm board directors shareholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheet smith wesson holding corporation subsidiaries company april 30 2015 related consolidated statements income changes stockholders’ equity cash flows year ended audit also included financial statement schedule listed accompanying index item 15 also audited companys internal control financial reporting april 30 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission described management’s report internal control financial reporting management excluded assessment portion internal control financial reporting battenfeld technology inc “bti” acquired december 11 2014 whose financial statements constitute approximately 37 consolidated revenue 36 total assets excluding bti goodwill intangible assets integrated company’s systems control environment 07 net operating income excluding bti amortization intangible assets integrated company’s systems control environment consolidated financial statements amounts year ended april 30 2015 accordingly audit include portion internal control financial reporting bti excluded management’s assessment companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audit financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audit also included performing procedures considered necessary circumstances believe audit provide reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position company april 30 2015 results operations cash flows year ended april 30 2015 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also opinion company maintained material respects effective internal control financial reporting april 30 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission deloitte touche llp hartford connecticut june 22 2015 report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheet smith wesson holding corporation subsidiaries “company” april 30 2014 related consolidated statements income comprehensive income changes stockholders’ equity cash flows two years period ended april 30 2014 connection audits consolidated financial statements also audited financial statement schedule listed accompanying index financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall presentation financial statements schedule believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2014 results operations cash flows two years period ended april 30 2014 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein bdo usa llp boston massachusetts june 19 2014 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements income accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization one world’s leading manufacturers firearms manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles single shot rifles handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market beginning 2015 also leading provider shooting reloading gunsmithing gun cleaning supplies sell products smith wesson mp thompsoncenter arms caldwell shooting supplies wheeler engineering tipton gun cleaning supplies frankford arsenal reloading tools lockdown vault accessories hooyman premium tree saws bogpod golden rod moisture control brands manufacture firearm products facilities springfield massachusetts houlton maine deep river connecticut develop market accessories products facility columbia missouri plan continue capitalize goodwill developed historic 163 year old “smith wesson” brand well wellknown brands expanding consumer awareness products produce may 5 2014 acquired substantially net assets tritown precision plastics inc ttpp refer drp acquisition see note 2 acquisitions information regarding transaction december 11 2014 acquired issued outstanding stock battenfeld acquisition company inc including wholly owned subsidiary battenfeld technologies inc bti refer bti acquisition see note 2 acquisitions information regarding transaction acquisitions accounted accordance asc 80520 business combinations accordingly results operations acquired businesses included consolidated financial statements following acquisition dates 2 acquisitions drp acquisition may 5 2014 acquired substantially net assets ttpp 228 million plus 10 million working capital adjustment total purchase price 238 million utilizing cash hand ttpp provider custom injection molding services rapid prototyping tooling longstanding supplier polymer frames related components large number firearms including nearly mp models drp acquisition ttpp’s custom polymer injection molding capabilities designed vertically integrate key component manufacturing operations provide us increased flexibility within supply chain smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table summarizes estimated fair values assets acquired liabilities assumed acquisition date well measurement period adjustments thousands general administrative costs include 440000 471000 acquisitionrelated costs incurred years ended april 30 2015 2014 respectively related drp acquisition goodwill recorded relating drp acquisition results expected synergies related vertically integrating key component manufacturing operations well increased flexibility within supply chain goodwill deductible tax purposes amortized 15 years included firearm segment amortize customer relationships proportion expected yearly revenue generated customer lists acquired products sold amortize order backlog contract lives executed following identifiable intangible assets acquired thousands respective weighted average lives pro forma results operations assuming acquisition occurred may 1 2013 required immaterial impact consolidated financial statements periods presented bti acquisition december 11 2014 acquired issued outstanding stock bti 1305 million plus 31 million working capital adjustment total purchase price 1336 million pursuant stock purchase sale agreement bti acquisition financed using combination existing cash balances cash 1000 million draw line credit expanded 1250 million result partial exercise accordion feature line credit bti based columbia missouri leading provider hunting shooting accessories develops produces delivers innovative highquality products several brands january 9 2015 acquired substantially net assets hooyman llc manufacturer extendable tree saws designed hunting outdoor industry 19 million utilizing cash hand relocated operations columbia missouri facility smith wesson holding corporation subsidiaries notes consolidated financial statements continued aggregate purchase price acquisitions including working capital adjustments 1355 million finalizing valuation assets acquired liabilities assumed therefore fair values set forth subject adjustments obtain additional information measurement period exceed 12 months acquisition date adjustments purchase price allocation may require recasting amounts allocated goodwill retroactive period acquisition occurred following table summarizes estimated allocation purchase price bti acquisition date includes net assets hooyman acquisition well measurement period adjustments date thousands general administrative costs include 17 million acquisitionrelated costs incurred year ended april 30 2015 related bti acquisition goodwill recorded relating bti acquisition results ability expand prescence firearm accessories market leverage bti’s broad portfolio hunting shooting accessories brands previously acquired goodwill 120 million deductible tax purposes remaining useful life remaining goodwill recorded result bti acquisition expected deductible tax purposes goodwill recorded result bti acquisition allocated accessories segment amortize intangible assets proportion expected yearly revenue generated intangibles acquired amortize order backlog contract lives executed following identifiable intangible assets acquired thousands respective weighted average lives smith wesson holding corporation subsidiaries notes consolidated financial statements continued additionally following table reflects unaudited pro forma results operations assuming bti acquisition occurred may 1 2013 thousands except per share data unaudited pro forma income continuing operations years ended april 30 2015 2014 adjusted reflect increased cost goods sold fair value stepup inventory expensed first inventory cycle amortization intangibles order backlog incurred acquisition occurred may 1 2013 unaudited pro forma information presented informational purposes necessarily indicative actual results would achieved bti acquisition occurred may 1 2013 results may achieved future periods 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accruals warranty excess obsolete inventory allowance doubtful accounts intangible asset valuation actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries including smith wesson corp thompsoncenter arms company llc deep river plastics llc bti currently reported newly formed accessories division swss llc formerly smith wesson security solutions inc swss former security solutions division variance fiscal yearend wholly owned subsidiary smith wesson corp reported fiscal yearend april 30 2015 2014 twoday variance fiscal yearend smith wesson corp reported fiscal yearend april 2013 variance fiscal 2013 create material difference consolidated financial statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2015 2014 periods presented included significant intercompany accounts transactions eliminated consolidation swss presented discontinued operations consolidated statements income periods presented see note 4 additional information regarding discontinued operations unless stated otherwise reference consolidated statements income items notes consolidated financial statements refers results continuing operations fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2015 accounts exceeded federally insured limits 426 million trade receivables extend credit domestic customers foreign distributors based financial condition sometimes offer discounts early payment invoices believe extension credit advisable rely either prepayment letter credit write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising smith wesson holding corporation subsidiaries notes consolidated financial statements continued customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral fiscal year ended april 30 2015 customers accounted 10 net sales 10 accounts receivable april 30 2015 however one customers accounted approximately 134 116 net sales fiscal years ended april 30 2014 2013 respectively well 117 million 201 accounts receivable april 30 2014 inventories value firearm inventories consisting primarily finished firearms finished firearm components well related products well accessories inventories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment software hardware furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows include tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets record intangible assets cost based fair value assets acquired intangible assets consist developed technology customer relationships trademarks trade names patents amortize intangible assets estimated useful lives proportion expected yearly revenue generated intangibles acquired revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed segment information two reportable segments one firearm division second accessories division see note 19 segment reporting information regarding segments research development engage internal external research development rd order remain competitive exploit possible untapped market opportunities approve prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs earningsloss per share calculate basic diluted earningsloss per common share accordance provisions asc 26010 earnings per share basic earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period diluted earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table provides reconciliation net incomeloss amounts weighted average number common equivalent shares used determine basic diluted earningsloss per common share thousands except per share data fiscal 2015 2014 2013 73546 77622 246635 shares common stock respectively issuable upon exercise stock options excluded computation diluted income per share effect would antidilutive valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets goodwill property plant equipment developed technology customer relationships patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following · significant underperformance relative historical projected future operating results · significant changes manner use assets strategy overall business · significant negative industry economic trends · significant decline stock price sustained period · decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified impairment charges recorded continuing operations fiscal 2015 2014 2013 based review longlived assets accordance asc 350 intangiblesgoodwill test intangible assets indefinite lives impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate smith wesson holding corporation subsidiaries notes consolidated financial statements continued number reporting units exist based review asc 2801050 determined operate continuing operations two reporting units one springfield massachusetts houlton maine deep river connecticut facilities second columbia missouri facility april 30 2015 754 million goodwill 138 million related drp acquisition 616 million related bti acquisition periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate base impairment test comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis impairment charges taken continuing operations fiscal 2015 2014 2013 based review longlived assets utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting unit’s expected longterm operating cash performance approach also mitigates impact cyclical trends occur industry fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percent revenue decline future years improved utilization resulting lean initiatives believe days sales outstanding decline increase revenues also assumed markets contracted long term current economic downturn however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges income taxes provision income taxes based upon income reported accompanying consolidated financial statements required asc 74010 accounting income taxes record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted smith wesson holding corporation subsidiaries notes consolidated financial statements continued august 22 2013 issued safety alert related mp shield products manufactured prior august 19 2013 june 13 2013 initiated recall thompsoncenter arms bolt action rifles manufactured since products’ introduction 2007 april 30 2015 incurred 55 million recall safety alert costs estimated remaining cost 32 million recorded accrued warranty balance warranty expense fiscal years ended april 30 2015 2014 2013 amounted 43 million 36 million 71 million respectively following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2015 2014 2013 thousands sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted 69 million 16 million 51 million fiscal years ended april 30 2015 2014 2013 respectively coop advertising program retail level expensed costs amounting 28 million 19 million 15 million fiscal 2015 2014 2013 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net sales included costs relating shipping handling charges including inbound freight charges internal transfer costs distribution network cost goods sold insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 30 million per occurrence record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis recently issued accounting standard may 2014 financial accounting standards board issued accounting standards update 201409 revenue contracts customers topic 606 asu 201409 core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective interim reporting periods beginning october 1 2017 early adoption permitted currently evaluating impact asu 201409 consolidated financial statements 4 discontinued operations fiscal 2010 acquired outstanding capital stock swss fiscal 2013 committed plan divest assets liabilities ongoing operations security solutions division operating results swss relate primarily legal fees associated retained liabilities classified discontinued operations present discontinued operations separate line consolidated statements income periods presented 5 notes payable financing arrangements credit facilities july 15 2014 entered 750 million unsecured credit facility november 25 2014 partially exercised accordion feature credit facility increase 500 million 1250 million connection bti acquisition april 13 2015 exercised remaining 500 million expansion accordion feature increase line credit available us 1750 million credit facility scheduled mature december 15 2016 bore interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio april 30 2015 borrowings outstanding borrowings would borne interest rate 400 per annum selected prime rate option range 218 228 per annum selected libor rate option discussed entered new credit agreement consists revolving line credit term loan replaced 1750 million credit facility new credit facility june 15 2015 entered new unsecured credit facility td bank na lenders included 1750 million revolving line credit revolving line 1050 million term loan smith wesson holding corporation subsidiaries notes consolidated financial statements continued term loan revolving line provides availability june 15 2020 general corporate purposes borrowings bear interest variable rate equal libor prime plus applicable margin based consolidated leverage ratio election term loan bears interest variable rate entered purpose redeeming 5875 senior notes due 2017 5875 senior notes required obtain interest rate protection swap contract covering less 75 aggregate outstanding principal balance term loan requires principal payments 6000 per annum paid quarterly remaining outstanding amount maturity date june 15 2020 due full concurrent closing term loan 5875 senior notes redeemed 29375 call premium plus accrued unpaid interest redemption date part redemption fiscal 2016 wrote 17 million debtissue costs related 5875 senior notes 95 senior notes fiscal 2011 issued aggregate 500 million 95 senior notes due 2016 95 senior notes fiscal 2013 repurchased total 64 million notes fiscal year ended april 30 2014 retired remaining notes described 5875 senior notes fiscal 2014 sold aggregate 471 million 5875 senior notes various qualified institutional buyers exchange approximately 428 million thenoutstanding 95 senior notes held existing holders notes also issued additional 529 million new 5875 senior notes cash remaining 712000 95 senior notes outstanding exchange noted extinguished via legal defeasance fiscal 2014 5875 senior notes sold pursuant terms conditions indenture 5875 senior notes indenture exchange purchase agreements 5875 senior notes bore interest rate 5875 per annum payable june 15 december 15 year beginning december 15 2013 recorded 43 million interest expense related bond premium 795000 debt issuance writeoff costs relating exchange defeasance 95 senior notes fiscal 2014 discussed 5875 senior notes redeemed june 15 2015 proceeds term loan entered part new credit facility 5000 senior notes fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 5000 senior notes various institutional investors pursuant terms conditions indenture 5000 senior notes indenture collectively 5875 senior notes indenture senior notes indentures purchase agreements 5000 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 5000 senior notes time prior july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 100 principal amount 5000 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 5000 senior notes net cash proceeds one equity offerings redemption price 105000 principal amount 5000 senior notes plus accrued unpaid interest redemption date provided case foregoing clause least 65 aggregate original principal amount 5000 senior notes remains outstanding redemption occurs within 60 days closing equity offering july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 102500 principal amount 5000 senior notes redeemed 12month period beginning july 15 2016 b 100 principal amount 5000 senior notes redeemed 12month period beginning july 15 2017 plus either case accrued unpaid interest 5000 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5000 senior notes holders 5000 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5000 senior notes mature july 15 2018 5000 senior notes general unsecured obligations company 5000 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 5000 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 5000 senior notes indenture 5000 senior notes lifetime aggregate limit addition 5000 senior notes indenture provides exceptions restricted payments covenant independent 5000 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination smith wesson holding corporation subsidiaries notes consolidated financial statements continued consolidated net income ii share repurchases life 5000 senior notes aggregate amount exceed 750 million limitation indebtedness senior notes indentures applicable time consolidated coverage ratio set forth senior notes indentures us restricted subsidiaries less 300 100 general set forth senior notes indentures consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense carrying value 5875 senior notes 5000 senior notes april 30 2015 approximates fair value considering level 2 inputs within hierarchy debt issuance costs recorded assets 26 million 38 million debt issuance costs fiscal years ended april 30 2015 2014 respectively costs amortized expense life credit facility senior notes indentures total amortized 15 million 19 million 680000 interest expense debt issuance costs fiscal 2015 2014 2013 respectively including writeoffs related extinguishment april 30 2015 revolving credit facility contained financial covenants relating maintaining maximum leverage minimum debt service coverage senior notes indentures contain financial covenant relating times interest earned letters credit april 30 2015 outstanding letters credit aggregating 10 million 6 net sales following table sets forth breakdown net sales fiscal years ended april 30 2015 2014 2013 respectively thousands firearms currently sold smith wesson mp thompsoncenter arms brands addition performance center offer small specialized enhanced models sold smith wesson mp brands depending upon product service firearm customers include distributors federal state municipal law enforcement agencies officers government military agencies businesses retailers consumers sell accessories caldwell shooting supplies wheeler engineering tipton gun cleaning supplies frankford arsenal reloading tools lockdown vault accessories hooyman premium tree saws bogpod golden rod moisture control brands accessories customers generally businesses retailers consumers sell products worldwide following table sets forth breakdown export net sales included table export net sales accounted 4 3 total net sales fiscal years ended april 30 2015 2014 2013 respectively thousands assets relating firearm business located outside united states periods presented tooling relating accessories business located various suppliers asia smith wesson holding corporation subsidiaries notes consolidated financial statements continued 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements new retail sales associate rewards program either incurred upon first occurrence advertising expense included selling marketing expenses continuing operations fiscal years ended april 30 2015 2014 2013 amounted 202 million 195 million 151 million respectively 8 property plant equipment following table summarizes property plant equipment april 30 2015 2014 thousands depreciation tangible assets amortization software expense continuing operations amounted 248 million 191 million 154 million fiscal years ended april 30 2015 2014 2013 respectively following table summarizes depreciation amortization expense continuing operations includes amortization intangibles debt financing costs line item fiscal years ended april 30 2015 2014 2013 thousands 9 inventories following table sets forth summary inventories net reserves stated lower cost market april 30 2015 2014 thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued 10 intangible assets following table presents summary intangible assets year ended april 30 2015 2014 thousands primary increase intangible assets prior year result bti acquisition amortization expense excluding amortization deferred financing costs amounted 46 million 645000 639000 fiscal years ended april 30 2015 2014 2013 respectively 11 accrued expenses following table sets forth accrued expenses april 30 2015 2014 thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued 12 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities cash equivalents measured fair value recurring basis totaled 421 million 688 million april 30 2015 2014 respectively utilized level 1 value hierarchy determine fair values assets level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following · quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently · inputs quoted prices observable substantially full term asset liability examples include interest rate currency swaps · inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives currently level 2 financial assets liabilities 5875 senior notes 5000 senior notes referenced note 5 level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities 13 selfinsurance reserves april 30 2015 2014 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 96 million 92 million respectively 62 million 58 million respectively classified noncurrent included noncurrent liabilities april 30 2015 2014 34 million included accrued expenses accompanying consolidated balance sheets addition april 30 2015 2014 587000 361000 workers’ compensation recoverable classified asset believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 129 million 107 million 122 million fiscal years ended april 30 2015 2014 2013 respectively following table summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2015 2014 2013 thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation matters losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2015 2014 accrued reserves product municipal litigation liabilities 38 million 39 million respectively 31 million 28 million respectively noncurrent consisting entirely expected legal defense costs addition april 30 2015 2014 recorded receivables insurance carriers related liabilities 19 million nearly classified assets 25000 classified current assets 14 stockholders’ equity treasury stock fiscal 2014 board directors authorized repurchase 1150 million common stock 750 million authorized purchase tender offer remainder could repurchased open market privately negotiated transactions fiscal 2014 repurchased 1417233 shares common stock pursuant tender offer expired july 23 2013 156 million 8740471 shares common stock open market 994 million case utilizing cash hand completing 1150 million stock repurchase program fees expenses incurred related tender offer open market purchases fiscal 2014 887000 recorded treasury stock end fiscal 2014 board directors authorized repurchase 300 million common stock subject certain conditions open market privately negotiated transactions commencing earlier may 1 2014 fiscal 2015 completed stock repurchase program repurchasing 2105315 shares common stock 300 million utilizing cash hand fees expenses incurred related open market purchases fiscal 2015 40000 recorded treasury stock incentive stock employee stock purchase plans two stock plans sps 2004 incentive stock plan 2013 incentive stock plan new grants 2004 incentive stock plan made since approval 2013 incentive stock plan september 23 2013 annual meeting stockholders new grants covering participants issued 2013 incentive stock plan 2013 incentive stock plan authorizes issuance 3000000 shares plus shares reserved remained available grant delivery 2004 incentive stock plan september 23 2013 effective date 2013 incentive stock plan permits grant options acquire common stock restricted stock awards rsus stock appreciation rights bonus stock awards lieu obligations performance awards dividend equivalents board directors committee established board administers sps selects recipients awards granted determines grants awarded options granted sps exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sps generally nontransferable subject forfeiture unless terminated earlier board directors 2013 incentive stock plan terminate earliest 1 tenth anniversary effective date 2013 stock plan 2 time shares common stock remain available issuance plan rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award except specific circumstances grants vest period three four years exercisable period 10 years plan also permits grant awards nonemployees board directors authorized past number shares weighted average exercise prices options fiscal years ended april 30 2015 2014 2013 follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued april 30 2015 5738521 shares available grant 2013 incentive stock plan use unissued share pool shares issued options restricted share awards rsus psus employee stock purchase plan espp issuances aggregate intrinsic value outstanding options april 30 2015 2014 2013 161 million 208 million 121 million respectively aggregate intrinsic value outstanding options exercisable april 30 2015 2014 2013 160 million 170 million 87 million respectively aggregate intrinsic value options exercised years ended april 30 2015 2014 2013 29 million 73 million 51 respectively april 30 2015 total unrecognized compensation cost outstanding options 1000 recognized remaining weighted average vesting period 041 years september 26 2011 stockholders approved 2011 espp replace expired 2001 espp authorized sale 6000000 shares common stock employees option rights participate espp nontransferable subject forfeiture accordance espp guidelines current espp implemented series successive offering periods maximum duration 12 months fair market value fmv per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase espp b date determined board directors discretion c march 31 2022 event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2015 2014 2013 161456 176204 185218 shares respectively purchased espp measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options issued employees using blackscholes model time options granted amount amortized vesting period option espp fair value determined beginning purchase period amortized term exercise period smith wesson holding corporation subsidiaries notes consolidated financial statements continued following assumptions used valuing options espp purchases years ended april 30 2015 2014 2013 estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table total stockbased compensation expense including stock options purchases espp rsu psu awards 58 million 82 million 41 million fiscal years 2015 2014 2013 respectively following table summarizes stock compensation expense continuing operations line item fiscal years ended april 30 2015 2014 2013 thousands grant servicebased rsus employees consultants directors awards made cost recipient rsu represents right acquire one share common stock carry voting dividend rights except specific circumstances rsu grants employees generally vest period three four years onethird onefourth units vesting respectively anniversary date grant date aggregate fair value rsu grants amortized compensation expense vesting period grant psus market conditions executive officers grant psus without marketconditions employees executive officers time grant calculate fair value marketcondition psus using montecarlo simulation incorporate following variables valuation model expected volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate threeyear performance period expect pay dividends foreseeable future smith wesson holding corporation subsidiaries notes consolidated financial statements continued marketcondition psus vest fair value psus recognized corresponding threeyear performance period marketcondition psus maximum aggregate award equal 200 target amount granted number marketcondition psus may earned depends upon total stockholder return tsr common stock compared tsr russell 2000 index rut threeyear performance period fiscal 2014 2013 psus stock must outperform rut 10 order target award vest fiscal 2015 psus stock must outperform rut 5 order target award vest addition cap number shares earned fiscal 2015 psus equal six times grantdate value award certain circumstances beginning fiscal 2015 rsus psus vested awards delivered first anniversary applicable vesting date applied discount grant date fair value determining amount compensation expense recorded rsus psus year ended april 30 2015 granted 112000 marketcondition psus certain executive officers also granted 554933 servicebased rsus year ended april 30 2015 including 125000 rsus certain executive officers 46639 rsus directors 379433 rsus nonexecutive officer employees addition connection 2011 grant vested 46600 marketcondition psus ie target amount granted achieved maximum aggregate award possible resulting awards totaling 93200 shares certain executive officers former executive officer compensation expense recognized related grants rsus psus 51 million fiscal year ended april 30 2015 fiscal year ended april 30 2015 canceled 57752 servicebased rsus 41250 psus without marketconditions result service period condition met delivered 433266 shares common stock current employees vested rsus psus total market value 54 million fiscal year ended april 30 2014 granted 117500 marketcondition psus certain executive officers also granted 565556 servicebased rsus year ended april 30 2014 including 351400 rsus certain executive officers 42238 rsus directors 164918 rsus nonexecutive officer employees 7000 rsus consultants addition granted vested 30000 marketcondition psus executive officer former executive officer connection 2010 award achieved maximum aggregate award compensation expense recognized related grants rsus psus 64 million fiscal year ended april 30 2014 fiscal year ended april 30 2014 cancelled 17316 servicebased rsus 9000 psus without marketconditions result service period condition met delivered 457851 shares common stock current employees vested rsus psus total market value 57 million fiscal year ended april 30 2013 granted 152000 marketcondition psus certain executive officers 63050 psus without market conditions employees also granted 320279 servicebased rsus fiscal year ended april 30 2013 including 250250 rsus certain executive officers 35000 rsus directors 28029 rsus nonexecutive officer employees 7000 rsus consultants compensation expense recognized related grants rsus psus 18 million fiscal year ended april 30 2013 fiscal year ended april 30 2013 delivered 14250 psus without marketconditions employees total market value 131000 also delivered 69637 shares common stock certain executive officers employees consultants vested rsus total market value 595000 fiscal year ended april 30 2013 cancelled 16996 servicebased rsus 35000 marketcondition psus result service period condition met 2000 psus without marketcondition result performance condition met grant date fair value rsus psus vested fiscal 2015 2014 2013 40 million 40 million 726000 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued summary activity unvested rsus psus fiscal years 2015 2014 2013 follows april 30 2015 70 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 18 years aggregate intrinsic value outstanding rsus psus april 30 2015 2014 2013 33 million 71 million 491000 respectively 15 employer sponsored benefit plans contributory defined investment plan offer two contributory defined investment plans covering substantially employees subject service requirements employees may contribute 100 annual pay depending plan generally make discretionary matching contributions 50 first 6 employee contributions plan contributed 23 million 19 million 17 million fiscal years ended april 30 2015 2014 2013 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine employees become eligible may 1 following completion full fiscal year continuous service contributions plan discretionary fiscal 2015 plan contribute approximately 62 million recorded general administrative costs contributed 111 million 96 million fiscal years ended april 30 2014 2013 respectively contributions funded fiscal yearend 16 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date income tax expense continuing operations consists following thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table presents reconciliation provision income taxes continuing operations statutory rates provision consolidated financial statements thousands deferred tax assets deferred tax liabilities related temporary differences following thousands federal net operating loss carryforwards amounting 541000 april 30 2015 expire fiscal 2020 obtained 82 million additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 108000 fiscal 2015 taxable year thereafter possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 internal revenue code ownership change occur could annual limitation remaining tax loss carryforward smith wesson holding corporation subsidiaries notes consolidated financial statements continued 168 million 162 million state net operating loss carryforwards april 30 2015 2014 respectively state net operating loss carryforwards expire april 30 2016 april 30 2033 30 million 26 million state tax credit carryforwards april 30 2015 2014 respectively state tax credit carryforwards expire april 30 2018 april 30 2025 expiration date april 30 2015 valuation allowances 700000 19 million provided deferred tax assets state net operating loss carryforward state tax credits respectively anticipate using prior expiration april 30 2014 valuation allowances 686000 17 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration increase valuation allowance deferred tax assets state net operating losses credits state deferred tax assets related mainly massachusetts investment tax credits valuation allowances provided deferred federal income tax assets april 30 2015 2014 believe likely assets realized recording valuation allowance reversing valuation allowance could significant effect future results operations financial position management unaware recent expected future changes tax laws would material impact financial statements april 30 2015 2014 gross taxeffected unrecognized tax benefits 91000 84000 respectively entire amounts recognized would favorably impact effective tax rate included unrecognized tax benefits april 30 2015 2014 23000 15000 respectively accrued interest penalties related uncertain tax positions recorded noncurrent liabilities reconciliation beginning ending amount unrecognized tax benefits follows thousands unrecognized tax benefits classified current income tax liabilities recorded current liabilities payment cash anticipated within one year balance sheet date statute expire within one year balance sheet date limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2011 17 commitments contingencies litigation defendant eight product liability cases aware approximately nine product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case filed august 27 1999 city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties believe various allegations described unfounded addition accident results due negligence misuse firearm claimant third party addition involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek unspecified compensatory punitive damages others compensatory damages sought may range less 75000 approximately 15 million experience initial demands generally bear reasonable relationship facts circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims smith wesson holding corporation subsidiaries notes consolidated financial statements continued vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims related product liability accrual includes amounts defense costs asserted unasserted claims consultation litigation counsel review merit claim concluded unable reasonably estimate probability estimated range reasonably possible losses related material adverse judgments related claims therefore accrued judgments future determine loss additional loss excess accrual least reasonably possible material would disclose estimate possible loss range loss estimate could made disclose estimate could made believe provided adequate reserves defense costs fiscal years ended april 30 2015 2014 2013 paid 252000 10 million 758000 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 177000 460000 42000 respectively fiscal years settlement fees related product liability cases recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets fiscal 2015 2014 2013 recorded expense 183000 533000 805000 respectively recognize changes product liability municipal litigation liability time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made environmental remediation subject numerous federal state local laws regulate health safety workforce well environmental liability including limited regulations monitored occupational health safety administration osha national fire protection association department public health though exhaustive examples applicable regulations include confined space safety walking working surfaces machine guarding life safety required comply regulations mitigate release environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act cercla solid waste disposal act amended resource conservation recovery act place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated site springfield massachusetts contains two release areas focus remediation projects part massachusetts contingency plan mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent two sites april 30 2015 2014 respectively recorded 675000 623000 environmental reserve noncurrent liabilities calculated net present value environmental reserve equal carrying value liability recorded books estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations smith wesson holding corporation subsidiaries notes consolidated financial statements continued available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained may 5 2014 acquired substantially net assets ttpp asset purchase agreement former stockholder ttpp indemnified us losses arising among things environmental conditions related manufacturing activities purchase price 30 million placed escrow account 28 million remains available portion escrow account applied environmental remediation manufacturing site deep river connecticut presently possible estimate ultimate amount remediation costs potential uses escrow believe likelihood environmental remediation costs exceeding amount available escrow remote based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental health safety proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business fiscal 2011 awarded 60 million refundable tax credit massachusetts economic assistance coordinating council economic development incentive program edip credit granted commonwealth massachusetts consideration restructuring plan move production hunting products new hampshire massachusetts end fiscal 2015 recorded total 60 million tax credits including recording receivable 117000 fiscal 2015 compliance written edip investment analysis plan required file edip annual report 2017 demonstrate conditions related award met believe likelihood comply edip investment analysis plan remote rental leases lease office andor manufacturing space scottsdale arizona rochester new hampshire deep river connecticut columbia missouri operating leases expire february 28 2018 september 30 2015 may 4 2024 april 30 2023 respectively also lease machinery photocopiers vehicles national sales force various expiration dates april 30 2015 lease commitments follows thousands rent expense fiscal years ended april 30 2015 2014 2013 33 million 22 million 22 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued 18 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2015 2014 opinion adjustments necessary present fairly information quarters reflected thousands except per share data 19 segment reporting subsequent bti acquisition began reporting results operations two segments firearms accessories firearm segment determined single operating segment reporting segment based management’s reliance production metrics gross margin per unit produced units produced per day incoming orders per day revenue produced trade channel particular firearm segment evaluate accessories products measurement incoming orders per day sales customers gross margin product line firearm segment consists products services manufactured sold springfield massachusetts houlton maine deep river connecticut facilities includes firearms handcuffs related products sold distribution chain direct sales consumers international state federal governments accessories segment consists hunting shooting accessories developed marketed columbia missouri facility operating costs reported based activities performed within segment assets directly used clearly allocable operating segment’s operations total assets firearm segment april 30 2015 3453 million included assets firearm segment intangible assets totaling 37 million property plant equipment totaling 1313 million goodwill totaling 138 million total assets accessories segment april 30 2015 1497 million included assets accessories segment intangible assets totaling 701 million property plant equipment totaling 25 million goodwill totaling 617 million results business segment presented following table year ended april 30 2015 thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued results operations year ended april 30 2015 include activity period subsequent bti acquisition operated one segment prior year thus comparative segment information presented due timing bti acquisition segment data includes corporate overhead expenses firearm segment determine allocation methodology corporate overhead expenses b amount includes 42 million additional cost sales fair value stepup inventory date bti acquisition 36 million related amortization intangible assets recorded general administrative expenses result bti acquisition 20 subsequent events discussed note 5 june 15 2015 entered new unsecured credit facility consists 1750 million revolving line credit 1050 million term loan mature june 15 2020 used proceeds term loan redeem entire 1000 million outstanding principal balance 5875 senior notes plus accrued unpaid interest redemption date schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2015 2014 2013 1 increase 2015 valuation accounts represents acquired balances related drp bti acquisitions fiscal 2015item 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2016 2015 2014 set forth page report b exhibits exhibit number exhibit 29 stock purchase sale agreement dated november 25 2014 among registrant clearview battenfeld acquisition company llc members named therein1 31 amended restated articles incorporation2 33b amended restated bylaws3 39a certificate withdrawal certificate designation4 41 form common stock certificate5 430 indenture dated june 17 2014 among registrant bank new york mellon trust company na trustee6 430a first supplemental indenture dated june 26 2014 among registrant bank new york mellon trust company na trustee7 1024a amended restated 2004 incentive stock plan8 1028 amendments 2004 incentive stock plan9 1051 agreement respect defense smith wesson firearms litigation dated november 11 200410 1056 form restricted stock unit award agreement 2004 incentive stock plan11 1072 form indemnity agreement entered following directors executive officers june 29 2009 barry monheit michael f golden robert l scott john b furman mitch saltz marie wadecki jeffrey buchanan november 2009 p james debney july 2011 robert h brust december 14 2011 mark p smith april 24 2013 robert j cicero12 1083a amended restated severance change control agreement executed december 8 2011 january 3 2011 registrant jeffrey buchanan13 1091a amended restated employment agreement executed december 8 2011 september 26 2011 p james debney smith wesson holding corporation13 1095 letter amendment dated september 9 2011 jeffrey buchanan registrant13 1096 letter amendment dated september 9 2011 p james debney smith wesson holding corporation13 1098 form nonqualified stock option award grant notice agreement 2004 incentive stock plan13 1099 form restricted stock unit award grant notice agreement 2004 incentive stock plan13 10100 amended restated 2011 employee stock purchase plan14 10101 form performancebased restricted stock unit award grant notice agreement 2004 incentive stock plan awards made beginning april 201214 exhibit number exhibit 10102 form timebased restricted stock unit award grant notice agreement 2004 incentive stock plan awards made beginning april 201214 10104 credit agreement dated august 15 2014 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc sole lead arranger sole bookrunner including exhibits thereto15 10104a first amendment credit agreement dated november 25 2014 among registrant smith wesson corp guarantors lenders td bank na administrative agent amd swingline lender1 10104b second amendment credit agreement dated april 13 2015 among registrant smith wesson corp guarantors lenders td bank na administrative agent swingline lender16 10106 master letter credit agreement dated august 15 2014 td bank na registrant smith wesson corp modified letter agreement dated august 15 2014 addressed registrant subsidiaries td bank na15 10106a first amendment master letter credit agreement dated june 15 2015 td bank na registrant smith wesson corp17 10107 smith wesson holding corporation executive severance pay plan18 10108 adoption agreement smith wesson nonqualified supplemental deferred compensation plan19 10109 smith wesson nonqualified supplemental deferred compensation plan document19 10110 2013 incentive stock plan20 10111 form restricted stock unit award grant notice agreement 2014 incentive stock plan awards made beginning april 201421 10111a form restricted stock unit grant notice agreement 2013 incentive stock plan awards made beginning september 201417 10111b form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201517 10112 form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201421 10112a form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201517 10113 credit agreement dated june 15 2015 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents including exhibits thereto17 letter bdo usa llp securities exchange commission dated june 25 201422 211 subsidiaries registrant 231 consent deloitte touche llp independent registered public accounting firm 232 consent bdo usa llp independent registered public accounting firm exhibit number exhibit 311 rule 13a14a15d14a certification principal executive officer 312 rule 13a14a15d14a certification principal financial officer 321 section 1350 certification principal executive officer 322 section 1350 certification principal financial officer 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec november 26 2014 2 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 3 incorporated reference registrant’s form 8k filed sec march 20 2015 4 incorporated reference registrant’s form 8k filed sec october 1 2013 5 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 6 incorporated reference registrant’s form 8ka filed sec june 17 2013 7 incorporated reference registrant’s form 8k filed sec june 26 2013 8 incorporated reference registrant’s form 8k filed sec september 28 2011 9 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 10 incorporated reference registrant’s form 10q filed sec march 10 2005 11 incorporated reference registrant’s form 8k filed sec may 19 2006 12 incorporated reference registrant’s form 10k filed sec june 30 2009 13 incorporated reference registrant’s form 10q filed sec december 8 2011 14 incorporated reference registrant’s form 10k filed sec june 28 2012 15 incorporated reference registrant’s form 8k filed sec august 19 2013 16 incorporated reference registrant’s form 8k filed sec april 15 2015 17 incorporated reference registrant’s form 10k filed sec june 22 2015 18 incorporated reference registrant’s amendment no2 schedule filed sec july 10 2013 19 incorporated reference registrant’s form 8k filed sec december 20 2013 20 incorporated reference registrant’s form s8 filed sec december 20 2013 21 incorporated reference registrant’s form 10k filed sec june 19 2014 22 incorporated reference registrant’s form 8k filed sec june 26 2014 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation p james debney p james debney president chief executive officer date june 16 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature capacity date p james debney president chief executive officer director principal executive officer june 16 2016 p james debney jeffrey buchanan executive vice president chief financial officer treasurer principal accounting financial officer june 16 2016 jeffrey buchanan barry monheit chairman board june 16 2016 barry monheit robert l scott vice chairman board june 16 2016 robert l scott robert h brust director june 16 2016 robert h brust john b furman director june 16 2016 john b furman gregory j gluchowski jr director june 16 2016 gregory j gluchowski jr michael f golden director june 16 2016 michael f golden mitchell saltz director june 16 2016 mitchell saltz marie wadecki director june 16 2016 marie wadecki index consolidated financial statements smith wesson holding corporation subsidiaries page reports independent registered public accounting firms consolidated balance sheets april 30 2016 2015 consolidated statements income comprehensive income years ended april 30 2016 2015 2014 consolidated statements changes stockholders’ equity years ended april 30 2016 2015 2014 consolidated statements cash flows years ended april 30 2016 2015 2014 notes consolidated financial statements schedule ii valuation qualifying accounts years ended april 30 2016 2015 2014 report independent registered public accounting firm board directors shareholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries company april 30 2016 2015 related consolidated statements income comprehensive income changes stockholders equity cash flows years ended audits also included financial statement schedule listed index item 15 years ended april 30 2016 2015 also audited company’s internal control financial reporting april 30 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission company’s management responsible financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control responsibility express opinion financial statements financial statement schedule opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed supervision company’s principal executive principal financial officers persons performing similar functions effected company’s board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion 2016 2015 consolidated financial statements present fairly material respects financial position company april 30 2016 2015 results operations cash flows years ended conformity accounting principles generally accepted united states america also opinion years 2016 2015 financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also opinion company maintained material respects effective internal control financial reporting april 30 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission deloitte touche llp hartford connecticut june 16 2016 report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated statement income comprehensive income changes stockholders’ equity cash flows smith wesson holding corporation subsidiaries “company” year ended april 30 2014 connection audit consolidated financial statements also audited financial statement schedule year ended april 30 2014 listed accompanying index financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall presentation financial statements schedule believe audit provide reasonable basis opinion consolidated financial statements referred present fairly material respects results smith wesson holding corporation’s operations cash flows year ended april 30 2014 conformity accounting principles generally accepted united states america also opinion financial statement schedule year ended april 30 2014 considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein bdo usa llp boston massachusetts june 19 2014 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements income comprehensive income accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization one world’s leading manufacturers firearms provider quality accessory products shooting hunting rugged outdoor enthusiast manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles single shot rifles handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market also leading provider shooting hunting outdoor accessories including reloading gunsmithing gun cleaning supplies tree saws vault accessories sell products smith wesson mp thompsoncenter arms caldwell shooting supplies wheeler engineering tipton gun cleaning supplies frankford arsenal reloading tools lockdown vault accessories hooyman premium tree saws bogpod golden rod moisture control brands manufacture firearm products facilities springfield massachusetts houlton maine deep river connecticut develop market accessories products facility columbia missouri plan continue capitalize goodwill developed historic 164 year old “smith wesson” brand well wellknown brands expanding consumer awareness products produce may 5 2014 acquired substantially net assets tritown precision plastics inc ttpp refer drp acquisition see note 2 acquisitions information regarding transaction december 11 2014 acquired issued outstanding stock battenfeld acquisition company inc including wholly owned subsidiary battenfeld technologies inc bti refer bti acquisition see note 2 acquisitions information regarding transaction february 26 2016 acquired substantially net assets powertech inc 12 million utilizing cash hand powertech inc manufacturer tactical flashlights universal led lights personal pocket lights designed military law enforcement sporting enthusiasts primarily utilizing smith wesson mp brands transitioned relocated operations columbia missouri facility acquisitions accounted accordance asc 80520 business combinations accordingly results operations acquired businesses included consolidated financial statements following acquisition dates 2 acquisitions drp acquisition may 5 2014 acquired substantially net assets ttpp 228 million plus 10 million working capital adjustment total purchase price 238 million utilizing cash hand drp acquisition ttpp’s custom polymer injection molding capabilities designed vertically integrate key component manufacturing operations provide us increased flexibility within supply chain smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table summarizes estimated fair values assets acquired liabilities assumed acquisition date well measurement period adjustments thousands general administrative costs include 440000 471000 acquisitionrelated costs incurred years ended april 30 2015 2014 respectively related drp acquisition goodwill recorded relating drp acquisition resulted expected synergies related vertically integrating key component manufacturing operations well increased flexibility within supply chain goodwill deductible tax purposes amortized 15 years included firearm segment amortize customer relationships proportion expected yearly revenue generated customer lists acquired products sold amortized order backlog contract lives executed following identifiable intangible assets acquired thousands respective weighted average lives pro forma results operations assuming acquisition occurred may 1 2014 required immaterial impact consolidated financial statements periods presented bti acquisitions december 11 2014 acquired issued outstanding stock bti 1305 million plus 31 million working capital adjustment total purchase price 1336 million pursuant stock purchase sale agreement bti acquisition financed using combination existing cash balances cash 1000 million draw line credit expanded 1250 million result partial exercise accordion feature line credit based columbia missouri bti provider hunting shooting accessories develops produces delivers innovative highquality products several brands january 9 2015 acquired substantially net assets hooyman llc manufacturer extendable tree saws designed hunting outdoor industry 19 million utilizing cash hand relocated operations columbia missouri facility smith wesson holding corporation subsidiaries notes consolidated financial statements continued aggregate purchase price acquisitions including working capital adjustments 1355 million following table summarizes estimated allocation purchase price bti acquisition date includes net assets hooyman acquisition well measurement period adjustments date thousands general administrative costs include 17 million acquisitionrelated costs incurred year ended april 30 2015 related bti acquisition goodwill recorded relating bti acquisition resulted ability expand presence firearm accessories market leverage bti’s broad portfolio hunting shooting accessories brands previously acquired goodwill 120 million deductible tax purposes remaining useful life remaining goodwill recorded result bti acquisition expected deductible tax purposes allocated goodwill recorded result bti acquisition accessories segment amortize intangible assets proportion expected yearly revenue generated intangibles acquired amortized order backlog contract lives executed following identifiable intangible assets acquired thousands respective weighted average lives smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table reflects unaudited pro forma results operations assuming bti acquisition occurred may 1 2014 thousands except per share data unaudited pro forma income continuing operations year ended april 30 2015 adjusted reflect increased amortization intangibles acquisition occurred may 1 2014 unaudited pro forma information presented informational purposes necessarily indicative actual results would achieved bti acquisition occurred may 1 2014 results may achieved future periods 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accrual warranty reserves excess obsolete inventory valuation intangible assets actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries including smith wesson corp thompsoncenter arms company llc deep river plastics llc bti reported accessories division swss llc formerly smith wesson security solutions inc swss former security solutions division opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2016 2015 periods presented included significant intercompany accounts transactions eliminated consolidation swss presented discontinued operations consolidated statements income periods presented see note 4 additional information regarding discontinued operations unless stated otherwise reference consolidated statements income items notes consolidated financial statements refers results continuing operations fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2016 accounts exceeded federally insured limits financial instruments account derivative instruments accounting standards codification “asc” 81510 fair value measurements disclosure topic establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value fair value term loan equal carrying value april 30 2016 fair value 5000 senior notes april 30 2016 approximate carrying value considering level 2 inputs within hierarchy senior notes frequently traded fair value interest rate swap 13 million april 30 2016 estimated third party using inputs observable corroborated observable market data interest rate yield curves therefore classified within level 2 valuation hierarchy trade receivables extend credit domestic customers foreign distributors based financial condition sometimes offer discounts early payment invoices believe extension credit advisable rely either prepayment letter credit write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history smith wesson holding corporation subsidiaries notes consolidated financial statements continued concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral fiscal year ended april 30 2016 2015 customers exceeded 10 net sales 10 accounts receivable however one customers accounted approximately 134 net sales year ended april 30 2014 inventories value firearm inventories consisting primarily finished firearms finished firearm components well related products accessories inventories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment software hardware furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows include tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets record intangible assets cost based fair value assets acquired intangible assets consist developed technology customer relationships trademarks trade names patents amortize intangible assets estimated useful lives proportion expected yearly revenue generated intangibles acquired revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed segment information two reportable segments one firearm division second accessories division see note 20 segment reporting information regarding segments research development engage internal external research development rd order remain competitive exploit possible untapped market opportunities approve prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs earningsloss per share calculate basic diluted earningsloss per common share accordance provisions asc 26010 earnings per share basic earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period diluted earningsloss per common