Annual Report 2020 Dedicated to our essential workforce 2020 IN REVIEW 'XULQJȴVFDOZHDQQRXQFHGWKH GHFLVLRQE\RXU%RDUGRI'LUHFWRUVWR VSLQR΍RXURXWGRRUSURGXFWVDQG DFFHVVRULHVEXVLQHVVDVDVHSDUDWH SXEOLFFRPSDQ\:HEHOLHYHWKHVSLQ R΍ZLOODOORZWKHPDQDJHPHQWWHDPV LQERWKȴUHDUPVDQGRXWGRRUSURGXFWV DQGDFFHVVRULHVWRIRFXVRQWKHLU UHVSHFWLYHJURZWKVWUDWHJLHVWDLORUWKHLU EXVLQHVVDQGȴQDQFLDOPRGHOVWRWKRVH VWUDWHJLHVDQGDOLJQWKHLUȴQDQFLDO UHVRXUFHVZLWKWKHLUSDUWLFXODUEXVLQHVV

:HDOVREHOLHYHLWZLOOSURYLGHWKHLQYHVWPHQW FRPPXQLW\FOHDUHULQVLJKWLQWRWKHYDOXHFUHDWLRQ SRWHQWLDOLQHDFKLQGHSHQGHQWFRPSDQ\XOWLPDWHO\ GULYLQJVWRFNKROGHUYDOXH:HDUHSOHDVHGWRUHSRUW WKDWWKHVSLQR΍WUDQVDFWLRQZDVVXFFHVVIXOO\FRPSOHWHG LQ$XJXVWDWZKLFKWLPHHOLJLEOHVWRFNKROGHUV RIRXUFRPSDQ\UHFHLYHGDWD[IUHHGLVWULEXWLRQRI VKDUHVLQWKHQHZO\IRUPHG$PHULFDQ2XWGRRU%UDQGV ΖQFZKLFKLVOLVWHGRQWKH1$6'$4VWRFNH[FKDQJH (NASDAQ: AOUT):LWKWKHFRPSOHWLRQRIWKHVSLQR΍ 6PLWK :HVVRQ%UDQGVΖQF(NASDAQ: SWBI)LVQRZD VWDQGDORQHȴUHDUPFRPSDQ\ȂDQLFRQLFPDUNHWOHDGHU GHGLFDWHGWRGHVLJQLQJDQGSURGXFLQJVRPHRIWKH ZRUOGȇVȴQHVWDQGPRVWSRSXODUȴUHDUPVIRUFRQVXPHUV DQGSURIHVVLRQDOV PERFORMANCE

7XUQLQJWRRXUSHUIRUPDQFHLQȴVFDOVWURQJ 2XUUHYHQXHJURZWKLQȴVFDO FRQVXPHUGHPDQGIRUȴUHDUPVDVUHȵHFWHGE\ ZDVIDYRUDEO\LPSDFWHGE\FKDQJHV

DGMXVWHG1DWLRQDOΖQVWDQW&ULPLQDO%DFNJURXQG LQWKHWLPLQJRIRXUH[FLVHWD[ ™ ® &KHFN6\VWHP Ȋ1Ζ&6ȋ UHVXOWVFRPELQHGZLWK DVVHVVPHQWDVZHOODVE\VWURQJ 9 SHIELD EZ DFRQVXPHUSUHIHUHQFHIRURXULQQRYDWLYH FRQVXPHUDFFHSWDQFHRIRXU SURGXFWVKHOSHGXVGHOLYHUJURZWKDQGPDUNHW M&P®9 Shield™ EZ® pistolDQ VKDUHJDLQV&RQVXPHUGHPDQGIRUȴUHDUPV H[SDQVLRQRIRXUDZDUGZLQQLQJ LQFUHDVHGGXULQJȴVFDODVLQGLFDWHGE\ OLQHRIVHOIGHIHQVHSLVWROV

A YEAR-OVER-YEAR WE INTRODUCED NEARLY INCREASE IN ADJUSTED 20.3% NEW FIREARMS NICS RESULTS OF 230 IN FISCAL 2020, RQHWKLUGRIZKLFKZHUHEUDQGQHZSURGXFWVDQGWKH UNITS SHIPPED INTO UHPDLQGHURIZKLFKZHUHH[FLWLQJQHZOLQHH[WHQVLRQV THE SPORTING GOODS 5.5% CHANNEL INCREASED ΖQDGGLWLRQWRWKH0 36KLHOG(=ZHLQWURGXFHG our Thompson/Center™ T/C® Compass® IIDQG T/C Venture™ IIEROWDFWLRQULȵHOLQHVRXU Gemtech® 7KHGL΍HUHQFHEHWZHHQ$GMXVWHG1Ζ&6UHVXOWV Lunar®-9ȂWKHȴUVWQHZ*HPWHFKVXSSUHVVRUZH DQGRXUVKLSPHQWVZDVGULYHQSULPDULO\E\WKH KDYHLQWURGXFHGVLQFHZHDFTXLUHGWKHEUDQGDQGRXU IXOȴOOPHQWRIFRQVXPHUGHPDQGIRURXUȴUHDUPV QHZPerformance Center® M&P® M2.0™ C.O.R.E.™ IURPFKDQQHOLQYHQWRULHVDVZHOODVFKDQJHVLQ pistolsDSRSXODU0 30SLVWROSODWIRUPWDNHQWRD WKHZD\FHUWDLQVWDWHVUHSRUWWKHLUEDFNJURXQG QHZFRPSHWLWLRQUHDG\OHYHOZLWKVOLGHVFXWIRURSWLFV FKHFNDFWLYLW\WR1Ζ&6 DQGRWKHU3HUIRUPDQFH&HQWHUHQKDQFHPHQWV

/DWHLQȴVFDOGHVSLWHWKHRQVHWRIDSDQGHPLF UHVSRQGHURUJDQL]DWLRQV:HDUHLQWHQVHO\SURXGRI WKDWDOWHUHGRXUFROOHFWLYHZRUOGZHZHUHDEOHWR RXUHPSOR\HHVDQGZHWKDQNWKHPIRUWKHLULQJHQXLW\ NHHSRXUIDFWRULHVDQGGLVWULEXWLRQFHQWHURSHUDWLQJ WKHLUFRPSDVVLRQDQGWKHLUFRPPLWPHQW GXHWRDEURDGUDQJHRIVDIHW\SURFHGXUHVDQG FOHDQLQJSURWRFROVZKLFKZHUHLPSOHPHQWHGE\ 2XUDELOLW\WRUHPDLQRSHUDWLRQDOGXULQJWKDWSHULRG RXURSHUDWLRQDOPDQDJHPHQWWHDPVDQGZKLFK FRPELQHGZLWKRXULQWHUQDOLQYHQWRU\OHYHOVDOORZHGXV UHPDLQLQSODFHWRGD\WRVLJQLȴFDQWO\UHGXFH WRDGGUHVVDVXGGHQLQFUHDVHLQFRQVXPHUGHPDQGIRU WKHULVNRI&29Ζ'WUDQVPLVVLRQDQGNHHSRXU ȴUHDUPVWKDWEHJDQGXULQJRXUȴVFDOIRXUWKTXDUWHU$W HPSOR\HHVVDIH7KHVHDFWLRQVKDYHDOVRDOORZHGXV WKHVDPHWLPHZHGHSOR\HGRXUȵH[LEOHPDQXIDFWXULQJ WRVXSSRUWRXUFRPPXQLWLHVLQWKHLUWLPHRIQHHG PRGHOLQFUHDVLQJRXUSURGXFWLRQOHYHOVLQUHVSRQVH RXUHQJLQHHUVUHSXUSRVHGFHUWDLQPDQXIDFWXULQJ WRFRQWLQXLQJKLJKOHYHOVRIGHPDQGIRURXUȴUHDUPV OLQHVWRSURGXFHIDFHVKLHOGVZKLFKZHSURYLGHG WKXVGHOLYHULQJDVWURQJFRQFOXVLRQWRȴVFDODQGD DORQJZLWKSURWHFWLYHH\HZHDUWRKRVSLWDOVDQGȴUVW VWURQJVWDUWWRȴVFDO

SMITH & WESSON ANNUAL REPORT 2020 1 FISCAL 2020 FINANCIAL HIGHLIGHTS

FISCAL 2020 FIREARM SEGMENT OUTDOOR PRODUCTS & NET SALES GROSS SALES ACCESSORIES GROSS SALES $678.4 $529.6 $167.5 MILLION MILLION MILLION

represented an represented an represented a increase of 6.3% over LQFUHDVHRIRYHU decrease of 5.5% from ȴVFDOQHWVDOHV ȴVFDOVDOHV ȴVFDOVDOHV

FISCAL 2020 34.6% 31.3% 41.4%

GROSS TOTAL COMPANY FIREARMS OUTDOOR PRODUCTS 0.8% from & ACCESSORIES MARGIN ȴVFDO

7KHVWUHQJWKRIRXUEDODQFHVKHHWVXSSRUWHGVHYHUDOLQLWLDWLYHV LQȴVFDOLQFOXGLQJLQYHVWPHQWVLQQHZSURGXFWVDQGRXU NON-GAAP ADJUSTED EBITDAS* TOTALED 0LVVRXULGLVWULEXWLRQFHQWHU'XULQJWKH\HDUZHUHGHHPHGRXU PLOOLRQRI6HQLRU1RWHVGXHLQDQGZHXWLOL]HGRXU UHYROYLQJOLQHRIFUHGLWWRSD\LQIXOORXU%DQN7HUP/RDQ$7KXV $116.3 ZHHQGHGWKH\HDUZLWKDSSUR[LPDWHO\PLOOLRQRIFDVK DQGPLOOLRQRXWVWDQGLQJRQRXUUHYROYLQJOLQHRIFUHGLW UHVXOWLQJLQMXVWPLOOLRQRIQHWEDQNGHEW2XUVWURQJ MILLION EDODQFHVKHHWDOORZHGXVWRIXQGWKHVSLQR΍RIRXURXWGRRU SURGXFWVDQGDFFHVVRULHVEXVLQHVVZLWKPLOOLRQRIFDVK Full year 2020 GAAP net loss WRWDOHG  0Ζ//Ζ21 LQȴVFDOZKLOHVWLOOSURYLGLQJXVZLWKVXɝFLHQWUHVRXUFHV WRIXHOPXOWLSOHRUJDQLFJURZWKRSSRUWXQLWLHVLQȴUHDUPVDQGWR VXSSRUWRXUSODQWRUHWXUQH[FHVVFDSLWDOWRRXUVWRFNKROGHUV

*Please refer to the “Reconciliation of U.S. GAAP to Non-GAAP Financial Measure” disclosure and associated tables appearing on page A-1 immediately after our Annual Report on Form 10-K, which accompanies this 2020 Annual Report.

2 SMITH & WESSON ANNUAL REPORT 2020 TURNING TO FISCAL 2021 BOARD OF DIRECTORS Robert L. Scott Chairman Michael F. GoldenVice Chairman :LWKWKHVSLQR΍RIRXURXWGRRU Anita D. BrittDirector SURGXFWVDQGDFFHVVRULHVEXVLQHVV John B. FurmanDirector Barry M. MonheitDirector QRZFRPSOHWHZHDUHDSXUHSOD\ Mitchell A. SaltzDirector ȴUHDUPFRPSDQ\DQGZHDUHH[FLWHG Mark P. SmithDirector DERXWWKHRSSRUWXQLWLHVWKDWSUHVHQWV EXECUTIVE OFFICERS Mark P. Smith 3UHVLGHQW&KLHI([HFXWLYH2ɝFHUDQG'LUHFWRU 2XUJURZLQJSRUWIROLRRISRSXODUFRQVXPHUȴUHDUP Deana L. McPherson, CPA, CGMA SURGXFWVFRPELQHGZLWKRXUVWURQJEDODQFH &KLHI)LQDQFLDO2ɝFHU VKHHWSRVLWLRQXVZHOOIRUȴVFDO2XUSURGXFW Robert J. Cicero GHYHORSPHQWDQGHQJLQHHULQJWHDPVZLOOUHPDLQ Senior Vice President, General Counsel, IRFXVHGRQLQQRYDWLRQWDSSLQJLQWRWKHLUSDVVLRQ &KLHI&RPSOLDQFH2ɝFHUDQG6HFUHWDU\ IRUSHUVRQDOSURWHFWLRQDQGWKHVKRRWLQJVSRUWVWR GHVLJQDQGGHOLYHUQHZSURGXFWVWKDWWUXO\H[FLWHRXU FRQVXPHUV:HEHOLHYHWKLVDELOLW\WRXQGHUVWDQG INVESTOR INFORMATION WKHQHHGVRIRXUFRQVXPHUFRPELQHGZLWKRXU (PDLOLQYHVWRUUHODWLRQV#VPLWKZHVVRQFRP LPSUHVVLYHEUDQGSRUWIROLRDQGRXUDELOLW\WRUDSLGO\ LQQRYDWHZLOOEHLQVWUXPHQWDOLQDOORZLQJXVWRGHOLYHU ORQJWHUPPDUNHWVKDUHJDLQVDQGWRUHWXUQH[FHVV LEGAL COUNSEL FDSLWDOWRRXUVWRFNKROGHUV Greenberg Traurig, LLP (DVW&DPHOEDFN5RDG :HWKDQNRXUFXVWRPHUVIRUWKHLUOR\DOW\RXU 6XLWH VWRFNKROGHUVIRUWKHLUVXSSRUWDQGRXUHPSOR\HHVIRU 3KRHQL[$UL]RQD WKHLUGHGLFDWLRQDQGOR\DOW\WRRXUFRPSDQ\WRRXU FRPPXQLWLHVDQGWRHDFKRWKHU:HORRNIRUZDUGWR ȴVFDODVZHFRQWLQXHWRSRVLWLRQRXUFRPSDQ\ TRANSFER AGENT IRUORQJWHUPVXFFHVV Issuer Direct Corporation Julie Felix (DVW0XUUD\+ROODGD\5G6XLWH 6DOW/DNH&LW\8WDK  ([WȂ2

0DUN36PLWK 5REHUW/6FRWW President, Chairman of the Board &KLHI([HFXWLYH2ɝFHU'LUHFWRU

Compensation Committee Nominations and Corporate Governance Committee Audit Committee

SMITH & WESSON ANNUAL REPORT 2020 3 SAFETY

$VDOHDGLQJ$PHULFDQPDQXIDFWXUHURIȴUHDUPVVLQFH ZHDUHSURXGRIRXUULFKKLVWRU\ZKLFKLQFOXGHVDQXPEHU RIORQJVWDQGLQJLQLWLDWLYHVWRVXSSRUWWKHVDIHDQGOHJDO SRVVHVVLRQDQGXVHRIRXUSURGXFWVΖQDGGLWLRQWKURXJK PHPEHUVKLSLQDQGFRQWULEXWLRQVWRRXULQGXVWU\ȇVWUDGH DVVRFLDWLRQWKH1DWLRQDO6KRRWLQJ6SRUWV)RXQGDWLRQZH VXSSRUWPDQ\LQLWLDWLYHVWRSURPRWHWKHVDIHRZQHUVKLS RSHUDWLRQVWRUDJHDQGVDIHNHHSLQJRIȴUHDUPVLQFOXGLQJ

SAFETY LOCKS PROJECT CHILDSAFE® :HZHUHDPRQJWKHȴUVWȴUHDUPFRPSDQLHVWR &RQGXFWHGE\WKH166)LQSDUWQHUVKLSZLWKPRUHWKDQ YROXQWDULO\SURYLGHDFDEOHVW\OHȴUHDUPVDIHW\ORFN ODZHQIRUFHPHQWDJHQFLHV3URMHFW&KLOG6DIHLVWKHODUJHVWPRVW LQFOXGHGLQWKHER[ZLWKHYHU\ȴUHDUPZHPDNH:H FRPSUHKHQVLYHȴUHDUPVDIHW\HGXFDWLRQSURJUDPLQWKH8QLWHG EHJDQWKLVSUDFWLFHPDQ\\HDUVDJRDQGKDYHVLQFH 6WDWHVSURPRWLQJȴUHDUPVDIHW\WKURXJKWKHGLVWULEXWLRQRI JLYHQDZD\PLOOLRQVRIIUHHȴUHDUPVDIHW\ORFNV VDIHW\HGXFDWLRQPDWHULDOVDQGIUHHȴUHDUPVDIHW\NLWV6LQFH 3URMHFW&KLOG6DIHKDVGLVWULEXWHGPRUHWKDQPLOOLRQ OWNER’S MANUALS ȴUHDUPVDIHW\NLWVLQFOXGLQJFDEOHVW\OHORFNVWRȴUHDUPRZQHUV :HFDOORXWDQGSURPLQHQWO\GLVSOD\LQRXU 7KHSURMHFWȇVȊ2ZQΖW"5HVSHFWΖW6HFXUHΖWȋFDPSDLJQJLYHV RZQHUVȇPDQXDOVLQIRUPDWLRQRQUHVSRQVLEOH 166)LQGXVWU\PHPEHUVDQRQJRLQJSODWIRUPWRSURPRWHDQG ȴUHDUPRZQHUVKLSVDIHKDQGOLQJDQGVDIH HQFRXUDJHȴUHDUPVDIHW\DQGWKHVDIHVWRUDJHRIȴUHDUPV VWRUDJHDQGZHSODFHDVWLFNHULQWKHER[RIHDFK ȴUHDUPZHPDNHWKDWUHIHUVRZQHUVWRWKHVH DON’T LIE FOR THE OTHER GUY SURYLVLRQVLQWKHDFFRPSDQ\LQJRZQHUȇVPDQXDO 'RQȇW/LHIRUWKH2WKHU*X\LVDQDWLRQDOFDPSDLJQODXQFKHGE\ WKH166)LQLQSDUWQHUVKLSZLWKWKH$7)WRKHOSSUHYHQW BASIC PISTOL HANDBOOK SURKLELWHGSHUVRQVIURPJHWWLQJWKHLUKDQGVRQȴUHDUPV WKURXJKLOOHJDOȊVWUDZSXUFKDVHVȋ'RQȇW/LHIRUWKH2WKHU*X\ :HKDYHORQJEHHQDFRQWULEXWLQJDXWKRUWRDQG DVVLVWVȴUHDUPVUHWDLOHUVWRLGHQWLI\DQGGHWHUVWUDZSXUFKDVHV DVSRQVRURIDQDWLRQDOO\NQRZQȴUHDUPVVDIHW\ DQGWRUDLVHSXEOLFDZDUHQHVVWKDWVWUDZSXUFKDVLQJLVD LQVWUXFWLRQPDQXDOWKDWLVEURDGO\GLVWULEXWHGWR VHULRXVFULPH ȴUHDUPVFRQVXPHUVHDFK\HDU SUICIDE PREVENTION FIREARM SAFETY LITERATURE AND VIDEOS 7KH166)ZRUNVZLWKWKH9HWHUDQV$GPLQLVWUDWLRQWKH 2XUVSRQVRUVKLSVSURYLGHVXSSRUWIRU166)ȇV 'HSDUWPHQWRI'HIHQVHWKH6WDWHRI8WDKDQGPHQWDOKHDOWK ȴUHDUPVVDIHW\OLWHUDWXUHDQGYLGHRVZKLFK DJHQFLHVWRKHOSHGXFDWHȴUHDUPRZQHUVDQGWKHSXEOLFRQ LQFOXGH)LUHDUPV5HVSRQVLELOLW\LQWKH+RPH KRZWRNHHSȴUHDUPVRXWRIUHDFKRIWKRVHZKRGXULQJD )LUHDUPV6DIHW\'HSHQGVRQ

4 SMITH & WESSON ANNUAL REPORT 2020  81,7('67$7(6 6(&85,7,(6$1'(;&+$1*(&200,66,21 :DVKLQJWRQ'&  )RUP. 

 $118$/5(325738568$17726(&7,2125 G 2)7+(6(&85,7,(6(;&+$1*($&72) )RUWKHILVFDO\HDUHQGHG$SULO 25  75$16,7,215(325738568$17726(&7,2125 G 2)7+(6(&85,7,(6(;&+$1*($&72))25 7+(75$16,7,213(5,2' &RPPLVVLRQILOHQXPEHU 

6PLWK :HVVRQ%UDQGV,QF (Exact Name of Registrant as Specified in Its Charter) 

 1HYDGD   (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization  Identification No.) 5RRVHYHOW$YHQXH 6SULQJILHOG0DVVDFKXVHWWV   (Address including zip code, and telephone number, including area code, of principal executive offices) 6HFXULWLHVUHJLVWHUHGSXUVXDQWWR6HFWLRQ E RIWKH$FW  (Title of Class) 7UDGLQJ 6\PEROV (Name of Each Exchange on Which Registered) &RPPRQ6WRFN3DU9DOXHSHU6KDUH 6:%, 1DVGDT*OREDO6HOHFW0DUNHW 6HFXULWLHVUHJLVWHUHGSXUVXDQWWR6HFWLRQ J RIWKH$FW 1RQH 

,QGLFDWHE\FKHFNPDUNLIWKHUHJLVWUDQWLVDZHOONQRZQVHDVRQHGLVVXHUDVGHILQHGLQ5XOHRIWKH6HFXULWLHV$FW

3DJH 3$57, ,7(0 %86,1(66  ,7(0$ 5,6.)$&7256  ,7(0% 815(62/9('67$))&200(176  ,7(0 3523(57,(6  ,7(0 /(*$/352&((',1*6  ,7(0 0,1(6$)(7<',6&/2685(6  3$57,, ,7(0 0$5.(7)255(*,675$17¶6&20021(48,7<5(/$7('672&.+2/'(50$77(56$1' ,668(5385&+$6(62)(48,7<6(&85,7,(6  ,7(0 6(/(&7('),1$1&,$/'$7$  ,7(0 0$1$*(0(17¶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Š $LUZHLJKWŠ $OOLHG )RUFHVŠ $PHULFD¶V 0DVWHU *XQPDNHUŠ $UPRUQLWHŠ $UURZŠ $XURUD,,Š %ODVW -DFNHWŠ %RG\JXDUGŠ &KLHIV 6SHFLDOŠ &RPSDVVŠ &RQWHQGHUŠ 'LPHQVLRQŠ (QFRUHŠ (=Š *&RUHŠ *HPWHFKŠ*0Š*RYHUQRUŠ+DORŠ,QWHJUDŠ/XQDUŠ/HYHU/RFNŠ0 3Š0 36KLHOGŠ0DJQXPŠ0LVW Š0RXQWDLQ/LWHŠ1XPEHUŠ3HUIRUPDQFH&HQWHUŠ3RZHU5RGŠ3XW$/HJHQG2Q

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³DQWLFLSDWHV´³EHOLHYHV´³HVWLPDWHV´ ³H[SHFWV´ ³LQWHQGV´ ³WDUJHWV´ ³FRQWHPSODWHV´ ³SURMHFWV´ ³SUHGLFWV´ ³PD\´ ³PLJKW´ ³SODQ´ ³ZLOO´ ³ZRXOG´ ³VKRXOG´ ³FRXOG´³PD\´³FDQ´³SRWHQWLDO´³FRQWLQXH´³REMHFWLYH´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³5LVN)DFWRUV´ 3$57, ,WHPBusiness ,QWURGXFWLRQ *HQHUDO :HDUHDOHDGLQJPDQXIDFWXUHUGHVLJQHUDQGSURYLGHURIFRQVXPHUSURGXFWVIRUWKHVKRRWLQJKXQWLQJDQG UXJJHG RXWGRRU HQWKXVLDVW :H DUH RQH RI WKH ODUJHVW PDQXIDFWXUHUV RI KDQGJXQV PRGHUQ VSRUWLQJ ULIOHV DQG KDQGFXIIVLQWKH8QLWHG6WDWHVDQGDQDFWLYHSDUWLFLSDQWLQWKHKXQWLQJULIOHDQGVXSSUHVVRUPDUNHWV:HDUHDOVRD OHDGLQJ SURYLGHU RI RXWGRRU SURGXFWV DQG DFFHVVRULHV HQFRPSDVVLQJ KXQWLQJ ILVKLQJ FDPSLQJ VKRRWLQJ DQG SHUVRQDOVHFXULW\GHIHQVHSURGXFWVIRUUXJJHGRXWGRRUHQWKXVLDVWV:HKDYHWZRUHSRUWLQJVHJPHQWV  )LUHDUPV DQG  2XWGRRU3URGXFWV $FFHVVRULHV

6PLWK  :HVVRQ ZDV IRXQGHG LQ  E\ +RUDFH 6PLWK DQG 'DQLHO % :HVVRQ 0U:HVVRQ SXUFKDVHG 0U6PLWK¶V LQWHUHVW LQ  7KH :HVVRQ IDPLO\ VROG 6PLWK  :HVVRQ &RUS RXU ZKROO\ RZQHG VXEVLGLDU\ WR %DQJRU 3XQWD &RUS LQ  /HDU 6LHJOHU &RUSRUDWLRQ SXUFKDVHG %DQJRU 3XQWD LQ  WKHUHE\ DFTXLULQJ RZQHUVKLS RI 6PLWK  :HVVRQ &RUS )RUVWPDQQ /LWWOH  &R SXUFKDVHG /HDU 6LHJOHU LQ  DQG VROG 6PLWK :HVVRQ &RUS VKRUWO\ WKHUHDIWHU WR 7RPNLQV &RUSRUDWLRQ DQ DIILOLDWH RI 8.EDVHG 7RPNLQV 3/& :H SXUFKDVHG6PLWK :HVVRQ&RUSIURP7RPNLQVLQ0D\DQGUHQDPHGRXUFRPSDQ\6PLWK :HVVRQ+ROGLQJ &RUSRUDWLRQ,Q-DQXDU\ZHFKDQJHGWKHQDPHRIRXUFRPSDQ\IURP6PLWK :HVVRQ+ROGLQJ&RUSRUDWLRQWR $PHULFDQ2XWGRRU%UDQGV&RUSRUDWLRQWREHWWHUUHIOHFWRXUWKHQH[SDQGLQJVWUDWHJLFIRFXVRQWKHJURZLQJPDUNHWV IRUVKRRWLQJKXQWLQJDQGUXJJHGRXWGRRUHQWKXVLDVWV$WWKHWLPHZHEHOLHYHGWKDWWKHQDPH³$PHULFDQ2XWGRRU %UDQGV&RUSRUDWLRQ´EHWWHUUHIOHFWHGRXUIDPLO\RIEUDQGVRXUEURDGUDQJHRISURGXFWRIIHULQJVDQGRXUSODQVWR FRQWLQXHEXLOGLQJXSRQRXUSRUWIROLRRIVWURQJ$PHULFDQEUDQGVZLWKWZRUHSRUWLQJVHJPHQWV

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³6:%,´DQG$287KDVDSSOLHGWRKDYHLWVVKDUHVRIFRPPRQVWRFNOLVWHGRQWKH1DVGDT*OREDO0DUNHWXQGHUWKH WLFNHUV\PERO³$287´7KH6HSDUDWLRQLVVXEMHFWWRWKHVDWLVIDFWLRQRUZDLYHURIFHUWDLQFRQGLWLRQVDQGZHFDQQRW SURYLGHDQ\DVVXUDQFHWKDWZHZLOOFRPSOHWHWKH6HSDUDWLRQ

 :H PDLQWDLQ RXU SULQFLSDO H[HFXWLYH RIILFHV DW  5RRVHYHOW $YHQXH 6SULQJILHOG 0DVVDFKXVHWWV  2XUWHOHSKRQHQXPEHULV  2XUZHEVLWHLVORFDWHGDW www.aob.com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

8QOHVVWKHFRQWH[WLQGLFDWHVRWKHUZLVHWKHWHUPV³ZH´³RXU´³RXUV´³XV´DQG³RXUFRPSDQ\´UHIHUWR6PLWK :HVVRQ%UDQGV,QFDQGLWVFRQVROLGDWHGVXEVLGLDULHV³&RPPRQVWRFN´UHIHUVWRWKHFRPPRQVWRFNSDUYDOXH SHUVKDUHRIRXUFRPSDQ\2XUILVFDO\HDUHQGHGRQ$SULO

)LUHDUPV'LYLVLRQ Firearms - Introduction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

2XUREMHFWLYHLQRXU)LUHDUPVGLYLVLRQLVWRFRQWLQXHWRVWUHQJWKHQRXUSRVLWLRQDVRQHRIWKHZRUOG¶VOHDGLQJ ILUHDUP PDQXIDFWXUHUV .H\ HOHPHQWV RI RXU VWUDWHJ\ WR DFKLHYH WKLV REMHFWLYH DQG GHOLYHU ORQJWHUP VWRFNKROGHU YDOXHDUHDVIROORZV • GULYHRUJDQLFJURZWKE\OHYHUDJLQJRXUEUDQGVDQGPDLQWDLQLQJDUREXVWSURGXFWSLSHOLQHWRLQFUHDVH PDUNHWVKDUHLQPDUNHWVLQZKLFKZHSDUWLFLSDWHDQGH[SDQGLQWRDGMDFHQWDQGFRPSOHPHQWDU\PDUNHWV • GHVLJQ SURGXFH DQG PDUNHW KLJKTXDOLW\ LQQRYDWLYH ILUHDUPV DQG UHODWHG DFFHVVRULHV WKDW PHHW WKH QHHGVDQGGHVLUHVRIRXUFRQVXPHUDQGSURIHVVLRQDOFXVWRPHUVDQGWKDWGULYHFXVWRPHUVDWLVIDFWLRQDQG OR\DOW\ • FUHDWH D OHYHUDJHDEOH LQIUDVWUXFWXUH E\ VWUHDPOLQLQJ DQG VWDQGDUGL]LQJ RXU EXVLQHVV RSHUDWLRQV LQFOXGLQJRSWLPL]LQJSURGXFWGLVWULEXWLRQDQG • UHGXFHRXUOHYHUDJHDQGGHSOR\RXUFDVKIORZLQVXFKDPDQQHUVRDVWRPD[LPL]HUHWXUQRQLQYHVWHG FDSLWDO

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

 2XUQHWVDOHVZHUHPLOOLRQIRUWKHILVFDO\HDUHQGHG$SULOPLOOLRQIRUWKHILVFDO\HDU HQGHG$SULODQGPLOOLRQIRUWKHILVFDO\HDUHQGHG$SULO2XUJURVVSURILWIRUWKHILVFDO \HDUVHQGHG$SULODQGWRWDOHGPLOOLRQPLOOLRQDQGPLOOLRQUHVSHFWLYHO\ 7RWDODVVHWVZHUHPLOOLRQDVRI$SULOPLOOLRQDVRI$SULODQGPLOOLRQDVRI $SULO

Firearms - Strategy 2XUREMHFWLYHLVWRFRQWLQXHWRVWUHQJWKHQRXUSRVLWLRQDVRQHRIWKHZRUOG¶VOHDGLQJILUHDUPPDQXIDFWXUHUV .H\HOHPHQWVRIRXUVWUDWHJ\WRDFKLHYHWKLVREMHFWLYHDUHDVIROORZV

Drive Organic Growth by Leveraging Brands and Designing Innovative New Products. :H DUH IRFXVHG RQ GULYLQJ RUJDQLF JURZWK E\ HQVXULQJ D UREXVW QHZ SURGXFW SLSHOLQH DQG OHYHUDJLQJ RXU EUDQGV WR KHOS XV WR LQFUHDVH PDUNHW VKDUH LQ PDUNHWV LQ ZKLFK ZH SDUWLFLSDWH DQG WR H[SDQG LQWR DGMDFHQW DQG FRPSOHPHQWDU\PDUNHWVE\  FDSLWDOL]LQJRQWKHJRRGZLOOGHYHORSHGWKURXJKRXUKLVWRULF\HDUROG³6PLWK  :HVVRQ´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

Design, Produce, and Market High-Quality Products that Drive Customer Satisfaction and Loyalty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

Create a Leverageable Infrastructure by Streamlining and Standardizing our Business Operations, including Optimizing Product Distribution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

 Reduce our Leverage and Deploy our Cash Flow in Such a Manner so as to Maximize Return on Invested Capital. )URPILVFDOWKURXJKILVFDOZHJHQHUDWHGPLOOLRQLQFDVKIURPRSHUDWLRQV'XULQJWKDWVDPH SHULRG ZH LQYHVWHG  PLOOLRQ LQ FDVK RQ DFTXLVLWLRQV DQG  PLOOLRQ LQ FDVK WR DFTXLUH SURSHUW\ HTXLSPHQW DQG SDWHQWV LQFUHDVHG RXU ERUURZLQJV E\  PLOOLRQ DQG UHSXUFKDVHG  PLOOLRQ RI RXU RXWVWDQGLQJVWRFN)ROORZLQJWKH6HSDUDWLRQZHSODQWRIRFXVRQGHYHORSLQJJURZLQJDQGSURWHFWLQJRXULFRQLF ILUHDUPEUDQGVDQGXVLQJRXUFDVKIORZIURPRSHUDWLRQVRQDFWLRQVWKDWZLOOPD[LPL]HRXUUHWXUQRQLQYHVWHGFDSLWDO LQFOXGLQJ   FRQWLQXLQJ WR LQYHVW DV QHHGHG IRU RUJDQLF JURZWK HVSHFLDOO\ LQ PDFKLQHU\ HTXLSPHQW DQG QHZ SURGXFWGHYHORSPHQW  UHGXFLQJRXUOHYHUDJHDQG  UHWXUQLQJH[FHVVFDSLWDOWRRXUVWRFNKROGHUV:HLQWHQGWR GHHPSKDVL]HDOOLQRUJDQLFLQYHVWPHQWDFWLYLWLHV

Firearm - Products Introduction 2XUILUHDUPSURGXFWVFRPELQHRXUOHJDF\RI\HDUVRI$PHULFDQPDQXIDFWXULQJDQGHQJLQHHULQJH[SHUWLVH ZLWKPRGHUQWHFKQRORJLFDODGYDQFHV:HVWULYHWROHYHUDJHRXUWUDGLWLRQRILQQRYDWLRQLQPDWHULDOVSHUIRUPDQFH DQGHQJLQHHULQJDORQJZLWKRXUSURYHQKLVWRU\RIUHOLDELOLW\WRSURGXFHIHDWXUHULFKVDIHGXUDEOHDFFXUDWHDQG KLJKSHUIRUPLQJILUHDUPVWKDWVDWLVI\WKHQHHGVRIRXUEURDGUDQJHRIFXVWRPHUV2XULQWURGXFWLRQRIQHZILUHDUP SURGXFWVLVLQWHQGHGWRHQKDQFHRXUFRPSHWLWLYHSRVLWLRQDQGEURDGHQRXUSDUWLFLSDWLRQLQWKHRYHUDOOILUHDUPPDUNHW

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

$OO RI RXU ILUHDUPV DQG ILUHDUP UHODWHG SURGXFWV DUH FXUUHQWO\ VROG XQGHU RXU 6PLWK  :HVVRQ 0 3 3HUIRUPDQFH &HQWHU 7KRPSVRQ&HQWHU $UPV DQG *HPWHFK EUDQGV 2XU FXVWRPHUV LQFOXGH GLVWULEXWRUV IHGHUDO VWDWH DQG PXQLFLSDO ODZ HQIRUFHPHQW DJHQFLHV DQG RIILFHUV JRYHUQPHQW DQG PLOLWDU\ DJHQFLHV UHWDLOHUV DQG FRQVXPHUV

2XUSURGXFWGHYHORSPHQWVWUDWHJ\LVWRXQGHUVWDQGRXUFXVWRPHUV¶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

,Q ILVFDO  ZH IXUWKHU H[SDQGHG RXU 6PLWK  :HVVRQ EUDQGHG SURGXFWV E\ LQWURGXFLQJ WKH 0RGHO  UHYROYHU FKDPEHUHG LQ  :LQFKHVWHU 0DJQXP D VWDLQOHVVVWHHO UHYROYHU DYDLODEOH LQ ´ EDUUHO DQG HLJKW VKRW FDSDFLW\ 7KH 3DWULGJH IURQW VLJKW DQG DGMXVWDEOH UHDU VLJKW PDNH LW D SHUIHFW FKRLFH IRU DQ\ FRPSHWLWLRQ RU UHFUHDWLRQDOVKRRWHU

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

:LWKLQ RXU 7KRPSVRQ&HQWHU $UPV EUDQGHG SURGXFWV ZH FRQWLQXHG WR IRFXV RQ H[SDQGLQJ RXU EROWDFWLRQ ULIOHEXVLQHVVZKLOHPDLQWDLQLQJRXUOHDGHUVKLSLQPX]]OHORDGHUVDQGLQWHUFKDQJHDEOHV\VWHPV'XULQJILVFDO ZHODXQFKHGWKHQHZ&RPSDVV,,SODWIRUP±&RPSDVV8WLOLW\&RPSDVV,,DQG&RPSDVV,,&RPSDFW7KH&RPSDVV ,,ERDVWVDQHZLPSURYHGWULJJHUDQGFRPHVZLWK7KRPSVRQ&HQWHU¶V02$DFFXUDF\JXDUDQWHH(DFKRIWKHVH FDWHJRULHVDUHDYDLODEOHZLWKRUZLWKRXWVFRSHV,QDGGLWLRQZHH[SDQGHGRXU9HQWXUHOLQHRIEROWDFWLRQULIOHVZLWK WKHLQWURGXFWLRQRIWKH9HQWXUH,,ZKLFKRIIHUVDWKUHDGHGEDUUHODQLPSURYHGWULJJHUDQGLVFKDPEHUHGLQ /HJHQG

:LWKLQRXU*HPWHFKOLQHRIVXSSUHVVRUVZHLQWURGXFHGWKH/XQDUVXSSUHVVRURXUTXLHWHVWDQGPRVWYHUVDWLOH PP VXSSUHVVRU WR GDWH 7KH /XQDU  VXSSUHVVRU LQFOXGHV RXU ODWHVW EDIIOH GHVLJQ DQG RIIHUV XVHUV WZR FRQILJXUDWLRQVWKHXOWUDTXLHWIXOOOHQJWK´FRQILJXUDWLRQDQGWKHXOWUDFRPSDFW´FRQILJXUDWLRQ7KH/XQDU VXSSUHVVRUFDQEHXVHGRQWKHYDVWPDMRULW\RISRSXODUPPKDQGJXQVSLVWROFDOLEHUFDUELQHVDQG%/.KRVW ILUHDUPV

)LUHDUPVQHWVDOHVIRUWKH\HDUVHQGHG$SULODQGZHUHPLOOLRQPLOOLRQ DQGPLOOLRQUHVSHFWLYHO\)LUHDUPJURVVSURILWIRUWKH\HDUVHQGHG$SULODQGWRWDOHG  PLOOLRQ PLOOLRQ DQG  PLOOLRQ UHVSHFWLYHO\ 7RWDO DVVHWV IRU RXU ILUHDUPV EXVLQHVV WRWDOHG PLOOLRQDQGPLOOLRQDVRI$SULODQGUHVSHFWLYHO\5HIHUWRRXUFRQVROLGDWHGILQDQFLDO VWDWHPHQWVFRPPHQFLQJRQSDJH)RIWKLVUHSRUWIRUPRUHLQIRUPDWLRQUHJDUGLQJRXUILUHDUPEXVLQHVV

6DOHVRIRXUKDQGJXQVDFFRXQWHGIRUPLOOLRQRURIWRWDOQHWVDOHVIRUWKHILVFDO\HDUHQGHG$SULO PLOOLRQRURIWRWDOQHWVDOHVIRUWKHILVFDO\HDUHQGHG$SULODQGPLOOLRQRU RIWRWDOQHWVDOHVIRUWKHILVFDO\HDUHQGHG$SULO6DOHVRIORQJJXQVDFFRXQWHGIRUPLOOLRQRU RIWRWDOQHWVDOHVIRUWKHILVFDO\HDUHQGHG$SULOPLOOLRQRURIWRWDOQHWVDOHVIRUWKH ILVFDO\HDUHQGHG$SULODQGPLOOLRQRURIWRWDOQHWVDOHVIRUWKHILVFDO\HDUHQGHG$SULO 6DOHVRIRWKHUSURGXFWVDQGVHUYLFHVDFFRXQWHGIRUPLOOLRQRURIWRWDOQHWVDOHVIRUWKHILVFDO\HDU HQGHG $SULO   PLOOLRQ RU  RI WRWDO QHW VDOHV IRU WKH ILVFDO \HDU HQGHG $SULO   DQG PLOOLRQRURIWRWDOQHWVDOHVIRUWKHILVFDO\HDUHQGHG$SULO

Handguns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

 :HKDYHORQJEHHQNQRZQDVDQLQQRYDWRUDQGOHDGHULQWKHUHYROYHUPDUNHWDQGPRVWRIRXUUHYROYHUVDUH FXUUHQWO\PDUNHWHGXQGHUWKH6PLWK :HVVRQEUDQG:HVHOODZLGHUDQJHRIVL]HVIURPVPDOOIUDPHUHYROYHUVXVHG SULPDULO\IRUFRQFHDOHGFDUU\DQGSHUVRQDOSURWHFWLRQWRODUJHIUDPHUHYROYHUVXVHGSULPDULO\IRUUHFUHDWLRQDODQG FRPSHWLWLYHVSRUWVKRRWLQJ2XUH[WUDODUJHIUDPHUHYROYHUVSULPDULO\DGGUHVVWKHKDQGJXQKXQWLQJPDUNHW

2XU VPDOOIUDPH UHYROYHUV KDYH EHHQ FDUULHG E\ ODZ HQIRUFHPHQW SHUVRQQHO DQG SHUVRQDO GHIHQVHPLQGHG FLWL]HQVIRU\HDUV:HKROGDQXPEHURISDWHQWVRQYDULRXVILUHDUPDSSOLFDWLRQVLQFOXGLQJWKHXVHRIVFDQGLXP DPDWHULDOWKDWSRVVHVVHVPDQ\RIWKHVDPHDWWULEXWHVDVWLWDQLXPEXWDWDPRUHUHDVRQDEOHFRVW2XUUHYROYHUVDUH DYDLODEOHLQDYDULHW\RIPRGHOVDQGFDOLEHUVZLWKDSSOLFDWLRQVLQYLUWXDOO\DOOSURIHVVLRQDODQGFRQVXPHUPDUNHWV

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

,QILVFDOZHODXQFKHGWKH0 36KLHOGSLVWROWRDGGUHVVWKHJURZLQJSHUVRQDOSURWHFWLRQDQGFRQFHDOHG FDUU\PDUNHW7KH0 36KLHOGIHDWXUHVDVOLPFRQFHDODEOHSURILOHPP$XWR6 :DQG$XWRFDOLEHUV DQG 0 3 HUJRQRPLFV :H LQWURGXFHG DGGLWLRQDO 0 3 6KLHOG PRGHOV GXULQJ ILVFDO  :H EHOLHYH WKH 0 3 6KLHOGSLVWROLVRQHRIWKHPRVWSRSXODUILUHDUPVLQWKHPDUNHWKDYLQJVXUSDVVHGWKHWKUHHPLOOLRQWKXQLWVKLSSHGLQ ILVFDO

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

2XU³&ODVVLFV´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

 Long Guns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

8QGHURXU7KRPSVRQ&HQWHU$UPVEUDQGZHDOVRRIIHUIRXUOLQHVRIKLJKTXDOLW\$PHULFDQPDGHVLQJOHVKRW ³EODFN SRZGHU´ RU ³PX]]OHORDGHU´ ILUHDUPV $PPXQLWLRQ IRU RXU EODFN SRZGHU ILUHDUPV LV ORDGHG WKURXJK WKH PX]]OH UDWKHU WKDQ WKH EUHHFK DV LV WKH FDVH ZLWK FRQYHQWLRQDO ILUHDUPV 2XU EODFN SRZGHU ILUHDUPV DUH KLJKO\ DFFXUDWH GHSHQGDEOH ULIOHV FRQILJXUHG ZLWK PX]]OH ORDGLQJ EDUUHOV IRU KXQWLQJ %ODFN SRZGHU ILUHDUPV DUH SXUFKDVHGE\KXQWLQJHQWKXVLDVWVSULPDULO\IRUXVHGXULQJH[FOXVLYHEODFNSRZGHUKXQWLQJVHDVRQVIRUKXQWLQJELJ JDPHVXFKDVGHHUDQGHON

:HRIIHUWZRPRGHOVRILQWHUFKDQJHDEOHVLQJOHVKRWILUHDUPV\VWHPVWKDWGHOLYHUQXPHURXVJXQEDUUHODQG FDOLEHUFRQILJXUDWLRQVDQGILQLVKHV7KHVHILUHDUPV\VWHPVFDQEHSXUFKDVHGIXOO\DVVHPEOHGRUDVIUDPHDVVHPEOLHV WKDWFDQEHFRQILJXUHGE\WKHRZQHUDVDFHQWHUILUHULIOHULPILUHULIOHVKRWJXQEODFNSRZGHUILUHDUPRUVLQJOHVKRW KDQGJXQIRUXVHDFURVVWKHHQWLUHUDQJHRIELJDQGVPDOOJDPHKXQWLQJ$VDUHVXOWDILUHDUPRZQHUFDQHDVLO\ FKDQJHEDUUHOVVWRFNVDQGIRUHQGVUHVXOWLQJLQ³RQHJXQIRUDOOVHDVRQV´WKDWFDQEHFRQWLQXRXVO\PRGLILHGWRVXLW WKHQHHGVDQGWDVNVRIWKHRZQHUIRUYDULRXVIRUPVRIVSRUWVKRRWLQJDQGKXQWLQJ

Other Products and Manufacturing Services 2XURWKHUSURGXFWVDQGPDQXIDFWXULQJVHUYLFHVLQWKHILUHDUPVGLYLVLRQLQFOXGHWKHIROORZLQJ

Parts: :HVHOOSDUWVWRVXSSRUWRXUILUHDUPEXVLQHVVLQFOXGLQJEDUUHOVDQGPDJD]LQHVWKDWDUHPDQXIDFWXUHGDW RXUIDFLOLWLHVRUSXUFKDVHGWKURXJKWKLUGSDUWLHV

Handcuffs: :H DUH RQH RI WKH ODUJHVW PDQXIDFWXUHUV RI KDQGFXIIV DQG UHVWUDLQWV LQ WKH 8QLWHG 6WDWHV :H IDEULFDWH WKHVH SURGXFWV IURP WKH KLJKHVWJUDGH FDUERQ RU VWDLQOHVV VWHHO 2XU SDWHQWHG /HYHU /RFN FXIIV RIIHU D GRXEOHORFNLQJ V\VWHP IRU DGGHG VHFXULW\ DQG FRPIRUW ZLWKRXW H[WUD WRROV RU NH\V 'RXEOH KHDWWUHDWHG LQWHUQDO ORFNVKHOSSUHYHQWWDPSHULQJDQGVPRRWKUDWFKHWVDOORZIRUVZLIWFXIILQJDQGDQH[WUDPHDVXUHRIVDIHW\:HKDYH WKHDELOLW\WRFXVWRPL]HKDQGFXIIVWRILWFXVWRPHUVSHFLILFDWLRQV

Smith & Wesson Academy: 7KH6PLWK :HVVRQ$FDGHP\RIIHUVVWDWHRIWKHDUWLQVWUXFWLRQGHVLJQHGWRPHHW WKH WUDLQLQJ QHHGV RI ODZ HQIRUFHPHQW DQG VHFXULW\ FXVWRPHUV ZRUOGZLGH 7KLV VHUYLFHRQO\ RIIHULQJ VHQGV LQVWUXFWRUVWRSURYLGHFRXUVHVDQGWUDLQLQJWRODZHQIRUFHPHQWDQGPLOLWDU\SHUVRQQHODWWKHLUORFDWLRQVLQWKHILHOG

Suppressors: :H DUH WKH QDWLRQ¶V ROGHVW ILUHDUP VXSSUHVVRU PDQXIDFWXUHU DQG DQ DFWLYH SDUWLFLSDQW LQ WKH ILUHDUPVXSSUHVVRUPDUNHWDURXQGWKHZRUOG2XU*HPWHFKEUDQGHGVXSSUHVVRUVZHUHWKHILUVWWRPDUNHWLQDQG KDYHEHHQLQYROYHGLQVHWWLQJVWDQGDUGVXVHGE\WKHPLOLWDU\LQVXSSUHVVRUWHVWLQJLPSOHPHQWDWLRQDQGVDIHW\2XU VXSSUHVVRUVDUHFRQVWUXFWHGIURPKLJKJUDGHDOXPLQXPVWHHORUWLWDQLXPDQGDUHFRPSDWLEOHZLWKHYHU\PDMRUW\SH RIULPILUHDQGFHQWHUILUHSLVWRODQGFHQWHUILUHULIOHFDOLEHUFXUUHQWO\RQWKHPDUNHW

 Manufacturing Services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

2XWGRRU3URGXFWV $FFHVVRULHV 23 $ 'LYLVLRQ OP&A - Introduction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±0DUNVPDQ'HIHQGHU +DUYHVWHUDQG$GYHQWXUHU±ZLWKHDFKRIRXUEUDQGVLQFOXGHGLQRQHRIWKHEUDQGODQHV2XUVDOHVDFWLYLWLHVIRFXVRQ RXUYDULRXVGLVWULEXWLRQFKDQQHOVZKLFKZHUHIHUWRDVFODVVHVRIWUDGHVXFKDVRQOLQHUHWDLOHUVVSHFLDOW\UHWDLOHUV GHDOHUVGLVWULEXWRUVDQGGLUHFWWRFRQVXPHU

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¶ILVKLQJDQGFDPSLQJH[SHULHQFHV

2XU REMHFWLYH LQ RXU 23 $ GLYLVLRQ LV WR HQKDQFH RXU SRVLWLRQ DV D OHDGLQJ SURYLGHU RI KLJKTXDOLW\ DQG LQQRYDWLYH RXWGRRU SURGXFWV DQG DFFHVVRULHV IRU WKH KXQWLQJ ILVKLQJ FDPSLQJ VKRRWLQJ SHUVRQDO VHFXULW\ DQG GHIHQVHDQGRWKHUUXJJHGRXWGRRUPDUNHWVDQGWRH[SDQGRXUDGGUHVVDEOHPDUNHWLQWRFDUHIXOO\VHOHFWHGQHZSURGXFW DUHQDV.H\HOHPHQWVRIRXUVWUDWHJ\WRDFKLHYHWKLVREMHFWLYHDQGGHOLYHUORQJWHUPVWRFNKROGHUYDOXHDUHDVIROORZV • LQWURGXFH D FRQWLQXLQJ VWUHDP RI LQQRYDWLYH QHZ DQG GLIIHUHQWLDWHG UXJJHG RXWGRRU SURGXFWV DQG SURGXFW H[WHQVLRQV WKDW DSSHDO WR FRQVXPHUV DQG DFKLHYH PDUNHW DFFHSWDQFH DQG GULYH FXVWRPHU VDWLVIDFWLRQDQGOR\DOW\ • H[SDQGWKHVL]HRIRXUDGGUHVVDEOHPDUNHWE\DSSHDOLQJWRQHZDQGODUJHUFRQVXPHUDXGLHQFHVLQQHZ SURGXFWFDWHJRULHVRXWVLGHWKHUXJJHGRXWGRRUPDUNHW • FXOWLYDWHDQGHQKDQFHGLUHFWWRFRQVXPHUUHODWLRQVKLSVWKURXJKRXUGLJLWDOSODWIRUPV • H[SDQGDQGHQKDQFHRXUVXSSO\FKDLQDQG • SXUVXHDFTXLVLWLRQVWKDWILQDQFLDOO\DQGVWUDWHJLFDOO\FRPSOHPHQWRXUFXUUHQWEXVLQHVV

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

7KHIROORZLQJWDEOHVHWVIRUWKLQIRUPDWLRQUHJDUGLQJWKHEUDQGVDQGSURGXFWVDGGHGWRRXURSHUDWLRQVWKURXJK DFTXLVLWLRQVLQWKHILVFDO\HDUVLQGLFDWHG

1DPH2ULJLQDO 7\SHRI /RFDWLRQDQG'HYHORSPHQWV $FTXLVLWLRQ )LVFDO

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

OP&A - Strategy Introduce a Continuing Stream of New and Differentiated High-Quality Rugged Outdoor Products that Drive Customer Satisfaction and Loyalty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

:H EHOLHYH RXU WUDFN UHFRUG RI XQGHUVWDQGLQJ FRQVXPHU GHVLUHV LQWURGXFLQJ IODJVKLS SURGXFWV LQ RXU FRUH SURGXFWFDWHJRULHVDQGWKHQVWUDWHJLFDOO\H[SDQGLQJZLWKLQWKRVHFDWHJRULHVZLOOHQDEOHXVWRFRQWLQXHWRH[SDQGRXU H[LVWLQJSURGXFWRIIHULQJV)RUH[DPSOHZHH[SDQGHGWKH%8%%$EUDQG¶VUHGKDQGOHGQRQVOLSJULSNQLYHVWRDOLQH RIHOHFWURQLFILOOHWNQLYHVWKDWXWLOL]HGOLWKLXPLRQDQGGULYHWUDLQWHFKQRORJ\WKDWZHSUHYLRXVO\GHYHORSHGIRURXU OLQH RI UHFKDUJHDEOH IODVKOLJKW DQG WUHH VDZV XQGHU RXU 0 3 DQG +RR\PDQ EUDQGV UHVSHFWLYHO\ 7KH $PHULFDQ 6SRUWILVKLQJ$VVRFLDWLRQDZDUGHGWKLVQHZSURGXFWDV³%HVWLQ&DWHJRU\IRU&XWOHU\+DQG3OLHUVRU7RROV´

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³FURVVSROOLQDWH´WHFKQRORJLHVDFURVVEUDQGVVXFKDVWUDQVSRUWLQJWKHQRQVOLSJULS IURPRXU%8%%$ILVKLQJSURGXFWVRQWRWKHKDQGOHVRI+RR\PDQ¶VQHZOLQHRIKDQGKHOGODQGPDQDJHPHQWWRROVWR SURYLGHIXUWKHUSURGXFWGLIIHUHQWLDWLRQ

Expand Our Addressable Market by Appealing to New and Larger Audiences in New Product Categories Outside the Rugged Outdoor Market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

 Cultivate and Enhance Direct-to-Consumer Relationships through Our Digital Platforms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

Expand and Enhance Our Supply Chain :H SODQ WR H[SDQG DQG HQKDQFH RXU VXSSO\ FKDLQ E\ LGHQWLI\LQJ TXDOLI\LQJ DWWUDFWLQJ DQG PDLQWDLQLQJ TXDOLILHG FRQWUDFW PDQXIDFWXUHUV DQG RWKHU VXSSOLHUV RI ILQLVKHG SURGXFWV DQG SURGXFW FRPSRQHQWV PDGH WR RXU VSHFLILFDWLRQVDQGWKHUDZPDWHULDOVQHHGHGIRUSURGXFWVDQGSURGXFWFRPSRQHQWVWKDWPHHWRXUHIILFLHQF\TXDOLW\ FRVWGHOLYHU\DQGRWKHUUHTXLUHPHQWV4XDOLI\LQJDGGLWLRQDOVXSSOLHUVZLOOUHGXFHRXUGHSHQGHQFHRQDQ\RQHRU VPDOOJURXSRIVXSSOLHUVDQGSURWHFWXVDJDLQVWVXSSOLHUILQDQFLDORSHUDWLRQDOSHUIRUPDQFHRUFDSDFLW\LVVXHV

Pursue Acquisitions that Financially and Strategically Complement our Current Business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

OP&A - Product Design and Development :HDUHDOHDGLQJSURYLGHURIRXWGRRUSURGXFWVDQGDFFHVVRULHVXVHGLQKXQWLQJILVKLQJFDPSLQJVKRRWLQJ SHUVRQDOVHFXULW\DQGGHIHQVHDQGRWKHUUXJJHGRXWGRRUDFWLYLWLHV7REHVXFFHVVIXOZHPXVWFRQWLQXHWRFRQFHLYH GHVLJQSURGXFHRUVRXUFHDQGPDUNHWDFRQWLQXLQJVWUHDPRILQQRYDWLYHQHZSURGXFWVDQGSURGXFWH[WHQVLRQVWKDW DSSHDOWRFRQVXPHUVDQGDFKLHYHPDUNHWDFFHSWDQFHDQGGULYHFXVWRPHUVDWLVIDFWLRQDQGOR\DOW\WRRXUEUDQGVDQG SURGXFWJURXSV

 :HEHOLHYHWKDWZHZLOOGULYHFXVWRPHUVDWLVIDFWLRQDQGOR\DOW\E\RIIHULQJKLJKTXDOLW\LQQRYDWLYHSURGXFWV RQDWLPHO\DQGFRVWHIIHFWLYHEDVLVDVZHOODVSURYLGLQJZRUOGFODVVFXVWRPHUVHUYLFHWUDLQLQJDQGVXSSRUW:H UHJDUGRXUKLJKTXDOLW\LQQRYDWLYHSURGXFWVDVWKHPRVWLPSRUWDQWDVSHFWRIRXUFXVWRPHUVDWLVIDFWLRQDQGOR\DOW\ EXWZHDOVRRIIHUFXVWRPHUVHUYLFHDQGVXSSRUWZLWKYDULRXVSURJUDPVVXFKDVWROOIUHHFXVWRPHUVXSSRUWQXPEHUV HPDLO FXVWRPHU TXHVWLRQ DQG DQVZHU FRPPXQLFDWLRQV EURDG VHUYLFH SROLFLHV DQG SURGXFW ZDUUDQWLHV :H KDYH GHYHORSHG XQLTXH EUDQGVSHFLILF FRQWHQW RQ RXU ZHEVLWHV WR KHOS PD[LPL]H WKH FRQVXPHUV¶ H[SHULHQFH ZLWK RXU SURGXFWV

$V QRWHG SUHYLRXVO\ RXU SURGXFWV LQFOXGH VKRRWLQJ VXSSOLHV UHVWV YDXOWV DQG RWKHU UHODWHG DFFHVVRULHV SUHPLXP VSRUWVPHQ NQLYHV DQG WRROV IRU ILVKLQJ DQG KXQWLQJ ODQG PDQDJHPHQW WRROV IRU KXQWLQJ SUHSDUHGQHVV KDUYHVWLQJSURGXFWVIRUSRVWKXQWRUSRVWILVKLQJDFWLYLWLHVHOHFWURRSWLFDOGHYLFHVLQFOXGLQJKXQWLQJRSWLFVILUHDUP DLPLQJ GHYLFHV IODVKOLJKWV DQG ODVHU JULSV UHORDGLQJ JXQVPLWKLQJ DQG ILUHDUP FOHDQLQJ VXSSOLHV DQG VXUYLYDO FDPSLQJDQGHPHUJHQF\SUHSDUHGQHVVSURGXFWV

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

OP&A - Brands :HRUJDQL]HRXU23 $EUDQGVLQ³%UDQG/DQHV´ZKLFKDUHWKHIRXQGDWLRQIRURXUGLVWLQFWLYHRSHUDWLRQV2XU EUDQGILUVWDSSURDFKLVFRPELQHGZLWKSDVVLRQDWHSHUVRQQHOWRGHOLYHUDXWKHQWLFH[SHULHQFHVWRRXUFRQVXPHUV2XU NQRZOHGJHDEOHHPSOR\HHVGHYHORSDGHHSXQGHUVWDQGLQJRIRXUEUDQGVDQGXQGHUVWDQGSUHFLVHO\ZKDWRXUFXVWRPHUV DQG FRQVXPHUV GHVLUH PRVW LQ QHZ SURGXFWV  'HGLFDWHG PDQDJHPHQW PDUNHWLQJ FUHDWLYH HFRPPHUFH DQG HQJLQHHULQJWHDPVDVVLJQHGWRHDFKEUDQGODQHDOORZXVWRVWUDWHJLFDOO\DQGHIILFLHQWO\DSSURDFKRXUGHYHORSPHQW URDGPDSDQGPDUNHWLQJHIIRUWV:HFXUUHQWO\VHOORXUSURGXFWVXQGHUGLVWLQFWEUDQGVRUJDQL]HGLQWRIRXUEUDQG ODQHVDOLJQHGZLWKRXUVSHFLILFFRQVXPHUYHUWLFDOV

Marksman Brands • &DOGZHOO±VKRRWLQJUDQJHDQGPDUNVPDQSURGXFWV • )UDQNIRUG$UVHQDO±DPPXQLWLRQUHORDGLQJSURGXFWV • 7LSWRQ±ILUHDUPFOHDQLQJDQGPDLQWHQDQFHSURGXFWV • :KHHOHU±JXQVPLWKLQJWRROV

Defender Brands • &ULPVRQ7UDFH±ILUHDUPDLPLQJVROXWLRQV • ,PSHULDO±FXWOHU\DQGWRROV • /DVHU/\WH±ILUHDUPWUDLQLQJV\VWHPV • /RFNGRZQ±VHFXULW\DQGVWRUDJHVROXWLRQV • 0 3$FFHVVRULHV±FXWOHU\IODVKOLJKWVDQGYDULRXVILUHDUPDFFHVVRULHV • 3HUIRUPDQFH&HQWHUE\6PLWK :HVVRQ±FXWOHU\FOHDQLQJNLWVDQGYDULRXVILUHDUPDFFHVVRULHV • 6PLWK  :HVVRQ $FFHVVRULHV ± NQLYHV IODVKOLJKWV VKRRWLQJ JODVVHV DQG FDVHV FOHDQLQJ NLWV DQG KHDULQJSURWHFWLRQSURGXFWV

 Harvester Brands • %2*±KXQWLQJDFFHVVRULHV • +RR\PDQ±ODQGPDQDJHPHQWWRROV • 0($7±PHDWSURFHVVLQJHTXLSPHQW • 2OG7LPHU±FXWOHU\DQGWRROV • 7KRPSVRQ&HQWHU$FFHVVRULHV±ILUHDUPVFRSHVEODFNSRZGHUEDUUHOVVSHHGORDGHUVPDJD]LQHVDQG FOHDQLQJDQGPDLQWHQDQFHSURGXFWV • 8QFOH+HQU\±KXQWLQJNQLYHVDQGWRROV

Adventurer Brands • %8%%$±ILVKLQJWRROVDQGNQLYHV • 6FKUDGH±UXJJHGRXWGRRUFXWOHU\DQGWRROV • 867±FDPSLQJDQGVXUYLYDOSURGXFWV

:HRZQDOORIWKHDERYHEUDQGVDQGZHKDYHHVWDEOLVKHGDOLFHQVLQJDUUDQJHPHQWEHWZHHQRXU)LUHDUPVDQG 23 $ GLYLVLRQV IRU WKRVH EUDQGV DQG WUDGHPDUNV WKDW DUH VSHFLILFDOO\ RZQHG E\ RXU )LUHDUPV GLYLVLRQ ZKLFK LQFOXGHWKH6PLWK :HVVRQORJRWKHVFULSW³6PLWK :HVVRQ´WKH³0 3´ORJRWKHVFULSW³7KRPSVRQ&HQWHU $UPV´DQGWKHVFULSW³3HUIRUPDQFH&HQWHU´ZKLFKDUHZHOONQRZQDQGKDYHDUHSXWDWLRQIRUTXDOLW\YDOXHDQG WUXVWZRUWKLQHVVLQWKHDFFHVVRULHVLQGXVWU\

0DUNHWLQJ6DOHVDQG'LVWULEXWLRQ General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

:H PDUNHW RXU ILUHDUPV SURGXFWV WR FRQVXPHUV WKURXJK LQGHSHQGHQW GHDOHUV ODUJH UHWDLOHUV LQVWRUH UHWDLO FKDQQHOV GLUHFW WR FRQVXPHU DQG UDQJH RSHUDWLRQV XVLQJ IRFXVHG PDUNHWLQJ DQG SURPRWLRQDO FDPSDLJQV ZKLFK LQFOXGH SULQW EURDGFDVW DQG GLJLWDO DGYHUWLVLQJ FDPSDLJQV VRFLDO DQG HOHFWURQLF PHGLD DQG LQVWRUH UHWDLO PHUFKDQGLVLQJ VWUDWHJLHV :H DUH SURPLQHQWO\ IHDWXUHGLQ YHUWLFDO SULQW PHGLDLQFOXGLQJ HGLWRULDOFRYHUDJH LQ DQ H[WHQVLYHOLVWRIOHDGLQJILUHDUPVDQGRXWGRRUPDJD]LQHVLQFOXGLQJGuns & Ammo American Rifleman Shooting Times American Handgunner Shooting Illustrated American HunterOutdoor Life DQG Field & Stream:HDOVR VSRQVRU PDQ\ RXWGRRU WHOHYLVLRQ LQWHUQHW DQG RQOLQH SURJUDPV WKDW JHQHUDWH VLJQLILFDQW HGLWRULDO H[SRVXUH :H VSRQVRUDQXPEHURIILUHDUPVDIHW\VKRRWLQJDQGKXQWLQJHYHQWVDQGRUJDQL]DWLRQV

:HSULQWYDULRXVSURGXFWFDWDORJVWKDWDUHGLVWULEXWHGWRRXUGHDOHUVDQGPDLOHGGLUHFWO\RQDOLPLWHGEDVLVWR FRQVXPHUV:HDOVRDWWHQGYDULRXVWUDGHVKRZVVXFKDVWKH6KRRWLQJ+XQWLQJ2XWGRRU7UDGH 6+27 6KRZWKH 15$$QQXDO0HHWLQJ ([KLELWVWKH1DWLRQDO$VVRFLDWLRQRI6SRUWLQJ*RRGV:KROHVDOHUV6KRZWKH,QWHUQDWLRQDO $VVRFLDWLRQ RI &KLHIV RI 3ROLFH 6KRZ WKH $VVRFLDWLRQ RI WKH 8QLWHG 6WDWHV $UP\ 6KRZ RU $86$ 6KRZ WKH ,QWHUQDWLRQDO :HDSRQV ([KLELWLRQ 6KRZ RU ,:$ 6KRZ LQ (XURSH DQG YDULRXV GLVWULEXWRU EX\LQJ JURXS DQG FRQVXPHUVKRZV

 ,QRXU23 $EXVLQHVVZHGHSOR\DPXOWLIDFHWHGVWUDWHJ\WRHQJDJHZLWKFRQVXPHUVDQGWRGHOLYHUSRVLWLYH FRQVXPHU H[SHULHQFHV  2XU PDUNHWLQJ DSSURDFK EHJLQV ZLWK RXU WHDP XWLOL]LQJ WHOHYLVLRQ SULQW DQG RWKHU DGYHUWLVLQJPHGLDWRDVVXUHWKDWRXUFXVWRPHUVDQGFRQVXPHUVFRQQHFWZLWKRXUEUDQGVDQGWRWKHSURGXFWVZHRIIHU ,QRUGHUWRKHOSFRQYHUWDWWKHSRLQWRISXUFKDVHLQFUHDVHWKHOLNHOLKRRGRIOR\DOFRQVXPHUUHODWLRQVKLSVDQGEXLOG DGYRFDF\ZLWKRXUFRQVXPHUEDVHZHPDUNHWRXUSURGXFWVWRFRQVXPHUVXVLQJIRFXVHGFDPSDLJQVWKDWDOLJQZLWK HDFKEUDQG¶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

Digital Marketing ,Q RXU )LUHDUPV GLYLVLRQ ZH XWLOL]H RXU ZHEVLWHV LQFOXGLQJ www.smith-wesson.com www.tcarms.com, DQG www.Jemtech.com, WRPDUNHWRXUSURGXFWVDQGVHUYLFHVDQGWRSURYLGHDZLGHUDQJHRILQIRUPDWLRQUHJDUGLQJRXU FRPSDQ\WRFXVWRPHUVFRQVXPHUVGHDOHUVGLVWULEXWRUVLQYHVWRUVDQGJRYHUQPHQWDQGODZHQIRUFHPHQWDJHQFLHV ZRUOGZLGH 6RFLDO PHGLD SODWIRUPV VXFK DV )DFHERRN ,QVWDJUDP

,QRXU23 $GLYLVLRQZHEHOLHYHVRFLDOPHGLDSODWIRUPVVXFKDV)DFHERRN,QVWDJUDP

Service and Support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

 Total Company Marketing Metrics 2XUWRSILYHFRPPHUFLDOGLVWULEXWRUVLQWKH8QLWHG6WDWHVDFFRXQWHGIRUDWRWDORIDQGRIRXU FRQVROLGDWHGQHWVDOHVIRUWKHILVFDO\HDUVHQGHG$SULODQGUHVSHFWLYHO\

:HVHOORXUSURGXFWVZRUOGZLGH,QWHUQDWLRQDOVDOHVDFFRXQWHGIRUDQGRIRXUQHWVDOHVIRUWKH ILVFDO \HDUV HQGHG $SULO    DQG  UHVSHFWLYHO\ 2XU EXVLQHVVHV RZQ WRROLQJ WKDW LV ORFDWHG DW YDULRXVVXSSOLHUVLQ$VLDDQG1RUWK$PHULFD

)RUWKHILVFDO\HDUVHQGHG$SULODQGPDUNHWLQJDGYHUWLVLQJDQGSURPRWLRQH[SHQVHV ZHUH  PLOOLRQ PLOOLRQ DQG PLOOLRQ UHVSHFWLYHO\ H[FOXGLQJ WKH FRVW RI UHEDWHV DQG SURPRWLRQV UHIOHFWHGLQJURVVSURILW

6XSSOLHUV ,Q RXU )LUHDUPV GLYLVLRQ ZH PDQXIDFWXUH PRVW RI WKH FRPSRQHQWV IRU RXU ILUHDUPV EXW SXUFKDVH FHUWDLQ FRPSRQHQWV DQG SDUWV LQFOXGLQJ EROW FDUULHUV ULIOH UHFHLYHUV PDJD]LQHV VPDOO SDUWV DQG ULIOH VWRFNV IURP WKLUG SDUWLHV:HDOVRSXUFKDVHDPPXQLWLRQIRUSURGXFWWHVWLQJ0RVWRIRXUPDMRUVXSSOLHUVIRURXUILUHDUPSURGXFWVDUH 86EDVHGDQGSURYLGHPDWHULDOVFRPSRQHQWVDQGSDUWVVXFKDVVWHHOSRO\PHUFRPSRQHQWVDQGPHWDOLQMHFWHG PROGHGFRPSRQHQWV7KHFRVWVRIWKHVHPDWHULDOVFRPSRQHQWVDQGSDUWVDUHDWFRPSHWLWLYHUDWHV:HKDYHEHFRPH OHVVGHSHQGHQWRQDQ\SDUWLFXODUVXSSOLHUE\VWUDWHJLFDOO\VRXUFLQJSDUWVDQGUDZPDWHULDOIURPPXOWLSOHVXSSOLHUV EDVHGRQTXDOLW\FRVWDQGULVN:KHQHYHUDSSURSULDWHFULWLFDOSDUWVDQGFRPSRQHQWVKDYHSULPDU\DQGVHFRQGDU\ VRXUFHVRIVXSSO\:HDUHDOVRDEOHWROHYHUDJHRXUVXSSO\EDVHWRVXSSOHPHQWRXULQWHUQDOFDSDFLW\DQGSURYLGH IOH[LELOLW\LQRXUUHVSRQVHWRFKDQJHVLQPDUNHWFRQGLWLRQV:HXVHQXPHURXVUDZPDWHULDOVVXFKDVVWHHOZRRG OHDGEUDVVDQGSODVWLFVLQSURGXFLQJDQGWHVWLQJRXUSURGXFWV:HKDYHDOWHUQDWLYHVRXUFHVIRUWKHVHUDZPDWHULDOV

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

 :HSHUIRUPLQRXURZQIDFLOLWLHVPRVWRIWKHPDFKLQLQJDQGDOORIWKHDVVHPEO\LQVSHFWLRQDQGWHVWLQJRIWKH ILUHDUPVWKDWZHVHOO:HSURGXFHRXUPDMRUILUHDUPFRPSRQHQWVXWLOL]LQJFRPSXWHUDVVLVWHGPDFKLQHV2XUVNLOOHG HPSOR\HHVXVHVRSKLVWLFDWHGDXWRPDWHGWHVWLQJHTXLSPHQWWRHQVXUHWKHSURSHUIXQFWLRQLQJRIRXUILUHDUPV(YHU\ ILUHDUP LV WHVW ILUHG EHIRUH VKLSPHQW 2XU 6SULQJILHOG DQG +RXOWRQ IDFLOLWLHV DUH FXUUHQWO\ RSHUDWLQJ RQ WZR VKLIW SDWWHUQV D IRXU VKLIW KRXUSHU ZHHN VFKHGXOH DQG D WKUHH VKLIW  KRXU SHU ZHHN VFKHGXOH :H VHHN WR PLQLPL]H LQYHQWRU\ FRVWV WKURXJK DQ LQWHJUDWHG SODQQLQJ DQG SURGXFWLRQ V\VWHP $OO IDFLOLWLHV LQ RXU )LUHDUPV GLYLVLRQ RSHUDWH XQGHU 6$3 D IXOO\ LQWHJUDWHG (53 V\VWHP :H LQWHQG WR FRQWLQXH LQYHVWLQJ LQ LPSURYLQJ RXU IDFLOLWLHV DQG RXU V\VWHPV LQ RUGHU WR LQFUHDVH HIILFLHQF\ LPSURYH LQIRUPDWLRQ UHSRUWLQJ DQG VWUHQJWKHQ LQWHUQDO FRQWUROV

,Q&ROXPELD0LVVRXULZHOHDVHDVTXDUHIRRWIDFLOLW\ZKLFKZDVFRQVWUXFWHGIRUXVFRPSOHWHGLQ 1RYHPEHUDQGWKHQVROGDQGOHDVHGEDFNE\XV7KLVIDFLOLW\VHUYHVDVWKHZDUHKRXVHDQGGLVWULEXWLRQIDFLOLW\ IRURXU)LUHDUPVGLYLVLRQDQGDVSULQFLSDOH[HFXWLYHDGPLQLVWUDWLYHILQDQFLDOVDOHVPDUNHWLQJ5 'DVVHPEO\DQG GLVWULEXWLRQRSHUDWLRQVIRURXU23 $GLYLVLRQ:HDOVROHDVHDVTXDUHIRRWIDFLOLW\LQ:LOVRQYLOOH2UHJRQ ZKLFKKRXVHVSURGXFWLRQDVVHPEO\DQGZDUHKRXVLQJRSHUDWLRQVIRURXUODVHUVLJKWLQJDQGWDFWLFDOOLJKWLQJV\VWHPV RSHUDWLRQVLQRXU23 $GLYLVLRQ

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

3DWHQWV7UDGHPDUNVDQG&RS\ULJKWV :H UHFRJQL]H WKH LPSRUWDQFH RI LQQRYDWLRQ DQG SURWHFWLQJ RXU LQWHOOHFWXDO SURSHUW\ $FFRUGLQJO\ ZH RZQ QXPHURXV SDWHQWV UHODWHG WR RXU SURGXFWV :H DSSO\ IRU SDWHQWV ZKHQHYHU ZH GHYHORS LQQRYDWLYH QHZ SURGXFWV XQLTXHGHVLJQVRUSURFHVVHVRIFRPPHUFLDOLPSRUWDQFH:HGRQRWEHOLHYHWKDWRXUEXVLQHVVLVPDWHULDOO\GHSHQGHQW RQDQ\VLQJOHSDWHQW

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

:HLQWHQGWRYLJRURXVO\SXUVXHDQGFKDOOHQJHLQIULQJHPHQWVRIRXUSDWHQWVWUDGHPDUNVVHUYLFHPDUNVWUDGH GUHVVDQGFRS\ULJKWVDVZHEHOLHYHWKHJRRGZLOODVVRFLDWHGZLWKWKHPLVDFRUQHUVWRQHRIRXUEUDQGLQJVWUDWHJ\

 &RPSHWLWLRQ :HHQFRXQWHUFRPSHWLWLRQLQWKHILUHDUPVLQGXVWU\IURPERWKGRPHVWLFDQGIRUHLJQPDQXIDFWXUHUV$OWKRXJK VRPH FRPSHWLWRUV PDQXIDFWXUH D ZLGH YDULHW\ RI ILUHDUPV DV ZH GR PRVW RI RXU FRPSHWLWRUV PDQXIDFWXUH RQO\ FHUWDLQ W\SHV RI ILUHDUPV :H DUH RQH RI WKH ODUJHVW PDQXIDFWXUHUV RI KDQGJXQV PRGHUQ VSRUWLQJ ULIOHV DQG KDQGFXIIVLQWKH8QLWHG6WDWHVDQGDQDFWLYHSDUWLFLSDQWLQWKHKXQWLQJULIOHPDUNHW:HFRPSHWHSULPDULO\EDVHG XSRQ LQQRYDWLRQ TXDOLW\ UHOLDELOLW\ GXUDELOLW\ SULFH SHUIRUPDQFH FRQVXPHU EUDQG DZDUHQHVV DQG FXVWRPHU VHUYLFH DQG VXSSRUW 2XU FXVWRPHU VHUYLFH RUJDQL]DWLRQ LV SURDFWLYH LQ RIIHULQJ WLPHO\ UHVSRQVHV WR FXVWRPHU LQTXLULHV:HEHOLHYHZHFDQHIIHFWLYHO\FRPSHWHZLWKDOORXUSUHVHQWFRPSHWLWRUV2XUSULPDU\FRPSHWLWRUVLQRXU )LUHDUPGLYLVLRQDUH5XJHUDQG7DXUXVLQWKHUHYROYHUPDUNHWDQG*ORFN5XJHU6LJ6DXHU6SULQJILHOG$UPRU\DQG 7DXUXVLQWKHSLVWROPDUNHW:HFRPSHWHSULPDULO\ZLWK6LJ6DXHU5XJHU5HPLQJWRQ6DYDJHDQG'DQLHO'HIHQVH LQWKHPRGHUQVSRUWLQJULIOHPDUNHWDQG%URZQLQJ5HPLQJWRQ5XJHU6DYDJH&9$DQG7UDGLWLRQVLQWKHKXQWLQJ ULIOHPDUNHW

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

,QDGGLWLRQRXUSURGXFWVFRPSHWHZLWKPDQ\RWKHUVSRUWLQJDQGUHFUHDWLRQDOSURGXFWVDQGDFWLYLWLHVIRUWKH GLVFUHWLRQDU\VSHQGLQJRIFRQVXPHUV

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

:H JUDQW SD\PHQW WHUPV WR PRVW FRPPHUFLDO FXVWRPHUV UDQJLQJ IURP  WR  GD\V +RZHYHU LQ VRPH LQVWDQFHVZHSURYLGHORQJHUSD\PHQWWHUPVSDUWLFXODUO\DVLWUHODWHVWRRXUKXQWLQJGDWLQJSURJUDPVZKLFKSURYLGHV SD\PHQWWHUPVGXHLQWKHIDOOIRUFHUWDLQRUGHUVRIKXQWLQJSURGXFWVUHFHLYHGLQWKHVSULQJDQGVXPPHU

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

 2XURXWGRRUSURGXFWVDQGDFFHVVRULHVEXVLQHVVLVDOVRVHDVRQDOHVSHFLDOO\EHFDXVHPDQ\RILWVSURGXFWVDUH XVHGLQRXWGRRUEDVHGDFWLYLWLHV2XUVDOHVRIRXWGRRUSURGXFWVDQGDFFHVVRULHVDUHW\SLFDOO\WKHKLJKHVWEHWZHHQ $XJXVWDQG2FWREHUEHFDXVHRIGHPDQGUHODWLQJWRSULPHKXQWLQJVHDVRQVHDVRQDOFXWOHU\SURPRWLRQVWKHWLPLQJRI LQGXVWU\ WUDGH VKRZV DQG KROLGD\ VHDVRQ GHPDQG 7KH VDOHV RI RXWGRRU SURGXFWV DQG DFFHVVRULHV PD\ DOVR EH DIIHFWHGE\XQVHDVRQDOZHDWKHUFRQGLWLRQV

*RYHUQPHQWDO5HJXODWLRQV 2XUILUHDUPDQGVXSSUHVVRUEXVLQHVVLVSULPDULO\UHJXODWHGE\WKH$7)ZKLFKOLFHQVHVWKHPDQXIDFWXUHVDOH DQGLPSRUWRIILUHDUPVDQGVXSSUHVVRUVLQWKH8QLWHG6WDWHV7KH$7)FRQGXFWVSHULRGLFDXGLWVRIRXUIDFLOLWLHVWKDW KROG)HGHUDO)LUHDUPV/LFHQVHV7KH86'HSDUWPHQWRI6WDWHFXUUHQWO\RYHUVHHVWKHH[SRUWRIDUWLFOHVVHUYLFHVDQG UHODWHGWHFKQLFDOGDWDWKDWDUHGHVLJQDWHGDVGHIHQVHDUWLFOHVRUGHIHQVHVHUYLFHVRQWKH860XQLWLRQV/LVWDVVHW IRUWKLQWKH,QWHUQDWLRQDO7UDIILFLQ$UPV5HJXODWLRQVRU,7$5XQGHUWKH$UPV([SRUW&RQWURO$FWRU$(&$:H DUHUHTXLUHGWRREWDLQDQH[SRUWOLFHQVHIRUDOOLQWHUQDWLRQDOVKLSPHQWVRILWHPVFRQWUROOHGXQGHU,7$5DQG$(&$

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

:DUQLQJV DQG LQVWUXFWLRQV FRQFHUQLQJ WKH VDIH RSHUDWLRQ RI RXU ILUHDUPV DQG VXSSUHVVRUV DUH FRQWDLQHG LQ 6DIHW\  ,QVWUXFWLRQ 0DQXDOV LQFOXGHG LQ DOO ER[HV LQ ZKLFK ILUHDUPV DQG VXSSUHVVRUV DUH VKLSSHG DQG DUH DOVR DYDLODEOHIRUGRZQORDGIURPRXU6PLWK :HVVRQ7KRPSVRQ&HQWHU$UPVDQG*HPWHFKZHEVLWHV

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

(QYLURQPHQWDO+HDOWKDQG6DIHW\ :HDUHVXEMHFWWRQXPHURXVIHGHUDOVWDWHDQGORFDOODZVDQGUHJXODWLRQVWKDWUHJXODWHWKHKHDOWKDQGVDIHW\RI RXU ZRUNIRUFH LQFOXGLQJ WKRVH UHJXODWLRQV PRQLWRUHG E\ WKH 2FFXSDWLRQDO +HDOWK DQG 6DIHW\ $GPLQLVWUDWLRQ RU 26+$ WKH 1DWLRQDO )LUH 3URWHFWLRQ $VVRFLDWLRQ DQG WKH 'HSDUWPHQW RI 3XEOLF +HDOWK 7KRXJK QRW H[KDXVWLYH H[DPSOHVRIDSSOLFDEOHUHJXODWLRQVLQFOXGHFRQILQHGVSDFHVDIHW\ZDONLQJDQGZRUNLQJVXUIDFHVPDFKLQHJXDUGLQJ DQGOLIHVDIHW\

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

,Q RXU HIIRUWV WR VDWLVI\ RXU HQYLURQPHQWDO UHVSRQVLELOLWLHV DQG WR FRPSO\ ZLWK HQYLURQPHQWDO ODZV DQG UHJXODWLRQV ZH KDYH HVWDEOLVKHG DQG SHULRGLFDOO\ XSGDWH SROLFLHV UHODWLQJ WR WKH HQYLURQPHQWDO VWDQGDUGV RI SHUIRUPDQFHIRURXURSHUDWLRQV:HKDYHLQSODFHSURJUDPVWKDWPRQLWRUFRPSOLDQFHZLWKYDULRXVIHGHUDOVWDWHDQG ORFDOHQYLURQPHQWDOUHJXODWLRQV+RZHYHULQWKHQRUPDOFRXUVHRIRXUPDQXIDFWXULQJRSHUDWLRQVZHDUHVXEMHFWWR JRYHUQPHQWDO SURFHHGLQJV DQG RUGHUV SHUWDLQLQJ WR ZDVWH GLVSRVDO DLU HPLVVLRQV DQG ZDWHU GLVFKDUJHV IURP RXU RSHUDWLRQV LQWR WKH HQYLURQPHQW :H UHJXODUO\ LQFXU VXEVWDQWLDO FDSLWDO DQG RSHUDWLQJ FRVWV WR FRPSO\ ZLWK HQYLURQPHQWDOODZVLQFOXGLQJUHPHGLDWLRQRINQRZQHQYLURQPHQWDOFRQGLWLRQVZKLFKZHIXQGWKURXJKFDVKIORZV IURP RSHUDWLRQV :H VSHQW  PLOOLRQ LQ ILVFDO  RQ HQYLURQPHQWDO FRPSOLDQFH FRQVLVWLQJ RI  IRU GLVSRVDOIHHVDQGFRQWDLQHUVIRUUHPHGLDWLRQDQGIRU'(3DQDO\VLVDQGIHHV

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

(PSOR\HHV $VRI0D\ZHKDGHPSOR\HHVLQFOXGLQJSDUWWLPHHPSOR\HHV1RQHRIRXUHPSOR\HHVDUH UHSUHVHQWHGE\DXQLRQLQFROOHFWLYHEDUJDLQLQJZLWKXV2IRXUHPSOR\HHVKDYHRUPRUH\HDUVRIVHUYLFH ZLWKRXUFRPSDQ\DQGKDYHJUHDWHUWKDQ\HDUVRIVHUYLFHZLWKRXUFRPSDQ\:HEHOLHYHWKDWRXUHPSOR\HH UHODWLRQVDUHJRRGDQGWKDWWKHKLJKTXDOLW\RIRXUHPSOR\HHEDVHLVLQVWUXPHQWDOWRRXUVXFFHVV

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

([HFXWLYH2IILFHUV 7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQLQIRUPDWLRQUHJDUGLQJRXUH[HFXWLYHRIILFHUV  1DPH $JH 3RVLWLRQ 0DUN36PLWK  &R3UHVLGHQWDQG&R&KLHI([HFXWLYH2IILFHU %ULDQ'0XUSK\  &R3UHVLGHQWDQG&R&KLHI([HFXWLYH2IILFHU ([HFXWLYH 9LFH 3UHVLGHQW &KLHI )LQDQFLDO 2IILFHU &KLHI $GPLQLVWUDWLYH -HIIUH\'%XFKDQDQ  2IILFHUDQG7UHDVXUHU 6HQLRU 9LFH 3UHVLGHQW *HQHUDO &RXQVHO &KLHI &RPSOLDQFH 2IILFHU DQG 5REHUW-&LFHUR  6HFUHWDU\ /DQH$7RELDVVHQ  3UHVLGHQW)LUHDUPV

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

Brian D. Murphy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

 Jeffrey D. Buchanan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¶&RQQRU &DYDQDJK$QGHUVRQ .LOOLQJVZRUWK  %HVKHDUV DQGIRUWKHODZILUPRI 'DYLV:ULJKW 7UHPDLQH//3 IURPXQWLO+HZDVDVHQLRUVWDIISHUVRQDW'HORLWWH 7RXFKH//3IURPWR0U%XFKDQDQLVD GLUHFWRUDQG$XGLW&RPPLWWHH&KDLUPDQRI6\QDSWLFV,QFRUSRUDWHGDSXEOLFO\WUDGHGFRPSDQ\WKDWGHYHORSVFXVWRP XVHULQWHUIDFHVROXWLRQV

Robert J. Cicero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

Lane A. Tobiassen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

,WHP$Risk Factors Investors should carefully consider the following risk factors, together with all the other information included in the Form 10-K, in evaluating our company, our business, and our prospects. The most significant risks that could materially and adversely affect our business operations, financial condition, and cash flows include the risk factors described below.