share equals net smith wesson holding corporation subsidiaries notes consolidated financial statements continued incomeloss divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive following table provides reconciliation net incomeloss amounts weighted average number common equivalent shares used determine basic diluted earningsloss per common share thousands except per share data outstanding stock options restricted stock units rsus included computation diluted earnings per share year ended april 30 2016 fiscal 2015 2014 73546 77622 shares common stock respectively issuable upon exercise stock options excluded computation diluted income per share effect would antidilutive valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets goodwill property plant equipment developed technology customer relationships patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following · significant underperformance relative historical projected future operating results · significant changes manner use assets strategy overall business · significant negative industry economic trends · significant decline stock price sustained period · decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified impairment charges recorded fiscal 2016 2015 2014 based review longlived tangible intangible assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued accordance asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist firearms accessories reporting units impairment test compares fair value reporting unit carrying amount assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate two reporting units firearms accessories april 30 2016 764 million goodwill 138 million related drp acquisition 626 million related bti acquisition subsequent acquisitions bti estimate fair value firearms accessories business units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing reporting units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internallydeveloped forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics reporting unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values reporting units foregoing assumptions could deviate materially actual results based annual impairment assessment determined fair value firearms accessories reporting units significantly excess respective book values income taxes use asset liability approach financial accounting reporting income taxes provision income taxes based upon income reported accompanying consolidated financial statements required asc 74010 accounting income taxes determine deferred tax assets liabilities based temporary differences financial reporting tax bases assets liabilities measure applying enacted rates laws expected place deferred items become subject income tax deductible income tax purposes recognize effect deferred taxes liabilities change tax rates period includes enactment date assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted time experienced certain manufacturing design issues respect firearms initiated product recalls safety alerts past april 30 2016 estimate remaining cost recalls safety alerts 40 million recorded accrued warranty balance warranty expense fiscal years ended april 30 2016 2015 2014 amounted 25 million 43 million 36 million respectively following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2016 2015 2014 thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales promotional program costs dependent volume sales record promotional costs cost goods sold total promotional programs amounted 207 million 69 million 16 million fiscal years ended april 30 2016 2015 2014 respectively coop advertising program retail level expensed costs amounting 65 million 28 million 19 million fiscal 2016 2015 2014 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net sales included costs relating shipping handling charges including inbound freight charges internal transfer costs distribution network cost goods sold insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 100 million per occurrence however believe likelihood reaching maximum per occurrence limit remote record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis recently issued accounting standard may 2014 financial accounting standards board issued accounting standards update 201409 revenue contracts customers topic 606 asu 201409 core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective interim reporting periods beginning october 1 2017 early adoption permitted additionally march 2016 fasb issued asu 201608 revenue contracts customers identifying performance obligations licensing clarifies identification performance obligations licensing implementation guidance may 2016 fasb issued asu 201612 narrowscope improvements practical expedients topic 606 provides clarifying guidance certain narrow areas adds practical expedients effective dates asu’s effective date asu 201409 currently evaluating impact asus consolidated financial statements april 2015 fasb issued asu 201503 interest imputation interest topic 83530 requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts recognition measurement guidance debt issuance costs affected asu disclosure requirements effective annual periods interim periods within annual periods beginning december 15 2015 require retrospective application elected early adopt asu 201503 first quarter fiscal 2016 accordingly unamortized debt issuance costs 41 million april 30 2015 previously included assets included notes payable accompanying consolidated balance sheet july 2015 fasb issued asu 201511 inventory simplifying measurement inventory topic 330 simplifies subsequent measurement inventories replacing lower cost market test lower cost net realizable value test guidance applies inventories cost determined lastin firstout lifo method retail inventory method asu 201511 effective periods beginning december 15 2016 early adoption permitted new guidance must applied prospectively currently evaluating impact asu 201511 consolidated financial statements september 2015 fasb issued asu 201516 business combinations topic 805 simplifying accounting measurementperiod adjustments eliminates current requirement recognize measurementperiod adjustments provisional amounts retrospectively instead asu 201516 requires acquirer recognize measurementperiod adjustments well impact earnings changes depreciation amortization similar items resulting change provisional amounts period amount measurementperiod adjustment determined amendment effective fiscal years interim periods within fiscal years beginning december 15 2015 elected early adopt asu 201516 second quarter fiscal 2016 result early adoption goodwill restated measurement period adjustments year ended april 30 2016 november 2015 fasb issued asu 201517 income taxes topic 740 balance sheet classification deferred taxes amends existing guidance require deferred income tax liabilities assets classified noncurrent classified balance sheet eliminates prior guidance required entity separate deferred tax liabilities assets current amount noncurrent amount classified balance sheet amendments asu effective financial statements annual periods interim periods within annual periods beginning december 15 2016 early adoption smith wesson holding corporation subsidiaries notes consolidated financial statements continued permitted addition new guidance applied either prospectively deferred tax liabilities assets retrospectively periods presented elected early adopt asu 201517 fourth quarter fiscal 2016 prospective basis classified deferred tax assets liabilities noncurrent classified balance sheet april 30 2016 february 2016 fasb issued asu 201602 leases topic 842 amends existing guidance require lessees recognize lease assets lease liabilities arising operating leases classified balance sheet amendments asu effective financial statements annual periods interim periods within annual periods beginning december 15 2018 early adoption permitted currently evaluating impact asu 201602 consolidated financial statements march 2016 fasb issued asu 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting includes multiple amendments intended simplify aspects sharebased payment transactions including accounting income taxes forfeitures statutory tax withholding requirements well classification statement cash flows amendments asu effective annual periods beginning december 15 2017 interim periods within annual periods beginning december 15 2018 early adoption permitted currently evaluating impact asu 201609 consolidated financial statements 4 discontinued operations fiscal 2013 committed plan divest assets liabilities ongoing operations security solutions division accordingly operating results discontinued division presented discontinued operations separate line consolidated statements income periods presented amounts reported fiscal years ended april 30 2015 2014 relate primarily legal fees associated retained liabilities 5 goodwill changes carrying amount goodwill year ended april 30 2016 reporting segment follows 6 notes payable financing arrangements credit facilities july 15 2014 entered 750 million unsecured credit facility november 25 2014 partially exercised accordion feature credit facility increase 500 million 1250 million connection bti acquisition april 13 2015 exercised remaining 500 million expansion accordion feature increase line credit available us 1750 million credit facility scheduled mature december 15 2016 bore interest variable rate equal libor prime election plus applicable margin based consolidated leverage ratio june 15 2015 entered new unsecured credit facility credit agreement td bank na lenders included 1750 million revolving line credit revolving line 1050 million term loan term loan 1003 million remains outstanding april 30 2016 revolving line provides availability june 15 2020 general corporate purposes borrowings bear interest variable rate equal libor prime plus applicable margin based consolidated leverage ratio election april 30 2016 borrowings outstanding revolving line borrowings would borne interest rate 400 per annum selected prime rate option range 194 213 per annum selected libor rate option term loan bears interest variable rate entered purpose redeeming entire 1000 million outstanding 5875 senior notes due 2017 5875 senior notes term loan requires principal payments 63 million per annum plus interest payable quarterly remaining outstanding amount maturity date june 15 2020 due full concurrent closing term loan redeemed 5875 senior notes 29 million call premium included interest expense plus accrued unpaid interest part redemption fiscal 2016 wrote 17 million debtissue costs related 5875 senior notes smith wesson holding corporation subsidiaries notes consolidated financial statements continued required obtain interest rate protection term loan covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement expires june 15 2020 covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2016 interest rate term loan 306 recognize derivatives either assets liabilities consolidated balance sheets fair value accounting changes fair value ie unrealized gains losses derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivatives qualify hedge accounting must adjusted fair value earnings interest rate swap agreement considered effective qualifies cash flow hedge effective portion gain loss derivative designated qualifies cash flow hedge recorded component accumulated comprehensive income loss reclassified earnings period periods hedged transaction affects earnings april 30 2016 interest rate swap considered effective effect earnings fair value interest rate swap april 30 2016 liability 13 million included longterm liabilities consolidated balance sheet expect interest rate swap material effect earnings within next 12 months april 30 2016 effective interest rate term loan 306 5000 senior notes fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 5000 senior notes various institutional investors pursuant terms conditions indenture 5000 senior notes indenture purchase agreements 5000 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 5000 senior notes time prior july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 100 principal amount 5000 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 5000 senior notes net cash proceeds one equity offerings redemption price 105000 principal amount 5000 senior notes plus accrued unpaid interest redemption date provided case foregoing clause least 65 aggregate original principal amount 5000 senior notes remains outstanding redemption occurs within 60 days closing equity offering july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 102500 principal amount 5000 senior notes redeemed 12month period beginning july 15 2016 b 100 principal amount 5000 senior notes redeemed 12month period beginning july 15 2017 plus either case accrued unpaid interest 5000 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5000 senior notes holders 5000 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5000 senior notes mature july 15 2018 5000 senior notes general unsecured obligations company 5000 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 5000 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 5000 senior notes indenture 5000 senior notes lifetime aggregate limit addition 5000 senior notes indenture provides exceptions restricted payments covenant independent 5000 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 5000 senior notes aggregate amount exceed 750 million limitation indebtedness 5000 senior notes indenture applicable time consolidated coverage ratio set forth 5000 senior notes indenture us restricted subsidiaries less 300 100 general set forth 5000 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense smith wesson holding corporation subsidiaries notes consolidated financial statements continued carrying value 5000 senior notes april 30 2016 approximates fair value considering level 2 inputs within hierarchy debt issuance costs recorded notes payable 10 million 26 million debt issuance costs fiscal years ended april 30 2016 2015 respectively costs amortized expense life credit facility 5000 senior notes indenture total amortized 27 million 15 million 19 million interest expense debt issuance costs fiscal 2016 2015 2014 respectively including writeoffs related extinguishment credit agreement credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage 5000 senior notes indenture contains financial covenant relating times interest earned letters credit april 30 2016 outstanding letters credit aggregating 10 million 7 net sales following table sets forth breakdown net sales fiscal years ended april 30 2016 2015 2014 respectively thousands firearms currently sold smith wesson mp thompsoncenter arms brands addition performance center offer small specialized enhanced models sold smith wesson mp brands depending upon product service firearm customers include distributors federal state municipal law enforcement agencies officers government military agencies businesses retailers consumers sell accessories caldwell shooting supplies wheeler engineering tipton gun cleaning supplies thompsoncenter arms frankford arsenal reloading tools lockdown vault accessories hooyman premium tree saws bogpod golden rod moisture control brands accessories customers generally businesses retailers consumers sell products worldwide following table sets forth breakdown export net sales included table export net sales accounted 3 4 3 total net sales fiscal years ended april 30 2016 2015 2014 respectively thousands assets relating firearm business located outside united states periods presented tooling relating accessories business located various suppliers asia 8 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements either incurred upon first occurrence advertising expense included selling smith wesson holding corporation subsidiaries notes consolidated financial statements continued marketing expenses fiscal years ended april 30 2016 2015 2014 amounted 218 million 202 million 195 million respectively 9 property plant equipment following table summarizes property plant equipment april 30 2016 2015 thousands depreciation tangible assets amortization software expense amounted 278 million 248 million 191 million fiscal years ended april 30 2016 2015 2014 respectively following table summarizes depreciation amortization expense includes amortization intangibles debt financing costs line item fiscal years ended april 30 2016 2015 2014 thousands general administrative expenses fiscal 2016 2015 include 99 million 36 million respectively amortization recorded result bti acquisition 10 inventories following table sets forth summary inventories net reserves stated lower cost market april 30 2016 2015 thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued 11 intangible assets following table presents summary intangible assets april 30 2016 2015 thousands intangible assets determinable lives amortized weightedaverage period approximately five years weightedaverage periods amortization intangible asset class approximately five years customer relationships six years developed technology five years patents trademarks trade names amortization expense excluding amortization deferred financing costs amounted 107 million 46 million 645000 fiscal years ended april 30 2016 2015 2014 respectively following table represents future expected amortization expense april 30 2016 primarily recorded accessories segment thousands 12 accrued expenses following table sets forth accrued expenses april 30 2016 2015 thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued 13 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities cash equivalents measured fair value recurring basis totaled 1913 million 422 million april 30 2016 2015 respectively utilized level 1 value hierarchy determine fair values assets level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following · quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently · inputs quoted prices observable substantially full term asset liability interest rate currency swaps · inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives fair value term loan equal carrying value april 30 2016 fair value 5000 senior notes april 30 2016 approximate carrying value considering level 2 inputs within hierarchy senior notes frequently traded fair value interest rate swap estimated third party using inputs observable corroborated observable market data interest rate yield curves therefore classified within level 2 valuation hierarchy information regarding interest rate swap refer note 6 level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities 14 selfinsurance reserves april 30 2016 2015 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 101 million 96 million respectively 58 million 62 million respectively classified noncurrent liabilities april 30 2016 2015 43 million included accrued expenses accompanying consolidated balance sheets addition april 30 2016 2015 621000 587000 workers’ compensation recoverable classified assets believe reserves adequate possible ultimate liabilities exceed estimates smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2016 2015 2014 thousands policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation matters losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2016 2015 accrued reserves product municipal litigation liabilities 38 million 31 million noncurrent consisting entirely expected legal defense costs addition april 30 2016 2015 recorded receivables insurance carriers related liabilities 19 million nearly classified assets 25000 classified current assets 15 stockholders’ equity treasury stock fiscal 2016 board directors authorized repurchase 500 million common stock subject certain conditions open market privately negotiated transactions june 23 2017 april 30 2016 share repurchases stock repurchase program end fiscal 2014 board directors authorized repurchase 300 million common stock subject certain conditions open market privately negotiated transactions commencing earlier may 1 2014 fiscal 2015 completed stock repurchase program repurchasing 2105315 shares common stock 300 million utilizing cash hand fees expenses incurred related open market purchases fiscal 2015 40000 recorded treasury stock fiscal 2014 board directors authorized repurchase 1150 million common stock 750 million authorized purchase tender offer remainder could repurchased open market privately negotiated transactions fiscal 2014 repurchased 1417233 shares common stock pursuant tender offer expired july 23 2013 156 million 8740471 shares common stock open market 994 million case utilizing cash hand completing 1150 million stock repurchase program fees expenses incurred related tender offer open market purchases fiscal 2014 887000 recorded treasury stock incentive stock employee stock purchase plans two stock plans sps 2004 incentive stock plan 2013 incentive stock plan new grants 2004 incentive stock plan made since approval 2013 incentive stock plan september 23 2013 annual meeting stockholders new grants covering participants issued 2013 incentive stock plan 2013 incentive stock plan authorizes issuance 3000000 shares plus shares reserved remained available grant delivery 2004 incentive stock plan september 23 2013 effective date 2013 incentive stock plan permits grant options acquire common stock restricted stock awards rsus stock appreciation rights bonus stock awards lieu obligations performance awards dividend equivalents board directors committee established board administers sps selects recipients awards granted determines grants awarded options granted sps exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sps generally nontransferable subject forfeiture smith wesson holding corporation subsidiaries notes consolidated financial statements continued unless terminated earlier board directors 2013 incentive stock plan terminate earliest 1 tenth anniversary effective date 2013 stock plan 2 time shares common stock remain available issuance plan rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award except specific circumstances grants vest period three four years exercisable period 10 years plan also permits grant awards nonemployees board directors authorized past number shares weighted average exercise prices options fiscal years ended april 30 2016 2015 2014 follows april 30 2016 5428331 shares available grant 2013 incentive stock plan use unissued share pool shares issued options restricted share awards rsus psus employee stock purchase plan espp issuances aggregate intrinsic value outstanding options april 30 2016 2015 2014 61 million 161 million 208 million respectively aggregate intrinsic value outstanding options exercisable april 30 2016 2015 2014 61 million 160 million 170 million respectively aggregate intrinsic value options exercised years ended april 30 2016 2015 2014 272 million 29 million 73 respectively april 30 2016 unrecognized compensation cost outstanding options september 26 2011 stockholders approved 2011 espp authorized sale 6000000 shares common stock employees options rights participate espp nontransferable subject forfeiture accordance espp guidelines current espp implemented series successive offering periods maximum duration 12 months fair market value fmv per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase espp b date determined board directors discretion c march 31 2022 event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2016 2015 2014 157674 161456 176204 shares respectively purchased espp measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options issued employees using blackscholes model time options granted amount amortized vesting period option espp fair value determined beginning purchase period amortized term exercise period smith wesson holding corporation subsidiaries notes consolidated financial statements continued following assumptions used valuing espp purchases years ended april 30 2016 2015 2014 estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table total stockbased compensation expense including stock options purchases espp rsu psu awards 65 million 58 million 82 million fiscal years 2016 2015 2014 respectively following table summarizes stock compensation expense line item fiscal years ended april 30 2016 2015 2014 thousands grant servicebased rsus employees consultants directors awards made cost recipient rsu represents right acquire one share common stock carry voting dividend rights except specific circumstances rsu grants employees generally vest period three four years onethird onefourth units vesting respectively anniversary date grant date aggregate fair value rsu grants amortized compensation expense vesting period grant psus market conditions executive officers grant psus without marketconditions employees executive officers time grant calculate fair value marketcondition psus using montecarlo simulation incorporate following variables valuation model expected volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate threeyear performance period expect pay dividends foreseeable future smith wesson holding corporation subsidiaries notes consolidated financial statements continued marketcondition psus vest fair value psus recognized corresponding threeyear performance period marketcondition psus maximum aggregate award equal 200 target amount granted number marketcondition psus may earned depends upon total stockholder return tsr common stock compared tsr russell 2000 index rut threeyear performance period fiscal 2014 psus stock must outperform rut 10 order target award vest fiscal 2016 2015 psus stock must outperform rut 5 order target award vest addition cap number shares earned fiscal 2016 2015 psus equal six times grantdate value award certain circumstances vested awards delivered first anniversary applicable vesting date applied discount grant date fair value determining amount compensation expense recorded rsus psus year ended april 30 2016 granted aggregate 137775 marketcondition psus certain executive officers 5379 psus without market conditions nonexecutive officer employees also granted 321692 servicebased rsus year ended april 30 2016 including 117100 rsus certain executive officers 36379 rsus directors 168213 rsus nonexecutive officer employees addition connection 2012 grant vested 104000 marketcondition psus ie target amount granted achieved 1733 maximum aggregate award possible resulting awards totaling 180231 shares certain executive officers compensation expense recognized related grants rsus psus 59 million fiscal year ended april 30 2016 fiscal year ended april 30 2016 canceled 66185 servicebased rsus 19250 marketcondition psus result service period condition met delivered 430768 shares common stock current employees vested rsus psus total market value 78 million year ended april 30 2015 granted 112000 marketcondition psus certain executive officers also granted 554933 servicebased rsus year ended april 30 2015 including 125000 rsus certain executive officers 46639 rsus directors 379433 rsus nonexecutive officer employees addition connection 2011 grant vested 46600 marketcondition psus ie target amount granted achieved maximum aggregate award possible resulting awards totaling 93200 shares certain executive officers former executive officer compensation expense recognized related grants rsus psus 51 million fiscal year ended april 30 2015 fiscal year ended april 30 2015 canceled 57752 servicebased rsus 41250 psus without marketconditions result service period condition met delivered 433266 shares common stock current employees vested rsus psus total market value 54 million fiscal year ended april 30 2014 granted 117500 marketcondition psus certain executive officers also granted 565556 servicebased rsus year ended april 30 2014 including 351400 rsus certain executive officers 42238 rsus directors 164918 rsus nonexecutive officer employees 7000 rsus consultants addition granted vested 30000 marketcondition psus executive officer former executive officer connection 2010 award achieved maximum aggregate award compensation expense recognized related grants rsus psus 64 million fiscal year ended april 30 2014 fiscal year ended april 30 2014 cancelled 17316 servicebased rsus 9000 psus without marketconditions result service period condition met delivered 457851 shares common stock current employees vested rsus psus total market value 57 million grant date fair value rsus psus vested fiscal 2016 2015 2014 46 million 40 million 40 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued summary activity unvested rsus psus fiscal years 2016 2015 2014 follows april 30 2016 90 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 18 years 16 employer sponsored benefit plans contributory defined investment plan offer two contributory defined investment plans covering substantially employees subject service requirements employees may contribute 100 annual pay depending plan generally make discretionary matching contributions 50 first 6 employee contributions plan contributed 24 million 23 million 19 million fiscal years ended april 30 2016 2015 2014 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine employees become eligible may 1 following completion full fiscal year continuous service contributions plan discretionary fiscal 2016 plan contribute approximately 115 million recorded general administrative costs contributed 62 million 111 million fiscal years ended april 30 2015 2014 respectively contributions funded fiscal yearend 17 income taxes income tax expense continuing operations consists following thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table presents reconciliation provision income taxes continuing operations statutory rates provision consolidated financial statements thousands deferred tax assets deferred tax liabilities related temporary differences following thousands federal net operating loss carryforwards amounting 433000 april 30 2016 expire fiscal 2020 obtained 82 million additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 108000 fiscal 2016 taxable year thereafter possible future substantial changes ownership could occur could result smith wesson holding corporation subsidiaries notes consolidated financial statements continued additional ownership changes pursuant section 382 internal revenue code ownership change occur could annual limitation remaining tax loss carryforward 168 million state net operating loss carryforwards april 30 2016 2015 state net operating loss carryforwards expire april 30 2025 april 30 2033 29 million 30 million state tax credit carryforwards april 30 2016 2015 respectively state tax credit carryforwards expire april 30 2019 april 30 2025 expiration date april 30 2016 valuation allowances 708000 19 million provided deferred tax assets state net operating loss carryforward state tax credits respectively anticipate using prior expiration april 30 2015 valuation allowances 700000 19 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration increase valuation allowance deferred tax assets state net operating losses credits state deferred tax assets related mainly massachusetts investment tax credits valuation allowances provided deferred federal income tax assets april 30 2016 2015 believe likely assets realized recording valuation allowance reversing valuation allowance could significant effect future results operations financial position unaware recent expected future changes tax laws would material impact financial statements april 30 2016 gross taxeffected unrecognized tax benefits april 30 2015 gross taxeffected unrecognized tax benefits 91000 entire amount recognized would favorably impacted effective tax rate included unrecognized tax benefits april 30 2015 23000 accrued interest penalties related uncertain tax positions recorded noncurrent liabilities reconciliation beginning ending amount unrecognized tax benefits follows thousands unrecognized tax benefits classified current income tax liabilities recorded current liabilities payment cash anticipated within one year balance sheet date statute expire within one year balance sheet date limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2012 18 commitments contingencies litigation defendant seven product liability cases aware nine product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case filed august 27 1999 city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties believe various allegations described unfounded addition accident results due negligence misuse firearm claimant third party addition involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek unspecified compensatory punitive damages others compensatory damages sought may range less 75000 approximately 15 million experience initial demands generally bear reasonable relationship facts smith wesson holding corporation subsidiaries notes consolidated financial statements continued circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims related product liability accrual includes amounts defense costs asserted unasserted claims consultation litigation counsel review merit claim concluded unable reasonably estimate probability estimated range reasonably possible losses related material adverse judgments related claims therefore accrued judgments future determine loss additional loss excess accrual least reasonably possible material would disclose estimate possible loss range loss estimate could made disclose estimate could made believe provided adequate accruals defense costs fiscal years ended april 30 2016 2015 2014 paid 264000 252000 10 million respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 55000 177000 460000 respectively fiscal years settlement fees related product liability cases recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets year ended april 30 2016 received 18 million insurance recovery recorded general administrative expenses result insurance settlement agreement partial reimbursement defense costs incurred prior fiscal years related resolved government investigation fiscal 2016 2015 2014 recorded expense 299000 183000 533000 respectively recognize changes product liability municipal litigation liability time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made environmental remediation subject numerous federal state local laws regulate health safety workforce well environmental liability including limited regulations monitored occupational health safety administration osha national fire protection association department public health though exhaustive examples applicable regulations include confined space safety walking working surfaces machine guarding life safety required comply regulations mitigate release environment laws require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act cercla solid waste disposal act amended resource conservation recovery act place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated site springfield massachusetts contains two release areas focus remediation projects part massachusetts contingency plan mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent two sites april 30 2016 2015 respectively recorded 694000 675000 environmental reserve noncurrent liabilities calculated net present value environmental reserve equal carrying value liability recorded books estimate costs based upon currently enacted laws regulations currently available smith wesson holding corporation subsidiaries notes consolidated financial statements continued facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained may 5 2014 acquired substantially net assets ttpp asset purchase agreement former stockholder ttpp indemnified us losses arising among things environmental conditions related manufacturing activities purchase price 30 million placed escrow account 250000 million remains available portion remaining escrow account may applied environmental remediation manufacturing site deep river connecticut believe likelihood environmental remediation costs exceeding amount available escrow remote based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental health safety proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business rental leases lease office andor manufacturing space scottsdale arizona somersworth new hampshire deep river connecticut columbia missouri operating leases expire february 28 2018 june 30 2018 may 4 2024 april 30 2023 respectively also lease machinery photocopiers vehicles national sales force various expiration dates april 30 2016 lease commitments follows thousands rent expense fiscal years ended april 30 2016 2015 2014 41 million 33 million 22 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued 19 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2016 2015 opinion adjustments necessary present fairly information quarters reflected thousands except per share data basic diluted earnings per share may equal sum quarterly basic diluted earnings per share due rounding 20 segment reporting subsequent bti acquisition began reporting results operations two segments firearms accessories firearm segment determined single operating segment reporting segment based reliance production metrics gross margin per unit produced units produced per day incoming orders per day revenue produced trade channel particular firearm segment evaluate accessories products measurement incoming orders per day sales customers gross margin product line firearm segment consists products services manufactured sold springfield massachusetts houlton maine deep river connecticut facilities includes firearms handcuffs related products sold distribution chain direct sales consumers international state federal governments accessories segment consists shooting hunting outdoor accessories developed marketed columbia missouri facility operating costs reported based activities performed within segment assets directly used clearly allocable operating segment’s operations total assets firearm segment april 30 2016 4581 million included assets firearm segment intangible assets totaling 29 million property plant equipment totaling 1323 million goodwill totaling 138 million total assets accessories segment april 30 2016 1614 million included assets accessories segment intangible assets totaling 600 million property plant equipment totaling 31 million goodwill totaling 626 million smith wesson holding corporation subsidiaries notes consolidated financial statements continued results business segment presented following table years ended april 30 2016 2015 thousands year ended april 30 2016 allocated corporate overhead expenses general administrative expenses corporatelevel expenses basis segment’s revenue total company revenue firearm accessories segments year ended april 30 2015 segment information herein restated previously presented allocate corporate overhead expenses basis corporate overhead expenses previously allocated year ended april 30 2015 due timing bti acquisition b amount includes 99 million year ended april 30 2016 amortization intangible assets identified result bti acquisition c year ended april 30 2015 results operations include activity period subsequent bti acquisition amount includes 42 million additional cost goods sold fair value stepup inventory date bti acquisition e amount includes 36 million year ended april 30 2015 amortization intangible assets identified result bti acquisition schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2016 2015 2014 1 amount include 506000 charged costs expenses related notes receivable 2 increase fiscal 2015 valuation accounts represents acquired balances related drp bti acquisitionsitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2017 2016 2015 set forth page report b exhibits exhibit number exhibit 29 stock purchase sale agreement dated november 25 2014 among registrant clearview battenfeld acquisition company llc members named therein1 210 asset purchase agreement dated july 15 2016 among bti tools llc taylor brands llc members named therein 2 211 asset purchase agreement dated july 25 2016 among smith wesson holding corporation crimson trace holdings llc 3 33b amended restated bylaws 4 33c amendment amended restated bylaws 5 34 second amended restated articles incorporation 6 39a certificate withdrawal certificate designation7 41 form common stock certificate8 430 indenture dated june 17 2014 among registrant bank new york mellon trust company na trustee9 430a first supplemental indenture dated june 26 2014 among registrant bank new york mellon trust company na trustee10 1024a amended restated 2004 incentive stock plan11 1028 amendments 2004 incentive stock plan12 1051 agreement respect defense smith wesson firearms litigation dated november 11 200413 1056 form restricted stock unit award agreement 2004 incentive stock plan14 1072 form indemnity agreement entered following directors executive officers june 29 2009 barry monheit michael f golden robert l scott john b furman mitch saltz marie wadecki jeffrey buchanan november 2009 p james debney july 2011 robert h brust december 14 2011 mark p smith april 24 2013 robert j cicero15 1083a amended restated severance change control agreement executed december 8 2011 january 3 2011 registrant jeffrey buchanan16 1091a amended restated employment agreement executed december 8 2011 september 26 2011 p james debney smith wesson holding corporation16 exhibit number exhibit 1095 letter amendment dated september 9 2011 jeffrey buchanan registrant16 1096 letter amendment dated september 9 2011 p james debney smith wesson holding corporation16 1098 form nonqualified stock option award grant notice agreement 2004 incentive stock plan16 1099 form restricted stock unit award grant notice agreement 2004 incentive stock plan16 10100 amended restated 2011 employee stock purchase plan17 10101 form performancebased restricted stock unit award grant notice agreement 2004 incentive stock plan awards made beginning april 201217 10102 form timebased restricted stock unit award grant notice agreement 2004 incentive stock plan awards made beginning april 201217 10104 credit agreement dated august 15 2014 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc sole lead arranger sole bookrunner including exhibits thereto18 10104a first amendment credit agreement dated november 25 2014 among registrant smith wesson corp guarantors lenders td bank na administrative agent swingline lender1 10104b second amendment credit agreement dated april 13 2015 among registrant smith wesson corp guarantors lenders td bank na administrative agent swingline lender19 10106 master letter credit agreement dated august 15 2014 td bank na registrant smith wesson corp modified letter agreement dated august 15 2014 addressed registrant subsidiaries td bank na18 10106a first amendment master letter credit agreement dated june 15 2015 td bank na registrant smith wesson corp20 10107 smith wesson holding corporation executive severance pay plan21 10108 adoption agreement smith wesson nonqualified supplemental deferred compensation plan22 10109 smith wesson nonqualified supplemental deferred compensation plan document22 10110 2013 incentive stock plan23 10111 form restricted stock unit award grant notice agreement 2014 incentive stock plan awards made beginning april 201424 10111a form restricted stock unit grant notice agreement 2013 incentive stock plan awards made beginning september 201420 10111b form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201520 10112 form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201424 exhibit number exhibit 10112a form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201520 10113 credit agreement dated june 15 2015 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents including exhibits thereto20 10113a second amendment credit agreement dated october 27 2016 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents25 letter bdo usa llp securities exchange commission dated june 25 201426 211 subsidiaries registrant 231 consent deloitte touche llp independent registered public accounting firm 311 rule 13a14a15d14a certification principal executive officer 312 rule 13a14a15d14a certification principal financial officer 321 section 1350 certification principal executive officer 322 section 1350 certification principal financial officer 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec november 26 2014 2 incorporated reference registrant’s form 8k filed sec july 18 2016 3 incorporated reference registrant’s form 8k filed sec july 26 2016 4 incorporated reference registrant’s form 8k filed sec march 20 2015 5 incorporated reference registrant’s form 8k filed sec october 21 2016 6 incorporated reference registrant’s form 10q filed sec march 2 2017 7 incorporated reference registrant’s form 8k filed sec october 1 2013 8 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 9 incorporated reference registrant’s form 8ka filed sec june 17 2013 10 incorporated reference registrant’s form 8k filed sec june 26 2013 11 incorporated reference registrant’s form 8k filed sec september 28 2011 12 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 13 incorporated reference registrant’s form 10q filed sec march 10 2005 14 incorporated reference registrant’s form 8k filed sec may 19 2006 15 incorporated reference registrant’s form 10k filed sec june 30 2009 16 incorporated reference registrant’s form 10q filed sec december 8 2011 17 incorporated reference registrant’s form 10k filed sec june 28 2012 18 incorporated reference registrant’s form 8k filed sec august 19 2013 19 incorporated reference registrant’s form 8k filed sec april 15 2015 20 incorporated reference registrant’s form 10k filed sec june 22 2015 21 incorporated reference registrant’s amendment no2 schedule filed sec july 10 2013 22 incorporated reference registrant’s form 8k filed sec december 20 2013 23 incorporated reference registrant’s form s8 filed sec december 20 2013 24 incorporated reference registrant’s form 10k filed sec june 19 2014 25 incorporated reference registrant’s form 8k filed sec october 31 2016 26 incorporated reference registrant’s form 8k filed sec june 26 2014 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized american outdoor brands corporation p james debney p james debney president chief executive officer date june 29 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature capacity date p james debney president chief executive officer director principal executive officer june 29 2017 p james debney jeffrey buchanan executive vice president chief financial officer chief administrative officer treasurer principal accounting financial officer june 29 2017 jeffrey buchanan barry monheit chairman board june 29 2017 barry monheit robert l scott vice chairman board june 29 2017 robert l scott robert h brust director june 29 2017 robert h brust john b furman director june 29 2017 john b furman gregory j gluchowski jr director june 29 2017 gregory j gluchowski jr michael f golden director june 29 2017 michael f golden mitchell saltz director june 29 2017 mitchell saltz marie wadecki director june 29 2017 marie wadecki index consolidated financial statements american outdoor brands corporation subsidiaries page report independent registered public accounting firm consolidated balance sheets april 30 2017 2016 consolidated statements income comprehensive income years ended april 30 2017 2016 2015 consolidated statements changes stockholders’ equity years ended april 30 2017 2016 2015 consolidated statements cash flows years ended april 30 2017 2016 2015 notes consolidated financial statements schedule ii valuation qualifying accounts years ended april 30 2017 2016 2015 report independent registered public accounting firm board directors shareholders american outdoor brands corporation springfield massachusetts audited accompanying consolidated balance sheets american outdoor brands corporation subsidiaries company april 30 2017 2016 related consolidated statements income comprehensive income changes stockholders equity cash flows three years period ended april 30 2017 audits also included financial statement schedule listed index item 15 also audited companys internal control financial reporting april 30 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission described management’s report internal control financial reporting management excluded assessment internal control businesses acquired fiscal 2017 “2017 acquisitions” described note 2 consolidated financial statements year ended april 30 2017 acquisitions constituted 68 net sales 294 total assets consolidated financial statement amounts accordingly audit include internal control financial reporting 2017 acquisitions companys management responsible financial statements financial statement schedules maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control responsibility express opinion financial statements financial statement schedule opinion companys internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed supervision company’s principal executive principal financial officers persons performing similar functions effected company’s board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position american outdoor brands corporation subsidiaries april 30 2017 2016 results operations cash flows three years period ended april 30 2017 conformity accounting principles generally accepted united states america also opinion financial statement schedules considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also opinion company maintained material respects effective internal control financial reporting april 30 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission deloitte touche llp boston massachusetts june 29 2017 american outdoor brands corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements income comprehensive income accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements changes stockholders’ equity accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements accompanying notes integral part consolidated financial statement american outdoor brands corporation subsidiaries notes consolidated financial statements 1 organization leading manufacturer designer provider consumer products shooting hunting rugged outdoor enthusiast one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market also leading provider shooting hunting rugged outdoor products accessories including knives cutting tools sighting lasers shooting supplies tree saws survival gear fiscal 2017 changed name smith wesson holding corporation american outdoor brands corporation better reflect expanding strategic focus growing markets shooting hunting rugged outdoor enthusiasts believe name ”american outdoor brands corporation” better reflects family brands broad range product offerings plan continue building upon portfolio strong american brands report results operations two segments 1 firearms 2 outdoor products accessories previously referred accessories segment firearms segment operates smith wesson name manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles muzzleloaders handcuffs firearmrelated products sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world sell firearm products smith wesson mp performance center thompsoncenter arms brands manufacture firearm products facilities springfield massachusetts houlton maine deep river connecticut also sell manufacturing services businesses smith wesson deep river plastics brands outdoor products accessories segment currently operates names battenfeld technologies inc bti tools ultimate survival technologies ust crimson trace design source distribute manufacture reloading gunsmithing gun cleaning supplies highquality stainless steel cutting tools accessories flashlights tree saws related trimming accessories shooting supplies rests related accessories apparel vault accessories laser grips laser sights full range products survival emergency preparedness outdoor products accessories segment sell products caldwell wheeler tipton frankford arsenal smith wesson mp thompsoncenter lockdown hooyman bogpod golden rod nontypical crimson trace imperial schrade old timer ust keygear brands develop market outdoor products accessories facilities columbia missouri wilsonville oregon kingsport tennessee jacksonville florida fiscal 2015 acquired substantially net assets tritown precision plastics inc ttpp refer drp acquisition acquired issued outstanding stock battenfeld acquisition company inc including wholly owned subsidiary battenfeld technologies inc bti refer bti acquisition see note 2 acquisitions information regarding transactions fiscal 2017 acquired substantially net assets taylor brands llc well ultimate survival technologies inc acquired issued outstanding stock crimson trace corporation refer collectively 2017 acquisitions see note 2 acquisitions information regarding transactions acquisitions accounted accordance asc 80520 business combinations accordingly results operations acquired businesses included consolidated financial statements following acquisition dates american outdoor brands corporation subsidiaries notes consolidated financial statements continued 2 acquisitions drp acquisition may 5 2014 acquired substantially net assets ttpp 228 million plus 10 million working capital adjustment total purchase price 238 million utilizing cash hand drp acquisition ttpp’s custom polymer injection molding capabilities designed vertically integrate key component manufacturing operations provide us increased flexibility within supply chain pro forma results operations assuming acquisition occurred may 1 2014 required immaterial impact consolidated financial statements periods presented bti acquisition december 11 2014 acquired issued outstanding stock bti 1305 million plus 31 million working capital adjustment total purchase price 1336 million pursuant stock purchase sale agreement bti acquisition financed using combination existing cash balances cash 1000 million draw line credit expanded 1250 million result partial exercise accordion feature line credit based columbia missouri bti develops produces delivers innovative highquality hunting shooting accessories several brands january 9 2015 acquired substantially net assets hooyman llc manufacturer extendable tree saws designed hunting outdoor industry 19 million utilizing cash hand relocated operations columbia missouri facility aggregate purchase price acquisitions including working capital adjustments 1355 million following table reflects unaudited pro forma results operations assuming bti acquisition occurred may 1 2013 thousands except per share data unaudited pro forma income continuing operations year ended april 30 2015 adjusted reflect increased amortization intangibles bti acquisition occurred may 1 2013 unaudited pro forma information presented informational purposes necessarily indicative actual results would achieved bti acquisition occurred may 1 2013 results may achieved future periods 2017 acquisitions fiscal 2017 acquired substantially net assets taylor brands llc ultimate survival technologies inc well issued outstanding stock crimson trace corporation aggregate purchase price 2111 million net cash acquired subject certain adjustments utilizing cash hand connection purchase ultimate survival technologies inc additional 20 million may paid period two years contingent upon financial performance acquired business valuation contingent liability established accordance asc 805 business combinations april 30 2017 contingent liability recorded fair value 17 million 900000 recorded current american outdoor brands corporation subsidiaries notes consolidated financial statements continued liability taylor brands llc based kingsport tennessee operating bti tools llc designer distributor highquality knives specialty tools accessories licensee wholly owned subsidiary smith wesson corp crimson trace corporation based wilsonville oregon leading provider laser sight tactical light products consumers law enforcement security agencies military agencies around globe ultimate survival technologies inc based jacksonville florida operating ust llc provider highquality survival camping equipment including led lights allweather fire starter kits unbreakable signal mirrors premium outdoor cutting tools first aid kits survival kits camp kitchen products finalizing valuations assets acquired liabilities assumed related 2017 acquisitions therefore fair values set forth herein subject adjustments obtain additional information respective measurement periods exceed 12 months date acquisition 2017 acquisitions necessitate use measurement period adequately analyze assess number factors used establishing asset liability fair values acquisition date including significant contractual operational factors underlying trade name developed technology customer relationship intangible assets related tax impacts changes made year ended april 30 2017 decreased goodwill 141000 primarily result inventory valuation adjustments accounts receivable allowance valuations relating taylor brands llc crimson trace corporation acquisitions following table summarizes estimated preliminary allocation purchase price 2017 acquisitions thousands included general administrative costs 38 million acquisitionrelated costs incurred 2017 acquisitions year ended april 30 2017 acquisitions generated 611 million revenue year ended april 30 2017 american outdoor brands corporation subsidiaries notes consolidated financial statements continued amortize intangible assets proportion expected yearly revenue generated intangibles acquire amortize order backlog estimated life backlog fulfilled following identifiable intangible assets acquired thousands 2017 acquisitions respective weighted average lives additionally following table reflects unaudited pro forma results operations assuming 2017 acquisitions occurred may 1 2015 thousands except per share data unaudited pro forma income operations years ended april 30 2017 2016 adjusted reflect increased cost goods sold fair value stepup inventory expensed first inventory cycle amortization intangibles order backlog incurred 2017 acquisitions occurred may 1 2015 unaudited pro forma information presented informational purposes necessarily indicative actual results would achieved 2017 acquisitions occurred may 1 2015 results may achieved future periods 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accrual warranty reserves excess obsolete inventory rebates promotions valuation intangible assets actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts american outdoor brands corporation wholly owned subsidiaries including smith wesson corp deep river plastics llc reported firearms segment bti tools crimson trace ust reported outdoor products accessories segment swss llc formerly smith wesson security solutions inc swss former security solutions division opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2017 2016 periods presented included intercompany accounts transactions eliminated consolidation fiscal 2013 committed plan divest assets liabilities ongoing operations former security solutions division accordingly operating results discontinued division presented discontinued operations separate line consolidated statements income period discontinued operations amounts reported fiscal years ended april 30 2015 relate primarily legal fees associated retained liabilities american outdoor brands corporation subsidiaries notes consolidated financial statements continued fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2017 accounts exceeded federally insured limits financial instruments account derivative instruments accounting standards codification “asc” 81510 fair value measurements disclosure topic establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value fair value term loan approximates carrying value april 30 2017 fair value 5000 senior notes april 30 2017 approximate carrying value considering level 2 inputs within hierarchy senior notes frequently traded fair value interest rate swap estimated third party using inputs observable corroborated observable market data interest rate yield curves therefore classified within level 2 valuation hierarchy see note 5 notes loans payable financing arrangements information regarding financial instruments trade receivables extend credit domestic customers foreign distributors based financial condition sometimes offer discounts early payment invoices believe extension credit advisable rely either prepayment letter credit write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral fiscal year ended april 30 2017 none customers exceeded 10 net sales however one customers accounted approximately 175 accounts receivable fiscal years ended april 30 2016 2015 customers exceeded either 10 net sales accounts receivable inventories value inventories lower cost market using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment software hardware furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows american outdoor brands corporation subsidiaries notes consolidated financial statements continued include tooling dies fixtures part machinery equipment depreciate period generally exceeding ten years intangible assets record intangible assets cost based fair value assets acquired intangible assets consist developed technology customer relationships trademarks trade names patents amortize intangible assets estimated useful lives proportion expected yearly revenue generated intangibles acquired revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured federal excise taxes assessed firearms excluded net sales product sales account revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed segment information two reportable segments firearms includes firearms manufacturing services divisions outdoor products accessories includes accessories electrooptics divisions separate operating segments aggregated one reporting segment see note 19 segment reporting information regarding segments research development engage internal external research development rd order remain competitive exploit possible untapped market opportunities approve prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs earningsloss per share calculate basic diluted earningsloss per common share accordance provisions asc 26010 earnings per share basic earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period diluted earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive american outdoor brands corporation subsidiaries notes consolidated financial statements continued following table provides reconciliation net incomeloss amounts weighted average number common equivalent shares used determine basic diluted earningsloss per common share thousands except per share data outstanding stock options restricted stock units rsus included computation diluted earnings per share years ended april 30 2017 2016 fiscal 2015 73546 shares common stock issuable upon exercise stock options excluded computation diluted income per share effect would antidilutive valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets goodwill property plant equipment developed technology customer relationships patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified impairment charges recorded fiscal 2017 2016 2015 based review longlived tangible intangible assets american outdoor brands corporation subsidiaries notes consolidated financial statements continued accordance asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value operating units carrying amounts assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate two reporting segments firearms outdoor products accessories firearms reporting segment one operating segment outdoor products accessories reporting segment two operating segments accessories electrooptics aggregated one reporting segment april 30 2017 1690 million goodwill estimate fair value firearms accessories electrooptics operating units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing operating units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internally developed forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics operating unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values operating units recognize impairment loss goodwill implied fair value goodwill less carrying value valuation date firearms operating unit 138 million goodwill fair value exceeded carrying value accessories operating unit 1099 million goodwill fair value exceeded carrying value approximately 16 electrooptics operating unit 453 million goodwill fair value exceeded carrying value approximately 11 although concluded impairment goodwill associated operating units april 30 2017 continue closely monitor performance related market conditions future indicators potential impairment reassess accordingly foregoing assumptions could deviate materially actual results forecasts used support asset carrying values may change future could result noncash charges would adversely affect financial results operations income taxes use asset liability approach financial accounting reporting income taxes provision income taxes based upon income reported accompanying consolidated financial statements required asc 74010 accounting income taxes determine deferred tax assets liabilities based temporary differences financial reporting tax bases assets liabilities measure applying enacted rates laws expected place deferred items become subject income tax deductible income tax purposes recognize effect deferred taxes liabilities change tax rates period includes enactment date assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording reversing valuation allowance could significant effect future results operations financial position warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products either provide limited one year limited lifetime warranty program original purchaser accessories products repair replace electrooptics