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

$VLJQLILFDQWSRUWLRQRIRXU23 $GLYLVLRQDVVHWVFRQVLVWVRIJRRGZLOOLQWDQJLEOHDVVHWVDQGIL[HGDVVHWVWKH FDUU\LQJYDOXHRIZKLFKPD\EHUHGXFHGLIZHGHWHUPLQHWKDWWKRVHDVVHWVDUHLPSDLUHG0RVWRIRXULQWDQJLEOHDQG IL[HGDVVHWVKDYHILQLWHXVHIXOOLYHVDQGDUHDPRUWL]HGRUGHSUHFLDWHGRYHUWKHLUXVHIXOOLYHVRQHLWKHUDVWUDLJKWOLQH EDVLVRURYHUWKHH[SHFWHGSHULRGRIEHQHILWRUDVUHYHQXHVDUHHDUQHGIURPWKHVDOHVRIWKHUHODWHGSURGXFWV7KH XQGHUO\LQJDVVXPSWLRQVUHJDUGLQJWKHHVWLPDWHGXVHIXO OLYHV RIWKHVHLQWDQJLEOH DVVHWVDUHUHYLHZHGDQQXDOO\DQG PRUH RIWHQ LI DQ HYHQW RU FLUFXPVWDQFH RFFXUV PDNLQJ LW OLNHO\ WKDW WKH FDUU\LQJ YDOXH RI WKH DVVHWV PD\ QRW EH UHFRYHUDEOH DQG DUH DGMXVWHG WKURXJK DFFHOHUDWHG DPRUWL]DWLRQ LI QHFHVVDU\ :KHQHYHU HYHQWV RU FKDQJHV LQ FLUFXPVWDQFHVLQGLFDWHWKDWWKHFDUU\LQJYDOXHRIWKHDVVHWVPD\QRWEHUHFRYHUDEOHDQGDWOHDVWDQQXDOO\ZHWHVW LQWDQJLEOH DVVHWV IRU LPSDLUPHQW EDVHG RQ HVWLPDWHV RI IXWXUH FDVK IORZV 'XULQJ RXU IRXUWK ILVFDO TXDUWHU HQGHG $SULO   ZH UHFRJQL]HG DQ LPSDLUPHQW RI  PLOOLRQ ZKLFK LQFOXGHG FHUWDLQ LPSDFWV DVVRFLDWHG ZLWK &29,'WKDWZHZHUHDZDUHRIDWWKHWLPHRIWKHLPSDLUPHQW%DVHGXSRQWKHXOWLPDWHVFRSHDQGVFDOHRIWKH &29,' JOREDO SDQGHPLF WKHUH PD\ EH DGGLWLRQDO PDWHULDOO\ QHJDWLYH LPSDFWV WR WKH DVVXPSWLRQV PDGH ZLWK UHVSHFWWRRXUJRRGZLOODQGRWKHUORQJOLYHGLQWDQJLEOHDVVHWVWKDWFRXOGUHVXOWLQDQDGGLWLRQDOLPSDLUPHQWRIVXFK DVVHWV

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

&HUWDLQRIRXUEXVLQHVVHVDUHVXEMHFWWRH[WHQVLYHUHJXODWLRQ 2XUILUHDUPEXVLQHVVDVZHOODVWKHEXVLQHVVRIDOOSURGXFHUVDQGPDUNHWHUVRIILUHDUPVDQGILUHDUPSDUWVLV VXEMHFW WR QXPHURXV IHGHUDO VWDWH ORFDO DQG IRUHLJQ ODZV UHJXODWLRQV DQG SURWRFROV LQFOXGLQJ WKH UXOHV DQG UHJXODWLRQVRIWKH$7),IZHIDLOWRFRPSO\ZLWK$7)UXOHVDQGUHJXODWLRQVWKH$7)PD\OLPLWRXUDFWLYLWLHVRU JURZWKILQHXVRUXOWLPDWHO\SXWXVRXWRIEXVLQHVV

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

,QDGGLWLRQOLNHPDQ\RWKHUPDQXIDFWXUHUVZHDUHVXEMHFWWRFRPSOLDQFHZLWKWKH)DLU/DERU6WDQGDUGV$FW WKH2FFXSDWLRQDO6DIHW\DQG+HDOWK$FWWKHGDWDSULYDF\ODZVRI0DVVDFKXVHWWVDQGRWKHUMXULVGLFWLRQVDQGPDQ\ RWKHUUHJXODWLRQVVXUURXQGLQJHPSOR\PHQWODZHQYLURQPHQWDOODZWD[DWLRQDQGFRQVXPHUSURWHFWLRQ

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oto v. Bushmaster Firearms International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

&RPSOLDQFH ZLWK DOO RI WKHVH ODZV UHJXODWLRQV DQG SURWRFROV LV FRVWO\ DQG WLPH FRQVXPLQJ $OWKRXJK ZH PDNH VXEVWDQWLDO HIIRUWV WR HQVXUH FRPSOLDQFH ZLWK WKH PDQ\ UHJXODWLRQV WR ZKLFK ZH DUH VXEMHFW LQDGYHUWHQW YLRODWLRQRIDQ\RIWKHVHODZVUHJXODWLRQVDQGSURWRFROVFRXOGFDXVHXVWRLQFXUILQHVDQGSHQDOWLHVDQGFRXOGDOVR OHDG WR UHVWULFWLRQV RQ RXU DELOLW\ WR PDQXIDFWXUH DQG VHOO RXU SURGXFWV DQG VHUYLFHV DQG WR LPSRUW RU H[SRUW WKH SURGXFWVWKDWZHVHOO,QDGGLWLRQWKHVHODZVUHJXODWLRQVDQGSURWRFROVDVZHOODVWKHLULQWHUSUHWDWLRQE\FRXUWVDQG UHJXODWRU\DXWKRULWLHVPD\FKDQJHDWDQ\WLPH7KHUHFDQEHQRDVVXUDQFHWKDWVXFKFKDQJHVWRWKHODZVUHJXODWLRQV DQGSURWRFROVRUWRWKHLULQWHUSUHWDWLRQVZLOOQRWDGYHUVHO\DIIHFWRXUEXVLQHVV

$FWLRQV RI VRFLDO DFWLYLVWV FRXOG FDXVH XV WR LQFXU VXEVWDQWLDO FRVWV GLYHUW PDQDJHPHQW¶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

:HDUHVXEMHFWWRODZVXLWVDQGJRYHUQPHQWDOLQYHVWLJDWLRQVDQGLQTXLULHV :H DUH FXUUHQWO\ LQYROYHG LQ VHYHUDO ODZVXLWV LQFOXGLQJ D ODZVXLW LQYROYLQJ D PXQLFLSDOLW\ DQG VHYHUDO SURGXFWOLDELOLW\ODZVXLWV

:HDUHYLJRURXVO\GHIHQGLQJRXUVHOYHVLQWKHODZVXLWVWRZKLFKZHDUHVXEMHFW7KHUHFDQEHQRDVVXUDQFH KRZHYHUWKDWZHZLOOQRWKDYHWRSD\VLJQLILFDQWGDPDJHVRUDPRXQWVLQVHWWOHPHQWDERYHLQVXUDQFHFRYHUDJH$Q XQIDYRUDEOHRXWFRPHRUSURORQJHGOLWLJDWLRQFRXOGKDUPRXUEXVLQHVV/LWLJDWLRQRIWKLVQDWXUHLVDOVRH[SHQVLYHDQG WLPHFRQVXPLQJDQGPD\GLYHUWWKHWLPHDQGDWWHQWLRQRIRXUPDQDJHPHQW

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

2XUSURGXFWOLDELOLW\LQVXUDQFHSURJUDPLVDQRFFXUUHQFHEDVHGSURJUDPEDVHGRQRXUFXUUHQWDQGKLVWRULFDO FODLPVH[SHULHQFHDQGWKHDYDLODELOLW\DQGFRVWRILQVXUDQFH:HFDQQRWDVVXUH\RXKRZHYHUWKDWRXUIXWXUHSURGXFW OLDELOLW\ H[SHULHQFH ZLOO EH FRQVLVWHQW ZLWK RXU SDVW H[SHULHQFH RU WKDW FODLPV DQG DZDUGV ZLOO QRW VXEVWDQWLDOO\ LPSDFWWKHFRVWVRIRXULQVXUDQFHSURJUDPVLQWKHIXWXUH

,WLVGLIILFXOWWRDOLJQRXUFDSDFLW\ZLWKRXUGHPDQG )URPWLPHWRWLPHZHKDYHEHHQFDSDFLW\FRQVWUDLQHGDQGKDYHEHHQXQDEOHWRVDWLVI\RQDWLPHO\EDVLVWKH GHPDQG IRU VRPH RI RXU SURGXFWV 'XULQJ WKH ODVW VHYHUDO ILVFDO \HDUV ZH KDYH LPSURYHG RXU PDQXIDFWXULQJ SURGXFWLYLW\ E\ DGGLQJ FDSDFLW\ LQFUHDVLQJ GDLO\ SURGXFWLRQ TXDQWLWLHV LQFUHDVLQJ RSHUDWLRQDO DYDLODELOLW\ RI HTXLSPHQW UHGXFLQJ PDFKLQHU\ GRZQ WLPH H[WHQGLQJ PDFKLQHU\ XVHIXO OLIH DQG LQFUHDVLQJ PDQXIDFWXULQJ HIILFLHQF\ )XWXUH VLJQLILFDQW LQFUHDVHV LQ FRQVXPHU GHPDQG IRU RXU SURGXFWV RU LQFUHDVHG EXVLQHVV IURP ODZ HQIRUFHPHQWRUPLOLWDU\DJHQFLHVPD\UHTXLUHXVWRH[SDQGIXUWKHURXUPDQXIDFWXULQJFDSDFLW\SDUWLFXODUO\WKURXJK WKHSXUFKDVHRIDGGLWLRQDOPDQXIDFWXULQJHTXLSPHQWDQGWKHDGGLWLRQRIPDQXIDFWXULQJVSDFH:HPD\QRWEHDEOHWR LQFUHDVHRXUFDSDFLW\LQWLPHWRVDWLVI\LQFUHDVHVLQGHPDQGWKDWPD\RFFXUIURPWLPHWRWLPHDQGZHPD\QRWKDYH

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

2XUPDQXIDFWXULQJIDFLOLWLHVDUHFULWLFDOWRRXUVXFFHVV 2XU6SULQJILHOG0DVVDFKXVHWWVIDFLOLW\LVFULWLFDOWRRXUVXFFHVVDVZHFXUUHQWO\SURGXFHPRVWRIRXUILUHDUP SURGXFWVDWWKLVIDFLOLW\

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

:HDOVRGHSHQGRQRXU+RXOWRQ0DLQHDQG'HHS5LYHU&RQQHFWLFXWIDFLOLWLHV2XU+RXOWRQIDFLOLW\LVXVHG SULPDULO\DVDPDFKLQLQJIDFLOLW\IRURXUILUHDUPVDVZHOODVRXUKDQGFXIIVDQGUHVWUDLQWVDQGRXU'HHS5LYHUIDFLOLW\ LVXVHGSULPDULO\IRUFXVWRPSODVWLFLQMHFWLRQPROGLQJVHUYLFHVUDSLGSURWRW\SLQJDQGWRROLQJ$GLVUXSWLRQLQWKH DFWLYLWLHVRIWKHVHIDFLOLWLHVFRXOGDGYHUVHO\DIIHFWRXUILUHDUPPDQXIDFWXULQJRSHUDWLRQV

:HGHSHQGRQRXUQHZGLVWULEXWLRQIDFLOLW\ZKLFKPD\QRWSURGXFHWKHEHQHILWVH[SHFWHG :H DUH H[WUHPHO\ GHSHQGHQW RQ RXU QHZ GLVWULEXWLRQ IDFLOLW\ LQ &ROXPELD 0LVVRXUL ZKLFK MXVW UHFHQWO\ EHFDPHIXOO\RSHUDWLRQDO7KHIDFLOLW\KRXVHVRXUZDUHKRXVHIRUILUHDUPVSURGXFWVDVZHOODVWKHSULQFLSDOH[HFXWLYH DGPLQLVWUDWLYHILQDQFLDOVDOHVPDUNHWLQJUHVHDUFKDQGGHYHORSPHQWDVVHPEO\DQGTXDOLW\LQVSHFWLRQRSHUDWLRQV IRURXU23 $GLYLVLRQ

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

2XU DELOLW\ WR PHHW FXVWRPHU H[SHFWDWLRQV PDQDJH LQYHQWRU\ FRPSOHWH VDOHV DQG DFKLHYH REMHFWLYHV IRU RSHUDWLQJSURILWVZLOOGHSHQGRQRXUSURSHURSHUDWLRQRIWKHIDFLOLW\

 :HUHO\RQRXWVRXUFLQJIRUDSRUWLRQRIRXUSURGXFWLRQDQGDQ\LQWHUUXSWLRQVLQWKHVHDUUDQJHPHQWVFRXOG GLVUXSWRXUDELOLW\WRILOORXUFXVWRPHUV¶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

7KH86IRUHLJQWUDGHSROLFLHVWDULIIVDQGRWKHULPSRVLWLRQVRQLPSRUWHGJRRGVWUDGHVDQFWLRQVLPSRVHGRQ FHUWDLQFRXQWULHVWKHOLPLWDWLRQRQWKHLPSRUWDWLRQRIFHUWDLQW\SHVRIJRRGVRURIJRRGVFRQWDLQLQJFHUWDLQW\SHVRI PDWHULDOVIURPRWKHUFRXQWULHVDQGRWKHUIDFWRUVUHODWLQJWRIRUHLJQWUDGHDOVRDUHEH\RQGRXUFRQWURO7KHVHDQGD PDMRULW\RIRWKHUIDFWRUVDIIHFWLQJRXUVXSSOLHUVDQGRXUDFFHVVWRSURGXFWVFRXOGDGYHUVHO\DIIHFWRXUEXVLQHVV

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

:HPD\UHFHLYHSURGXFWGHOLYHULHVIURPVXSSOLHUVWKDWIDLOWRFRQIRUPWRRXUTXDOLW\FRQWUROVWDQGDUGV,QVXFK FLUFXPVWDQFHVRXULQDELOLW\WRVHOOWKRVHSURGXFWVFRXOGKDYHDQHJDWLYHHIIHFWRQRXUQHWVDOHVDQGLQFUHDVHRXU DGPLQLVWUDWLYHDQGVKLSSLQJFRVWVLIZHDUHXQDEOHWRREWDLQUHSODFHPHQWSURGXFWVLQDWLPHO\PDQQHU

'DPDJHRUGLVUXSWLRQWRPDQXIDFWXULQJDQGGLVWULEXWLRQFDSDELOLWLHVRIRUWKHGLVUXSWLRQRIGHOLYHULHVIURP RXU VXSSOLHUV EHFDXVH RI VHYHUH RU FDWDVWURSKLF HYHQWV LQFOXGLQJ ZHDWKHU QDWXUDO GLVDVWHU ILUH RU H[SORVLRQ WHUURULVP SDQGHPLFV RU ODERU GLVUXSWLRQV LQFOXGLQJ DW SRUWVRU DW RXU VXSSOLHUV FRXOG LPSDLU RXU SURGXFW VDOHV $OWKRXJKZHKDYHLQVXUDQFHWRFRYHUSRWHQWLDOORVVIURPPRVWRIRXUVXSSOLHUVIRUWKHVHHYHQWVZHFRXOGH[SHULHQFH ORVVHVLQH[FHVVRIRXULQVXUHGOLPLWVDQGDQ\FODLPVIRUYDULRXVORVVHVFRXOGEHGHQLHG,QDGGLWLRQIDLOXUHWRWDNH DGHTXDWHVWHSVWRPLWLJDWHWKHOLNHOLKRRGRUSRWHQWLDOLPSDFWRIVXFKHYHQWVRUWRHIIHFWLYHO\PDQDJHVXFKHYHQWVLI WKH\RFFXUFRXOGKDYHDPDWHULDODGYHUVHHIIHFWRQXVDVZHOODVUHTXLUHDGGLWLRQDOUHVRXUFHVWRUHVWRUHRXUVXSSO\ FKDLQ

3URWHFWLRQLVWWDULIIVDQGWUDGHZDUVFRXOGKDUPRXUEXVLQHVV 7KHIHGHUDOJRYHUQPHQWKDVUHFHQWO\SXWLQWRSODFHWDULIIVDQGRWKHUWUDGHUHVWULFWLRQVDQGVLJQDOHGWKDWLWPD\ DGGLWLRQDOO\DOWHUWUDGHDJUHHPHQWVDQGWHUPVEHWZHHQWKH8QLWHG6WDWHVDQG&KLQDWKH(XURSHDQ8QLRQ&DQDGD DQG 0H[LFR DPRQJ RWKHUV LQFOXGLQJ OLPLWLQJ WUDGH DQGRU LPSRVLQJ WDULIIV RQ LPSRUWV IURP VXFK FRXQWULHV ,Q DGGLWLRQ&KLQDWKH(XURSHDQ8QLRQ&DQDGDDQG0H[LFRDPRQJRWKHUVKDYHHLWKHUWKUHDWHQHGRUSXWLQWRSODFH UHWDOLDWRU\WDULIIVRIWKHLURZQ

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

 $QLQFUHDVHLQWKHRIIHULQJRI³SULYDWHODEHO´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

:KLOH ZH EHOLHYH ZH KDYH D VWURQJ WUDFN UHFRUG RI GHYHORSLQJ PDQXIDFWXULQJ DQG VHOOLQJ KLJKTXDOLW\ SURGXFWV IURP WLPH WR WLPH ZH KDYH H[SHULHQFHG PDQXIDFWXULQJ DQG GHVLJQ LVVXHV ZLWK UHVSHFW WR VRPH RI RXU ILUHDUPVDQGKDYHLQLWLDWHGSURGXFWUHFDOOVDQGVDIHW\DOHUWVLQWKHSDVW%DVHGRQWKHYROXPHRISURGXFWVZHKDYH VKLSSHGLQWRWKHPDUNHWDQ\IXWXUHUHFDOOVDIHW\DOHUWVRUSURGXFWOLDELOLW\FODLPVFRXOGKDUPRXUUHSXWDWLRQFDXVH XVWRORVHEXVLQHVVDQGFDXVHXVWRLQFXUVLJQLILFDQWZDUUDQW\VXSSRUWDQGUHSDLUFRVWV

:HPD\LQFXUKLJKHUPHGLFDOEHQHILWFRVWVLQWKHIXWXUH :HDUHVHOILQVXUHGIRURXUHPSOR\HHPHGLFDOSODQ:KLOHRXUPHGLFDOFRVWVLQUHFHQW\HDUVKDYHJHQHUDOO\ LQFUHDVHGDWWKHVDPHOHYHODVWKHUHJLRQDODYHUDJHRXUDJLQJZRUNIRUFHDQGRWKHUHPSOR\HHGHPRJUDSKLFVFRXOG UHVXOWLQDQLQFUHDVHLQRXUPHGLFDOFRVWVEH\RQGZKDWZHKDYHH[SHULHQFHGRUH[SHFW:HKDYHVWRSORVVFRYHUDJH LQSODFHIRUFDWDVWURSKLFHYHQWVEXWWKHDJJUHJDWHLPSDFWRIDKLJKQXPEHURIFODLPVXSWRRXUVWRSORVVOLPLWPD\ KDYHDQDGYHUVHLPSDFWRQRXUSURILWDELOLW\

:HFDQQRWDVVHVVWKHHIIHFWWKDWOHJLVODWLRQZLOOKDYHRQRXUKHDOWKFDUHFRVWVDQGVWUXFWXUHRURXUDELOLW\WR SURYLGHKHDOWKFDUHEHQHILWVWRRXUHPSOR\HHV7KH3DWLHQW3URWHFWLRQDQG$IIRUGDEOH&DUH$FWDVDPHQGHGE\WKH +HDOWK &DUH DQG (GXFDWLRQ 5HFRQFLOLDWLRQ $FW RI  RU $&$ EHFDPH HIIHFWLYH LQ FDOHQGDU  ZLWK RWKHU SURYLVLRQVWREHFRPHHIIHFWLYHRYHUVXFFHHGLQJ\HDUV

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

/LDELOLW\LQVXUDQFHLVH[SHQVLYHDQGPD\EHGLIILFXOWWRREWDLQ /LDELOLW\LQVXUDQFHFRYHUDJHLVH[SHQVLYHDQGIURPWLPHWRWLPHPD\EHGLIILFXOWRULPSRVVLEOHWRREWDLQ2XU LQVXUDQFH SROLFLHVDUHVXEMHFW WR SHULRGLF UHYLHZE\ RXULQVXUHUV DQGPD\ QRW EHUHQHZHG DW DOORU RQVLPLODURU IDYRUDEOHWHUPV%HFDXVHZHPDQXIDFWXUHDQGVHOOILUHDUPVLQVXUDQFHFDUULHUVPD\GHFLGHQRWWRLQVXUHXVLQWKH IXWXUH,QDGGLWLRQLIZHRURWKHUILUHDUPVPDQXIDFWXUHUVVXVWDLQVLJQLILFDQWORVVHVRUPDNHVLJQLILFDQWLQVXUDQFH FODLPV RXU DELOLW\ WR REWDLQ IXWXUH LQVXUDQFH FRYHUDJH DW FRPPHUFLDOO\ UHDVRQDEOH UDWHV FRXOG EH PDWHULDOO\ DGYHUVHO\DIIHFWHG2XUOLDELOLW\LQVXUDQFHFRVWVZHUHPLOOLRQLQILVFDODQGPLOOLRQLQILVFDO$Q LQDELOLW\WRREWDLQOLDELOLW\LQVXUDQFHVLJQLILFDQWLQFUHDVHVLQWKHFRVWRILQVXUDQFHZHREWDLQRUORVVHVLQH[FHVVRI

 RXUOLDELOLW\LQVXUDQFHFRYHUDJHFRXOGKDYHDPDWHULDODGYHUVHHIIHFWRQXV)RUWKHUHDVRQVGHVFULEHGKHUHLQLQ ILVFDOZHHVWDEOLVKHGDZKROO\RZQHGFDSWLYHLQVXUDQFHFRPSDQ\WRKHOSPLWLJDWHWKHVHULVNVEXWWKHIXQGLQJ E\XVRIVXFKLQVXUDQFHFRPSDQ\PD\QRWEHHQRXJKWRDGHTXDWHO\FRYHUWKHFRVWRIFODLPVDJDLQVWXVLIDQ\

6KRUWDJHV RI DQG SULFH LQFUHDVHV IRU FRPSRQHQWV SDUWV UDZ PDWHULDOV DQG RWKHU VXSSOLHV PD\ GHOD\ RU UHGXFHRXUVDOHVDQGLQFUHDVHRXUFRVWV $OWKRXJKZHPDQXIDFWXUHPRVWRIWKHFRPSRQHQWVIRURXUILUHDUPVZHSXUFKDVHFHUWDLQFRPSRQHQWVDQGSDUWV IURPWKLUGSDUWLHVLQFOXGLQJEROWFDUULHUVULIOHUHFHLYHUVPDJD]LQHVVOLGHVVPDOOSDUWVEDUUHOVDQGULIOHVWRFNV:H UHO\RQWKLUGSDUW\VXSSOLHUVDQGPDQXIDFWXUHUVIRUVXEVWDQWLDOO\DOORIRXURXWGRRUSURGXFWVDQGDFFHVVRULHV¶ILQLVKHG SURGXFWVDQGFRPSRQHQWVDQGZHKDYHOLPLWHGFRQWURORYHUWKHVHVXSSOLHUVDQGPDQXIDFWXUHUV:HDOVRSXUFKDVH DPPXQLWLRQIRUSURGXFWWHVWLQJ

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

:HKDYHRFFDVLRQDOO\UHFHLYHGDQGPD\UHFHLYHLQWKHIXWXUHSURGXFWGHOLYHULHVIURPVXSSOLHUVWKDWIDLOWR FRQIRUPWRRXUTXDOLW\FRQWUROVWDQGDUGV,QVXFKFLUFXPVWDQFHVRXULQDELOLW\WRVHOOWKRVHSURGXFWVFRXOGKDYHD QHJDWLYH HIIHFW RQ RXU QHW VDOHV DQG LQFUHDVH RXU DGPLQLVWUDWLYH DQG VKLSSLQJ FRVWV LI ZH DUH XQDEOH WR REWDLQ UHSODFHPHQWSURGXFWVLQDWLPHO\PDQQHU

'DPDJHRUGLVUXSWLRQWRPDQXIDFWXULQJDQGGLVWULEXWLRQFDSDELOLWLHVRIRUWKHGLVUXSWLRQRIGHOLYHULHVIURP RXU VXSSOLHUV EHFDXVH RI VHYHUH RU FDWDVWURSKLF HYHQWV LQFOXGLQJ ZHDWKHU QDWXUDO GLVDVWHU ILUH RU H[SORVLRQ WHUURULVP SDQGHPLFV RU ODERU GLVUXSWLRQV LQFOXGLQJ DW SRUWV RU DW RXU VXSSOLHUV FRXOG LPSDLU RXU DELOLW\ WR PDQXIDFWXUHRUVHOORXUSURGXFWV$OWKRXJKZHKDYHLQVXUDQFHWRFRYHUSRWHQWLDOORVVIURPPRVWRIRXUVXSSOLHUVIRU WKHVHHYHQWVZHFRXOGH[SHULHQFHORVVHVLQH[FHVVRIRXULQVXUHGOLPLWV,QDGGLWLRQIDLOXUHWRWDNHDGHTXDWHVWHSVWR PLWLJDWHWKHOLNHOLKRRGRUSRWHQWLDOLPSDFWRIVXFKHYHQWVRUWRHIIHFWLYHO\PDQDJHVXFKHYHQWVLIWKH\RFFXUFRXOG KDYHDPDWHULDODGYHUVHHIIHFWRQXVDVZHOODVUHTXLUHDGGLWLRQDOUHVRXUFHVWRUHVWRUHRXUVXSSO\FKDLQ

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

2XUFRPSXWHUV\VWHPVPD\DOVREHYXOQHUDEOHWRFRPSXWHUYLUXVHVFULPLQDODFWVGHQLDORIVHUYLFHDWWDFNV UDQVRPZDUHDQGVLPLODUGLVUXSWLRQVIURPXQDXWKRUL]HGWDPSHULQJZLWKRXUFRPSXWHUV\VWHPVZKLFKFRXOGOHDGWR LQWHUUXSWLRQVGHOD\VRUORVVRIFULWLFDOGDWD$VZHUHO\KHDYLO\RQRXULQIRUPDWLRQWHFKQRORJ\DQGFRPPXQLFDWLRQV V\VWHPVDQGWKH,QWHUQHWWRFRQGXFWRXUEXVLQHVVDQGSURYLGHKLJKTXDOLW\FXVWRPHUVHUYLFHWKHVHGLVUXSWLRQVFRXOG KDUP RXU DELOLW\ WR UXQ RXU EXVLQHVV DQG HLWKHU GLUHFWO\ RU LQGLUHFWO\ GLVUXSW RXU VXSSOLHUV¶ RU PDQXIDFWXUHUV¶ EXVLQHVVHVZKLFKFRXOGKDUPRXUEXVLQHVVRSHUDWLQJUHVXOWVDQGILQDQFLDOFRQGLWLRQ

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

$OOEXVLQHVVHVLQRXU)LUHDUPGLYLVLRQDQGPRVWEXVLQHVVHVLQRXU23 $GLYLVLRQRSHUDWHXQGHU6$3ZKLFK LVDIXOO\LQWHJUDWHG(53V\VWHP:HFRQWLQXHWRLPSOHPHQWYDULRXVPRGXOHVDQGDGGLWLRQDOXVDJHVRI6$3$Q\RI WKRVHLPSOHPHQWDWLRQVFRXOGUHVXOWLQDPDMRUGLVUXSWLRQWRRXUEXVLQHVVDQGDQ\GLVUXSWLRQFRXOGKDYHDQHJDWLYH HIIHFWRQRXUEXVLQHVVRSHUDWLQJUHVXOWVDQGILQDQFLDOFRQGLWLRQ,QDGGLWLRQXWLOL]LQJ6$3KDVUHTXLUHGDQGZLOO FRQWLQXHWRUHTXLUHVLJQLILFDQWUHVRXUFHVDQGUHILQHPHQWWRIXOO\UHDOL]HWKHH[SHFWHGEHQHILWVRIWKHV\VWHP

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

&RPSHWLWLRQ LQ WKH FRQVXPHU SURGXFWV LQGXVWU\ LV SULPDULO\ EDVHG RQ LQQRYDWLRQ TXDOLW\ UHOLDELOLW\ GXUDELOLW\ SULFH SHUIRUPDQFH FRQVXPHU EUDQG DZDUHQHVV DQG FXVWRPHU VHUYLFH DQG VXSSRUW 2XU LQDELOLW\ WR FRPSHWHLQRQHRUPRUHRIWKHVHDUHDVFRXOGKDYHDQHJDWLYHLPSDFWRQRXUEXVLQHVVRSHUDWLQJUHVXOWVDQGILQDQFLDO FRQGLWLRQ

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

2XUDELOLW\WRFRPSOHWHDFTXLVLWLRQVWKDWZHGHVLUHWRPDNHLQWKHIXWXUHZLOOGHSHQGXSRQYDULRXVIDFWRUV LQFOXGLQJWKHIROORZLQJ • WKHDYDLODELOLW\RIVXLWDEOHDFTXLVLWLRQFDQGLGDWHVDWDWWUDFWLYHSXUFKDVHSULFHV • WKHDELOLW\WRFRPSHWHHIIHFWLYHO\IRUDYDLODEOHDFTXLVLWLRQRSSRUWXQLWLHV

 • WKH DYDLODELOLW\ RI FDVK UHVRXUFHV ERUURZLQJ FDSDFLW\ RU RWKHU IRUPV RI FRQVLGHUDWLRQ DW IDYRUDEOH SULFLQJWKDWZRXOGHQDEOHXVWRRIIHUWKHUHTXLUHGDFTXLVLWLRQSXUFKDVHSULFHV • WKHDELOLW\RIPDQDJHPHQWWRGHYRWHVXIILFLHQWDWWHQWLRQWRDFTXLVLWLRQHIIRUWVDQG • WKHDELOLW\WRREWDLQDQ\UHTXLVLWHJRYHUQPHQWDORURWKHUDSSURYDOV

,QRXU23 $GLYLVLRQZHSODQWRSXUVXHDFTXLVLWLRQVRIFRPSDQLHVLQYROYHGLQZKDWZHFRQVLGHUWKHUXJJHG RXWGRRUPDUNHW ZKLFKPD\LQFOXGHVKRRWLQJKXQWLQJILVKLQJFDPSLQJKLNLQJSHUVRQDOVHFXULW\DQGGHIHQVHDQGD YDULHW\RIRWKHURXWGRRUUHFUHDWLRQDODQGOHLVXUHDFWLYLWLHV FRPSDQLHVWKDWSHUIRUPPDQXIDFWXULQJVHUYLFHVIRUXVRU VXSSO\XVZLWKFRPSRQHQWVRUPDWHULDOVDQGRWKHUEXVLQHVVHVWKDWZHUHJDUGDVFRPSOHPHQWDU\WRRXUEXVLQHVV:H PD\KDYHOLWWOHRUQRH[SHULHQFHZLWKFHUWDLQDFTXLUHGEXVLQHVVHVZKLFKFRXOGLQYROYHVLJQLILFDQWO\GLIIHUHQWVXSSO\ FKDLQVSURGXFWLRQWHFKQLTXHVFXVWRPHUVDQGFRPSHWLWLYHIDFWRUVWKDQRXUFXUUHQWEXVLQHVV7KLVODFNRIH[SHULHQFH ZRXOGUHTXLUHXVWRUHO\WRDJUHDWH[WHQWRQWKHPDQDJHPHQWWHDPVRIWKHVHDFTXLUHGEXVLQHVVHV7KHVHDFTXLVLWLRQV DOVRFRXOGUHTXLUHXVWRPDNHVLJQLILFDQWLQYHVWPHQWVLQV\VWHPVHTXLSPHQWIDFLOLWLHVDQGSHUVRQQHOLQDQWLFLSDWLRQ RIJURZWK7KHVHFRVWVFRXOGEHHVVHQWLDOWRLPSOHPHQWRXUJURZWKVWUDWHJ\LQVXSSRUWLQJRXUH[SDQGHGDFWLYLWLHV DQGUHVXOWLQJFRUSRUDWHVWUXFWXUHFKDQJHV:HPD\EHXQDEOHWRDFKLHYHVRPHRUDOORIWKHEHQHILWVWKDWZHH[SHFWWR DFKLHYHDVZHH[SDQGLQWRWKHVHQHZPDUNHWVZLWKLQWKHWLPHIUDPHVZHH[SHFWLIDWDOO,IZHIDLOWRDFKLHYHVRPH RUDOORIWKHEHQHILWVWKDWZHH[SHFWWRDFKLHYHDVZHH[SDQGLQWRWKHVHQHZPDUNHWVRUGRQRWDFKLHYHWKHPZLWKLQ WKHWLPHIUDPHVZHH[SHFWRXUEXVLQHVVRSHUDWLQJUHVXOWVDQGILQDQFLDOFRQGLWLRQFRXOGEHDGYHUVHO\DIIHFWHG

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

8QIRUHVHHQ H[SHQVHV GLIILFXOWLHV DQG GHOD\V IUHTXHQWO\ HQFRXQWHUHG LQ FRQQHFWLRQ ZLWK IXWXUH DFTXLVLWLRQV FRXOGLQKLELWRXUJURZWKDQGQHJDWLYHO\LPSDFWRXUSURILWDELOLW\$Q\IXWXUHDFTXLVLWLRQVPD\QRWPHHWRXUVWUDWHJLF REMHFWLYHVRUSHUIRUPDVDQWLFLSDWHG,QDGGLWLRQWKHVL]HWLPLQJDQGVXFFHVVRIDQ\IXWXUHDFTXLVLWLRQVPD\FDXVH VXEVWDQWLDOIOXFWXDWLRQVLQRXURSHUDWLQJUHVXOWVIURPTXDUWHUWRTXDUWHU7KHVHLQWHULPIOXFWXDWLRQVFRXOGDGYHUVHO\ DIIHFWWKHPDUNHWSULFHRIRXUFRPPRQVWRFN

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• WKHIDLOXUHRIDFTXLUHGEXVLQHVVHVWRDFKLHYHH[SHFWHGUHVXOWV • WKHSRWHQWLDOGLVUXSWLRQRIRXUFRUHEXVLQHVVHV • ULVNVDVVRFLDWHGZLWKHQWHULQJPDUNHWVDQGEXVLQHVVHVLQZKLFKZHKDYHOLWWOHRUQRSULRUH[SHULHQFH • GLYHUVLRQRIPDQDJHPHQW¶VDWWHQWLRQIURPRXUFRUHEXVLQHVVHV • DGYHUVHHIIHFWVRQH[LVWLQJEXVLQHVVUHODWLRQVKLSVZLWKVXSSOLHUVDQGFXVWRPHUV • ULVNVDVVRFLDWHGZLWKLQFUHDVHGUHJXODWRU\RUFRPSOLDQFHPDWWHUV • IDLOXUHWRUHWDLQNH\FXVWRPHUVVXSSOLHUVRUSHUVRQQHORIDFTXLUHGEXVLQHVVHV • WKHSRWHQWLDOVWUDLQRQRXUILQDQFLDODQGPDQDJHULDOFRQWUROVDQGUHSRUWLQJV\VWHPVDQGSURFHGXUHV • JUHDWHUWKDQDQWLFLSDWHGFRVWVDQGH[SHQVHVUHODWHGWRWKHLQWHJUDWLRQRIWKHDFTXLUHGEXVLQHVVHVZLWK RXUEXVLQHVV • SRWHQWLDOXQNQRZQOLDELOLWLHVDVVRFLDWHGZLWKWKHDFTXLUHGEXVLQHVVHV • ULVNVDVVRFLDWHGZLWKZHDNLQWHUQDOFRQWUROVRYHULQIRUPDWLRQWHFKQRORJ\V\VWHPVDQGDVVRFLDWHGF\EHU VHFXULW\ULVNV • PHHWLQJWKHFKDOOHQJHVLQKHUHQWLQHIIHFWLYHO\PDQDJLQJDQLQFUHDVHGQXPEHURIHPSOR\HHVLQGLYHUVH ORFDWLRQV • WKHULVNRILPSDLUPHQWFKDUJHVUHODWHGWRSRWHQWLDOZULWHGRZQVRIDFTXLUHGDVVHWVDQG • WKHFKDOOHQJHRIFUHDWLQJXQLIRUPVWDQGDUGVFRQWUROVSURFHGXUHVSROLFLHVDQGLQIRUPDWLRQV\VWHPV

,I RXU JRRGZLOO LQWDQJLEOH DVVHWV RU ORQJOLYHG DVVHWV EHFRPH LPSDLUHG ZH PD\ EH UHTXLUHG WR UHFRUG D VLJQLILFDQWFKDUJHWRHDUQLQJV :HUHYLHZRXUJRRGZLOOLQWDQJLEOHDVVHWVDQGORQJOLYHGDVVHWV FROOHFWLYHO\³WHVWHGDVVHWV´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

 WKDWEXVLQHVVLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWZDVH[SHFWHGWREHQHJDWLYHO\LPSDFWHGE\VHYHUDO IDFWRUVUHODWHGWRWKH&29,'SDQGHPLFLQFOXGLQJDPDMRURQOLQHUHWDLOFXVWRPHU¶VGHFLVLRQWRKDOWRUGHOD\PRVW QRQHVVHQWLDOSURGXFWRUGHUV&29,'UHODWHGVXSSO\FKDLQLVVXHVDVZHOODV&29,'UHODWHG³VWD\DWKRPH´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

'XULQJWKHWKLUGTXDUWHURIILVFDOZHDVVHVVHGDQGUHFRUGHGDPLOOLRQLPSDLUPHQWFKDUJHUHODWHGWR WKH JRRGZLOO RI RXU (OHFWUR 2SWLFV RSHUDWLQJ XQLW ZKLFK ZDV VXEVHTXHQWO\ UHVWUXFWXUHG DQG FRPELQHG LQWR RXU 2XWGRRU 3URGXFW  $FFHVVRULHV RSHUDWLQJ XQLW $V RI $SULO   RXU )LUHDUPV DQG 2XWGRRU 3URGXFWV  $FFHVVRULHVRSHUDWLQJXQLWVKDGWHVWHGDVVHWVRIPLOOLRQDQGPLOOLRQUHVSHFWLYHO\)RUIXUWKHUGLVFXVVLRQ RI WKH YDOXDWLRQ RI WHVWHG DVVHWV VHH 1RWH  ² Significant Accounting Policies WR RXU FRQVROLGDWHG ILQDQFLDO VWDWHPHQWV  )DFWRUV WKDW PD\ EH FRQVLGHUHG D FKDQJH LQ FLUFXPVWDQFHV LQGLFDWLQJ WKDW WKH FDUU\LQJ YDOXH RI RXU WHVWHG DVVHWV PD\ EH UHGXFHG RU RWKHUZLVH QRW EH UHFRYHUDEOH LQFOXGH EXW DUH QRW OLPLWHG WR JHQHUDO HFRQRPLF FRQGLWLRQV FKDQJHV LQ UHJXODWLRQV UHGXFHG IXWXUH FDVK IORZ HVWLPDWHV VORZHU JURZWK UDWHV FKDQJHV LQ WKH FRPSHWLWLYHHQYLURQPHQWIRURXUSURGXFWVDQGWKHVXFFHVVRIQHZSURGXFWV

:HKDYHLGHQWLILHGDPDWHULDOZHDNQHVVLQRXU,QWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJWKDWPD\LIQRW UHPHGLDWHGUHVXOWLQPDWHULDOPLVVWDWHPHQWVLQRXUILQDQFLDOVWDWHPHQWV

:HDUHUHVSRQVLEOHIRUHVWDEOLVKLQJDQGPDLQWDLQLQJDGHTXDWHLQWHUQDOFRQWURORYHURXUILQDQFLDOUHSRUWLQJ DVGHILQHGLQ5XOHD I XQGHUWKH6HFXULWLHV([FKDQJH$FWRI$VGLVFORVHGLQ,WHP$³&RQWUROVDQG 3URFHGXUHV´ZHLGHQWLILHGDPDWHULDOZHDNQHVVLQRXUFRQWURORYHUILQDQFLDOUHSRUWLQJUHODWHGWRWKHLQFRPHWD[ WUHDWPHQWDVVRFLDWHGZLWKJRRGZLOOLPSDLUPHQW$PDWHULDOZHDNQHVVLVGHILQHGDVDGHILFLHQF\RUFRPELQDWLRQRI GHILFLHQFLHVLQLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJVXFKWKDWWKHUHLVDUHDVRQDEOHSRVVLELOLW\WKDWDPDWHULDO PLVVWDWHPHQWRIRXUDQQXDORULQWHULPILQDQFLDOVWDWHPHQWVZLOOQRWEHSUHYHQWHGRUGHWHFWHGRQDWLPHO\EDVLV$VD UHVXOWRIWKHPDWHULDOZHDNQHVVZHFRQFOXGHGWKDWRXULQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJDQGUHODWHGGLVFORVXUH FRQWUROVDQGSURFHGXUHVZHUHQRWHIIHFWLYHEDVHGRQFULWHULDVHWIRUWKE\WKH&RPPLWWHHRI6SRQVRULQJ2UJDQL]DWLRQV RIWKH7UHDGZD\&RPPLVVLRQ7KHPDWHULDOZHDNQHVVGLGQRWUHVXOWLQDQ\LGHQWLILHGPLVVWDWHPHQWVWRWKHILQDQFLDO VWDWHPHQWVDQGWKHUHZHUHQRFKDQJHVWRSUHYLRXVO\LVVXHGILQDQFLDOUHVXOWV:HDUHDFWLYHO\HQJDJHGLQGHYHORSLQJ DUHPHGLDWLRQSODQGHVLJQHGWRDGGUHVVWKLVPDWHULDOZHDNQHVVKRZHYHUZHFDQQRWJXDUDQWHHWKDWWKHVHVWHSVKDYH EHHQVXIILFLHQWRUWKDWZHZLOOQRWKDYHDPDWHULDOZHDNQHVVLQWKHIXWXUH,IRXUUHPHGLDOPHDVXUHVDUHLQVXIILFLHQW WRDGGUHVVWKHPDWHULDOZHDNQHVVRULIDGGLWLRQDOPDWHULDOZHDNQHVVHVLQRXULQWHUQDOFRQWURODUHGLVFRYHUHGRURFFXU LQWKHIXWXUHRXUILQDQFLDOVWDWHPHQWVPD\FRQWDLQPDWHULDOPLVVWDWHPHQWVDQGZHFRXOGEHUHTXLUHGWRUHVWDWHRXU ILQDQFLDOVWDWHPHQWV

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

 )URPWLPHWRWLPHZHPD\VHHNDGGLWLRQDOHTXLW\RUGHEWILQDQFLQJWRSURYLGHIXQGVIRUWKHH[SDQVLRQRIRXU EXVLQHVV:HFDQQRWSUHGLFWWKHWLPLQJRUDPRXQWRIDQ\VXFKILQDQFLQJUHTXLUHPHQWVDWWKLVWLPH,IVXFKILQDQFLQJ LVQRWDYDLODEOHRQVDWLVIDFWRU\WHUPVZHPD\EHXQDEOHWRH[SDQGRXUEXVLQHVVRUWRGHYHORSQHZEXVLQHVVDWWKH UDWHGHVLUHGDQGRXURSHUDWLQJUHVXOWVPD\VXIIHU'HEWILQDQFLQJLQFUHDVHVH[SHQVHVDQGPXVWEHUHSDLGUHJDUGOHVV RIRSHUDWLQJUHVXOWV(TXLW\ILQDQFLQJFRXOGUHVXOWLQDGGLWLRQDOGLOXWLRQWRH[LVWLQJVWRFNKROGHUV

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

7KH IDLOXUH WR PDQDJH RXU JURZWK HIIHFWLYHO\ FRXOG DGYHUVHO\ DIIHFW RXU RSHUDWLRQV :H KDYH VXEVWDQWLDOO\ LQFUHDVHG WKH QXPEHU RI RXU PDQXIDFWXULQJ DQG GHVLJQ SURJUDPV DQG SODQ WR IXUWKHU H[SDQG WKH QXPEHU DQG GLYHUVLW\RIRXUSURJUDPVLQWKHIXWXUH0DQDJLQJRXUSODQQHGJURZWKHIIHFWLYHO\ZLOOUHTXLUHXVWR • HQKDQFHRXURSHUDWLRQDOILQDQFLDODQGPDQDJHPHQWV\VWHPV • HQKDQFHRXUIDFLOLWLHVDQGSXUFKDVHDGGLWLRQDOHTXLSPHQWZKLFKZLOOLQFOXGHRQJRLQJPRGHUQL]DWLRQ DQG H[SDQVLRQ RI RXU 6SULQJILHOG 0DVVDFKXVHWWV 'HHS 5LYHU &RQQHFWLFXW DQG +RXOWRQ 0DLQH IDFLOLWLHV • DFKLHYHWKHDQWLFLSDWHGEHQHILWVRIRXUQHZQDWLRQDOORJLVWLFVIDFLOLW\DQG • VXFFHVVIXOO\ KLUH WUDLQ DQG PRWLYDWH DGGLWLRQDO HPSOR\HHV LQFOXGLQJ DGGLWLRQDO SHUVRQQHO IRU RXU WHFKQRORJLFDOVDOHVDQGPDUNHWLQJHIIRUWV

7KH H[SDQVLRQ RI RXU SURGXFWV DQG FXVWRPHU EDVH PD\ UHVXOW LQ LQFUHDVHV LQ RXU RYHUKHDG DQG VHOOLQJ H[SHQVHV:HDOVRPD\EHUHTXLUHGWRLQFUHDVHVWDIILQJDQGRWKHUH[SHQVHVDVZHOODVRXUH[SHQGLWXUHVRQFDSLWDO HTXLSPHQWDQGOHDVHKROGLPSURYHPHQWVLQRUGHUWRPHHWWKHGHPDQGIRURXUSURGXFWV$Q\LQFUHDVHLQH[SHQGLWXUHV LQDQWLFLSDWLRQRIIXWXUHVDOHVWKDWGRQRWPDWHULDOL]HZRXOGDGYHUVHO\DIIHFWRXUSURILWDELOLW\

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

 • GHWHUPLQHWKHDSSURSULDWHFUHDWLYHPHVVDJHDQGPHGLDPL[DQGPDUNHWVIRUDGYHUWLVLQJPDUNHWLQJDQG SURPRWLRQDOH[SHQGLWXUHV • VHOHFWWKHULJKWPDUNHWVPHGLDDQGVSHFLILFPHGLDYHKLFOHVLQZKLFKWRDGYHUWLVH • LGHQWLI\WKHPRVWHIIHFWLYHDQGHIILFLHQWOHYHORIVSHQGLQJLQHDFKPDUNHWPHGLDDQGVSHFLILFPHGLD YHKLFOHDQG • HIIHFWLYHO\ PDQDJH PDUNHWLQJ FRVWV LQFOXGLQJ FUHDWLYH DQG PHGLD H[SHQVHV LQ RUGHU WR PDLQWDLQ DFFHSWDEOHFXVWRPHUDFTXLVLWLRQFRVWV

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

,QDGGLWLRQZHPD\GHWHUPLQHWKDWFHUWDLQRIRXUSURGXFWVDQGEUDQGVEHQHILWIURPHQGRUVHPHQWVDQGVXSSRUW IURP SDUWLFXODU VSRUWLQJ HQWKXVLDVWV DWKOHWHV RU RWKHU FHOHEULWLHV DQG WKRVH SURGXFWV DQG EUDQGV PD\ EHFRPH SHUVRQDOO\ DVVRFLDWHG ZLWK WKRVH LQGLYLGXDOV $V D UHVXOW VDOHV RI WKH HQGRUVHG SURGXFWV FRXOG EH PDWHULDOO\ DQG DGYHUVHO\DIIHFWHGLIDQ\RIWKRVHLQGLYLGXDOV¶LPDJHVUHSXWDWLRQVRUSRSXODULW\ZHUHWREHQHJDWLYHO\LPSDFWHG

2XU RSHUDWLQJ UHVXOWV FRXOG EH PDWHULDOO\ KDUPHG LI ZH DUH XQDEOH WR IRUHFDVW GHPDQG IRU RXU SURGXFWV DFFXUDWHO\ :HRIWHQVFKHGXOHLQWHUQDOSURGXFWLRQDQGSODFHRUGHUVIRUILQLVKHGSURGXFWVSURGXFWFRPSRQHQWVDQGUDZ PDWHULDOVZLWKWKLUGSDUW\VXSSOLHUVEHIRUHUHFHLYLQJILUPRUGHUVIURPRXUFXVWRPHUV,IZHIDLOWRDFFXUDWHO\IRUHFDVW FXVWRPHUGHPDQGZHPD\H[SHULHQFHH[FHVVLQYHQWRU\OHYHOVRUDVKRUWDJHRISURGXFWVWRGHOLYHUWRRXUFXVWRPHUV )DFWRUVWKDWFRXOGDIIHFWRXUDELOLW\WRDFFXUDWHO\IRUHFDVWGHPDQGIRURXUSURGXFWVLQFOXGHWKHIROORZLQJ • RXUIDLOXUHWRDFFXUDWHO\IRUHFDVWFXVWRPHUDFFHSWDQFHRIQHZSURGXFWV • DQLQFUHDVHRUGHFUHDVHLQFRQVXPHUGHPDQGIRURXUSURGXFWVRUIRUWKHSURGXFWVRIRXUFRPSHWLWRUV • QHZSURGXFWLQWURGXFWLRQVE\FRPSHWLWRUV • RXUUHODWLRQVKLSVZLWKFXVWRPHUV • JHQHUDOPDUNHWFRQGLWLRQVDQGRWKHUIDFWRUVZKLFKPD\UHVXOWLQFDQFHOODWLRQVRIRUGHUVRUDUHGXFWLRQ RULQFUHDVHLQWKHUDWHRIUHRUGHUVSODFHGE\FXVWRPHUV • JHQHUDOPDUNHWFRQGLWLRQVHFRQRPLFFRQGLWLRQVDQGFRQVXPHUFRQILGHQFHOHYHOVZKLFKFRXOGUHGXFH GHPDQGIRUGLVFUHWLRQDU\LWHPVVXFKDVRXUSURGXFWVDQG • WKHGRPHVWLFSROLWLFDOHQYLURQPHQWLQFOXGLQJGHEDWHVRYHUWKHUHJXODWLRQRIYDULRXVFRQVXPHUSURGXFWV VXFKDVILUHDUPV

,QYHQWRU\OHYHOVLQH[FHVVRIFXVWRPHUGHPDQGPD\UHVXOWLQLQYHQWRU\ZULWHGRZQVDQGWKHVDOHRIH[FHVV LQYHQWRU\DWGLVFRXQWHGSULFHVZKLFKFRXOGKDYHDQDGYHUVHHIIHFWRQRXUEXVLQHVVRSHUDWLQJUHVXOWVDQGILQDQFLDO FRQGLWLRQ,IZHXQGHUHVWLPDWHGHPDQGIRURXUSURGXFWVZHDQGRXUWKLUGSDUW\VXSSOLHUVPD\QRWEHDEOHWRSURGXFH SURGXFWVWRPHHWFXVWRPHUGHPDQGDQGWKLVFRXOGUHVXOWLQGHOD\VLQWKHVKLSPHQWRISURGXFWVDQGORVWUHYHQXHVDV

 ZHOO DV GDPDJH WR RXU UHSXWDWLRQ DQG FXVWRPHU UHODWLRQVKLSV :H PD\ QRW EH DEOH WR PDQDJH LQYHQWRU\ OHYHOV VXFFHVVIXOO\WRPHHWIXWXUHRUGHUDQGUHRUGHUUHTXLUHPHQWV

$QLQDELOLW\WRH[SDQGRXUHFRPPHUFHEXVLQHVVFRXOGUHGXFHRXUIXWXUHJURZWK &RQVXPHUVDUHLQFUHDVLQJO\VKRSSLQJRQOLQHYLDHFRPPHUFHUHWDLOHUVDQGZHIDFHLQWHQVHSUHVVXUHWRPDNH RXUQRQILUHDUPSURGXFWVUHDGLO\DQGFRQYHQLHQWO\DYDLODEOHYLDHFRPPHUFHVHUYLFHV2XUVXFFHVVLQSDUWLFLSDWLQJ LQHFRPPHUFHGHSHQGVRQRXUDELOLW\WRHIIHFWLYHO\XVHRXUPDUNHWLQJUHVRXUFHVWRFRPPXQLFDWHZLWKH[LVWLQJDQG SRWHQWLDOFXVWRPHUV7RLQFUHDVHRXUHFRPPHUFHVDOHVZHPD\KDYHWREHPRUHSURPRWLRQDOWRFRPSHWHZKLFK FRXOG LPSDFW RXU JURVV PDUJLQ DQG LQFUHDVH RXU PDUNHWLQJ H[SHQVHV :H UHFHQWO\ GHYHORSHG DQG FRQWLQXH WR HQKDQFHRXUGLUHFWWRFRQVXPHUHFRPPHUFHSODWIRUPEXWUHO\WRDQH[WHQWRQWKLUGSDUW\HFRPPHUFHZHEVLWHVWR VHOORXUSURGXFWVZKLFKFRXOGOHDGWRRXUHFRPPHUFHFXVWRPHUVEHLQJDEOHWRKDYHFRQWURORYHUWKHSULFLQJRIRXU SURGXFWV7KLVLQWXUQFRXOGOHDGWRDGYHUVHUHODWLRQVKLSFRQVHTXHQFHVZLWKRXUFXVWRPHUVWKDWRSHUDWHEULFNDQG PRUWDUORFDWLRQVDVWKH\PD\SHUFHLYHWKHPVHOYHVWREHDWDGLVDGYDQWDJHEDVHGRQWKHHFRPPHUFHSULFLQJWRHQG FRQVXPHUV7KHUHLVQRDVVXUDQFHWKDWZHZLOOEHDEOHWRVXFFHVVIXOO\H[SDQGRXUHFRPPHUFHEXVLQHVVDQGUHVSRQG WRVKLIWLQJFRQVXPHUWUDIILFSDWWHUQVDQGGLUHFWWRFRQVXPHUEX\LQJWUHQGV

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

:H SODQ WR FRQWLQXH WR H[SDQG RXU EUDQG UHFRJQLWLRQ DQG SURGXFW OR\DOW\ WKURXJK VRFLDO PHGLD DQG RXU ZHEVLWHVZLWKJHQHUDWLRQRIRULJLQDOFRQWHQW7KHVHHIIRUWVDUHLQWHQGHGWR\LHOGJUHDWHUWUDIILFWRRXUZHEVLWHVDQG LQFUHDVHRXUGLUHFWWRFRQVXPHUUHYHQXH%\GRLQJVRZHZLOOEHFRPHWRDQH[WHQWDFRPSHWLWRUWRRXUFXVWRPHUV UHGXFLQJWKHLUUHYHQXHLQWKHSURFHVV7KLVFRXOGOHDGWRDGYHUVHUHODWLRQVKLSVZLWKRXURQOLQHDQGEULFNDQGPRUWDU UHWDLOFXVWRPHUVZKLFKFRXOGKDYHDQDGYHUVHLPSDFWRQRXURSHUDWLQJUHVXOWV

$VXEVWDQWLDOSRUWLRQRIRXURXWGRRUSURGXFWVUHYHQXHGHSHQGVRQDVPDOOQXPEHURIODUJHFXVWRPHUV. :HVHOORXURXWGRRUSURGXFWVDQGDFFHVVRULHVWKURXJKRQOLQHUHWDLOHUVVSRUWVSHFLDOW\VWRUHVVSRUWLQJJRRGV VWRUHVGHDOHUVDQGGLVWULEXWRUVDQGPDVVPDUNHWKRPHDQGDXWRUHWDLOHUV2XUWZRODUJHVWFXVWRPHUVLQRXU23 $ VHJPHQWDFFRXQWHGIRUDQDJJUHJDWHRIRIRXU23 $UHYHQXHIRUILVFDO2IWKHVHFXVWRPHUVWKHZRUOG¶V ODUJHVWHFRPPHUFHUHWDLOHUDFFRXQWHGIRURIRXUUHYHQXHLQWKH23 $VHJPHQWWKURXJKLWVYHU\H[WHQVLYH FXVWRPHUEDVHRIHQGFRQVXPHUVDQGDYHU\ODUJHQDWLRQDOVSRUWVSHFLDOW\FKDLQDFFRXQWHGIRURIRXUUHYHQXH LQWKDWVHJPHQWWKURXJKLWVUHWDLOORFDWLRQV

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

$VLJQLILFDQWGHWHULRUDWLRQLQWKHILQDQFLDOFRQGLWLRQRIRXUPDMRUFXVWRPHUVFRXOGKDYHDPDWHULDODGYHUVH HIIHFW RQ RXU VDOHV DQG SURILWDELOLW\ :H UHJXODUO\ PRQLWRU DQG HYDOXDWH WKH FUHGLW VWDWXV RI RXU FXVWRPHUV DQG DWWHPSWWRDGMXVWVDOHVWHUPVDVDSSURSULDWH'HVSLWHWKHVHHIIRUWVVXEVWDQWLDOILQDQFLDOLVVXHVRUDEDQNUXSWF\ILOLQJ E\DNH\FXVWRPHUFRXOGKDYHDPDWHULDODGYHUVHHIIHFWRQRXUEXVLQHVVRSHUDWLQJUHVXOWVDQGILQDQFLDOFRQGLWLRQ

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

:H GHSHQG RQ D FRQWLQXRXV IORZ RI QHZ RUGHUV IURP ODUJH KLJKYROXPH UHWDLO FXVWRPHUV EXW ZH PD\ EH XQDEOHWRFRQWLQXDOO\PHHWWKHQHHGVRIWKHVHFXVWRPHUV5HWDLOHUVDUHLQFUHDVLQJWKHLUGHPDQGVRQVXSSOLHUVWRWDNH YDULRXVDFWLRQVLQFOXGLQJWKHIROORZLQJ • UHGXFHOHDGWLPHVIRUSURGXFWGHOLYHU\ZKLFKPD\UHTXLUHXVWRLQFUHDVHLQYHQWRULHVDQGFRXOGLPSDFW WKHWLPLQJRIUHSRUWHGVDOHV • UHTXLUHXVWRIXOILOOWKHLUGLUHFWWRFRQVXPHUZHEVLWHRUGHUVRUGURSVKLSSLQJZKLFKFRXOGLQFUHDVHRXU FRVWSHUXQLWOHDGWRKLJKHULQYHQWRU\OHYHOVDQGLQFUHDVHIUHLJKWFRVWV • LPSURYHFXVWRPHUVHUYLFHLQZKLFKSURGXFWVDUHVXSSOLHGGLUHFWO\WRUHWDLOHUVIURPWKLUGSDUW\VXSSOLHUV DQG • DGRSWWHFKQRORJLHVUHODWHGWRLQYHQWRU\PDQDJHPHQWWKDWPD\KDYHVXEVWDQWLDOLPSOHPHQWDWLRQFRVWV

:HFDQQRWSURYLGHDQ\DVVXUDQFHWKDWZHFDQFRQWLQXHWRVXFFHVVIXOO\PHHWWKHQHHGVRIRXUFXVWRPHUV$ VXEVWDQWLDOGHFUHDVHLQVDOHVWRDQ\RIRXUPDMRUFXVWRPHUVFRXOGKDYHDPDWHULDODGYHUVHHIIHFWRQRXUEXVLQHVV RSHUDWLQJUHVXOWVDQGILQDQFLDOFRQGLWLRQ

$VDUHVXOWRIWKHGHVLUHRIUHWDLOHUVWRPRUHFORVHO\PDQDJHLQYHQWRU\OHYHOVWKHUHLVDJURZLQJWUHQGDPRQJ UHWDLOHUVWRPDNHSXUFKDVHVRQD³MXVWLQWLPH´EDVLV7KLVUHTXLUHVXVWRVKRUWHQRXUOHDGWLPHVIRUSURGXFWLRQLQ FHUWDLQ FDVHV DQG PRUH FORVHO\ DQWLFLSDWH GHPDQG ZKLFK FRXOG LQ WKH IXWXUH UHTXLUH XV WR FDUU\ DGGLWLRQDO LQYHQWRULHV:HDOVRPD\EHQHJDWLYHO\DIIHFWHGE\FKDQJHVLQWKHSROLFLHVRIRXUUHWDLOFXVWRPHUVVXFKDVLQYHQWRU\ GHVWRFNLQJOLPLWDWLRQVRQDFFHVVWRDQGWLPHRQVKHOIVSDFHXVHRISULYDWHODEHOEUDQGVSULFHGHPDQGVSD\PHQW WHUPVDQGRWKHUFRQGLWLRQVZKLFKFRXOGQHJDWLYHO\LPSDFWRXUEXVLQHVVRSHUDWLQJUHVXOWVDQGILQDQFLDOFRQGLWLRQ

7KHVHIRUHJRLQJIDFWRUVFRXOGUHVXOWLQDVKLIWRIEDUJDLQLQJSRZHUWRWKHUHWDLOLQGXVWU\DQGLQIHZHURXWOHWV IRURXUSURGXFWV)XUWKHUFRQVROLGDWLRQVFRXOGUHVXOWLQSULFHDQGRWKHUFRPSHWLWLRQWKDWFRXOGUHGXFHRXUPDUJLQV DQGRXUQHWVDOHV

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

 )RUWKH\HDUHQGHG$SULORQHRIRXUFXVWRPHUVDFFRXQWHGIRUDSSUR[LPDWHO\RIRXUQHWVDOHV EXW GLG QRW H[FHHG  RI RXU DFFRXQWV UHFHLYDEOH 7KUHH RWKHU FXVWRPHUV HDFK KDG JUHDWHU WKDQ  RI RXU DFFRXQWV UHFHLYDEOH DQG FRPELQHG IRU D WRWDO RI  )RU WKH ILVFDO \HDU HQGHG $SULO   QRQH RI RXU FXVWRPHUV H[FHHGHG  RI RXU QHW VDOHV DQG RQH RI RXU FXVWRPHUV DFFRXQWHG IRU DSSUR[LPDWHO\  RI RXU DFFRXQWVUHFHLYDEOH)RUWKHILVFDO\HDUHQGHG$SULORQHRIRXUFXVWRPHUVDFFRXQWHGIRURIRXUQHW VDOHVDQGQRQHRIRXUFXVWRPHUVDFFRXQWHGIRURUPRUHRIRXUDFFRXQWVUHFHLYDEOH

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

6KRXOGDQ\RIRXUFRPSHWLWRUVILOHSDWHQWDSSOLFDWLRQVRUREWDLQSDWHQWVWKDWFODLPLQYHQWLRQVDOVRFODLPHGE\ XVZHPD\FKRRVHWRSDUWLFLSDWHLQDQLQWHUIHUHQFHSURFHHGLQJWRGHWHUPLQHWKHULJKWWRDSDWHQWIRUWKHVHLQYHQWLRQV EHFDXVHRXUEXVLQHVVZRXOGEHKDUPHGLIZHIDLOWRHQIRUFHDQGSURWHFWRXULQWHOOHFWXDOSURSHUW\ULJKWV(YHQLIWKH RXWFRPHLVIDYRUDEOHWKLVSURFHHGLQJFRXOGUHVXOWLQVXEVWDQWLDOFRVWWRXVDQGGLVUXSWRXUEXVLQHVV

,QWKHIXWXUHZHDOVRPD\QHHGWRILOHODZVXLWVWRHQIRUFHRXULQWHOOHFWXDOSURSHUW\ULJKWVSURWHFWRXUWUDGH VHFUHWVRUGHWHUPLQHWKHYDOLGLW\DQGVFRSHRIWKHSURSULHWDU\ULJKWVRIRWKHUV7KLVOLWLJDWLRQZKHWKHUVXFFHVVIXORU XQVXFFHVVIXOFRXOGUHVXOWLQVXEVWDQWLDOFRVWVDQGGLYHUVLRQRIUHVRXUFHVZKLFKFRXOGKDYHDPDWHULDODGYHUVHHIIHFW RQXV

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¶VHQVLWLYHGDWD RXUEUDQGFRXOGEHKDUPHGVDOHVRIRXUSURGXFWVFRXOGGHFUHDVHDQGZHFRXOGEHH[SRVHGWRORVVHVOLWLJDWLRQRU UHJXODWRU\SURFHHGLQJV'HSHQGLQJRQWKHQDWXUHRIWKHLQIRUPDWLRQFRPSURPLVHGZHPD\DOVRKDYHREOLJDWLRQVWR QRWLI\XVHUVODZHQIRUFHPHQWRUSD\PHQWFRPSDQLHVDERXWWKHLQFLGHQWDQGPD\QHHGWRSURYLGHVRPHIRUPRI UHPHG\VXFKDVUHIXQGVIRUWKHLQGLYLGXDOVDIIHFWHGE\WKHLQFLGHQW

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

2XUIRUHLJQVDOHVDQGSXUFKDVHVRIFHUWDLQDFFHVVRULHVDQGFRPSRQHQWVDOVRFUHDWHDQXPEHURIORJLVWLFDODQG FRPPXQLFDWLRQFKDOOHQJHV7KHVHDFWLYLWLHVDOVRH[SRVHXVWRYDULRXVHFRQRPLFSROLWLFDODQGRWKHUULVNVLQFOXGLQJ WKHIROORZLQJ • FRPSOLDQFHZLWK86DQGORFDOODZVDQGUHJXODWRU\UHTXLUHPHQWVLQFOXGLQJDGYHUVHFKDQJHVLQWKRVH ODZVDQGUHTXLUHPHQWV • WUDQVSRUWDWLRQGHOD\VRULQWHUUXSWLRQVDQGRWKHUHIIHFWVRIOHVVGHYHORSHGLQIUDVWUXFWXUHV • IRUHLJQH[FKDQJHUDWHIOXFWXDWLRQV • OLPLWDWLRQVRQLPSRUWVDQGH[SRUWV • LPSRVLWLRQRIUHVWULFWLRQVRQFXUUHQF\FRQYHUVLRQRUWKHWUDQVIHURIIXQGV • WKHSRVVLELOLW\RIDSSURSULDWLRQRIRXUDVVHWVZLWKRXWMXVWFRPSHQVDWLRQ • WD[HVWDULIIVDQGGXWLHV • WKHEXUGHQVDQGFRVWVRIFRPSOLDQFHZLWKDYDULHW\RIIRUHLJQODZVDQG • SROLWLFDORUHFRQRPLFLQVWDELOLW\LQFRXQWULHVLQZKLFKZHFRQGXFWEXVLQHVVLQFOXGLQJSRVVLEOHWHUURULVW DFWV

:HFXUUHQWO\PDLQWDLQRSHUDWLRQVLQ%HOJLXPDQGWKH3HRSOH¶V5HSXEOLFRI&KLQDDQGKDYHSODQVWRH[SDQG RXULQWHUQDWLRQDORSHUDWLRQV$VDUHVXOWZHDUHH[SRVHGWRULVNVLQWKHFRXQWULHVLQZKLFKZHRSHUDWHRUZLOORSHUDWH LQWKHIXWXUHLQFOXGLQJSROLWLFDODQGHFRQRPLFFKDQJHVRUYRODWLOLW\JHRSROLWLFDOUHJLRQDOFRQIOLFWVWHUURULVWDFWLYLW\ DQGSROLWLFDOXQUHVWZKLFKFRXOGQHJDWLYHO\DIIHFWRXULQWHUQDWLRQDORSHUDWLRQV

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¶FRQVHQWWRWKHVSLQRIIRIWKHRXWGRRUSURGXFWVDQGDFFHVVRULHVEXVLQHVVSURYLGHGWKDWFHUWDLQILQDQFLDO FRQGLWLRQVDUHVDWLVILHGLQFOXGLQJ [ JUDQWLQJWKH/HQGHUVVHFXULW\LQWHUHVWLQWKHDVVHWVRIWKHUHPDLQLQJEXVLQHVV \ UHGXFLQJWKH5HYROYLQJ/LQHWRPLOOLRQDWWKHWLPHRIWKHVSLQRIIDQG ] UHGXFLQJWKHRSWLRQWRH[SDQG WKHFUHGLWDJUHHPHQWWRPLOOLRQDWWKHWLPHRIWKHVSLQRII2WKHUWKDQWKHFKDQJHVGHVFULEHGLQWKH6HFRQGDQG )LIWK$PHQGPHQWVZHRWKHUZLVHUHPDLQVXEMHFWWRWKHWHUPVRIWKH&UHGLW$JUHHPHQWDVGHVFULEHGEHORZ

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

 2XUJRYHUQLQJGRFXPHQWVDQG1HYDGDODZFRXOGPDNHLWPRUHGLIILFXOWIRUDWKLUGSDUW\WRDFTXLUHXVDQG GLVFRXUDJHDWDNHRYHU &HUWDLQSURYLVLRQVRIRXUDUWLFOHVRILQFRUSRUDWLRQDQGE\ODZVDQG1HYDGDODZPDNHLWPRUHGLIILFXOWIRUD WKLUGSDUW\WRDFTXLUHXVDQGPDNHDWDNHRYHUPRUHGLIILFXOWWRFRPSOHWHHYHQLIVXFKDWUDQVDFWLRQZHUHLQRXU VWRFNKROGHUV¶LQWHUHVWRUPLJKWUHVXOWLQDSUHPLXPRYHUWKHPDUNHWSULFHIRUWKHVKDUHVKHOGE\RXUVWRFNKROGHUV

7KHLVVXDQFHRIDGGLWLRQDOFRPPRQVWRFNLQWKHIXWXUHLQFOXGLQJVKDUHVWKDWZHPD\LVVXHSXUVXDQWWRRSWLRQ JUDQWVPD\UHVXOWLQGLOXWLRQLQWKHQHWWDQJLEOHERRNYDOXHSHUVKDUHRIRXUFRPPRQVWRFN 2XUERDUGRIGLUHFWRUVKDVWKHOHJDOSRZHUDQGDXWKRULW\WRGHWHUPLQHWKHWHUPVRIDQRIIHULQJRIVKDUHVRIRXU FDSLWDOVWRFNRUVHFXULWLHVFRQYHUWLEOHLQWRRUH[FKDQJHDEOHIRUWKHVHVKDUHVWRWKHH[WHQWRIRXUVKDUHVRIDXWKRUL]HG DQGXQLVVXHGFDSLWDOVWRFN

7KHVDOHRIDVXEVWDQWLDOQXPEHURIVKDUHVWKDWDUHHOLJLEOHIRUVDOHFRXOGDGYHUVHO\DIIHFWWKHSULFHRIRXU FRPPRQVWRFN $V RI $SULO  WKHUH ZHUH  VKDUHV RI RXU FRPPRQ VWRFN RXWVWDQGLQJ 6XEVWDQWLDOO\ DOO RI WKHVHVKDUHVDUHIUHHO\WUDGDEOHZLWKRXWUHVWULFWLRQRUIXUWKHUUHJLVWUDWLRQXQGHUWKHVHFXULWLHVODZVXQOHVVKHOGE\DQ ³DIILOLDWH´RIRXUFRPSDQ\DVWKDWWHUPLVGHILQHGLQ5XOHXQGHUWKHVHFXULWLHVODZV6KDUHVKHOGE\DIILOLDWHVRI RXU FRPSDQ\ ZKLFK JHQHUDOO\ LQFOXGH RXU GLUHFWRUV H[HFXWLYH RIILFHUV DQG FHUWDLQ SULQFLSDO VWRFNKROGHUV DUH VXEMHFWWRWKHUHVDOHOLPLWDWLRQVRI5XOHGHVFULEHGEHORZ

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

2XURSHUDWLQJUHVXOWVPD\LQYROYHVLJQLILFDQWIOXFWXDWLRQV 9DULRXV IDFWRUV FRQWULEXWH WR VLJQLILFDQW SHULRGLF DQG VHDVRQDO IOXFWXDWLRQV LQ RXU RSHUDWLQJ UHVXOWV 7KHVH IDFWRUVLQFOXGHWKHIROORZLQJ • PDUNHWDFFHSWDQFHRIRXUSURGXFWVLQFOXGLQJQHZSURGXFWV • PDUNHWDFFHSWDQFHDQGQHZSURGXFWLQWURGXFWLRQVE\RXUFRPSHWLWRUV • WKHWLPLQJRIODUJHGRPHVWLFDQGLQWHUQDWLRQDORUGHUV • FDQFHOODWLRQRIH[LVWLQJRUGHUV • FKDQJHVLQRXUVDOHVPL[ • WKHFRVWRIQHZSURGXFWLQWURGXFWLRQV • SUREOHPVZLWKRXUVXSSO\FKDLQ • WKHYROXPHRIFXVWRPHURUGHUVUHODWLYHWRRXUFDSDFLW\ • WLPLQJRIH[SHQGLWXUHVLQDQWLFLSDWLRQRIIXWXUHFXVWRPHURUGHUV • HIIHFWLYHQHVVLQPDQDJLQJSURGXFWLRQSURFHVVHVDQGFRVWV • FKDQJHVLQFRVWDQGDYDLODELOLW\RIODERUDQGILQLVKHGSURGXFWVSURGXFWFRPSRQHQWVDQGUDZPDWHULDOV • DELOLW\WRPDQDJHLQYHQWRU\DQGLQYHQWRU\REVROHVFHQFH • SULFLQJDQGRWKHUFRPSHWLWLYHSUHVVXUHV • FKDQJHVRUDQWLFLSDWHGFKDQJHVLQHFRQRPLFVRFLDOSROLWLFDOOHJLVODWLYHDQGUHJXODWRU\IDFWRUV • WKHRXWFRPHRIDQ\OLWLJDWLRQ • DGYHUVHSXEOLFLW\VXUURXQGLQJRXUSURGXFWVWKHVDIHW\RIRXUSURGXFWVRUWKHXVHRIRXUSURGXFWV • FKDQJHVLQDPRXQWDQGRUWLPLQJRIRXURSHUDWLQJH[SHQVHVDQG • FKDQJHVLQODZVDQGUHJXODWLRQVWKDWPD\DIIHFWWKHPDUNHWDELOLW\RIRXUSURGXFWV

$VDUHVXOWRIWKHVHDQGRWKHUIDFWRUVZHEHOLHYHWKDWSHULRGWRSHULRGFRPSDULVRQVRIRXURSHUDWLQJUHVXOWV PD\QRWEHPHDQLQJIXOLQWKHVKRUWWHUPDQGRXUSHUIRUPDQFHLQDSDUWLFXODUSHULRGPD\QRWEHLQGLFDWLYHRIRXU SHUIRUPDQFHLQDQ\IXWXUHSHULRG

7KHPDUNHWSULFHRIRXUFRPPRQVWRFNFRXOGEHVXEMHFWWRZLGHIOXFWXDWLRQVDVDUHVXOWRIPDQ\IDFWRUV 0DQ\IDFWRUVFRXOGDIIHFWWKHPDUNHWSULFHRIRXUFRPPRQVWRFNLQFOXGLQJWKHIROORZLQJ • YDULDWLRQVLQRXURSHUDWLQJUHVXOWV • WKHUHODWLYHO\VPDOOSXEOLFIORDWRIRXUFRPPRQVWRFN

 • LQWURGXFWLRQVRIQHZSURGXFWVDQGVHUYLFHVE\XVRURXUFRPSHWLWRUV • WKHSHUIRUPDQFHRIRXUGLVWULEXWRUV • FKDQJHV LQ WKH HVWLPDWHV RI RXU RSHUDWLQJ SHUIRUPDQFH RU FKDQJHV LQ UHFRPPHQGDWLRQV E\ DQ\ VHFXULWLHVDQDO\VWVWKDWIROORZRXUVWRFN • JHQHUDOHFRQRPLFVRFLDOSROLWLFDODQGPDUNHWFRQGLWLRQVDQGFRQVXPHUVSHQGLQJSDWWHUQV • JRYHUQPHQWDOSROLFLHVDQGUHJXODWLRQV • LQYHVWRUUHDFWLRQWRQHZVHYHQWV • ODFNRILQYHVWRULQWHUHVWLQDILUHDUPEXVLQHVV • WKHJHQHUDOSHUIRUPDQFHRIWKHPDUNHWVLQZKLFKZHSDUWLFLSDWHDQG • IDFWRUVUHODWLQJWRVXSSOLHUVDQGFRPSHWLWRUV

,Q DGGLWLRQ PDUNHW GHPDQG IRU VPDOOFDSLWDOL]DWLRQ VWRFNV DQG SULFH DQG YROXPH IOXFWXDWLRQV LQ WKH VWRFN PDUNHW XQUHODWHG WR RXU SHUIRUPDQFH FRXOG UHVXOW LQ VLJQLILFDQW IOXFWXDWLRQV LQ WKH PDUNHW SULFH RI RXU FRPPRQ VWRFN7KHSHUIRUPDQFHRIRXUFRPPRQVWRFNFRXOGDGYHUVHO\DIIHFWRXUDELOLW\WRUDLVHHTXLW\LQWKHSXEOLFPDUNHWV DQGDGYHUVHO\DIIHFWWKHJURZWKRIRXUEXVLQHVV

:H GHSHQG RQ NH\ SHUVRQQHO RXU EXVLQHVV PD\ EH KDUPHG LI ZH IDLO WR UHWDLQ DQG DWWUDFW VNLOOHG PDQDJHPHQWDQGRWKHUNH\SHUVRQQHO 2XU VXFFHVV GHSHQGV WR D VLJQLILFDQW H[WHQW XSRQ WKH FRQWLQXHG VHUYLFHV RI RXU FXUUHQW PDQDJHPHQW WHDP LQFOXGLQJ0DUN36PLWKDQG%ULDQ'0XUSK\RXU&R3UHVLGHQWVDQG&R&KLHI([HFXWLYH2IILFHUV7KHORVVRI HLWKHURIWKHPRURQHRUPRUHRIRXURWKHUNH\H[HFXWLYHVRUHPSOR\HHVFRXOGKDYHDPDWHULDODGYHUVHHIIHFWRQRXU EXVLQHVV*HQHUDOO\ZHGRQRWPDLQWDLQ³NH\SHUVRQ´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

 ,WHP%Unresolved Staff Comments 1RWDSSOLFDEOH

,WHPProperties 7KHIROORZLQJWDEOHVHWVIRUWKLQIRUPDWLRQUHJDUGLQJRXUSULQFLSDORSHUDWLQJSURSHUWLHVDQGRWKHUVLJQLILFDQW SURSHUWLHVDVRI$SULO$OOWKHSURSHUWLHVOLVWHGEHORZDUHOHDVHGH[FHSWZKHUHRWKHUZLVHLQGLFDWHG,Q JHQHUDORXURSHUDWLQJSURSHUWLHVDUHZHOOPDLQWDLQHGVXLWDEO\HTXLSSHGDQGLQJRRGRSHUDWLQJFRQGLWLRQ

/RFDWLRQ )DFLOLW\ 5HSRUWLQJ6HJPHQW 1RUWK$PHULFD United States $UL]RQD 6FRWWVGDOH 2IILFH &RUSRUDWH $UNDQVDV %HQWRQYLOOH 2IILFH 2XWGRRU3URGXFWV $FFHVVRULHV &RQQHFWLFXW 'HHS5LYHU 3ODQW )LUHDUPV ,GDKR 0HULGLDQ  2IILFH )LUHDUPV 0DLQH +RXOWRQ  3ODQW )LUHDUPV 0DVVDFKXVHWWV 6SULQJILHOG  ([HFXWLYH2IILFHV 3ODQW &RUSRUDWH2IILFH6KDUHG6HUYLFHV)LUHDUPV 1HZ+DPSVKLUH 6RPHUVZRUWK 5HVHDUFK 'HYHORSPHQW )LUHDUPV 0LVVRXUL &ROXPELD 2IILFH :DUHKRXVH )LUHDUPV2XWGRRU3URGXFWV $FFHVVRULHV 2UHJRQ :LOVRQYLOOH 2IILFH :DUHKRXVH 2XWGRRU3URGXFWV $FFHVVRULHV

(XURSH Belgium +HUVWDO 2IILFH )LUHDUPV

$VLD People’s Republic of China 6KHQ]KHQ 2IILFH &RUSRUDWH2XWGRRU3URGXFWV $FFHVVRULHV

 3URSHUW\LVVXEOHDVHG  2ZQHGSURSHUW\

,WHPLegal Proceedings ,QIRUPDWLRQUHJDUGLQJRXUOHJDOSURFHHGLQJVLVGLVFXVVHGLQ1RWHWRRXUFRQVROLGDWHGILQDQFLDOVWDWHPHQWV ZKLFKLVLQFRUSRUDWHGKHUHLQE\UHIHUHQFH

,WHPMine Safety Disclosures 1RWDSSOLFDEOH

 3$57,,

,WHPMarket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 0DUNHW,QIRUPDWLRQ 2XUFRPPRQVWRFNWUDGHVRQWKH1DVGDT*OREDO6HOHFW0DUNHWXQGHUWKHV\PERO³6:%,´2XUFRPPRQVWRFN ZDVSUHYLRXVO\WUDGHGRQWKH1DVGDT*OREDO6HOHFW0DUNHWXQGHUWKHV\PERO³$2%&´IURP-DQXDU\WR-XQH DQGXQGHUWKHV\PERO³6:+&´IURP-XO\WR-DQXDU\7KHKROGHUVRIRXUFRPPRQVWRFN DUHHQWLWOHGWRRQHYRWHSHUVKDUHRQDQ\PDWWHUWREHYRWHGXSRQE\WKHVWRFNKROGHUV$OOVKDUHVRIFRPPRQVWRFN UDQN HTXDOO\ DV WR YRWLQJ DQG DOO RWKHU PDWWHUV 7KH VKDUHV RI FRPPRQ VWRFN KDYH QR SUHHPSWLYH RU FRQYHUVLRQ ULJKWVQRUHGHPSWLRQRUVLQNLQJIXQGSURYLVLRQVDUHQRWOLDEOHIRUIXUWKHUFDOORUDVVHVVPHQWDQGDUHQRWHQWLWOHGWR FXPXODWLYHYRWLQJULJKWV

+ROGHUV 2Q -XQH  WKHUH ZHUH  UHFRUG KROGHUV RI RXU FRPPRQ VWRFN $ VXEVWDQWLDOO\ JUHDWHU QXPEHU RI KROGHUVRIFRPPRQVWRFNDUH³VWUHHWQDPH´RUEHQHILFLDOKROGHUVZKRVHVKDUHVDUHKHOGRIUHFRUGE\EDQNVEURNHUV DQGRWKHUILQDQFLDOLQVWLWXWLRQV

'LYLGHQG3ROLF\ :H KDYH QHYHU GHFODUHG RU SDLG FDVK GLYLGHQGV RQ RXU FRPPRQ VWRFN )ROORZLQJ WKH 6HSDUDWLRQ ZH DUH FRQVLGHULQJ SD\LQJ D FDVK GLYLGHQG 3D\PHQW RI DQ\ FDVK GLYLGHQGV LQ WKH IXWXUH ZLOO GHSHQG RQ RXU ILQDQFLDO FRQGLWLRQ RSHUDWLQJ UHVXOWV DQG FDSLWDO UHTXLUHPHQWV DV ZHOO DV RWKHU IDFWRUV GHHPHG UHOHYDQW E\ RXU ERDUG RI GLUHFWRUV,QDGGLWLRQRXUFUHGLWIDFLOLW\UHVWULFWVRXUDELOLW\WRSD\FDVKGLYLGHQGV

6HFXULWLHV$XWKRUL]HGIRU,VVXDQFHXQGHU(TXLW\&RPSHQVDWLRQ3ODQV )RUHTXLW\FRPSHQVDWLRQSODQLQIRUPDWLRQUHIHUWR,WHP 6HFXULW\2ZQHUVKLSRI&HUWDLQ%HQHILFLDO2ZQHUV DQG0DQDJHPHQWDQG5HODWHG6WRFNKROGHU0DWWHUV LQ3DUW,,,RIWKLV$QQXDO5HSRUWRQ)RUP.

 3HUIRUPDQFH*UDSK 7KH IROORZLQJ OLQH JUDSK FRPSDUHV FXPXODWLYH WRWDO VWRFNKROGHU UHWXUQV IRU WKH ILYH \HDUV HQGHG $SULO   IRU L RXU FRPPRQ VWRFN LL WKH 5XVVHOO  ,QGH[ LLL D SHHU JURXS FRQVLVWLQJ RI 6WXUP 5XJHU  &RPSDQ\ ,QF 9LVWD 2XWGRRU ,QF DQG 1DWLRQDO 3UHVWR ,QGXVWULHV ,QF 3HHU *URXSRQ WKH JUDSK EHORZ  7KH JUDSKDVVXPHVDQLQYHVWPHQWRIRQ$SULO7KHFDOFXODWLRQRIFXPXODWLYHVWRFNKROGHUUHWXUQRQWKH 5XVVHOO  ,QGH[ DQG WKH SHHU JURXS LQFOXGH UHLQYHVWPHQW RI GLYLGHQGV EXW WKH FDOFXODWLRQ RI FXPXODWLYH VWRFNKROGHUUHWXUQRQRXUFRPPRQVWRFNGRHVQRWLQFOXGHUHLQYHVWPHQWRIGLYLGHQGVEHFDXVHZHGLGQRWSD\DQ\ GLYLGHQGV GXULQJ WKH PHDVXUHPHQW SHULRG 7KH SHUIRUPDQFH VKRZQ LV QRW QHFHVVDULO\ LQGLFDWLYH RI IXWXUH SHUIRUPDQFH

&203$5,6212)),9(<($5&808/$7,9(727$/5(7851  $PRQJ6PLWK :HVVRQ%UDQGV,QF7KH5XVVHOO,QGH[ $QG3HHU*URXS

&RPSDULVRQRI

LQYHVWHGRQ$SULOLQVWRFNRULQGH[²LQFOXGLQJUHLQYHVWPHQWRIGLYLGHQGV)LVFDO\HDUHQGLQJ $SULO

7KHSHUIRUPDQFHJUDSKDERYHVKDOOQRWEHGHHPHG³ILOHG´IRUSXUSRVHVRI6HFWLRQRIWKH([FKDQJH$FWRU RWKHUZLVHVXEMHFWWRWKHOLDELOLW\RIWKDWVHFWLRQ7KHSHUIRUPDQFHJUDSKDERYHZLOOQRWEHGHHPHGLQFRUSRUDWHGE\ UHIHUHQFHLQWRDQ\ILOLQJRIRXUFRPSDQ\XQGHUWKH6HFXULWLHV$FWRIDVDPHQGHGRUWKH6HFXULWLHV$FW

5HSXUFKDVHVRI&RPPRQ6WRFN $VRI$SULOZHKDGQRDXWKRUL]HGVKDUHUHSXUFKDVHSURJUDPV:HGLGQRWUHSXUFKDVHDQ\VKDUHVRI RXUFRPPRQVWRFNGXULQJILVFDO

 ,WHPSelected Financial Data 7KHFRQVROLGDWHGVWDWHPHQWVRILQFRPHDQGFDVKIORZVGDWDIRUWKHILVFDO\HDUVHQGHG$SULO DQGDQGWKHFRQVROLGDWHGEDODQFHVKHHWGDWDDVRI$SULODQGKDYHEHHQGHULYHGIURPRXUDXGLWHG FRQVROLGDWHG ILQDQFLDO VWDWHPHQWV LQFOXGHG HOVHZKHUH LQ WKLV UHSRUW 7KH FRQVROLGDWHG VWDWHPHQWV RI LQFRPH ORVV  DQGFDVKIORZVGDWDIRUWKHILVFDO\HDUVHQGHG$SULODQGDQGWKHFRQVROLGDWHGEDODQFHVKHHWGDWDDVRI $SULODQGKDYHEHHQGHULYHGIURPRXUDXGLWHGFRQVROLGDWHGILQDQFLDOVWDWHPHQWVQRWLQFOXGHG KHUHLQ

 )LVFDO

                ,QWKRXVDQGVH[FHSWVKDUHSHUVKDUHDQGUDWLRGDWD 

1HWVDOHV                   

&RVWRIVDOHV                   

*URVVSURILW                   

2SHUDWLQJH[SHQVHV    D    D           

2SHUDWLQJ ORVV LQFRPH                   

7RWDORWKHULQFRPH H[SHQVH QHW                    /RVV LQFRPHIURPRSHUDWLRQVEHIRUHLQFRPH

WD[HV                   

,QFRPHWD[H[SHQVH EHQHILW                   

1HW ORVV LQFRPH                   

1HW ORVV LQFRPHSHUVKDUH                   

%DVLF                   

'LOXWHG                   

:HLJKWHGDYHUDJHQXPEHURIVKDUHVRXWVWDQGLQJ                   

%DVLF                   

'LOXWHG                   

'HSUHFLDWLRQDQGDPRUWL]DWLRQ                   

&DSLWDOH[SHQGLWXUHV                   

:RUNLQJFDSLWDO                   

&XUUHQWUDWLR                   

7RWDODVVHWV                   

&XUUHQWSRUWLRQRIQRWHVDQGORDQVSD\DEOH  ²               

1RWHVDQGORDQVSD\DEOHQHWRIFXUUHQWSRUWLRQ                   

 &DSLWDOOHDVHSD\DEOHQHWRIFXUUHQWSRUWLRQ                 ²

D 2SHUDWLQJ H[SHQVHV IRU ILVFDO  DQG  LQFOXGH D  PLOOLRQ DQG  PLOOLRQ UHVSHFWLYHO\ LPSDLUPHQWRIJRRGZLOOLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQW6HH1RWH±Significant Accounting Policies WRWKHFRQVROLGDWHGILQDQFLDOVWDWHPHQWVIRUIXUWKHUGHWDLO E /RVV LQFRPHIURPFRQWLQXLQJRSHUDWLRQVIRUILVFDOLQFOXGHVDFWLYLW\IRUWKHSHULRGVXEVHTXHQWWRWKH DFTXLVLWLRQRI/DVHU/\WH,QFRPHIURPFRQWLQXLQJRSHUDWLRQVIRUILVFDOLQFOXGHVDFWLYLW\IRUWKHSHULRG VXEVHTXHQW WR WKH DFTXLVLWLRQV RI *HPLQL 7HFKQRORJLHV ,QFRUSRUDWHG DQG )LVK 7DOHV //& 6HH 1RWH  – AcquisitionsWRWKHFRQVROLGDWHGILQDQFLDOVWDWHPHQWVIRUIXUWKHUGHWDLO)LVFDOLQFOXGHVDFWLYLW\IRUWKH SHULRG VXEVHTXHQW WR WKH DFTXLVLWLRQV RI 7D\ORU %UDQGV //& &ULPVRQ 7UDFH &RUSRUDWLRQ DQG 8OWLPDWH 6XUYLYDO7HFKQRORJLHV,QFLQILVFDO