products parts found defective normal use service item equivalent value option without charge warranty period provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted american outdoor brands corporation subsidiaries notes consolidated financial statements continued time experienced certain manufacturing design issues respect firearms initiated product recalls safety alerts past april 30 2017 estimate remaining cost recalls safety alerts 15 million recorded accrued warranty balance november 2011 initiated recall thompsoncenter arms venture rifles manufactured since products’ introduction mid2009 june 2013 also initiated recall thompsoncenter arms bolt action rifles manufactured since products’ introduction 2007 made extensive efforts notify consumers impacted recalls including multiple notices fiscal 2017 fourth quarter fiscal 2017 reduced warranty accrual recalls 24 million based estimate future costs april 30 2017 estimate remaining cost recalls 708000 recorded accrued warranty balance warranty expense fiscal year ended april 30 2017 2016 2015 amounted 13 million 25 million 43 million respectively following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2017 2016 2015 thousands sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales promotional program costs dependent volume sales record promotional costs cost goods sold total promotional programs amounted 373 million 207 million 69 million fiscal years ended april 30 2017 2016 2015 respectively coop advertising program retail level expensed costs amounting 213 million 65 million 28 million fiscal 2017 2016 2015 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net sales firearms segment include costs relating shipping handling charges including inbound freight charges internal transfer costs distribution network cost goods sold outdoor products accessories segment inbound freight charges internal transfer costs included cost goods sold however costs incurred distribute products customers included general administrative expenses insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 100 million per occurrence however believe likelihood reaching maximum per occurrence limit remote record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis american outdoor brands corporation subsidiaries notes consolidated financial statements continued recently issued accounting standard may 2014 financial accounting standards board fasb issued accounting standards update 201409 revenue contracts customers topic 606 asu 201409 core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective interim reporting periods beginning december 15 2017 early adoption permitted additionally march 2016 fasb issued asu 201608 revenue contracts customers identifying performance obligations licensing clarifies identification performance obligations licensing implementation guidance may 2016 fasb issued asu 201612 narrowscope improvements practical expedients topic 606 provides clarifying guidance certain narrow areas adds practical expedients effective dates asu’s effective date asu 201409 engaged third party specialists assist us evaluating impact asus consolidated financial statements currently expect material july 2015 fasb issued asu 201511 inventory simplifying measurement inventory topic 330 asu 201511 simplifies subsequent measurement inventories replacing lower cost market test lower cost net realizable value test guidance applies inventories cost determined lastin firstout lifo method retail inventory method asu 201511 effective periods beginning december 15 2016 early adoption permitted new guidance must applied prospectively currently evaluating impact asu 201511 consolidated financial statements currently expect material february 2016 fasb issued asu 201602 leases topic 842 asu 201602 amends existing guidance require lessees recognize lease assets lease liabilities arising operating leases classified balance sheet amendments asu effective financial statements annual periods interim periods within annual periods beginning december 15 2018 early adoption permitted begun collect lease contract information subsidiaries currently evaluating impact asu 201602 consolidated financial statements march 2016 fasb issued asu 201609 compensation stock compensation topic 718 improvements employee sharebased payment accounting asu 201609 includes multiple amendments intended simplify aspects sharebased payment transactions including accounting income taxes forfeitures statutory tax withholding requirements well classification statement cash flows amendments asu effective annual periods beginning december 15 2017 interim periods within annual periods beginning december 15 2018 early adoption permitted elected early adopt asu 201609 prospective basis year ended april 30 2017 impact consolidated financial statements material january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment asu 201704 simplifies subsequent measurement goodwill removing second step twostep impairment test amendment requires entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount goodwill impairment amount reporting unit’s carrying value exceeds fair value exceed amount goodwill requirements asu 201704 effective fiscal years beginning december 15 2019 interim periods within fiscal years early adoption permitted interim annual goodwill impairment tests performed testing dates january 1 2017 elected early adopt standard year ended april 30 2017 impact consolidated financial statements american outdoor brands corporation subsidiaries notes consolidated financial statements continued 4 goodwill changes carrying amount goodwill reporting segment follows 5 notes loans payable financing arrangements credit facilities june 15 2015 certain domestic subsidiaries entered new unsecured credit facility credit agreement td bank na lenders included 1750 million revolving line credit revolving line 1050 million term loan term loan 940 million remains outstanding april 30 2017 revolving line provides availability general corporate purposes borrowings bear interest variable rate equal libor prime plus applicable margin based consolidated leverage ratio election october 27 2016 entered second amendment credit agreement second amendment among things increased revolving line 3500 million increased option expand credit commitment 1500 million extended maturity revolving line june 15 2020 october 27 2021 changes described second amendment otherwise remain subject terms credit agreement described incurred 525000 debt issuance costs related amendment recorded costs notes payable consolidated balance sheet april 30 2017 500 million borrowings outstanding revolving line bore interest 249 equal libor rate plus applicable margin term loan bears interest variable rate entered purpose redeeming entire 1000 million outstanding 5875 senior notes due 2017 5875 senior notes term loan requires principal payments 63 million per annum plus interest payable quarterly remaining outstanding amount maturity date june 15 2020 due full concurrent closing term loan redeemed 5875 senior notes 29 million call premium included interest expense plus accrued unpaid interest part redemption fiscal 2016 wrote 17 million debtissue costs related 5875 senior notes required obtain interest rate protection term loan covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement expires june 15 2020 covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2017 interest rate term loan 306 recognize derivatives either assets liabilities consolidated balance sheets fair value accounting changes fair value ie unrealized gains losses derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivatives qualify hedge accounting must adjusted fair value earnings interest rate swap agreement considered effective qualifies cash flow hedge effective portion gain loss derivative designated qualifies cash flow hedge recorded component accumulated comprehensive income loss reclassified earnings period periods hedged transaction affects earnings april 30 2017 interest rate swap considered effective effect earnings fair value interest rate swap april 30 2017 asset 572000 recorded assets consolidated balance sheet fair value interest rate swap april american outdoor brands corporation subsidiaries notes consolidated financial statements continued 30 2016 liability 13 million included longterm liabilities consolidated balance sheet expect interest rate swap material effect earnings within next 12 months 5000 senior notes fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 5000 senior notes various institutional investors pursuant terms conditions indenture 5000 senior notes indenture purchase agreements 5000 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 5000 senior notes july 15 2016 may option upon less 30 60 days’ prior notice redeem portion 5000 senior notes redemption price 102500 principal amount 5000 senior notes redeemed 12month period beginning july 15 2016 b 100 principal amount 5000 senior notes redeemed 12month period beginning july 15 2017 plus either case accrued unpaid interest 5000 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5000 senior notes holders 5000 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5000 senior notes mature july 15 2018 5000 senior notes general unsecured obligations company 5000 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 5000 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 5000 senior notes indenture 5000 senior notes lifetime aggregate limit addition 5000 senior notes indenture provides exceptions restricted payments covenant independent 5000 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 5000 senior notes aggregate amount exceed 750 million limitation indebtedness 5000 senior notes indenture applicable time consolidated coverage ratio set forth 5000 senior notes indenture us restricted subsidiaries less 300 100 general set forth 5000 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense carrying value 5000 senior notes april 30 2017 approximates fair value considering level 2 inputs within hierarchy debt issuance costs recorded notes payable 525000 10 million debt issuance costs fiscal years ended april 30 2017 2016 respectively costs amortized expense life credit facility 5000 senior notes indenture total amortized 918000 27 million 15 million interest expense debt issuance costs fiscal 2017 2016 2015 respectively including writeoffs related extinguishment credit agreement credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage 5000 senior notes indenture contains financial covenant relating times interest earned letters credit april 30 2017 outstanding letters credit aggregating 10 million american outdoor brands corporation subsidiaries notes consolidated financial statements continued 6 net sales following table sets forth breakdown net sales fiscal years ended april 30 2017 2016 2015 respectively thousands firearms currently sold smith wesson mp performance center thompsoncenter arms brands depending upon product service firearm customers include distributors federal state municipal law enforcement agencies officers government military agencies businesses retailers consumers sell outdoor products accessories caldwell wheeler tipton thompsoncenter arms frankford arsenal lockdown hooyman bogpod golden rod nontypical crimson trace imperial schrade old timer ust keygear brands outdoor products accessories customers generally businesses distributors retailers consumers sell products worldwide following table sets forth breakdown export net sales included table export net sales accounted 3 4 total net sales fiscal years ended april 30 2017 2016 2015 respectively thousands firearm outdoor products accessories businesses tooling located various suppliers asia north america 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements either incurred upon first occurrence advertising expense included selling marketing expenses fiscal years ended april 30 2017 2016 2015 amounted 223 million 218 million 202 million respectively american outdoor brands corporation subsidiaries notes consolidated financial statements continued 8 property plant equipment following table summarizes property plant equipment april 30 2017 2016 thousands depreciation tangible assets amortization software expense amounted 292 million 278 million 248 million fiscal years ended april 30 2017 2016 2015 respectively following table summarizes depreciation amortization expense includes amortization intangibles debt financing costs line item fiscal years ended april 30 2017 2016 2015 thousands general administrative expenses included 184 million 99 million 36 million amortization fiscal years ended april 30 2017 2016 2015 respectively recorded result acquisitions 9 inventories following table sets forth summary inventories net reserves stated lower cost market april 30 2017 2016 thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued large increase finished goods inventory primarily due 2017 acquisitions amounted 225 million large increase finished parts primarily due firearms segment inventory 10 intangible assets following table presents summary intangible assets april 30 2017 2016 thousands amortize intangible assets determinable lives weightedaverage period approximately five years weightedaverage periods amortization intangible asset class approximately five years customer relationships six years developed technology five years patents trademarks trade names amortization expense excluding amortization deferred financing costs amounted 201 million 107 million 46 million fiscal years ended april 30 2017 2016 2015 respectively following table represents future expected amortization expense april 30 2017 primarily recorded outdoor products accessories segment thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued 11 accrued expenses following table sets forth accrued expenses april 30 2017 2016 thousands large increase accrued rebates promotions relates primarily consumer cash rebate promotion began april 2017 12 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic asc 82010 financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities cash equivalents measured fair value recurring basis totaled 615 million 1913 million april 30 2017 2016 respectively utilized level 1 value hierarchy determine fair values assets level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives american outdoor brands corporation subsidiaries notes consolidated financial statements continued carrying value term loan approximated fair value april 30 2017 considering level 2 inputs within hierarchy fair value 5000 senior notes april 30 2017 approximated carrying value considering level 2 inputs within hierarchy senior notes frequently traded fair value interest rate swap estimated third party using inputs observable corroborated observable market data interest rate yield curves therefore classified within level 2 valuation hierarchy information regarding interest rate swap refer note 5 consolidated financial statements level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently material level 3 financial assets liabilities 13 selfinsurance reserves april 30 2017 2016 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 87 million 101 million respectively 48 million 58 million respectively classified noncurrent liabilities april 30 2017 2016 36 million 43 million respectively included accrued expenses accompanying consolidated balance sheets addition april 30 2017 2016 590000 621000 respectively workers’ compensation recoverable classified assets believe reserves adequate possible ultimate liabilities exceed estimates following table summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2017 2016 2015 thousands policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation matters losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2017 2016 accrued reserves product municipal litigation liabilities 32 million 38 million 29 million 31 million noncurrent respectively consisting entirely expected legal defense costs addition april 30 2017 2016 recorded receivables insurance carriers related liabilities 19 million nearly classified assets 14 stockholders’ equity treasury stock fiscal 2016 board directors authorized repurchase 500 million common stock subject certain conditions open market privately negotiated transactions june 23 2017 march 2017 completed stock repurchase program repurchasing 2604240 shares common stock 500 million utilizing combination cash hand borrowings revolving line march 27 2017 board directors authorized repurchase additional 500 million common stock open market privately negotiated transactions march 28 2019 american outdoor brands corporation subsidiaries notes consolidated financial statements continued incentive stock employee stock purchase plans two stock plans sps 2004 incentive stock plan 2013 incentive stock plan made new grants 2004 incentive stock plan since approval 2013 incentive stock plan september 23 2013 annual meeting stockholders new grants covering participants issued 2013 incentive stock plan 2013 incentive stock plan authorizes issuance 3000000 shares plus shares reserved remained available grant delivery 2004 incentive stock plan september 23 2013 effective date 2013 incentive stock plan permits grant options acquire common stock restricted stock awards rsus stock appreciation rights bonus stock awards lieu obligations performance awards dividend equivalents board directors committee established board administers sps selects recipients awards granted determines grants awarded options granted sps exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sps generally nontransferable subject forfeiture unless terminated earlier board directors 2013 incentive stock plan terminate earliest 1 tenth anniversary effective date 2013 stock plan 2 time shares common stock remain available issuance plan rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award except specific circumstances grants vest period three four years exercisable period 10 years plan also permits grant awards nonemployees board directors committee authorized past number shares weighted average exercise prices options fiscal years ended april 30 2017 2016 2015 follows april 30 2017 4954883 shares available grant 2013 incentive stock plan use unissued share pool shares issued options restricted stock awards rsus performance share units psus employee stock purchase plan espp issuances aggregate intrinsic value outstanding options april 30 2017 2016 2015 52 million 61 million 161 million respectively aggregate intrinsic value outstanding options exercisable april 30 2017 2016 2015 52 million 61 million 160 million respectively american outdoor brands corporation subsidiaries notes consolidated financial statements continued aggregate intrinsic value options exercised years ended april 30 2017 2016 2015 13 million 272 million 29 respectively april 30 2017 unrecognized compensation cost outstanding options following table summarizes stock compensation expense line item fiscal years ended april 30 2017 2016 2015 thousands grant servicebased rsus employees consultants directors awards made cost recipient rsu represents right acquire one share common stock carry voting dividend rights except specific circumstances rsu grants employees generally vest period three four years onethird onefourth units vesting respectively anniversary date grant date aggregate fair value rsu grants amortized compensation expense vesting period grant psus executive officers employees executive officers time grant calculate fair value psus using montecarlo simulation incorporate following variables valuation model expected volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate threeyear performance period expect pay dividends foreseeable future psus vest fair value psus recognized corresponding threeyear performance period psus maximum aggregate award equal 200 target amount granted generally number psus may earned depends upon total stockholder return tsr common stock compared tsr russell 2000 index rut threeyear performance period psus stock must outperform rut 5 order target award vest addition cap number shares earned psus equal six times grantdate value award certain circumstances vested awards delivered first anniversary applicable vesting date applied discount grant date fair value determining amount compensation expense recorded rsus psus american outdoor brands corporation subsidiaries notes consolidated financial statements continued year ended april 30 2017 granted 153100 psus certain executive officers also granted 394909 servicebased rsus year ended april 30 2017 including 168800 rsus certain executive officers 24896 rsus directors 201213 rsus nonexecutive officer employees addition connection 2013 grant 118500 psus ie target amount granted achieved 2000 maximum aggregate award possible vested delivered awards totaling 237000 shares certain executive officers compensation expense recognized related grants rsus psus 78 million fiscal year ended april 30 2017 fiscal year ended april 30 2017 canceled 19448 servicebased rsus result service period condition met delivered 433966 shares common stock current employees vested rsus psus total market value 117 million year ended april 30 2016 granted 137775 psus certain executive officers 5379 psus nonexecutives officer employees also granted 321692 servicebased rsus year ended april 30 2016 including 117100 rsus certain executive officers 36379 rsus directors 168213 rsus nonexecutive officer employees addition connection 2012 grant 104000 psus ie target amount granted achieved 1733 maximum aggregate award possible vested delivered awards totaling 180231 shares certain executive officers compensation expense recognized related grants rsus psus 59 million fiscal year ended april 30 2016 fiscal year ended april 30 2016 canceled 66185 servicebased rsus 19250 psus result service period condition met delivered 430768 shares common stock current employees vested rsus psus total market value 78 million fiscal year ended april 30 2015 granted 112000 psus certain executive officers also granted 554933 servicebased rsus year ended april 30 2015 including 125000 rsus certain executive officers 46639 rsus directors 379433 rsus nonexecutive officer employees addition connection 2011 grant 46600 psus ie target amount granted achieved maximum aggregate award possible vested delivered awards totaling 93200 shares certain executive officers former executive officer compensation expense recognized related grants rsus psus 51 million fiscal year ended april 30 2015 fiscal year ended april 30 2015 cancelled 57752 servicebased rsus 41250 psus result service period condition met delivered 433266 shares common stock current employees vested rsus psus total market value 54 million grant date fair value rsus psus vested fiscal 2017 2016 2015 50 million 46 million 40 million respectively summary activity unvested rsus psus fiscal years 2017 2016 2015 follows april 30 2017 124 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 18 years american outdoor brands corporation subsidiaries notes consolidated financial statements continued september 26 2011 stockholders approved 2011 espp authorizes sale 6000000 shares common stock employees options rights participate espp nontransferable subject forfeiture accordance espp guidelines current espp implemented series successive offering periods maximum duration 12 months fair market value fmv per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase espp b date determined board directors discretion c march 31 2022 event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2017 2016 2015 144102 157674 161456 shares respectively purchased espp measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options issued employees using blackscholes model time options granted amount amortized vesting period option espp fair value determined beginning purchase period amortized term exercise period following assumptions used valuing espp purchases years ended april 30 2017 2016 2015 estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table total stockbased compensation expense including stock options purchases espp rsu psu awards 86 million 65 million 58 million fiscal years 2017 2016 2015 respectively 15 employer sponsored benefit plans contributory defined investment plan offer two contributory defined investment plans covering substantially employees subject service requirements employees may contribute 100 annual pay depending plan generally make discretionary matching contributions 50 first 6 employee contributions plan contributed 27 million 24 million 23 million fiscal years ended april 30 2017 2016 2015 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine deep river connecticut columbia american outdoor brands corporation subsidiaries notes consolidated financial statements continued missouri employees become eligible may 1 following completion full fiscal year continuous service contributions plan discretionary fiscal 2017 plan contribute approximately 130 million recorded general administrative costs contributed 115 million 62 million fiscal years ended april 30 2016 2015 respectively contributions funded fiscal yearend 16 income taxes income tax expense continuing operations consists following thousands following table presents reconciliation provision income taxes continuing operations statutory rates provision consolidated financial statements thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued deferred tax assets deferred tax liabilities related temporary differences following thousands federal net operating loss carryforwards amounting 324000 april 30 2017 expire fiscal 2020 obtained 82 million additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 108000 fiscal 2016 taxable year thereafter possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 internal revenue code ownership change occur could annual limitation remaining tax loss carryforward 171 million 168 million state net operating loss carryforwards april 30 2017 2016 respectively state net operating loss carryforwards expire april 30 2025 april 30 2036 32 million 29 million state tax credit carryforwards april 30 2017 2016 respectively state tax credit carryforwards expire april 30 2020 april 30 2025 expiration date april 30 2017 valuation allowances 720000 21 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration april 30 2016 valuation allowances 708000 19 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration increase valuation allowance deferred tax assets state net operating losses credits state deferred tax assets related mainly massachusetts investment tax credits valuation allowances provided deferred federal income tax assets april 30 2017 2016 believe likely assets realized recording valuation allowance reversing valuation allowance could effect future results operations financial position unaware recent expected future changes tax laws would material impact financial statements april 30 2017 2016 gross taxeffected unrecognized tax benefits limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2013 american outdoor brands corporation subsidiaries notes consolidated financial statements continued 17 commitments contingencies litigation defendant three product liability cases aware 12 product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case filed august 27 1999 city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties believe various allegations described unfounded addition accident results due negligence misuse firearm claimant third party addition involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek unspecified compensatory punitive damages others compensatory damages sought may range less 75000 approximately 350000 experience initial demands generally bear reasonable relationship facts circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims related product liability accrual includes amounts defense costs asserted unasserted claims consultation litigation counsel review merit claim concluded unable reasonably estimate probability estimated range reasonably possible losses related material adverse judgments related claims therefore accrued judgments future determine loss additional loss excess accrual least reasonably possible material would disclose estimate possible loss range loss estimate could made disclose estimate could made believe provided adequate accruals defense costs fiscal years ended april 30 2017 2016 2015 paid 254000 264000 252000 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 209000 55000 177000 respectively fiscal years settlement fees related product liability cases recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets year ended april 30 2016 received 18 million insurance recovery recorded general administrative expenses result insurance settlement agreement partial reimbursement defense costs incurred prior fiscal years related resolved government investigation fiscal 2017 recognized gain changes product liability provisions 364000 fiscal 2016 2015 recorded expense 299000 183000 respectively recognize changes product liability municipal litigation liability time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made american outdoor brands corporation subsidiaries notes consolidated financial statements continued environmental remediation subject numerous federal state local laws regulations regulate health safety workforce including limited regulations monitored occupational health safety administration osha national fire protection association department public health though exhaustive examples applicable regulations include confined space safety walking working surfaces machine guarding life safety also subject numerous federal state local environmental laws regulations concerning among things emissions air discharges land surface subsurface strata water generation handling storage transportation treatment disposal hazardous wastes materials laws require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act cercla solid waste disposal act amended resource conservation recovery act place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated site springfield massachusetts contains two release areas focus remediation projects part massachusetts contingency plan mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent two sites april 30 2017 2016 respectively recorded 730000 694000 environmental reserve noncurrent liabilities calculated net present value environmental reserve equal carrying value liability recorded books estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental health safety proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company american outdoor brands corporation subsidiaries notes consolidated financial statements continued contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business rental leases following summarizes operating leases office andor manufacturing space also lease machinery photocopiers vehicles national sales force various expiration dates april 30 2017 lease commitments follows thousands rent expense fiscal years ended april 30 2017 2016 2015 44 million 41 million 33 million respectively 18 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2017 2016 opinion adjustments necessary present fairly information quarters reflected thousands except per share data american outdoor brands corporation subsidiaries notes consolidated financial statements continued basic diluted earnings per share may equal sum quarterly basic diluted earnings per share due rounding b first quarter results fiscal 2017 restated result adopting asu 201609 compensation stock compensation second quarter fiscal 2017 result adoption net income increased 26 million net income per basic diluted share increased 005 three months ended july 31 2016 19 segment reporting report results operations two segments 1 firearms 2 outdoor products accessories previously referred accessories segment two segments defined based reporting review process used chief operating decision maker chief executive officer firearms segment determined single operating segment reporting segment based reliance production metrics gross margin per unit produced units produced per day incoming orders per day revenue produced trade channel particular firearms segment outdoor products accessories segment determined two operating segments aggregated single reporting segment evaluated measurement incoming orders per day sales gross margin customer brand firearms segment includes firearms components manufacture facilities springfield massachusetts houlton maine deep river connecticut firearm products develop assemble market springfield massachusetts facility outdoor products accessories segment includes accessories products develop source market distribute facilities columbia missouri kingsport tennessee jacksonville florida electrooptics products develop market assemble wilsonville oregon facility report operating costs based activities performed within segment assets directly used clearly allocable reportable segment’s operations assets business segment presented following table april 30 2017 2016 thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued results business segment presented following table years ended april 30 2017 2016 2015 thousands years ended april 30 2017 2016 allocated corporate overhead expenses except interest income taxes general administrative expenses corporatelevel expenses firearms outdoor products accessories segments year ended april 30 2015 segment information herein restated previously presented allocate corporate overhead expenses basis corporate overhead expenses previously allocated year ended april 30 2015 due timing bti acquisition b effective october 1 2015 thompsoncenter accessories business transitioned firearms segment outdoor products accessories segment result transition reclassified 56 million 46 million revenue cost sales respectively firearms segment outdoor products accessories segment year ended april 30 2016 c amount includes 47 million additional cost goods sold fair value inventory stepup backlog expense related 2017 acquisitions american outdoor brands corporation subsidiaries notes consolidated financial statements continued amount includes 184 million amortization intangible assets identified result acquisitions e amount includes 42 million additional cost goods sold fair value inventory stepup related bti acquisition f amount includes 36 million amortization intangible assets identified result bti acquisition schedule ii american outdoor brands corporation subsidiaries valuation qualifying accounts years ended april 30 2017 2016 2015 1 increase fiscal 2017 valuation accounts represents acquired balances related 2017 acquisitions 2 decrease fiscal 2017 valuation accounts primarily represents writeoff one customers’ accounts receivable balances 3 amount include 506000 charged costs expenses related notes receivable 4 increase fiscal 2015 valuation accounts represents acquired balances related drp bti acquisitionsitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2018 2017 2016 set forth page report b exhibits exhibit number exhibit 29 stock purchase sale agreement dated november 25 2014 among registrant clearview battenfeld acquisition company llc members named therein1 210 asset purchase agreement dated july 15 2016 among bti tools llc taylor brands llc members named therein 2 211 asset purchase agreement dated july 25 2016 among smith wesson holding corporation crimson trace holdings llc 3 33b amended restated bylaws 4 33c amendment amended restated bylaws 5 34 second amended restated articles incorporation 6 39a certificate withdrawal certificate designation7 41 form common stock certificate8 432 indenture dated february 28 2018 among registrant bank new york mellon trust company na trustee9 1024a amended restated 2004 incentive stock plan10 1028 amendments 2004 incentive stock plan11 1051 agreement respect defense smith wesson firearms litigation dated november 11 200412 1056 form restricted stock unit award agreement 2004 incentive stock plan13 1072 form indemnity agreement entered following directors executive officers june 29 2009 barry monheit michael f golden robert l scott john b furman mitch saltz marie wadecki jeffrey buchanan november 2009 p james debney july 2011 robert h brust december 14 2011 mark p smith april 24 2013 robert j cicero february 5 2016 anita britt14 1083a amended restated severance change control agreement executed december 8 2011 january 3 2011 registrant jeffrey buchanan15 1091a amended restated employment agreement executed december 8 2011 september 26 2011 p james debney smith wesson holding corporation15 1095 letter amendment dated september 9 2011 jeffrey buchanan registrant15 exhibit number exhibit 1096 letter amendment dated september 9 2011 p james debney smith wesson holding corporation15 1098 form nonqualified stock option award grant notice agreement 2004 incentive stock plan15 1099 form restricted stock unit award grant notice agreement 2004 incentive stock plan15 10100 amended restated 2011 employee stock purchase plan16 10101 form performancebased restricted stock unit award grant notice agreement 2004 incentive stock plan awards made beginning april 201216 10102 form timebased restricted stock unit award grant notice agreement 2004 incentive stock plan awards made beginning april 201216 10104 credit agreement dated august 15 2014 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc sole lead arranger sole bookrunner including exhibits thereto17 10104a first amendment credit agreement dated november 25 2014 among registrant smith wesson corp guarantors lenders td bank na administrative agent swingline lender1 10104b second amendment credit agreement dated april 13 2015 among registrant smith wesson corp guarantors lenders td bank na administrative agent swingline lender18 10106 master letter credit agreement dated august 15 2014 td bank na registrant smith wesson corp modified letter agreement dated august 15 2014 addressed registrant subsidiaries td bank na17 10106a first amendment master letter credit agreement dated june 15 2015 td bank na registrant smith wesson corp19 10107 smith wesson holding corporation executive severance pay plan20 10108 adoption agreement smith wesson nonqualified supplemental deferred compensation plan21 10109 smith wesson nonqualified supplemental deferred compensation plan document21 10110 2013 incentive stock plan22 10111 form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201423 10111a form restricted stock unit grant notice agreement 2013 incentive stock plan awards made beginning september 201419 10111b form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201519 10112 form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201423 10112a form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201519 exhibit number exhibit 10113 credit agreement dated june 15 2015 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents including exhibits thereto19 10113a second amendment credit agreement dated october 27 2016 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents24 10114 lease agreement dated october 26 2017 ryan boone county llc smith wesson corp25 10115 guaranty dated october 26 2017 entered registrant25 10116 form purchase agreement among american outdoor brands corporation investors party thereto9 211 subsidiaries registrant 231 consent deloitte touche llp independent registered public accounting firm 311 rule 13a14a15d14a certification principal executive officer 312 rule 13a14a15d14a certification principal financial officer 321 section 1350 certification principal executive officer 322 section 1350 certification principal financial officer 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec november 26 2014 2 incorporated reference registrant’s form 8k filed sec july 18 2016 3 incorporated reference registrant’s form 8k filed sec july 26 2016 4 incorporated reference registrant’s form 8k filed sec march 20 2015 5 incorporated reference registrant’s form 8k filed sec october 21 2016 6 incorporated reference registrant’s form 10q filed sec march 2 2017 7 incorporated reference registrant’s form 8k filed sec october 1 2013 8 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 9 incorporated reference registrant’s form 8k filed sec march 1 2018 10 incorporated reference registrant’s form 8k filed sec september 28 2011 11 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 12 incorporated reference registrant’s form 10q filed sec march 10 2005 13 incorporated reference registrant’s form 8k filed sec may 19 2006 14 incorporated reference registrant’s form 10k filed sec june 30 2009 15 incorporated reference registrant’s form 10q filed sec december 8 2011 16 incorporated reference registrant’s form 10k filed sec june 28 2012 17 incorporated reference registrant’s form 8k filed sec august 19 2013 18 incorporated reference registrant’s form 8k filed sec april 15 2015 19 incorporated reference registrant’s form 10k filed sec june 22 2015 20 incorporated reference registrant’s amendment 2 schedule filed sec july 10 2013 21 incorporated reference registrant’s form 8k filed sec december 20 2013 22 incorporated reference registrant’s form s8 filed sec december 20 2013 23 incorporated reference registrant’s form 10k filed sec june 19 2014 24 incorporated reference registrant’s form 8k filed sec october 31 2016 25 incorporated reference registrant’s form 8k filed sec october 31 2017 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized american outdoor brands corporation p james debney p james debney president chief executive officer date june 20 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature capacity date p james debney president chief executive officer director principal executive officer june 20 2018 p james debney jeffrey buchanan executive vice president chief financial officer chief administrative officer treasurer principal accounting financial officer june 20 2018 jeffrey buchanan barry monheit chairman board june 20 2018 barry monheit robert l scott vice chairman board june 20 2018 robert l scott anita britt director june 20 2018 anita britt robert h brust director june 20 2018 robert h brust john b furman director june 20 2018 john b furman gregory j gluchowski jr director june 20 2018 gregory j gluchowski jr michael f golden director june 20 2018 michael f golden mitchell saltz director june 20 2018 mitchell saltz marie wadecki director june 20 2018 marie wadecki index consolidated financial statements american outdoor brands corporation subsidiaries page report independent registered public accounting firm consolidated balance sheets april 30 2018 2017 consolidated statements income comprehensive income years ended april 30 2018 2017 2016 consolidated statements changes stockholders’ equity years ended april 30 2018 2017 2016 consolidated statements cash flows years ended april 30 2018 2017 2016 notes consolidated financial statements schedule ii valuation qualifying accounts years ended april 30 2018 2017 2016 report independent registered public accounting firm shareholders board directors american outdoor brands corporation springfield massachusetts opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets american outdoor brands corporation subsidiaries company april 30 2018 2017 related consolidated statements income comprehensive income changes stockholders’ equity cash flows three years period ended april 30 2018 related notes financial statement schedule listed table contents item 15 collectively referred financial statements also audited company’s internal control financial reporting april 30 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion financial statements referred present fairly material respects financial position company april 30 2018 2017 results operations cash flows three years period ended april 30 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting april 30 2018 based criteria established internal control integrated framework 2013 issued coso basis opinions company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion financial statements opinion company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate deloitte touche llp boston massachusetts june 20 2018 served company’s auditor since 2014 american outdoor brands corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements income comprehensive income accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements changes stockholders’ equity accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash investing financing activities accompanying notes integral part consolidated financial statement american outdoor brands corporation subsidiaries notes consolidated financial statements 1 organization leading manufacturer designer provider consumer products shooting hunting rugged outdoor enthusiast one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle suppressor markets also leading provider shooting hunting rugged outdoor products accessories including knives cutting tools sighting lasers shooting supplies tree saws survival gear fiscal 2017 changed name company smith wesson holding corporation american outdoor brands corporation better reflect expanding strategic focus growing markets shooting hunting rugged outdoor enthusiasts believe name ”american outdoor brands corporation” better reflects family brands broad range product offerings plan continue building upon portfolio strong american brands two reporting segments 1 firearms includes firearms manufacturing services divisions 2 outdoor products accessories includes outdoor products accessories electrooptics divisions firearms segment manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles muzzleloaders handcuffs suppressors firearmrelated products sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world sell firearm products smith wesson mp performance center gemtech thompsoncenter arms brands manufacture firearm products facilities springfield massachusetts houlton maine deep river connecticut perform research development activities suppressors accessories products facility meridian idaho also sell manufacturing services businesses smith wesson smith wesson precision components formerly known deep river plastics brands outdoor products accessories segment design source distribute manufacture reloading gunsmithing gun cleaning supplies highquality stainless steel cutting tools accessories flashlights tree saws related trimming accessories shooting supplies rests related accessories apparel vault accessories laser grips laser sights full range products survival emergency preparedness sell products caldwell wheeler tipton frankford arsenal smith wesson mp thompsoncenter lockdown hooyman bogpod golden rod nontypical crimson trace imperial schrade old timer bubba blade ust keygear brands develop market outdoor products accessories facilities columbia missouri wilsonville oregon jacksonville florida fiscal 2017 acquired substantially net assets taylor brands llc well ultimate survival technologies inc acquired issued outstanding stock crimson trace corporation three separate transactions refer collectively 2017 acquisitions see note 2 acquisitions information regarding transactions fiscal 2018 acquired substantially net assets gemini technologies incorporated gemtech well bubba blade branded products assets fish tales llc two separate transactions refer collectively 2018 acquisitions see note 2 acquisitions information regarding transactions 2017 acquisitions 2018 acquisitions accounted accordance asc 80520 business combinations accordingly results operations acquired businesses included consolidated financial statements following acquisition dates american outdoor brands corporation subsidiaries notes consolidated financial statements continued 2 acquisitions 2018 acquisitions august 2017 two separate transactions acquired 1 substantially net assets gemtech 2 bubba blade branded products assets fish tales llc aggregate purchase price two acquisitions 231 million subject certain adjustments utilizing combination cash hand borrowings revolving line credit connection gemtech acquisition additional consideration maximum 171 million may paid contingent upon cumulative three year sales volume gemtech products valuation contingent consideration liability established accordance asc 805 business combinations based current forecasted revenue believe unlikely acquired business achieve performance metrics therefore april 30 2018 contingent liability recorded fair value 100000 noncurrent liabilities gemtech based meridian idaho provider quality suppressors accessories consumer law enforcement military markets fish tales llc based oro valley arizona provider premium sportsmen knives tools fishing hunting including premium knife brand bubba blade gemtech business fully integrated firearms segment fish tales llc assets business fully integrated outdoor products accessories segment therefore provide discrete financial information 2018 acquisitions future periods process finalizing valuations assets acquired liabilities assumed 2018 acquisitions therefore fair values acquisitions subject adjustments obtain additional information respective measurement periods exceed 12 months date acquisition 2018 acquisitions necessitate use measurement period adequately analyze assess number factors used establishing asset liability fair values acquisition date including significant contractual operational factors underlying trade name developed technology customer relationship intangible assets following table summarizes estimated preliminary allocation purchase price 2018 acquisitions thousands included general administrative costs 769000 acquisitionrelated costs incurred year ended april 30 2018 related 2018 acquisitions american outdoor brands corporation subsidiaries notes consolidated financial statements continued amortize intangible assets proportion expected annual revenue generated intangibles acquire following identifiable intangible assets acquired thousands 2018 acquisitions respective weighted average lives pro forma results operations assuming 2018 acquisitions occurred may 1 2016 required immaterial impact consolidated financial statements periods presented 2017 acquisitions fiscal 2017 three separate transactions acquired 1 substantially net assets taylor brands llc 2 substantially assets ultimate survival technologies inc referred ultimate survival technologies llc ust 3 issued outstanding stock crimson trace corporation aggregate purchase price 2111 million net cash acquired subject certain adjustments utilizing cash hand connection purchase ultimate survival technologies inc additional 20 million may paid period two years contingent upon financial performance acquired business valuation contingent liability established accordance asc 805 business combinations initial fair value contingent consideration liability 17 million based current forecasted revenue year ended april 30 2018 recorded 16 million reduction fair value contingent consideration liability expect acquired business achieve performance metrics reduction recorded income consolidated statements income april 30 2018 fair value contingent liability 60000 recorded current liability completed valuations assets acquired liabilities assumed related 2017 acquisitions year ended april 30 2018 decreased goodwill 101 million primarily result changes valuation customer relationship intangible assets impact value related deferred tax liabilities relating 2017 acquisitions result reduced amortization expense 476000 net tax fiscal 2018 relating changes prior fiscal year amortization expense american outdoor brands corporation subsidiaries notes consolidated financial statements continued following table summarizes estimated preliminary allocation purchase price 2017 acquisitions thousands included general administrative costs 38 million acquisitionrelated costs incurred 2017 acquisitions year ended april 30 2017 acquisitions generated 611 million revenue year ended april 30 2017 amortize intangible assets proportion expected yearly revenue generated intangibles acquire amortize order backlog estimated life backlog fulfilled following identifiable intangible assets acquired thousands 2017 acquisitions respective weighted average lives additionally following table reflects unaudited pro forma results operations assuming 2017 acquisitions occurred may 1 2015 thousands except per share data american outdoor brands corporation subsidiaries notes consolidated financial statements continued unaudited pro forma income operations years ended april 30 2017 2016 adjusted reflect increased cost goods sold fair value stepup inventory expensed first inventory cycle amortization intangibles order backlog incurred 2017 acquisitions occurred may 1 2015 unaudited pro forma information presented informational purposes necessarily indicative actual results would achieved 2017 acquisitions occurred may 1 2015 results may achieved future periods 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accrual warranty reserves excess obsolete inventory rebates promotions valuation intangible assets actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts american outdoor brands corporation wholly owned subsidiaries including smith wesson corp swpc plastics llc reported firearms segment bti tools crimson trace ust reported outdoor products accessories segment swss llc formerly smith wesson security solutions inc swss former security solutions division opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2018 2017 periods presented included intercompany accounts transactions eliminated consolidation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2018 accounts exceeded federally insured limits financial instruments account derivative instruments accounting standards codification “asc” 81510 fair value measurements disclosure topic establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value carrying value term loan approximated fair value april 30 2018 carrying value 2020 senior notes april 30 2018 approximated fair value considering level 2 inputs within hierarchy 2020 senior notes frequently traded fair value interest rate swap estimated third party using inputs observable corroborated observable market data interest rate yield curves therefore classified within level 2 valuation hierarchy see note 5 notes loans payable financing arrangements information regarding financial instruments trade receivables extend credit domestic customers foreign distributors based financial condition sometimes offer discounts early payment invoices believe extension credit advisable rely either prepayment letter credit write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral american outdoor brands corporation subsidiaries notes consolidated financial statements continued fiscal year ended april 30 2018 one customers accounted 119 net sales none customers accounted 100 accounts receivable fiscal years ended april 30 2017 none customers exceeded 10 net sales however one customers accounted approximately 175 accounts receivable fiscal year ended april 30 2016 customers exceeded either 10 net sales accounts receivable inventories value inventories lower cost using firstin firstout fifo method net realizable value allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment software hardware furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows include tooling dies fixtures part machinery equipment depreciate period generally exceeding ten years intangible assets record intangible assets cost based fair value assets acquired intangible assets consist developed technology customer relationships trademarks trade names patents amortize intangible assets estimated useful lives proportion expected yearly revenue generated intangibles acquired revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured federal excise taxes assessed firearms excluded net sales product sales account revenue recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed segment information two reporting segments firearms includes firearms manufacturing services divisions outdoor products accessories includes outdoor products accessories electrooptics divisions separate operating segments aggregated one reporting segment see note 19 segment reporting information regarding segments research development engage internal external research development rd order remain competitive exploit possible untapped market opportunities approve prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs american outdoor brands corporation subsidiaries notes consolidated financial statements continued earnings per share calculate basic diluted earnings per common share accordance provisions asc 26010 earnings per share basic earnings per common share equals net income divided weighted average number common shares outstanding period diluted earnings per common share equals net income divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive following table provides reconciliation net income amounts weighted average number common equivalent shares used determine basic diluted earnings per common share thousands except per share data outstanding stock options restricted stock units rsus included computation diluted earnings per share years ended april 30 2018 2017 2016 valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets goodwill property plant equipment developed technology customer relationships patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified material impairment charges recorded fiscal 2018 2017 2016 based review longlived tangible intangible assets american outdoor brands corporation subsidiaries notes consolidated financial statements continued accordance asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value operating units carrying amounts assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate two reporting segments firearms outdoor products accessories firearms reporting segment one operating segment outdoor products accessories reporting segment two operating segments outdoor products accessories electrooptics aggregated one reporting segment april 30 2018 1913 million goodwill estimate fair value firearms outdoor products accessories electrooptics operating units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing operating units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internally developed forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics operating unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values operating units recognize impairment loss goodwill implied fair value goodwill less carrying value fair values reporting units reflect decrease federal statutory income tax rate result tax cuts jobs act tax reform recently enacted united states valuation date firearms operating unit 185 million goodwill fair value significantly exceeded carrying value outdoor products accessories operating unit 1198 million goodwill fair value exceeded carrying value 20 electrooptics operating unit 530 million goodwill fair value exceeded carrying value 16 although concluded impairment goodwill associated operating units april 30 2018 continue closely monitor performance related market conditions future indicators potential impairment reassess accordingly assumptions related development fair value could deviate materially actual results forecasts used support asset carrying values may change future could result noncash charges would adversely affect financial results operations specifically relates outdoor products accessories electrooptics operating units income taxes use asset liability approach financial accounting reporting income taxes provision income taxes based upon income reported accompanying consolidated financial statements required asc 74010 accounting income taxes determine deferred tax assets liabilities based temporary differences financial reporting tax bases assets liabilities measure applying enacted rates laws expected place deferred items become subject income tax deductible income tax purposes recognize effect deferred taxes liabilities change tax rates period includes enactment date assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording reversing valuation allowance could significant effect future results operations financial position warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products either provide limited one year limited lifetime warranty program original purchaser outdoor products accessories products repair replace electrooptics products parts found defective normal use service item equivalent value option without charge warranty period provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted american outdoor brands corporation subsidiaries notes consolidated financial statements continued time experienced certain manufacturing design issues respect firearms initiated product recalls safety alerts past november 2011 initiated recall thompsoncenter arms venture rifles manufactured since products’ introduction mid2009 june 2013 also initiated recall thompsoncenter arms bolt action rifles manufactured since products’ introduction 2007 april 2018 initiated consumer advisory certain models mp shield ez pistols rare circumstances safety pistol move fire position “safety on” position using ammunition produces high level felt recoil may 2018 initiated recall certain models electrooptics products incorporated diodes manufactured particular third party diodes failed comply food drug administration fda standard laser products made efforts notify consumers may impacted recall remaining cost recalls safety alerts consumer advisories 35 million recorded accrued warranty balance warranty expense fiscal years ended april 30 2018 2017 2016 amounted 58 million 13 million 25 million respectively following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2018 2017 2016 thousands sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales promotional program costs dependent volume sales record promotional costs cost goods sold total promotional programs amounted 582 million 373 million 207 million fiscal years ended april 30 2018 2017 2016 respectively coop advertising program retail level expensed costs amounting 233 million 213 million 65 million fiscal 2018 2017 2016 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net sales firearms segment include costs relating shipping handling charges including inbound freight charges internal transfer costs distribution network cost goods sold outdoor products accessories segment inbound freight charges internal transfer costs included cost goods sold however costs incurred distribute products customers included general administrative expenses insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 100 million per occurrence however believe likelihood reaching maximum per occurrence limit remote record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis american outdoor brands corporation subsidiaries notes consolidated financial statements continued recently issued accounting standard may 2014 financial accounting standards board fasb issued accounting standards update 201409 revenue contracts customers topic 606 asu 201409 core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services asu 201409 effective interim reporting periods beginning december 15 2017 early adoption permitted additionally march 2016 fasb issued asu 201608 revenue contracts customers identifying performance obligations licensing clarifies identification performance obligations licensing implementation guidance may 2016 fasb issued asu 201612 narrowscope improvements practical expedients topic 606 provides clarifying guidance certain narrow areas adds practical expedients effective dates asu’s effective date asu 201409 evaluated new standard existing accounting policies practices including reviewing standard purchase orders invoices shipping terms agreements customers adopt new standard first quarter fiscal 2019 using modified retrospective approach restate prior year consolidated financial statements based adoption modify timing revenue recognition related certain sales promotions involve shipment free goods recognize cumulative effect adopting standard adjustment opening retained earnings expect adjustment retained earnings approximately 55 million expected impact fiscal 2019 revenue 225 million relating fiscal 2018 sales promotions immaterial impact net income ongoing basis prior periods retrospectively restated february 2016 fasb issued asu 201602 leases topic 842 asu 201602 amends existing guidance require lessees recognize lease assets lease liabilities arising operating leases classified balance sheet amendments asu effective financial statements annual periods interim periods within annual periods beginning december 15 2018 early adoption permitted begun collect lease contract information subsidiaries currently evaluating impact asu 201602 consolidated financial statements january 2017 fasb issued asu 201704 intangibles goodwill topic 350 simplifying test goodwill impairment asu 201704 simplifies subsequent measurement goodwill removing second step twostep impairment test amendment requires entity perform annual interim goodwill impairment test comparing fair value reporting unit carrying amount goodwill impairment amount reporting unit’s carrying value exceeds fair value exceed amount goodwill requirements asu 201704 effective fiscal years beginning december 15 2019 interim periods within fiscal years early adoption permitted interim annual goodwill impairment tests performed testing dates january 1 2017 elected early adopt standard year ended april 30 2017 impact consolidated financial statements february 2018 fasb issued asu 201802 income statement reporting comprehensive income topic 220 reclassification certain tax effects accumulated comprehensive income allow reclassification accumulated comprehensive income retained earnings tax effects resulting tax reform stranded accumulated comprehensive income standard also requires certain disclosures stranded tax effects asu however change underlying guidance requires effects change tax laws rates included continuing operations requirements asu effective annual interim reporting periods beginning december 15 2018 early adoption permitted new guidance applied either period adoption retrospectively period effect change corporate income tax rate recognized elected early adopt standard year ended april 30 2018 material impact consolidated financial statements american outdoor brands corporation subsidiaries notes consolidated financial statements continued 4 goodwill changes carrying amount goodwill reporting segment follows thousands information regarding goodwill impairment testing see note 3 significant accounting policies valuation longlived tangible intangible assets consolidated financial statements 5 notes loans payable financing arrangements credit facilities june 15 2015 certain domestic subsidiaries entered unsecured credit facility credit agreement td bank na lenders included 1750 million revolving line credit revolving line 1050 million term loan term loan 877 million remains outstanding april 30 2018 revolving line provides availability general corporate purposes borrowings bear interest variable rate equal libor prime plus applicable margin based consolidated leverage ratio election october 27 2016 entered second amendment credit agreement second amendment among things increased revolving line 3500 million increased option expand credit commitment 1500 million extended maturity revolving line june 15 2020 october 27 2021 changes described second amendment otherwise remain subject terms credit agreement described incurred 525000 debt issuance costs related amendment recorded costs notes payable consolidated balance sheet april 30 2018 250 million borrowings outstanding revolving line bore interest 415 equal libor rate plus applicable margin term loan bears interest variable rate entered purpose redeeming entire 1000 million outstanding 5875 senior notes due 2017 5875 senior notes term loan requires principal payments 63 million per annum plus interest payable quarterly remaining outstanding amount maturity date june 15 2020 due full concurrent closing term loan redeemed outstanding 5875 senior notes 29 million call premium included interest expense plus accrued unpaid interest part redemption fiscal 2016 wrote 17 million debt issuance costs related 5875 senior notes required obtain interest rate protection term loan covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement expires june 15 2020 covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2018 interest rate term loan 414 american outdoor brands corporation subsidiaries notes consolidated financial statements continued recognize derivatives either assets liabilities consolidated balance sheets fair value accounting changes fair value ie unrealized gains losses derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivatives qualify hedge accounting must adjusted fair value earnings interest rate swap agreement considered effective qualifies cash flow hedge effective portion gain loss derivative designated qualifies cash flow hedge recorded component accumulated comprehensive income loss reclassified earnings period periods hedged transaction affects earnings april 30 2018 interest rate swap considered effective effect earnings fair value interest rate swap april 30 2018 2017 asset 21 million 572000 respectively recorded assets consolidated balance sheet expect interest rate swap material effect earnings within next 12 months 2018 senior notes fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 senior notes various institutional investors pursuant terms conditions indenture purchase agreements 2018 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 2018 senior notes discussed 2018 senior notes redeemed march 8 2018 proceeds issuance 5000 senior notes due 2020 part redemption fiscal 2018 wrote 226000 debt issuance costs related 2018 senior notes 2020 senior notes february 28 2018 issued aggregate 750 million 5000 senior notes due 2020 senior notes various institutional investors pursuant terms conditions indenture 2020 senior notes indenture purchase agreements 2020 senior notes bear interest rate 5000 per annum payable february 28 august 28 year beginning august 28 2018 incurred 158000 debt issuance costs related issuance 2020 senior notes time prior february 28 2019 may option upon less 30 60 days’ prior notice redeem portion 2020 senior notes redemption price 102500 principal amount 2020 senior notes redeemed plus accrued unpaid interest applicable redemption date february 28 2019 may option upon less 30 60 days’ prior notice redeem portion 2020 senior notes redemption price 100000 principal amount 2020 senior notes redeemed plus accrued unpaid interest applicable redemption date subject certain restrictions conditions may required make offer repurchase 2020 senior notes holders 2020 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 2020 senior notes mature august 28 2020 senior notes general unsecured obligations company 2020 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 2020 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 2020 senior notes indenture 2020 senior notes lifetime aggregate limit addition 2020 senior notes indenture provides exceptions restricted payments covenant independent 2020 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 2020 senior notes aggregate amount exceed 750 million american outdoor brands corporation subsidiaries notes consolidated financial statements continued limitation indebtedness 2020 senior notes indenture applicable time consolidated coverage ratio set forth 2020 senior notes indenture us restricted subsidiaries less 300 100 general set forth 2020 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense carrying value 2020 senior notes april 30 2018 approximated fair value considering level 2 inputs within hierarchy debt issuance costs recorded notes payable 158000 525000 10 million debt issuance costs fiscal years ended april 30 2018 2017 2016 respectively costs amortized expense life credit facility 2020 senior notes indenture total amortized 11 million 918000 27 million interest expense debt issuance costs fiscal 2018 2017 2016 respectively including writeoffs related extinguishment credit agreement credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage 2020 senior notes indenture contains financial covenant relating times interest earned letters credit april 30 2018 outstanding letters credit aggregating 10 million 6 net sales following table sets forth breakdown net sales fiscal years ended april 30 2018 2017 2016 thousands sell products services firearms segment smith wesson mp performance center gemtech thompsoncenter arms smith wesson precision components brands depending upon product service firearm customers primarily include distributors federal state municipal law enforcement agencies officers government military agencies businesses retailers sell outdoor products accessories products caldwell wheeler tipton frankford arsenal smith wesson mp thompsoncenter arms lockdown hooyman bogpod golden rod nontypical crimson trace imperial schrade old timer bubba blade ust keygear brands outdoor products accessories customers generally distributors retailers consumers sell products worldwide following table sets forth breakdown export net sales included table export net sales accounted 5 3 total net sales fiscal years ended april 30 2018 2017 2016 respectively thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued firearm outdoor products accessories segments tooling located various suppliers asia north america 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements either incurred upon first occurrence advertising expense included selling marketing expenses fiscal years ended april 30 2018 2017 2016 amounted 258 million 223 million 218 million respectively 8 property plant equipment following table summarizes property plant equipment april 30 2018 2017 thousands depreciation tangible assets amortization software expense amounted 300 million 292 million 278 million fiscal years ended april 30 2018 2017 2016 respectively large increase construction progress due costs incurred purchase land costs related design construction national logistics facility following table summarizes depreciation amortization expense includes amortization intangibles debt financing costs line item fiscal years ended april 30 2018 2017 2016 thousands general administrative expenses included 208 million 184 million 99 million amortization fiscal years ended april 30 2018 2017 2016 respectively recorded result acquisitions american outdoor brands corporation subsidiaries notes consolidated financial statements continued 9 inventories following table sets forth summary inventories net reserves stated lower cost market april 30 2018 2017 thousands 10 intangible assets following table presents summary intangible assets april 30 2018 2017 thousands changes gross carrying amount customer relationships related purchase accounting adjustments information regarding changes valuation customer relations see note 2 acquisitions consolidated financial statements amortize intangible assets determinable lives weightedaverage period approximately five years weightedaverage periods amortization intangible asset class approximately five years customer relationships six years developed technology five years patents trademarks trade names amortization expense excluding amortization deferred financing costs amounted 210 million 201 million 107 million fiscal years ended april 30 2018 2017 2016 respectively following table represents future expected amortization expense april 30 2018 primarily recorded outdoor products accessories segment thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued 11 accrued expenses following table sets forth accrued expenses april 30 2018 2017 thousands 12 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic asc 82010 financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities cash equivalents measured fair value recurring basis totaled 489 million 615 million april 30 2018 2017 respectively utilized level 1 value hierarchy determine fair values assets level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives american outdoor brands corporation subsidiaries notes consolidated financial statements continued carrying value term loan approximated fair value april 30 2018 considering level 2 inputs within hierarchy carrying value 2020 senior notes april 30 2018 approximated fair value considering level 2 inputs within hierarchy 2020 senior notes frequently traded fair value interest rate swap estimated third party using inputs observable corroborated observable market data interest rate yield curves therefore classified within level 2 valuation hierarchy information regarding interest rate swap refer note 5 notes loans payable financing arrangements consolidated financial statements level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability acquisitionrelated contingent consideration liability represents estimated fair value additional future earnouts payable acquisitions businesses included earnout clauses valuation contingent consideration evaluated ongoing basis based management estimates entityspecific assumptions considered level 3 inputs connection purchase ust additional 20 million may paid period two years contingent upon financial performance acquired business valuation contingent consideration liability established accordance asc 805 business combinations initial fair value contingent consideration liability 17 million based current forecasted revenue year ended april 30 2018 recorded 16 million reduction fair value contingent consideration liability expect acquired business achieve performance metrics reduction recorded income condensed consolidated statements income april 30 2018 fair value contingent liability 60000 recorded noncurrent liability connection gemtech acquisition maximum 171 million may paid contingent upon cumulative three year sales volume acquired business valuation contingent consideration liability established accordance asc 805 business combinations based current forecasted revenue believe unlikely acquired business achieve performance metrics therefore april 30 2018 contingent liability recorded fair value 100000 noncurrent liabilities 13 selfinsurance reserves april 30 2018 2017 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 92 million 87 million respectively 48 million classified noncurrent liabilities april 30 2018 2017 39 million 36 million respectively included accrued expenses accompanying consolidated balance sheets addition april 30 2018 2017 590000 workers’ compensation recoverable classified assets believe reserves adequate possible ultimate liabilities exceed estimates following table summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2018 2017 2016 thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation matters losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2018 2017 accrued reserves product municipal litigation liabilities 34 million 32 million respectively 29 million noncurrent consisting entirely expected legal defense costs addition april 30 2018 2017 recorded receivables insurance carriers related liabilities 19 million nearly classified assets 14 stockholders’ equity treasury stock fiscal 2017 board directors authorized repurchase 500 million common stock subject certain conditions open market privately negotiated transactions march 28 2019 share repurchase authorization similar 500 million authorization june 2015 repurchased 26 million shares common stock 500 million fiscal 2017 fiscal year ended april 30 2018 share repurchases stock repurchase program incentive stock employee stock purchase plans two stock incentive plans sps 2004 incentive stock plan 2013 incentive stock plan new grants 2004 incentive stock plan made since approval 2013 incentive stock plan september 23 2013 annual meeting stockholders new grants covering participants issued 2013 incentive stock plan 2013 incentive stock plan authorizes issuance 3000000 shares plus shares reserved remained available grant delivery 2004 incentive stock plan september 23 2013 effective date 2013 incentive stock plan permits grant options acquire common stock restricted stock awards rsus stock appreciation rights bonus stock awards lieu obligations performance awards dividend equivalents board directors committee established board administers sps selects recipients awards granted determines grants awarded options granted sps exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sps generally nontransferable subject forfeiture unless terminated earlier board directors 2013 incentive stock plan terminate earliest 1 tenth anniversary effective date 2013 stock plan 2 time shares common stock remain available issuance plan rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award except specific circumstances grants vest period three four years grants stock options exercisable period 10 years plan also permits grant awards nonemployees board directors committee authorized past american outdoor brands corporation subsidiaries notes consolidated financial statements continued number shares weighted average exercise prices options fiscal years ended april 30 2018 2017 2016 follows april 30 2018 4746149 shares available grant 2013 incentive stock plan use unissued share pool shares issued options restricted stock awards rsus performance share units performancebased restricted stock units psus shares issued employee stock purchase plan espp aggregate intrinsic value outstanding exercisable stock options april 30 2018 2017 2016 14 million 52 million 61 million respectively aggregate intrinsic value options exercised years ended april 30 2018 2017 2016 116000 13 million 272 million respectively april 30 2018 unrecognized compensation cost outstanding options following table summarizes stock compensation expense line item fiscal years ended april 30 2018 2017 2016 thousands grant servicebased rsus employees consultants directors awards made cost recipient rsu represents right acquire one share common stock carry voting dividend rights except specific circumstances rsu grants employees generally vest period three four years onethird onefourth units vesting respectively anniversary date grant date aggregate fair value rsu grants amortized compensation expense applicable vesting period american outdoor brands corporation subsidiaries notes consolidated financial statements continued grant psus executive officers certain management employees executive officers time grant calculate fair value psus using montecarlo simulation incorporate following variables valuation model expected volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate threeyear performance period expect pay dividends foreseeable future psus vest fair value psus recognized corresponding threeyear performance period psus maximum aggregate award equal 200 target amount granted generally number psus may earned depends upon total stockholder return tsr common stock compared tsr russell 2000 index rut threeyear performance period psus stock must outperform rut 5 order target award vest addition cap number shares earned psus equal six times grantdate value award certain circumstances vested awards delivered first anniversary applicable vesting date applied discount grant date fair value determining amount compensation expense recorded rsus psus year ended april 30 2018 granted 157700 psus certain executive officers also granted 388186 servicebased rsus year ended april 30 2018 including 159167 rsus certain executive officers 52826 rsus directors 176193 rsus nonexecutive officer employees addition connection 2014 grant 105000 psus ie target amount granted achieved 1152 targeted award vested delivered awards totaling 121504 shares certain executive officers compensation expense recognized related grants rsus psus 71 million fiscal year ended april 30 2018 fiscal year ended april 30 2018 canceled 208496 servicebased rsus 39429 psus result service period condition met delivered 300496 shares common stock current employees vested rsus psus total market value 62 million year ended april 30 2017 granted 153100 psus certain executive officers also granted 394909 servicebased rsus year ended april 30 2017 including 168800 rsus certain executive officers 24896 rsus directors 201213 rsus nonexecutive officer employees addition connection 2013 grant 118500 psus ie target amount granted achieved 2000 maximum aggregate award possible vested delivered awards totaling 237000 shares certain executive officers compensation expense recognized related grants rsus psus 78 million fiscal year ended april 30 2017 american outdoor brands corporation subsidiaries notes consolidated financial statements continued fiscal year ended april 30 2017 canceled 19448 servicebased rsus result service period condition met delivered 433966 shares common stock current employees vested rsus psus total market value 117 million year ended april 30 2016 granted 137775 psus certain executive officers 5379 psus nonexecutives officer employees also granted 321692 servicebased rsus year ended april 30 2016 including 117100 rsus certain executive officers 36379 rsus directors 168213 rsus nonexecutive officer employees addition connection 2012 grant 104000 psus ie target amount granted achieved 1733 maximum aggregate award possible vested delivered awards totaling 180231 shares certain executive officers compensation expense recognized related grants rsus psus 59 million fiscal year ended april 30 2016 fiscal year ended april 30 2016 canceled 66185 servicebased rsus 19250 psus result service period condition met delivered 430768 shares common stock current employees vested rsus psus total market value 78 million grant date fair value rsus psus vested fiscal 2018 2017 50 million grant date fair value rsus psus vested fiscal 2016 46 million summary activity unvested rsus psus fiscal years 2018 2017 2016 follows april 30 2018 96 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 18 years september 26 2011 stockholders approved 2011 espp authorizes sale 6000000 shares common stock employees options rights participate espp nontransferable subject forfeiture accordance espp guidelines current espp implemented series successive offering periods maximum duration 12 months fair market value fmv per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase espp b date determined board directors discretion c march 31 2022 event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2018 2017 2016 203002 144102 157674 shares respectively purchased employees espp american outdoor brands corporation subsidiaries notes consolidated financial statements continued measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options issued employees using blackscholes model time options granted amount amortized vesting period option espp fair value determined beginning purchase period amortized term exercise period following assumptions used valuing espp purchases years ended april 30 2018 2017 2016 estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table total stockbased compensation expense including stock options purchases espp rsu psu awards 78 million 86 million 65 million fiscal years 2018 2017 2016 respectively 15 employer sponsored benefit plans contributory defined investment plan offer two contributory defined investment plans covering substantially employees subject service requirements employees may contribute 100 annual pay depending plan generally make discretionary matching contributions 50 first 6 employee contributions plan contributed 30 million 27 million 24 million fiscal years ended april 30 2018 2017 2016 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially employees become eligible may 1 following completion full fiscal year continuous service contributions plan discretionary fiscal 2018 plan contribute approximately 13 million recorded general administrative costs contributed 130 million 115 million fiscal years ended april 30 2017 2016 respectively contributions funded fiscal yearend 16 income taxes income tax benefitexpense continuing operations consists following thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued following table presents reconciliation provision income taxes continuing operations statutory rates provision benefit consolidated financial statements thousands blended statutory rate 304 fiscal 2018 tax reform statutory rate 35 fiscal 2017 2016 respectively deferred tax assets liabilities related temporary differences following thousands federal net operating loss carryforwards amounting 216000 april 30 2018 expire fiscal 2020 obtained 82 million additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 108000 fiscal 2018 taxable year thereafter possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 internal revenue code ownership change occur could annual limitation remaining tax loss carryforward 179 million 171 million state net operating loss carryforwards april 30 2018 2017 respectively state net operating loss carryforwards expire april 30 2025 april 30 2037 31 million 32 million state tax credit carryforwards april 30 2018 2017 respectively state tax credit carryforwards expire april 30 2020 april 30 2026 expiration date american outdoor brands corporation subsidiaries notes consolidated financial statements continued april 30 2018 valuation allowances 921000 24 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration april 30 2017 valuation allowances 720000 21 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration increase valuation allowance deferred tax assets state net operating losses credits state deferred tax assets related mainly massachusetts investment tax credits valuation allowances provided deferred federal income tax assets april 30 2018 2017 believe likely assets realized recording valuation allowance reversing valuation allowance could effect future results operations financial position december 22 2017 us federal government enacted comprehensive tax legislation tax reform makes broad complex changes us tax code tax reform significantly revises corporate federal income tax among things lowering corporate federal income tax rate limiting various deductions repealing domestic manufacturing deduction expect see net benefits lower federal tax rate although offsetting effects components tax reform tax reform reduced us federal statutory income tax rate 35 21 generally effective tax years beginning january 1 2018 however companies fiscal years include january 1 2018 must use blended rate us federal statutory tax rate 210 starting fiscal 2019 december 22 2017 sec issued staff accounting bulletin 118 sab118 provides additional guidance allowing companies use measurement period similar used business combinations account impacts tax reform financial statements accordance sab 118 extent company’s accounting certain income tax effects tax reform incomplete company able determine reasonable estimate must record provisional estimate financial statements accounted impacts tax reform extent reasonable estimate could made fiscal year ended april 30 2018 continue refine estimates throughout measurement period accounting complete estimate impact tax reform based currently available information interpretations law benefit 87 million tax benefit due remeasurement deferred tax assets liabilities lower enacted corporate federal tax rates cash impact fiscal 2018 actual impact tax reform may differ estimate possibly materially among things changes interpretations assumptions made guidance may issued actions may take result tax reform income tax provisions benefit represent effective tax rates 143 332 fiscal year ended april 30 2018 2017 respectively tax benefit fiscal 2018 primarily caused effect tax reform resulted remeasurement deferred tax assets liabilities well lower operating profit excluding impact tax reform discrete items effective tax rate fiscal year ended april 30 2018 354 april 30 2018 2017 gross taxeffected unrecognized tax benefits limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2014 american outdoor brands corporation subsidiaries notes consolidated financial statements continued 17 commitments contingencies litigation defendant five product liability cases aware 10 product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case filed august 27 1999 city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties may 23 2018 named action related parkland florida shooting filed circuit court broward county florida seeking declaratory judgment florida statute provides firearm manufacturers dealers immunity liability legally manufactured lawfully sold firearms later used criminal acts applies civil actions commenced governmental agencies private litigants believe various allegations described unfounded addition accident results injuries due negligence misuse firearm claimant third party addition involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek unspecified compensatory punitive damages others compensatory damages sought may range less 75000 approximately 350000 experience initial demands generally bear reasonable relationship facts circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims related product liability accrual includes amounts defense costs asserted unasserted claims consultation litigation counsel review merits claim concluded unable reasonably estimate probability estimated range reasonably possible losses related material adverse judgments related claims therefore accrued judgments future determine loss additional loss excess accrual least reasonably possible material would disclose estimate possible loss range loss estimate could made disclose estimate could made believe provided adequate accruals defense costs fiscal years ended april 30 2018 2017 2016 paid 473000 254000 264000 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 129000 209000 55000 respectively fiscal years settlement fees related product liability cases recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets year ended april 30 2016 received 18 million insurance recovery recorded general administrative expenses result insurance settlement agreement partial reimbursement defense costs incurred prior fiscal years related resolved government investigation recognize gains expenses changes product liability provisions municipal litigation liabilities fiscal 2018 recorded expense 540000 fiscal 2017 recorded gain 364000 fiscal 2016 recorded expense 299000 american outdoor brands corporation subsidiaries notes consolidated financial statements continued time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made environmental remediation subject numerous federal state local laws regulations regulate health safety workforce including limited regulations monitored occupational health safety administration osha national fire protection association department public health though exhaustive examples applicable regulations include confined space safety walking working surfaces machine guarding life safety also subject numerous federal state local environmental laws regulations concerning among things emissions air discharges land surface subsurface strata water generation handling storage transportation treatment disposal hazardous wastes materials laws required us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act cercla solid waste disposal act amended resource conservation recovery act place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated site springfield massachusetts contains two release areas focus remediation projects part massachusetts contingency plan mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent two sites april 30 2018 2017 recorded approximately 10 million 730000 respectively environmental reserve noncurrent liabilities calculated net present value environmental reserve equal carrying value liability recorded books estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based environmental remediation reports obtained independent thirdparties based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolving future environmental health safety proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company american outdoor brands corporation subsidiaries notes consolidated financial statements continued contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business leases fiscal 2017 announced plan establish national logistics facility boone county missouri ultimately plan rely logistics facility substantially product distribution fiscal 2018 broke ground new 633000 square foot facility currently scheduled completed operational fiscal 2019 building national logistics facility treated capital lease recorded construction progress offset capital lease payable throughout building construction impact cash flow total cost building estimated 450 million 500 million expect approximately 300 million 350 million recorded right use asset consolidated balance sheet construction complete addition expect spend 250 million 300 million related material handling equipment information technology systems capital projects support national logistics facility april 30 2018 recorded 220 million construction progress included property plant equipment consolidated balance sheet costs incurred builder relating purchase land costs related design construction building offset 220 million capital lease payable included noncurrent liabilities consolidated balance sheet following summarizes operating leases office andor manufacturing space also lease machinery photocopiers vehicles national sales force various expiration dates april 30 2018 operating lease commitments follows thousands rent expense fiscal years ended april 30 2018 2017 2016 52 million 44 million 41 million respectively american outdoor brands corporation subsidiaries notes consolidated financial statements continued 18 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2018 2017 opinion adjustments necessary present fairly information quarters reflected thousands except per share data basic diluted earnings per share may equal sum quarterly basic diluted earnings per share due rounding b first quarter results fiscal 2017 restated result adopting asu 201609 compensation stock compensation second quarter fiscal 2017 result adoption net income increased 26 million net income per basic diluted share increased 005 three months ended july 31 2016 c amount includes income tax benefit approximately 94 million primarily caused effect tax reform resulted remeasurement deferred tax assets liabilities lower enacted corporate federal tax rates american outdoor brands corporation subsidiaries notes consolidated financial statements continued 19 segment reporting report results operations two segments 1 firearms includes firearms manufacturing services divisions 2 outdoor products accessories includes outdoor products accessories electrooptics divisions two segments defined based reporting review process used chief operating decision maker chief executive officer firearms segment determined single operating segment reporting segment based reliance production metrics gross margin per unit produced units produced per day incoming orders per day revenue produced trade channel particular firearms segment outdoor products accessories segment represents two operating segments aggregated reportable segment evaluated measurement incoming orders per day sales gross margin customer brand firearms segment includes firearms services components manufacture provide facilities springfield massachusetts houlton maine meridian idaho deep river connecticut firearm products develop assemble market springfield massachusetts facility outdoor products accessories segment includes accessories products develop source market distribute facilities columbia missouri jacksonville florida electrooptics products develop market assemble wilsonville oregon facility report operating costs based activities performed within segment assets directly used clearly allocable reportable segment’s operations assets business segment presented following table april 30 2018 2017 thousands results business segment presented following table years ended april 30 2018 2017 2016 thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued years ended april 30 2018 2017 2016 allocated corporate overhead expenses except interest income taxes general administrative expenses corporatelevel expenses firearms outdoor products accessories segments b amount includes 500000 additional cost goods sold fair value inventory stepup related 2018 acquisitions c amount includes 208 million amortization intangible assets identified result acquisitions amounts include income tax benefit approximately 87 million primarily caused effect tax reform resulted remeasurement deferred tax assets liabilities lower enacted corporate federal tax rates e amount includes 47 million additional cost goods sold fair value inventory stepup backlog expense related 2017 acquisitions f amount includes 184 million amortization intangible assets identified result acquisitions g effective october 1 2015 thompsoncenter accessories business transitioned firearms segment outdoor products accessories segment result transition reclassified 56 million 46 million revenue cost sales respectively firearms segment outdoor products accessories segment year ended april 30 2016 schedule ii american outdoor brands corporation subsidiaries valuation qualifying accounts years ended april 30 2018 2017 2016 1 increase fiscal 2018 valuation accounts represents acquired balances related gemtech acquisition 2 increase fiscal 2017 valuation accounts represents acquired balances related 2017 acquisitions 3 decrease fiscal 2017 valuation accounts primarily represents writeoff one customers’ accounts receivable balances 4 amount include 506000 charged costs expenses related notes receivableitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2019 2018 2017 set forth page report b exhibits exhibit number exhibit 29 stock purchase sale agreement dated november 25 2014 among registrant clearview battenfeld acquisition company llc members named therein1 210 asset purchase agreement dated july 15 2016 among bti tools llc taylor brands llc members named therein 2 211 asset purchase agreement dated july 25 2016 among smith wesson holding corporation crimson trace holdings llc 3 31 amended restated bylaws 4 34 second amended restated articles incorporation 5 39a certificate withdrawal certificate designation6 41 form common stock certificate7 432 indenture dated february 28 2018 among registrant bank new york mellon trust company na trustee8 1024a amended restated 2004 incentive stock plan9 1028 amendments 2004 incentive stock plan10 1051 agreement respect defense smith wesson firearms litigation dated november 11 200411 1072 form indemnity agreement entered following directors executive officers june 29 2009 barry monheit michael f golden robert l scott john b furman mitch saltz marie wadecki jeffrey buchanan november 2009 p james debney july 2011 robert h brust december 14 2011 mark p smith april 24 2013 robert j cicero february 5 2016 anita britt12 1083a amended restated severance change control agreement executed december 8 2011 january 3 2011 registrant jeffrey buchanan13 1091a amended restated employment agreement executed december 8 2011 september 26 2011 p james debney smith wesson holding corporation13 1095 letter amendment dated september 9 2011 jeffrey buchanan registrant13 1096 letter amendment dated september 9 2011 p james debney smith wesson holding corporation13 exhibit number exhibit 1098 form nonqualified stock option award grant notice agreement 2004 incentive stock plan13 10100 amended restated 2011 employee stock purchase plan14 10107 smith wesson holding corporation executive severance pay plan15 10108 adoption agreement smith wesson nonqualified supplemental deferred compensation plan16 10109 smith wesson nonqualified supplemental deferred compensation plan document16 10110 2013 incentive stock plan17 10111 form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201418 10111a form restricted stock unit grant notice agreement 2013 incentive stock plan awards made beginning september 201419 10111b form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201519 10112 form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201418 10112a form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201519 10113 credit agreement dated june 15 2015 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents including exhibits thereto19 10113a second amendment credit agreement dated october 27 2016 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents20 10114 lease agreement dated october 26 2017 ryan boone county llc smith wesson corp21 10115 guaranty dated october 26 2017 entered registrant21 10116 form purchase agreement among american outdoor brands corporation investors party thereto8 211 subsidiaries registrant 231 consent deloitte touche llp independent registered public accounting firm 311 rule 13a14a15d14a certification principal executive officer 312 rule 13a14a15d14a certification principal financial officer 321 section 1350 certification principal executive officer exhibit number exhibit 322 section 1350 certification principal financial officer 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec november 26 2014 2 incorporated reference registrant’s form 8k filed sec july 18 2016 3 incorporated reference registrant’s form 8k filed sec july 26 2016 4 incorporated reference registrant’s form 8k filed sec april 12 2019 5 incorporated reference registrant’s form 8k filed sec april 8 2019 6 incorporated reference registrant’s form 8k filed sec october 1 2013 7 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 8 incorporated reference registrant’s form 8k filed sec march 1 2018 9 incorporated reference registrant’s form 8k filed sec september 28 2011 10 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 11 incorporated reference registrant’s form 10q filed sec march 10 2005 12 incorporated reference registrant’s form 10k filed sec june 30 2009 13 incorporated reference registrant’s form 10q filed sec december 8 2011 14 incorporated reference registrant’s form 10k filed sec june 28 2012 15 incorporated reference registrant’s amendment 2 schedule filed sec july 10 2013 16 incorporated reference registrant’s form 8k filed sec december 20 2013 17 incorporated reference registrant’s form s8 filed sec december 20 2013 18 incorporated reference registrant’s form 10k filed sec june 19 2014 19 incorporated reference registrant’s form 10k filed sec june 22 2015 20 incorporated reference registrant’s form 8k filed sec october 31 2016 21 incorporated reference registrant’s form 8k filed sec october 31 2017 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized american outdoor brands corporation p james debney p james debney president chief executive officer date june 19 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature capacity date p james debney president chief executive officer director principal executive officer june 19 2019 p james debney jeffrey buchanan executive vice president chief financial officer chief administrative officer treasurer principal accounting financial officer june 19 2019 jeffrey buchanan barry monheit chairman board june 19 2019 barry monheit robert l scott vice chairman board june 19 2019 robert l scott anita britt director june 19 2019 anita britt robert h brust director june 19 2019 robert h brust john b furman director june 19 2019 john b furman gregory j gluchowski jr director june 19 2019 gregory j gluchowski jr michael f golden director june 19 2019 michael f golden mitchell saltz director june 19 2019 mitchell saltz marie wadecki director june 19 2019 marie wadecki index consolidated financial statements american outdoor brands corporation subsidiaries page report independent registered public accounting firm consolidated balance sheets april 30 2019 2018 consolidated statements income comprehensive income years ended april 30 2019 2018 2017 consolidated statements changes stockholders’ equity years ended april 30 2019 2018 2017 consolidated statements cash flows years ended april 30 2019 2018 2017 notes consolidated financial statements schedule ii valuation qualifying accounts years ended april 30 2019 2018 2017 report independent registered public accounting firm shareholders board directors american outdoor brands corporation springfield massachusetts opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets american outdoor brands corporation subsidiaries company april 30 2019 2018 related consolidated statements income comprehensive income changes stockholders’ equity cash flows three years period ended april 30 2019 related notes schedule listed index item 15 collectively referred financial statements also audited company’s internal control financial reporting april 30 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion financial statements referred present fairly material respects financial position company april 30 2019 2018 results operations cash flows three years period ended april 30 2019 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting april 30 2019 based criteria established internal control integrated framework 2013 issued coso basis opinions company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management’s report internal control financial reporting responsibility express opinion financial statements opinion company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorates boston massachusetts june 19 2019 served company’s auditor since 2014 american outdoor brands corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements income comprehensive income accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements changes stockholders’ equity accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements american outdoor brands corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash investing financing activities accompanying notes integral part consolidated financial statement american outdoor brands corporation subsidiaries notes consolidated financial statements 1 organization leading manufacturer designer provider consumer products shooting hunting rugged outdoor enthusiast one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle suppressor markets also leading provider shooting hunting rugged outdoor products accessories including knives cutting tools sighting lasers shooting supplies tree saws survival gear january 2017 changed name company smith wesson holding corporation american outdoor brands corporation better reflect expanding strategic focus growing markets shooting hunting rugged outdoor enthusiasts believe name “american outdoor brands corporation” better reflects family brands broad range product offerings plan continue building upon portfolio strong american brands two reporting segments 1 firearms 2 outdoor products accessories firearms segment manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles muzzleloaders handcuffs suppressors firearmrelated products sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world sell firearm products smith wesson mp performance center thompsoncenter arms gemtech brands manufacture firearm products facilities springfield massachusetts houlton maine deep river connecticut also sell manufacturing services businesses levelload factories sell services smith wesson smith wesson precision components brands outdoor products accessories segment design source distribute manufacture reloading gunsmithing gun cleaning supplies highquality stainlesssteel cutting tools accessories flashlights tree saws related trimming accessories shooting supplies rests related accessories apparel vault accessories laser grips laser sights full range products survival emergency preparedness sell products caldwell crimson trace wheeler tipton frankford arsenal schrade imperial uncle henry bubba ust lockdown hooyman bog old timer laserlyte keygear brands also offer firearms nonfirearms accessories flashlights knives brands firearms business including smith wesson mp performance center thompsoncenter arms develop market outdoor products accessories facilities columbia missouri wilsonville oregon jacksonville florida fiscal 2017 acquired substantially net assets taylor brands llc well ultimate survival technologies inc acquired issued outstanding stock crimson trace corporation three separate transactions refer collectively 2017 acquisitions see note 2 acquisitions information regarding transactions fiscal 2018 acquired substantially net assets gemini technologies incorporated gemtech well bubba blade branded products assets fish tales llc two separate transactions refer collectively 2018 acquisitions see note 2 acquisitions information regarding transactions january 2019 acquired substantially laserlyte branded products assets pl industries inc refer laserlyte acquisition see note 2 acquisitions information regarding transaction 2017 acquisitions 2018 acquisitions laserlyte acquisition accounted accordance asc 80520 business combinations accordingly results operations acquired businesses included consolidated financial statements following acquisition dates american outdoor brands corporation subsidiaries notes consolidated financial statements continued 2 acquisitions laserlyte acquisition january 2019 acquired substantially laserlyte branded products assets pl industries inc purchase price 20 million subject certain adjustments utilizing cash hand pl industries provider laser training sighting products consumer market operations laserlyte fully integrated facility located wilsonville oregon reported outdoor products accessories segment acquisition material impact condensed consolidated financial statements periods presented included general administrative costs 28000 acquisitionrelated costs incurred laserlyte acquisition year ended april 30 2019 pro forma results operations assuming laserlyte acquisitions occurred may 1 2017 required immaterial impact consolidated financial statements periods presented 2018 acquisitions august 2017 two separate transactions acquired 1 substantially net assets gemtech 2 bubba blade branded products assets fish tales llc aggregate purchase price two acquisitions 231 million subject certain adjustments utilizing combination cash hand borrowings revolving line credit connection gemtech acquisition additional consideration maximum 171 million may paid contingent upon cumulative three year sales volume gemtech products valuation contingent consideration liability established accordance asc 805 business combinations based current forecasted revenue believe unlikely acquired business achieve performance metrics therefore april 30 2019 contingent liability recorded fair value 100000 noncurrent liabilities gemtech based meridian idaho provider quality suppressors accessories consumer law enforcement military markets fish tales llc based oro valley arizona provider premium sportsmen knives tools fishing hunting including premium knife brand bubba blade valuations assets acquired liabilities assumed 2018 acquisitions complete three months ended october 31 2018 increased goodwill 618000 due inventory valuation adjustments following table summarizes allocation purchase price 2018 acquisitions thousands included general administrative costs 769000 acquisitionrelated costs incurred year ended april 30 2018 related 2018 acquisitions american outdoor brands corporation subsidiaries notes consolidated financial statements continued amortize intangible assets proportion expected annual revenue generated intangibles acquire following identifiable intangible assets acquired thousands 2018 acquisitions respective weighted average lives pro forma results operations assuming 2018 acquisitions occurred may 1 2016 required immaterial impact consolidated financial statements periods presented 2017 acquisitions fiscal 2017 three separate transactions acquired 1 substantially net assets taylor brands llc 2 substantially assets ultimate survival technologies inc referred ultimate survival technologies llc ust 3 issued outstanding stock crimson trace corporation aggregate purchase price 2111 million net cash acquired subject certain adjustments utilizing cash hand connection purchase ultimate survival technologies inc additional 20 million might paid period two years contingent upon financial performance acquired business valuation contingent liability established accordance asc 805 business combinations initial fair value contingent consideration liability 17 million based forecasted revenue fiscal 2018 recorded 16 million reduction fair value contingent consideration liability expect acquired business would achieve performance metrics three months ended january 31 2019 recorded 60000 reduction remaining fair value contingent liability confirmed performance metrics achieved reductions recorded income condensed consolidated statements income following table summarizes allocation purchase price 2017 acquisitions thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued included general administrative costs 38 million acquisitionrelated costs incurred 2017 acquisitions year ended april 30 2017 acquisitions generated 611 million revenue year ended april 30 2017 amortize intangible assets proportion expected yearly revenue generated intangibles acquire amortize order backlog estimated life backlog fulfilled following identifiable intangible assets acquired thousands 2017 acquisitions respective weighted average lives additionally following table reflects unaudited pro forma results operations assuming 2017 acquisitions occurred may 1 2015 thousands except per share data unaudited pro forma income operations years ended april 30 2017 adjusted reflect increased cost goods sold fair value stepup inventory expensed first inventory cycle amortization intangibles order backlog incurred 2017 acquisitions occurred may 1 2015 unaudited pro forma information presented informational purposes necessarily indicative actual results would achieved 2017 acquisitions occurred may 1 2015 results may achieved future periods 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accrual warranty reserves excess obsolete inventory rebates promotions valuation intangible assets actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts american outdoor brands corporation wholly owned subsidiaries including smith wesson corp swpc plastics llc reported firearms segment bti tools crimson trace ust aob consulting shenzhen co ltd reported outdoor products accessories segment swss llc formerly smith wesson security solutions inc swss former security solutions division opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2019 2018 periods presented included intercompany accounts transactions eliminated consolidation american outdoor brands corporation subsidiaries notes consolidated financial statements continued fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2019 accounts exceeded federally insured limits financial instruments account derivative instruments accounting standards codification “asc” 81510 fair value measurements disclosure topic establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value carrying value term loan approximated fair value april 30 2019 carrying value 2020 senior notes april 30 2019 approximated fair value considering level 2 inputs within hierarchy 2020 senior notes frequently traded fair value interest rate swap estimated thirdparty using inputs observable corroborated observable market data interest rate yield curves therefore classified within level 2 valuation hierarchy see note 6 notes loans payable financing arrangements information regarding financial instruments trade receivables extend credit domestic customers foreign distributors based financial condition sometimes offer discounts early payment invoices believe extension credit advisable rely either prepayment letter credit write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral fiscal year ended april 30 2019 none customers exceeded 10 net sales one customers accounted approximately 198 accounts receivable fiscal year ended april 30 2018 one customers accounted 119 net sales none customers accounted 10 accounts receivable fiscal year ended april 30 2017 none customers exceeded 10 net sales one customers accounted approximately 175 accounts receivable inventories value inventories lower cost using firstin firstout fifo method net realizable value allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment software hardware furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows include tooling dies fixtures part machinery equipment depreciate period generally exceeding ten years american outdoor brands corporation subsidiaries notes consolidated financial statements continued intangible assets record intangible assets cost based fair value assets acquired intangible assets consist developed technology customer relationships trademarks trade names patents amortize intangible assets estimated useful lives proportion expected yearly revenue generated intangibles acquired revenue recognition recognize revenue accordance provisions accounting standards update asu revenue contracts customers topic 606 became effective us may 1 2018 generally performance obligations satisfied revenue recognized risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance instances sales include multiple performance obligations common instances relates sales promotion programs customers entitled receive free goods based upon purchase products fulfillment free goods responsibility instances allocate revenue promotional sales based estimated level participation sales promotional program timing shipment products included promotional program including free goods revenue recognized proportionally performance obligation satisfied based relative transaction price product net change contract liabilities given period reported increase decrease sales product sales generally sold free board fob shipping point provide payment terms commercial customers ranging 20 90 days product shipment discount available customers early payment contracts discounted terms transaction price determined upon establishment contract contains final terms sale including description quantity price product purchased estimate variable consideration relative amount cash discounts customers likely entitled instances provide longer payment terms particularly relates hunting dating programs represent payment terms due fall certain orders hunting products received spring summer consider extended terms significant financing component contract payment terms less one year cases consider costs related shipping handling cost fulfilling contract customer segment information two reporting segments firearms includes firearms manufacturing services divisions outdoor products accessories see note 19 segment reporting information regarding segments research development engage internal external research development rd order remain competitive exploit possible untapped market opportunities approve prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs earnings per share calculate basic diluted earnings per common share accordance provisions asc 26010 earnings per share basic earnings per common share equals net income divided weighted average number common shares outstanding period diluted earnings per common share equals net income divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive american outdoor brands corporation subsidiaries notes consolidated financial statements continued following table provides reconciliation net income amounts weighted average number common equivalent shares used determine basic diluted earnings per common share thousands except per share data outstanding stock options restricted stock units rsus included computation diluted earnings per share years ended april 30 2019 2018 2017 valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets goodwill property plant equipment developed technology customer relationships patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified accordance asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value operating units carrying amounts assess whether impairment present reviewed provisions asc 35020 respect criteria necessary evaluate number reporting units exist prior years concluded three operating units reviewing asc 35020 firearms outdoor products accessories electrooptics however combination factors occurring firearms industry last years including changes political environment reduced overall demand firearms accessories attached firearms laser sights resulted us lowering longrange sales volume operating profit cash flow forecasts electrooptics operating unit based forecasts felt important seek efficiencies operating unit increase operating performance result decided combine electrooptics operating units outdoor products accessories operating unit lowered forecasts decision reorganize operating units caused us evaluate fair value operating units utilizing forecasts evaluation recorded 104 million impairment goodwill electrooptics operating unit three months ended american outdoor brands corporation subsidiaries notes consolidated financial statements continued january 31 2019 impairment recorded outdoor products accessories reporting segment material impairment charges recorded fiscal 2018 2017 based review longlived tangible intangible assets based review asc 35020 subsequent reorganization electrooptics outdoor products accessories determined two operating units firearms outdoor products accessories estimate fair value firearms outdoor products accessories operating units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing operating units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internally developed forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics operating unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values operating units recognize impairment loss goodwill implied fair value goodwill less carrying value valuation date firearms operating unit 190 million goodwill fair value significantly exceeded carrying value outdoor products accessories operating unit 1632 million goodwill fair value significantly exceeded carrying value although concluded additional impairment goodwill associated operating units april 30 2019 continue closely monitor performance related market conditions future indicators potential impairment reassess accordingly assumptions related development fair value could deviate materially actual results forecasts used support asset carrying values may change future could result noncash charges would adversely affect financial results operations income taxes use asset liability approach financial accounting reporting income taxes provision income taxes based upon income reported accompanying consolidated financial statements required asc 74010 accounting income taxes determine deferred tax assets liabilities based temporary differences financial reporting tax bases assets liabilities measure applying enacted rates laws expected place deferred items become subject income tax deductible income tax purposes recognize effect deferred taxes liabilities change tax rates period includes enactment date assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording reversing valuation allowance could significant effect future results operations financial position warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products either provide limited one year limited lifetime warranty program original purchaser outdoor products accessories products repair replace electrooptics products parts found defective normal use service item equivalent value option without charge warranty period provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted time experienced certain manufacturing design issues respect firearms initiated product recalls safety alerts past american outdoor brands corporation subsidiaries notes consolidated financial statements continued november 2011 initiated recall thompsoncenter arms venture rifles manufactured since products’ introduction mid2009 june 2013 also initiated recall thompsoncenter arms bolt action rifles manufactured since products’ introduction 2007 april 2018 initiated consumer advisory certain models mp shield ez pistols rare circumstances safety pistol move fire position “safety on” position using ammunition produces high level felt recoil may 2018 initiated recall certain models electrooptics products incorporated diodes manufactured particular third party diodes failed comply food drug administration fda standard laser products made efforts notify consumers may impacted recall remaining cost recalls safety alerts consumer advisories 24 million recorded accrued warranty consolidated balance sheet warranty expense fiscal years ended april 30 2019 2018 2017 amounted 29 million 58 million 13 million respectively following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2019 2018 2017 thousands sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales promotional program costs dependent volume sales record promotional costs cost goods sold total promotional programs amounted 392 million 582 million 373 million fiscal years ended april 30 2019 2018 2017 respectively coop advertising program retail level expensed costs amounting 238 million 233 million 213 million fiscal 2019 2018 2017 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net sales firearms segment include costs relating shipping handling charges including inbound freight charges internal transfer costs distribution network cost goods sold outdoor products accessories segment inbound freight charges internal transfer costs included cost goods sold however costs incurred distribute products customers included general administrative expenses insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 100 million per occurrence however believe likelihood reaching maximum per occurrence limit remote record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis recently issued accounting standards may 2014 financial accounting standards board fasb issued asu 201409 revenue contracts customers topic 606 asu 201409 core principle asu 201409 entity recognize revenue depict transfer promised goods services customers amount reflects consideration entity expects entitled exchange goods services adopted new standard may 1 2018 utilizing modified retrospective approach see note 4 revenue recognition contracts customers information american outdoor brands corporation subsidiaries notes consolidated financial statements continued february 2016 fasb issued asu 201602 leases topic 842 asu 201602 amends existing guidance require lessees recognize rightofuse assets lease liabilities classified balance sheet exception leases term equal less 12 months prominent among changes standard requirement lessees recognize rightofuse assets lease liabilities leases classified operating leases current us gaap requirements asu effective financial statements annual periods beginning december 15 2018 early adoption permitted implementing leasing software assist us accounting tracking leases plan use optional transition method allowed asu 201602 method standard applied prospectively year adoption elect use package practical expedients permits us reassess certain lease contract provisions expect effect asu 201602 result recognition rightofuse assets 115 million recognition lease liabilities 128 million elimination deferred rent lease incentive liabilities 13 million primarily relating real estate operating leases impact retained earnings