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

:HUHSRUWRXUUHVXOWVRIRSHUDWLRQVLQWZRVHJPHQWV  )LUHDUPVDQG  2XWGRRU3URGXFWV $FFHVVRULHV

+LJKOLJKWV 2XURSHUDWLQJUHVXOWVIRUILVFDOLQFOXGHGWKHIROORZLQJ • &RQVROLGDWHGQHWVDOHVZHUHPLOOLRQDQLQFUHDVHRIPLOOLRQRURYHUWKHSULRU\HDU •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•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³VWD\DWKRPH´RUGHUVDQGUHGXFHGFXVWRPHURUGHUVIURPVSRUWLQJJRRGVVWRUH FORVXUHV LQ PDQ\ VWDWHV 7KHVH QHJDWLYH LPSDFWV ZHUH SDUWLDOO\ RIIVHW E\ VDOHV JURZWK LQ HFRPPHUFH UHVXOWLQJIURPDVKLIWWRRQOLQHRUGHUV • &RQVROLGDWHGJURVVPDUJLQZDVDGHFUHDVHRIEDVLVSRLQWVIURPWKHSULRUILVFDO\HDU([FOXGLQJ WKHLPSDFWRIWKHFKDQJHLQIHGHUDOH[FLVHWD[LQRXU)LUHDUPVVHJPHQWJURVVPDUJLQZRXOGKDYHEHHQ RUDQLQFUHDVHRIEDVLVSRLQWVRYHUWKHSULRUILVFDO\HDU • 2Q0DUFKZHGHWHUPLQHGWKDWEXVLQHVVLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWZDV H[SHFWHGWREHQHJDWLYHO\LPSDFWHGE\VHYHUDOIDFWRUVUHODWHGWRWKH&29,'SDQGHPLFLQFOXGLQJD PDMRURQOLQHUHWDLOFXVWRPHU¶VGHFLVLRQWRKDOWRUGHOD\PRVWQRQHVVHQWLDOSURGXFWRUGHUV&29,' UHODWHGVXSSO\FKDLQLVVXHVDVZHOODV&29,'UHODWHG³VWD\DWKRPH´RUGHUVDQGVSRUWLQJJRRGVVWRUH FORVXUHVZKLFKUHGXFHGUHWDLOIRRWWUDIILFLQPDQ\VWDWHV%DVHGRQWKHVHIDFWRUVZHH[SHFWUHGXFHGFDVK IORZVLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWDQGZHEHOLHYHWKLVFRQVWLWXWHGDWULJJHULQJHYHQW XQGHUJHQHUDOO\DFFHSWHGDFFRXQWLQJSULQFLSOHV%DVHGRQWKHUHVXOWVRIWKLVHYDOXDWLRQZHUHFRUGHGD QRQFDVK LPSDLUPHQW FKDUJH RI  PLOOLRQ RI JRRGZLOO LQ RXU 2XWGRRU 3URGXFWV  $FFHVVRULHV VHJPHQW • &RPSDQ\QHWORVVZDVPLOOLRQRU  SHUGLOXWHGVKDUHFRPSDUHGZLWKQHWLQFRPHRI PLOOLRQRUSHUGLOXWHGVKDUHIRUWKHSULRUILVFDO\HDU1HWLQFRPHZDVQHJDWLYHO\LPSDFWHGLQILVFDO  DQG  E\ D  DQG  PLOOLRQ LPSDLUPHQW RI JRRGZLOO UHVSHFWLYHO\ 7KH QRQFDVK LPSDLUPHQWFKDUJHGHVFULEHGDERYHKDGDDQGQHJDWLYHLPSDFWRQIXOO\GLOXWHGHDUQLQJVSHU VKDUHLQILVFDODQGUHVSHFWLYHO\([FOXGLQJWKHLPSDFWRIWKHQRQFDVKJRRGZLOOLPSDLUPHQW FRQVROLGDWHGQHWLQFRPHZRXOGKDYHEHHQPLOOLRQRURYHUWKHSULRUILVFDO\HDU

 • 2Q 1RYHPEHU   ZH DQQRXQFHG WKDW ZH ZHUH SURFHHGLQJ ZLWK D SODQ WR VSLQRII RXU RXWGRRU SURGXFWVDQGDFFHVVRULHVEXVLQHVVRUWKH6HSDUDWLRQDQGFUHDWHDQLQGHSHQGHQWSXEOLFO\WUDGHGFRPSDQ\ WRFRQGXFWWKDWEXVLQHVV:HEHOLHYHWKDWVHSDUDWLQJRXURXWGRRUSURGXFWVDQGDFFHVVRULHVEXVLQHVVIURP RXU ILUHDUP EXVLQHVV DQG IRUPLQJ D QHZ FRPSDQ\ WR FRQGXFW WKH RXWGRRU SURGXFWV DQG DFFHVVRULHV EXVLQHVVZLOOHQDEOHWKHPDQDJHPHQWWHDPRIHDFKFRPSDQ\WRIRFXVRQLWVVSHFLILFVWUDWHJLHVLQFOXGLQJ DPRQJ RWKHUV   VWUXFWXULQJ LWV EXVLQHVV WR WDNH DGYDQWDJH RI JURZWK RSSRUWXQLWLHV LQ LWV VSHFLILF PDUNHWV  WDLORULQJLWVEXVLQHVVRSHUDWLRQDQGILQDQFLDOPRGHOWRLWVVSHFLILFORQJWHUPVWUDWHJLHVDQG  DOLJQLQJLWVH[WHUQDOILQDQFLDOUHVRXUFHVVXFKDVVWRFNDFFHVVWRPDUNHWVFUHGLWDQGLQVXUDQFHIDFWRUV ZLWKLWVSDUWLFXODUW\SHRIEXVLQHVV,QRXUYLHZWKH6HSDUDWLRQLVLQWKHEHVWLQWHUHVWVRIRXUFRPSDQ\DQG RXUVWRFNKROGHUVDQGZRXOGFUHDWHWZRLQGXVWU\OHDGLQJFRPSDQLHVZLWKDWWULEXWHVWKDWEHVWSRVLWLRQHDFK FRPSDQ\ IRU ORQJWHUP VXFFHVV ,Q SUHSDUDWLRQ IRU WKH 6HSDUDWLRQ RQ 0D\   ZH FKDQJHG RXU QDPHWR6PLWK :HVVRQ%UDQGV,QFDQGRQ-XQHZHFKDQJHGWKHQDPHRIWKHFRPSDQ\WKDW ZLOORSHUDWHRXURXWGRRUSURGXFWVDQGDFFHVVRULHVEXVLQHVVWKURXJKLWVVXEVLGLDULHVWR$PHULFDQ2XWGRRU %UDQGV ,QF RU $287 ,Q FRQQHFWLRQ ZLWK WKH SURSRVHG VSLQRII ZH H[SHFW WR LQFXU UHVWUXFWXULQJ FKDUJHVRIDSSUR[LPDWHO\PLOOLRQWRPLOOLRQUHODWLQJWROHJDOUHJXODWRU\DQGILQDQFLDOVHUYLFHV UHRUJDQL]DWLRQ DQG UHVWUXFWXULQJ FRVWV DQG VWDUWXS FRVWV IRU WKH QHZ FRPSDQ\ 7KXV IDU ZH KDYH LQFXUUHGPLOOLRQRIUHVWUXFWXULQJFKDUJHVUHODWLQJWRWKHVSLQRII

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isk Factors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

5HVXOWVRI2SHUDWLRQV Consolidated Net Sales and Gross Profit 7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQLQIRUPDWLRQUHJDUGLQJFRQVROLGDWHGQHWVDOHVIRUWKHILVFDO\HDUVHQGHG $SULODQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH    

1HWVDOHV           

&RVWRIVDOHV           

*URVVSURILW           

RIQHWVDOHV JURVVPDUJLQ           

 Fiscal 2020 Consolidated Net Sales and Gross Profit Compared with Fiscal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

&RQVROLGDWHGJURVVPDUJLQZDVQHJDWLYHO\LPSDFWHGE\EDVLVSRLQWVDVDUHVXOWRIWKHFKDQJHLQIHGHUDO H[FLVH WD[ WUHDWPHQW GHVFULEHG DERYH ([FOXGLQJ WKDW WUHDWPHQW FRQVROLGDWHG JURVV PDUJLQ LQFUHDVHG  EDVLV SRLQWV RYHU WKH SULRU ILVFDO \HDU SULPDULO\ EHFDXVH RI D UHGXFWLRQ LQ PDWHULDO FRVWV GXH WR VRXUFLQJ LQLWLDWLYHV IDYRUDEOHPDQXIDFWXULQJIL[HGFRVWDEVRUSWLRQVKLSSLQJFRVWVWKDWZHUHLQFOXGHGLQFRVWRIVDOHVLQWKHSULRUILVFDO \HDU DUH QRZ LQFOXGHG LQ RSHUDWLQJ H[SHQVHV EHFDXVH RI WKH VWDUWXS RI RXU QHZ GLVWULEXWLRQ FHQWHU IDYRUDEOH LQYHQWRU\YDOXDWLRQDGMXVWPHQWVDQGORZHUPDQXIDFWXULQJVSHQGLQJLQRXU)LUHDUPVVHJPHQW8QIDYRUDEOHLPSDFWV LQFOXGHGORZHUPDUJLQFRQWULEXWLRQIURPWKH2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWSULPDULO\GXHWRLQFUHDVHG WDULIIVDQGKLJKHUSURPRWLRQDOSURGXFWGLVFRXQWVLQRXU)LUHDUPVVHJPHQW

Fiscal 2019 Consolidated Net Sales and Gross Profit Compared with Fiscal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

&RQVROLGDWHGJURVVPDUJLQIRUILVFDOLQFUHDVHGEDVLVSRLQWVRYHUILVFDOSULPDULO\EHFDXVHRID FRPELQDWLRQRIORZHUSURPRWLRQDOSURGXFWGLVFRXQWVFRQVXPHUUHEDWHVDQGORZHUPDQXIDFWXULQJVSHQGLQJLQRXU )LUHDUPVVHJPHQWDQGFKDQJHVLQFXVWRPHUPL[DQGORZHUSURPRWLRQDODFWLYLW\RIIVHWE\XQIDYRUDEOHSURGXFWPL[ LQRXU23 $VHJPHQW

Firearms Segment Revenue and Gross Profit 7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQLQIRUPDWLRQUHJDUGLQJ)LUHDUPVVHJPHQWUHYHQXHDQGJURVVSURILWIRUWKH ILVFDO\HDUVHQGHG$SULODQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH    

+DQGJXQV           

/RQJ*XQV             

2WKHU3URGXFWV 6HUYLFHV           

7RWDO)LUHDUPV5HYHQXH            

&RVWRIVDOHV            

*URVVSURILW            

RIQHWVDOHV JURVVPDUJLQ            

 7KH IROORZLQJ WDEOH VHWV IRUWK FHUWDLQ LQIRUPDWLRQ UHJDUGLQJ ILUHDUP XQLWV VKLSSHG E\ WUDGH FKDQQHO IRU WKH ILVFDO\HDUVHQGHG$SULODQG XQLWVLQWKRXVDQGV 

7RWDO8QLWV6KLSSHG        &KDQJH   &KDQJH     +DQGJXQV            /RQJ*XQV                              

6SRUWLQJ*RRGV&KDQQHO8QLWV6KLSSHG        &KDQJH   &KDQJH     +DQGJXQV            /RQJ*XQV                             

3URIHVVLRQDO&KDQQHO8QLWV6KLSSHG        &KDQJH   &KDQJH     +DQGJXQV           

/RQJ*XQV            

Firearms Segment Fiscal 2020 Revenue and Gross Profit Compared with Fiscal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¶V LQYHQWRU\ SDUWLFXODUO\ E\ D IHZ VWUDWHJLF UHWDLOHUV UHSRUWLQJ FKDQJHV LQ D IHZ FHUWDLQ VWDWHV DQG IXOILOOPHQW RI GHPDQGGXULQJWKHIRXUWKTXDUWHUOLNHO\LPSDFWHGE\VWDWHWRVWDWHVDOHVUHVWULFWLRQV

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¶VLQYHQWRU\DFRPELQDWLRQ RIUHSRUWLQJFKDQJHVWR1,&6LQFHUWDLQVWDWHVDQGGHFUHDVHGSURPRWLRQDODFWLYLW\SDUWLFXODUO\LQWKHILUVWKDOIRIWKH ILVFDO\HDU

2WKHUSURGXFWVDQGVHUYLFHVUHYHQXHLQFUHDVHGRURYHUILVFDOSULPDULO\EHFDXVHRIDQ LQFUHDVHGGHPDQGIRUKDQGFXIIVDQGPDJD]LQHV

1HZSURGXFWVGHILQHGDVDQ\QHZ6.8QRWVKLSSHGLQWKHSULRU\HDUUHSUHVHQWHGRIILUHDUPUHYHQXH IRUWKHPRQWKVHQGHG$SULODQGLQFOXGHGDQHZFRQFHDOHGFDUU\0 3EUDQGHGSRO\PHUSLVWROPDQ\ QHZ SURGXFW OLQH H[WHQVLRQV DQG SURPRWLRQDO SURGXFWV EXQGOH NLWV IRU RXU 0 3 3HUIRUPDQFH &HQWHU DQG 7KRPSVRQ&HQWHU$UPVEUDQGHGSURGXFWV

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

2XU )LUHDUP LQYHQWRU\ OHYHOV LQFUHDVHG VOLJKWO\ GXULQJ ILVFDO  GXH SULPDULO\ WR WKH FKDQJH LQ WLPLQJ UHODWHGWRIHGHUDOH[FLVHWD[WKDWLVQRZLQLQYHQWRU\ZKLFKLQFUHDVHGLQYHQWRU\E\PLOOLRQFRPELQHGZLWKDQ LQFUHDVHLQUDZPDWHULDOVDQGZRUNLQSURFHVVUHVXOWLQJIURPDQLQFUHDVHLQSURGXFWLRQWRPHHWGHPDQGQHDUWKHHQG RIRXUILVFDO\HDUUHODWHGWRWKH&29,'SDQGHPLF7KHVHLQFUHDVHVZHUHDOPRVWHQWLUHO\RIIVHWE\DGHFUHDVH LQILQLVKHGJRRGVXQLWVDVVKLSPHQWVLQRXUIRXUWKILVFDOTXDUWHULQFUHDVHGWRPHHWWKDWGHPDQG:KLOHLQYHQWRU\ OHYHOVERWKLQWHUQDOO\DQGLQWKHGLVWULEXWLRQFKDQQHOLQH[FHVVRIGHPDQGPD\QHJDWLYHO\LPSDFWIXWXUHRSHUDWLQJ UHVXOWVLWLVGLIILFXOWWRIRUHFDVWWKHSRWHQWLDOLPSDFWRIGLVWULEXWRULQYHQWRULHVRQIXWXUHUHYHQXHDQGLQFRPHVLQFH GHPDQG LV LPSDFWHG E\ PDQ\ IDFWRUV LQFOXGLQJ VHDVRQDOLW\ QHZ SURGXFW LQWURGXFWLRQV QHZV HYHQWV SROLWLFDO HYHQWVDQGFRQVXPHUWDVWHV

2XU )LUHDUPV VHJPHQW RUGHU EDFNORJ DV RI $SULO  DQG  ZDV  PLOOLRQ DQG  PLOOLRQ UHVSHFWLYHO\:HDOORZRUGHUVUHFHLYHGWKDWKDYHQRW\HWVKLSSHGWREHFDQFHOOHGDQGWKHUHIRUHRXUEDFNORJPD\QRW EHLQGLFDWLYHRIIXWXUHVDOHV

Firearms Segment Fiscal 2019 Revenue and Gross Profit Compared with Fiscal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

5HYHQXH IRU RXU ORQJ JXQV LQFUHDVHG PLOOLRQ RU  RYHU ILVFDO  SDUWLDOO\ EHFDXVH RI UHSOHQLVKPHQWRILQYHQWRU\VSHFLILFDOO\IRURXUVSRUWPRGHOPRGHUQVSRUWLQJULIOHLQWKHVSRUWLQJJRRGVFKDQQHODQG VHYHUDO VXFFHVVIXO SURPRWLRQDO SURJUDPV LQFOXGLQJ D SURPRWLRQ WKDW EXQGOHG D ILUHDUP ZLWK VKRRWLQJ DFFHVVRU\ SURGXFWV$VDUHVXOWZHEHOLHYHZHLQFUHDVHGRXUPDUNHWVKDUHIRUORQJJXQV

2WKHUSURGXFWVDQGVHUYLFHVUHYHQXHLQFUHDVHGPLOOLRQRURYHUWKHSULRU\HDUSULPDULO\EHFDXVHRI KLJKHUVDOHVRISDUWVDQGKDQGFXIIV

1HZSURGXFWVGHILQHGDVDQ\QHZ6.8QRWVKLSSHGLQWKHSULRU\HDUUHSUHVHQWHGRIILUHDUPUHYHQXH IRUILVFDODQGLQFOXGHGRXUQHZFRQFHDOHGFDUU\3HUIRUPDQFH&HQWHU0 3EUDQGHGSRO\PHUSLVWRODQGPDQ\ RWKHUQHZSURGXFWOLQHH[WHQVLRQVIRURXU0 3DQG7KRPSVRQ&HQWHU$UPVEUDQGHGSURGXFWV7KHLQFUHDVHLQWKH QXPEHURIXQLWVVROGIDYRUDEO\LPSDFWHGILUHDUPUHYHQXHE\

 2XU )LUHDUPV VHJPHQW RUGHU EDFNORJ DV RI $SULO  DQG  ZDV  PLOOLRQ DQG  PLOOLRQ UHVSHFWLYHO\7KHGHFUHDVHLQRUGHUEDFNORJIURPWKHSULRUILVFDO\HDUZDVSULPDULO\EHFDXVHRIWKHQRUPDOL]DWLRQRI FKDQQHOLQYHQWRULHVDQGWKHWLPLQJRIRUGHUIXOILOOPHQW

Outdoor Products & Accessories Segment Revenue and Gross Profit 7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQLQIRUPDWLRQUHJDUGLQJ2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWUHYHQXH DQGJURVVSURILWIRUWKHILVFDO\HDUVHQGHG$SULODQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH    

5HYHQXH           

&RVWRIVDOHV            

*URVVSURILW            

RIQHWVDOHV JURVVPDUJLQ            

Outdoor Products & Accessories Segment Fiscal 2020 Revenue and Gross Profit Compared with Fiscal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¶VGHFLVLRQWRKDOWRUGHOD\PRVWQRQ HVVHQWLDOSURGXFW RUGHUV&29,'UHODWHGVXSSO\ FKDLQ LVVXHV &29,'UHODWHG³VWD\ DW KRPH´ RUGHUV DQG VSRUWLQJJRRGVVWRUHFORVXUHVZKLFKKDYHVLJQLILFDQWO\UHGXFHGUHWDLOIRRWWUDIILFLQPDQ\VWDWHV7KHUHGXFHGRUGHUV DVDUHVXOWRIWKH&29,'SDQGHPLFZHUHSDUWLDOO\RIIVHWE\PLOOLRQRILQFUHDVHGVDOHVJURZWKLQHFRPPHUFH IURPDVKLIWWRRQOLQHRUGHUV

1HZSURGXFWVUHSUHVHQWHGRI2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWUHYHQXHIRUILVFDO1HW VDOHVIRURXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWZDVRIWRWDOFRPSDQ\QHWVDOHVFRPSDUHGZLWK LQILVFDO

*URVV PDUJLQ IRU ILVFDO  IRU RXU 2XWGRRU 3URGXFWV  $FFHVVRULHV VHJPHQW GHFOLQHG  EDVLV SRLQWV FRPSDUHGWRWKHSULRU\HDUSULPDULO\EHFDXVHRIXQIDYRUDEOHYDULDQFHFDSLWDOL]DWLRQIRUFRVWVWKDWZHUHFDSLWDOL]HG LQILVFDODQGH[SHQVHGLQILVFDOZKLFKZDVFDXVHGE\WKHUHGXFWLRQRIODVHUPDQXIDFWXULQJLQILVFDO DQGKLJKHUWDULIIFRVWVRQLPSRUWHGJRRGV

2XU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWLQYHQWRU\ZDVUHODWLYHO\IODWDVFRPSDUHGWRILVFDO:H EHOLHYHRXULQYHQWRU\OHYHOVKDYHHQDEOHGXVWRPDLQWDLQPLQLPDOGLVUXSWLRQIURP&29,'SDQGHPLFUHVSRQVHV ZLWKRXUVXSSOLHUV,WLVSRVVLEOHKRZHYHUWKDWZRUVHQLQJRIFRQGLWLRQVRULQFUHDVHGIHDUVRIDSDQGHPLFFRXOGKDYH D UHQHZHG DQG SURORQJHG HIIHFW RQ PDQXIDFWXULQJ RU HPSOR\PHQW LQ &KLQD WUDYHO WR DQG IURP &KLQD RU RWKHU UHVWULFWLRQVRQLPSRUWVDOORIZKLFKFRXOGKDYHDORQJHUWHUPHIIHFWRQRXUVDOHVDQGSURILWDELOLW\LQIXWXUHSHULRGV

2XU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWRUGHUEDFNORJDVRI$SULOZDVPLOOLRQRU PLOOLRQORZHUWKDQDWWKHHQGRIILVFDO:HDOORZRUGHUVUHFHLYHGWKDWKDYHQRW\HWVKLSSHGWREHFDQFHOOHGDQG WKHUHIRUHRXUEDFNORJPD\QRWEHLQGLFDWLYHRIIXWXUHVDOHV

Outdoor Products & Accessories Segment Fiscal 2019 Net Sales and Gross Profit Compared with Fiscal 2018 1HWVDOHVIRURXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWIRUILVFDOLQFUHDVHGPLOOLRQRU RYHU ILVFDO  1HW VDOHV LQFUHDVHG SULPDULO\ EHFDXVH RI PDUNHW DFFHSWDQFH RI QHZO\ LQWURGXFHG DFFHVVRULHV SURGXFWV RYHU WKH SDVW VHYHUDO \HDUV DQG LQFUHDVHG UHYHQXH IURP VWUDWHJLF UHWDLOHUV LQFOXGLQJ LQWHUQHW UHWDLOHUV SDUWLDOO\ RIIVHW IURP ORZHU HOHFWURRSWLFV SURGXFWV UHYHQXH DV D UHVXOW RI D JHQHUDO GHFOLQH LQ ILUHDUP PDUNHW FRQGLWLRQVPHQWLRQHGDERYH

 1HZSURGXFWVLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWUHSUHVHQWHGRIWKLVVHJPHQW¶VUHYHQXHIRU ILVFDODQGLQFOXGHGPRUHWKDQQHZSURGXFWV1HWVDOHVIRURXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQW ZDVRIWRWDOFRPSDQ\QHWVDOHVFRPSDUHGZLWKLQILVFDO

*URVVPDUJLQIRUILVFDOIRURXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWUHPDLQHGIODWFRPSDUHGZLWK ILVFDO  )DYRUDEOH LPSDFWV WR JURVV PDUJLQ LQFOXGHG FKDQJHV LQ FXVWRPHU PL[ ZKLFK \LHOGHG KLJKHU JURVV PDUJLQVDQGORZHUSURPRWLRQDODFWLYLW\RIIVHWE\XQIDYRUDEOHSURGXFWPL[

2XU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWRUGHUEDFNORJDVRI$SULOZDVPLOOLRQRU PLOOLRQORZHUWKDQDWWKHHQGRIILVFDO

Consolidated Operating Expenses 7KH IROORZLQJ WDEOH VHWV IRUWK FHUWDLQ LQIRUPDWLRQ UHJDUGLQJ RSHUDWLQJ H[SHQVHV IRU WKH ILVFDO \HDUV HQGHG $SULODQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH    

5HVHDUFKDQGGHYHORSPHQW             

6HOOLQJPDUNHWLQJDQGGLVWULEXWLRQ             

*HQHUDODQGDGPLQLVWUDWLYH             

*RRGZLOOLPSDLUPHQW            ²

7RWDORSHUDWLQJH[SHQVHV             

RIQHWVDOHV             

Fiscal 2020 Operating Expenses Compared with Fiscal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

Fiscal 2019 Operating Expenses Compared with Fiscal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

 Consolidated Operating (Loss)/Income 7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQLQIRUPDWLRQUHJDUGLQJRSHUDWLQJLQFRPHIRUWKHILVFDO\HDUVHQGHG$SULO DQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH    

2SHUDWLQJ ORVV LQFRPH             

RIQHWVDOHV RSHUDWLQJPDUJLQ           

Fiscal 2020 Operating (Loss)/Income Compared with Fiscal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

Fiscal 2019 Operating Income Compared with Fiscal 2018 ([FOXGLQJWKHLPSDFWRIWKHJRRGZLOOLPSDLUPHQWGHVFULEHGDERYHRSHUDWLQJLQFRPHIRUILVFDOZDV PLOOLRQ DQ LQFUHDVH RI  PLOOLRQ RU  RYHU ILVFDO  SULPDULO\ EHFDXVH RI D FRPELQDWLRQ RI ORZHU SURPRWLRQDOSURGXFWGLVFRXQWVORZHUFRQVXPHUUHEDWHVORZHUPDQXIDFWXULQJVSHQGLQJGHFUHDVHGSURIHVVLRQDOIHHV ORZHU GRQDWLRQV WR WKH 1DWLRQDO 5LIOH $VVRFLDWLRQ GHFUHDVHG WUDYHO DQG HQWHUWDLQPHQW UHODWHG H[SHQVHV DQG GHFUHDVHG DFTXLVLWLRQUHODWHG FRVWV 7KHVH LQFUHDVHV WR RSHUDWLQJ LQFRPH ZHUH SDUWLDOO\ RIIVHW E\ XQIDYRUDEOH LQYHQWRU\YDOXDWLRQDGMXVWPHQWVDQGPDQXIDFWXULQJIL[HGFRVWDEVRUSWLRQLQFUHDVHGFRPSHQVDWLRQUHODWHGH[SHQVHV DQGLQFUHDVHGGHSUHFLDWLRQH[SHQVHVUHODWHGWRRXUQDWLRQDOORJLVWLFVIDFLOLW\

Other Income/(Expense) 7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQLQIRUPDWLRQUHJDUGLQJRSHUDWLQJLQFRPH H[SHQVH IRUWKHILVFDO\HDUV HQGHG$SULODQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH   

 2WKHULQFRPH H[SHQVH           1$   

,QILVFDOZHUHFRUGHGDUHGXFWLRQRIPLOOLRQLQWKHFRQWLQJHQWFRQVLGHUDWLRQOLDELOLW\LQFRQQHFWLRQ ZLWKWKHDFTXLVLWLRQRI8OWLPDWH6XUYLYDO7HFKQRORJLHV,QF

Consolidated Interest (Expense)/Income 7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQLQIRUPDWLRQUHJDUGLQJLQWHUHVWH[SHQVHIRUWKHILVFDO\HDUVHQGHG$SULO DQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH    

,QWHUHVWH[SHQVH               

,QWHUHVWH[SHQVHLQFUHDVHGE\PLOOLRQRYHUWKHSULRUILVFDO\HDUDVDUHVXOWRILQWHUHVWUHFRUGHGUHODWHGWR RXUFDSLWDOOHDVHIRURXUQHZGLVWULEXWLRQFHQWHUDQGDGGLWLRQDOERUURZLQJVRXWVWDQGLQJGXULQJWKHILVFDO\HDU

 ,QWHUHVW H[SHQVH GHFUHDVHG E\  PLOOLRQ EHWZHHQ ILVFDO  DQG ILVFDO  EHFDXVH RI ORZHU RYHUDOO RXWVWDQGLQJGHEWGXULQJILVFDO

Consolidated Income Tax Expense 7KH IROORZLQJ WDEOH VHWV IRUWK FHUWDLQ LQIRUPDWLRQ UHJDUGLQJ LQFRPH WD[ H[SHQVH IRU WKH ILVFDO \HDUV HQGHG $SULODQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH    

,QFRPHWD[H[SHQVH               RILQFRPHIURPRSHUDWLRQV HIIHFWLYHWD[UDWH        

:HUHFRUGHGLQFRPHWD[H[SHQVHRIPLOOLRQIRUILVFDOPLOOLRQORZHUWKDQWKHSULRUILVFDO\HDU SULPDULO\ EHFDXVH RI GHFUHDVHG SURILWDELOLW\ 7KH HIIHFWLYH WD[ UDWHV ZHUH   DQG  IRU ILVFDO  DQG UHVSHFWLYHO\7KHHIIHFWLYHWD[UDWHIRUILVFDODQGH[FOXGHVDQRQFDVKJRRGZLOOLPSDLUPHQWFKDUJH DVDGLVFUHWHLWHP

:HUHFRUGHGLQFRPHWD[H[SHQVHRIPLOOLRQIRUILVFDOYHUVXVDQLQFRPHWD[EHQHILWRIPLOOLRQ IRUILVFDOSULPDULO\EHFDXVHRIWKHLPSDFWRI7D[5HIRUPLQWKHSULRU\HDU7KHHIIHFWLYHWD[UDWHVZHUH DQG   IRU ILVFDO  DQG  UHVSHFWLYHO\ 7KH HIIHFWLYH WD[ UDWH IRU ILVFDO  H[FOXGHV D QRQFDVK JRRGZLOOLPSDLUPHQWFKDUJHDVDGLVFUHWHLWHP

Consolidated Net (Loss)/Income 7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQLQIRUPDWLRQUHJDUGLQJQHWLQFRPHDQGWKHUHODWHGSHUVKDUHGDWDIRUWKH ILVFDO\HDUVHQGHG$SULODQG GROODUVLQWKRXVDQGVH[FHSWSHUVKDUHGDWD 

        &KDQJH   &KDQJH    

1HW ORVV LQFRPH               

1HW ORVV LQFRPHSHUVKDUH                %DVLF              

'LOXWHG               

Fiscal 2020 Net (Loss)/Income Compared with Fiscal 2019 ([FOXGLQJWKHLPSDFWRIJRRGZLOOLPSDLUPHQWIRUILVFDODQGQHWLQFRPHLQFUHDVHGPLOOLRQRU SHUGLOXWHGVKDUHIURPWKHSULRUILVFDO\HDUSULPDULO\DVDUHVXOWRIWKHUHDVRQVGLVFXVVHGDERYHDVZHOODV LQFUHDVHG LQWHUHVW H[SHQVH EHFDXVH RI LQFUHDVHG LQWHUHVW RQ RXU FDSLWDO OHDVH IRU RXU QHZ GLVWULEXWLRQ FHQWHU DQG DGGLWLRQDOERUURZLQJVRXWVWDQGLQJ

Fiscal 2019 Net Income Compared with Fiscal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

 /LTXLGLW\DQG&DSLWDO5HVRXUFHV 2XUSULQFLSDOFDVKUHTXLUHPHQWVDUHWR  ILQDQFHWKHJURZWKRIRXURSHUDWLRQVLQFOXGLQJZRUNLQJFDSLWDODQG FDSLWDOH[SHQGLWXUHV  VHUYLFHRXUH[LVWLQJGHEWDQG  IXQGWKHVSLQRIIRIRXURXWGRRUSURGXFWVDQGDFFHVVRULHV EXVLQHVV &DSLWDO H[SHQGLWXUHV IRU PDWHULDO KDQGOLQJ HTXLSPHQWDQG RWKHU FDSLWDO SURMHFWV WR VXSSRUW RXU QDWLRQDO ORJLVWLFVIDFLOLW\YDULRXVLQIRUPDWLRQWHFKQRORJ\SURMHFWVDQGWRROLQJIRUQHZSURGXFWRIIHULQJVUHSUHVHQWLPSRUWDQW FDVKQHHGV

7KHIROORZLQJWDEOHVHWVIRUWKFHUWDLQFDVKIORZLQIRUPDWLRQIRUWKHILVFDO\HDUVHQGHG$SULO DQG GROODUVLQWKRXVDQGV 

        &KDQJH   &KDQJH     2SHUDWLQJDFWLYLWLHV               ,QYHVWLQJDFWLYLWLHV               )LQDQFLQJDFWLYLWLHV               7RWDOFDVKIORZ              

Operating Activities 2SHUDWLQJDFWLYLWLHVUHSUHVHQWWKHSULQFLSDOVRXUFHRIRXUFDVKIORZ

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

:HDQWLFLSDWHWKDWLQYHQWRU\OHYHOVLQRXU)LUHDUPVVHJPHQWZLOOUHPDLQUHODWLYHO\IODWWRVOLJKWO\XSLQWKHILUVW TXDUWHURIILVFDODVZHUDPSSURGXFWLRQWRPHHWFXUUHQWFRQVXPHUGHPDQG:HH[SHFWWKDWLQYHQWRU\OHYHOVLQ 2XWGRRU 3URGXFWV  $FFHVVRULHV ZLOO LQFUHDVH LQ WKH ILUVW TXDUWHU RI ILVFDO  GXH WR VHDVRQDO GHPDQG UHTXLUHPHQWV

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

Investing Activities &DVKXVHGLQLQYHVWLQJDFWLYLWLHVLQILVFDOZDVPLOOLRQRUPLOOLRQORZHUWKDQILVFDO:H UHFRUGHGFDSLWDOH[SHQGLWXUHVRIPLOOLRQIRUILVFDOPLOOLRQORZHUWKDQILVFDOGXHWRLQFUHDVHG VSHQGLQJLQWKHSULRU\HDUUHODWHGWRRXUQDWLRQDOGLVWULEXWLRQFHQWHU

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

Financing Activities &DVKSURYLGHGE\ILQDQFLQJDFWLYLWLHVZDVPLOOLRQLQILVFDOFRPSDUHGZLWKDFDVKXVDJHRI PLOOLRQLQILVFDO&DVKJHQHUDWHGIURPRSHUDWLRQVDQGQRWHDUPDUNHGIRULQYHVWPHQWVLQRXUEXVLQHVVZRXOG W\SLFDOO\KDYHEHHQXVHGWRUHGXFHWKHEDODQFHRIRXUUHYROYLQJFUHGLWIDFLOLW\EXWZDVQRWVROHO\DVDSUHFDXWLRQ UHODWHGWRWKH&29,'SDQGHPLF6HHEHORZUHJDUGLQJWKHUHSD\PHQWRIRXU7HUP/RDQDQG6HQLRU1RWHVZLWK SURFHHGVIURPRXU5HYROYLQJ/LQHGXULQJILVFDO

&DVKXVHGLQILQDQFLQJDFWLYLWLHVZDVPLOOLRQLQILVFDOZKLFKZDVUHODWLYHO\IODWIURPWKHSULRU ILVFDO\HDU&DVKXVHGLQILQDQFLQJDFWLYLWLHVGXULQJILVFDODQGZDVSULPDULO\WKHUHVXOWRIUHGXFLQJRXU RXWVWDQGLQJERUURZLQJVXQGHURXU5HYROYLQJ/LQHE\PLOOLRQDQGSULQFLSDOSD\PHQWVRQRXU7HUP/RDQ

Capital Lease –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

Credit Facilities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¶FRQVHQWWRWKHVSLQRIIRIWKHRXWGRRUSURGXFWVDQGDFFHVVRULHV EXVLQHVVSURYLGHGWKDWFHUWDLQILQDQFLDOFRQGLWLRQVDUHVDWLVILHGLQFOXGLQJ [ JUDQWLQJWKH/HQGHUVVHFXULW\LQWHUHVW LQWKHDVVHWVRIWKHUHPDLQLQJEXVLQHVV \ UHGXFLQJWKH5HYROYLQJ/LQHWRPLOOLRQDWWKHWLPHRIWKHVSLQRII DQG ] UHGXFLQJWKHRSWLRQWRH[SDQGWKHFUHGLWDJUHHPHQWWRPLOOLRQDWWKHWLPHRIWKHVSLQRII2WKHUWKDQWKH FKDQJHVGHVFULEHGLQWKH6HFRQGDQG)LIWK$PHQGPHQWVZHRWKHUZLVHUHPDLQVXEMHFWWRWKHWHUPVRIWKH&UHGLW $JUHHPHQWDVGHVFULEHGEHORZ

$VRI$SULOZHKDGPLOOLRQRIERUURZLQJVRXWVWDQGLQJRQWKH5HYROYLQJ/LQHZKLFKERUH LQWHUHVWDWZKLFKZDVHTXDOWRWKH/,%25UDWHSOXVDQDSSOLFDEOHPDUJLQ

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

2018 Senior Notes - 'XULQJILVFDOZHLVVXHGDQDJJUHJDWHRIPLOOLRQRI6HQLRU1RWHVGXH  RU WKH  6HQLRU 1RWHV WR YDULRXV LQVWLWXWLRQDO LQYHVWRUV SXUVXDQW WR WKH WHUPV DQG FRQGLWLRQV RI DQ LQGHQWXUHDQGSXUFKDVHDJUHHPHQWV7KH6HQLRU1RWHVEHDULQWHUHVWDWDUDWHRISHUDQQXPSD\DEOHRQ -DQXDU\DQG-XO\RIHDFK\HDUEHJLQQLQJRQ-DQXDU\:HLQFXUUHGPLOOLRQRIGHEWLVVXDQFHFRVWV UHODWHGWRWKHLVVXDQFHRIWKH6HQLRU1RWHV$VGLVFXVVHGEHORZWKH6HQLRU1RWHVZHUHUHGHHPHGRQ 0DUFKZLWKSURFHHGVIURPWKHLVVXDQFHRI6HQLRU1RWHVGXH$VSDUWRIWKHUHGHPSWLRQLQ ILVFDOZHZURWHRIIRIGHEWLVVXDQFHFRVWVUHODWHGWRWKH6HQLRU1RWHV

2020 Senior Notes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

7KH&UHGLW$JUHHPHQWIRURXUFUHGLWIDFLOLW\FRQWDLQVILQDQFLDOFRYHQDQWVUHODWLQJWRPDLQWDLQLQJPD[LPXP OHYHUDJHDQGPLQLPXPGHEWVHUYLFHFRYHUDJH:HZHUHLQFRPSOLDQFHZLWKDOOGHEWFRYHQDQWVDVRI$SULO

Share Repurchase Programs - :HGLGQRWUHSXUFKDVHDQ\VKDUHVRIRXUFRPPRQVWRFNGXULQJILVFDO RU

$W$SULOZHKDGPLOOLRQLQFDVKDQGFDVKHTXLYDOHQWVRQKDQG

%DVHGXSRQRXUFXUUHQWZRUNLQJFDSLWDOSRVLWLRQFXUUHQWRSHUDWLQJSODQVDQGH[SHFWHGEXVLQHVVFRQGLWLRQV ZHEHOLHYHWKDWRXUH[LVWLQJFDSLWDOUHVRXUFHVDQGFUHGLWIDFLOLWLHVZLOOEHDGHTXDWHWRIXQGRXURSHUDWLRQVLQFOXGLQJ RXURXWVWDQGLQJGHEWDQGRWKHUFRPPLWPHQWVIRUWKHQH[WPRQWKVDSDUWIURPDQ\PDMRUDFTXLVLWLRQV

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

,QIODWLRQ :HGRQRWEHOLHYHWKDWLQIODWLRQKDGDPDWHULDOLPSDFWRQXVGXULQJILVFDORU

 &ULWLFDO$FFRXQWLQJ3ROLFLHV Revenue Recognition

:HUHFRJQL]HUHYHQXHLQDFFRUGDQFHZLWKWKHSURYLVLRQVRI$FFRXQWLQJ6WDQGDUGV8SGDWHRU$68Revenue from Contracts withCustomers 7RSLF ZKLFKEHFDPHHIIHFWLYHIRUXVRQ0D\*HQHUDOO\DOO SHUIRUPDQFHREOLJDWLRQVDUHVDWLVILHGDQGUHYHQXHLVUHFRJQL]HGZKHQWKHULVNVDQGUHZDUGVRIRZQHUVKLSKDYH WUDQVIHUUHGWRWKHFXVWRPHUZKLFKLVJHQHUDOO\XSRQVKLSPHQWEXWFRXOGEHGHOD\HGXQWLOWKHUHFHLSWRIFXVWRPHU DFFHSWDQFH

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

Valuation of Long-lived Tangible and Intangible Assets :H HYDOXDWH WKH UHFRYHUDELOLW\ RI ORQJOLYHG DVVHWV RU DVVHW JURXSV ZKHQHYHU HYHQWV RU FKDQJHV LQ FLUFXPVWDQFHV LQGLFDWH WKDW FDUU\LQJ DPRXQWV PD\ QRW EH UHFRYHUDEOH :KHQ VXFK HYDOXDWLRQV LQGLFDWH WKDW WKH UHODWHGIXWXUHXQGLVFRXQWHGFDVKIORZVDUHQRWVXIILFLHQWWRUHFRYHUWKHFDUU\LQJYDOXHVRIWKHDVVHWVVXFKFDUU\LQJ YDOXHVDUHUHGXFHGWRIDLUYDOXHDQGWKLVDGMXVWHGFDUU\LQJYDOXHEHFRPHVWKHDVVHW¶VQHZFRVWEDVLV:HGHWHUPLQH IDLUYDOXHSULPDULO\XVLQJIXWXUHDQWLFLSDWHGFDVKIORZVWKDWDUHGLUHFWO\DVVRFLDWHGZLWKDQGDUHH[SHFWHGWRDULVHDVD GLUHFW UHVXOW RI WKH XVH DQG HYHQWXDO GLVSRVLWLRQ RI WKH DVVHW RU DVVHW JURXS GLVFRXQWHG XVLQJ DQ LQWHUHVW UDWH FRPPHQVXUDWHZLWKWKHULVNLQYROYHG

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• VLJQLILFDQWXQGHUSHUIRUPDQFHUHODWLYHWRKLVWRULFDORUSURMHFWHGIXWXUHRSHUDWLQJUHVXOWV • VLJQLILFDQWFKDQJHVLQWKHPDQQHURUXVHRIWKHDVVHWVRUWKHVWUDWHJ\IRURXURYHUDOOEXVLQHVV • VLJQLILFDQWQHJDWLYHLQGXVWU\RUHFRQRPLFWUHQGV • DVLJQLILFDQWGHFOLQHLQRXUVWRFNSULFHIRUDVXVWDLQHGSHULRGDQG • DGHFOLQHLQRXUPDUNHWFDSLWDOL]DWLRQEHORZQHWERRNYDOXH

 )XWXUHDGYHUVHFKDQJHVLQWKHVHRURWKHUXQIRUHVHHDEOHIDFWRUVFRXOGUHVXOWLQDQLPSDLUPHQWFKDUJHWKDWFRXOG PDWHULDOO\LPSDFWIXWXUHUHVXOWVRIRSHUDWLRQVDQGILQDQFLDOSRVLWLRQLQWKHUHSRUWLQJSHULRGLGHQWLILHG

,QDFFRUGDQFHZLWK$6& Intangibles-Goodwill and Other,ZHWHVWJRRGZLOOIRULPSDLUPHQWRQDQDQQXDO EDVLV RQ )HEUXDU\ DQG EHWZHHQ DQQXDO WHVWV LI LQGLFDWRUV RI SRWHQWLDO LPSDLUPHQW H[LVW 7KH LPSDLUPHQW WHVW FRPSDUHVWKHIDLUYDOXHRIWKHRSHUDWLQJXQLWVWRWKHLUFDUU\LQJDPRXQWVWRDVVHVVZKHWKHULPSDLUPHQWLVSUHVHQW:H KDYH UHYLHZHG WKH SURYLVLRQV RI $6& ZLWK UHVSHFW WR WKH FULWHULD QHFHVVDU\ WR HYDOXDWH WKH QXPEHU RI UHSRUWLQJXQLWVWKDWH[LVW%DVHGRQWKLVUHYLHZZHKDGFRQFOXGHGWKDWZHKDYHWZRRSHUDWLQJXQLWVZKHQUHYLHZLQJ $6&)LUHDUPVDQG2XWGRRU3URGXFWV $FFHVVRULHV

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¶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

$VRIRXUYDOXDWLRQGDWH)HEUXDU\RXU)LUHDUPVRSHUDWLQJXQLWKDGPLOOLRQRIJRRGZLOODQGLWV IDLUYDOXHVLJQLILFDQWO\H[FHHGHGLWVFDUU\LQJYDOXH2XU2XWGRRU3URGXFWV $FFHVVRULHVRSHUDWLQJXQLWKDG PLOOLRQRIJRRGZLOODQGLWVIDLUYDOXHH[FHHGHGLWVFDUU\LQJYDOXHE\DSSUR[LPDWHO\2Q0DUFKZH GHWHUPLQHGWKDWEXVLQHVVLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWZDVH[SHFWHGWREHQHJDWLYHO\LPSDFWHG E\VHYHUDOIDFWRUVUHODWHGWRWKH&29,'SDQGHPLFLQFOXGLQJDPDMRURQOLQHUHWDLOFXVWRPHU¶VGHFLVLRQWRKDOWRU GHOD\PRVWQRQHVVHQWLDOSURGXFWRUGHUV&29,'UHODWHGVXSSO\FKDLQLVVXHVDVZHOODV&29,'UHODWHG³VWD\ DW KRPH´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

7KHUHPHDVXUHPHQWRIJRRGZLOOLVFODVVLILHGDVD/HYHOIDLUYDOXHDVVHVVPHQWDVGHVFULEHGLQ1RWHFair Value Measurement, GXHWRWKHVLJQLILFDQFHRIXQREVHUYDEOHLQSXWVGHYHORSHGXVLQJFRPSDQ\VSHFLILFLQIRUPDWLRQ

 Inventories :HYDOXHLQYHQWRULHVDWWKHORZHURIFRVWXVLQJWKHILUVWLQILUVWRXWRU),)2PHWKRGRUQHWUHDOL]DEOHYDOXH $Q DOORZDQFH IRU SRWHQWLDO QRQVDOHDEOH LQYHQWRU\ GXH WR H[FHVV VWRFN RU REVROHVFHQFH LV EDVHG XSRQ D GHWDLOHG UHYLHZRILQYHQWRU\SDVWKLVWRU\DQGH[SHFWHGIXWXUHXVDJH

Warranty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

5HFHQW$FFRXQWLQJ3URQRXQFHPHQWV 7KHQDWXUHDQGLPSDFWRIUHFHQWDFFRXQWLQJSURQRXQFHPHQWVLVGLVFXVVHGLQ1RWH²Significant Accounting PoliciesWRRXUFRQVROLGDWHGILQDQFLDOVWDWHPHQWVZKLFKLVLQFRUSRUDWHGKHUHLQE\UHIHUHQFH

&RQWUDFWXDO2EOLJDWLRQVDQG&RPPHUFLDO&RPPLWPHQWV 7KH IROORZLQJ WDEOH VHWV IRUWK D VXPPDU\ RI RXU PDWHULDO FRQWUDFWXDO REOLJDWLRQV DQG FRPPHUFLDO FRPPLWPHQWVDVRI$SULO LQWKRXVDQGV 

       /HVV7KDQ             0RUH7KDQ    7RWDO   

7RWDOREOLJDWLRQV                     

:H KDG  PLOOLRQ RI ERUURZLQJV XQGHU RXU 5HYROYLQJ /LQH DV RI $SULO   ,Q ILVFDO  ZH HQWHUHGLQWRDPLOOLRQFDSLWDOOHDVHREOLJDWLRQUHODWHGWRWKHSXUFKDVHRIODQGDQGFRVWVUHODWHGWRWKHGHVLJQ DQG FRQVWUXFWLRQ RI RXU QDWLRQDO ORJLVWLFV IDFLOLW\ :H KDYH  PLOOLRQ RI FRQWUDFWXDOO\ REOLJDWHG LQWHUHVW SD\PHQWVSHUWDLQLQJWRRXURXWVWDQGLQJFDSLWDOOHDVHREOLJDWLRQ

2II%DODQFH6KHHW$UUDQJHPHQWV :HGRQRWKDYHDQ\WUDQVDFWLRQVDUUDQJHPHQWVRURWKHUUHODWLRQVKLSVZLWKXQFRQVROLGDWHGHQWLWLHVWKDWDUH UHDVRQDEO\OLNHO\WRDIIHFWRXUOLTXLGLW\RUFDSLWDOUHVRXUFHV:HKDYHQRVSHFLDOSXUSRVHRUOLPLWHGSXUSRVHHQWLWLHV WKDWSURYLGHRIIEDODQFHVKHHWILQDQFLQJOLTXLGLW\RUPDUNHWRUFUHGLWULVNVXSSRUWRUWKDWHQJDJHLQOHDVLQJKHGJLQJ UHVHDUFK DQG GHYHORSPHQW VHUYLFHV RU RWKHU UHODWLRQVKLSV WKDW H[SRVH XV WR OLDELOLW\ WKDW LV QRW UHIOHFWHG LQ RXU ILQDQFLDOVWDWHPHQWV

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

,WHP)LQDQFLDO6WDWHPHQWVDQG6XSSOHPHQWDU\'DWD 5HIHUHQFH LV PDGH WR WKH ILQDQFLDO VWDWHPHQWV WKH QRWHV WKHUHWR DQG WKH UHSRUW WKHUHRQ FRPPHQFLQJ RQ SDJH)RIWKLVUHSRUWZKLFKILQDQFLDOVWDWHPHQWVQRWHVDQGUHSRUWDUHLQFRUSRUDWHGKHUHLQE\UHIHUHQFH

,WHP&KDQJHVLQDQG'LVDJUHHPHQWVZLWK$FFRXQWDQWVRQ$FFRXQWLQJDQG)LQDQFLDO'LVFORVXUH 1RWDSSOLFDEOH

,WHP$&RQWUROVDQG3URFHGXUHV

(YDOXDWLRQRI'LVFORVXUH&RQWUROVDQG3URFHGXUHV

:HPDLQWDLQGLVFORVXUHFRQWUROVDQGSURFHGXUHVWKDWDUHGHVLJQHGWRSURYLGHUHDVRQDEOHDVVXUDQFHWKDW LQIRUPDWLRQUHTXLUHGWREHGLVFORVHGLQWKHUHSRUWVZHILOHRUVXEPLWXQGHUWKH6HFXULWLHV([FKDQJH$FWRIDV DPHQGHGRUWKH([FKDQJH$FWLVUHFRUGHGSURFHVVHGVXPPDUL]HGDQGUHSRUWHGZLWKLQWKHWLPHSHULRGVVSHFLILHGLQ WKH6(&¶VUXOHVDQGIRUPVDQGWKDWVXFKLQIRUPDWLRQLVDFFXPXODWHGDQGFRPPXQLFDWHGWRRXUPDQDJHPHQW LQFOXGLQJRXUFR&KLHI([HFXWLYH2IILFHUVDQG&KLHI)LQDQFLDO2IILFHUWRDOORZWLPHO\GHFLVLRQVUHJDUGLQJUHTXLUHG GLVFORVXUH

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

0DQDJHPHQW¶V$QQXDO5HSRUWRQ,QWHUQDO&RQWURORYHU)LQDQFLDO5HSRUWLQJ

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¶V DVVHWVWKDWFRXOGKDYHDPDWHULDOHIIHFWRQWKHILQDQFLDOVWDWHPHQWV

%HFDXVHRILWVLQKHUHQWOLPLWDWLRQVLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJPD\QRWSUHYHQWRUGHWHFW PLVVWDWHPHQWV$OVRSURMHFWLRQVRIDQ\HYDOXDWLRQRIHIIHFWLYHQHVVWRIXWXUHSHULRGVDUHVXEMHFWWRWKHULVNWKDW FRQWUROVPD\EHFRPHLQDGHTXDWHEHFDXVHRIFKDQJHVLQFRQGLWLRQVRUWKDWWKHGHJUHHRIFRPSOLDQFHZLWKWKH SROLFLHVRUSURFHGXUHVPD\GHWHULRUDWH

 2XUPDQDJHPHQWDVVHVVHGWKHHIIHFWLYHQHVVRIWKHFRPSDQ\¶VLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJDVRI $SULO,QPDNLQJWKLVDVVHVVPHQWRXUPDQDJHPHQWXVHGWKHFULWHULDVHWIRUWKE\WKH&RPPLWWHHRI 6SRQVRULQJ2UJDQL]DWLRQVRIWKH7UHDGZD\&RPPLVVLRQ &262 LQInternal Control – Integrated Framework  

$PDWHULDOZHDNQHVVDVGHILQHGLQ([FKDQJH$FW5XOHELVDGHILFLHQF\RUDFRPELQDWLRQRI GHILFLHQFLHVLQLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJVXFKWKDWWKHUHLVDUHDVRQDEOHSRVVLELOLW\WKDWDPDWHULDO PLVVWDWHPHQWRIWKHFRPSDQ\¶VDQQXDORULQWHULPILQDQFLDOVWDWHPHQWVZLOOQRWEHSUHYHQWHGRUGHWHFWHGRQDWLPHO\ EDVLV

,QWKHFRXUVHRISUHSDULQJWKHILQDQFLDOVWDWHPHQWVWKDWDUHLQFOXGHGLQWKLV)RUP.PDQDJHPHQW LGHQWLILHGDPDWHULDOZHDNQHVVLQWKHLQWHUQDOFRQWUROHQYLURQPHQWDVZHGLGQRWDSSURSULDWHO\GHVLJQDQGPDLQWDLQ FRQWUROVUHODWHGWRWKHDFFRXQWLQJIRUJRRGZLOOLPSDLUPHQW&RQWURODFWLYLWLHVZHUHQRWGHVLJQHGRUPDLQWDLQHGRYHU WKHSUHSDUDWLRQDQGUHYLHZRIWKHJRRGZLOOLPSDLUPHQWDQDO\VLVLQFOXGLQJRXUDFFRXQWLQJIRUWKHUHODWHGLQFRPHWD[ WUHDWPHQWDQGUHYLHZRIWKLUGSDUW\H[SHUWV¶ZRUNSURGXFW

7KHPDWHULDOZHDNQHVVUHVXOWHGLQDXGLWDGMXVWPHQWVWRJRRGZLOOSHUWDLQLQJWRRXU2XWGRRU3URGXFWV  $FFHVVRULHVUHSRUWLQJXQLWWKDWZHUHUHFRUGHGLQRXUFRQVROLGDWHGILQDQFLDOVWDWHPHQWVDVRIDQGIRUWKH\HDUHQGHG $SULOSULRUWRRXULVVXDQFHRIWKRVHILQDQFLDOVWDWHPHQWVDQGFRXOGUHVXOWLQDUHDVRQDEOHSRVVLELOLW\WKDWD PDWHULDOPLVVWDWHPHQWWRRXUDQQXDORULQWHULPFRQVROLGDWHGILQDQFLDOVWDWHPHQWVPD\QRWEHSUHYHQWHGRUGHWHFWHG RQDWLPHO\EDVLVE\RXULQWHUQDOFRQWUROV

%HFDXVHRIWKLVPDWHULDOZHDNQHVVPDQDJHPHQWFRQFOXGHGWKDWZHGLGQRWPDLQWDLQHIIHFWLYHLQWHUQDOFRQWURO RYHUILQDQFLDOUHSRUWLQJDVRI$SULO

2XULQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJDVRI$SULOKDVEHHQDXGLWHGE\'HORLWWH 7RXFKH //3DQLQGHSHQGHQWUHJLVWHUHGSXEOLFDFFRXQWLQJILUPDVVWDWHGLQWKHLUUHSRUWRQRXULQWHUQDOFRQWURORYHUILQDQFLDO UHSRUWLQJZKLFKIROORZVEHORZ

0DQDJHPHQW¶V3ODQIRU5HPHGLDWLRQRIWKH0DWHULDO:HDNQHVV

,QUHVSRQVHWRWKHPDWHULDOZHDNQHVVGHVFULEHGDERYHZLWKWKHRYHUVLJKWRIWKH$XGLW&RPPLWWHHRIRXU %RDUGRI'LUHFWRUVPDQDJHPHQWLVFXUUHQWO\HYDOXDWLQJRXUSROLFLHVDQGSURFHGXUHVUHODWHGWRWKHDFFRXQWLQJIRU JRRGZLOODQGSODQVWRGHVLJQDQGLPSOHPHQWDGHTXDWHLQWHUQDOFRQWUROVWRHQVXUHWKDWWKHGHWHUPLQDWLRQRIWKH FDUU\LQJYDOXHRIWKHUHSRUWLQJXQLWLVSURSHUO\DFFRXQWHGIRUDQGUHYLHZHG

7KHUHPHGLDWLRQHIIRUWVDUHLQWHQGHGERWKWRDGGUHVVWKHLGHQWLILHGPDWHULDOZHDNQHVVDQGWRHQKDQFHRXU RYHUDOOILQDQFLDOFRQWUROHQYLURQPHQW0DQDJHPHQWLVFRPPLWWHGWRFRQWLQXRXVLPSURYHPHQWRIRXULQWHUQDOFRQWURO RYHUILQDQFLDOUHSRUWLQJDQGZLOOFRQWLQXHWRGLOLJHQWO\UHYLHZRXULQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJ2XU UHPHGLDWLRQHIIRUWVDUHRQJRLQJDQGPDQDJHPHQWH[SHFWVWKDWWKHUHPHGLDWLRQHIIRUWVLQFOXGLQJGHVLJQ LPSOHPHQWDWLRQDQGWHVWLQJZLOOFRQWLQXHLQILVFDO\HDU

,QKHUHQW/LPLWDWLRQVRQWKH(IIHFWLYHQHVVRI&RQWUROVDQG3URFHGXUHV

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

 &KDQJHVWR,QWHUQDO&RQWURORYHU)LQDQFLDO5HSRUWLQJ

2WKHUWKDQWKHPDWHULDOZHDNQHVVQRWHGDERYHWKHUHKDYHEHHQQRFKDQJHVLQRXULQWHUQDOFRQWURORYHU ILQDQFLDOUHSRUWLQJGXULQJRXUPRVWUHFHQWILVFDOTXDUWHUHQGHG$SULOWKDWKDYHPDWHULDOO\DIIHFWHGRUDUH UHDVRQDEO\OLNHO\WRPDWHULDOO\DIIHFWRXULQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJ:HKDYHQRWH[SHULHQFHGDQ\ PDWHULDOLPSDFWWRRXULQWHUQDOFRQWUROVRYHUILQDQFLDOUHSRUWLQJDVDUHVXOWRIWKH&29,'SDQGHPLF

 5(32572),1'(3(1'(175(*,67(5('38%/,&$&&2817,1*),50 7RWKHVKDUHKROGHUVDQGWKH%RDUGRI'LUHFWRUVRI6PLWK :HVVRQ%UDQGV,QF 2SLQLRQRQ,QWHUQDO&RQWURORYHU)LQDQFLDO5HSRUWLQJ :HKDYHDXGLWHGWKHLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJRI6PLWK :HVVRQ%UDQGV,QFDQGVXEVLGLDULHV WKH ³&RPSDQ\´ DVRI$SULOEDVHGRQFULWHULDHVWDEOLVKHGLQInternal Control — Integrated Framework (2013)LVVXHG E\WKH&RPPLWWHHRI6SRQVRULQJ2UJDQL]DWLRQVRIWKH7UHDGZD\&RPPLVVLRQ &262 ,QRXURSLQLRQEHFDXVHRIWKH HIIHFWRIWKHPDWHULDOZHDNQHVVLGHQWLILHGEHORZRQWKHDFKLHYHPHQWRIWKHREMHFWLYHVRIWKHFRQWUROFULWHULDWKH&RPSDQ\ KDVQRWPDLQWDLQHGHIIHFWLYHLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJDVRI$SULOEDVHGRQFULWHULDHVWDEOLVKHGLQ Internal Control — Integrated Framework (2013)LVVXHGE\&262 :HKDYHDOVRDXGLWHGLQDFFRUGDQFHZLWKWKHVWDQGDUGVRIWKH3XEOLF&RPSDQ\$FFRXQWLQJ2YHUVLJKW%RDUG 8QLWHG 6WDWHV  3&$2% WKHFRQVROLGDWHGILQDQFLDOVWDWHPHQWVDVRIDQGIRUWKH\HDUHQGHG$SULORIWKH&RPSDQ\DQG RXUUHSRUWGDWHG-XQHH[SUHVVHGDQXQTXDOLILHGRSLQLRQRQWKRVHILQDQFLDOVWDWHPHQWVDQGLQFOXGHGDQ H[SODQDWRU\SDUDJUDSKUHJDUGLQJWKH&RPSDQ\¶VDGRSWLRQRIDQHZDFFRXQWLQJVWDQGDUG %DVLVIRU2SLQLRQ 7KH&RPSDQ\¶VPDQDJHPHQWLVUHVSRQVLEOHIRUPDLQWDLQLQJHIIHFWLYHLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJDQGIRULWV DVVHVVPHQWRIWKHHIIHFWLYHQHVVRILQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJLQFOXGHGLQWKHDFFRPSDQ\LQJ³0DQDJHPHQW¶V 5HSRUWRQ,QWHUQDO&RQWURO2YHU)LQDQFLDO5HSRUWLQJ´2XUUHVSRQVLELOLW\LVWRH[SUHVVDQRSLQLRQRQWKH&RPSDQ\¶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¶VLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJLVDSURFHVVGHVLJQHGWRSURYLGHUHDVRQDEOHDVVXUDQFHUHJDUGLQJWKH UHOLDELOLW\RIILQDQFLDOUHSRUWLQJDQGWKHSUHSDUDWLRQRIILQDQFLDOVWDWHPHQWVIRUH[WHUQDOSXUSRVHVLQDFFRUGDQFHZLWK JHQHUDOO\DFFHSWHGDFFRXQWLQJSULQFLSOHV$FRPSDQ\¶VLQWHUQDOFRQWURORYHUILQDQFLDOUHSRUWLQJLQFOXGHVWKRVHSROLFLHVDQG SURFHGXUHVWKDW  SHUWDLQWRWKHPDLQWHQDQFHRIUHFRUGVWKDWLQUHDVRQDEOHGHWDLODFFXUDWHO\DQGIDLUO\UHIOHFWWKH WUDQVDFWLRQVDQGGLVSRVLWLRQVRIWKHDVVHWVRIWKHFRPSDQ\  SURYLGHUHDVRQDEOHDVVXUDQFHWKDWWUDQVDFWLRQVDUHUHFRUGHG DVQHFHVVDU\WRSHUPLWSUHSDUDWLRQRIILQDQFLDOVWDWHPHQWVLQDFFRUGDQFHZLWKJHQHUDOO\DFFHSWHGDFFRXQWLQJSULQFLSOHVDQG WKDWUHFHLSWVDQGH[SHQGLWXUHVRIWKHFRPSDQ\DUHEHLQJPDGHRQO\LQDFFRUGDQFHZLWKDXWKRUL]DWLRQVRIPDQDJHPHQWDQG GLUHFWRUVRIWKHFRPSDQ\DQG  SURYLGHUHDVRQDEOHDVVXUDQFHUHJDUGLQJSUHYHQWLRQRUWLPHO\GHWHFWLRQRIXQDXWKRUL]HG DFTXLVLWLRQXVHRUGLVSRVLWLRQRIWKHFRPSDQ\¶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¶VDQQXDORULQWHULPILQDQFLDOVWDWHPHQWVZLOO QRWEHSUHYHQWHGRUGHWHFWHGRQDWLPHO\EDVLV7KHIROORZLQJPDWHULDOZHDNQHVVKDVEHHQLGHQWLILHGDQGLQFOXGHGLQ PDQDJHPHQW VDVVHVVPHQW&RQWURODFWLYLWLHVZHUHQRWGHVLJQHGRUPDLQWDLQHGRYHUWKHSUHSDUDWLRQDQGUHYLHZRIWKH JRRGZLOOLPSDLUPHQWDQDO\VLVLQFOXGLQJWKHDFFRXQWLQJIRUWKHUHODWHGLQFRPHWD[WUHDWPHQWDQGUHYLHZRIWKLUGSDUW\ H[SHUWV¶ZRUNSURGXFW7KLVPDWHULDOZHDNQHVVZDVFRQVLGHUHGLQGHWHUPLQLQJWKHQDWXUHWLPLQJDQGH[WHQWRIDXGLWWHVWV DSSOLHGLQRXUDXGLWRIWKHFRQVROLGDWHGILQDQFLDOVWDWHPHQWVDVRIDQGIRUWKH\HDUHQGHG$SULORIWKH&RPSDQ\ DQGWKLVUHSRUWGRHVQRWDIIHFWRXUUHSRUWRQVXFKILQDQFLDOVWDWHPHQWV

V'HORLWWH 7RXFKH//3 %RVWRQ0DVVDFKXVHWWV -XQH

 ,WHP%2WKHU,QIRUPDWLRQ 1RWDSSOLFDEOH

3$57,,,

,WHP'LUHFWRUV([HFXWLYH2IILFHUVDQG&RUSRUDWH*RYHUQDQFH 7KHLQIRUPDWLRQUHTXLUHGE\WKLV,WHPUHODWLQJWRRXUGLUHFWRUVDQGFRUSRUDWHJRYHUQDQFHLVLQFRUSRUDWHGKHUHLQ E\UHIHUHQFHWRWKHGHILQLWLYH3UR[\6WDWHPHQWWREHILOHGSXUVXDQWWR5HJXODWLRQ$RIWKH([FKDQJH$FWIRURXU $QQXDO0HHWLQJRI6WRFNKROGHUV7KHLQIRUPDWLRQUHTXLUHGE\WKLV,WHPUHODWLQJWRRXUH[HFXWLYHRIILFHUVLV LQFOXGHGLQ,WHP³%XVLQHVV²([HFXWLYH2IILFHUV´RIWKLVUHSRUW

,WHP([HFXWLYH&RPSHQVDWLRQ 7KHLQIRUPDWLRQUHTXLUHGE\WKLV,WHPLVLQFRUSRUDWHGKHUHLQE\UHIHUHQFHWRWKHGHILQLWLYH3UR[\6WDWHPHQWWR EHILOHGSXUVXDQWWR5HJXODWLRQ$RIWKH([FKDQJH$FWIRURXU$QQXDO0HHWLQJRI6WRFNKROGHUV

,WHP 6HFXULW\ 2ZQHUVKLS RI &HUWDLQ %HQHILFLDO 2ZQHUV DQG 0DQDJHPHQW DQG 5HODWHG 6WRFNKROGHU 0DWWHUV 7KHLQIRUPDWLRQUHTXLUHGE\WKLV,WHPLVLQFRUSRUDWHGKHUHLQE\UHIHUHQFHWRWKHGHILQLWLYH3UR[\6WDWHPHQWWR EHILOHGSXUVXDQWWR5HJXODWLRQ$RIWKH([FKDQJH$FWIRURXU$QQXDO0HHWLQJRI6WRFNKROGHUV

,WHP&HUWDLQ5HODWLRQVKLSVDQG5HODWHG7UDQVDFWLRQVDQG'LUHFWRU,QGHSHQGHQFH 7KHLQIRUPDWLRQUHTXLUHGE\WKLV,WHPLVLQFRUSRUDWHGKHUHLQE\UHIHUHQFHWRWKHGHILQLWLYH3UR[\6WDWHPHQWWR EHILOHGSXUVXDQWWR5HJXODWLRQ$RIWKH([FKDQJH$FWIRURXU$QQXDO0HHWLQJRI6WRFNKROGHUV

,WHP3ULQFLSDO$FFRXQWDQW)HHVDQG6HUYLFHV 7KHLQIRUPDWLRQUHTXLUHGE\WKLV,WHPLVLQFRUSRUDWHGKHUHLQE\UHIHUHQFHWRWKHGHILQLWLYH3UR[\6WDWHPHQWWR EHILOHGSXUVXDQWWR5HJXODWLRQ$RIWKH([FKDQJH$FWIRURXU$QQXDO0HHWLQJRI6WRFNKROGHUV

 3$57,9

,WHP([KLELWVDQG)LQDQFLDO6WDWHPHQW6FKHGXOHV D )LQDQFLDO6WDWHPHQWVDQG)LQDQFLDO6WDWHPHQW6FKHGXOHV  &RQVROLGDWHG)LQDQFLDO6WDWHPHQWVDUHOLVWHGLQWKH,QGH[WR&RQVROLGDWHG)LQDQFLDO6WDWHPHQWVRQSDJH) RIWKLVUHSRUW

 )LQDQFLDO 6WDWHPHQW 6FKHGXOHV 6FKHGXOH,,² 9DOXDWLRQ DQG 4XDOLI\LQJ $FFRXQWV IRU WKH \HDUV HQGHG $SULODQGLVVHWIRUWKRQSDJH)RIWKLVUHSRUW

E ([KLELWV  ([KLELW 1XPEHU ([KLELW

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±WKHLQVWDQFHGRFXPHQWGRHVQRWDSSHDULQWKH,QWHUDFWLYH'DWD)LOH EHFDXVH;%5/WDJVDUHHPEHGGHGZLWKLQWKH,QOLQH;%5/GRFXPHQW 6&+ ,QOLQH;%5/7D[RQRP\([WHQVLRQ6FKHPD'RFXPHQW &$/ ,QOLQH;%5/7D[RQRP\([WHQVLRQ&DOFXODWLRQ/LQNEDVH'RFXPHQW '() ,QOLQH;%5/7D[RQRP\([WHQVLRQ'HILQLWLRQ/LQNEDVH'RFXPHQW /$% ,QOLQH;%5/7D[RQRP\([WHQVLRQ/DEHO/LQNEDVH'RFXPHQW 35( ,QOLQH;%5/7D[RQRP\([WHQVLRQ3UHVHQWDWLRQ/LQNEDVH'RFXPHQW  &RYHU3DJH,QWHUDFWLYH'DWD)LOH HPEHGGHGZLWKLQWKH,QOLQH;%5/GRFXPHQW

0DQDJHPHQWFRQWUDFWRUFRPSHQVDWRU\DUUDQJHPHQW $Q DSSOLFDWLRQ KDV EHHQ VXEPLWWHG WR WKH 6HFXULWLHV DQG ([FKDQJH &RPPLVVLRQ IRU FRQILGHQWLDO WUHDWPHQW SXUVXDQWWR5XOHERIWKH6HFXULWLHV([FKDQJH$FWRIRISRUWLRQVRIWKLVH[KLELW7KHVHSRUWLRQV KDYHEHHQRPLWWHGIURPWKLVH[KLELW  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ1RYHPEHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ-XO\  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ-XO\  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ-XQH  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ$SULO  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ$SULO  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ2FWREHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ6HSWHPEHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V3UR[\6WDWHPHQWRQ6FKHGXOH$ILOHGZLWKWKH6(&RQ$XJXVW   ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP4ILOHGZLWKWKH6(&RQ0DUFK  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ-XQH  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP4ILOHGZLWKWKH6(&RQ'HFHPEHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ-XQH

  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ-XQH  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ'HFHPEHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP6ILOHGZLWKWKH6(&RQ'HFHPEHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ-XQH  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ-XQH  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ2FWREHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ1RYHPEHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ2FWREHU  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ)HEUXDU\  ,QFRUSRUDWHGE\UHIHUHQFHWRWKH5HJLVWUDQW¶V)RUP.ILOHGZLWKWKH6(&RQ$SULO

 6,*1$785(6 3XUVXDQWWRWKHUHTXLUHPHQWVRI6HFWLRQRU G RIWKH6HFXULWLHV([FKDQJH$FWRIWKHUHJLVWUDQWKDV GXO\FDXVHGWKLVUHSRUWWREHVLJQHGRQLWVEHKDOIE\WKHXQGHUVLJQHGWKHUHXQWRGXO\DXWKRUL]HG 60,7+ :(6621%5$1'6,1& /s/ Mark P. Smith 0DUN36PLWK Co-President and Co-Chief Executive Officer

/s/ Brian D. Murphy %ULDQ'0XUSK\ Co-President and Co-Chief Executive Officer 'DWH-XQH

 3XUVXDQWWRWKHUHTXLUHPHQWVRIWKH6HFXULWLHV([FKDQJH$FWRIWKLVUHSRUWKDVEHHQVLJQHGEHORZE\WKH IROORZLQJSHUVRQVRQEHKDOIRIWKHUHJLVWUDQWDQGLQWKHFDSDFLWLHVDQGRQWKHGDWHLQGLFDWHG  6LJQDWXUH &DSDFLW\ 'DWH

/s/ Mark P. Smith &R3UHVLGHQWDQG&R&KLHI([HFXWLYH2IILFHU &R -XQH 0DUN36PLWK 3ULQFLSDO([HFXWLYH2IILFHUV  

/s/ Brian D. Murphy &R3UHVLGHQWDQG&R&KLHI([HFXWLYH2IILFHU &R -XQH %ULDQ'0XUSK\  3ULQFLSDO([HFXWLYH2IILFHUV 

/s/ Jeffrey D. Buchanan ([HFXWLYH9LFH3UHVLGHQW&KLHI)LQDQFLDO -XQH -HIIUH\'%XFKDQDQ 2IILFHU&KLHI$GPLQLVWUDWLYH2IILFHUDQG7UHDVXUHU  3ULQFLSDO)LQDQFLDO2IILFHU 

/s/ Deana L. McPherson 9LFH3UHVLGHQW&KLHI$FFRXQWLQJ2IILFHU&RUSRUDWH -XQH 'HDQD/0F3KHUVRQ &RQWUROOHUDQG$VVLVWDQW7UHDVXUHU 3ULQFLSDO  $FFRXQWLQJ2IILFHU 

/s/ Barry M. Monheit &KDLUPDQRIWKH%RDUG -XQH %DUU\00RQKHLW  

/s/ Robert L. Scott 9LFH&KDLUPDQRIWKH%RDUG -XQH 5REHUW/6FRWW  

/s/ Anita D. Britt 'LUHFWRU -XQH $QLWD'%ULWW  

/s/ John B. Furman 'LUHFWRU -XQH -RKQ%)XUPDQ  

/s/ Gregory J. Gluchowski, Jr. 'LUHFWRU -XQH *UHJRU\-*OXFKRZVNL-U  

/s/ Michael F. Golden 'LUHFWRU -XQH 0LFKDHO)*ROGHQ  

/s/ Mitchell A. Saltz 'LUHFWRU -XQH 0LWFKHOO$6DOW]  

/s/ I. Marie Wadecki 'LUHFWRU -XQH ,0DULH:DGHFNL  



,1'(;72&2162/,'$7('),1$1&,$/67$7(0(176 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6  3DJH 5HSRUWRI,QGHSHQGHQW5HJLVWHUHG3XEOLF$FFRXQWLQJ)LUP ) &RQVROLGDWHG%DODQFH6KHHWVDVRI$SULODQG ) &RQVROLGDWHG6WDWHPHQWVRI /RVV ,QFRPHDQG&RPSUHKHQVLYH /RVV ,QFRPHIRUWKH\HDUVHQGHG $SULODQG ) &RQVROLGDWHG6WDWHPHQWVRI&KDQJHVLQ6WRFNKROGHUV¶(TXLW\IRUWKH\HDUVHQGHG$SULO DQG ) &RQVROLGDWHG6WDWHPHQWVRI&DVK)ORZVIRUWKH\HDUVHQGHG$SULODQG ) 1RWHVWR&RQVROLGDWHG)LQDQFLDO6WDWHPHQWV ) 6FKHGXOH,,²9DOXDWLRQDQG4XDOLI\LQJ$FFRXQWVIRUWKH\HDUVHQGHG$SULODQG )

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nternal Control — Integrated Framework (2013)LVVXHGE\WKH&RPPLWWHHRI6SRQVRULQJ2UJDQL]DWLRQVRI WKH7UHDGZD\&RPPLVVLRQDQGRXUUHSRUWGDWHG-XQHH[SUHVVHGDQDGYHUVHRSLQLRQRQWKH&RPSDQ\ VLQWHUQDO FRQWURORYHUILQDQFLDOUHSRUWLQJEHFDXVHRIDPDWHULDOZHDNQHVV &KDQJHLQ$FFRXQWLQJ3ULQFLSOH $VGLVFXVVHGLQ1RWHWRWKHILQDQFLDOVWDWHPHQWVWKH&RPSDQ\KDVFKDQJHGLWVPHWKRGRIDFFRXQWLQJIRUOHDVHVLQILVFDO \HDUGXHWRDGRSWLRQRI$68Leases (Topic 842) %DVLVIRU2SLQLRQ 7KHVH ILQDQFLDO VWDWHPHQWV DUH WKH UHVSRQVLELOLW\ RI WKH &RPSDQ\ V PDQDJHPHQW 2XU UHVSRQVLELOLW\ LV WR H[SUHVV DQ RSLQLRQRQWKH&RPSDQ\ VILQDQFLDOVWDWHPHQWVEDVHGRQRXUDXGLWV:HDUHDSXEOLFDFFRXQWLQJILUPUHJLVWHUHGZLWKWKH 3&$2%DQGDUHUHTXLUHGWREHLQGHSHQGHQWZLWKUHVSHFWWRWKH&RPSDQ\LQDFFRUGDQFHZLWKWKH86IHGHUDOVHFXULWLHV ODZVDQGWKHDSSOLFDEOHUXOHVDQGUHJXODWLRQVRIWKH6HFXULWLHVDQG([FKDQJH&RPPLVVLRQDQGWKH3&$2%

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oodwill — Outdoor Products & Accessories Reporting Unit — Refer to Notes 3 and 6 of the financial statements

Critical Audit Matter Description

7KH &RPSDQ\¶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¶VGHFLVLRQWRKDOWRUGHOD\PRVWQRQHVVHQWLDO SURGXFWRUGHUV&29,'UHODWHGVXSSO\FKDLQLVVXHVDVZHOODV&29,'UHODWHG³VWD\DWKRPH´RUGHUVDQGVSRUWLQJ JRRGV VWRUH FORVXUHV ZKLFK UHGXFHG UHWDLO IRRW WUDIILF LQ PDQ\ VWDWHV $V D UHVXOW WKH &RPSDQ\ SHUIRUPHG D JRRGZLOO

) LPSDLUPHQW DQDO\VLV ZLWK UHGXFHG IRUHFDVWHG FDVK IORZV LQ ZKLFK WKH\ GHWHUPLQHG WKDW WKH 2XWGRRU 3URGXFWV  $FFHVVRULHV UHSRUWLQJ XQLW¶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¶VHVWLPDWHVDQG DVVXPSWLRQVUHODWHGWRVHOHFWLRQRIWKHFRPSDQ\VSHFLILFULVNSUHPLXP ³&653´ LQFOXGHGZLWKLQWKHGLVFRXQWUDWHDVZHOO DVIRUHFDVWVRIIXWXUHFDVKIORZVUHTXLUHGDKLJKGHJUHHRIDXGLWRUMXGJPHQWDQGDQLQFUHDVHGH[WHQWRIHIIRUWLQFOXGLQJWKH QHHGWRLQYROYHRXUIDLUYDOXHVSHFLDOLVWV

How the Critical Audit Matter Was Addressed in the Audit 2XUDXGLWSURFHGXUHVUHODWHGWRWKH&653LQFOXGHGZLWKLQWKHGLVFRXQWUDWHDQGIRUHFDVWVRIIXWXUHFDVKIORZVXVHGE\ PDQDJHPHQW WR HVWLPDWH WKH IDLU YDOXH RI WKH 2XWGRRU 3URGXFWV  $FFHVVRULHV UHSRUWLQJ XQLW LQFOXGHG WKH IROORZLQJ DPRQJRWKHUV • :H WHVWHG WKH HIIHFWLYHQHVV RI FRQWUROV RYHU WKH GHWHUPLQDWLRQ RI WKH IDLU YDOXH RI WKH 2XWGRRU 3URGXFWV  $FFHVVRULHVUHSRUWLQJXQLWVXFKDVFRQWUROVUHODWHGWRPDQDJHPHQW¶VVHOHFWLRQRIWKHGLVFRXQWUDWHDQGIRUHFDVWV RIIXWXUHFDVKIORZV

• :HHYDOXDWHGPDQDJHPHQW¶VDELOLW\WRDFFXUDWHO\IRUHFDVWIXWXUHFDVKIORZVE\SHUIRUPLQJDUHWURVSHFWLYHUHYLHZ RIFXUUHQW\HDUUHYHQXHDQGHDUQLQJVEHIRUHLQWHUHVWWD[HVGHSUHFLDWLRQDQGDPRUWL]DWLRQ ³(%,7'$´ UHVXOWVDV FRPSDUHGWRPDQDJHPHQW¶VKLVWRULFDOIRUHFDVWVRIWKHFXUUHQW\HDU

• :HHYDOXDWHGWKHUHDVRQDEOHQHVVRIPDQDJHPHQW¶VIRUHFDVWHGFDVKIORZVE\FRPSDULQJWKHIRUHFDVWVWR • +LVWRULFDOUHYHQXHVJURVVPDUJLQH[SHQVHUDWLRDQG(%,7'$ • ,QWHUQDOFRPPXQLFDWLRQVWRPDQDJHPHQWDQGWKH%RDUGRI'LUHFWRUV • 3URMHFWHG JURZWK UDWHV LQFOXGHG ZLWKLQ UHOHYDQW LQGXVWU\ UHSRUWV IRU LQGXVWULHV LQ ZKLFK WKH 2XWGRRU 3URGXFWV $FFHVVRULHVUHSRUWLQJXQLWRSHUDWHV

• 3HUIRUPHG D VHQVLWLYLW\ DQDO\VLV RYHU WKH LPSDLUPHQW FKDUJH LQFOXGLQJ GHYHORSLQJ LQGHSHQGHQW HVWLPDWHV RI SURMHFWHGFDVKIORZVEDVHGRQYDULRXVVFHQDULRVLPSDFWLQJUHYHQXHVJURVVPDUJLQDQGH[SHQVHUDWLR  • :HHYDOXDWHGWKHLPSDFWRIFKDQJHVLQPDQDJHPHQW¶VIRUHFDVWVIURPWKHPHDVXUHPHQWGDWHWR$SULO

• :LWK WKH DVVLVWDQFH RI RXU IDLU YDOXH VSHFLDOLVWV ZH HYDOXDWHG WKH UHDVRQDEOHQHVV RI WKH   YDOXDWLRQ PHWKRGRORJ\DQG  &653LQFOXGHGZLWKLQWKHGLVFRXQWUDWHDQG • 7HVWHGWKHVRXUFHLQIRUPDWLRQXQGHUO\LQJWKHGHWHUPLQDWLRQRIWKHGLVFRXQWUDWHDQGWKHPDWKHPDWLFDO DFFXUDF\RIWKHFDOFXODWLRQ • 'HYHORSHG D UDQJH RI LQGHSHQGHQW HVWLPDWHV DQG FRPSDULQJ WKRVH WR WKH GLVFRXQW UDWH VHOHFWHG E\ PDQDJHPHQW • 3HUIRUPHGDVHQVLWLYLW\DQDO\VLVRYHUWKHVHOHFWHG&653E\DSSO\LQJDGLVFRXQWUDWHWKDWGLGQRWLQFOXGH D&653WRWKHSURMHFWHGFDVKIORZVDQGVROYLQJIRUUHYHQXHJURZWKDQG(%,7'$PDUJLQVWKDWZRXOG UHVXOW LQ WKH VDPH IDLU YDOXH DV ZLWKLQ WKH &RPSDQ\¶V GLVFRXQWHG FDVK IORZ PRGHO 7KH UHVXOWLQJ UHYHQXH JURZWK DQG (%,7'$ PDUJLQV ZHUH FRPSDUHG WR KLVWRULFDO UHVXOWV DQG LQGXVWU\ JURZWK IRUHFDVWHGJURZWKUDWHVWRHYDOXDWHWKHVXIILFLHQF\RIWKHVHOHFWHG&653 • &RPSDUHGWKHFKDQJHLQWKHIDLUYDOXHRIHTXLW\RIWKH2XWGRRU3URGXFWV $FFHVVRULHVUHSRUWLQJXQLW IURP )HEUXDU\   ZKLFK LV WKH HVWLPDWH GDWH LQ WKH SULRU \HDU¶V DQDO\VLV WKURXJK WKH FXUUHQW HVWLPDWHGDWHRI0DUFKWRWKHFKDQJHLQJXLGHOLQHSXEOLFFRPSDQ\PDUNHWFDSLWDOL]DWLRQV

V'HORLWWH 7RXFKH//3

%RVWRQ0DVVDFKXVHWWV -XQH

:HKDYHVHUYHGDVWKH&RPSDQ\ VDXGLWRUVLQFH

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 &2162/,'$7('%$/$1&(6+((76    $VRI    $SULO   $SULO    ,Q WKRXVDQGVH[FHSWSDUYDOXHDQGVKDUHGDWD  $66(76 

&XUUHQWDVVHWV     

&DVKDQGFDVKHTXLYDOHQWV      $FFRXQWVUHFHLYDEOHQHWRIDOORZDQFHIRUGRXEWIXODFFRXQWVRIRQ

$SULODQGRQ$SULO     

,QYHQWRULHV     

3UHSDLGH[SHQVHVDQGRWKHUFXUUHQWDVVHWV     

'HIHUUHGLQFRPHWD[HV     ²

,QFRPHWD[UHFHLYDEOH     

7RWDOFXUUHQWDVVHWV     

3URSHUW\SODQWDQGHTXLSPHQWQHW     

,QWDQJLEOHVQHW     

*RRGZLOO     

2WKHUDVVHWV     

      /,$%,/,7,(6$1'672&.+2/'(56¶(48,7< 

&XUUHQWOLDELOLWLHV     

$FFRXQWVSD\DEOH     

$FFUXHGH[SHQVHVDQGGHIHUUHGUHYHQXH     

$FFUXHGSD\UROODQGLQFHQWLYHV     

$FFUXHGLQFRPHWD[HV     

$FFUXHGSURILWVKDULQJ     

$FFUXHGZDUUDQW\     

&XUUHQWSRUWLRQRIQRWHVDQGORDQVSD\DEOH  ²   

7RWDOFXUUHQWOLDELOLWLHV     

'HIHUUHGLQFRPHWD[HV  ²   

1RWHVDQGORDQVSD\DEOHQHWRIFXUUHQWSRUWLRQ     

)LQDQFHOHDVHSD\DEOHQHWRIFXUUHQWSRUWLRQ      2WKHUQRQFXUUHQWOLDELOLWLHV    

7RWDOOLDELOLWLHV     

&RPPLWPHQWVDQGFRQWLQJHQFLHV 1RWH     

6WRFNKROGHUV¶HTXLW\      3UHIHUUHGVWRFNSDUYDOXHVKDUHVDXWKRUL]HGQRVKDUHV

LVVXHGRURXWVWDQGLQJ  ²   ² &RPPRQVWRFNSDUYDOXHVKDUHVDXWKRUL]HG LVVXHGDQGVKDUHVRXWVWDQGLQJRQ$SULO DQGVKDUHVLVVXHGDQGVKDUHVRXWVWDQGLQJRQ

$SULO     

$GGLWLRQDOSDLGLQFDSLWDO     

5HWDLQHGHDUQLQJV     

$FFXPXODWHGRWKHUFRPSUHKHQVLYHLQFRPH      7UHDVXU\VWRFNDWFRVW VKDUHVRQ$SULODQG

$SULO     

7RWDOVWRFNKROGHUV¶HTXLW\     

       7KHDFFRPSDQ\LQJQRWHVDUHDQLQWHJUDOSDUWRIWKHVHFRQVROLGDWHGILQDQFLDOVWDWHPHQWV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 &2162/,'$7('67$7(0(1762) /266 ,1&20($1'&2035(+(16,9( /266 ,1&20(    )RUWKH

'LOXWHG            7KHDFFRPSDQ\LQJQRWHVDUHDQLQWHJUDOSDUWRIWKHVHFRQVROLGDWHGILQDQFLDOVWDWHPHQWV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 &2162/,'$7('67$7(0(1762)&+$1*(6,1672&.+2/'(56¶(48,7<              $FFXPXODWHG            &RPPRQ   $GGLWLRQDO     2WKHU        7RWDO    6WRFN   3DLG,Q   5HWDLQHG   &RPSUHKHQVLYH  7UHDVXU\6WRFN   6WRFNKROGHUV¶ ,QWKRXVDQGV  6KDUHV   $PRXQW   &DSLWDO   (DUQLQJV   /RVV ,QFRPH   6KDUHV   $PRXQW   (TXLW\  %DODQFHDW$SULO                3URFHHGVIURPH[HUFLVHRI HPSOR\HHVWRFNRSWLRQV     ²    ²  ²  ²  ²   6WRFNEDVHGFRPSHQVDWLRQ   ²  ²    ²  ²  ²  ²   6KDUHVLVVXHGXQGHUHPSOR\HHVWRFN SXUFKDVHSODQ     ²    ²  ²  ²  ²   &KDQJHLQXQUHDOL]HGLQFRPHRQ LQWHUHVWUDWHVZDSQHWRIWD[HIIHFW  ²  ² ²  ²    ² ²   5HFODVVLILFDWLRQGXHWR867D[5HIRUP  ²  ² ²      ² ²  ² ,VVXDQFHRIFRPPRQVWRFNXQGHUUHVWULFWHG VWRFNXQLWDZDUGVQHWRIVKDUHVVXUUHQGHUHG     ²    ²  ²  ²  ²   1HWLQFRPH   ²  ² ²    ²  ²  ²   %DODQFHDW$SULO                3URFHHGVIURPH[HUFLVHRI HPSOR\HHVWRFNRSWLRQV     ²    ²  ²  ²  ²   6WRFNEDVHGFRPSHQVDWLRQ   ²  ²    ²  ²  ²  ²   6KDUHVLVVXHGXQGHUHPSOR\HHVWRFN SXUFKDVHSODQ     ²    ²  ²  ²  ²   &KDQJHLQXQUHDOL]HGORVVRQ LQWHUHVWUDWHVZDSQHWRIWD[HIIHFW  ² ² ²  ²    ² ²   ,PSDFWRIDGRSWLRQRIDFFRXQWLQJ VWDQGDUGXSGDWHV  ² ² ²    ²  ² ²   ,VVXDQFHRIFRPPRQVWRFNXQGHUUHVWULFWHG VWRFNXQLWDZDUGVQHWRIVKDUHVVXUUHQGHUHG         ²  ²  ²  ²   1HWLQFRPH   ²  ² ²    ²  ²  ²   %DODQFHDW$SULO               3URFHHGVIURPH[HUFLVHRI HPSOR\HHVWRFNRSWLRQV     ²    ²  ²  ²  ²   6WRFNEDVHGFRPSHQVDWLRQ   ²  ²    ²  ²  ²  ²   6KDUHVLVVXHGXQGHUHPSOR\HHVWRFN SXUFKDVHSODQ     ²    ²  ²  ²  ²   &KDQJHLQXQUHDOL]HGORVVRQ LQWHUHVWUDWHVZDSQHWRIWD[HIIHFW  ² ² ²  ²    ² ²   ,VVXDQFHRIFRPPRQVWRFNXQGHUUHVWULFWHG VWRFNXQLWDZDUGVQHWRIVKDUHVVXUUHQGHUHG         ²  ²  ²  ²   1HWORVV   ²  ² ²    ²  ²  ²  