adopt asu 201602 first quarter fiscal 2020 june 2016 fasb issued asu 201613 financial instruments credit losses topic 326 measurement credit losses financial instruments new standard changes impairment model financial assets measured amortized cost certain instruments including trade receivables incurred loss model expected loss model adds certain new required disclosures expected loss model entities recognize credit losses incurred entire contractual term instrument rather delaying recognition credit losses probable loss incurred requirements asu effective financial statements annual periods beginning december 15 2019 early adoption permitted currently evaluating impact standard consolidated financial statements expect material 4 revenue recognition contracts customers may 1 2018 adopted asu 201409 revenue contracts customers topic 606 asu 201409 using modified retrospective approach recorded contract liability included accrued expenses condensed consolidated balance sheet outstanding performance obligations related sales promotions modified retrospective approach results reporting periods may 1 2018 presented accordance asu 201409 prior period amounts adjusted continue reported accordance previous guidance accounting standards codification asc topic 605 revenue recognition evaluating performance obligations disaggregate revenue based major product lines correlate reportable segments disclosed note 19 segment reporting domestic sales account 95 total net sales significant judgments estimates used determination performance obligations transaction price performance obligations allocated prorata basis contract costs need considered based nature performance obligations following table outlines adjustments recorded condensed consolidated balance sheet result adoption asu 201409 thousands april 30 2018 accrued 172 million sales promotions representing cost free goods earned yet shipped customers adoption asu 201409 reversed accrual recorded deferred revenue 233 million relating outstanding performance obligations deferred tax asset 15 million 46 million adjustment reduce opening balance retained earnings may 1 2018 record deferred revenue accrued expenses condensed consolidated balance sheet american outdoor brands corporation subsidiaries notes consolidated financial statements continued following table outlines impact adoption asu 201409 revenue recognized year ended april 30 2019 thousands fiscal 2019 recognized 222 million revenue previously deferred may 1 2018 performance obligations relating sales promotions satisfied addition deferred 111 million fiscal 2019 net revenue recognized performance obligations related sales promotions satisfied resulting outstanding performance obligation liability 122 million recorded accrued expenses condensed consolidated balance sheet fiscal 2019 recognized 111 million net increase revenue relating adoption asu 201409 estimate majority revenue outstanding performance obligations april 30 2019 recognized first quarter fiscal 2020 result adoption asu 201409 year ended april 30 2019 gross margin unfavorably impacted 400 basis points earnings per share increased 003 5 goodwill intangible assets changes carrying amount goodwill reporting segment follows thousands information regarding goodwill impairment testing see note 3 significant accounting policies valuation longlived tangible intangible assets consolidated financial statements following table presents summary intangible assets april 30 2019 2018 thousands changes gross carrying amount customer relationships relate purchase accounting adjustments information regarding changes valuation customer relations see note 2 acquisitions consolidated financial statements american outdoor brands corporation subsidiaries notes consolidated financial statements continued amortize intangible assets determinable lives weightedaverage period approximately five years weightedaverage periods amortization intangible asset class approximately five years customer relationships six years developed technology five years patents trademarks trade names amortization expense excluding amortization deferred financing costs amounted 220 million 210 million 201 million fiscal years ended april 30 2019 2018 2017 respectively following table represents future expected amortization expense april 30 2019 primarily recorded outdoor products accessories segment thousands 6 notes loans payable financing arrangements credit facilities june 15 2015 certain domestic subsidiaries entered unsecured credit facility credit agreement td bank na lenders included 1750 million revolving line credit revolving line 1050 million term loan term loan 814 million remains outstanding april 30 2019 revolving line provides availability general corporate purposes borrowings bear interest variable rate equal libor prime plus applicable margin based consolidated leverage ratio election october 27 2016 entered second amendment credit agreement second amendment among things increased revolving line 3500 million increased option expand credit commitment 1500 million extended maturity revolving line june 15 2020 october 27 2021 changes described second amendment otherwise remain subject terms credit agreement described incurred 525000 debt issuance costs related amendment recorded costs notes payable consolidated balance sheet april 30 2019 borrowings outstanding revolving line borrowings would bore interest 448 equal libor rate plus applicable margin term loan requires principal payments 63 million per annum plus interest payable quarterly remaining outstanding amount maturity date june 15 2020 due full required obtain interest rate protection term loan covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement expires june 15 2020 covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement requires us pay interest defined rate 156 receiving interest defined variable rate onemonth libor 0188 july 31 2015 swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan subject change based changes consolidated leverage ratio april 30 2019 interest rate term loan 448 american outdoor brands corporation subsidiaries notes consolidated financial statements continued recognize derivatives either assets liabilities consolidated balance sheets fair value accounting changes fair value ie unrealized gains losses derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivatives qualify hedge accounting must adjusted fair value earnings interest rate swap agreement considered effective qualifies cash flow hedge effective portion gain loss derivative designated qualifies cash flow hedge recorded component accumulated comprehensive income loss reclassified earnings period periods hedged transaction affects earnings april 30 2019 interest rate swap considered effective effect earnings fair value interest rate swap april 30 2019 2018 asset 710000 21 million respectively recorded assets consolidated balance sheet expect interest rate swap material effect earnings within next 12 months 2018 senior notes fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 senior notes various institutional investors pursuant terms conditions indenture purchase agreements 2018 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 2018 senior notes discussed 2018 senior notes redeemed march 8 2018 proceeds issuance 5000 senior notes due 2020 part redemption fiscal 2018 wrote 226000 debt issuance costs related 2018 senior notes 2020 senior notes february 28 2018 issued aggregate 750 million 5000 senior notes due 2020 senior notes various institutional investors pursuant terms conditions indenture 2020 senior notes indenture purchase agreements 2020 senior notes bear interest rate 5000 per annum payable february 28 august 28 year beginning august 28 2018 incurred 158000 debt issuance costs related issuance 2020 senior notes february 28 2019 may option upon less 30 60 days’ prior notice redeem portion 2020 senior notes redemption price 100000 principal amount 2020 senior notes redeemed plus accrued unpaid interest applicable redemption date subject certain restrictions conditions may required make offer repurchase 2020 senior notes holders 2020 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 2020 senior notes mature august 28 2020 senior notes general unsecured obligations company 2020 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments share repurchases dividends early payment indebtedness limitations indebtedness limitations sale assets limitations liens payments would otherwise characterized restricted payments permitted 2020 senior notes indenture amount exceed 50 consolidated net income period issue date restricted payment provided time making payments default occurred would result making payments b able satisfy debt incurrence test 2020 senior notes indenture 2020 senior notes lifetime aggregate limit addition 2020 senior notes indenture provides exceptions restricted payments covenant independent 2020 senior notes lifetime aggregate limit among exceptions ability make share repurchases fiscal year amount exceed lesser 500 million fiscal year b 750 consolidated net income previous four consecutive published fiscal quarters prior date determination consolidated net income ii share repurchases life 2020 senior notes aggregate amount exceed 750 million american outdoor brands corporation subsidiaries notes consolidated financial statements continued limitation indebtedness 2020 senior notes indenture applicable time consolidated coverage ratio set forth 2020 senior notes indenture us restricted subsidiaries less 300 100 general set forth 2020 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense carrying value 2020 senior notes april 30 2019 approximated fair value considering level 2 inputs within hierarchy debt issuance costs record debt issuance costs fiscal year ended april 30 2019 recorded notes payable 158000 525000 debt issuance costs fiscal years ended april 30 2018 2017 respectively costs amortized expense life credit facility 2020 senior notes indenture total amortized 431000 11 million 918000 interest expense debt issuance costs fiscal 2019 2018 2017 respectively including writeoffs related extinguishment credit agreement credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage 2020 senior notes indenture contains financial covenant relating times interest earned letters credit april 30 2019 outstanding letters credit aggregating 10 million 7 net sales following table sets forth breakdown net sales fiscal years ended april 30 2019 2018 2017 thousands sell products services firearms segment smith wesson mp performance center gemtech thompsoncenter arms smith wesson precision components brands depending upon product service firearm customers primarily include distributors federal state municipal law enforcement agencies officers government military agencies businesses retailers sell outdoor products accessories products caldwell wheeler tipton frankford arsenal lockdown hooyman bog crimson trace imperial schrade old timer uncle henry bubba ust laserlyte keygear brands also offer firearms accessories nonfirearms accessories flashlights knives firearm brands including smith wesson mp performance center thompsoncenter arms outdoor products accessories customers generally distributors retailers consumers sell products worldwide following table sets forth breakdown export net sales included table export net sales accounted 5 3 total net sales fiscal years ended april 30 2019 2018 2017 respectively thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued firearms outdoor products accessories segments tooling located various suppliers asia north america 8 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements either incurred upon first occurrence advertising expense included selling marketing expenses fiscal years ended april 30 2019 2018 2017 amounted 243 million 258 million 223 million respectively 9 property plant equipment following table summarizes property plant equipment april 30 2019 2018 thousands depreciation tangible assets amortization software expense amounted 314 million 300 million 292 million fiscal years ended april 30 2019 2018 2017 respectively large decrease construction progress resulted majority assets associated national logistics facility placed service fiscal 2019 following table summarizes depreciation amortization expense includes amortization intangibles debt financing costs line item fiscal years ended april 30 2019 2018 2017 thousands general administrative expenses included 218 million 208 million 184 million amortization fiscal years ended april 30 2019 2018 2017 respectively recorded result acquisitions american outdoor brands corporation subsidiaries notes consolidated financial statements continued 10 inventories following table sets forth summary inventories net reserves stated lower cost market april 30 2019 2018 thousands 11 accrued expenses deferred revenue following table sets forth accrued expenses april 30 2019 2018 thousands decrease rebates promotions fiscal 2018 due adoption asu 201409 fiscal 2019 information regarding transactions see note 4 revenue recognition contracts customers 12 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic asc 82010 financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities cash equivalents measured fair value recurring basis totaled 410 million 489 million april 30 2019 2018 respectively utilized level 1 value hierarchy determine fair values assets american outdoor brands corporation subsidiaries notes consolidated financial statements continued level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives carrying value term loan approximated fair value april 30 2019 considering level 2 inputs within hierarchy carrying value 2020 senior notes april 30 2019 approximated fair value considering level 2 inputs within hierarchy 2020 senior notes frequently traded fair value interest rate swap estimated third party using inputs observable corroborated observable market data interest rate yield curves therefore classified within level 2 valuation hierarchy information regarding interest rate swap refer note 6 notes loans payable financing arrangements consolidated financial statements level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability acquisitionrelated contingent consideration liability represents estimated fair value additional future earnouts payable acquisitions businesses included earnout clauses valuation contingent consideration evaluated ongoing basis based management estimates entityspecific assumptions considered level 3 inputs connection purchase ust additional 20 million may paid period two years contingent upon financial performance acquired business valuation contingent consideration liability established accordance asc 805 business combinations initial fair value contingent consideration liability 17 million based forecasted revenue fiscal 2018 recorded 16 million reduction fair value contingent consideration liability expect acquired business would achieve performance metrics fiscal 2019 recorded 60000 reduction remaining fair value contingent liability confirmed performance metrics achieved reductions recorded income condensed consolidated statements income connection gemtech acquisition maximum 171 million may paid contingent upon cumulative three year sales volume acquired business valuation contingent consideration liability established accordance asc 805 business combinations based current forecasted revenue believe unlikely acquired business achieve performance metrics therefore april 30 2019 2018 contingent liability recorded fair value 100000 noncurrent liabilities 13 selfinsurance reserves april 30 2019 2018 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 89 million 92 million respectively 48 million classified noncurrent liabilities april 30 2019 2018 36 million 39 million respectively included accrued expenses accompanying consolidated balance sheets addition april 30 2019 2018 620000 590000 respectively workers’ compensation recoverable classified assets believe reserves adequate possible ultimate liabilities exceed estimates american outdoor brands corporation subsidiaries notes consolidated financial statements continued following table summarizes activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2019 2018 2017 thousands policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation matters losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2019 2018 accrued reserves product municipal litigation liabilities 33 million 34 million respectively 28 million noncurrent consisting entirely expected legal defense costs addition april 30 2019 2018 recorded receivables insurance carriers related liabilities 19 million nearly classified assets 14 stockholders’ equity treasury stock fiscal 2017 board directors authorized repurchase 500 million common stock subject certain conditions open market privately negotiated transactions fiscal 2019 authorized repurchase program expired resulting remaining authorized repurchase programs april 30 2019 prior authorized repurchase program fiscal 2017 repurchased 26 million shares common stock open market 500 million utilizing combination cash hand borrowings revolving line repurchase shares common stock fiscal 2019 2018 incentive stock employee stock purchase plans two stock incentive plans sps 2004 incentive stock plan 2013 incentive stock plan new grants 2004 incentive stock plan made since approval 2013 incentive stock plan september 23 2013 annual meeting stockholders new grants covering participants issued 2013 incentive stock plan 2013 incentive stock plan authorizes issuance 3000000 shares plus shares reserved remained available grant delivery 2004 incentive stock plan september 23 2013 effective date 2013 incentive stock plan permits grant options acquire common stock restricted stock awards rsus stock appreciation rights bonus stock awards lieu obligations performance awards dividend equivalents board directors committee established board administers sps selects recipients awards granted determines grants awarded options granted sps exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sps generally nontransferable subject forfeiture unless terminated earlier board directors 2013 incentive stock plan terminate earliest 1 tenth anniversary effective date 2013 stock plan 2 time shares common stock remain available issuance plan rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award american outdoor brands corporation subsidiaries notes consolidated financial statements continued except specific circumstances grants vest period three four years grants stock options exercisable period 10 years plan also permits grant awards nonemployees board directors committee authorized past number shares weighted average exercise prices options fiscal years ended april 30 2019 2018 2017 follows april 30 2019 4404603 shares available grant 2013 incentive stock plan use unissued share pool shares issued options restricted stock awards rsus performance share units performancebased restricted stock units psus shares issued employee stock purchase plan espp aggregate intrinsic value outstanding exercisable stock options april 30 2019 2018 2017 826000 14 million 52 million respectively aggregate intrinsic value options exercised years ended april 30 2019 2018 2017 285000 116000 13 million respectively april 30 2019 unrecognized compensation cost outstanding options following table summarizes stock compensation expense line item fiscal years ended april 30 2019 2018 2017 thousands grant servicebased rsus employees consultants directors awards made cost recipient rsu represents right acquire one share common stock carry voting dividend rights except specific circumstances rsu grants employees generally vest period three four years onethird onefourth units vesting respectively anniversary date grant date aggregate fair value rsu grants amortized compensation expense applicable vesting period american outdoor brands corporation subsidiaries notes consolidated financial statements continued grant psus executive officers certain management employees executive officers time grant calculate fair value psus using montecarlo simulation incorporate following variables valuation model expected volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate threeyear performance period expect pay dividends foreseeable future psus vest fair value psus recognized corresponding threeyear performance period psus maximum aggregate award equal 200 target amount granted generally number psus may earned depends upon total stockholder return tsr common stock compared tsr russell 2000 index rut threeyear performance period psus stock must outperform rut 5 order target award vest addition cap number shares earned psus equal six times grantdate value award certain circumstances vested awards delivered first anniversary applicable vesting date applied discount grant date fair value determining amount compensation expense recorded rsus psus fiscal year ended april 30 2019 granted 181600 psus certain executive officers also granted 360185 servicebased rsus year ended april 30 2019 including 167818 rsus certain executive officers 49509 rsus directors 142858 rsus nonexecutive officer employees compensation expense recognized related grants rsus psus 73 million fiscal year ended april 30 2019 fiscal year ended april 30 2019 canceled 33899 servicebased rsus result service period condition met 112000 psus three year stock performance targets achieved delivered 206572 shares common stock current employees vested rsus psus total market value 25 million year ended april 30 2018 granted 157700 psus certain executive officers also granted 388186 servicebased rsus year ended april 30 2018 including 159167 rsus certain executive officers 52826 rsus directors 176193 rsus nonexecutive officer employees addition connection 2014 grant 105000 psus ie target amount granted achieved 1152 targeted award vested delivered awards totaling 121504 shares certain executive officers compensation expense recognized related grants rsus psus 71 million fiscal year ended april 30 2018 fiscal year ended april 30 2018 canceled 208496 servicebased rsus 39429 psus result service period condition met delivered 300496 shares common stock current employees vested rsus psus total market value 62 million american outdoor brands corporation subsidiaries notes consolidated financial statements continued year ended april 30 2017 granted 153100 psus certain executive officers also granted 394909 servicebased rsus year ended april 30 2017 including 168800 rsus certain executive officers 24896 rsus directors 201213 rsus nonexecutive officer employees addition connection 2013 grant 118500 psus ie target amount granted achieved 2000 maximum aggregate award possible vested delivered awards totaling 237000 shares certain executive officers compensation expense recognized related grants rsus psus 78 million fiscal year ended april 30 2017 fiscal year ended april 30 2017 canceled 19448 servicebased rsus result service period condition met delivered 433966 shares common stock current employees vested rsus psus total market value 117 million grant date fair value rsus psus vested fiscal 2019 39 million fiscal 2018 2017 50 million summary activity unvested rsus psus fiscal years 2019 2018 2017 follows april 30 2019 77 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 18 years september 26 2011 stockholders approved 2011 espp authorizes sale 6000000 shares common stock employees options rights participate espp nontransferable subject forfeiture accordance espp guidelines current espp implemented series successive offering periods maximum duration 12 months fair market value fmv per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase espp b date determined board directors discretion c march 31 2022 event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2019 2018 2017 230282 203002 144102 shares respectively purchased employees espp american outdoor brands corporation subsidiaries notes consolidated financial statements continued measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options issued employees using blackscholes model time options granted amount amortized vesting period option espp fair value determined beginning purchase period amortized term exercise period following assumptions used valuing espp purchases years ended april 30 2019 2018 2017 estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table total stockbased compensation expense including stock options purchases espp rsu psu awards 80 million 78 million 86 million fiscal years 2019 2018 2017 respectively 15 employer sponsored benefit plans contributory defined investment plan offer two contributory defined investment plans covering substantially employees subject service requirements employees may contribute 100 annual pay depending plan generally make discretionary matching contributions 50 first 6 employee contributions plan contributed 29 million 30 million 27 million fiscal years ended april 30 2019 2018 2017 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially employees become eligible may 1 following completion full fiscal year continuous service contributions plan discretionary fiscal 2019 plan contribute approximately 28 million recorded general administrative costs contributed 13 million 130 million fiscal years ended april 30 2018 2017 respectively contributions funded fiscal yearend 16 income taxes income tax expensebenefit continuing operations consists following thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued following table presents reconciliation provision income taxes continuing operations statutory rates provision benefit consolidated financial statements thousands statutory rate 21 fiscal 2019 blended statutory rate 304 fiscal 2018 tax reform statutory rate 35 fiscal 2017 deferred tax assets liabilities related temporary differences following thousands federal net operating loss carryforwards amounting 108000 april 30 2019 expire fiscal 2020 obtained 82 million additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 108000 fiscal 2019 taxable year thereafter possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 internal revenue code ownership change occur could annual limitation remaining tax loss carryforward 179 million state net operating loss carryforwards april 30 2019 2018 state net operating loss carryforwards expire april 30 2025 april 30 2038 29 million 31 million state tax credit carryforwards april 30 2019 2018 respectively state tax credit carryforwards expire april 30 2023 april 30 2025 expiration date american outdoor brands corporation subsidiaries notes consolidated financial statements continued april 30 2019 valuation allowances 911000 23 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration april 30 2018 valuation allowances 921000 24 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration additional valuation allowances 342000 provided deferred income tax assets april 30 2019 believe likely assets realized allowances related irc section 162m limitations deductibility certain executive compensation recording valuation allowance reversing valuation allowance could effect future results operations financial position december 22 2017 us federal government enacted comprehensive tax legislation tax reform makes broad complex changes us tax code tax reform significantly revises corporate federal income tax among things lowering corporate federal income tax rate 35 21 limiting various deductions repealing domestic manufacturing deduction december 22 2017 sec issued staff accounting bulletin 118 sab118 provided additional guidance allowing companies use measurement period similar used business combinations account impacts tax reform financial statements measurement period permitted extend beyond one year tax reform enactment date accordance sab 118 extent company’s accounting certain income tax effects tax reform incomplete company able determine reasonably estimating effects permitted record provisional estimate financial statements provisional estimates related tax reform finalized within measurement period income tax provisions benefit represent effective tax rates 359 143 fiscal year ended april 30 2019 2018 respectively tax benefit fiscal 2018 primarily caused effect tax reform resulted remeasurement deferred tax assets liabilities well lower operating profit excluding impact tax reform discrete items effective tax rate fiscal year ended april 30 2018 354 us income taxes provided 50000 undistributed earnings foreign subsidiary since intention permanently reinvest earnings offshore earnings distributed form dividends would subject us tax result tax act could subject foreign income withholding taxes determination amount unrecognized deferred income tax liability practical april 30 2019 2018 gross taxeffected unrecognized tax benefits limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2015 17 commitments contingencies litigation january 2018 gemini technologies incorporated gemini commenced action us smith wesson corp united states district court district idaho district court complaint alleges among things defendants breached earnout provisions asset purchase agreement ancillary agreements parties connection smith wesson corp’s acquisition gemtech business gemini complaint seeks declaratory judgment interpreting various terms asset purchase agreement damages sum 186 million may 2018 district court dismissed complaint grounds forum non conveniens june 2018 gemini appealed decision dismissing complaint us court appeals ninth circuit oral argument held court appeals may 14 2019 believe claims asserted complaint merit intend aggressively defend action american outdoor brands corporation subsidiaries notes consolidated financial statements continued defendant six product liability cases aware five product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case filed august 27 1999 city gary indiana numerous firearm manufacturers distributors dealers seeking recover monetary damages well injunctive relief allegedly arising misuse firearms third parties january 2018 trial court granted defendants’ motion judgment pleadings dismissing case entirety february 2018 plaintiffs appealed dismissal indiana court appeals may 23 2019 indiana court appeals issued decision affirmed part reversed part remanded proceedings trial court’s dismissal city’s complaint parties july 8 2019 file petitions transfer jurisdiction indiana supreme court may 2018 named action related parkland florida shooting filed circuit court broward county florida seeking declaratory judgment florida statute provides firearm manufacturers dealers immunity liability legally manufactured lawfully sold firearms later used criminal acts applies civil actions commenced governmental agencies private litigants august 2018 moved dismiss complaint grounds seeks impermissible advisory opinion december 6 2018 court granted defendants’ motion dismiss without prejudice granted plaintiffs leave amend complaint december 10 2018 plaintiffs filed second amended complaint declaratory relief december 13 2018 defendants filed motion dismiss plaintiffs’ second amended complaint hearing held defendants’ second motion dismiss december 17 2018 decision yet issued court believe various allegations described unfounded addition accident results injuries due negligence misuse firearm claimant third party addition time involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek unspecified compensatory punitive damages others compensatory damages sought may range less 75000 approximately 350000 experience initial demands generally bear reasonable relationship facts circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims related product liability accrual includes amounts defense costs asserted unasserted claims consultation litigation counsel review merit claim concluded unable reasonably estimate probability estimated range reasonably possible losses related material adverse judgments related claims therefore accrued judgments future determine loss additional loss excess accrual least reasonably possible material would disclose estimate possible loss range loss estimate could made disclose estimate could made believe provided adequate accruals defense costs fiscal years ended april 30 2019 2018 2017 paid 322000 473000 254000 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 180000 129000 209000 respectively fiscal years settlement fees related product liability cases recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets american outdoor brands corporation subsidiaries notes consolidated financial statements continued recognize gains expenses changes product liability provisions municipal litigation liabilities fiscal 2019 recorded expense 293000 fiscal 2018 recorded expense 540000 fiscal 2017 recorded gain 364000 time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made environmental remediation subject numerous federal state local laws regulations regulate health safety workforce including limited regulations monitored occupational health safety administration osha national fire protection association department public health though exhaustive examples applicable regulations include confined space safety walking working surfaces machine guarding life safety also subject numerous federal state local environmental laws regulations concerning among things emissions air discharges land surface subsurface strata water generation handling storage transportation treatment disposal hazardous wastes materials laws required us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act cercla solid waste disposal act amended resource conservation recovery act place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated site springfield massachusetts contains two release areas focus remediation projects part massachusetts contingency plan mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent two sites april 30 2019 2018 recorded approximately 725000 10 million respectively environmental reserve noncurrent liabilities calculated net present value environmental reserve equal carrying value liability recorded books estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based environmental remediation reports obtained independent thirdparties american outdoor brands corporation subsidiaries notes consolidated financial statements continued based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolving future environmental health safety proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business leases fiscal 2017 announced plan establish national logistics facility boone county missouri ultimately plan rely logistics facility substantially product distribution fiscal 2018 broke ground new 633000 square foot facility completed november 2018 become operational course remainder fiscal 2020 part completion building entered lease agreement developer building 462 million lease effective interest rate approximately 50 payable 240 monthly installments fiscal 2039 leases accounted provisions asc 84010 leases requires leases evaluated classified operating capital leases financial reporting purposes based evaluation asc 84010 determined lease qualified capital lease net present value future lease payments exceeded 90 fair market value leased building pledged secure amounts outstanding included 681000 shortterm capital lease obligation accrued expenses 456 million longterm capital lease obligation condensed consolidated balance sheet noted plan adopt asu 201602 leases first quarter fiscal 2020 upon adoption plan remove current finance obligation capital lease asset record right use asset lease liability equal net present value future minimum lease payments expect lease liability 408 million right use asset 416 million upon adoption asu 201602 future minimum lease payments including capital leases succeeding fiscal years follows thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued following summarizes operating leases office andor manufacturing space also lease machinery photocopiers vehicles national sales force various expiration dates april 30 2019 operating lease commitments follows thousands rent expense fiscal years ended april 30 2019 2018 2017 50 million 52 million 44 million respectively 18 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2019 2018 opinion adjustments necessary present fairly information quarters reflected thousands except per share data american outdoor brands corporation subsidiaries notes consolidated financial statements continued basic diluted earnings per share may equal sum quarterly basic diluted earnings per share due rounding b amounts includes 104 million noncash goodwill impairment relating outdoor products accessories segement c amount includes income tax benefit approximately 94 million primarily caused effect tax reform resulted remeasurement deferred tax assets liabilities lower enacted corporate federal tax rates 19 segment reporting report results operations two segments 1 firearms includes firearms manufacturing services divisions 2 outdoor products accessories two segments defined based reporting review process used chief operating decision maker chief executive officer firearms segment determined single operating segment reporting segment based reliance production metrics gross margin per unit produced units produced per day incoming orders per day revenue produced trade channel particular firearms segment outdoor products accessories segment determined single operating segment reporting segment based measurement incoming orders per day sales gross margin customer brand firearms segment includes firearms services components manufacture provide facilities springfield massachusetts houlton maine deep river connecticut firearm products develop assemble market springfield massachusetts facility outdoor products accessories segment includes accessories products develop source market distribute facilities columbia missouri jacksonville florida electrooptics products develop market assemble wilsonville oregon facility report operating costs based activities performed within segment assets directly used clearly allocable reportable segment’s operations assets business segment presented following table april 30 2019 2018 thousands american outdoor brands corporation subsidiaries notes consolidated financial statements continued results business segment presented following table years ended april 30 2019 2018 2017 thousands years ended april 30 2019 2018 2017 allocated corporate overhead expenses except interest income taxes general administrative expenses corporatelevel expenses firearms outdoor products accessories segments b amount includes noncash goodwill charge 104 million 215 million amortization intangible assets identified result acquisition c amount includes 500000 additional cost goods sold fair value inventory stepup related 2018 acquisitions amount includes 208 million amortization intangible assets identified result acquisitions e amounts include income tax benefit approximately 87 million primarily caused effect tax reform resulted remeasurement deferred tax assets liabilities lower enacted corporate federal tax rates f amount includes 47 million additional cost goods sold fair value inventory stepup backlog expense related 2017 acquisitions g amount includes 184 million amortization intangible assets identified result acquisitions american outdoor brands corporation subsidiaries notes consolidated financial statements continued 20 subsequent events june 18 2019 approved restructuring plan involving previously announced consolidation electrooptics division outdoor products accessories division order improve efficiencies expect incur restructuring charges approximately 10 million comprising severance retention relocation costs recorded primarily first six months fiscal year 2020 expect cash expenditures associated actions continue third fourth quarters fiscal year 2020 restructuring plan anticipated result cost savings approximately 10 million second half fiscal year 2020 approximately 40 million annual cost reductions fully reflected consolidated financial statements fiscal year 2021 american outdoor brands corporation subsidiaries notes consolidated financial statements continued schedule ii american outdoor brands corporation subsidiaries valuation qualifying accounts years ended april 30 2019 2018 2017 1 increase fiscal 2018 valuation accounts represents acquired balances related gemtech acquisition 2 increase fiscal 2017 valuation accounts represents acquired balances related 2017 acquisitions 3 decrease fiscal 2017 valuation accounts primarily represents writeoff one customers’ accounts receivable balancesitem 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2020 2019 2018 set forth page report b exhibits exhibit number exhibit 29 stock purchase sale agreement dated november 25 2014 among registrant clearview battenfeld acquisition company llc members named therein1 210 asset purchase agreement dated july 15 2016 among bti tools llc taylor brands llc members named therein 2 211 asset purchase agreement dated july 25 2016 among smith wesson holding corporation crimson trace holdings llc 3 212 plan merger dated may 29 2020 american outdoor brands corporation smith wesson brands inc4 31 amended restated bylaws 5 34 second amended restated articles incorporation 6 39a certificate withdrawal certificate designation7 310 articles merger4 41 form common stock certificate 1024a amended restated 2004 incentive stock plan8 1028 amendments 2004 incentive stock plan9 1051 agreement respect defense smith wesson firearms litigation dated november 11 200410 1072 form indemnity agreement entered following directors executive officers june 29 2009 barry monheit michael f golden robert l scott john b furman mitch saltz marie wadecki jeffrey buchanan november 2009 p james debney december 14 2011 mark p smith april 24 2013 robert j cicero june 23 2015 gregory j gluchowski jr february 5 2016 anita britt august 9 2018 brian murphy11 1083a amended restated severance change control agreement executed december 8 2011 january 3 2011 registrant jeffrey buchanan12 1091a amended restated employment agreement executed december 8 2011 september 26 2011 p james debney smith wesson holding corporation12 1095 letter amendment dated september 9 2011 jeffrey buchanan registrant12 exhibit number exhibit 1096 letter amendment dated september 9 2011 p james debney smith wesson holding corporation12 1098 form nonqualified stock option award grant notice agreement 2004 incentive stock plan12 10100 amended restated 2011 employee stock purchase plan13 10107a smith wesson brands inc executive severance pay plan14 10108 adoption agreement smith wesson nonqualified supplemental deferred compensation plan15 10109 smith wesson nonqualified supplemental deferred compensation plan document15 10110 2013 incentive stock plan16 10111 form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201417 10111a form restricted stock unit grant notice agreement 2013 incentive stock plan awards made beginning september 201418 10111b form restricted stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201518 10112 form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201417 10112a form performance stock unit award grant notice agreement 2013 incentive stock plan awards made beginning april 201518 10113 credit agreement dated june 15 2015 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents including exhibits thereto18 10113a second amendment credit agreement dated october 27 2016 among registrant smith wesson corp borrowers subsidiaries borrowers party thereto guarantors td bank na administrative agent lenders party thereto time td securities usa llc branch banking trust company regions business capital wells fargo securities llc joint lead arrangers joint bookrunners branch banking trust company regions bank wells fargo securities llc cosyndication agents19 10113b fifth amendment credit agreement dated november 22 2019 among registrant american outdoor brands sales company smith wesson inc borrowers subsidiaries borrowers party thereto guarantors lenders party thereto td bank na administrative agent swingline lender20 10114 lease agreement dated october 26 2017 ryan boone county llc smith wesson corp21 10115 guaranty dated october 26 2017 entered registrant21 10117 separation agreement release dated february 26 2020 registrant p james debney22 exhibit number exhibit 10118 employment agreement executed april 4 2020 effective january 15 2020 brian murphy registrant23 10119 employment agreement executed april 4 2020 effective january 15 2020 mark p smith registrant23 211 subsidiaries registrant 231 consent deloitte touche llp independent registered public accounting firm 311 rule 13a14a15d14a certification coprincipal executive officer 312 rule 13a14a15d14a certification coprincipal executive officer 313 rule 13a14a15d14a certification principal financial officer 314 rule 13a14a15d14a certification principal accounting officer 321 section 1350 certification coprincipal executive officer 322 section 1350 certification coprincipal executive officer 323 section 1350 certification principal financial officer 324 section 1350 certification principal accounting officer 101ins inline xbrl instance document instance document appear interactive data file xbrl tags embedded within inline xbrl document 101sch inline xbrl taxonomy extension schema document 101cal inline xbrl taxonomy extension calculation linkbase document 101def inline xbrl taxonomy extension definition linkbase document 101lab inline xbrl taxonomy extension label linkbase document 101pre inline xbrl taxonomy extension presentation linkbase document cover page interactive data file embedded within inline xbrl document management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference registrant’s form 8k filed sec november 26 2014 2 incorporated reference registrant’s form 8k filed sec july 18 2016 3 incorporated reference registrant’s form 8k filed sec july 26 2016 4 incorporated reference registrant’s form 8k filed sec june 1 2020 5 incorporated reference registrant’s form 8k filed sec april 12 2019 6 incorporated reference registrant’s form 8k filed sec april 8 2019 7 incorporated reference registrant’s form 8k filed sec october 1 2013 8 incorporated reference registrant’s form 8k filed sec september 28 2011 9 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 10 incorporated reference registrant’s form 10q filed sec march 10 2005 11 incorporated reference registrant’s form 10k filed sec june 30 2009 12 incorporated reference registrant’s form 10q filed sec december 8 2011 13 incorporated reference registrant’s form 10k filed sec june 28 2012 14 incorporated reference registrant’s form 8k filed sec june 9 2020 15 incorporated reference registrant’s form 8k filed sec december 20 2013 16 incorporated reference registrant’s form s8 filed sec december 20 2013 17 incorporated reference registrant’s form 10k filed sec june 19 2014 18 incorporated reference registrant’s form 10k filed sec june 22 2015 19 incorporated reference registrant’s form 8k filed sec october 31 2016 20 incorporated reference registrant’s form 8k filed sec november 26 2019 21 incorporated reference registrant’s form 8k filed sec october 31 2017 22 incorporated reference registrant’s form 8k filed sec february 28 2020 23 incorporated reference registrant’s form 8k filed sec april 9 2020 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson brands inc mark p smith mark p smith copresident cochief executive officer brian murphy brian murphy copresident cochief executive officer date june 19 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature capacity date mark p smith copresident cochief executive officer coprincipal executive officers june 19 2020 mark p smith brian murphy copresident cochief executive officer coprincipal executive officers june 19 2020 brian murphy jeffrey buchanan executive vice president chief financial officer chief administrative officer treasurer principal financial officer june 19 2020 jeffrey buchanan deana l mcpherson vice president chief accounting officer corporate controller assistant treasurer principal accounting officer june 19 2020 deana l mcpherson barry monheit chairman board june 19 2020 barry monheit robert l scott vice chairman board june 19 2020 robert l scott anita britt director june 19 2020 anita britt john b furman director june 19 2020 john b furman gregory j gluchowski jr director june 19 2020 gregory j gluchowski jr michael f golden director june 19 2020 michael f golden mitchell saltz director june 19 2020 mitchell saltz marie wadecki director june 19 2020 marie wadecki index consolidated financial statements smith wesson brands inc subsidiaries page report independent registered public accounting firm consolidated balance sheets april 30 2020 2019 consolidated statements lossincome comprehensive lossincome years ended april 30 2020 2019 2018 consolidated statements changes stockholders’ equity years ended april 30 2020 2019 2018 consolidated statements cash flows years ended april 30 2020 2019 2018 notes consolidated financial statements schedule ii valuation qualifying accounts years ended april 30 2020 2019 2018 report independent registered public accounting firm shareholders board directors smith wesson brands inc opinion financial statements audited accompanying consolidated balance sheets smith wesson brands inc subsidiaries company april 30 2020 2019 related consolidated statements lossincome comprehensive lossincome changes stockholders equity cash flows three years period ended april 30 2020 related notes schedule listed index item 15 collectively referred financial statements opinion financial statements present fairly material respects financial position company april 30 2020 2019 results operations cash flows three years period ended april 30 2020 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting april 30 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated june 19 2020 expressed adverse opinion companys internal control financial reporting material weakness change accounting principle discussed note 3 financial statements company changed method accounting leases fiscal year 2020 due adoption asu 201602 leases topic 842 basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion critical audit matter critical audit matter communicated matter arising currentperiod audit financial statements communicated required communicated audit committee 1 relates accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates goodwill outdoor products accessories reporting unit refer notes 3 6 financial statements critical audit matter description company’s evaluation goodwill impairment involves comparison estimated fair value reporting unit carrying value company tests goodwill impairment annual basis february 1 annual tests indicators potential impairment exist company used discounted cash flow model estimate fair value requires management make significant estimates assumptions related discount rates forecasts future revenues operating margins changes assumptions could significant impact either estimated fair value amount goodwill impairment charge company determined two reporting units 1 firearms 2 outdoor products accessories february 1 2020 date annual goodwill impairment analysis goodwill balance 1822 million 1632 allocated outdoor products accessories reporting unit performing february 1 2020 annual goodwill impairment analysis company identified impairment indicator related expected negative impact outdoor products accessories reporting unit forecasted cash flows due several covid19 factors including major online retail customer’s decision halt delay nonessential product orders covid19related supply chain issues well covid19related “stay home” orders sporting goods store closures reduced retail foot traffic many states result company performed goodwill impairment analysis reduced forecasted cash flows determined outdoor products accessories reporting unit’s carrying value including goodwill exceeded fair value 987 million therefore recognized impairment charge 987 million relating goodwill allocated outdoor products accessories reporting unit significant judgments required management estimate fair value outdoor products accessories reporting unit light reduced overall demand products resulting need reduce forecasts longrange cash flows therefore performing audit procedures evaluate reasonableness management’s estimates assumptions related selection company specific risk premium “csrp” included within discount rate well forecasts future cash flows required high degree auditor judgment increased extent effort including need involve fair value specialists critical audit matter addressed audit procedures related csrp included within discount rate forecasts future cash flows used management estimate fair value outdoor products accessories reporting unit included following among others • tested effectiveness controls determination fair value outdoor products accessories reporting unit controls related management’s selection discount rate forecasts future cash flows • evaluated management’s ability accurately forecast future cash flows performing retrospective review current year revenue earnings interest taxes depreciation amortization “ebitda” results compared management’s historical forecasts current year • evaluated reasonableness management’s forecasted cash flows comparing forecasts • historical revenues gross margin expense ratio ebitda • internal communications management board directors • projected growth rates included within relevant industry reports industries outdoor products accessories reporting unit operates • performed sensitivity analysis impairment charge including developing independent estimates projected cash flows based various scenarios impacting revenues gross margin expense ratio • evaluated impact changes management’s forecasts measurement date april 30 2020 • assistance fair value specialists evaluated reasonableness 1 valuation methodology 2 csrp included within discount rate • tested source information underlying determination discount rate mathematical accuracy calculation • developed range independent estimates comparing discount rate selected management • performed sensitivity analysis selected csrp applying discount rate include csrp projected cash flows solving revenue growth ebitda margins would result fair value within company’s discounted cash flow model resulting revenue growth ebitda margins compared historical results industry growth forecasted growth rates evaluate sufficiency selected csrp • compared change fair value equity outdoor products accessories reporting unit february 1 2019 estimate date prior year’s analysis current estimate date march 23 2020 change guideline public company market capitalizations deloitte touche llp boston massachusetts june 19 2020 served companys auditor since 2014 smith wesson brands inc subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson brands inc subsidiaries consolidated statements lossincome comprehensive lossincome accompanying notes integral part consolidated financial statements smith wesson brands inc subsidiaries consolidated statements changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson brands inc subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements smith wesson brands inc subsidiaries consolidated statements cash flows continued supplemental disclosure noncash investing financing activities accompanying notes integral part consolidated financial statement smith wesson brands inc subsidiaries notes consolidated financial statements 1 organization leading manufacturer designer provider consumer products shooting hunting rugged outdoor enthusiast one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle suppressor markets also leading provider shooting hunting rugged outdoor products accessories including knives cutting tools sighting lasers shooting supplies tree saws survival gear two reporting segments 1 firearms 2 outdoor products accessories firearms segment manufacture wide array handguns including revolvers pistols long guns including modern sporting rifles bolt action rifles muzzleloaders handcuffs suppressors firearmrelated products sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world sell firearm products smith wesson mp performance center thompsoncenter arms gemtech brands manufacture firearm products facilities springfield massachusetts houlton maine deep river connecticut also sell manufacturing services businesses levelload factories sell services smith wesson smith wesson precision components brands opa segment leading provider outdoor products accessories encompassing hunting fishing camping shooting personal security defense products rugged outdoor enthusiasts conceive design produce source sell products accessories including shooting supplies rests vaults related accessories premium sportsman knives tools fishing hunting land management tools hunting preparedness harvesting products posthunt postfishing activities electrooptical devices including hunting optics firearm aiming devices flashlights laser grips reloading gunsmithing firearm cleaning supplies survival camping emergency preparedness products develop market products facility columbia missouri contract manufacture assembly products third parties located asia also manufacture electrooptics products facility wilsonville oregon november 13 2019 announced proceeding plan spinoff outdoor products accessories business separation create independent publicly traded company conduct business believe separating outdoor products accessories business firearm business forming new company conduct outdoor products accessories business enable management team company focus specific strategies including among others 1 structuring business take advantage growth opportunities specific markets 2 tailoring business operation financial model specific longterm strategies 3 aligning external financial resources stock access markets credit insurance factors particular type business view separation best interests company stockholders would create two industryleading companies attributes best position company longterm success preparation separation may 29 2020 changed name smith wesson brands inc june 1 2020 changed name company operate outdoor products accessories business subsidiaries american outdoor brands inc aout subject satisfaction waiver certain conditions separation completed way pro rata distribution outstanding shares aout common stock stockholders record close business record date distribution stockholders receive shares aout common stock shares common stock held stockholders close business record date stockholders would stock company well 100 stock aout retain ownership interest company expect receive opinion counsel effect among things transfer assets legal entities subject related liabilities associated outdoor products accessories business aout qualify transaction taxfree us federal income tax purposes except extent cash received lieu fractional shares distribution require approval stockholders common stock continue trade nasdaq global select market new ticker symbol “swbi” aout applied shares common stock listed nasdaq global market ticker symbol “aout” separation subject satisfaction waiver certain conditions cannot provide assurance complete separation smith wesson brands inc subsidiaries notes consolidated financial statements continued 2 acquisitions laserlyte acquisition january 2019 acquired substantially laserlyte branded products assets pl industries inc purchase price 20 million subject certain adjustments utilizing cash hand pl industries provider laser training sighting products consumer market operations laserlyte fully integrated facility located wilsonville oregon reported outdoor products accessories segment acquisition material impact condensed consolidated financial statements periods presented included general administrative costs 28000 acquisitionrelated costs incurred laserlyte acquisition year ended april 30 2019 pro forma results operations assuming laserlyte acquisitions occurred may 1 2017 required immaterial impact consolidated financial statements periods presented 2018 acquisitions august 2017 two separate transactions acquired 1 substantially net assets gemtech 2 bubba blade branded products assets fish tales llc aggregate purchase price two acquisitions 231 million subject certain adjustments utilizing combination cash hand borrowings revolving line credit connection gemtech acquisition additional consideration maximum 171 million may paid contingent upon cumulative three year sales volume gemtech products valuation contingent consideration liability established accordance asc 805 business combinations fiscal 2020 reduced remaining fair value contingent liability 100000 zero confirmed performance metrics achieved reduction recorded income consolidated statements lossincome gemtech based meridian idaho provider quality suppressors accessories consumer law enforcement military markets fish tales llc based oro valley arizona provider premium sportsmen knives tools fishing hunting including premium knife brand bubba blade valuations assets acquired liabilities assumed 2018 acquisitions complete 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accrual warranty reserves excess obsolete inventory rebates promotions valuation intangible assets actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson brands inc wholly owned subsidiaries including smith wesson inc smith wesson sales company swpc plastics llc reported firearms segment aob products company crimson trace corporation aob consulting shenzhen co ltd reported outdoor products accessories segment swss llc formerly smith wesson security solutions inc swss former security services division opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2020 2019 periods presented included intercompany accounts transactions eliminated consolidation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest smith wesson brands inc subsidiaries notes consolidated financial statements continued cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2020 accounts exceeded federally insured limits financial instruments account derivative instruments accounting standards codification “asc” 81510 fair value measurements disclosure topic establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value april 30 2020 level 2 financial instruments within hierarchy see note 7 notes loans payable financing arrangements information regarding financial instruments trade receivables extend credit domestic customers foreign distributors based financial condition sometimes offer discounts early payment invoices believe extension credit advisable rely either prepayment letter credit write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral year ended april 30 2020 one customers accounted approximately 105 net sales exceed 10 accounts receivable three customers greater 10 accounts receivable combined total 377 fiscal year ended april 30 2019 none customers exceeded 10 net sales one customers accounted approximately 198 accounts receivable fiscal year ended april 30 2018 one customers accounted 119 net sales none customers accounted 10 accounts receivable inventories value inventories lower cost using firstin firstout fifo method net realizable value allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment software hardware furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations lease certain real estate machinery photocopiers vehicles noncancelable operating lease agreements recognize expenses operating lease assets liabilities commencement date based present value lease payments lease term depreciable life assets leasehold improvements based expected life lease summary estimated useful lives follows include tooling dies fixtures part machinery equipment depreciate period generally exceeding ten years smith wesson brands inc subsidiaries notes consolidated financial statements continued intangible assets record intangible assets cost based fair value assets acquired intangible assets consist developed technology customer relationships trademarks trade names patents amortize intangible assets estimated useful lives proportion expected yearly revenue generated intangibles acquired revenue recognition recognize revenue accordance provisions accounting standards update asu revenue contracts customers topic 606 became effective us may 1 2018 generally performance obligations satisfied revenue recognized risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance instances sales include multiple performance obligations common instances relates sales promotion programs customers entitled receive free goods based upon purchase products identified material right fulfillment free goods responsibility instances allocate revenue promotional sales based estimated level participation sales promotional program timing shipment products included promotional program including free goods recognize revenue related material right proportionally performance obligation satisfied net change contract liabilities given period reported increase decrease sales product sales generally sold free board fob shipping point provide payment terms commercial customers ranging 20 90 days product shipment discount available customers early payment generally framework contracts define general terms sales including payment terms freight terms insurance requirements cancelation provisions purchase orders define terms specific sales including description quantity price product purchased estimate variable consideration relative amount cash discounts customers likely entitled instances provide longer payment terms particularly relates hunting dating programs represent payment terms due fall certain orders hunting