%DODQFHDW$SULO               

7KHDFFRPSDQ\LQJQRWHVDUHDQLQWHJUDOSDUWRIWKHVHFRQVROLGDWHGILQDQFLDOVWDWHPHQWV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 &2162/,'$7('67$7(0(1762)&$6+)/2:6

  )RUWKH

,QFRPHWD[HV         

7KHDFFRPSDQ\LQJQRWHVDUHDQLQWHJUDOSDUWRIWKHVHFRQVROLGDWHGILQDQFLDOVWDWHPHQWV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 &2162/,'$7('67$7(0(1762)&$6+)/2:6 &RQWLQXHG

6XSSOHPHQWDO'LVFORVXUHRI1RQFDVK,QYHVWLQJDQG)LQDQFLQJ$FWLYLWLHV

  )RUWKH

&KDQJHVLQOHDVHOLDELOLWLHVIRURSHUDWLQJOHDVHREOLJDWLRQV    ²  ² 

7KHDFFRPSDQ\LQJQRWHVDUHDQLQWHJUDOSDUWRIWKHVHFRQVROLGDWHGILQDQFLDOVWDWHPHQW

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176

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³6:%,´DQG$287KDVDSSOLHGWRKDYHLWVVKDUHVRI FRPPRQVWRFNOLVWHGRQWKH1DVGDT*OREDO0DUNHWXQGHUWKHWLFNHUV\PERO³$287´7KH6HSDUDWLRQLVVXEMHFWWR WKH VDWLVIDFWLRQ RU ZDLYHU RI FHUWDLQ FRQGLWLRQV DQG ZH FDQQRW SURYLGH DQ\ DVVXUDQFH WKDW ZH ZLOO FRPSOHWH WKH 6HSDUDWLRQ

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

$FTXLVLWLRQV LaserLyte Acquisition ,Q-DQXDU\ZHDFTXLUHGVXEVWDQWLDOO\DOORIWKH/DVHU/\WHEUDQGHGSURGXFWVDQGRWKHUDVVHWVIURP3 / ,QGXVWULHV,QFIRUDSXUFKDVHSULFHRIPLOOLRQVXEMHFWWRFHUWDLQDGMXVWPHQWVXWLOL]LQJFDVKRQKDQG3 / ,QGXVWULHV ZDV D SURYLGHU RI ODVHU WUDLQLQJ DQG VLJKWLQJ SURGXFWV IRU WKH FRQVXPHU PDUNHW 7KH RSHUDWLRQV RI /DVHU/\WH ZHUH IXOO\ LQWHJUDWHG LQWR RXU IDFLOLW\ ORFDWHG LQ :LOVRQYLOOH 2UHJRQ DQG UHSRUWHG LQ RXU 2XWGRRU 3URGXFWV $FFHVVRULHVVHJPHQW7KLVDFTXLVLWLRQGLGQRWKDYHDPDWHULDOLPSDFWRQRXUFRQGHQVHGFRQVROLGDWHG ILQDQFLDO VWDWHPHQWV IRU DOO SHULRGV SUHVHQWHG ,QFOXGHG LQ JHQHUDO DQG DGPLQLVWUDWLYH FRVWV DUH  RI DFTXLVLWLRQUHODWHGFRVWVLQFXUUHGIRUWKH/DVHU/\WH$FTXLVLWLRQGXULQJWKH\HDUHQGHG$SULO

3URIRUPDUHVXOWVRIRSHUDWLRQVDVVXPLQJWKDWWKH/DVHU/\WH$FTXLVLWLRQVKDGRFFXUUHGDVRI0D\DUH QRWUHTXLUHGEHFDXVHRIWKHLPPDWHULDOLPSDFWRQRXUFRQVROLGDWHGILQDQFLDOVWDWHPHQWVIRUDOOSHULRGVSUHVHQWHG

2018 Acquisitions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²Business Combinations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

6LJQLILFDQW$FFRXQWLQJ3ROLFLHV Use of Estimates²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

Principles of Consolidation²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¶ HTXLW\ DQG FDVK IORZV DW $SULO  DQG  DQG IRU WKH SHULRGV SUHVHQWHG KDYH EHHQ LQFOXGHG $OO LQWHUFRPSDQ\ DFFRXQWV DQG WUDQVDFWLRQVKDYHEHHQHOLPLQDWHGLQFRQVROLGDWLRQ

Fair Value of Financial Instruments²8QOHVVRWKHUZLVHLQGLFDWHGWKHIDLUYDOXHVRIDOOUHSRUWHGDVVHWVDQG OLDELOLWLHVZKLFKUHSUHVHQWILQDQFLDOLQVWUXPHQWVQRWKHOGIRUWUDGLQJSXUSRVHVDSSUR[LPDWHWKHFDUU\LQJYDOXHVRI VXFKDPRXQWVEHFDXVHRIWKHLUVKRUWWHUPQDWXUHRUPDUNHWUDWHVRILQWHUHVW

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

Cash and Cash Equivalents²:HFRQVLGHUDOOKLJKO\OLTXLGLQYHVWPHQWVSXUFKDVHGZLWKRULJLQDOPDWXULWLHVRI WKUHHPRQWKVRUOHVVDWWKHGDWHRIDFTXLVLWLRQWREHFDVKHTXLYDOHQWV:HPDLQWDLQRXUFDVKLQEDQNGHSRVLWDFFRXQWV WKDW DW WLPHV PD\ H[FHHG IHGHUDOO\ LQVXUHG OLPLWV :H KDYH QRW H[SHULHQFHG DQ\ ORVVHV LQ VXFK DFFRXQWV $V RI $SULODOORIRXUDFFRXQWVH[FHHGHGIHGHUDOO\LQVXUHGOLPLWV

Financial Instruments ² :H DFFRXQW IRU GHULYDWLYH LQVWUXPHQWV XQGHU $FFRXQWLQJ 6WDQGDUGV &RGLILFDWLRQ ³$6&´   Fair Value Measurements and Disclosure Topic ZKLFK HVWDEOLVKHV DFFRXQWLQJ DQG UHSRUWLQJ VWDQGDUGVIRUGHULYDWLYHLQVWUXPHQWVDQGKHGJLQJDFWLYLWLHVDQGUHTXLUHVXVWRUHFRJQL]HWKHVHLQVWUXPHQWVDVHLWKHU DVVHWVRUOLDELOLWLHVRQWKHEDODQFHVKHHWDQGPHDVXUHWKHPDWIDLUYDOXH$VRI$SULOZHGLGQRWKDYHDQ\ /HYHO  ILQDQFLDO LQVWUXPHQWV ZLWKLQ WKH KLHUDUFK\ 6HH 1RWH  ± Notes and Loans Payable and Financing ArrangementsIRUPRUHLQIRUPDWLRQUHJDUGLQJRXUILQDQFLDOLQVWUXPHQWV

Trade Receivables² :H H[WHQG FUHGLW WR RXU GRPHVWLF FXVWRPHUV DQG VRPH IRUHLJQ GLVWULEXWRUV EDVHG RQ WKHLU ILQDQFLDO FRQGLWLRQ :H VRPHWLPHV RIIHU GLVFRXQWV IRU HDUO\ SD\PHQW RQ LQYRLFHV :KHQ ZH EHOLHYH WKH H[WHQVLRQ RI FUHGLW LV QRW DGYLVDEOH ZH UHO\ RQ HLWKHU D SUHSD\PHQW RU D OHWWHU RI FUHGLW :H ZULWH RII EDODQFHV GHHPHGXQFROOHFWLEOHE\XVDJDLQVWRXUDOORZDQFHIRUGRXEWIXODFFRXQWV:HHVWLPDWHRXUDOORZDQFHIRUGRXEWIXO DFFRXQWV WKURXJK FXUUHQW SDVW GXH EDODQFHV NQRZOHGJH RI RXU FXVWRPHUV¶ ILQDQFLDO VLWXDWLRQV DQG SDVW SD\PHQW KLVWRU\

Concentrations of Credit Risk²)LQDQFLDOLQVWUXPHQWVWKDWSRWHQWLDOO\VXEMHFWXVWRFRQFHQWUDWLRQRIFUHGLW ULVNFRQVLVWSULQFLSDOO\RIFDVKFDVKHTXLYDOHQWVDQGWUDGHUHFHLYDEOHV:HSODFHRXUFDVKDQGFDVKHTXLYDOHQWVLQ RYHUQLJKW86JRYHUQPHQWVHFXULWLHV&RQFHQWUDWLRQVRIFUHGLWULVNZLWKUHVSHFWWRWUDGHUHFHLYDEOHVDUHOLPLWHGE\ WKH ODUJH QXPEHU RI FXVWRPHUV FRPSULVLQJ RXU FXVWRPHU EDVH DQG WKHLU JHRJUDSKLF DQG EXVLQHVV GLVSHUVLRQ :H SHUIRUPRQJRLQJFUHGLWHYDOXDWLRQVRIRXUFXVWRPHUV¶ILQDQFLDOFRQGLWLRQDQGJHQHUDOO\GRQRWUHTXLUHFROODWHUDO

)RUWKH\HDUHQGHG$SULORQHRIRXUFXVWRPHUVDFFRXQWHGIRUDSSUR[LPDWHO\RIRXUQHWVDOHV EXW GLG QRW H[FHHG  RI RXU DFFRXQWV UHFHLYDEOH 7KUHH RWKHU FXVWRPHUV HDFK KDG JUHDWHU WKDQ  RI RXU DFFRXQWV UHFHLYDEOH DQG FRPELQHG IRU D WRWDO RI  )RU WKH ILVFDO \HDU HQGHG $SULO   QRQH RI RXU FXVWRPHUV H[FHHGHG  RI RXU QHW VDOHV DQG RQH RI RXU FXVWRPHUV DFFRXQWHG IRU DSSUR[LPDWHO\  RI RXU DFFRXQWVUHFHLYDEOH)RUWKHILVFDO\HDUHQGHG$SULORQHRIRXUFXVWRPHUVDFFRXQWHGIRURIRXUQHW VDOHVDQGQRQHRIRXUFXVWRPHUVDFFRXQWHGIRURUPRUHRIRXUDFFRXQWVUHFHLYDEOH

Inventories ² :H YDOXH LQYHQWRULHV DW WKH ORZHU FRVW XVLQJ WKH ILUVWLQ ILUVWRXW RU ),)2 PHWKRG RU QHW UHDOL]DEOHYDOXH$QDOORZDQFHIRUSRWHQWLDOQRQVDOHDEOHLQYHQWRU\GXHWRH[FHVVVWRFNRUREVROHVFHQFHLVEDVHG XSRQDGHWDLOHGUHYLHZRILQYHQWRU\SDVWKLVWRU\DQGH[SHFWHGIXWXUHXVDJH

Property, Plant, and Equipment²:HUHFRUGSURSHUW\SODQWDQGHTXLSPHQWFRQVLVWLQJRIODQGEXLOGLQJ LPSURYHPHQWVPDFKLQHU\HTXLSPHQWVRIWZDUHKDUGZDUHIXUQLWXUHDQGIL[WXUHVDWFRVWDQGGHSUHFLDWHWKHPXVLQJ WKHVWUDLJKWOLQHPHWKRGRYHUWKHLUHVWLPDWHGXVHIXOOLYHV:HFKDUJHH[SHQGLWXUHVIRUPDLQWHQDQFHDQGUHSDLUVWR HDUQLQJV DV LQFXUUHG DQG ZH FDSLWDOL]H DGGLWLRQV UHQHZDOV DQG EHWWHUPHQWV 8SRQ WKH UHWLUHPHQW RU RWKHU GLVSRVLWLRQRISURSHUW\DQGHTXLSPHQWZHUHPRYHWKHUHODWHGFRVWDQGDFFXPXODWHGGHSUHFLDWLRQIURPWKHUHVSHFWLYH DFFRXQWVDQGLQFOXGHDQ\JDLQRUORVVLQRSHUDWLRQV:HOHDVHFHUWDLQRIRXUUHDOHVWDWHPDFKLQHU\SKRWRFRSLHUVDQG YHKLFOHV XQGHU QRQFDQFHODEOH RSHUDWLQJ OHDVH DJUHHPHQWV DQG ZH UHFRJQL]H H[SHQVHV XQGHU RXU RSHUDWLQJ OHDVH DVVHWVDQGOLDELOLWLHVDWWKHFRPPHQFHPHQWGDWHEDVHGRQWKHSUHVHQWYDOXHRIOHDVHSD\PHQWVRYHUWKHOHDVHWHUP 7KHGHSUHFLDEOHOLIHRIDVVHWVDQGOHDVHKROGLPSURYHPHQWVDUHEDVHGRQWKHH[SHFWHGOLIHRIWKHOHDVH$VXPPDU\RI WKHHVWLPDWHGXVHIXOOLYHVLVDVIROORZV  'HVFULSWLRQ 8VHIXO/LIH %XLOGLQJDQGLPSURYHPHQWV WR\HDUV 6RIWZDUHDQGKDUGZDUH WR\HDUV 0DFKLQHU\DQGHTXLSPHQW WR\HDUV

:HLQFOXGHWRROLQJGLHVDQGIL[WXUHVDVSDUWRIPDFKLQHU\DQGHTXLSPHQWDQGGHSUHFLDWHWKHPRYHUDSHULRG JHQHUDOO\QRWH[FHHGLQJWHQ\HDUV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

Intangible Assets² :H UHFRUG LQWDQJLEOH DVVHWV DW FRVW RU EDVHG RQ WKH IDLU YDOXH RI WKH DVVHWV DFTXLUHG ,QWDQJLEOHDVVHWVFRQVLVWRIGHYHORSHGWHFKQRORJ\FXVWRPHUUHODWLRQVKLSVWUDGHPDUNVWUDGHQDPHVDQGSDWHQWV:H DPRUWL]HLQWDQJLEOHDVVHWVRYHUWKHLUHVWLPDWHGXVHIXOOLYHVRULQSURSRUWLRQWRH[SHFWHG\HDUO\UHYHQXHJHQHUDWHG IURPWKHLQWDQJLEOHVWKDWZHUHDFTXLUHG

Revenue Recognition ²:H UHFRJQL]H UHYHQXH LQ DFFRUGDQFH ZLWK WKH SURYLVLRQV RI $FFRXQWLQJ 6WDQGDUGV 8SGDWHRU$68Revenue from Contracts with Customers (Topic 606)ZKLFKEHFDPHHIIHFWLYHIRUXVRQ0D\ *HQHUDOO\DOOSHUIRUPDQFHREOLJDWLRQVDUHVDWLVILHGDQGUHYHQXHLVUHFRJQL]HGZKHQWKHULVNVDQGUHZDUGVRI RZQHUVKLSKDYHWUDQVIHUUHGWRWKHFXVWRPHUZKLFKLVJHQHUDOO\XSRQVKLSPHQWEXWFRXOGEHGHOD\HGXQWLOWKHUHFHLSW RIFXVWRPHUDFFHSWDQFH

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

Segment Information² :H KDYH WZR UHSRUWLQJ VHJPHQWV )LUHDUPV ZKLFK LQFOXGHV RXU )LUHDUPV DQG 0DQXIDFWXULQJ6HUYLFHVGLYLVLRQVDQG2XWGRRU3URGXFWV $FFHVVRULHV6HH1RWH± Segment ReportingIRUPRUH LQIRUPDWLRQUHJDUGLQJRXUVHJPHQWV

Research and Development²:HHQJDJHLQERWKLQWHUQDODQGH[WHUQDOUHVHDUFKDQGGHYHORSPHQWRU5 'LQ RUGHUWRUHPDLQFRPSHWLWLYHDQGWRH[SORLWSRVVLEOHXQWDSSHGPDUNHWRSSRUWXQLWLHV:HDSSURYHSURVSHFWLYH5 ' SURMHFWVDIWHUDQDO\VLVRIWKHFRVWDQGEHQHILWVDVVRFLDWHGZLWKWKHSRWHQWLDOSURGXFW&RVWVLQ5 'H[SHQVHLQFOXGH DPRQJRWKHULWHPVVDODULHVPDWHULDOVXWLOLWLHVDQGDGPLQLVWUDWLYHFRVWV

/RVV Earnings per Share²:HFDOFXODWHEDVLFDQGGLOXWHG ORVV HDUQLQJVSHUFRPPRQVKDUHLQDFFRUGDQFH ZLWK WKH SURYLVLRQV RI $6& Earnings Per Share %DVLF ORVV HDUQLQJV SHU FRPPRQ VKDUH HTXDOV QHW ORVV LQFRPHGLYLGHGE\WKHZHLJKWHGDYHUDJHQXPEHURIFRPPRQVKDUHVRXWVWDQGLQJGXULQJWKHSHULRG'LOXWHG ORVV HDUQLQJV SHU FRPPRQ VKDUH HTXDOV QHW ORVV LQFRPH GLYLGHG E\ WKH ZHLJKWHG DYHUDJH QXPEHU RI FRPPRQ VKDUHV RXWVWDQGLQJ GXULQJ WKH SHULRG LQFOXGLQJ WKH HIIHFW RI RXWVWDQGLQJ VWRFN RSWLRQV DQG RWKHU VWRFNEDVHG LQVWUXPHQWVLIWKHLUHIIHFWLVGLOXWLYH

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

7KHIROORZLQJWDEOHSURYLGHVDUHFRQFLOLDWLRQRIWKHQHW ORVV LQFRPHDPRXQWVDQGZHLJKWHGDYHUDJHQXPEHU RIFRPPRQDQGFRPPRQHTXLYDOHQWVKDUHVXVHGWRGHWHUPLQHEDVLFDQGGLOXWHG ORVV HDUQLQJVSHUFRPPRQVKDUH LQ WKRXVDQGVH[FHSWSHUVKDUHGDWD 

 )RUWKH

%DVLF ORVV HDUQLQJV          

(IIHFWRIGLOXWLYHVWRFNDZDUGV  ²  ² ²  ²      ²  ²

 'LOXWHG ORVV HDUQLQJV          

$OORIRXURXWVWDQGLQJVWRFNRSWLRQVDQGUHVWULFWHGVWRFNXQLWVRU568VZHUHLQFOXGHGLQWKHFRPSXWDWLRQRI GLOXWHGHDUQLQJVSHUVKDUHIRUWKH\HDUVHQGHG$SULODQG

Valuation of Long-lived Tangible and Intangible Assets²:HHYDOXDWHWKHUHFRYHUDELOLW\RIORQJOLYHGDVVHWV RU DVVHW JURXSV ZKHQHYHU HYHQWV RU FKDQJHV LQ FLUFXPVWDQFHV LQGLFDWH WKDW FDUU\LQJ DPRXQWV PD\ QRW EH UHFRYHUDEOH :KHQ VXFK HYDOXDWLRQV LQGLFDWH WKDW WKH UHODWHG IXWXUH XQGLVFRXQWHG FDVK IORZV DUH QRW VXIILFLHQW WR UHFRYHUWKHFDUU\LQJYDOXHVRIWKHDVVHWVVXFKFDUU\LQJYDOXHVDUHUHGXFHGWRIDLUYDOXHDQGWKLVDGMXVWHGFDUU\LQJ YDOXHEHFRPHVWKHDVVHW¶VQHZFRVWEDVLV:HGHWHUPLQHIDLUYDOXHSULPDULO\XVLQJIXWXUHDQWLFLSDWHGFDVKIORZVWKDW DUHGLUHFWO\DVVRFLDWHGZLWKDQGDUHH[SHFWHGWRDULVHDVDGLUHFWUHVXOWRIWKHXVHDQGHYHQWXDOGLVSRVLWLRQRIWKH DVVHWRUDVVHWJURXSGLVFRXQWHGXVLQJDQLQWHUHVWUDWHFRPPHQVXUDWHZLWKWKHULVNLQYROYHG

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• VLJQLILFDQWXQGHUSHUIRUPDQFHUHODWLYHWRKLVWRULFDORUSURMHFWHGIXWXUHRSHUDWLQJUHVXOWV • VLJQLILFDQWFKDQJHVLQWKHPDQQHURUXVHRIWKHDVVHWVRUWKHVWUDWHJ\IRURXURYHUDOOEXVLQHVV • VLJQLILFDQWQHJDWLYHLQGXVWU\RUHFRQRPLFWUHQGV • DVLJQLILFDQWGHFOLQHLQRXUVWRFNSULFHIRUDVXVWDLQHGSHULRGDQG • DGHFOLQHLQRXUPDUNHWFDSLWDOL]DWLRQEHORZQHWERRNYDOXH

)XWXUHDGYHUVHFKDQJHVLQWKHVHRURWKHUXQIRUHVHHDEOHIDFWRUVFRXOGUHVXOWLQDQLPSDLUPHQWFKDUJHWKDWFRXOG PDWHULDOO\LPSDFWIXWXUHUHVXOWVRIRSHUDWLRQVDQGILQDQFLDOSRVLWLRQLQWKHUHSRUWLQJSHULRGLGHQWLILHG

,QDFFRUGDQFHZLWK$6& Intangibles-Goodwill and Other,ZHWHVWJRRGZLOOIRULPSDLUPHQWRQDQDQQXDO EDVLV RQ )HEUXDU\  DQG EHWZHHQ DQQXDO WHVWV LI LQGLFDWRUV RI SRWHQWLDO LPSDLUPHQW H[LVW 7KH LPSDLUPHQW WHVW FRPSDUHVWKHIDLUYDOXHRIWKHRSHUDWLQJXQLWVWRWKHLUFDUU\LQJDPRXQWVWRDVVHVVZKHWKHULPSDLUPHQWLVSUHVHQW:H KDYH UHYLHZHG WKH SURYLVLRQV RI $6&  ZLWK UHVSHFW WR WKH FULWHULD QHFHVVDU\ WR HYDOXDWH WKH QXPEHU RI UHSRUWLQJXQLWVWKDWH[LVW%DVHGRQWKLVUHYLHZZHKDYHWZRRSHUDWLQJXQLWVZKHQUHYLHZLQJ$6&)LUHDUPV DQG2XWGRRU3URGXFWV $FFHVVRULHV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

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¶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

$VRIRXUYDOXDWLRQGDWH)HEUXDU\RXU)LUHDUPVRSHUDWLQJXQLWKDGPLOOLRQRIJRRGZLOODQGLWV IDLUYDOXHVLJQLILFDQWO\H[FHHGHGLWVFDUU\LQJYDOXH2XU2XWGRRU3URGXFWV $FFHVVRULHVRSHUDWLQJXQLWKDG PLOOLRQRIJRRGZLOODQGLWVIDLUYDOXHH[FHHGHGLWVFDUU\LQJYDOXHE\DSSUR[LPDWHO\2Q0DUFKZH GHWHUPLQHGWKDWEXVLQHVVLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWZDVH[SHFWHGWREHQHJDWLYHO\LPSDFWHG E\VHYHUDOIDFWRUVUHODWHGWRWKH&29,'SDQGHPLFLQFOXGLQJDPDMRURQOLQHUHWDLOFXVWRPHU¶VGHFLVLRQWRKDOWRU GHOD\PRVWQRQHVVHQWLDOSURGXFWRUGHUV&29,'UHODWHGVXSSO\FKDLQLVVXHVDVZHOODV&29,'UHODWHG³VWD\ DW KRPH´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

Income Taxes²:HXVHWKHDVVHWDQGOLDELOLW\DSSURDFKIRUILQDQFLDODFFRXQWLQJDQGUHSRUWLQJLQFRPHWD[HV 7KH SURYLVLRQ IRU LQFRPH WD[HV LV EDVHG XSRQ LQFRPH UHSRUWHG LQ WKH DFFRPSDQ\LQJ FRQVROLGDWHG ILQDQFLDO VWDWHPHQWV DV UHTXLUHG E\ $6&  Accounting for Income Taxes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

Warranty²:HJHQHUDOO\SURYLGHDOLPLWHGRQH\HDUZDUUDQW\DQGDOLIHWLPHVHUYLFHSROLF\WRWKHRULJLQDO SXUFKDVHURIRXUQHZILUHDUPSURGXFWV:HHLWKHUSURYLGHDOLPLWHGRQH\HDURUOLPLWHGOLIHWLPHZDUUDQW\SURJUDPWR WKHRULJLQDOSXUFKDVHURIPRVWRIRXURXWGRRUSURGXFWVDQGDFFHVVRULHVSURGXFWVDQGZHZLOOUHSDLURUUHSODFHDQ\RI RXU HOHFWURRSWLFV SURGXFWV RU SDUWV WKDW DUH IRXQG WR EH GHIHFWLYH XQGHU QRUPDO XVH DQG VHUYLFH ZLWK DQ LWHP RI HTXLYDOHQW YDOXH DW RXU RSWLRQ ZLWKRXW FKDUJH GXULQJ WKH ZDUUDQW\ SHULRG  :H SURYLGH IRU HVWLPDWHG ZDUUDQW\ REOLJDWLRQV LQ WKH SHULRG LQ ZKLFK ZH UHFRJQL]H WKH UHODWHG UHYHQXH :H TXDQWLI\ DQG UHFRUG DQ HVWLPDWH IRU ZDUUDQW\UHODWHG FRVWV EDVHG RQ RXU DFWXDO KLVWRULFDO FODLPV H[SHULHQFH DQG FXUUHQW UHSDLU FRVWV :H PDNH DGMXVWPHQWV WR DFFUXDOV DV ZDUUDQW\ FODLPV GDWD DQG KLVWRULFDO H[SHULHQFH ZDUUDQW 6KRXOG ZH H[SHULHQFH DFWXDO FODLPVDQGUHSDLUFRVWVWKDWDUHKLJKHUWKDQWKHHVWLPDWHGFODLPVDQGUHSDLUFRVWVXVHGWRFDOFXODWHWKHSURYLVLRQRXU RSHUDWLQJUHVXOWVIRUWKHSHULRGRUSHULRGVLQZKLFKVXFKUHWXUQVRUDGGLWLRQDOFRVWVPDWHULDOL]HZRXOGEHDGYHUVHO\ LPSDFWHG

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

)URPWLPHWRWLPHZHKDYHH[SHULHQFHGFHUWDLQPDQXIDFWXULQJDQGGHVLJQLVVXHVZLWKUHVSHFWWRVRPHRIRXU ILUHDUPVDQGKDYHLQLWLDWHGVRPHSURGXFWUHFDOOVDQGVDIHW\DOHUWVLQWKHSDVW

,Q1RYHPEHUZHLQLWLDWHGDUHFDOORIDOO7KRPSVRQ&HQWHU$UPV9HQWXUHULIOHVPDQXIDFWXUHGVLQFHWKH SURGXFWV¶LQWURGXFWLRQLQPLG,Q-XQHZHDOVRLQLWLDWHGDUHFDOORIDOO7KRPSVRQ&HQWHU$UPVEROWDFWLRQ ULIOHVPDQXIDFWXUHGVLQFHWKHSURGXFWV¶LQWURGXFWLRQLQ,Q$SULOZHLQLWLDWHGDFRQVXPHUDGYLVRU\IRU FHUWDLQPRGHOVRIRXU0 36KLHOG(=SLVWROVEHFDXVHLQUDUHFLUFXPVWDQFHVWKHVDIHW\RQWKHSLVWROZLOOPRYHIURP WKHILUHSRVLWLRQWRWKH³VDIHW\RQ´SRVLWLRQZKHQXVLQJDPPXQLWLRQWKDWSURGXFHVDKLJKOHYHORIIHOWUHFRLO,Q0D\ ZHLQLWLDWHGDUHFDOORIFHUWDLQPRGHOVRIRXUHOHFWURRSWLFVSURGXFWVWKDWLQFRUSRUDWHGGLRGHVPDQXIDFWXUHGE\ DSDUWLFXODUWKLUGSDUW\EHFDXVHWKHGLRGHVIDLOHGWRFRPSO\ZLWKD)RRGDQG'UXJ$GPLQLVWUDWLRQRU)'$VWDQGDUG IRUODVHUSURGXFWV:HKDYHPDGHHIIRUWVWRQRWLI\DOOFRQVXPHUVWKDWPD\EHLPSDFWHGE\WKLVUHFDOO7KHUHPDLQLQJ FRVWRIDOOUHFDOOVVDIHW\DOHUWVDQGFRQVXPHUDGYLVRULHVLVZKLFKLVUHFRUGHGLQDFFUXHGZDUUDQW\RQRXU FRQVROLGDWHGEDODQFHVKHHW

:DUUDQW\H[SHQVHIRUWKHILVFDO\HDUVHQGHG$SULODQGDPRXQWHGWRPLOOLRQ PLOOLRQDQGPLOOLRQUHVSHFWLYHO\

7KH IROORZLQJ WDEOH VHWV IRUWK WKH FKDQJH LQ DFFUXHG ZDUUDQWLHV D SRUWLRQ RI ZKLFK LV UHFRUGHG DV D QRQ FXUUHQWOLDELOLW\LQWKHILVFDO\HDUVHQGHG$SULODQG LQWKRXVDQGV 

     %DODQFHDVRI$SULO    :DUUDQWLHVLVVXHGDQGDGMXVWPHQWVWRSURYLVLRQV    :DUUDQW\FODLPV    %DODQFHDVRI$SULO    :DUUDQWLHVLVVXHGDQGDGMXVWPHQWVWRSURYLVLRQV    :DUUDQW\FODLPV   

%DODQFHDVRI$SULO    

Sales and Promotional Related Expenses²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

Shipping and Handling²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

Insurance Reserves² ,Q -DQXDU\  ZH IRUPHG D ZKROO\ RZQHG FDSWLYH LQVXUDQFH FRPSDQ\ ZKLFK SURYLGHVSURGXFWOLDELOLW\LQVXUDQFHWRXVDQGRXUVXEVLGLDULHV7KLVFDSWLYHLQVXUDQFHFRPSDQ\ZDVUHFRUGHGLQRXU FRQVROLGDWHGILQDQFLDOVWDWHPHQWVIRUWKHILVFDO\HDUHQGHG$SULO:HDUHVHOILQVXUHGWKURXJKUHWHQWLRQVRU GHGXFWLEOHVIRUWKHPDMRULW\RIRXUZRUNHUV¶FRPSHQVDWLRQDXWRPRELOHJHQHUDOOLDELOLW\SURGXFWOLDELOLW\DQGJURXS KHDOWKLQVXUDQFHSURJUDPV6HOILQVXUDQFHDPRXQWVYDU\XSWRPLOOLRQSHURFFXUUHQFHKRZHYHUZHEHOLHYH WKH OLNHOLKRRG RI UHDFKLQJ WKH PD[LPXP SHU RFFXUUHQFH OLPLW LV UHPRWH :H UHFRUG RXU OLDELOLW\ IRU HVWLPDWHG SUHPLXPVDQGLQFXUUHGORVVHVLQWKHDFFRPSDQ\LQJFRQVROLGDWHGILQDQFLDOVWDWHPHQWVRQDQXQGLVFRXQWHGEDVLV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

Recently Issued Accounting Standards²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² /HDVHV IRU PRUH LQIRUPDWLRQ

,Q -XQH  WKH )$6% LVVXHG $68  )LQDQFLDO ,QVWUXPHQWV ² Credit Losses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

/HDVHV :H OHDVH FHUWDLQ RI RXU UHDO HVWDWH PDFKLQHU\ SKRWRFRSLHUV DQG YHKLFOHV XQGHU QRQFDQFHODEOH RSHUDWLQJ OHDVHDJUHHPHQWV

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

0DQ\RIRXUOHDVHVLQFOXGHUHQHZDORSWLRQVWKDWFDQH[WHQGWKHOHDVHWHUP7KHH[HFXWLRQRIWKRVHUHQHZDO RSWLRQVLVDWRXUVROHGLVFUHWLRQDQGDUHUHIOHFWHGLQWKHOHDVHWHUPZKHQWKH\DUHUHDVRQDEO\FHUWDLQWREHH[HUFLVHG 7KHGHSUHFLDEOHOLIHRIDVVHWVDQGOHDVHKROGLPSURYHPHQWVDUHOLPLWHGE\WKHH[SHFWHGOHDVHWHUP

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

7KHDPRXQWVRIDVVHWVDQGOLDELOLWLHVUHODWHGWRRXURSHUDWLQJDQGILQDQFLQJOHDVHVDVRI$SULOZHUHDV IROORZV LQWKRXVDQGV 

  %DODQFH6KHHW&DSWLRQ  $SULO 

2SHUDWLQJ/HDVHV      

5LJKWRIXVHDVVHWV     

$FFXPXODWHGDPRUWL]DWLRQ     

5LJKWRIXVHDVVHWVQHW  2WKHUDVVHWV   

      

&XUUHQWOLDELOLWLHV  $FFUXHGH[SHQVHVDQGGHIHUUHGUHYHQXH   

1RQFXUUHQWOLDELOLWLHV  2WKHUQRQFXUUHQWOLDELOLWLHV   

7RWDORSHUDWLQJOHDVHOLDELOLWLHV     

)LQDQFH/HDVHV     

5LJKWRIXVHDVVHWV     

$FFXPXODWHGGHSUHFLDWLRQ     

5LJKWRIXVHDVVHWVQHW  3URSHUW\SODQWDQGHTXLSPHQWQHW   

     

&XUUHQWOLDELOLWLHV  $FFUXHGH[SHQVHVDQGGHIHUUHGUHYHQXH   

1RQFXUUHQWOLDELOLWLHV  )LQDQFHOHDVHSD\DEOHQHWRIFXUUHQWSRUWLRQ   

 7RWDOILQDQFHOHDVHOLDELOLWLHV     

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

)XWXUHOHDVHSD\PHQWVIRUDOORXURSHUDWLQJDQGILQDQFHOHDVHVIRUVXFFHHGLQJILVFDO\HDUVLVDVIROORZV LQ WKRXVDQGV 

    2SHUDWLQJ   )LQDQFLQJ   7RWDO 

           

           

           

           

           

7KHUHDIWHU           

7RWDOIXWXUHOHDVHSD\PHQWV           

/HVVDPRXQWVUHSUHVHQWLQJLQWHUHVW           

3UHVHQWYDOXHRIOHDVHSD\PHQWV            /HVVFXUUHQWPDWXULWLHVRIOHDVH

OLDELOLWLHV           

 /RQJWHUPPDWXULWLHVRIOHDVHOLDELOLWLHV           

'XULQJWKHILVFDO\HDUHQGHG$SULOWKHFDVKSDLGIRUDPRXQWVLQFOXGHGLQWKHPHDVXUHPHQWRIWKH OLDELOLWLHVDQGWKHRSHUDWLQJFDVKIORZVZDVPLOOLRQ

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

5HYHQXH5HFRJQLWLRQDQG&RQWUDFWVZLWK&XVWRPHUV 2Q0D\ZHDGRSWHG$68Revenue from Contracts with Customers (Topic 606)RU$68 XVLQJWKHPRGLILHGUHWURVSHFWLYHDSSURDFKDQGUHFRUGHGDFRQWUDFWOLDELOLW\LQFOXGHGLQDFFUXHGH[SHQVHV LQWKHFRQGHQVHGFRQVROLGDWHGEDODQFHVKHHWIRURXWVWDQGLQJSHUIRUPDQFHREOLJDWLRQVUHODWHGWRVDOHVSURPRWLRQV 8QGHU WKH PRGLILHG UHWURVSHFWLYH DSSURDFK UHVXOWV IRU UHSRUWLQJ SHULRGV DIWHU 0D\   ZLOO EH SUHVHQWHG LQ DFFRUGDQFHZLWK$68ZKLOHSULRUSHULRGDPRXQWVZLOOQRWEHDGMXVWHGDQGZLOOFRQWLQXHWREHUHSRUWHGLQ DFFRUGDQFH ZLWK WKH SUHYLRXV JXLGDQFH $FFRXQWLQJ 6WDQGDUGV &RGLILFDWLRQ RU $6& 7RSLF  Revenue Recognition:KHQHYDOXDWLQJRXUSHUIRUPDQFHREOLJDWLRQVZHGLVDJJUHJDWHUHYHQXHEDVHGRQPDMRUSURGXFWOLQHV ZKLFKFRUUHODWHZLWKRXUUHSRUWDEOHVHJPHQWVGLVFORVHGLQ1RWH²Segment Reporting.'RPHVWLFVDOHVDFFRXQW IRU  RI RXU WRWDO QHW VDOHV 7KHUH DUH QR VLJQLILFDQW MXGJPHQWV RU HVWLPDWHV XVHG LQ WKH GHWHUPLQDWLRQ RI SHUIRUPDQFHREOLJDWLRQVDQGWKHWUDQVDFWLRQSULFHIRUWKHSHUIRUPDQFHREOLJDWLRQVDUHDOORFDWHGRQDSURUDWDEDVLV 7KHUHDUHQRRWKHUFRQWUDFWFRVWVWKDWQHHGWREHFRQVLGHUHGEDVHGRQWKHQDWXUHRIRXUSHUIRUPDQFHREOLJDWLRQV

7KHIROORZLQJWDEOHRXWOLQHVWKHLPSDFWRIWKHDGRSWLRQRI$68RQUHYHQXHUHFRJQL]HGGXULQJWKH \HDUHQGHG$SULO LQWKRXVDQGV 

       2XWVWDQGLQJSHUIRUPDQFHREOLJDWLRQVDWEHJLQQLQJRISHULRG       5HYHQXHUHFRJQL]HG       5HYHQXHGHIHUUHG      

2XWVWDQGLQJSHUIRUPDQFHREOLJDWLRQVDWHQGRISHULRG       

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

*RRGZLOODQG,QWDQJLEOH$VVHWV 7KHFKDQJHVLQWKHFDUU\LQJDPRXQWRIJRRGZLOOE\UHSRUWLQJVHJPHQWDUHDVIROORZV LQWKRXVDQGV 

 2XWGRRU       3URGXFWV     )LUHDUP  $FFHVVRULHV  7RWDO   6HJPHQW  6HJPHQW  *RRGZLOO  %DODQFHDVRI$SULO          $GMXVWPHQWV      ²    $FTXLVLWLRQV   ²       *RRGZLOOLPSDLUPHQW   ²       %DODQFHDVRI$SULO          $GMXVWPHQWV   ²       *RRGZLOOLPSDLUPHQW   ²      

%DODQFHDVRI$SULO          

)RUPRUHLQIRUPDWLRQUHJDUGLQJJRRGZLOOLPSDLUPHQWWHVWLQJVHH1RWH²Significant Accounting Policies — Valuation of Long-lived Tangible and Intangible AssetsWRRXUFRQVROLGDWHGILQDQFLDOVWDWHPHQWV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

$VRI$SULOWKHJRRGZLOOUHFRUGHGZLWKLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWLVSUHVHQWHG QHWRIPLOOLRQRIDFFXPXODWHGLPSDLUPHQWORVVHVDOORIZKLFKZDVUHFRUGHGGXULQJILVFDODQG7KH JRRGZLOOZLWKLQRXU)LUHDUPVVHJPHQWKDVQRDFFXPXODWHGLPSDLUPHQWORVVHV

7KHIROORZLQJWDEOHSUHVHQWVDVXPPDU\RILQWDQJLEOHDVVHWVDVRI$SULODQG LQWKRXVDQGV 

  $SULO  $SULO    *URVV       *URVV         &DUU\LQJ $FFXPXODWHG 1HW&DUU\LQJ &DUU\LQJ $FFXPXODWHG 1HW&DUU\LQJ   $PRXQW $PRUWL]DWLRQ  $PRXQW  $PRXQW $PRUWL]DWLRQ  $PRXQW  &XVWRPHUUHODWLRQVKLSV          'HYHORSHGWHFKQRORJ\          3DWHQWVWUDGHPDUNVDQGWUDGHQDPHV          %DFNORJ     ²    ²           3DWHQWVLQSURJUHVV   ²    ²   7RWDOGHILQLWHOLYHGLQWDQJLEOHDVVHWV          ,QGHILQLWHOLYHGLQWDQJLEOHDVVHWV   ²    ²   7RWDOLQWDQJLEOHDVVHWV       

 :HDPRUWL]HLQWDQJLEOHDVVHWVZLWKGHWHUPLQDEOHOLYHVRYHUDZHLJKWHGDYHUDJHSHULRGRIDSSUR[LPDWHO\ILYH \HDUV 7KH ZHLJKWHGDYHUDJH SHULRGV RI DPRUWL]DWLRQ E\ LQWDQJLEOH DVVHW FODVV LV DSSUR[LPDWHO\ ILYH \HDUV IRU FXVWRPHUUHODWLRQVKLSVVL[\HDUVIRUGHYHORSHGWHFKQRORJ\DQGILYH\HDUVIRUSDWHQWVWUDGHPDUNVDQGWUDGHQDPHV $PRUWL]DWLRQH[SHQVHH[FOXGLQJDPRUWL]DWLRQRIGHIHUUHGILQDQFLQJFRVWVDPRXQWHGWRPLOOLRQPLOOLRQ DQGPLOOLRQIRUWKHILVFDO\HDUVHQGHG$SULODQGUHVSHFWLYHO\

7KH IROORZLQJ WDEOH UHSUHVHQWV IXWXUH H[SHFWHG DPRUWL]DWLRQ H[SHQVH DV RI $SULO   ZKLFK ZLOO SULPDULO\EHUHFRUGHGLQRXU2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQW LQWKRXVDQGV 

)LVFDO  $PRXQW                      7KHUHDIWHU   

7RWDO    

1RWHVDQG/RDQV3D\DEOHDQG)LQDQFLQJ$UUDQJHPHQWV Credit Facilities –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¶FRQVHQWWRWKHVSLQRIIRIRXURXWGRRUSURGXFWVDQGDFFHVVRULHV EXVLQHVVSURYLGHGWKDWFHUWDLQILQDQFLDOFRQGLWLRQVDUHVDWLVILHGLQFOXGLQJ [ JUDQWLQJWKH/HQGHUVVHFXULW\LQWHUHVW LQWKHDVVHWVRIWKHUHPDLQLQJEXVLQHVV \ UHGXFLQJWKH5HYROYLQJ/LQHWRPLOOLRQDWWKHWLPHRIWKHVSLQRII DQG ] UHGXFLQJWKHRSWLRQWRH[SDQGWKHFUHGLWDJUHHPHQWWRPLOOLRQDWWKHWLPHRIWKHVSLQRII2WKHUWKDQWKH

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

FKDQJHVGHVFULEHGLQWKH6HFRQGDQG)LIWK$PHQGPHQWVZHRWKHUZLVHUHPDLQVXEMHFWWRWKHWHUPVRIWKH&UHGLW $JUHHPHQWDVGHVFULEHGEHORZ:HLQFXUUHGRIGHEWLVVXDQFHFRVWVUHODWHGWRWKH)LIWK$PHQGPHQW

$VRI$SULOZHKDGPLOOLRQRIERUURZLQJVRXWVWDQGLQJXQGHUWKH5HYROYLQJ/LQHZKLFKERUH LQWHUHVWDWZKLFKLVHTXDOWRWKH/,%25UDWHSOXVDQDSSOLFDEOHPDUJLQEDVHGRQRXUFRQVROLGDWHGOHYHUDJH UDWLR

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

:HUHFRJQL]HGHULYDWLYHVDVHLWKHUDVVHWVRUOLDELOLWLHVRQRXUFRQVROLGDWHGEDODQFHVKHHWVDWIDLUYDOXH7KH DFFRXQWLQJ IRU FKDQJHV LQ WKH IDLU YDOXH LH XQUHDOL]HG JDLQV RU ORVVHV  RI D GHULYDWLYH LQVWUXPHQW GHSHQGV RQ ZKHWKHU LW KDV EHHQ GHVLJQDWHG DQG TXDOLILHV DV SDUW RI D KHGJLQJ UHODWLRQVKLS DQG RQ WKH W\SH RI KHGJLQJ UHODWLRQVKLS'HULYDWLYHVWKDWGRQRWTXDOLI\IRUKHGJHDFFRXQWLQJPXVWEHDGMXVWHGWRIDLUYDOXHWKURXJKHDUQLQJV 2XULQWHUHVWUDWHVZDSDJUHHPHQWLVFRQVLGHUHGHIIHFWLYHDQGTXDOLILHVDVDFDVKIORZKHGJH7KHHIIHFWLYHSRUWLRQRI WKHJDLQRUORVVRQWKHGHULYDWLYHWKDWLVGHVLJQDWHGDQGTXDOLILHVDVDFDVKIORZKHGJHLVUHFRUGHGDVDFRPSRQHQWRI DFFXPXODWHGRWKHUFRPSUHKHQVLYHLQFRPHRUORVVDQGUHFODVVLILHGLQWRHDUQLQJVLQWKHVDPHSHULRGRUSHULRGVGXULQJ ZKLFKWKHKHGJHGWUDQVDFWLRQDIIHFWVHDUQLQJV$VRI$SULOWKHLQWHUHVWUDWHVZDSZDVFRQVLGHUHGHIIHFWLYH DQGKDGQRHIIHFWRQHDUQLQJV7KHIDLUYDOXHRIWKHLQWHUHVWUDWHVZDSRQ$SULODQGZDVDQDVVHWRI DQGPLOOLRQUHVSHFWLYHO\DQGZDVUHFRUGHGLQRWKHUDVVHWVRQRXUFRQVROLGDWHGEDODQFHVKHHW