products received spring summer result utilizing practical expedience upon adoption asc 606 consider extended terms significant financing component contract payment terms less one year cases consider costs related shipping handling cost fulfilling contract customer segment information two reporting segments firearms includes firearms manufacturing services divisions outdoor products accessories see note 20 segment reporting information regarding segments research development engage internal external research development rd order remain competitive exploit possible untapped market opportunities approve prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs lossearnings per share calculate basic diluted lossearnings per common share accordance provisions asc 26010 earnings per share basic lossearnings per common share equals net lossincome divided weighted average number common shares outstanding period diluted lossearnings per common share equals net lossincome divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive smith wesson brands inc subsidiaries notes consolidated financial statements continued following table provides reconciliation net lossincome amounts weighted average number common equivalent shares used determine basic diluted lossearnings per common share thousands except per share data outstanding stock options restricted stock units rsus included computation diluted earnings per share years ended april 30 2019 2018 valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets goodwill property plant equipment developed technology customer relationships patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets initially determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified accordance asc 350 intangiblesgoodwill test goodwill impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value operating units carrying amounts assess whether impairment present reviewed provisions asc 35020 respect criteria necessary evaluate number reporting units exist based review two operating units reviewing asc 35020 firearms outdoor products accessories smith wesson brands inc subsidiaries notes consolidated financial statements continued estimate fair value firearms outdoor products accessories operating units using equal weighting fair values derived income approach market approach believe market participant would equally weight approaches valuing operating units income approach based projected cash flows discounted present value using discount rates consider timing risk forecasted cash flows fair value estimated using internally developed forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include revenue growth rates profitability projections terminal value growth rates market approach estimates fair values based determination appropriate publicly traded market comparison companies market multiples revenue earnings derived companies similar operating investment characteristics operating unit valued finally compare reconcile overall fair value market capitalization order assess reasonableness calculated fair values operating units recognize impairment loss goodwill implied fair value goodwill less carrying value valuation date february 1 2020 firearms operating unit 190 million goodwill fair value significantly exceeded carrying value outdoor products accessories operating unit 1632 million goodwill fair value exceeded carrying value approximately 15 march 23 2020 determined business outdoor products accessories segment expected negatively impacted several factors related covid19 pandemic including major online retail customer’s decision halt delay nonessential product orders covid19related supply chain issues well covid19related “stay home” orders sporting goods store closures reduced retail foot traffic many states given extreme market volatility relied solely income approach derive current value outdoor products accessories segment based factors expect reduced cash flows outdoor products accessories segment believe constituted triggering event generally accepted accounting principles based results evaluation recorded noncash impairment charge 987 million goodwill outdoor products accessories segment april 30 2020 outdoor products accessories operating unit 646 million goodwill although concluded additional impairment goodwill associated operating units april 30 2020 continue closely monitor performance related market conditions future indicators potential impairment reassess accordingly assumptions related development fair value could deviate materially actual results forecasts used support asset carrying values may change future could result noncash charges would adversely affect financial results operations income taxes use asset liability approach financial accounting reporting income taxes provision income taxes based upon income reported accompanying consolidated financial statements required asc 74010 accounting income taxes determine deferred tax assets liabilities based temporary differences financial reporting tax bases assets liabilities measure applying enacted rates laws expected place deferred items become subject income tax deductible income tax purposes recognize effect deferred taxes liabilities change tax rates period includes enactment date assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording reversing valuation allowance could significant effect future results operations financial position warranty generally provide limited oneyear warranty lifetime service policy original purchaser new firearm products either provide limited one year limited lifetime warranty program original purchaser outdoor products accessories products repair replace electrooptics products parts found defective normal use service item equivalent value option without charge warranty period provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted smith wesson brands inc subsidiaries notes consolidated financial statements continued time experienced certain manufacturing design issues respect firearms initiated product recalls safety alerts past november 2011 initiated recall thompsoncenter arms venture rifles manufactured since products’ introduction mid2009 june 2013 also initiated recall thompsoncenter arms bolt action rifles manufactured since products’ introduction 2007 april 2018 initiated consumer advisory certain models mp shield ez pistols rare circumstances safety pistol move fire position “safety on” position using ammunition produces high level felt recoil may 2018 initiated recall certain models electrooptics products incorporated diodes manufactured particular third party diodes failed comply food drug administration fda standard laser products made efforts notify consumers may impacted recall remaining cost recalls safety alerts consumer advisories 683000 recorded accrued warranty consolidated balance sheet warranty expense fiscal years ended april 30 2020 2019 2018 amounted 16 million 29 million 58 million respectively following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2020 2019 2018 thousands sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales promotional program costs dependent volume sales record promotional costs cost goods sold total promotional programs amounted 475 million 392 million 582 million fiscal years ended april 30 2020 2019 2018 respectively coop advertising program retail level expensed costs amounting 263 million 238 million 233 million fiscal 2020 2019 2018 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net sales beginning fiscal 2020 inbound freight charges internal transfer costs included cost goods sold however costs incurred distribute products customers included selling marketing distribution expenses result change recorded 44 million costs selling marketing distribution expenses would recorded cost sales prior fiscal year prior fiscal 2020 firearms segment included costs relating shipping handling charges including inbound freight charges internal transfer costs distribution network cost goods sold insurance reserves january 2020 formed wholly owned captive insurance company provides product liability insurance us subsidiaries captive insurance company recorded consolidated financial statements fiscal year ended april 30 2020 selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 100 million per occurrence however believe likelihood reaching maximum per occurrence limit remote record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis smith wesson brands inc subsidiaries notes consolidated financial statements continued recently issued accounting standards february 2016 financial accounting standards board fasb issued asu 201602 leases topic 842 asu 201602 amends existing guidance require lessees recognize rightofuse assets lease liabilities classified balance sheet prominent among changes standard requirement lessees recognize rightofuse assets lease liabilities leases classified operating leases current gaap requirements asu 201602 effective financial statements annual periods beginning december 15 2018 early adoption permitted utilized leasing software assist us accounting tracking leases used optional transitional method allowed asu 201811 leases topic 842 targeted improvements method applied standard using modified retrospective method adoption date may 1 2019 elected use package practical expedients permits us reassess certain lease contract provisions adopted asu 201602 effective may 1 2019 recognized rightofuse assets 115 million lease liabilities 128 million difference rightofuse assets lease liabilities 13 million result reclassification deferred rent lease incentive liabilities primarily relating real estate operating leases rightof use assets impact retained earnings see also note 4 leases information june 2016 fasb issued asu 201613 financial instruments credit losses topic 326 measurement credit losses financial instruments new standard changes impairment model financial assets measured amortized cost certain instruments including trade receivables incurred loss model expected loss model adds certain new required disclosures expected loss model entities recognize credit losses incurred entire contractual term instrument rather delaying recognition credit losses probable loss incurred requirements asu effective financial statements annual periods beginning december 15 2019 early adoption permitted currently evaluating impact standard consolidated financial statements expect impact material 4 leases lease certain real estate machinery photocopiers vehicles noncancelable operating lease agreements recognize expenses operating lease assets liabilities commencement date based present value lease payments lease term leases provide implicit interest rate use incremental borrowing rate based information available lease commencement date determining present value lease payments lease agreements require material variable lease payments residual value guarantees restrictive covenants operating leases recognize expense straightline basis lease term tenant improvement allowances recorded offsetting adjustment included calculation respective rightofuse asset many leases include renewal options extend lease term execution renewal options sole discretion reflected lease term reasonably certain exercised depreciable life assets leasehold improvements limited expected lease term smith wesson brands inc subsidiaries notes consolidated financial statements continued amounts assets liabilities related operating financing leases april 30 2020 follows thousands fiscal year ended april 30 2020 recorded 43 million operating lease costs 11 million related shortterm leases recorded rightofuse assets recorded 21 million financing lease amortization 21 million financing lease interest expense fiscal 2020 april 30 2020 weighted average lease term weighted average discount rate operating leases 40 years 45 respectively april 30 2020 weighted average lease term weighted average discount rate financing leases 185 years 50 respectively consisted primarily distribution center located columbia missouri building pledged secure amounts outstanding depreciable lives rightofuse assets limited lease term amortized straightline basis life lease future lease payments operating finance leases succeeding fiscal years follows thousands fiscal year ended april 30 2020 cash paid amounts included measurement liabilities operating cash flows 60 million smith wesson brands inc subsidiaries notes consolidated financial statements continued 5 revenue recognition contracts customers may 1 2018 adopted asu 201409 revenue contracts customers topic 606 asu 201409 using modified retrospective approach recorded contract liability included accrued expenses condensed consolidated balance sheet outstanding performance obligations related sales promotions modified retrospective approach results reporting periods may 1 2018 presented accordance asu 201409 prior period amounts adjusted continue reported accordance previous guidance accounting standards codification asc topic 605 revenue recognition evaluating performance obligations disaggregate revenue based major product lines correlate reportable segments disclosed note 20 segment reporting domestic sales account 95 total net sales significant judgments estimates used determination performance obligations transaction price performance obligations allocated prorata basis contract costs need considered based nature performance obligations following table outlines impact adoption asu 201409 revenue recognized year ended april 30 2019 thousands fiscal 2020 recognized 486 million deferred revenue 105 million previously deferred april 30 2019 performance obligations relating sales promotions satisfied recognition revenue partially offset 504 million additional deferred revenue outstanding performance obligations incurred fiscal 2020 resulted 18 million net decrease revenue recognized fiscal 2020 estimate majority revenue outstanding performance obligations april 30 2020 recognized first quarter fiscal 2021 fiscal 2019 recognized 222 million revenue previously deferred may 1 2018 performance obligations relating sales promotions satisfied addition deferred 111 million fiscal 2019 net revenue recognized performance obligations related sales promotions satisfied resulting outstanding performance obligation liability 122 million recorded accrued expenses consolidated balance sheet fiscal 2019 recognized 111 million net increase revenue relating adoption asu 201409 result adoption asu 201409 year ended april 30 2019 gross margin unfavorably impacted 400 basis points earnings per share increased 003 6 goodwill intangible assets changes carrying amount goodwill reporting segment follows thousands information regarding goodwill impairment testing see note 3 significant accounting policies valuation longlived tangible intangible assets consolidated financial statements smith wesson brands inc subsidiaries notes consolidated financial statements continued april 30 2020 goodwill recorded within outdoor products accessories segment presented net 1091 million accumulated impairment losses recorded fiscal 2020 2019 goodwill within firearms segment accumulated impairment losses following table presents summary intangible assets april 30 2020 2019 thousands amortize intangible assets determinable lives weightedaverage period approximately five years weightedaverage periods amortization intangible asset class approximately five years customer relationships six years developed technology five years patents trademarks trade names amortization expense excluding amortization deferred financing costs amounted 195 million 220 million 210 million fiscal years ended april 30 2020 2019 2018 respectively following table represents future expected amortization expense april 30 2020 primarily recorded outdoor products accessories segment thousands 7 notes loans payable financing arrangements credit facilities june 15 2015 certain domestic subsidiaries entered unsecured credit facility credit agreement td bank na lenders included 1750 million revolving line credit revolving line 1050 million term loan term loan term loan paid full november 19 2019 proceeds revolving line revolving line provides availability general corporate purposes borrowings bear interest variable rate equal libor prime plus applicable margin based consolidated leverage ratio election october 27 2016 entered second amendment credit agreement second amendment among things increased revolving line 3500 million increased option expand credit commitment additional 1500 million extended maturity revolving line june 15 2020 october 27 2021 november 22 2019 entered fifth amendment credit agreement fifth amendment among things provides lenders’ consent spinoff outdoor products accessories business provided certain financial conditions satisfied including x granting lenders security interest assets remaining business reducing revolving line 2500 million time spinoff z reducing option expand credit agreement 500 million time spinoff smith wesson brands inc subsidiaries notes consolidated financial statements continued changes described second fifth amendments otherwise remain subject terms credit agreement described incurred 875000 debt issuance costs related fifth amendment april 30 2020 1600 million borrowings outstanding revolving line bore interest 295 equal libor rate plus applicable margin based consolidated leverage ratio required obtain interest rate protection term loan covering less 75 aggregate outstanding principal balance term loan accordingly june 18 2015 entered interest rate swap agreement covered 100 1050 million floating rate debt july 6 2015 executed interest rate swap pursuant agreement required us pay interest defined rate 156 receiving interest defined variable rate equal onemonth libor rate swap combined applicable margin based consolidated leverage ratio effectively fixed interest rate term loan subject change based changes consolidated leverage ratio accordance repayment term loan november 19 2019 interest rate swap terminated resulting realized gain approximately 40000 recognize derivatives either assets liabilities consolidated balance sheets fair value accounting changes fair value ie unrealized gains losses derivative instrument depends whether designated qualifies part hedging relationship type hedging relationship derivatives qualify hedge accounting must adjusted fair value earnings interest rate swap agreement considered effective qualifies cash flow hedge effective portion gain loss derivative designated qualifies cash flow hedge recorded component accumulated comprehensive income loss reclassified earnings period periods hedged transaction affects earnings april 30 2019 interest rate swap considered effective effect earnings fair value interest rate swap april 30 2019 2018 asset 710000 21 million respectively recorded assets consolidated balance sheet 2018 senior notes fiscal 2015 issued aggregate 750 million 5000 senior notes due 2018 senior notes various institutional investors pursuant terms conditions indenture purchase agreements 2018 senior notes bear interest rate 5000 per annum payable january 15 july 15 year beginning january 15 2015 incurred 23 million debt issuance costs related issuance 2018 senior notes discussed 2018 senior notes redeemed march 8 2018 proceeds issuance 5000 senior notes due 2020 part redemption fiscal 2018 wrote 226000 debt issuance costs related 2018 senior notes 2020 senior notes february 28 2018 issued aggregate 750 million 5000 senior notes due 2020 senior notes various institutional investors pursuant terms conditions indenture 2020 senior notes indenture purchase agreements 2020 senior notes bore interest rate 5000 per annum payable february 28 august 28 year beginning august 28 2018 incurred 158000 debt issuance costs related issuance 2020 senior notes january 6 2020 redemption date redeemed 100 principal amount 2020 senior notes plus accrued unpaid interest including redemption date proceeds revolving line part redemption wrote 42000 debt issuance costs related 2020 senior notes debt issuance costs recorded notes payable 875000 debt issuance costs fiscal year ended april 30 2020 record debt issuance costs fiscal year ended april 30 2019 recorded notes payable 158000 debt issuance costs fiscal years ended april 30 2018 costs amortized expense life credit facility total amortized 687000 431000 11 million interest expense debt issuance costs fiscal 2020 2019 2018 respectively including writeoffs related extinguishment credit agreement credit facility contains financial covenants relating maintaining maximum leverage minimum debt service coverage letters credit april 30 2020 outstanding letters credit aggregating 22 million included 15 million letter credit collateralize newly created captive insurance company smith wesson brands inc subsidiaries notes consolidated financial statements continued 8 net sales following table sets forth breakdown net sales fiscal years ended april 30 2020 2019 2018 thousands sell products services firearms segment smith wesson mp performance center gemtech thompsoncenter arms smith wesson precision components brands depending upon product service firearm customers primarily include distributors federal state municipal law enforcement agencies officers government military agencies businesses retailers sell outdoor products accessories products caldwell wheeler tipton frankford arsenal hooyman bog meat uncle henry old timer imperial crimson trace laserlyte lockdown ust bubba schrade license firearms segment use association certain products sell including mp smith wesson performance center smith wesson thompsoncenter arms outdoor products accessories customers include online retailers sports specialty stores sporting goods stores dealers distributors mass market home auto retailers directtoconsumers sell products worldwide following table sets forth breakdown export net sales included table export net sales accounted 4 5 total net sales fiscal years ended april 30 2020 2019 2018 respectively thousands international sales negatively impacted fourth fiscal quarter result covid19 pandemic firearm outdoor products accessories segments tooling located various suppliers asia north america 9 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements either incurred upon first occurrence advertising expense included selling marketing expenses fiscal years ended april 30 2020 2019 2018 amounted 281 million 243 million 258 million respectively smith wesson brands inc subsidiaries notes consolidated financial statements continued 10 property plant equipment following table summarizes property plant equipment april 30 2020 2019 thousands depreciation tangible assets amortization software expense amounted 339 million 314 million 300 million fiscal years ended april 30 2020 2019 2018 respectively following table summarizes depreciation amortization expense includes amortization intangibles debt financing costs line item fiscal years ended april 30 2020 2019 2018 thousands general administrative expenses included 190 million 218 million 208 million amortization fiscal years ended april 30 2020 2019 2018 respectively recorded result acquisitions 11 inventories following table sets forth summary inventories net reserves stated lower cost market april 30 2020 2019 thousands smith wesson brands inc subsidiaries notes consolidated financial statements continued 12 accrued expenses deferred revenue following table sets forth accrued expenses april 30 2020 2019 thousands increase accrued taxes income due deferral federal excise tax payments allowed tax trade bureau result covid19 pandemic 13 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic asc 82010 financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities cash equivalents measured fair value recurring basis totaled 1254 million 410 million april 30 2020 2019 respectively utilized level 1 value hierarchy determine fair values assets level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives smith wesson brands inc subsidiaries notes consolidated financial statements continued level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 2 level 3 financial assets liabilities 14 selfinsurance reserves april 30 2020 2019 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 94 million 89 million respectively 46 million 48 million classified noncurrent liabilities respectively april 30 2020 2019 37 million 36 million respectively included accrued expenses accompanying consolidated balance sheets addition april 30 2020 2019 620000 workers’ compensation recoverable classified assets believe reserves adequate possible ultimate liabilities exceed estimates following table summarizes activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2020 2019 2018 thousands policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation matters losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2020 2019 accrued reserves product municipal litigation liabilities 36 million 33 million respectively 26 million 28 million noncurrent respectively consisting entirely expected legal defense costs addition april 30 2020 2019 recorded receivables insurance carriers related liabilities 19 million nearly classified assets 15 stockholders’ equity treasury stock repurchase shares common stock fiscal 2020 2019 2018 authorized repurchase program april 30 2020 incentive stock employee stock purchase plans two stock incentive plans sps 2004 incentive stock plan 2013 incentive stock plan new grants 2004 incentive stock plan made since approval 2013 incentive stock plan september 23 2013 annual meeting stockholders new grants covering participants issued 2013 incentive stock plan smith wesson brands inc subsidiaries notes consolidated financial statements continued 2013 incentive stock plan authorizes issuance 3000000 shares plus shares reserved remained available grant delivery 2004 incentive stock plan september 23 2013 effective date 2013 incentive stock plan permits grant options acquire common stock restricted stock awards rsus stock appreciation rights bonus stock awards lieu obligations performance awards dividend equivalents board directors committee established board administers sps selects recipients awards granted determines grants awarded options granted sps exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sps generally nontransferable subject forfeiture unless terminated earlier board directors 2013 incentive stock plan terminate earliest 1 tenth anniversary effective date 2013 stock plan 2 time shares common stock remain available issuance plan rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award except specific circumstances grants vest period four years grants stock options exercisable period 10 years plan also permits grant awards nonemployees board directors committee authorized past number shares weighted average exercise prices options fiscal years ended april 30 2020 2019 2018 follows april 30 2020 4137967 shares available grant 2013 incentive stock plan use unissued share pool shares issued options restricted stock awards rsus performance share units performancebased restricted stock units psus shares issued employee stock purchase plan espp aggregate intrinsic value outstanding exercisable stock options april 30 2020 2019 2018 356000 826000 14 million respectively aggregate intrinsic value options exercised years ended april 30 2020 2019 2018 260000 285000 116000 respectively april 30 2020 unrecognized compensation cost outstanding options smith wesson brands inc subsidiaries notes consolidated financial statements continued following table summarizes stock compensation expense line item fiscal years ended april 30 2020 2019 2018 thousands decrease general administrative stockbased compensation expense fiscal 2019 separation former president chief executive officer grant servicebased rsus employees consultants directors awards made cost recipient rsu represents right acquire one share common stock carry voting dividend rights except specific circumstances rsu grants employees generally vest period three four years onethird onefourth units vesting respectively anniversary date grant date aggregate fair value rsu grants amortized compensation expense applicable vesting period grant psus executive officers certain management employees executive officers time grant calculate fair value psus using montecarlo simulation incorporate following variables valuation model expected volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate threeyear performance period pay dividends fiscal 2020 2019 2018 psus vest fair value psus recognized corresponding threeyear performance period psus maximum aggregate award equal 200 target amount granted generally number psus may earned depends upon total stockholder return tsr common stock compared tsr russell 2000 index rut threeyear performance period psus stock must outperform rut 5 order target award vest addition cap number shares earned psus equal six times grantdate value award certain circumstances vested awards delivered first anniversary applicable vesting date applied discount grant date fair value determining amount compensation expense recorded rsus psus smith wesson brands inc subsidiaries notes consolidated financial statements continued fiscal year ended april 30 2020 granted 105767 psus certain executive officers 32050 psus nonexecutive officer employees also granted 440483 servicebased rsus year ended april 30 2020 including 113770 rsus certain executive officers 115600 rsus directors 211073 rsus nonexecutive officer employees compensation expense recognized related grants rsus psus 23 million fiscal year ended april 30 2020 fiscal year ended april 30 2020 canceled 232793 servicebased rsus result service period condition met 367025 psus three year stock performance targets achieved delivered 296139 shares common stock current employees vested rsus total market value 26 million fiscal year ended april 30 2019 granted 181600 psus certain executive officers also granted 360185 servicebased rsus year ended april 30 2019 including 167818 rsus certain executive officers 49509 rsus directors 142858 rsus nonexecutive officer employees compensation expense recognized related grants rsus psus 73 million fiscal year ended april 30 2019 fiscal year ended april 30 2019 canceled 33899 servicebased rsus result service period condition met 112000 psus three year stock performance targets achieved delivered 206572 shares common stock current employees vested rsus total market value 25 million year ended april 30 2018 granted 157700 psus certain executive officers also granted 388186 servicebased rsus year ended april 30 2018 including 159167 rsus certain executive officers 52826 rsus directors 176193 rsus nonexecutive officer employees addition connection 2014 grant 105000 psus ie target amount granted achieved 1152 targeted award vested delivered awards totaling 121504 shares certain executive officers compensation expense recognized related grants rsus psus 71 million fiscal year ended april 30 2018 fiscal year ended april 30 2018 canceled 208496 servicebased rsus 39429 psus result service period condition met delivered 300496 shares common stock current employees vested rsus psus total market value 62 million grant date fair value rsus psus vested fiscal 2020 2019 2018 50 million 39 million 50 million respectively summary activity unvested rsus psus fiscal years 2020 2019 2018 follows april 30 2020 33 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 17 years smith wesson brands inc subsidiaries notes consolidated financial statements continued september 26 2011 stockholders approved 2011 espp authorizes sale 6000000 shares common stock employees options rights participate espp nontransferable subject forfeiture accordance espp guidelines current espp implemented series successive offering periods maximum duration 12 months fair market value fmv per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase espp b date determined board directors discretion c march 31 2022 event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2020 2019 2018 380209 230282 203002 shares respectively purchased employees espp measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options issued employees using blackscholes model time options granted amount amortized vesting period option espp fair value determined beginning purchase period amortized term exercise period following assumptions used valuing espp purchases years ended april 30 2020 2019 2018 expect abbreviated purchase period first half fiscal 2021 expected spinoff outdoor products accessories business b believe expected volatility increased fiscal 2020 primarily due market stock price fluctuations result covid19 pandemic estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table total stockbased compensation expense including stock options purchases espp rsu psu awards 29 million 80 million 78 million fiscal years 2020 2019 2018 respectively smith wesson brands inc subsidiaries notes consolidated financial statements continued 16 employer sponsored benefit plans contributory defined investment plan offer two contributory defined investment plans covering substantially employees subject service requirements employees may contribute 100 annual pay depending plan generally make discretionary matching contributions 50 first 6 employee contributions plan contributed 25 million 29 million 30 million fiscal years ended april 30 2020 2019 2018 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially employees become eligible may 1 following completion full fiscal year continuous service contributions plan discretionary fiscal 2020 plan contribute approximately 24 million recorded general administrative costs contributed 28 million 13 million fiscal years ended april 30 2019 2018 respectively contributions funded fiscal yearend 17 income taxes income tax expensebenefit continuing operations consists following thousands following table presents reconciliation provision income taxes continuing operations statutory rates provision benefit consolidated financial statements thousands statutory rate 21 fiscal 2020 2019 blended statutory rate 304 fiscal 2018 tax reform smith wesson brands inc subsidiaries notes consolidated financial statements continued deferred tax assets liabilities related temporary differences following thousands federal net operating loss carryforwards fiscal 2020 177 million 179 million state net operating loss carryforwards april 30 2020 2019 respectively state net operating loss carryforwards expire april 30 2025 april 30 2038 29 million state tax credit carryforwards april 30 2020 2019 state tax credit carryforwards expire april 30 2023 april 30 2025 expiration date april 30 2020 valuation allowances 904000 23 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration april 30 2019 valuation allowances 911000 23 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration additional valuation allowances 29000 provided deferred income tax assets april 30 2020 believe likely assets realized allowances related irc section 162m limitations deductibility certain executive compensation recording valuation allowance reversing valuation allowance could effect future results operations financial position december 22 2017 sec issued staff accounting bulletin 118 sab118 provided additional guidance allowing companies use measurement period similar used business combinations account impacts tax reform financial statements measurement period permitted extend beyond one year tax reform enactment date accordance sab 118 extent company’s accounting certain income tax effects tax reform incomplete company able determine reasonably estimating effects permitted record provisional estimate financial statements provisional estimates related tax reform finalized within measurement period income tax provisions represent effective tax rates 21 359 fiscal year ended april 30 2020 2019 respectively smith wesson brands inc subsidiaries notes consolidated financial statements continued us income taxes provided 84000 undistributed earnings foreign subsidiary since intention permanently reinvest earnings offshore earnings distributed form dividends would subject us tax result tax act could subject foreign income withholding taxes determination amount unrecognized deferred income tax liability practical april 30 2020 2019 gross taxeffected unrecognized tax benefits limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2016 18 commitments contingencies litigation january 2018 gemini technologies incorporated gemini commenced action us smith wesson corp united states district court district idaho district court complaint alleges among things defendants breached earnout provisions asset purchase agreement ancillary agreements parties connection smith wesson corp’s acquisition gemtech business gemini complaint seeks declaratory judgment interpreting various terms asset purchase agreement damages sum 186 million may 2018 district court dismissed complaint grounds forum non conveniens june 2018 gemini appealed decision dismissing complaint us court appeals ninth circuit july 24 2019 ninth circuit reversed dismissal remanded case district court perform traditional forum non conveniens analysis september 6 2019 parties stipulated contest venue proper district idaho november 4 2019 filed answer plaintiff’s complaint counterclaim gemini stockholders time signing asset purchase agreement believe claims asserted complaint merit intend aggressively defend action defendant seven product liability cases aware five product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case filed august 27 1999 city gary indiana numerous firearm manufacturers distributors dealers seeking recover monetary damages well injunctive relief allegedly arising misuse firearms third parties january 2018 trial court granted defendants’ motion judgment pleadings dismissing case entirety february 2018 plaintiffs appealed dismissal indiana court appeals may 23 2019 indiana court appeals issued decision affirmed part reversed part remanded proceedings trial court’s dismissal city’s complaint july 8 2019 defendants filed petition transfer jurisdiction indiana supreme court briefing completed indiana supreme court august 5 2019 november 26 2019 indiana supreme court denied petition transfer case returned trial court smith wesson brands inc subsidiaries notes consolidated financial statements continued may 2018 named action related parkland florida shooting filed circuit court broward county florida seeking declaratory judgment florida statute provides firearm manufacturers dealers immunity liability legally manufactured lawfully sold firearms later used criminal acts applies civil actions commenced governmental agencies private litigants august 2018 moved dismiss complaint grounds seeks impermissible advisory opinion december 6 2018 court granted defendants’ motion dismiss without prejudice granted plaintiffs leave amend complaint december 10 2018 plaintiffs filed second amended complaint declaratory relief december 13 2018 defendants filed motion dismiss plaintiffs’ second amended complaint november 21 2019 court granted defendants’ motion dismiss plaintiffs’ second amended complaint prejudice august 2019 primus group llc filed action us district court southern district ohio eastern division us firearms manufacturers alleging racketeer influenced corrupt organizations act rico violations racketeering enterprise intentional misrepresentation plaintiff operates “entertainment venue” columbus ohio purports bring action behalf “all persons entitled freely attend schools shopping locations churches entertainment venues workplaces united states without intrusion individuals armed assault weapons” addition compensatory punitive damages plaintiff seeks preliminary permanent injunctive relief enjoining distribution sale “assault weapons” august 20 2019 court denied without prejudice plaintiff’s motion temporary restraining order september 3 2019 defendants moved dismiss plaintiff’s complaint september 16 2019 plaintiff filed amended complaint adding claims public nuisance negligent design failure warn october 9 2019 us district court granted defendants’ motion dismissing case entirety october 11 2019 plaintiff filed notice appeal us court appeals sixth circuit november 1 2019 sixth circuit dismissed plaintiff’s appeal failure pay required fee november 4 2019 plaintiffappellant filed sixth circuit granted motion reinstate case however march 13 2020 request appellant based death cocounsel sixth circuit held case abeyance ordered appellant file status report every 30 days april 14 2020 appellant filed status report stating intended reactivate case dismiss appeal within 60 days appellant filed status reports defendant putative class proceeding ontario superior court justice toronto canada action filed december 16 2019 action claims cad50 million aggregate general damages cad100 million aggregate punitive damages special damages unspecified amount together interest legal costs named plaintiffs two victims shooting took place toronto july 22 2018 family members one victim shot injured shooting suffered unspecified injuries fleeing shooting plaintiffs seeking certify claim behalf classes include persons killed injured shooting immediate family members plaintiffs allege negligent design public nuisance case certified class action intend vigorously oppose proceedings may 2020 named action related chabad poway synagogue shooting took place april 27 2019 complaint filed superior court state california county san diego central asserts claims us product liability unfair competition negligence public nuisance plaintiffs allege present synagogue day incident suffered physical andor emotional injury plaintiffs seek compensatory punitive damages attorneys’ fees injunctive relief yet served litigation july 31 2019 competitor sturm ruger co inc filed complaint motion preliminary injunction us district court district new hampshire seeking injunctive relief damages plaintiff alleges trade dress infringement involving thompsoncenter brand tcr22 rifle well violation new hampshire consumer protection act hearing plaintiff’s motion preliminary injunction held november 2019 december 2 2019 plaintiff withdrew motion preliminary injunction john pidcock trustee aspc creditor trust appointed plan reorganization acusport corp acusport debtor possession chapter 11 us bankruptcy code plaintiff three smith wesson brands inc subsidiaries notes consolidated financial statements continued separate actions us bankruptcy court southern district ohio two seek recovery alleged preferential transfers received us acusport aggregate amount 42 million third seeks turnover goods allegedly owed acusport us one promotional programs amount 15 million deny material allegations asserted affirmative defenses believe strong defenses actions intend continue vigorously defend believe various allegations described unfounded incident results injuries due negligence misuse firearm claimant third party addition time involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek unspecified compensatory punitive damages others compensatory damages sought may range less 75000 approximately 500million punitive damages approximately 1000 million experience initial demands generally bear reasonable relationship facts circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims related product liability accrual includes amounts defense costs asserted unasserted claims consultation litigation counsel review merit claim concluded unable reasonably estimate probability estimated range reasonably possible losses related material adverse judgments related claims therefore accrued judgments future determine loss additional loss excess accrual least reasonably possible material would disclose estimate possible loss range loss estimate could made disclose estimate could made believe provided adequate accruals defense costs fiscal years ended april 30 2020 2019 2018 paid 584000 322000 473000 respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 3000 180000 129000 respectively fiscal years settlement fees related product liability cases recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets recognize gains expenses changes product liability provisions municipal litigation liabilities fiscal 2020 recorded expense 892000 fiscal 2019 recorded expense 293000 fiscal 2018 recorded expense 540000 time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made environmental remediation subject numerous federal state local laws regulations regulate health safety workforce including limited regulations monitored occupational health safety administration osha national fire protection association department public health though exhaustive examples applicable regulations include confined space safety walking working surfaces machine guarding life safety smith wesson brands inc subsidiaries notes consolidated financial statements continued also subject numerous federal state local environmental laws regulations concerning among things emissions air discharges land surface subsurface strata water generation handling storage transportation treatment disposal hazardous wastes materials laws required us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act cercla solid waste disposal act amended resource conservation recovery act place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated site springfield massachusetts contains two release areas focus remediation projects part massachusetts contingency plan mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent two sites april 30 2020 open environmental reserve recorded consolidated balance sheet april 30 2019 recorded approximately 725000 environmental reserve noncurrent liabilities available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve fiscal 2019 calculated using undiscounted amounts based environmental remediation reports obtained independent thirdparties based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolving future environmental health safety proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business smith wesson brands inc subsidiaries notes consolidated financial statements continued leases following summarizes operating leases office andor manufacturing space 1 properties subleased also lease machinery photocopiers vehicles national sales force various expiration dates 19 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2020 2019 opinion adjustments necessary present fairly information quarters reflected thousands except per share data basic diluted earnings per share may equal sum quarterly basic diluted earnings per share due rounding b amounts includes 987 million noncash goodwill impairment relating outdoor products accessories segment c amounts includes 104 million noncash goodwill impairment relating outdoor products accessories segment smith wesson brands inc subsidiaries notes consolidated financial statements continued 20 segment reporting report results operations two segments 1 firearms includes firearms manufacturing services divisions 2 outdoor products accessories two segments defined based reporting review process used chief operating decision makers cochief executive officers firearms segment determined single operating segment reporting segment based reliance production metrics gross margin per unit produced units produced per day incoming orders per day revenue produced trade channel particular firearms segment outdoor products accessories segment determined single operating segment reporting segment based measurement incoming orders per day sales gross margin customer brand firearms segment includes firearms services components manufacture provide facilities springfield massachusetts houlton maine deep river connecticut firearm products develop assemble market springfield massachusetts facility outdoor products accessories segment includes accessories products develop source market distribute facilities columbia missouri electrooptics products develop market assemble wilsonville oregon facility report operating costs based activities performed within segment assets directly used clearly allocable reportable segment’s operations assets business segment presented following table april 30 2020 2019 thousands results business segment presented following table years ended april 30 2020 2019 2018 thousands smith wesson brands inc subsidiaries notes consolidated financial statements continued years ended april 30 2020 2019 2018 allocated corporate overhead expenses except interest income taxes general administrative expenses corporatelevel expenses firearms outdoor products accessories segments b amount includes noncash goodwill charge 987 million c amount includes noncash goodwill charge 104 million amount includes 500000 additional cost goods sold fair value inventory stepup related 2018 acquisitions smith wesson brands inc subsidiaries notes consolidated financial statements continued schedule ii smith wesson brands inc subsidiaries valuation qualifying accounts years ended april 30 2020 2019 2018item 15 exhibits financial statement schedules financial statements financial statement schedules 1 financial statements listed index financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts set forth page report b exhibits filed herewith application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference company’s proxy statement schedule 14a filed sec august 11 2004 2 incorporated reference company’s form 8a filed sec august 25 2005 3 incorporated reference company’s form 8k filed sec may 29 2001 4 incorporated reference company’s proxy statement schedule 14a filed sec december 28 2001 5 incorporated reference company’s form 10k filed sec august 15 2005 6 incorporated reference company’s form 8k filed sec september 13 2005 7 incorporated reference company’s registration statement form s8 333128804 filed sec october 4 2005 8 incorporated reference company’s form 10qsb filed sec august 13 2001 9 incorporated reference company’s form 10qsb filed sec september 14 2001 10 incorporated reference company’s form 8k filed sec january 18 2005 11 incorporated reference company’s form 10ksb filed sec december 18 2003 12 incorporated reference company’s form 10k filed sec july 16 2004 13 incorporated reference company’s form 8k filed sec november 30 2004 14 incorporated reference company’s form 8k filed sec january 11 2005 15 incorporated reference company’s form 10q filed sec march 10 2005 16 incorporated reference company’s form 10ka filed sec december 21 2005 17 incorporated reference company’s form 8k filed sec february 23 2006 18 incorporated reference company’s form 10q filed sec march 17 2006 19 incorporated reference company’s form 8k filed sec may 19 2006 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation date july 14 2006 michael f golden michael f golden president chief executive officer pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated item 15 exhibits financial statements schedules smith wesson holding corporation subsidiaries management’s report internal control financial reporting management smith wesson holding corporation responsible establishing maintaining adequate internal control financial reporting term defined exchange act rule 13a15f participation chief executive officer chief financial officer management conducted evaluation effectiveness company’s internal control financial reporting april 30 2006 required rule 13a15c securities exchange act 1934 company utilized criteria framework established committee sponsoring organizations coso treadway commission internal control integrated framework performing assessment based evaluation management concluded company’s internal control financial reporting effective april 30 2006 internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles inherent limitations internal control financial reporting may prevent detect misstatements smith wesson holding corporation’s independent auditor bdo seidman llp independent registered public accounting firm audited management’s assessment effectiveness company’s internal control financial reporting april 30 2006 stated report appears page annual report form 10k michael j golden michael j golden president chief executive officer john kelly john kelly vice president chief financial officer report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheet smith wesson holding corporation subsidiaries april 30 2006 related consolidated statements income comprehensive income stockholders’ equity cash flows year ended also audited schedule listed accompanying index year ended april 30 2006 financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2006 results operations cash flows year ended conformity accounting principles generally accepted united states america also opinion schedule referred presents fairly material respects information year ended april 30 2006 set forth therein also audited accordance standards public company accounting oversight board united states effectiveness smith wesson holding corporation’s internal control financial reporting april 30 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated july 14 2006 expressed unqualified opinion thereon bdo seidman llp boston massachusetts july 14 2006 report independent registered public accounting firm board directors stockholders smith wesson holding corporation opinion consolidated balance sheet april 30 2005 related consolidated statements income comprehensive income changes stockholders’ equity cash flows years ended april 30 2005 2004 present fairly material respects consolidated financial position smith wesson holding corporation subsidiaries april 30 2005 consolidated results operations cash flows years ended april 30 2005 2004 conformity accounting principles generally accepted united states america addition opinion financial statement schedule valuation qualifying accounts years ended april 30 2005 2004 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp pricewaterhousecoopers llp hartford connecticut august 15 2005 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements income comprehensive income accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization largest manufacturer handguns united states largest us exporter handguns manufacture revolvers pistols related products accessories sale primarily gun enthusiasts collectors hunters sportsmen protection focused individuals public safety agencies officers military agencies united states throughout world may 11 2001 purchased outstanding stock smith wesson corp uk based tomkins 15000000 see note 2 “acquisition smith wesson corp” special meeting stockholders held february 14 2002 stockholders approved change company’s name smith wesson holding corporation smith wesson corp incorporated laws state delaware january 13 1987 smith wesson corp predecessors business since 1852 2 acquisition smith wesson corp acquisition purchase price paid us smith wesson corp follows 5 million paid closing cash see “melby loan” 10 million due may 11 2002 pursuant terms uncollateralized promissory note issued us tomkins “acquisition note” providing interest rate 9 per year receivable 464500 due tomkins us purchase price resulted negotiations tomkins us acquisition accounted purchase method pursuant apb 16 “business combinations” summary net assets acquired follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued acquisition note pursuant acquisition agreement tomkins issued promissory note amount 10 million partial consideration acquisition smith wesson corp march 2002 obtained bank loan see note 4 paid entire loan balance january 2005 tomkins note acquisition agreement required us guarantee obligations smith wesson corp tomkins promissory note issued april 30 1997 smith wesson corp tomkins “tomkins note” tomkins note originally amount 738 million due april 30 2004 bore interest rate 9 per annum prior acquisition tomkins contributed 238 million tomkins note capital smith wesson corp leaving balance 500 million immediately subsequent acquisition paid 200 million tomkins note repaid additional 20 million outstanding principal balance april 2003 another 10 million july 2003 repaid remaining balance january 2005 melby loan obtained financing amount 5 million individual pursuant promissory note loan agreement dated may 6 2001 us individual “melby note” interest accrued melby note rate 12 per annum maturity may 15 2002 related loan also granted warrants described purchase aggregate approximately 8700000 shares common stock exercise prices ranging 040 per share 200 per share consideration melby loan issued colton melby formerly president chief operating officer currently director company common stock purchase warrant dated may 6 2001 “melby warrant” melby warrant provided mr melby purchase 7094500 shares common stock exercise price 40 per share subject adjustment set forth therein time date issuance six years date issuance also consideration melby loan issued common stock purchase warrants dated may 11 2001 three affiliates mr melby “affiliate warrants” affiliate warrants provided holder purchase time date issuance one year date issuance 300000 shares common stock exercise price 80 per share exercised may 21 2001 b 200 per share exercised may 22 2001 june 30 2001 c 500 per share exercised june 30 2001 portion finder’s fee arranging melby loan issued common stock purchase warrants dated may 11 2001 two unrelated parties “finders’ warrants” finders’ warrants provided holder purchase 354725 shares common stock exercise price 100 per share time date issuance two years date issuance warrants exercised full march 2002 including way repayment melby note 3 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states america requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenues expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation environmental liability excess obsolete inventory medical claims payable actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries smith wesson corp smith wesson firearms training centre gmbh germany smith wesson distributing inc united states smith wesson inc united states smith wesson technology llc inactive smith wesson interactive management llc inactive smith wesson licensing llc inactive lost coast ventures inc inactive significant intercompany accounts transactions eliminated consolidation smith wesson holding corporation subsidiaries notes consolidated financial statements continued fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts due shortterm nature derivative instruments account derivative instruments sfas 133 “accounting derivative instruments hedging activities” amended sfas 133 establishes accounting reporting standards derivative instruments hedging activities requires us recognize instruments either assets liabilities balance sheet measure fair value purchased foreign exchange forward contracts minimize impact fluctuations foreign exchange rates note 14 cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts trade receivables extend credit domestic customers foreign distributors based financial condition offer discounts early payment extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 8 10 13 net product sales fiscal years ended april 30 2006 2005 2004 respectively customer owed us approximately 18 million 7 total accounts receivable april 30 2006 18 million 10 total accounts receivable april 30 2005 inventories value inventories primarily consisting finished firearms components finished firearms related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage comprehensive income statement financial accounting standards “sfas” 130 “reporting comprehensive income” requires companies report components comprehensive income financial statements including nonowner transactions events impact equity even items directly affect net income loss comprehensive income loss consists net income loss unrealized gains losses available sale securities net tax presented consolidated statements income comprehensive income property plant equipment record property plant equipment consisting land building improvements machinery equipment computers furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition smith wesson holding corporation subsidiaries notes consolidated financial statements continued property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range three 20 years see note 10 additional information regarding intangible assets valuation longlived assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values would reduced fair value adjusted carrying value would become asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved determined impairments longlived assets fiscal 2006 2005 2004 revenue recognition recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured product sales account substantial portion revenues recognize revenue product sales earnings process complete risks rewards ownership transferred customer generally upon shipment also provide tooling forging heat treating finishing plating engineering support services customers recognize revenues accepted customer contingencies material performance obligations exist collectibility reasonably assured thereby earning us right receive retain payments services performed billed recognize trademarklicensing revenues individual licensees quarterly basis based cash receipts licensees revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenues payable calendar quarter basis recognize revenues nonrefundable license fees received upon initial signing license agreements result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensee’s product insufficient historical experience believe reasonable assurance collectibility future license amounts exist based results past payment performance licensees general therefore initially recognize minimum royalty payments upon smith wesson holding corporation subsidiaries notes consolidated financial statements continued contract signing instead record revenue minimum royalty received april 30 2006 minimum royalties collected future amounted approximately 66 million follows segment information sfas 131 “disclosures segments enterprise related information” requires public companies report financial descriptive information reportable operating segments identify operating segments based internally evaluate separate financial information business activities management responsibility present time believe operate single business segment april 30 2006 2005 2004 material personnel facilities operating outside united states following breakdown net product sales research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities executive management approves prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs fiscal 2006 spent approximately 349000 research activities relating development new products fiscal 2005 spent approximately 386000 research activities fiscal 2004 spent 13 million 441000 related discontinued advanced technology product line annual amounts reimbursed 187000 787000 fiscal 2005 2004 respectively national institute justice based grants received us development authorized user firearm grants expired fiscal 2005 record research development expense net reimbursement accompanying consolidated statements income earnings per share calculate basic diluted earnings per common share accordance provisions sfas 128 “earnings per share” basic earnings per common share equals net income divided weighted average number common shares outstanding period diluted earnings per common share equal net income divided weighted average number common shares outstanding period including effect stock options warrants stockbased compensation effect dilutive smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table provides reconciliation income amounts weighted average number common equivalent shares used determine basic diluted earnings per share noted notes 16 18 company issued warrants purchase 1320000 shares common stock fiscal year 2006 classified liability balance sheet february 28 2006 see note 18 marked market changes fair value reported net income year ended april 30 2006 mark market adjustment increased net income 81174 calculation eps stock warrants considered equity included diluted shares effect dilutive accordance emerging issues task force eitf topic d72 paragraph 29 sfas 128 adjusted net income basic eps numerator purpose computing diluted earnings per share options warrants purchase 1278893 313685 116666 shares common stock excluded fiscal 2006 2005 2004 computation diluted earnings per share respectively effect would antidilutive income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying currently enacted tax laws stock options warrants described notes 16 17 issued stock warrants stock option plan employees directors receive options purchase common stock stockbased compensation fourth quarter fiscal 2005 adopted sfas 123r “sharebased payment” revised 2004 utilizing modified retrospective application method periods presented prior adoption sfas 123r applied provisions apb opinion 25 “accounting stock issued employees related interpretations” apb 25 product liability provide reserves potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments provision product liability ongoing basis charge credit cost sales exclusive insurance reimbursements evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain product liability costs subject reimbursement insurance carriers environmental liability accordance sop 961 “environmental remediation liabilities” provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts smith wesson holding corporation subsidiaries notes consolidated financial statements continued direction approval regulatory agencies status potentially responsible party prp ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted summary environmental liability reserve april 30 2006 2005 follows environmental reserves increase decrease fiscal years ended april 30 2006 2005 2004 amounted approximately 31 million 45000 11000 respectively february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority sra property excess land adjacent manufacturing office facility 85 acres includes three five previously disclosed release areas identified soil groundwater contamination mcp specifically south field west field fire pond property acquired sra defined “brownfield” cercla sra support city springfield received governmental “brownfield” grants loans remediate development property remediation property completed quarter ended july 31 2005 consequently fiscal year ended april 30 2006 eliminated reserves related property reserve adjustment totaled approximately 31 million included reduction operating expenses warranty generally provide lifetime warranty “original” purchaser new firearms products provide estimated warranty obligations period recognize related revenue quantify record estimate warranty related costs based actual historical claims experience current repair costs make adjustments accruals warranty claim data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted warranty expense fiscal years ended april 30 2006 2005 2004 amounted 1263000 1539400 1591741 respectively change accrued warranties fiscal years ended april 30 2006 2005 follows sales promotional related expenses accordance eitf issue 0109 “accounting consideration given vendor customer including reseller vendor’s product” present product smith wesson holding corporation subsidiaries notes consolidated financial statements continued sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted approximately 318000 437000 234000 fiscal years ended april 30 2006 2005 2004 respectively customer promotional programs costs depend volume sales costs amounted approximately 41000 182000 197000 fiscal years ended april 30 2006 2005 2004 respectively included selling marketing expenses coop advertising program retail level expensed costs amounting approximately 1064000 670000 797000 fiscal 2006 2005 2004 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net product services sales included costs relating shipping handling charges cost products services sales insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 20 million per occurrence liability estimated premiums incurred losses actuarially determined recorded accompanying consolidated financial statements undiscounted basis recently issued accounting pronouncements may 2005 fasb issued sfas 154 “accounting changes error corrections” replacement accounting principles board “apb” opinion 20 “accounting changes” apb 20 fasb statement 3 “reporting accounting changes interim financial statements” statement applies accounting reporting voluntary accounting principle changes corrections errors sfas 154 requires changes retrospectively applied financial statements previous periods unless impracticable determine either periodspecific effects cumulative effect change sfas 154 carries forward many provisions apb 20 sfas 3 without change including provisions related reporting change accounting estimate change reporting entity correction error reporting accounting changes interim financial statements sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 believe adoption sfas 154 significant impact financial position results operations cash flows impact adopting sfas 154 depends events could occur future periods therefore cannot determined event occurs future period february 2006 fasb issued sfas 155 “accounting certain hybrid financial instruments” amends sfas 133 “accounting derivative instruments hedging activities” sfas 140 “accounting transfers servicing financial assets extinguishments liabilities” sfas 155 simplifies accounting certain derivatives embedded financial instruments allowing accounted whole holder elects account whole instrument fair value basis sfas 155 also clarifies amends certain provisions sfas 133 sfas 140 sfas 155 effective financial instruments acquired issued subject remeasurement event occurring fiscal years beginning september 15 2006 earlier adoption permitted provided company yet issued financial statements including interim periods fiscal year expect adoption sfas 155 material impact financial position results operations cash flows march 2006 fasb issued sfas 156 “accounting servicing financial assets amendment fasb statement 140” sfas 156 requires separately recognized servicing rights initially measured fair value practicable addition statement permits entity choose two measurement methods amortization method fair value measurement method class separately recognized servicing assets liabilities new accounting standard effective january 1 2007 adoption sfas 156 expected impact financial position results operations cash flows smith wesson holding corporation subsidiaries notes consolidated financial statements continued reclassification financial information certain prior year components consolidated financial statements reclassified consistent current year presentation 4 longterm debt financing arrangements bank loan repaid january 2005 march 2002 entered specific purpose loan agreement bank terms agreement borrowed 150 million pay acquisition note melby note related acquisition smith wesson corp see note 2 outstanding balance 149 million april 30 2004 accrued interest rate 585 per annum collateralized liquid assets face aggregate amount obligation note repaid january 2005 part debt refinancing discussed tomkins note repaid january 2005 acquisition agreement related acquisition smith wesson corp required us guaranty obligations smith wesson corp tomkins promissory note issued april 30 1997 smith wesson corp tomkins “tomkins note” tomkins note originally amount 738 million due april 30 2004 bore interest rate 9 per annum prior acquisition tomkins contributed 238 million tomkins note capital smith wesson corp leaving balance 500 million immediately subsequent acquisition paid 200 million tomkins note april 2003 made early repayment 20 million tomkins bring principal balance 300 million 280 million july 2003 made another early repayment 10 million tomkins bring principal balance 270 million note repaid january 2005 part debt refinancing debt refinancing january 2005 completed refinancing certain existing debt utilizing receivables inventory property plant equipment collateral financing obtained banknorth previous loans result refinancing able repay balance due tomkins note interest rate 9 per year restrictive covenants along previously existing loans banknorth used cash collateralizing existing line credit banknorth toward repayment tomkins note new bank credit facility consists following 1 revolving line credit maximum amount lesser 170 million b 85 net amount borrower’s eligible receivables ii plus lesser 60 million 70 eligible raw materials inventory plus iii 60 eligible finished goods inventory iv 40 eligible finished parts inventory available september 30 2007 working capital needs revolving line credit bears interest variable rate equal prime libor plus 250 basis points 250 basis point libor spread may reduced meet certain targets respect maximum leverage amounts outstanding april 30 2006 2 sevenyear 121 million term loan bears interest rate 623 per annum monthly payment 178671 final payment due january 11 2012 3 tenyear 59 million term loan bears interest rate 685 per annum monthly payment 45525 december 11 2014 balloon payment due january 11 2015 3975611 4 50 million credit arrangement capital expenditure aggregate availability equipment line credit loan ceased april 30 2006 amounts outstanding april 30 2006 debt issuance costs related new refinancing banknorth amounted 654843 classified assets 293797 amortized expense fiscal year ended april 30 2006 debt issuance costs amortized using effective interest rate method future amortization expense follows fiscal year 2007 71492 2008 62935 2009 53507 2010 43652 2011 33176 thereafter 62932 smith wesson holding corporation subsidiaries notes consolidated financial statements continued addition debt extinguished january 2005 recognized expense year ended april 30 2006 approximately 232000 related unamortized debt issue costs written retirement date total longterm debt maturing fiscal 2007 2008 2009 2010 2011 thereafter 17 million 18 million 19 million 20 million 22 million 64 million respectively carrying amounts notes payable april 30 2006 2005 follows credit facility banknorth contains financial covenants relating maintaining minimum ebitda maximum leverage minimum debt service coverage maximum capital expenditures compliance debt covenants april 30 2006 except capital expenditures received waiver capital expenditures exceeded amount allowed loan agreement approximately 16 million letters credit april 30 2006 open letters credit aggregating 41 million workers’ compensation bond selfinsurance 40 million making majority balance 5 international sales sell products worldwide breakdown export sales accounted approximately 11 9 10 net product sales fiscal years ended april 30 2006 2005 2004 respectively follows individual country represent 10 net revenue smith wesson holding corporation subsidiaries notes consolidated financial statements continued 6 income expense details income expense fiscal years ended april 30 2006 2005 2004 follows 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials incurred fiscal years ended april 30 2006 2005 2004 advertising expenses included selling marketing expenses amounted approximately 7355000 6154000 5175000 respectively 8 property plant equipment summary property plant equipment april 30 2006 2005 follows depreciation expense amounted approximately 40 million 27 million 17 million fiscal years ended april 30 2006 2005 2004 respectively estimated cost complete construction progress approximately 34 million 9 inventories summary inventories stated lower cost market april 30 2006 2005 follows smith wesson holding corporation subsidiaries notes consolidated financial statements continued 10 intangible assets intangible assets recorded cost intangible assets consist patents obtained principally wholly acquisition smith wesson corp patents amortized using straightline method estimated useful lives ranging three 20 years summary intangible assets follows amortization expense amounted 28754 20732 23405 fiscal years ended april 30 2006 2005 2004 respectively amortization expense patents approximate 30000 annually next five fiscal years 11 assets consisted following april 30 2006 2005 12 receivables insurance carriers following summary activity receivables insurance carriers fiscal years ended april 30 2006 2005 outstanding balance april 30 2006 2005 4737406 900000 current assets 3837406 noncurrent assets 5368154 1200000 current assets 4168154 noncurrent assets respectively october 2004 one insurance carriers agreed pay portion past future defense costs relative municipal litigation result receivable insurers increased 2118828 fiscal year ended april 30 2005 reflect agreement defense costs paid insurance carriers 630748 495284 fiscal years ended april 30 2006 2005 respectively fiscal year april 30 2005 smith wesson holding corporation subsidiaries notes consolidated financial statements continued adjustment receivable 4534489 made reflect dismissal cases corresponding reduction liability 13 noncurrent liabilities noncurrent liabilities consisted following april 30 2006 2005 severance represents annual stipends defray medical costs former employees continuing january 2009 14 derivative financial instruments hedging activities purchase certain finished goods component parts european supplier pay euros purchased foreign exchange participating forward contracts minimize impact fluctuations foreign exchange rates participating forward contracts provide full protection us devaluation us dollar euro partial benefit appreciation us dollar euro strengthens average rate pay average rate euro weakens average rate 50 euros purchased average rate remaining 50 paid spot rate elected designate derivative instruments qualifying hedge accounting treatment sfas 133 accordingly record gains losses derivative contracts element income expense reporting period based change estimated fair value contracts estimate fair values derivative financial instruments based exchange rates underlying currencyeuros fair value outstanding derivatives asset approximately 54000 april 30 2006 liability 64000 april 30 2005 current derivative instruments outstanding april 30 2006 expire october 2006 15 selfinsurance reserves april 30 2006 2005 reserves workers’ compensation product liability medicaldental costs totaling approximately 96 million 107 million respectively 60 million 67 million respectively classified noncurrent included noncurrent liabilities remaining amounts approximately 36 million 40 million respectively included accrued expenses accompanying consolidated balance sheets believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 54 million 60 million 55 million fiscal years ended april 30 2006 2005 2004 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued following summary activity workers’ compensation product liability medicaldental reserves fiscal years ended april 30 2006 2005 2004 policy provide estimate loss result expected adverse findings legal settlements product liability workers’ compensation losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2006 2005 accrued reserves product liability approximately 76 million 81 million respectively approximately 51 million 55 million respectively noncurrent entirely consisting expected legal defense costs addition recorded receivables insurance carriers related liabilities 47 million 54 million 38 million 42 million respectively classified assets remaining amounts 900000 1200000 respectively classified current assets 16 capital stock common stock issued fiscal year ended april 30 2006 issued 368958 shares common stock current former employees upon exercise options granted employees company proceeds exercise shares 392763 fiscal year ended april 30 2006 issued 137868 shares common stock employee stock purchase plan proceeds exercise shares 419901 fiscal year ended april 30 2006 issued 829700 shares common stock former employees upon exercise warrants granted employees company purchase price shares 738433 discussed note 18 fiscal year ended april 30 2006 also issued 6000000 shares common stock private placement transaction fiscal year ended april 30 2005 issued 647216 shares common stock current former employees upon exercise options granted employees company proceeds exercise shares 736406 fiscal year ended april 30 2005 issued 191002 shares common stock employee stock purchase plan proceeds exercise shares 244575 fiscal year ended april 30 2005 issued 200000 shares common stock former employee current director upon cashless exercise warrants granted employee company smith wesson holding corporation subsidiaries notes consolidated financial statements continued fiscal year ended april 30 2004 issued 65075 shares common stock current former employees upon exercise options granted employees company proceeds exercise shares 58187 fiscal year ended april 30 2004 issued 226096 shares common stock employee stock purchase plan proceeds exercise shares 257729 fiscal year ended april 30 2004 issued 25000 shares common stock unrelated third party upon exercise options proceeds exercise shares 37300 difference recorded consulting expense stock warrants issued repurchased fiscal 2002 issued warrants related financing debt used acquisition smith wesson corp incentive bonuses employees directors compensation outside consultants consideration past services company including services rendered connection acquisition smith wesson corp issued common stock purchase warrant dated may 11 2001 robert l scott former officer current director company “scott warrant” value warrants expensed upon issuance scott warrant contained cashless exercise provision entitled mr scott purchase 5000000 shares common stock exercise price 089 per share subject adjustment set forth therein time date issuance five years date issuance year ended april 30 2005 mr scott exercised 311250 warrants cashless basis resulting 200000 common shares issued result april 30 2005 unexercised salz scott warrants 9688750 shown table subsequently may 2005 mr scott determined exercise warrants gross basis paid 089 cash exercise price 200000 shares received result mr scott exercised 200000 warrants gross exercise basis rather 311250 warrants cashless exercise basis result reinstated 111250 warrants unexercised warrants may 2005 may 2005 amended saltz scott warrants eliminate cashless exercise feature permitted warrants net share settled effect modification determined cause incremental compensation cost subsequently mr saltz exercised warrants purchase 500000 shares mr scott exercised warrants purchase 329700 shares gross basis purchase price 738433 resulting 8970300 unexercised warrants september 12 2005 september 12 2005 entered agreement messrs saltz scott tendered unexercised warrants purchase 8970300 shares us exchange cash payment 267 per share 23950701 total market value time therefore repurchase purchase warrants september 12 2005 result additional compensation expense smith wesson holding corporation subsidiaries notes consolidated financial statements continued following outlines activity related warrants periods indicated 17 stock option employee stock purchase plans two employee stock option plans “the sops” 2001 stock option plan 2004 incentive compensation plan new grants 2001 stock option plan made following approval 2004 incentive compensation plan september 13 2004 annual meeting stockholders new grants covering participants issued 2004 incentive compensation plan 2004 incentive compensation plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock available issuance pursuant options granted acquire common stock direct granting restricted common stock deferred stock granting stock appreciation rights granting dividend equivalents board directors committee established board administers sops selects recipients options granted determines number grants awarded options granted sops exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture unless terminated earlier board directors 2004 incentive compensation plan terminate time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan date grant option deemed date upon board directors board committee authorizes granting option generally options vest period three years options exercisable period 10 years plan also allows option grants nonemployees time board past granted separate employment inducement grant outside 2004 incentive compensation plan 500000 options made michael golden president chief executive officer fiscal year ended april 30 2005 smith wesson holding corporation subsidiaries notes consolidated financial statements continued number shares weighted average exercise prices options granted sops separate grant fiscal years ended april 30 2006 2005 2004 follows april 30 2006 8829167 shares available grant 2004 incentive compensation plan summary stock options outstanding vested exercisable april 30 2006 follows aggregate intrinsic value outstanding options vested exercisable april 30 2006 12039811 7224255 respectively employee stock purchase plan “espp” authorizes sale 10000000 shares common stock employees espp commenced june 24 2002 continues effect term 10 years unless sooner terminated espp implemented series offering periods two years duration four sixmonth purchase periods offering period plan amended september 2004 future offering periods commencing october 1 2004 offering period six months consistent six month purchase period purchase price 85 fair market value common stock offering date purchase date whichever lower participant may elect payroll deductions made payday offering period amount less 1 20 greater percentage board may establish time offering date participant’s compensation payday offering period last day offering period purchase date offering period offering period commencing april 1 ends next september 30 offering period commencing october 1 ends next march 31 board directors power change duration andor frequency offering purchase periods respect future offerings purchases without smith wesson holding corporation subsidiaries notes consolidated financial statements continued stockholder approval change announced least five days prior scheduled beginning first offering period affected maximum number shares employee may purchase period 12500 shares options rights participate espp nontransferable subject forfeiture accordance espp guidelines event certain corporate transactions option outstanding espp assumed equivalent option substituted successor corporation parent subsidiary successor corporation fiscal 2006 2005 2004 137868 191002 226096 shares respectively purchased espp year ended april 30 2005 adopted sfas 123r “sharebased payment” requires measurement cost employee services received exchange award equity instrument based grantdate fair value award elected modified retrospective application method adopting sfas 123r resulted restatement prior period amounts order present comparable compensation data accordance sfas 123r calculated fair value stock options warrants issued employees using blackscholes model time options warrants granted amount amortized vesting period option warrant espp fair value determined beginning purchase period amortized term offering period following assumptions used valuing options espp estimate expected volatility using past historical volatility expected term fair value stock option espp purchase estimated date grant using black scholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted table weightedaverage fair value stock options granted fiscal 2006 2005 2004 355 127 146 respectively weightedaverage fair value espp shares granted fiscal 2006 2005 2004 128 073 076 respectively recorded stockbased compensation expense related sfas 123r approximately 2140000 626000 820000 fiscal 2006 2005 2004 respectively stockbased compensation expense included general administrative expenses intrinsic value options warrants exercised fiscal 2006 2005 2004 approximately 4443000 951000 205000 respectively total fair value shares vested fiscal 2006 2005 2004 approximately 93 million 40 million 27 million respectively fiscal 2005 2004 modifications certain options 12 terminating employees made extend exercise period vested options resulted additional compensation expense smith wesson holding corporation subsidiaries notes consolidated financial statements continued recorded approximately 49000 51000 respectively modifications options fiscal 2006 april 30 2006 total unamortized fair value stock options approximately 18 million recognized vesting period three years august 1 2005 granted option purchase 25000 shares common stock consultant fully vested four months later november 30 2005 year ended april 30 2006 recorded estimated fair value option grant totaling approximately 118000 general administrative expenses accompanying statement income estimated fair value option grant using blackscholes optionpricing model following assumptions volatility 75 riskfree interest rate 432 expected life 10 years dividend yield 0 18 private placement offering september 12 2005 completed sale aggregate 6000000 shares common stock “shares” warrants purchase additional 1200000 shares common stock “warrants” sale made institutional investors reliance upon exemption registration requirements section 42 securities act 1933 rule 506 regulation act “private placement” received gross proceeds 26160000 cash sale securities agreed promptly file registration statement securities exchange commission register shares common stock issuable upon exercise warrants “registration statement” exercise price warrants 533 per share warrants exercisable beginning march 12 2006 expire september 26 2006 number shares issuable upon exercise warrants subject adjustment stock dividends stock splits distributions us upon merger consolidation sale assets tender exchange offer common stock reclassification common stock incurred issuance costs 2972056 including issuance warrant purchase 120000 shares common stock placement agent initial fair value 384000 exercise price placement agent’s warrants 436 per share terms placement agent’s warrant substantially warrants sold investors except becomes exercisable march 12 2006 expires september 12 2010 proceeds private placement used repurchase outstanding common stock warrants held mitchell saltz robert l scott directors company general working capital also entered agreement messrs saltz scott colton r melby another director company pursuant messrs saltz scott melby agreed sell us discretion certain circumstances aggregate 1200000 shares common stock requested us price per share 533 equivalent exercise price warrants call right determined meet requirements asset sfas 133 “accounting derivative instruments hedging activities” terms securities purchase agreement among us investors private placement required pay penalties fail meet obligations register shares issuable upon exercise warrants specifically following events “event” occurs required pay cash partial liquidated damages equivalent 1 per month thenoutstanding principal amount aggregate purchase price private placement investors fail file registration statement registering shares issuable upon exercise warrant registration statement declared effective prior dates specified securities purchase agreement ii certain exceptions investor permitted sell registered securities registration statement reason five trading days calendar quarter iii certain exceptions common stock listed quoted suspended trading eligible market period three trading days calendar quarter iv fail deliver certificate evidencing securities investor within three days delivery smith wesson holding corporation subsidiaries notes consolidated financial statements continued certificate required exercise rights investor pursuant warrants otherwise suspended reason v fail available sufficient number authorized unissued otherwise unreserved shares common stock available issue shares upon exercise warrants result registration rights penalties accordance emerging issues task force “eitf” issue 0019 “accounting derivative financial stock” recorded initial fair value warrants placement agent’s warrants date issuance totaling 1188000 financial instrument liabilities 804000 384000 respectively value shares recorded temporary equity accordance eitf topic d98 “classification measurement redeemable securities” quarter ended january 31 2006 due large part increase value common stock january 31st march 1st approximately 9 determined appropriate reevaluate accounting treatment shares warrants issued connection private placement connection evaluation utilized services independent valuation service provider order determine quantify difference fair value registered versus unregistered share common stock march 1 2006 valuation performed using blackscholes model resulted restricted stock discount approximately 25 versus total penalty 19 maximum amount damages could required pay march 1 2006 determined would economically compelled pay penalty rather settling retiring shares warrants therefore march 1 2006 reclassified shares warrants temporary equity liabilities respectively permanent equity warrants classified liability february 28 2006 accordance eitf 0019 subsequent changes fair value recorded consolidated statement income comprehensive income general administrative expenses total fair value warrants 1059600 february 28 2006 year ended april 30 2006 related decrease fair value warrants totaling 128400 recorded credit general administrative expenses following assumptions used determining fair value outstanding warrants issued investors placement agent connection private placement year ended april 30 2006 19 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed approximately 696000 fiscal year ended april 30 2006 618000 fiscal year ended april 30 2005 580000 fiscal year ended april 30 2004 noncontributory profit sharing plan also noncontributory profit sharing plan employees eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes defined plan year fiscal 2006 plan contribute approximately 25 million contributed approximately 24 million fiscal year ended april 30 2005 approximately 23 million fiscal year ended april 30 2004 contributions funded fiscal yearend smith wesson holding corporation subsidiaries notes consolidated financial statements continued 20 postemployment postretirement deferred compensation postretirement medical program certain obligations terminated program provides health care retirees age 65 employees designated combined age years service grandfathered program grandfathered provision provides varying degrees coverage based upon years service currently six retirees covered program 10 active employees grandfathered program postretirement medical liability based upon reports provided independent actuary postretirement medical liability approximately 233000 april 30 2006 approximately 227000 april 30 2005 following table sets forth postretirement medical amounts recognized postretirement medical benefit plan net periodic postretirement benefit lossincome includes following components weighted average discount rate used determining actuarial present value projected benefit obligation 57 52 april 30 2006 2005 respectively measurement purposes 10 annual rate increase per capita cost covered health care benefits assumed fiscal 2006 rate grading ultimate rate 55 fiscal 2013 fiscal 2004 11 annual rate increase per capita cost covered health care benefits assumed fiscal 2005 rate grading ultimate rate 5 fiscal 2008 fiscal years ended april 30 2006 2005 1 increase decrease assumed health care cost trend rate would immaterial effect aggregate service interest cost components net periodic postretirement health care benefit costs accumulated postretirement benefit obligation health care benefits estimated future benefit payments follows 2007 56000 2008 39000 2009 34000 2010 20000 2011 27000 2012 2016 17000 smith wesson holding corporation subsidiaries notes consolidated financial statements continued impact medicare prescription drug improvement modernization act 2003 reflected april 30 2006 plan immaterial amount post65 drug benefits likely would qualify federal subsidy period 21 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date income tax expense benefit consists following federal state income tax expense benefit 0 fiscal 2006 0 fiscal 2005 4217 fiscal 2004 allocated comprehensive income fiscal 2004 tax provision includes 416193 benefit federal net operating loss adjustments benefit relates filing amended fiscal 2003 2002 federal income tax returns recognize tax deductions warrant option exercises previously entitled deductions complied federal statutory reporting requirements subsequently complied reporting requirements entitled realize tax benefits relating warrant option exercises smith wesson holding corporation subsidiaries notes consolidated financial statements continued reconciliation provision income taxes statutory rates provision consolidated financial statements follows deferred tax assets relating tax benefits employee stock option grants reduced reflect exercises fiscal 2006 2005 2004 exercises resulted tax deductions excess previously recorded benefits based option value time grant “windfalls” although additional tax benefits “windfalls” reflected net operating tax loss carryforwards pursuant sfas 123r additional tax benefit associated windfall recognized deduction reduces taxes payable accordingly since tax benefit reduce current taxes payable fiscal 2006 2005 2004 due net operating loss carryforwards “windfall” tax benefits reflected net operating losses deferred tax assets fiscal 2006 2005 2004 windfalls included net operating loss carryforwards reflected deferred tax assets fiscal 2006 2005 2004 0 200000 0 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued future tax benefits deferred tax liabilities related temporary differences following federal net operating loss carrforwards amounting 42 million 109 million 168 million april 30 2006 2005 2004 respectively april 30 2006 net operating loss expires years 2019 2020 utilization losses limited section 382 108161 per year april 30 2005 determined 457388 net operating loss carryforwards expire unutilized therefore related deferred tax asset 155512 reversed tax expense fiscal 2005 possible future substantial changes ownership could occur could result additional ownership changes pursuant internal revenue code section 382 ownership change occur would annual limitation remaining tax loss carryforward utilized federal net operating losses account 12 million total net deferred tax asset 107 million 33 million 139 million deferred tax assets april 30 2006 2005 respectively state net operating loss carryforwards amounted 12 million 65 million 121 million april 30 2006 2005 2004 respectively expire fiscal 2006 fiscal 2008 certain state provisions may limit ability utilize state net operating losses given year certain events occur including cumulative changes ownership interests threeyear period opinion due uncertainty realization benefit state net operating losses valuation allowance maintained deferred tax assets smith wesson holding corporation subsidiaries notes consolidated financial statements continued 22 commitments contingencies litigation together firearms manufacturers certain related organizations codefendant various legal proceedings involving product liability claims aware product liability claims including allegations defective product design manufacturing negligent marketing andor distribution firearms leading personal injury including wrongful death lawsuits claims based principally theory “strict liability” also may based negligence breach warranty legal theories many lawsuits punitive damages well compensatory damages demanded aggregate claimed amounts currently exceed product liability accruals applicable insurance coverage believe every case allegations defective product design unfounded accident results therefrom due negligence misuse firearm claimant third party recovery us addition also codefendant various legal proceedings brought certain cities municipalities counties numerous firearms manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties shootings complaints municipalities seek damages among things costs medical care police emergency services public health services maintenance courts prisons services certain instances plaintiffs seek recover decreases property values loss business within city due increased criminal violence addition nuisance abatement andor injunctive relief sought change design manufacture marketing distribution practices various defendants suits allege among claims strict liability negligence design products public nuisance negligent entrustment negligent distribution deceptive fraudulent advertising violation consumer protection statutes conspiracy concert action theories monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect consolidated financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgment intend vigorously defend time estimated range reasonably possible additional losses term defined sfas 5 “loss contingencies” zero range reasonably possible losses relating unfavorable outcomes cannot made however product liability cases dollar amount damages claimed amount damages claimed totaled approximately 26 million april 30 2006 434 million april 30 2005 set forth indication possible maximum liability might required incur cases regardless likelihood reasonable probability amount awarded claimants result adverse judgments sustained appeal 4334 million decrease possible maximum liability due dismissal city chicago lawsuit expiration deadline appeal may 2005 city chicago increase 20 million related fudali lawsuit rulings following cases pending april 30 2006 michael billie sue pavelka v beretta usa corp et al superior court state california county los angeles complaint filed october 18 2005 served agent service january 26 2006 plaintiffs parents matthew pavelka police officer killed line duty november 15 2003 complaint alleges firearms used shooting included smith wesson firearm firearms two manufacturers complaint seeks unspecified compensatory punitive damages manufacturers dealer alleged straw purchaser one firearms manufactured us shooter estate second shooter numerous unnamed defendants respect manufacturer defendants plaintiffs assert claims negligence negligent entrustment public nuisance addition claim compensatory punitive damages public nuisance count smith wesson holding corporation subsidiaries notes consolidated financial statements continued seeks unspecified form injunctive relief march 14 2006 filed motion dismiss based protection lawful commerce arms act may 19 2006 court granted motion dismissing case plaintiffs’ appeal period yet expired district columbia et al v beretta usa corp et al superior court district columbia district columbia nine individual plaintiffs seek unspecified amount compensatory exemplary damages certain injunctive relief december 16 2002 superior court district columbia granted defendants’ motion judgment pleadings entirety january 14 2003 plaintiffs filed notice appeal district columbia court appeals court appeals issued decision affirmed dismissal plaintiffs’ common law negligence public nuisance claims reversed dismissal statutory strict liability count individual plaintiffs court also reversed dismissal statutory strict liability count district columbia extent district seeks subrogated damages named individuals incurred medical expenses plaintiffs defendants filed separate petitions rehearing may 13 2004 oral argument held dc court appeals january 11 2005 april 21 2005 dc court appeals issued opinion affirming earlier decision july 20 2005 defendants filed petition writ certiorari united states supreme court october 3 2005 supreme court denied defendants’ petition certiorari october 26 2005 filed answer third amended complaint october 27 2005 defendants filed motion judgment pleadings based protection lawful commerce arms act november 10 2005 status conference held judge brooke hedge set briefing schedule defendants’ motion stayed discovery pending decision defendants’ motion plaintiff’s opposition defendants’ motion filed december 19 2005 defendants’ reply filed february 2 2006 united states department justice filed brief defending constitutionality protection lawful commerce arms act january 30 2006 oral argument held march 10 2006 may 22 2006 court granted defendants’ motion judgment pleadings dismissed case entirety june 20 2006 plaintiffs filed notices appeal city new york et al v arms technology inc et al united states district court eastern district new york complaint alleges defendants created contributed maintained public nuisance city new york allegedly negligent marketing distribution practices plaintiff seeks injunctive relief defendants’ petition writ mandamus requiring recusal judge weinstein denied second circuit court appeals may 21 2004 april 8 2004 trial court denied plaintiff’s motion strike defendants’ jury demands granted defendants seventh amendment jury april 12 2004 trial court denied defendants’ motion dismiss answer second amended complaint filed may 17 2004 june 14 2004 court entered order releasing certain atf trace data june 22 2004 defendants filed motion certify court’s order interlocutory appeal july 6 2004 court entered order denying immediate separate appeal defendants july 16 2004 atf filed petition writ mandamus second circuit court appeals seeking review judge weinstein’s june 14 2004 order releasing certain trace data august 24 2004 second circuit issued order denying atf’s petition writ mandamus september 20 2004 court entered protective order confidential documents depositions three former employees held june 2005 october 26 2005 defendants filed motion dismiss based protection lawful commerce arms act plca november 11 2005 court stayed november 28 2005 trial date december 2 2005 court denied defendants’ motion dismiss finding plca inapplicable claims brought plaintiff court certified matter interlocutory appeal continued stay litigation pending determination second circuit applicability legislation december 13 2005 defendants filed appeal second circuit court appeals february 8 2006 district court issued rule show cause case dismissed based language 2006 appropriations act provides atf trace data shall admissible civil proceedings hearing held ourt march 3 2006 smith wesson holding corporation subsidiaries notes consolidated financial statements continued address whether court authority consider appropriations issue pendency second circuit appeal march 7 2006 court issued order finding retains jurisdiction ordered parties submit briefs april 7 2006 address applicability constitutionality appropriations act march 7 2006 second circuit accepted defendants’ appeal issued scheduling order defendants filed brief support appeal may 8 2006 plaintiff filed brief july 6 2006 july 11 2006 new york attorney general filed amicus brief supporting city’s crossappeal reversal portion district court’s decision addressing constitutionality plcaa defendants august 7 2006 reply plaintiff’s brief april 27 2006 pendency appeal judge weinstein issued order holding 2006 appropriations act preclude admissibility atf trace data proceeding may 11 2006 defendants filed petition permission file interlocutory appeal april 27 2006 order plaintiff oppose defendants’ petition appeal april 27 2006 order second circuit court appeals yet ruled defendants’ petition tenedora tuma sa v smith wesson corp civil commercial court first district court first instance national district santo domingo dominican republic plaintiff commenced suit submitting request preliminary reconciliation hearing two preliminary reconciliation hearings reconciliation committee issued certificate lack agreement thereafter summons notice claim issued us january 17 2000 plaintiff alleged terminated distributor agreement without cause sought damages approximately 600000 alleged violations dominican republic law 173 protection importers merchandise products briefing merits completed trial court november 2002 june 7 2004 court granted motion dismiss entirety notification judgment filed august 10 2004 september 9 2004 plaintiff purportedly appealed decision march 3 2005 informed hearing held court appeals october 27 2004 without notification counsel us merits plaintiff’s appeal taken advisement court june 23 2005 hearing held wherein attempted reopen appeal based lack service appeal papers us november 11 2005 court appeals rendered final decision court refused plaintiff’s arguments appeal upheld petitions confirming aspects judgment rendered court first instance favor january 12 2006 plaintiff appealed supreme court dominican republic response filed february 10 2006 hearing scheduled date city gary indiana mayor scott l king v smith wesson corp et al lake superior court indiana plaintiff’s complaint alleges public nuisance negligent distribution marketing negligent design seeks unspecified amount compensatory punitive damages certain injunctive relief defendants’ motion dismiss plaintiff’s complaint granted counts january 11 2001 september 20 2002 indiana court appeals issued opinion affirming trial court’s dismissal plaintiff’s claims manufacturer defendants december 23 2003 indiana supreme court issued decision plaintiff’s petition transfer reversing decision court appeals remanding case trial court held plaintiff allowed proceed public nuisance negligence claims defendants negligent design claim manufacturer defendants filed answer plaintiff’s amended complaint january 30 2004 november 23 2005 defendants filed motion dismiss based protection lawful commerce arms act plaintiffs’ opposition defendants’ motion dismiss filed february 22 2006 oral argument held may 10 2006 decision issued date trial scheduled begin june 15 2009 peter edward fudali v smith wesson corp et al frederick county court maryland plaintiff’s complaint filed march 4 1999 stems incident occurred march 8 1996 complaint alleges revolver discharged unexpectedly plaintiff preparing shoot revolver neighbor’s backyard causing fragments metal burning gunpowder strike forehead eye complaint asserts claims negligence strict liability seeks compensatory smith wesson holding corporation subsidiaries notes consolidated financial statements continued damages 20 million dollars plus costs fees court entered order granting summary judgment favor however waiting court’s ruling certification dismissal final order oren gorden v smith wesson corp et al territorial court virgin islands district st croix complaint filed january 19 2001 seeks unspecified compensatory damages personal injuries allegedly sustained mr gorden complaint alleges mr gorden’s smith wesson handgun malfunctioned exploded tried load filed answer denying allegations liability november 17 2003 firearm issue case lost transit commercial carrier returned us plaintiff april 21 2004 court denied motion summary judgment extended pretrial deadlines mediation conducted april 13 2005 expert discovery ongoing trial postponed new trial date scheduled court fiscal years ended april 30 2006 2005 2004 paid 0 4535 16 million respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 15000 0 16039 respectively fiscal years settlement fees relative product liability cases fiscal 2006 2005 2004 recorded expense income 87734 29 million 40388 respectively recognize changes product municipal litigation liability expense fiscal 2006 provision incurred reported cases income fiscal 2005 2004 due reduction reserves due favorable outcomes product municipal cases well reflect initiation insurance coverage fiscal 2005 recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets sec investigation sec conducting investigation determine whether violations federal securities laws connection matters relating restatement consolidated financial statements fiscal 2002 first three quarters fiscal 2003 although fully cooperated sec matter sec may determine violated federal securities laws cannot predict investigation completed outcome sec determines violated federal securities laws may face sanctions including monetary penalties injunctive relief addition incurring legal costs company well result reimbursement obligations several current former officers continue discussions sec intend continue cooperate fully sec environmental remediation subject numerous federal state local laws regulate discharge materials otherwise relate protection environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act “rcra” place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects smith wesson holding corporation subsidiaries notes consolidated financial statements continued required remediate hazardous waste facilities currently designated sites springfield massachusetts subject five release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency “epa” andor individual states cercla state equivalent one site reserves 603000 april 30 2006 578000 noncurrent remediation sites referred believe time frame remediation currently indeterminable therefore time frame payment remediation likewise currently indeterminable thus making net present value calculation impracticable estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained february 25 2003 sold approximately 85 acres companyowned property city springfield massachusetts springfield redevelopment authority “sra” 175 million resulting net gain 17 million terms sale included cash payment 750000 closing promissory note remaining 10 million note collateralized mortgage sold property note due 2022 accrues interest fixed rate 60 per annum 85 acres known environmental liabilities related past operating practices sales price reflected issues buyer springfield redevelopment authority sra agency city springfield obtained governmental grants help defray costs related property time sale decrease reserves waiting remediation would eliminate potential liability completed remediation completed sra may 2005 reduced environmental reserves 31 million quarter ended july 31 2005 based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities raw materials components supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many materials used production products available limited number suppliers cases longterm supply contracts suppliers smith wesson holding corporation subsidiaries notes consolidated financial statements continued contracts employment agreements entered employment agreements certain officers managers retain service ordinary course business agreements distribution agreements various third parties ordinary course business gun manufacturer enter settlement agreements city boston public health commission us department housing urban development hud relating manner selling handguns settlement agreement dated march 17 2000 us department treasury hud formally rescinded hud settlement placed substantial restrictions obligations operation business including restrictions design manufacture marketing distribution firearm products subsequently signed two states 11 cities counties signing hud settlement lawsuits filed us nine 11 cities counties signed hud settlement among terms hud settlement provided city county party hud settlement lawsuit pending us would dismiss us prejudice lawsuit subject consent order august 10 2005 none nine cities counties signed hud settlement dismissed us prejudice lawsuit subject consent order hud settlement believe hud settlement legally binding numerous reasons including lack consideration received us entering settlement assurance given however position hud settlement legally binding would ultimately prevail subsequent litigation received confirmation hud settlement enforced indication hud settlement formally rescinded enforced restrictions contained hud settlement could substantially impair ability compete particularly since none competitors subject restrictions rental leases lease office space scottsdale operating lease expires january 2011 photocopiers springfield location various expiration dates vehicles national sales force april 30 2006 lease commitments approximately follows rent expense fiscal years ended april 30 2006 2005 2004 approximately 215000 181000 151000 respectively relocated new scottsdale location august 1 2005 entered 65month lease agreement space lease expense fiscal year 2006 approximately 46000 2007 69000 2008 71000 2009 73000 2010 75000 thereafter 45000 smith wesson holding corporation subsidiaries notes consolidated financial statements continued 23 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2006 fiscal 2005 opinion adjustments necessary present fairly information quarters reflected schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2006 2005 2004 1 decrease product liability offset corresponding reduction receivable insurance carrier assets current assets exhibit index filed herewith application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit 1 incorporated reference company’s proxy statement schedule 14a filed sec august 11 2004 2 incorporated reference company’s form 8a filed sec august 25 2005 3 incorporated reference company’s form 8k filed sec may 29 2001 4 incorporated reference company’s proxy statement schedule 14a filed sec december 28 2001 5 incorporated reference company’s form 10k filed sec august 15 2005 6 incorporated reference company’s form 8k filed sec september 13 2005 7 incorporated reference company’s registration statement form s8 333128804 filed sec october 4 2005 8 incorporated reference company’s form 10qsb filed sec august 13 2001 9 incorporated reference company’s form 10qsb filed sec september 14 2001 10 incorporated reference company’s form 8k filed sec january 18 2005 11 incorporated reference company’s form 10ksb filed sec december 18 2003 12 incorporated reference company’s form 10k filed sec july 16 2004 13 incorporated reference company’s form 8k filed sec november 30 2004 14 incorporated reference company’s form 8k filed sec january 11 2005 15 incorporated reference company’s form 10q filed sec march 10 2005 16 incorporated reference company’s form 10ka filed sec december 21 2005 17 incorporated reference company’s form 8k filed sec february 23 2006 18 incorporated reference company’s form 10q filed sec march 17 2006 19 incorporated reference company’s form 8k filed sec may 19 2006item 15 exhibits financial statement schedules financial statements financial statement schedules 1 consolidated financial statements listed index consolidated financial statements page report 2 financial statement schedules schedule ii valuation qualifying accounts years ended april 30 2013 2012 2011 set forth page report b exhibits exhibit number exhibit 22 agreement plan merger dated december 15 2006 among registrant swactc inc bear lake acquisition corp tgv partnerstca investors llc eg kendrick jr gregory j ritz1 28 agreement plan merger dated june 18 2009 among registrant swacusr inc swacusr ii inc universal safety response inc william c cohen jr stockholders’ representative2 28a waiver amendment 1 agreement plan merger dated august 19 2010 among registrant universal safety response inc william c cohen jr stockholders’ representative3 management contract compensatory arrangement application submitted securities exchange commission confidential treatment pursuant rule 24b2 securities exchange act 1934 portions exhibit portions omitted exhibit  pursuant rule 406t regulation st interactive data files deemed filed part registration statement prospectus purposes sections 11 12 securities act 1933 amended deemed filed purposes section 18 securities exchange act 1934 amended otherwise subject liability sections 1 incorporated reference registrant’s form 8k filed sec december 18 2006 2 incorporated reference registrant’s form 8k filed sec june 19 2009 3 incorporated reference registrant’s form 8k filed sec august 19 2010 4 incorporated reference registrant’s proxy statement schedule 14a filed sec august 11 2004 5 incorporated reference registrant’s form 8k filed sec may 6 2011 6 incorporated reference registrant’s form 8a filed sec august 25 2005 7 incorporated reference registrant’s form s3 333136842 filed sec august 23 2006 8 incorporated reference registrant’s form 8k filed sec may 29 2001 9 incorporated reference registrant’s form 8k filed sec december 18 2006 10 incorporated reference registrant’s form s3 333153638 filed sec september 23 2008 11 incorporated reference registrant’s form 8k filed sec july 24 2009 12 incorporated reference registrant’s form 8k filed sec january 18 2011 13 incorporated reference registrant’s form 10qsb filed sec august 13 2001 14 incorporated reference registrant’s form 10qsb filed sec september 14 2001 15 incorporated reference registrant’s form s8 333128804 filed sec october 4 2005 16 incorporated reference registrant’s proxy statement schedule 14a filed sec december 28 2001 17 incorporated reference registrant’s proxy statement schedule 14a filed sec august 14 2006 18 incorporated reference registrant’s form 10ksb filed sec december 18 2003 19 incorporated reference registrant’s form 10k filed sec july 16 2004 20 incorporated reference registrant’s form 10q filed sec march 10 2005 21 incorporated reference registrant’s form 10q filed sec march 17 2006 22 incorporated reference registrant’s form 8k filed sec may 19 2006 23 incorporated reference registrant’s form 8k filed sec december 6 2007 24 incorporated reference registrant’s form 8k filed sec december 9 2010 25 incorporated reference registrant’s form 10k filed sec june 30 2009 26 incorporated reference registrant’s form 8k filed sec october 25 2010 27 incorporated reference registrant’s form 8k filed sec december 21 2010 28 incorporated reference registrant’s form 8k filed sec january 4 2011 29 incorporated reference registrant’s form 8k filed sec february 16 2011 30 incorporated reference registrant’s form 8k filed sec march 7 2011 31 incorporated reference registrant’s form 10q filed sec september 7 2011 32 incorporated reference registrant’s form 8k filed sec september 28 2011 33 incorporated reference registrant’s form 8k filed sec november 2 2011 34 incorporated reference registrant’s form 10q filed sec december 8 2011 35 incorporated reference registrant’s form 10k filed sec june 28 2012 36 incorporated reference registrant’s form s3 filed sec march 18 2013 37 incorporated reference registrant’s form 8ka filed sec june 17 2013 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized smith wesson holding corporation p james debney p james debney president chief executive officer date june 25 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated index consolidated financial statements smith wesson holding corporation subsidiaries report independent registered public accounting firm board directors stockholders smith wesson holding corporation springfield massachusetts audited accompanying consolidated balance sheets smith wesson holding corporation subsidiaries “company” april 30 2013 2012 related consolidated statements incomeloss comprehensive incomeloss changes stockholders’ equity cash flows three years period ended april 30 2013 connection audits consolidated financial statements also audited financial statement schedule listed accompanying index financial statements schedule responsibility company’s management responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall presentation financial statements schedule believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position smith wesson holding corporation subsidiaries april 30 2013 2012 results operations cash flows three years period ended april 30 2013 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states smith wesson holding corporation’s internal control financial reporting april 30 2013 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated june 25 2013 expressed unqualified opinion thereon bdo usa llp boston massachusetts june 25 2013 smith wesson holding corporation subsidiaries consolidated balance sheets accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements incomeloss comprehensive incomeloss accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statement changes stockholders’ equity accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries consolidated statements cash flows smith wesson holding corporation subsidiaries consolidated statements cash flows continued supplemental disclosure noncash investing financing activities accompanying notes integral part consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements 1 organization one world’s leading manufacturers firearms manufacture wide array handguns including revolvers pistols long guns including modern sporting bolt action single shot rifles handcuffs firearmrelated products accessories sale wide variety customers including gun enthusiasts collectors hunters sportsmen competitive shooters individuals desiring home personal protection law enforcement security agencies officers military agencies united states throughout world one largest manufacturers handguns modern sporting rifles handcuffs united states active participant hunting rifle market manufacture firearm products facilities springfield massachusetts houlton maine sell products smith wesson mp thompsoncenter arms performance center walther brands addition pursue opportunities license name trademarks third parties use association products services 2 significant accounting policies use estimates preparation consolidated financial statements conformity accounting principles generally accepted united states requires us make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities financial statement dates reported amounts revenue expenses reporting periods significant estimates include accruals warranty product liability workers’ compensation expense environmental liability excess obsolete inventory allowance doubtful accounts income tax expense including deferred tax asset valuation forfeiture rates stockbased awards medical claims payable actual results could differ estimates principles consolidation accompanying consolidated financial statements include accounts smith wesson holding corporation wholly owned subsidiaries including smith wesson corp thompsoncenter arms company llc swss llc formerly smith wesson security solutions inc “swss” security solutions division fiscal yearends wholly owned subsidiary smith wesson corp april 28 2013 april 29 2012 may 1 2011 twoday oneday variance reported fiscal year ends april 30 2013 2012 2011 respectively variances create material difference consolidated financial statements presented opinion adjustments include normal recurring adjustments necessary fairly present financial position results operations changes stockholders’ equity cash flows april 30 2013 april 30 2012 periods presented included significant intercompany accounts transactions eliminated consolidation swss presented discontinued operations consolidated statements incomeloss comprehensive incomeloss periods presented see note 3 additional information regarding discontinued operations unless stated otherwise reference consolidated statements incomeloss comprehensive incomeloss items notes consolidated financial statements refers results continuing operations january 3 2007 acquired outstanding capital stock thompson center holding corporation formerly bear lake acquisition corp subsidiaries collectively “thompsoncenter arms” including thompsoncenter arms company inc thompsoncenter arms company llc “tca” fiscal 2012 merged thompson center holding corporation smith wesson corp reclassification certain amounts presented prior years consolidated cash flows related discontinued operations reclassified conform current year’s presentation fair value financial instruments unless otherwise indicated fair values reported assets liabilities represent financial instruments held trading purposes approximate carrying values amounts shortterm nature market rates interest smith wesson holding corporation subsidiaries notes consolidated financial statements continued cash equivalents consider highly liquid investments purchased original maturities three months less date acquisition cash equivalents maintain cash bank deposit accounts times may exceed federally insured limits experienced losses accounts april 30 2013 accounts exceeded federally insured limits 999 million trade receivables extend credit domestic customers foreign firearm distributors based financial condition offer discounts early payment firearm invoices believe extension credit advisable rely either prepayment letter credit place past due balances collection outside agency 90 days good faith effort part customer bring account current write balances deemed uncollectible us allowance doubtful accounts estimate allowance doubtful accounts current past due balances knowledge customers’ financial situations past payment history concentrations credit risk financial instruments potentially subject us concentration credit risk consist principally cash equivalents trade receivables place cash equivalents overnight us government securities concentrations credit risk respect trade receivables limited large number customers comprising customer base geographic business dispersion perform ongoing credit evaluations customers’ financial condition generally require collateral one customer accounted approximately 116 122 115 net product sales fiscal years ended april 30 2013 2012 2011 respectively customer accounted approximately 55 million 116 total accounts receivable april 30 2013 addition two customers accounted 68 million 62 million 143 131 respectively total accounts receivable april 30 2013 inventories value firearm inventories consisting primarily finished firearms finished firearm components related products accessories lower cost using firstin firstout fifo method market allowance potential nonsaleable inventory due excess stock obsolescence based upon detailed review inventory components past history expected future usage property plant equipment record property plant equipment consisting land building improvements machinery equipment computers furniture fixtures cost depreciate using straightline method estimated useful lives charge expenditures maintenance repairs earnings incurred capitalize additions renewals betterments upon retirement disposition property equipment remove related cost accumulated depreciation respective accounts include gain loss operations summary estimated useful lives follows capitalize tooling dies fixtures part machinery equipment depreciate period exceeding five years intangible assets amortize intangible assets estimated useful lives range eight 20 years see note 10 additional information regarding intangible assets revenue recognition firearm products recognize revenue following four basic criteria met 1 persuasive evidence arrangement exists 2 delivery occurred services provided 3 fee fixed determinable 4 collection reasonably assured revenue security solutions business reclassified discontinued operations smith wesson holding corporation subsidiaries notes consolidated financial statements continued product sales account firearm revenue recognize revenue firearm product sales earnings process complete risks rewards ownership transferred customer generally upon shipment could delayed receipt customer acceptance also provide tooling forging heat treating finishing plating engineering support services customers recognize revenue accepted customer applicable contingencies material performance obligations exist collectability reasonably assured thereby earning us right receive retain payments services performed billed recognize trademark licensing revenue individual licensees based historical experience expected cash receipts licensees licensing revenue consists minimum royalties andor percentage licensee’s sales licensed products current licensing agreements revenue payable calendar quarter basis recognize nonrefundable license fees received upon initial signing license agreements revenue future obligation required part result combination uncertain factors regarding existing licensees including current past payment performance market acceptance licensees’ products insufficient historical experience believe reasonable assurance collectability exist based results past payment performance licensees general therefore recognize minimum royalty payments upon contract signing instead record royalty revenue monthly minimum royalty reasonably estimated month payment assured april 30 2013 minimum royalties collected future amounted approximately 56 million follows dollars thousands segment information historically reported certain financial information two segments firearms security solutions result divestiture swss results operations comprising security solutions segment reported discontinued operations periods presented see note 3 discontinued operations additional information geographic information april 30 2013 2012 2011 material personnel facilities outside united states sales outside united states detailed note 6 research development engage internal external research development “rd” order remain competitive exploit possible untapped market opportunities approve prospective rd projects analysis cost benefits associated potential product costs rd expense include among items salaries materials utilities administrative costs earningsloss per share calculate basic diluted earningsloss per common share accordance provisions asc 26010 earnings per share basic earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period diluted earningsloss per common share equals net incomeloss divided weighted average number common shares outstanding period including effect outstanding stock options stockbased instruments effect dilutive smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table provides reconciliation net incomeloss amounts weighted average number common equivalent shares used determine basic diluted earningsloss per common share thousands except per share data included calculation diluted earnings per common share year ended april 30 2012 499000 diluted earnings related effect conversion convertible debt fiscal 2013 246635 shares common stock issuable upon exercise stock options excluded computation diluted income per share effect would antidilutive fiscal 2012 952483 shares common stock issuable upon exercise stock options excluded computation diluted loss per share effect would antidilutive fiscal 2011 5515877 shares common stock issuable upon conversion convertible notes defined 2345422 shares common stock reserved issuance former stockholders swss date issuance 1598124 shares common stock issuable upon exercise stock options excluded computation diluted income per share effect would antidilutive valuation longlived tangible intangible assets evaluate recoverability longlived assets asset groups whenever events changes circumstances indicate carrying amounts may recoverable evaluations indicate related future undiscounted cash flows sufficient recover carrying values assets carrying values reduced fair value adjusted carrying value becomes asset’s new cost basis determine fair value primarily using future anticipated cash flows directly associated expected arise direct result use eventual disposition asset group discounted using interest rate commensurate risk involved significant longlived tangible intangible assets susceptible valuation adjustments result changes various factors conditions significant longlived tangible intangible assets fixed assets developed technology patents trademarks trade names amortize finitelived intangible assets either straightline basis based upon patterns expect utilize economic benefits assets exception goodwill intangible assets indefinite lives initially smith wesson holding corporation subsidiaries notes consolidated financial statements continued determine values intangible assets riskadjusted discounted cash flow approach assess potential impairment identifiable intangible assets fixed assets whenever events changes circumstances indicate carrying values may recoverable least annually factors consider important could trigger impairment assets include following • significant underperformance relative historical projected future operating results • significant changes manner use assets strategy overall business • significant negative industry economic trends • significant decline stock price sustained period • decline market capitalization net book value future adverse changes unforeseeable factors could result impairment charge could materially impact future results operations financial position reporting period identified impairment charges taken year ended april 30 2013 accordance asc 350 intangiblesgoodwill test intangible assets indefinite lives impairment annual basis february 1 annual tests indicators potential impairment exist impairment test compares fair value reporting unit carrying amount including intangible assets indefinite lives assess whether impairment present reviewed provisions asc 28010 segment reporting topic respect criteria necessary evaluate number reporting units exist based review asc 2801050 determined operate continuing operations one reporting unit springfield massachusetts houlton maine facilities april 30 2013 goodwill recorded books continuing operations based combination factors occurred fiscal 2012 including federal corporate budgetary constraints increased price competition low barriers entry factors determined indicators impairment goodwill intangible assets existed security solutions division result conducted evaluation goodwill intangible assets associated acquisition business based earnings cash flow forecast next 10 years fair value reporting unit estimated using expected present value future cash flows based work performed recorded goodwill impairment loss 839 million fiscal 2012 included results discontinued operations consolidated statements incomeloss comprehensive incomeloss periodically review longlived assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable useful lives assets longer appropriate impairment test based comparison undiscounted cash flows recorded carrying value asset impairment indicated asset written estimated fair value based discounted cash flow analysis noted economic market conditions affected security solutions division required us test impairment longlived assets pertaining business fiscal 2011 based assessment recorded impairment charge 66 million included results discontinued operations consolidated statements incomeincome comprehensive incomeloss reflect excess carrying value longlived intangible assets discounted cash flows see note 3 discontinued operations additional information see also note 10 intangible assets impairment charges taken continuing operations fiscal 2013 2012 2011 based review longlived assets utilize income approach discounted cash flows estimate fair value reporting unit selected method believe appropriately measures income producing assets considered using market approach cost approach concluded appropriate valuing reporting units given lack relevant available market comparisons income approach based projected cash flows discounted present value using discount rates consider smith wesson holding corporation subsidiaries notes consolidated financial statements continued timing risk forecasted cash flows believe approach appropriate provides fair value estimate based upon reporting unit’s expected longterm operating cash performance approach also mitigates impact cyclical trends occur industry fair value estimated using internally developed forecasts assumptions discount rate used average estimated value market participant’s cost capital debt derived using customary market metrics significant assumptions include terminal value margin rates future capital expenditures changes future working capital requirements also compare reconcile overall fair value market capitalization inherent uncertainties related assumptions used application assumptions analysis believe income approach provides reasonable estimate fair value reporting units foregoing assumptions consistent longterm performance limited exceptions believe future investments capital expenditures percent revenue decline future years due improved utilization resulting lean initiatives believe days sales outstanding decline increase revenues also assumed current economic downturn markets contracted long term however may number years fully recover assumptions could deviate materially actual results significant judgments estimates involved determining useful lives longlived assets determining reporting units exist assessing events circumstances would require interim impairment analysis goodwill longlived assets performed changes organization management reporting structure well events circumstances including technological advances increased competition changing economic market conditions could result shorter estimated useful lives b additional reporting units may require alternative methods estimating fair values greater disaggregation aggregation analysis reporting unit c changes previous assumptions estimates change weighted average cost capital example could materially change valuation increased could cause impairment turn could additional impact consolidated financial statements accelerated amortization impairment charges accounting acquisitions accounting acquisitions involves significant judgments estimates including fair value certain forms consideration fair value acquired intangible assets involve projections future revenue cash flows fair value acquired assets assumed liabilities including potential contingencies useful lives applicable reporting unit assets financial position results operations may materially impacted changes initial assumptions estimates relating prior future acquisitions additionally determine fair value reporting unit purposes first step annual goodwill impairment test based income approach prior future acquisitions accretive results operations expected market value declines dramatically may required complete second step requires significant judgments estimates may result material impairment charges period determined income taxes provision income taxes based upon income reported accompanying consolidated financial statements deferred income taxes reflect impact temporary differences amounts assets liabilities recognized financial reporting purposes amounts recognized tax purposes measure deferred taxes applying tax rates expected place deferred items become subject income tax deductible income tax purposes stock options stockbased awards described notes 16 17 incentive stock plan employees directors receive options purchase common stock stockbased awards including stock options restricted stock units “rsus” performancebased restricted stock units “psus” municipal product liability provide reserves municipal potential product liability defense costs based estimates determined consultation litigation counsel evaluate adjustments provision municipal product liability ongoing basis charge credit cost sales smith wesson holding corporation subsidiaries notes consolidated financial statements continued exclusive insurance reimbursements make evaluation based upon information regarding potential existing product liability cases record future costs result evaluation considered probable reasonably estimable certain municipal product liability costs subject reimbursement insurance carriers environmental liability provided reserves undiscounted basis potential environmental obligations consider probable reasonable estimates obligations made consider environmental liabilities probable based upon specific facts circumstances including currently available environmental studies existing technology currently enacted laws regulations timing future expenditures experience remediation efforts direction approval regulatory agencies status potentially responsible party “prp” ability prps contractually liable parties pay allocated portion environmental obligations believe adequately reserved reasonable estimable costs known environmental obligations review reserves may make additions deletions reserves result specific facts circumstances previously noted fiscal year ended april 30 2013 change environmental reserve environmental reserve decreased fiscal year ended april 30 2012 29000 fiscal year ended april 30 2011 reserve increased 15 million primarily established reserve land building located rochester new hampshire subsequently transferred assets held sale fiscal 2013 completed sale land building located rochester new hampshire agreed indemnify buyer losses arising among things environmental conditions related thompsoncenter subsidiaries’ manufacturing activities insurance supplement environmental remediation costs excess reserves associated land building located rochester new hampshire environmental reserve maintained property relieved result sale agreement property warranty generally provide lifetime warranty original purchaser new firearm products provide estimated warranty obligations period recognize related revenue quantify record estimate warrantyrelated costs based actual historical claims experience current repair costs make adjustments accruals warranty claims data historical experience warrant experience actual claims repair costs higher estimated claims repair costs used calculate provision operating results period periods returns additional costs materialize would adversely impacted june 13 2013 initiated recall thompsoncenter arms bolt action rifles manufactured since products’ introduction 2007 november 11 2011 also initiated recall thompsoncenter arms venture rifles manufactured since product’s introduction mid2009 april 30 2013 incurred 36 million recall costs including cost recent recall firearms sold prior april 30 2013 estimate remaining cost recalls 38 million recorded accrued warranty balance warranty expense fiscal years ended april 30 2013 2012 2011 amounted 71 million 63 million 35 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table sets forth change accrued warranties portion recorded noncurrent liability fiscal years ended april 30 2013 2012 2011 dollars thousands sales promotional related expenses present product sales consolidated financial statements net customer promotional program costs depend upon volume sales amounted 51 million 27 million 105 million fiscal years ended april 30 2013 2012 2011 respectively coop advertising program retail level expensed costs amounting 15 million 17 million 20 million fiscal 2013 2012 2011 respectively selling marketing expenses shipping handling accompanying consolidated financial statements included amounts billed customers shipping handling net product services sales included costs relating shipping handling charges including inbound freight charges internal transfer costs distribution network cost products services sold insurance reserves selfinsured retentions deductibles majority workers’ compensation automobile general liability product liability group health insurance programs selfinsurance amounts vary 20 million per occurrence record liability estimated premiums incurred losses accompanying consolidated financial statements undiscounted basis general administrative expenses accompanying consolidated financial statements included payroll benefits management administrative employees profit sharing stock compensation expenses information technology costs legal professional fees depreciation furniture fixtures computer equipment reserves bad debts expenses administrative functions general administrative operating expenses recently issued accounting standards june 2011 financial accounting standards board “fasb” issued asu 201105 comprehensive income topic 220 presentation comprehensive income amendments asu require entity present total comprehensive income components net income components comprehensive income either single continuous statement comprehensive income two separate consecutive statements asu 201105 eliminates option present components comprehensive income part statement equity asu 201105 effective interim annual periods beginning december 15 2011 december 2011 fasb issued asu 201112 deferral effective date amendments presentation reclassifications items accumulated comprehensive income asu 201105 asu 201112 indefinitely defers certain reclassification adjustment provisions asu 201105 asu 201112 also effective interim annual periods beginning december 15 2011 asus material impact consolidated financial statements 3 discontinued operations fiscal 2010 acquired outstanding capital stock swss initial purchase price 593 million consisted 211 million cash 382 million common stock paid closing smith wesson holding corporation subsidiaries notes consolidated financial statements continued 4080000 shares common issued march 18 2011 year ended april 30 2011 recorded 31 million income reduction contingent consideration associated purchase agreement income based combination factors occurring acquisition swss including federal corporate budgetary constraints increased price competition fundamental change strategic direction october 5 2011 committed plan divest assets liabilities ongoing operations security solutions division july 10 2012 entered asset purchase agreement futurenet group inc “futurenet” providing futurenet acquire substantially assets assume certain liabilities swss purchase price 79 million including 400000 working capital adjustment july 26 2012 completed disposition swss received 55 million cash recorded receivable included assets consolidated balance sheets remaining portion purchase price year ended april 30 2013 received 20 million related receivable within agreed upon terms prior disposition presented assets liabilities separate lines held sale consolidated balance sheets operating results swss classified discontinued operations presented separate line consolidated statements income comprehensive income periods presented april 30 2012 recorded 135 million assets held sale including 10 million relating land building located rochester new hampshire 57 million liabilities held sale consolidated balance sheets connection divestiture swss sold net assets 130 million incurred 16 million closingrelated costs including 655000 legal professional investment banking fees 918000 severance employeerelated costs following summary operating results discontinued operations dollars thousands included results operations fiscal 2013 2012 12 million 55 million respectively noncash charges related loss sale divestiture discontinued security solutions division included results operations fiscal 2011 noncash charges related impairment goodwill intangible assets totaling 905 million addition fiscal 2011 recorded income 31 million related reduction acquisition liability related contingent consideration versus value recorded april 30 2010 4 notes payable financing arrangements credit facilities 600 million credit facility provides availability december 7 2014 working capital needs revolving line credit bears interest variable rate equal libor prime plus applicable margin based leverage ratio election april 30 2013 borrowings outstanding borrowings would borne interest rate 45 per annum security credit facility td bank na lenders “lenders” thereunder first priority lien personal property real estate assets may prepay whole part loans interest rates determined reference prime rate interest accrued date prepayment amount prepaid without penalty premium loans fixed rate interest determined reference libor interest rate may prepaid provided reimburse lenders costs associated making payments dates specified credit agreement ii borrowing converting libor loan date borrowing conversion dates specified credit agreement smith wesson holding corporation subsidiaries notes consolidated financial statements continued convertible notes december 15 2006 issued aggregate 800 million 4 senior convertible notes “convertible notes” maturing december 15 2026 qualified institutional buyers pursuant terms conditions securities purchase agreement indenture fiscal 2011 exchanged total 500 million convertible notes 500 million 95 senior notes defined fiscal 2012 repurchased remaining 300 million convertible notes utilizing cash hand april 30 2013 outstanding convertible notes 95 senior notes fiscal 2011 issued aggregate 500 million 95 senior notes due january 14 2016 “95 senior notes” exchange 500 million convertible notes pursuant terms conditions exchange agreement indenture “95 senior notes indenture” fiscal 2011 evaluated exchanges modification event asc 47060 troubled debt restructurings debtors experiencing financial difficulties exchanges accounted troubled debt restructuring consequently evaluated exchange asc 47050 debtor’s accounting modification exchange debt instruments determine modification substantial conversion feature removed exchange debt modification determined substantial accordingly exchanged convertible notes extinguished fair value 95 senior notes equal carrying value exchanged convertible notes therefore gain loss extinguishment recorded fiscal 2011 accordance asc 47050 amortized 476000 deferred financing costs associated extinguishment interest expense 95 senior notes bear interest rate 95 per annum payable june 15 december 15 year time prior january 14 2014 may option redeem portion 95 senior notes redemption price 100 principal amount 95 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 95 senior notes net cash proceeds one equity offerings redemption price 10475 principal amount 95 senior notes plus accrued unpaid interest redemption date provided case clause b least 65 aggregate original principal amount 95 senior notes remains outstanding redemption occurs within 60 days closing equity offering january 14 2014 may option redeem portion 95 senior notes redemption price 1 10475 principal amount 95 senior notes redeemed 12month period beginning january 14 2014 2 100 principal amount 95 senior notes redeemed 12month period beginning january 14 2015 plus either case accrued unpaid interest 95 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 95 senior notes holders 95 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 95 senior notes mature january 14 2016 fiscal 2013 purchased total 64 million 95 senior notes utilizing cash hand paid 552000 interest premium relating purchases 95 senior notes general unsecured obligations company 95 senior notes indenture contains certain affirmative negative covenants including limitations restricted payments limitations indebtedness limitations sale assets limitations liens limitation indebtedness 95 senior notes indenture applicable time consolidated coverage ratio set forth 95 senior notes indenture us restricted subsidiaries less 200 100 general set forth 95 senior notes indenture consolidated coverage ratio determined comparing prior four quarters’ consolidated ebitda earnings interest taxes depreciation amortization consolidated interest expense smith wesson holding corporation subsidiaries notes consolidated financial statements continued debt issuance costs debt issuance costs related credit agreement lenders including related refinancings amounted 22 million recorded assets costs amortized expense life credit facility using straightline method fiscal year ended april 30 2013 amortized total 185000 interest expense incurred 43 million debt issuance costs associated issuance convertible notes amortized costs straightline basis approximates effective interest rate method december 15 2011 date first redemption noted repurchased 300 million convertible notes fiscal 2012 fiscal 2011 exchange convertible notes 95 senior notes discussed resulted increased amortization expense 476000 noted incurred 18 million debt issuance costs associated issuance 95 senior notes costs amortized straightline basis approximates effective interest rate method january 14 2016 date maturity fiscal year ended april 30 2013 amortized 495000 interest expense including 173000 debt issuance costs wrote connection repurchase 64 million 95 senior notes noted total amount amortized interest expense debt issuance costs fiscal 2013 2012 2011 680000 14 million 15 million respectively including writeoffs related extinguishment april 30 2013 without impact exchange noted future amortization debt issuance costs follows fiscal 2014 310000 fiscal 2015 310000 fiscal 2016 212000 credit agreement lenders contains financial covenants relating maintaining maximum leverage minimum debt service coverage 95 senior notes indenture contains financial covenant relating times interest earned compliance debt covenants april 30 2013 letters credit april 30 2013 outstanding letters credit aggregating 11 million 5875 senior notes june 2013 sold aggregate 1000 million 5875 senior notes due 2017 various qualified institutional buyers exchange approximately 428 million outstanding 95 senior notes existing holders notes purchase certain holders additional 5875 senior notes cash result transaction indebtedness increased 571 million debt service requirements increased 18 million per annum 5875 senior notes sold pursuant terms conditions indenture exchange purchase agreements 5875 senior notes bear interest rate 5875 per annum payable june 15 december 15 year beginning december 15 2013 time prior june 15 2015 may option upon less 30 60 days’ prior notice redeem portion 5875 senior notes redemption price 100 principal amount 5875 senior notes plus applicable premium plus accrued unpaid interest redemption date b redeem 35 aggregate principal amount 5875 senior notes net cash proceeds one equity offerings redemption price 105875 principal amount 5875 senior notes plus accrued unpaid interest redemption date provided case foregoing clause least 65 aggregate original principal amount 5875 senior notes remains outstanding redemption occurs within 60 days closing equity offering june 15 2015 may option upon less 30 60 days’ prior notice redeem portion 5875 senior notes redemption price 1029375 principal amount 5875 senior notes redeemed 12month period beginning june 15 2015 b 100 principal amount 5875 senior notes redeemed 12month period beginning june 15 2016 plus either case accrued unpaid interest 5875 senior notes applicable redemption date subject certain restrictions conditions may required make offer repurchase 5875 senior notes connection change control disposition assets redeemed us repaid pursuant holders’ right require repurchase 5875 senior notes mature june 15 2017 smith wesson holding corporation subsidiaries notes consolidated financial statements continued 5 capital lease october 28 2011 entered saleleaseback agreement included sale certain machinery equipment leased total 35 million machinery equipment increase production capacity lease effective interest rate 576 payable 60 monthly installments fiscal 2017 leases accounted provisions asc 84010 leases requires leases evaluated classified operating capital leases financial reporting purposes based evaluation asc 84010 determined lease qualifies capital lease net present value future lease payments exceed 90 fair market value leased machinery equipment pledged assets financed secure amounts outstanding included 442000 shortterm capital lease obligation accrued expenses 24 million noncurrent liabilities following sets forth future minimum lease payments april 30 2013 dollars thousands 6 net sales following table sets forth breakdown net sales fiscal years ended april 30 2013 2012 2011 respectively dollars thousands exception walther firearms sold smith wesson mp performance center thompsoncenter arms brands depending upon product service customers include distributors federal state municipal law enforcement agencies officers government military agencies businesses retailers consumers smith wesson holding corporation subsidiaries notes consolidated financial statements continued sell products worldwide following table sets forth breakdown export net sales included table export net sales accounted 3 4 5 total net sales fiscal years ended april 30 2013 2012 2011 respectively dollars thousands individual foreign country accounted 10 net sales 7 advertising costs expense advertising costs primarily consisting magazine advertisements printed materials television advertisements either incurred upon first occurrence advertising expense included selling marketing expenses continuing operations fiscal years ended april 30 2013 2012 2011 amounted 151 million 147 million 151 million respectively 8 property plant equipment following table summarizes property plant equipment april 30 2013 2012 dollars thousands estimated cost complete construction progress 128 million depreciation expense continuing operations amounted 154 million 134 million 111 million fiscal years ended april 30 2013 2012 2011 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table summarizes depreciation amortization expense continuing operations includes amortization intangibles debt financing costs line item fiscal years ended april 30 2013 2012 2011 dollars thousands 9 inventories following table sets forth summary inventories net reserves stated lower cost market april 30 2013 2012 dollars thousands 10 intangible assets record intangible assets cost intangible assets consist customer relationships trademarks trade names patents amortize patents developed technology using straightline method estimated useful lives ranging eight 20 years amortize customer relationships proration expected yearly revenue generated customer lists acquired currently estimated 20 years following table presents summary intangible assets year ended april 30 2013 dollars thousands amortization expense excluding amortization deferred financing costs amounted 639000 656000 630000 fiscal years ended april 30 2013 2012 2011 respectively expect amortization expense approximately 600000 annually next five fiscal years smith wesson holding corporation subsidiaries notes consolidated financial statements continued 11 receivables insurance carriers discussed notes 15 19 party lawsuits related use firearm products carry insurance covers certain legal defense costs related matters record receivable insurance carriers collection insurance proceeds probable outstanding balance april 30 2013 2012 19 million 21 million respectively 25000 current assets 19 million 20 million respectively noncurrent assets insurance carriers paid municipal related defense costs fiscal 2013 2012 12 accrued expenses following table sets forth accrued expenses april 30 2013 2012 dollars thousands 13 plant consolidation november 2011 completed previously announced plan move production hunting products springfield massachusetts facility close rochester new hampshire facility incurred major capital expenditures relating moving equipment processes rochester new hampshire springfield massachusetts improving production efficiencies purchasing tooling new product offerings various projects designed increase capacity upgrade manufacturing technology connection plant consolidation january 2012 completed sale kw thompson company included foundry operations subsidiary thompsoncenter arms purchase price 900000 upon closing sale received 400000 note receivable buyer bears interest 4 matures january 2017 april 30 2013 308000 due us related note receivable 78000 included current assets 230000 included assets consolidated balance sheets also recorded loss sale business calculated net assets sold excess purchase price 241000 included general administrative expenses consolidated statements incomeloss comprehensive incomeloss business sold included discontinued operations material overall consolidated financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements continued april 30 2012 classified land building located rochester new hampshire assets held sale consolidated balance sheets accordance asc 3601045 impairment disposal long lived assets net book values assets held sale totaled 10 million including environmental reserve stated lower carrying value fair value december 19 2012 completed sale land building located rochester new hampshire fiscal year ended april 30 2013 recorded 345000 expenses related employee severances total amount incurred connection plant consolidation 56 million 25 million employee severance relocation expenses 31 million facilitiesrelated expenses following table summarizes restructuring liabilities accrued changes amounts year ended april 30 2013 plan discussed dollars thousands december 21 2010 economic development incentive program “edip” commonwealth massachusetts awarded refundable economic incentive tax credit “itc” economic assistance coordinating council conjunction plan discussed itc calculated 40 qualified capital expenditures placed service allows refundable tax credit commonwealth massachusetts 721000 44 million fiscal years ended april 30 2013 2012 respectively april 30 2013 2012 respectively recorded 721000 44 million amount received itc contra asset account included property plant equipment fiscal 2012 received 44 million tax credit recorded receivable additional 721000 tax credit fiscal 2013 compliance written edip investment analysis plan 14 fair value measurement follow provisions asc 82010 fair value measurements disclosures topic financial assets liabilities asc 82010 provides framework measuring fair value gaap requires expanded disclosures regarding fair value measurements asc 82010 defines fair value exchange price would received asset paid transfer liability exit price principal advantageous market asset liability orderly transaction market participants measurement date asc 82010 also establishes fair value hierarchy requires entity maximize use observable inputs available minimize use unobservable inputs measuring fair value smith wesson holding corporation subsidiaries notes consolidated financial statements continued financial assets liabilities recorded accompanying consolidated balance sheets categorized based inputs valuation techniques follows level 1 financial assets liabilities whose values based unadjusted quoted prices identical assets liabilities active market ability access measurement date examples include active exchangetraded equity securities listed derivatives us government agency securities level 2 financial assets liabilities whose values based quoted prices markets trading occurs infrequently whose values based quoted prices instruments similar attributes active markets level 2 inputs include following • quoted prices identical similar assets liabilities nonactive markets corporate municipal bonds trade infrequently • inputs quoted prices observable substantially full term asset liability examples include interest rate currency swaps • inputs derived principally corroborated observable market data substantially full term asset liability certain securities derivatives currently level 2 financial assets liabilities level 3 financial assets liabilities whose values based prices valuation techniques require inputs unobservable significant overall fair value measurement inputs reflect assumptions market participant would use pricing asset liability currently level 3 financial assets liabilities following table presents information assets measured fair value recurring basis april 30 2013 indicates fair value hierarchy valuation techniques utilized determine fair value dollars thousands cash equivalents include operating cash money market accounts 15 selfinsurance reserves april 30 2013 2012 reserves workers’ compensation product liability municipal liability medicaldental costs totaling 96 million 90 million respectively 57 million 54 million respectively classified noncurrent included noncurrent liabilities 23 million 22 million respectively included accrued expenses 16 million 14 million respectively included accrued productmunicipal liability accompanying consolidated balance sheets addition april 30 2013 2012 332000 excess workers’ compensation receivable classified asset believe reserves adequate possible ultimate liabilities exceed estimates amounts charged expense 122 million 114 million 115 million fiscal years ended april 30 2013 2012 2011 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued following table summary activity workers’ compensation product liability municipal liability medicaldental reserves fiscal years ended april 30 2013 2012 2011 dollars thousands policy provide estimate loss result expected adverse findings legal settlements product liability municipal liability workers’ compensation matters losses probable reasonably estimable also policy accrue reasonable estimable legal costs associated defending litigation estimates involve range possible costs determine consultation litigation counsel likely cost within range casebycase basis also record receivables insurance carriers relating matters collection probable april 30 2013 2012 accrued reserves product municipal litigation liabilities 44 million 45 million respectively 28 million 31 million respectively noncurrent consisting entirely expected legal defense costs addition april 30 2013 2012 recorded receivables insurance carriers related liabilities 19 million 20 million respectively nearly classified assets 25000 classified current assets 16 stockholders’ equity treasury stock fiscal 2013 board directors authorized repurchase 350 million common stock subject certain conditions open market privately negotiated transactions prior june 30 2013 repurchased 2099603 shares common stock fiscal 2013 200 million utilizing cash hand leaving 150 million common stock authorized purchased june 13 2013 announced authorization repurchase 1000 million common stock 750 million may repurchased tender offer remainder may repurchased open market privately negotiated transactions 1000 million authorization replaces stock repurchase program authorized 2012 set expire june 17 2014 stock option employee stock purchase plans two stock option plans “sops” 2001 stock option plan 2004 incentive stock plan new grants 2001 stock option plan made since approval 2004 incentive stock plan september 13 2004 annual meeting stockholders new grants covering participants issued 2004 incentive stock plan 2004 incentive stock plan authorizes issuance lesser 1 15 shares common stock outstanding time 2 10000000 shares common stock plan permits grant options acquire common stock restricted common stock deferred stock restricted stock units “rsus” stock appreciation rights dividend equivalents board directors committee established board administers sops selects recipients awards granted determines grants awarded options granted sops exercisable price determined board committee time grant event less fair market value common stock date granted grants options may made employees directors without regard performance measures options issued pursuant sops nontransferable subject forfeiture smith wesson holding corporation subsidiaries notes consolidated financial statements continued unless terminated earlier board directors 2004 incentive stock plan terminate earlier 1 ten years date later occur original date plan approved board directors stockholders whichever earlier ii date increase number shares reserved issuance plan approved board directors long increase also approved stockholders 2 time shares common stock remain available issuance plan company rights obligations respect outstanding awards plan date grant award deemed date upon board directors board committee authorizes granting award except specific circumstances awards vest period three years exercisable period 10 years plan also permits grant awards nonemployees board granted past separate option grant outside 2004 incentive stock plan 500000 shares made exercise price 147 per share connection hiring former president chief executive officer fiscal year ended april 30 2005 former president chief executive officer resigned september 26 2011 continues service member board directors appointed covice chairman board april 30 2013 250000 options outstanding relating grant expire december 6 2014 number shares weighted average exercise prices options granted sops ii separate option grant former president chief executive officer outside sops fiscal years ended april 30 2013 2012 2011 follows april 30 2013 4090447 shares available grant 2004 incentive stock plan use unissued share pool shares issued options restricted share awards rsus employee stock purchase plan “espp” issuances aggregate intrinsic value outstanding options april 30 2013 2012 2011 121 million 160 million 16 million respectively aggregate intrinsic value outstanding options exercisable april 30 2013 2012 2011 87 million 82 million 16 million respectively aggregate intrinsic value options exercised years ended april 30 2013 2012 2011 51 million 982000 186000 respectively april 30 2013 total unrecognized compensation cost outstanding options 15 million recognized remaining weighted average vesting period 089 years smith wesson holding corporation subsidiaries notes consolidated financial statements continued espp commenced june 24 2002 “2001 espp” authorized sale 10000000 shares common stock employees 2001 espp continued effect term 10 years expired offering period ended march 31 2012 options rights participate 2001 espp nontransferable subject forfeiture accordance 2001 espp guidelines april 30 2013 issued 2398630 shares common stock 2001 espp purchased prior april 30 2012 september 26 2011 stockholders approved 2011 espp replace expiring 2001 espp authorized sale 6000000 shares common stock employees shares included 2011 espp longer available issuance 2001 espp current espp implemented series successive offering periods maximum duration 12 months fair market value “fmv” per share common stock purchase date less fmv per share start date 12month offering period offering period automatically terminate new 12month offering period begin next business day offering period begin april 1 october 1 applicable immediately following end previous offering period payroll deductions aftertax basis amount less 1 20 greater percentage committee appointed administer espp may establish time first day offering period participant’s compensation payroll date option exercise price per share equal 85 lower fmv first day offering period fmv exercise date maximum number shares participant may purchase period 12500 shares total 25000 shares based fmv first day offering period espp remain effect earliest exercise date participants become entitled purchase number shares greater number reserved shares available purchase espp b date determined board directors discretion c march 31 2022 fiscal 2013 2012 2011 185218 502898 350971 shares respectively purchased espp’s measure cost employee services received exchange award equity instrument based grantdate fair value award calculate fair value stock options warrants issued employees using blackscholes model time options warrants granted amount amortized vesting period option warrant espp fair value determined beginning purchase period amortized term exercise period following assumptions used valuing options espp purchases 12month periods ended april 30 2013 2012 2011 estimate expected volatility using historical volatility expected term fair value stock option espp purchase estimated date grant using blackscholes option pricing model using riskfree interest rate expected term expected volatility dividend yield variables noted smith wesson holding corporation subsidiaries notes consolidated financial statements continued table total stockbased compensation expense including stock options purchases espp rsu performancebased rsu “psu” awards 41 million included 45000 stockbased compensation expense related loss sale discontinued operations 25 million 17 million fiscal years 2013 2012 2011 respectively stockbased compensation expense included general administrative expenses grant servicebased rsus executive officers employees consultants directors grants made cost recipient rsu represents right acquire one share common stock carry voting dividend rights except specific circumstances rsu grants employees generally vest period three years onethird units vesting anniversary date grant date aggregate fair value rsu grants amortized compensation expense vesting period grant psus market conditions executive officers grant psus without market conditions employees executive officers including successful completion specific projects goals implementation new enterprise resource planning “erp” system time grant calculate fair value psus using montecarlo simulation incorporate following variables valuation model volatility calculated recent period represents remaining term performance period valuation date three years b correlation coefficient utilizes historical price data used develop volatility assumptions c riskfree interest rate based yield zerocoupon us treasury bill commensurate threeyear performance period expect pay dividends foreseeable future marketcondition psus vest fair value psus recognized corresponding threeyear performance period marketcondition psus maximum aggregate award equal 200 target amount granted number marketcondition psus may earned depends upon total stockholder return “tsr” common stock compared tsr russell 2000 index “rut” nasdaq composite index “ixic” applicable threeyear performance period stock must outperform rut ixic applicable 10 order target award vest year ended april 30 2013 granted 152000 marketcondition psus certain executive officers 63050 psus without market conditions employees also granted 320279 servicebased rsus year ended april 30 2013 including 250250 rsus certain executive officers 35000 rsus directors 28029 rsus nonexecutive officer employees 7000 rsus smith wesson holding corporation subsidiaries notes consolidated financial statements continued consultants compensation expense recognized related grants rsus psus 18 million fiscal year ended april 30 2013 fiscal year ended april 30 2013 delivered 14250 psus without marketconditions current employees total market value 131000 also delivered 69637 shares common stock certain executive officers current employees consultants former employee vested rsus total market value 595000 year ended april 30 2013 cancelled 16996 servicebased rsus 35000 marketcondition psus result service period condition met 2000 psus without marketcondition result performance condition met fiscal year ended april 30 2012 granted 149873 servicebased rsus employees consultants april 30 2012 granted 209200 marketcondition psus certain executive officers fiscal year ended april 30 2012 cancelled 88700 marketcondition psus previously granted former president chief executive officer result service period condition met compensation expense recognized related grants rsus psus excluding 180000 impact 88700 cancelled psus 350000 12 months ended april 30 2012 12 months ended april 30 2013 delivered 9500 shares common stock employees consultants vested rsus total market value 43000 fiscal year ended april 30 2011 granted 7500 servicebased rsus consultants 120200 marketcondition psus certain executive officers delivered 67195 shares common stock total market value 271000 rsus vested period fiscal year ended april 30 2011 cancelled aggregate 134999 psus consisting 53333 psus previously granted former president chief executive officer financial targets associated psus met fiscal year ended april 30 2011 ii 40000 psus previously granted former executive vice president chief financial officer service period condition met iii 15000 psus previously granted former president swss service period condition met iv 26666 psus previously granted former president chief executive officer financial targets associated psus met fiscal year ended april 30 2010 compensation expense recognized related grants rsus psus excluding 905000 impact 134999 cancelled psus previously granted former employees named 281000 fiscal year ended april 30 2011 grant date fair value rsus psus vested fiscal 2013 2012 2011 726000 43000 321000 respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued summary activity unvested rsus psus fiscal years 2013 2012 2011 follows april 30 2013 38 million unrecognized compensation cost related unvested rsus psus cost expected recognized weighted average remaining contractual term 17 years 17 employer sponsored benefit plans contributory defined investment plan offer contributory defined investment plan covering substantially employees completed least six months service defined employees may contribute 1 30 annual pay us matching 50 first 6 combined pre posttax compensation contributed 17 million 15 million 991000 fiscal years ended april 30 2013 2012 2011 respectively noncontributory profit sharing plan noncontributory profit sharing plan covering substantially springfield massachusetts houlton maine employees become eligible may 1 following completion full fiscal year continuous service contribute 15 net operating profit interest taxes 15 qualifying payroll defined plan year fiscal 2013 plan contribute approximately 96 million recorded general administrative costs contributed 80 million 41 million fiscal years ended april 30 2012 2011 respectively contributions funded fiscal yearend 18 income taxes use asset liability approach financial accounting reporting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities measured applying enacted tax rates laws taxable years differences expected recovered settled effect deferred tax assets liabilities change tax rates recognized income period includes enactment date smith wesson holding corporation subsidiaries notes consolidated financial statements continued income tax expense continuing operations consists following dollars thousands following table presents reconciliation provision income taxes continuing operations statutory rates provision consolidated financial statements dollars thousands smith wesson holding corporation subsidiaries notes consolidated financial statements continued future tax benefits deferred tax liabilities related temporary differences following dollars thousands deferred taxes related stock compensation adjusted amounts reported prior year noted required asc 74010 accounting income taxes record tax assets liabilities temporary differences book value tax bases assets liabilities assessing realization deferred income tax assets consider whether likely deferred income tax assets realized ultimate realization deferred income tax assets depends upon generating future taxable income periods temporary differences become deductible net operating loss carryforwards expire evaluate recoverability deferred income tax assets assessing need valuation allowance quarterly basis determine likely deferred income tax assets recovered establish valuation allowance deferred income tax assets recording valuation allowance reversing valuation allowance could significant effect future results operations financial position management unaware recent expected future changes tax laws would material impact financial statements smith wesson holding corporation subsidiaries notes consolidated financial statements continued federal net operating loss carryforwards amounting 757000 april 30 2013 expire fiscal 2020 obtained 82 million additional loss carryforwards acquisition swss july 20 2009 majority utilized fiscal 2010 utilization remaining losses limited section 382 internal revenue code 108000 fiscal 2013 taxable year thereafter possible future substantial changes ownership could occur could result additional ownership changes pursuant section 382 internal revenue code ownership change occur could annual limitation remaining tax loss carryforward 231 million 194 million state net operating loss carryforwards april 30 2013 2012 respectively state net operating loss carryforwards expire april 30 2015 april 30 2033 23 million 19 million state tax credit carryforwards april 30 2013 2012 respectively state tax credit carryforwards expire april 30 2015 april 30 2025 expiration date april 30 2013 valuation allowances 973000 15 million provided deferred tax assets state net operating loss carryforward state tax credits respectively anticipate using prior expiration 20000 state deferred tax assets anticipate realize benefit april 30 2012 valuation allowances 827000 11 million provided deferred tax assets state net operating loss carryforwards state tax credits respectively anticipate using prior expiration 239000 state deferred tax assets anticipate realize benefit increase valuation allowance deferred tax assets state net operating losses credits state deferred tax assets related mainly operations tennessee valuation allowance provided deferred federal income tax assets april 30 2013 2012 believe likely assets realized april 30 2013 2012 gross taxeffected unrecognized tax benefits 11 million 12 million respectively entire amounts recognized would favorably impact effective tax rate included unrecognized tax benefits april 30 2013 2012 270000 260000 respectively accrued interest penalties related uncertain tax positions recorded current noncurrent liabilities reconciliation beginning ending amount unrecognized tax benefits follows dollars thousands approximately 10 million unrecognized tax benefits classified current income tax liabilities recorded accrued expenses payment cash anticipated within one year balance sheet date statute expected expire fiscal 2014 expect incur additional taxes interest penalties uncertain tax positions remainder classified noncurrent payment cash anticipated within one year expect change material interest penalties related income tax liabilities included income tax expense limited exception subject us federal state local nonus income tax audits tax authorities fiscal years subsequent april 30 2009 smith wesson holding corporation subsidiaries notes consolidated financial statements continued 19 commitments contingencies litigation january 19 2010 doj unsealed indictments 22 individuals law enforcement military equipment industries one former vice presidentsales international us law enforcement charged indictment also served grand jury subpoena production documents always taken continue take seriously obligation industry leader foster responsible ethical culture includes adherence laws industry regulations united states abroad although cooperating fully doj matter undertaken comprehensive review company policies procedures doj may determine violated fcpa laws february 21 2012 doj filed motion dismiss prejudice indictments remaining defendants pending trial including former vice presidentsales international us law enforcement february 24 2012 district court granted motion dismiss cannot predict however investigation completed outcome could additional indictments company officers employees doj determines violated fcpa laws may face sanctions including significant civil criminal penalties addition could prevented bidding domestic military government contracts could risk debarment us department state also face increased legal expenses could see increase cost international business could also see private civil litigation arising result outcome investigation addition responding investigation may divert time attention management normal business operations regardless outcome investigation publicity surrounding investigation potential risks associated investigation could negatively impact perception company investors customers others fiscal 2011 received subpoena staff sec giving notice sec conducting nonpublic factfinding inquiry determine whether violations federal securities laws appears civil inquiry triggered part doj investigation potential fcpa violations although cooperating fully sec matter sec may determine violated federal securities laws cannot predict inquiry completed outcome sec determines violated federal securities laws may face injunctive relief disgorgement illgotten gains sanctions including fines penalties may forced take corrective actions could increase costs otherwise adversely affect business results operations liquidity also face increased legal expenses could see increase cost business could also see private civil litigation arising result outcome inquiry addition responding inquiry may divert time attention management normal business operations regardless outcome inquiry publicity surrounding inquiry potential risks associated inquiry could negatively impact perception company investors customers others involved two purported stockholder derivative lawsuits actions brought putative plaintiffs behalf company certain officers directors employees lawsuits based principally theory breach fiduciary duties putative plaintiffs seek unspecified damages behalf company individual defendants damages sought case include equitable andor injunctive relief actions improve corporate governance recovery attorneys’ fees one case also include declaratory relief rescission certain option awards believe allegations asserted lawsuits unfounded defendant ten product liability cases aware eight product liability claims primarily alleging defective product design defective manufacturing failure provide adequate warnings addition codefendant case brought city gary indiana numerous firearm manufacturers distributors dealers seeking recover damages allegedly arising misuse firearms third parties believe various allegations described unfounded smith wesson holding corporation subsidiaries notes consolidated financial statements continued addition accident results due negligence misuse firearm claimant third party recovery us addition involved lawsuits claims investigations proceedings including commercial environmental employment matters arise ordinary course business relief sought individual cases primarily includes compensatory sometimes punitive damages certain cases claims seek changes corporate governance unspecified compensatory punitive damages others compensatory damages sought may range less 75000 excess 14 million experience initial demands generally bear reasonable relationship facts circumstances particular matter believe accruals product liability cases claims described reasonable quantitative measure cost us product liability cases claims vigorously defending lawsuits subject unfavorable outcome prolonged litigation could harm business litigation nature also expensive time consuming diverts time attention management monitor status known claims product liability accrual includes amounts defense costs asserted unasserted claims difficult forecast outcome claims believe consultation litigation counsel uncertain whether outcome claims material adverse effect financial position results operations cash flows believe provided adequate reserves defense costs anticipate material adverse judgments intend vigorously defend fiscal years ended april 30 2013 2012 2011 paid 758000 401000 13 million respectively defense administrative costs relative product liability municipal litigation addition spent aggregate 42000 105000 70000 respectively fiscal years settlement fees related product liability cases recorded liability defense costs consideration reimbursement insurance carriers also recorded amount due reimbursement existing policies insurance carriers receivable shown current assets fiscal 2013 recorded expense 805000 recognize changes product liability municipal litigation liability fiscal 2012 2011 recorded income 560000 10 million respectively recognize changes product liability municipal litigation liability time estimated range reasonably possible additional losses relating unfavorable outcomes cannot made environmental remediation subject numerous federal state local laws regulate health safety workforce well environmental liability including regulations monitored occupational health safety administration osha national fire protection association nfpa department public health dph though exhaustive examples applicable regulations include confined space safety walking working surfaces machine guarding life safety required comply regulations mitigate release environment laws required expected continue require us make significant expenditures capital expense nature several significant federal laws applicable operations include clean air act clean water act comprehensive environmental response compensation liability act “cercla” solid waste disposal act amended resource conservation recovery act smith wesson holding corporation subsidiaries notes consolidated financial statements continued place programs personnel monitor compliance various federal state local environmental regulations normal course manufacturing operations subject governmental proceedings orders pertaining waste disposal air emissions water discharges environment fund environmental costs cash flows operations believe compliance applicable environmental regulations material respects required remediate hazardous waste facilities currently designated sites springfield massachusetts subject two release areas focus remediation projects part massachusetts contingency plan “mcp” mcp provides structured environment voluntary remediation regulated releases may required remove hazardous waste remediate alleged effects hazardous substances environment associated past disposal practices sites owned us received notice potentially responsible party environmental protection agency andor individual states cercla state equivalent two sites fiscal 2013 completed sale land building located rochester new hampshire pursuant agreed indemnify buyer losses arising among things environmental conditions related thompsoncenter subsidiaries’ manufacturing activities environmental reserve maintained property relieved result purchase sale agreement april 30 2013 2012 respectively recorded 577000 environmental reserve noncurrent liabilities calculated net present value environmental reserve equal carrying value liability recorded books estimate costs based upon currently enacted laws regulations currently available facts experience remediation efforts existing technology ability potentially responsible parties contractually liable parties pay allocated portions environmental obligations available information sufficient estimate amount liability estimate used information sufficient establish range probable liability point within range likely lower end range used may insurance coverage environmental remediation costs recognized gains probable recoveries gain contingencies environmental reserve calculated using undiscounted amounts based independent environmental remediation reports obtained based information known us expect current environmental regulations environmental proceedings claims material adverse effect consolidated financial position results operations cash flows however possible predict certainty impact us future environmental compliance requirements cost resolution future environmental proceedings claims part scope remedies may required certain liability federal environmental laws joint several nature environmental laws regulations subject modification changes interpretation assurance additional changing environmental regulation become burdensome future development would material adverse effect company suppliers inability obtain sufficient quantities components parts raw materials supplies independent sources necessary production products could result reduced delayed sales lost orders delay loss sales could adversely impact operating results many components parts raw materials supplies used production products available limited number suppliers cases longterm supply contracts suppliers smith wesson holding corporation subsidiaries notes consolidated financial statements continued contracts employment agreements employment severance change control agreements certain officers managers agreements distribution agreements various third parties ordinary course business outstanding letters creditrestricted cash open letters credit aggregating 11 million april 30 2013 restricted cash totaling 33 million april 30 2013 25 million acts compensating balance line credit dated december 7 2010 812000 related environmental remediation required performed accordance credit facility lenders restricted cash cannot withdrawn accounts deposited without consent lenders rental leases lease office space scottsdale arizona operating lease expires january 2015 machinery photocopiers springfield houlton locations various expiration dates vehicles national sales force april 30 2013 lease commitments follows dollars thousands rent expense fiscal years ended april 30 2013 2012 2011 22 million 23 million 21 million respectively smith wesson holding corporation subsidiaries notes consolidated financial statements continued 20 quarterly financial information unaudited following table summarizes quarterly financial results fiscal 2013 2012 opinion adjustments necessary present fairly information quarters reflected dollars thousands except per share data gross profit fourth fiscal quarter included 30 million adjustment recall thompsoncenter arms bolt action rifles schedule ii smith wesson holding corporation subsidiaries valuation qualifying accounts years ended april 30 2013 2012 2011 1 decrease municipal liability reserve result expired statute limitations certain cases 2 increase environmental reserve result settlement former owners thompsoncenter arms regarding environmental escrow established acquisition rochester new hampshire facility 3 decrease environmental reserve result reclassification reserve related rochester new hampshire facility assets held sale 4 decrease inventory reserve warranty reserves result reclassification assets liabilities held sale relate swss disposal group