2018 Senior Notes±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

2020 Senior Notes ±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

Debt Issuance Costs²:HUHFRUGHGLQQRWHVSD\DEOHRIGHEWLVVXDQFHFRVWVIRUWKHILVFDO\HDU HQGHG$SULO:HGLGQRWUHFRUGDQ\GHEWLVVXDQFHFRVWVGXULQJWKHILVFDO\HDUHQGHG$SULO:H UHFRUGHGLQQRWHVSD\DEOHRIGHEWLVVXDQFHFRVWVIRUWKHILVFDO\HDUVHQGHG$SULO7KHVHFRVWVDUH EHLQJDPRUWL]HGWRH[SHQVHRYHUWKHOLIHRIWKHFUHGLWIDFLOLW\,QWRWDOZHDPRUWL]HGDQG PLOOLRQWRLQWHUHVWH[SHQVHIRUDOOGHEWLVVXDQFHFRVWVLQILVFDODQGUHVSHFWLYHO\LQFOXGLQJZULWH RIIVUHODWHGWRH[WLQJXLVKPHQW

7KH&UHGLW$JUHHPHQWIRURXUFUHGLWIDFLOLW\FRQWDLQVILQDQFLDOFRYHQDQWVUHODWLQJWRPDLQWDLQLQJPD[LPXP OHYHUDJHDQGPLQLPXPGHEWVHUYLFHFRYHUDJH

Letters of Credit²$W$SULOZHKDGRXWVWDQGLQJOHWWHUVRIFUHGLWDJJUHJDWLQJPLOOLRQZKLFK LQFOXGHGDPLOOLRQOHWWHURIFUHGLWWRFROODWHUDOL]HRXUQHZO\FUHDWHGFDSWLYHLQVXUDQFHFRPSDQ\

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

1HW6DOHV 7KHIROORZLQJWDEOHVHWVIRUWKWKHEUHDNGRZQRIQHWVDOHVIRUWKHILVFDO\HDUVHQGHG$SULODQG  LQWKRXVDQGV 

 )RUWKH

7RWDO1HW6DOHV          

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

:HVHOORXUSURGXFWVZRUOGZLGH7KHIROORZLQJWDEOHVHWVIRUWKWKHEUHDNGRZQRIH[SRUWQHWVDOHVLQFOXGHGLQ WKHDERYHWDEOH2XUH[SRUWQHWVDOHVDFFRXQWHGIRUDQGRIWRWDOQHWVDOHVIRUWKHILVFDO\HDUVHQGHG $SULODQGUHVSHFWLYHO\ LQWKRXVDQGV 

 )RUWKH

5HJLRQ       

(XURSH          

$VLD          

/DWLQ$PHULFD          

$OORWKHUVLQWHUQDWLRQDO          

7RWDOLQWHUQDWLRQDOQHWVDOHV D          

D 2XU LQWHUQDWLRQDO VDOHV ZHUH QHJDWLYHO\ LPSDFWHG LQ RXU IRXUWK ILVFDO TXDUWHU DV D UHVXOW RI &29,' SDQGHPLF

2XU)LUHDUPDQG2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWVRZQWRROLQJWKDWLVORFDWHGDWYDULRXVVXSSOLHUVLQ $VLDDQG1RUWK$PHULFD

$GYHUWLVLQJ&RVWV :H H[SHQVH DGYHUWLVLQJ FRVWV SULPDULO\ FRQVLVWLQJ RI PDJD]LQH DGYHUWLVHPHQWV SULQWHG PDWHULDOV DQG WHOHYLVLRQDGYHUWLVHPHQWVHLWKHUDVLQFXUUHGRUXSRQWKHILUVWRFFXUUHQFHRIWKHDGYHUWLVLQJ$GYHUWLVLQJH[SHQVH LQFOXGHGLQVHOOLQJDQGPDUNHWLQJH[SHQVHVIRUWKHILVFDO\HDUVHQGHG$SULODQGDPRXQWHGWR PLOOLRQPLOOLRQDQGPLOOLRQUHVSHFWLYHO\

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

3URSHUW\3ODQWDQG(TXLSPHQW 7KHIROORZLQJWDEOHVXPPDUL]HVSURSHUW\SODQWDQGHTXLSPHQWDVRI$SULODQG LQWKRXVDQGV 

 $SULO  $SULO  0DFKLQHU\DQGHTXLSPHQW       6RIWZDUHDQGKDUGZDUH       %XLOGLQJDQGLPSURYHPHQWV       /DQGDQGLPSURYHPHQWV      

5LJKWRIXVHDVVHWV             /HVV$FFXPXODWHGGHSUHFLDWLRQDQGDPRUWL]DWLRQ               &RQVWUXFWLRQLQSURJUHVV      

7RWDOSURSHUW\SODQWDQGHTXLSPHQWQHW       

'HSUHFLDWLRQ RI WDQJLEOH DVVHWV DQG DPRUWL]DWLRQ RI VRIWZDUH H[SHQVH DPRXQWHG WR  PLOOLRQ  PLOOLRQDQGPLOOLRQIRUWKHILVFDO\HDUVHQGHG$SULODQGUHVSHFWLYHO\

7KH IROORZLQJ WDEOH VXPPDUL]HV GHSUHFLDWLRQ DQG DPRUWL]DWLRQ H[SHQVH ZKLFK LQFOXGHV DPRUWL]DWLRQ RI LQWDQJLEOHV DQG GHEW ILQDQFLQJ FRVWV E\ OLQH LWHP IRU WKH ILVFDO \HDUV HQGHG $SULO   DQG  LQ WKRXVDQGV 

 )RUWKH

7RWDOGHSUHFLDWLRQDQGDPRUWL]DWLRQ          

D *HQHUDODQGDGPLQLVWUDWLYHH[SHQVHVLQFOXGHGPLOOLRQPLOOLRQDQGPLOOLRQRIDPRUWL]DWLRQ IRUWKHILVFDO\HDUVHQGHG$SULODQGUHVSHFWLYHO\ZKLFKZHUHUHFRUGHGDVDUHVXOWRIRXU DFTXLVLWLRQV

,QYHQWRULHV 7KHIROORZLQJWDEOHVHWVIRUWKDVXPPDU\RILQYHQWRULHVQHWRIUHVHUYHVVWDWHGDWORZHURIFRVWRUPDUNHWDV RI$SULODQG LQWKRXVDQGV 

  $SULO   $SULO  )LQLVKHGJRRGV       )LQLVKHGSDUWV       :RUNLQSURFHVV       5DZPDWHULDO      

7RWDOLQYHQWRULHV       

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

$FFUXHG([SHQVHVDQG'HIHUUHG5HYHQXH 7KHIROORZLQJWDEOHVHWVIRUWKRWKHUDFFUXHGH[SHQVHVDVRI$SULODQG LQWKRXVDQGV 

  $SULO    $SULO 

$FFUXHGWD[HVRWKHUWKDQLQFRPH       

'HIHUUHGUHYHQXH       

$FFUXHGUHEDWHVDQGSURPRWLRQV       

$FFUXHGHPSOR\HHEHQHILWV       

$FFUXHGSURIHVVLRQDOIHHV       

5LJKWRIXVHOHDVHOLDELOLWLHV      ²

$FFUXHGGLVWULEXWRULQFHQWLYHV       

$FFUXHGFRPPLVVLRQV       

,QWHUHVWSD\DEOH       

&XUUHQWSRUWLRQRIFDSLWDOOHDVHREOLJDWLRQ       

$FFUXHGRWKHU       

7RWDODFFUXHGH[SHQVHVDQGGHIHUUHGUHYHQXH       

D ,QFUHDVHLQDFFUXHGWD[HVRWKHUWKDQLQFRPHLVGXHWRWKHGHIHUUDORIIHGHUDOH[FLVHWD[SD\PHQWVDOORZHGE\ WKH7D[DQG7UDGH%XUHDXDVDUHVXOWRIWKH&29,'SDQGHPLF.

)DLU9DOXH0HDVXUHPHQW :HIROORZWKHSURYLVLRQVRI$6& Fair Value Measurements and Disclosures Topic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

)LQDQFLDO DVVHWV DQG OLDELOLWLHV UHFRUGHG RQ WKH DFFRPSDQ\LQJ FRQVROLGDWHG EDODQFH VKHHWV DUH FDWHJRUL]HG EDVHGRQWKHLQSXWVWRWKHYDOXDWLRQWHFKQLTXHVDVIROORZV

Level 1²)LQDQFLDODVVHWVDQGOLDELOLWLHVZKRVHYDOXHVDUHEDVHGRQXQDGMXVWHGTXRWHGSULFHVIRULGHQWLFDO DVVHWVRUOLDELOLWLHVLQDQDFWLYHPDUNHWWKDWZHKDYHWKHDELOLW\WRDFFHVVDWWKHPHDVXUHPHQWGDWH H[DPSOHVLQFOXGH DFWLYHH[FKDQJHWUDGHGHTXLW\VHFXULWLHVOLVWHGGHULYDWLYHVDQGPRVW86*RYHUQPHQWDQGDJHQF\VHFXULWLHV 

2XUFDVKDQGFDVKHTXLYDOHQWVZKLFKDUHPHDVXUHGDWIDLUYDOXHRQDUHFXUULQJEDVLVWRWDOHGPLOOLRQ DQG  PLOOLRQ DV RI $SULO   DQG  UHVSHFWLYHO\ :H XWLOL]HG /HYHO  RI WKH YDOXH KLHUDUFK\ WR GHWHUPLQHWKHIDLUYDOXHVRIWKHVHDVVHWV

Level 2²)LQDQFLDODVVHWVDQGOLDELOLWLHVZKRVHYDOXHVDUHEDVHGRQTXRWHGSULFHVLQPDUNHWVLQZKLFKWUDGLQJ RFFXUV LQIUHTXHQWO\ RU ZKRVH YDOXHV DUH EDVHG RQ TXRWHG SULFHV RI LQVWUXPHQWV ZLWK VLPLODU DWWULEXWHV LQ DFWLYH PDUNHWV/HYHOLQSXWVLQFOXGHWKHIROORZLQJ • TXRWHG SULFHV IRU LGHQWLFDO RU VLPLODU DVVHWV RU OLDELOLWLHV LQ QRQDFWLYH PDUNHWV VXFK DV FRUSRUDWH DQG PXQLFLSDOERQGVZKLFKWUDGHLQIUHTXHQWO\  • LQSXWVRWKHUWKDQTXRWHGSULFHVWKDWDUHREVHUYDEOHIRUVXEVWDQWLDOO\WKHIXOOWHUPRIWKHDVVHWRUOLDELOLW\ VXFKDVLQWHUHVWUDWHDQGFXUUHQF\VZDSV DQG • LQSXWVWKDWDUHGHULYHGSULQFLSDOO\IURPRUFRUURERUDWHGE\REVHUYDEOHPDUNHWGDWDIRUVXEVWDQWLDOO\WKH IXOOWHUPRIWKHDVVHWRUOLDELOLW\ VXFKDVFHUWDLQVHFXULWLHVDQGGHULYDWLYHV 

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

Level 3²)LQDQFLDODVVHWVDQGOLDELOLWLHVZKRVHYDOXHVDUHEDVHGRQSULFHVRUYDOXDWLRQWHFKQLTXHVWKDWUHTXLUH LQSXWV WKDW DUH ERWK XQREVHUYDEOH DQG VLJQLILFDQW WR WKH RYHUDOO IDLU YDOXH PHDVXUHPHQW 7KHVH LQSXWV UHIOHFW RXU DVVXPSWLRQVDERXWWKHDVVXPSWLRQVDPDUNHWSDUWLFLSDQWZRXOGXVHLQSULFLQJWKHDVVHWRUOLDELOLW\

:HFXUUHQWO\GRQRWKDYHDQ\/HYHORU/HYHOILQDQFLDODVVHWVRUOLDELOLWLHV

 6HOI,QVXUDQFH5HVHUYHV $V RI $SULO  DQG  ZH KDG UHVHUYHV IRU ZRUNHUV¶ FRPSHQVDWLRQ SURGXFW OLDELOLW\ PXQLFLSDO OLDELOLW\DQGPHGLFDOGHQWDOFRVWVWRWDOLQJPLOOLRQDQGPLOOLRQUHVSHFWLYHO\RIZKLFKPLOOLRQDQG PLOOLRQZDVFODVVLILHGDVRWKHUQRQFXUUHQWOLDELOLWLHVUHVSHFWLYHO\$VRI$SULODQGPLOOLRQ DQGPLOOLRQUHVSHFWLYHO\ZHUHLQFOXGHGLQDFFUXHGH[SHQVHVRQWKHDFFRPSDQ\LQJFRQVROLGDWHGEDODQFHVKHHWV ,QDGGLWLRQDVRI$SULODQGRIZRUNHUV¶FRPSHQVDWLRQUHFRYHUDEOHZDVFODVVLILHGDVRWKHU DVVHWV:KLOHZHEHOLHYHWKHVHUHVHUYHVWREHDGHTXDWHLWLVSRVVLEOHWKDWWKHXOWLPDWHOLDELOLWLHVZLOOH[FHHGVXFK HVWLPDWHV

7KH IROORZLQJ WDEOH VXPPDUL]HV WKH DFWLYLW\ LQ WKH ZRUNHUV¶ FRPSHQVDWLRQ SURGXFW OLDELOLW\ PXQLFLSDO OLDELOLW\DQGPHGLFDOGHQWDOUHVHUYHVLQWKHILVFDO\HDUVHQGHG$SULODQG LQWKRXVDQGV 

 )RUWKH

        

%HJLQQLQJEDODQFH           

$GGLWLRQDOSURYLVLRQFKDUJHGWRH[SHQVH           

3D\PHQWV           

 (QGLQJEDODQFH           

,WLVRXUSROLF\WRSURYLGHDQHVWLPDWHIRUORVVDVDUHVXOWRIH[SHFWHGDGYHUVHILQGLQJVRUOHJDOVHWWOHPHQWVRQ SURGXFWOLDELOLW\PXQLFLSDOOLDELOLW\ZRUNHUV¶FRPSHQVDWLRQDQGRWKHUPDWWHUVZKHQVXFKORVVHVDUHSUREDEOHDQG DUH UHDVRQDEO\ HVWLPDEOH ,W LV DOVR RXU SROLF\ WR DFFUXH IRU UHDVRQDEOH HVWLPDEOH OHJDO FRVWV DVVRFLDWHG ZLWK GHIHQGLQJVXFKOLWLJDWLRQ:KLOHVXFKHVWLPDWHVLQYROYHDUDQJHRISRVVLEOHFRVWVZHGHWHUPLQHLQFRQVXOWDWLRQZLWK FRXQVHOWKHPRVWOLNHO\FRVWZLWKLQVXFKUDQJHRQDFDVHE\FDVHEDVLV:HDOVRUHFRUGUHFHLYDEOHVIURPLQVXUDQFH FDUULHUVUHODWLQJWRWKHVHPDWWHUVZKHQWKHLUFROOHFWLRQLVSUREDEOH$VRI$SULODQGZHKDGDFFUXHG UHVHUYHVIRUSURGXFWDQGPXQLFLSDOOLWLJDWLRQOLDELOLWLHVRIPLOOLRQDQGPLOOLRQUHVSHFWLYHO\ RIZKLFK PLOOLRQ DQG  PLOOLRQ ZDV QRQFXUUHQW UHVSHFWLYHO\  FRQVLVWLQJ HQWLUHO\ RI H[SHFWHG OHJDO GHIHQVH FRVWV ,Q DGGLWLRQ DV RI $SULO  DQG  ZH KDG UHFRUGHG UHFHLYDEOHV IURP LQVXUDQFH FDUULHUV UHODWHG WR WKHVH OLDELOLWLHVRIPLOOLRQQHDUO\DOORIZKLFKKDVEHHQFODVVLILHGDVRWKHUDVVHWV

6WRFNKROGHUV¶(TXLW\ Treasury Stock :HGLGQRWUHSXUFKDVHDQ\VKDUHVRIRXUFRPPRQVWRFNGXULQJILVFDORUDQGZHGRQRWKDYH DQDXWKRUL]HGUHSXUFKDVHSURJUDPDVRI$SULO

Incentive Stock and Employee Stock Purchase Plans :HKDYHWZRVWRFNLQFHQWLYHSODQVRU63VWKH,QFHQWLYH6WRFN3ODQDQGWKH,QFHQWLYH6WRFN3ODQ 1HZJUDQWVXQGHUWKH,QFHQWLYH6WRFN3ODQKDYHQRWEHHQPDGHVLQFHWKHDSSURYDORIWKH,QFHQWLYH6WRFN 3ODQDWRXU6HSWHPEHUDQQXDOPHHWLQJRIVWRFNKROGHUV$OOQHZJUDQWVFRYHULQJDOOSDUWLFLSDQWVDUHLVVXHG XQGHUWKH,QFHQWLYH6WRFN3ODQ

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

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

8QOHVVWHUPLQDWHGHDUOLHUE\RXUERDUGRIGLUHFWRUVWKH,QFHQWLYH6WRFN3ODQZLOOWHUPLQDWHDWWKHHDUOLHVW RI  WKHWHQWKDQQLYHUVDU\RIWKHHIIHFWLYHGDWHRIWKH6WRFN3ODQRU  VXFKWLPHDVQRVKDUHVRIFRPPRQ VWRFN UHPDLQ DYDLODEOH IRU LVVXDQFH XQGHU WKH SODQ DQG ZH KDYH QR IXUWKHU ULJKWV RU REOLJDWLRQV ZLWK UHVSHFW WR RXWVWDQGLQJDZDUGVXQGHUWKHSODQ7KHGDWHRIJUDQWRIDQDZDUGLVGHHPHGWREHWKHGDWHXSRQZKLFKRXUERDUGRI GLUHFWRUVRUERDUGFRPPLWWHHDXWKRUL]HVWKHJUDQWLQJRIVXFKDZDUG

([FHSW LQ VSHFLILF FLUFXPVWDQFHV JUDQWV YHVW RYHU D SHULRG RI IRXU \HDUV DQG JUDQWV RI VWRFN RSWLRQV DUH H[HUFLVDEOHIRUDSHULRGRI\HDUV7KHSODQDOVRSHUPLWVWKHJUDQWRIDZDUGVWRQRQHPSOR\HHVZKLFKRXUERDUGRI GLUHFWRUVRUFRPPLWWHHKDVDXWKRUL]HGLQWKHSDVW

7KH QXPEHU RI VKDUHV DQG ZHLJKWHG DYHUDJH H[HUFLVH SULFHV RI RSWLRQV IRU WKH ILVFDO \HDUV HQGHG $SULO DQGDUHDVIROORZV

  )RUWKH

 \HDUV   \HDUV   \HDUV   

$VRI$SULOWKHUHZHUHVKDUHVDYDLODEOHIRUJUDQWXQGHUWKH,QFHQWLYH6WRFN3ODQ:H XVHRXUXQLVVXHGVKDUHSRROIRUDOOVKDUHVLVVXHGIRURSWLRQVUHVWULFWHGVWRFNDZDUGV568VSHUIRUPDQFHVKDUHXQLWV SHUIRUPDQFHEDVHGUHVWULFWHGVWRFNXQLWVRU368VDQGVKDUHVLVVXHGXQGHURXU(PSOR\HH6WRFN3XUFKDVH3ODQRU (633

7KH DJJUHJDWH LQWULQVLF YDOXH RI RXWVWDQGLQJ DQG H[HUFLVDEOH VWRFN RSWLRQV DV RI $SULO   DQG ZDVDQGPLOOLRQUHVSHFWLYHO\7KHDJJUHJDWHLQWULQVLFYDOXHRIWKHRSWLRQVH[HUFLVHG IRU WKH \HDUV HQGHG $SULO   DQG  ZDV   DQG  UHVSHFWLYHO\ $W $SULOWKHUHZDVQRXQUHFRJQL]HGFRPSHQVDWLRQFRVWRIRXWVWDQGLQJRSWLRQV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

7KHIROORZLQJWDEOHVXPPDUL]HVVWRFNFRPSHQVDWLRQH[SHQVHE\OLQHLWHPIRUWKHILVFDO\HDUVHQGHG$SULO DQG LQWKRXVDQGV 

  )RUWKH

7RWDOVWRFNEDVHGFRPSHQVDWLRQ        

D 7KHGHFUHDVHLQJHQHUDODQGDGPLQLVWUDWLYHVWRFNEDVHGFRPSHQVDWLRQH[SHQVHIURPILVFDOZDV EHFDXVHRIWKHVHSDUDWLRQRIRXUIRUPHU3UHVLGHQWDQG&KLHI([HFXWLYH2IILFHU

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

:HJUDQW368VWRRXUH[HFXWLYHRIILFHUVDQGFHUWDLQPDQDJHPHQWHPSOR\HHVZKRDUHQRWH[HFXWLYHRIILFHUV $WWKHWLPHRIJUDQWZHFDOFXODWHWKHIDLUYDOXHRIRXU368VXVLQJWKH0RQWH&DUORVLPXODWLRQ:HLQFRUSRUDWHWKH IROORZLQJYDULDEOHVLQWRWKHYDOXDWLRQPRGHO

  )RUWKH

*UDQWGDWHIDLUPDUNHWYDOXH             6PLWK :HVVRQ%UDQGV,QF          5XVVHOO,QGH[         

9RODWLOLW\ D            

6PLWK :HVVRQ%UDQGV,QF       

5XVVHOO,QGH[       

&RUUHODWLRQFRHIILFLHQW E        

5LVNIUHHLQWHUHVWUDWH F        

'LYLGHQG\LHOG G          D ([SHFWHG YRODWLOLW\ LV FDOFXODWHG RYHU WKH PRVW UHFHQW SHULRG WKDW UHSUHVHQWV WKH UHPDLQLQJ WHUP RI WKH SHUIRUPDQFHSHULRGDVRIWKHYDOXDWLRQGDWHRUWKUHH\HDUV E 7KHFRUUHODWLRQFRHIILFLHQWXWLOL]HVWKHVDPHKLVWRULFDOSULFHGDWDXVHGWRGHYHORSWKHYRODWLOLW\DVVXPSWLRQV F 7KHULVNIUHHLQWHUHVWUDWHLVEDVHGRQWKH\LHOGRID]HURFRXSRQ867UHDVXU\ELOOFRPPHQVXUDWHZLWKWKH WKUHH\HDUSHUIRUPDQFHSHULRG G :HGLGQRWSD\GLYLGHQGVLQILVFDODQG

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

,QFHUWDLQFLUFXPVWDQFHVWKHYHVWHGDZDUGVZLOOEHGHOLYHUHGRQWKHILUVWDQQLYHUVDU\RIWKHDSSOLFDEOHYHVWLQJ GDWH:HKDYHDSSOLHGDGLVFRXQWWRWKHJUDQWGDWHIDLUYDOXHZKHQGHWHUPLQLQJWKHDPRXQWRIFRPSHQVDWLRQH[SHQVH WREHUHFRUGHGIRUWKHVH568VDQG368V

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

'XULQJWKHILVFDO\HDUHQGHG$SULOZHJUDQWHG368VWRFHUWDLQRIRXUH[HFXWLYHRIILFHUVDQG  368V WR QRQH[HFXWLYH RIILFHU HPSOR\HHV :H DOVR JUDQWHG  VHUYLFHEDVHG 568V GXULQJ WKH \HDU HQGHG$SULOLQFOXGLQJ568VWRFHUWDLQRIRXUH[HFXWLYHRIILFHUV568VWRRXUGLUHFWRUV DQG568VWRQRQH[HFXWLYHRIILFHUHPSOR\HHV&RPSHQVDWLRQH[SHQVHUHFRJQL]HGUHODWHGWRJUDQWVRI568V DQG368VZDVPLOOLRQIRUWKHILVFDO\HDUHQGHG$SULO

'XULQJ WKH ILVFDO \HDU HQGHG $SULO   ZH FDQFHOHG  VHUYLFHEDVHG 568V DV D UHVXOW RI WKH VHUYLFH SHULRG FRQGLWLRQ QRW EHLQJ PHW DQG  368V DV WKH WKUHH \HDU VWRFN SHUIRUPDQFH WDUJHWV ZHUH QRW DFKLHYHG :H GHOLYHUHG  VKDUHV RI FRPPRQ VWRFN WR FXUUHQW HPSOR\HHV XQGHU YHVWHG 568V ZLWK D WRWDO PDUNHWYDOXHRIPLOOLRQ

'XULQJWKHILVFDO\HDUHQGHG$SULOZHJUDQWHG368VWRFHUWDLQRIRXUH[HFXWLYHRIILFHUV:H DOVRJUDQWHGVHUYLFHEDVHG568VGXULQJWKH\HDUHQGHG$SULOLQFOXGLQJ568VWRFHUWDLQ RI RXU H[HFXWLYH RIILFHUV  568V WR RXU GLUHFWRUV DQG  568V WR QRQH[HFXWLYH RIILFHU HPSOR\HHV &RPSHQVDWLRQH[SHQVHUHFRJQL]HGUHODWHGWRJUDQWVRI568VDQG368VZDVPLOOLRQIRUWKHILVFDO\HDUHQGHG $SULO

'XULQJWKHILVFDO\HDUHQGHG$SULOZHFDQFHOHGVHUYLFHEDVHG568VDVDUHVXOWRIWKHVHUYLFH SHULRGFRQGLWLRQQRWEHLQJPHWDQG368VDVWKHWKUHH\HDUVWRFNSHUIRUPDQFHWDUJHWVZHUHQRWDFKLHYHG:H GHOLYHUHGVKDUHVRIFRPPRQVWRFNWRFXUUHQWHPSOR\HHVXQGHUYHVWHG568VZLWKDWRWDOPDUNHWYDOXHRI PLOOLRQ

'XULQJWKH\HDUHQGHG$SULOZHJUDQWHG368VWRFHUWDLQRIRXUH[HFXWLYHRIILFHUV:HDOVR JUDQWHGVHUYLFHEDVHG568VGXULQJWKH\HDUHQGHG$SULOLQFOXGLQJ568VWRFHUWDLQRI RXU H[HFXWLYH RIILFHUV  568V WR RXU GLUHFWRUV DQG  568V WR QRQH[HFXWLYH RIILFHU HPSOR\HHV ,Q DGGLWLRQLQFRQQHFWLRQZLWKDJUDQWRI368V LHWKHWDUJHWDPRXQWJUDQWHG ZKLFKDFKLHYHG RIWKHWDUJHWHGDZDUGZHYHVWHGDQGGHOLYHUHGDZDUGVWRWDOLQJVKDUHVWRFHUWDLQRIRXUH[HFXWLYHRIILFHUV &RPSHQVDWLRQH[SHQVHUHFRJQL]HGUHODWHGWRJUDQWVRI568VDQG368VZDVPLOOLRQIRUWKHILVFDO\HDUHQGHG $SULO

'XULQJWKHILVFDO\HDUHQGHG$SULOZHFDQFHOHGVHUYLFHEDVHG568VDQG368VDVD UHVXOW RI WKH VHUYLFH SHULRG FRQGLWLRQ QRW EHLQJ PHW DQG GHOLYHUHG  VKDUHV RI FRPPRQ VWRFN WR FXUUHQW HPSOR\HHVXQGHUYHVWHG568VDQG368VZLWKDWRWDOPDUNHWYDOXHRIPLOOLRQ

7KHJUDQWGDWHIDLUYDOXHRI568VDQG368VWKDWYHVWHGLQILVFDODQGZDVPLOOLRQ PLOOLRQDQGPLOOLRQUHVSHFWLYHO\

$VXPPDU\RIDFWLYLW\IRUXQYHVWHG568VDQG368VIRUILVFDO\HDUVDQGLVDVIROORZV

  )RUWKH

568VDQG368VRXWVWDQGLQJHQGRISHULRG         

$VRI$SULOWKHUHZDVPLOOLRQRIXQUHFRJQL]HGFRPSHQVDWLRQFRVWUHODWHGWRXQYHVWHG568VDQG 368V7KLVFRVWLVH[SHFWHGWREHUHFRJQL]HGRYHUDZHLJKWHGDYHUDJHUHPDLQLQJFRQWUDFWXDOWHUPRI\HDUV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

2Q 6HSWHPEHU  RXU VWRFNKROGHUV DSSURYHG RXU  (633 ZKLFK DXWKRUL]HV WKH VDOH RI XS WR  VKDUHV RI RXU FRPPRQ VWRFN WR HPSOR\HHV $OO RSWLRQV DQG ULJKWV WR SDUWLFLSDWH LQ RXU (633 DUH QRQWUDQVIHUDEOH DQG VXEMHFW WR IRUIHLWXUH LQ DFFRUGDQFH ZLWK RXU (633 JXLGHOLQHV 2XU FXUUHQW (633 ZLOO EH LPSOHPHQWHG LQ D VHULHV RI VXFFHVVLYH RIIHULQJ SHULRGV HDFK ZLWK D PD[LPXP GXUDWLRQ RI  PRQWKV ,I WKH IDLU PDUNHWYDOXHRU)09SHUVKDUHRIRXUFRPPRQVWRFNRQDQ\SXUFKDVHGDWHLVOHVVWKDQWKH)09SHUVKDUHRQWKH VWDUWGDWHRIDPRQWKRIIHULQJSHULRGWKHQWKDWRIIHULQJSHULRGZLOODXWRPDWLFDOO\WHUPLQDWHDQGDQHZPRQWK RIIHULQJ SHULRG ZLOO EHJLQ RQ WKH QH[W EXVLQHVV GD\ (DFK RIIHULQJ SHULRG ZLOO EHJLQ RQ $SULO RU 2FWREHU DV DSSOLFDEOHLPPHGLDWHO\IROORZLQJWKHHQGRIWKHSUHYLRXVRIIHULQJSHULRG3D\UROOGHGXFWLRQVZLOOEHRQDQDIWHUWD[ EDVLV LQ DQ DPRXQW RI QRW OHVV WKDQ  DQG QRW PRUH WKDQ  RU VXFK JUHDWHU SHUFHQWDJH DV WKH FRPPLWWHH DSSRLQWHGWRDGPLQLVWHURXU(633PD\HVWDEOLVKIURPWLPHWRWLPHEHIRUHWKHILUVWGD\RIDQRIIHULQJSHULRG RID SDUWLFLSDQW¶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

:HPHDVXUHWKHFRVWRIHPSOR\HHVHUYLFHVUHFHLYHGLQH[FKDQJHIRUDQDZDUGRIDQHTXLW\LQVWUXPHQWEDVHGRQ WKHJUDQWGDWHIDLUYDOXHRIWKHDZDUG:HFDOFXODWHWKHIDLUYDOXHRIRXUVWRFNRSWLRQVLVVXHGWRHPSOR\HHVXVLQJWKH %ODFN6FKROHVPRGHODWWKHWLPHWKHRSWLRQVZHUHJUDQWHG7KDWDPRXQWLVWKHQDPRUWL]HGRYHUWKHYHVWLQJSHULRGRI WKHRSWLRQ:LWKRXU(633IDLUYDOXHLVGHWHUPLQHGDWWKHEHJLQQLQJRIWKHSXUFKDVHSHULRGDQGDPRUWL]HGRYHUWKH WHUPRIHDFKH[HUFLVHSHULRG

7KHIROORZLQJDVVXPSWLRQVZHUHXVHGLQYDOXLQJRXU(633SXUFKDVHVGXULQJWKH\HDUVHQGHG$SULO DQG

 )RUWKH

5LVNIUHHLQWHUHVWUDWH        

([SHFWHGWHUP D PRQWKV  PRQWKV  PRQWKV

([SHFWHGYRODWLOLW\ E        

'LYLGHQG\LHOG        

D :HH[SHFWWRKDYHDQDEEUHYLDWHGSXUFKDVHSHULRGIRUWKHILUVWKDOIRIILVFDOEHFDXVHRIRXUH[SHFWHG VSLQRIIRIRXURXWGRRUSURGXFWVDQGDFFHVVRULHVEXVLQHVV E :H EHOLHYH RXU H[SHFWHG YRODWLOLW\ LQFUHDVHG LQ ILVFDO  SULPDULO\ GXH WR PDUNHW DQG VWRFN SULFH IOXFWXDWLRQVDVDUHVXOWRIWKH&29,'SDQGHPLF

:HHVWLPDWHH[SHFWHGYRODWLOLW\XVLQJKLVWRULFDOYRODWLOLW\IRUWKHH[SHFWHGWHUP7KHIDLUYDOXHRIHDFKVWRFN RSWLRQRU(633SXUFKDVHZDVHVWLPDWHGRQWKHGDWHRIWKHJUDQWXVLQJWKH%ODFN6FKROHVRSWLRQSULFLQJPRGHO XVLQJ WKH ULVNIUHH LQWHUHVW UDWH H[SHFWHG WHUP H[SHFWHG YRODWLOLW\ DQG GLYLGHQG \LHOG YDULDEOHV DV QRWHG LQ WKH DERYH WDEOH 7KHWRWDOVWRFNEDVHGFRPSHQVDWLRQH[SHQVHLQFOXGLQJVWRFNRSWLRQVSXUFKDVHVXQGHURXU(633DQG568 DQG 368 DZDUGV ZDV  PLOOLRQ  PLOOLRQ DQG  PLOOLRQ IRU ILVFDO \HDUV   DQG  UHVSHFWLYHO\

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

(PSOR\HU6SRQVRUHG%HQHILW3ODQV Contributory Defined Investment Plan² :H RIIHU WZR FRQWULEXWRU\ GHILQHG LQYHVWPHQW SODQV FRYHULQJ VXEVWDQWLDOO\DOOHPSOR\HHVVXEMHFWWRVHUYLFHUHTXLUHPHQWV(PSOR\HHVPD\FRQWULEXWHXSWRRIWKHLUDQQXDO SD\GHSHQGLQJRQWKHSODQ:HJHQHUDOO\PDNHGLVFUHWLRQDU\PDWFKLQJFRQWULEXWLRQVRIXSWRRIWKHILUVWRI HPSOR\HHFRQWULEXWLRQVWRWKHSODQ:HFRQWULEXWHGPLOOLRQPLOOLRQDQGPLOOLRQIRUWKHILVFDO\HDUV HQGHG$SULODQGUHVSHFWLYHO\

Non-Contributory Profit Sharing Plan² :H KDYH D QRQFRQWULEXWRU\ SURILW VKDULQJ SODQ FRYHULQJ VXEVWDQWLDOO\DOORIRXUHPSOR\HHV(PSOR\HHVEHFRPHHOLJLEOHRQ0D\IROORZLQJWKHFRPSOHWLRQRIDIXOOILVFDO \HDURIFRQWLQXRXVVHUYLFH2XUFRQWULEXWLRQVWRWKHSODQDUHGLVFUHWLRQDU\)RUILVFDOZHSODQWRFRQWULEXWH DSSUR[LPDWHO\  PLOOLRQ ZKLFK KDV EHHQ UHFRUGHG LQ JHQHUDO DQG DGPLQLVWUDWLYH FRVWV :H FRQWULEXWHG  PLOOLRQDQGPLOOLRQIRUWKHILVFDO\HDUVHQGHG$SULODQGUHVSHFWLYHO\&RQWULEXWLRQVDUHIXQGHG DIWHUWKHILVFDO\HDUHQG

,QFRPH7D[HV ,QFRPHWD[H[SHQVH EHQHILW IURPFRQWLQXLQJRSHUDWLRQVFRQVLVWVRIWKHIROORZLQJ LQWKRXVDQGV 

  )RUWKH

         

&XUUHQW            

)HGHUDO            

6WDWH            

)RUHLJQ           ²

7RWDOFXUUHQW            

'HIHUUHG            

'HIHUUHGIHGHUDO            

'HIHUUHGVWDWH            

7RWDOGHIHUUHG            

7RWDOLQFRPHWD[H[SHQVH EHQHILW            

7KHIROORZLQJWDEOHSUHVHQWVDUHFRQFLOLDWLRQRIWKHSURYLVLRQIRULQFRPHWD[HVIURPFRQWLQXLQJRSHUDWLRQVDW VWDWXWRU\UDWHVWRWKHSURYLVLRQ EHQHILW LQWKHFRQVROLGDWHGILQDQFLDOVWDWHPHQWV LQWKRXVDQGV 

  )RUWKH

         

)HGHUDOLQFRPHWD[HVH[SHFWHGDWWKHVWDWXWRU\UDWH D            

6WDWHLQFRPHWD[HVOHVVIHGHUDOLQFRPHWD[EHQHILW            

6WRFNFRPSHQVDWLRQ            

%XVLQHVVPHDOVDQGHQWHUWDLQPHQW            

'RPHVWLFSURGXFWLRQDFWLYLW\GHGXFWLRQ    ²   ²    

5HVHDUFKDQGGHYHORSPHQWWD[FUHGLW            

*RRGZLOOLPSDLUPHQW            ²

1RQGHGXFWLEOH6HSDUDWLRQH[SHQVHV        ²    ²

2WKHU            

)HGHUDOWD[UDWHFKDQJHRQGHIHUUHGWD[HV    ²        

7RWDOLQFRPHWD[H[SHQVH EHQHILW            

D :HKDGDVWDWXWRU\UDWHRILQILVFDODQGDQGDEOHQGHGVWDWXWRU\UDWHRILQILVFDO EHFDXVHRI7D[5HIRUP

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

'HIHUUHGWD[DVVHWV OLDELOLWLHV UHODWHGWRWHPSRUDU\GLIIHUHQFHVDUHWKHIROORZLQJ LQWKRXVDQGV 

  )RUWKH

      

1RQFXUUHQWWD[DVVHWV OLDELOLWLHV       

1HWRSHUDWLQJORVVFDUU\IRUZDUGVDQGWD[FUHGLWV      

,QYHQWRULHV      

$FFUXHGH[SHQVHVLQFOXGLQJFRPSHQVDWLRQ      

(QYLURQPHQWDOUHVHUYHV   ²   

3URGXFWOLDELOLW\      

$FFUXHGSURPRWLRQV      

:RUNHUV FRPSHQVDWLRQ      

:DUUDQW\UHVHUYH      

6WRFNEDVHGFRPSHQVDWLRQ      

6WDWHERQXVGHSUHFLDWLRQ      

3URSHUW\WD[HV      

3URSHUW\SODQWDQGHTXLSPHQW      

,QWDQJLEOHDVVHWV      

5LJKWRIXVHDVVHWV      ²

5LJKWRIXVHOLDELOLWLHV     ²

3HQVLRQ      

2WKHU      

/HVVYDOXDWLRQDOORZDQFH      

1HWGHIHUUHGWD[DVVHW OLDELOLW\ ²WRWDO      

:HKDGQRIHGHUDOQHWRSHUDWLQJORVVFDUU\IRUZDUGVLQILVFDO

7KHUHZHUHPLOOLRQDQGPLOOLRQLQVWDWHQHWRSHUDWLQJORVVFDUU\IRUZDUGVDVRI$SULODQG  UHVSHFWLYHO\ 7KH VWDWH QHW RSHUDWLQJ ORVV FDUU\IRUZDUGV ZLOO H[SLUH EHWZHHQ $SULO  DQG $SULO 7KHUHZHUHPLOOLRQRIVWDWHWD[FUHGLWFDUU\IRUZDUGVDVRI$SULODQG7KHVWDWHWD[FUHGLW FDUU\IRUZDUGVZLOOH[SLUHEHWZHHQ$SULODQG$SULORUKDYHQRH[SLUDWLRQGDWH

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

2Q'HFHPEHUWKH6(&LVVXHG6WDII$FFRXQWLQJ%XOOHWLQRU6$%WKDWSURYLGHGDGGLWLRQDO JXLGDQFHDOORZLQJFRPSDQLHVWRXVHDPHDVXUHPHQWSHULRGVLPLODUWRWKDWXVHGLQEXVLQHVVFRPELQDWLRQVWRDFFRXQW IRUWKHLPSDFWVRI7D[5HIRUPLQWKHLUILQDQFLDOVWDWHPHQWV7KLVPHDVXUHPHQWSHULRGZDVQRWSHUPLWWHGWRH[WHQG EH\RQGRQH\HDUIURPWKH7D[UHIRUPHQDFWPHQWGDWH,QDFFRUGDQFHZLWK6$%WRWKHH[WHQWWKDWDFRPSDQ\¶V DFFRXQWLQJIRUFHUWDLQLQFRPHWD[HIIHFWVRIWKH7D[5HIRUPLVLQFRPSOHWHEXWWKHFRPSDQ\ZDVDEOHWRGHWHUPLQHD UHDVRQDEO\HVWLPDWLQJWKHHIIHFWVZHZHUHSHUPLWWHGWRUHFRUGDSURYLVLRQDOHVWLPDWHLQRXUILQDQFLDOVWDWHPHQWV$OO SURYLVLRQDOHVWLPDWHVUHODWHGWR7D[5HIRUPZHUHILQDOL]HGZLWKLQWKHPHDVXUHPHQWSHULRG

7KHLQFRPHWD[SURYLVLRQVUHSUHVHQWHIIHFWLYHWD[UDWHVRI  DQGIRUWKHILVFDO\HDUHQGHG$SULO DQGUHVSHFWLYHO\

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

86 LQFRPH WD[HV KDYH QRW EHHQ SURYLGHG RQ  RI XQGLVWULEXWHG HDUQLQJV RI RXU IRUHLJQ VXEVLGLDU\ VLQFHLWLVRXULQWHQWLRQWRSHUPDQHQWO\UHLQYHVWVXFKHDUQLQJVRIIVKRUH,IWKHHDUQLQJVZHUHGLVWULEXWHGLQWKHIRUP RIGLYLGHQGVZHZRXOGQRWEHVXEMHFWWR86WD[DVDUHVXOWRIWKH7D[$FWEXWFRXOGEHVXEMHFWWRIRUHLJQLQFRPH DQG ZLWKKROGLQJ WD[HV 'HWHUPLQDWLRQ RI WKH DPRXQW RI WKLV XQUHFRJQL]HG GHIHUUHG LQFRPH WD[ OLDELOLW\ LV QRW SUDFWLFDO

$W$SULODQGZHGLGQRWKDYHDQ\JURVVWD[HIIHFWHGXQUHFRJQL]HGWD[EHQHILWV

:LWKOLPLWHGH[FHSWLRQZHDUHVXEMHFWWR86IHGHUDOVWDWHDQGORFDORUQRQ86LQFRPHWD[DXGLWVE\WD[ DXWKRULWLHVIRUILVFDO\HDUVVXEVHTXHQWWR$SULO

&RPPLWPHQWVDQG&RQWLQJHQFLHV Litigation ,Q-DQXDU\*HPLQL7HFKQRORJLHV,QFRUSRUDWHGRU*HPLQLFRPPHQFHGDQDFWLRQDJDLQVWXVDQG6PLWK  :HVVRQ &RUS LQ WKH 8QLWHG 6WDWHV 'LVWULFW &RXUW IRU WKH 'LVWULFW RI ,GDKR RU 'LVWULFW &RXUW  7KH FRPSODLQW DOOHJHVDPRQJRWKHUWKLQJVWKDWWKHGHIHQGDQWVEUHDFKHGWKHHDUQRXWDQGRWKHUSURYLVLRQVRIWKH$VVHW3XUFKDVH $JUHHPHQWDQGDQFLOODU\DJUHHPHQWVEHWZHHQWKHSDUWLHVLQFRQQHFWLRQZLWK6PLWK :HVVRQ&RUS¶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¶V FRPSODLQW DQG D FRXQWHUFODLP DJDLQVW *HPLQL DQG LWV VWRFNKROGHUV DW WKH WLPH RI WKH VLJQLQJ RI WKH $VVHW 3XUFKDVH $JUHHPHQW :H EHOLHYH WKH FODLPV DVVHUWHG LQ WKH FRPSODLQWKDYHQRPHULWDQGZHLQWHQGWRDJJUHVVLYHO\GHIHQGWKLVDFWLRQ

:H DUH D GHIHQGDQW LQ VHYHQ SURGXFW OLDELOLW\ FDVHV DQG DUH DZDUH RI ILYH RWKHU SURGXFW OLDELOLW\ FODLPV SULPDULO\ DOOHJLQJ GHIHFWLYH SURGXFW GHVLJQ GHIHFWLYH PDQXIDFWXULQJ RU IDLOXUH WR SURYLGH DGHTXDWH ZDUQLQJV ,Q DGGLWLRQZHDUHDFRGHIHQGDQWLQDFDVHILOHGRQ$XJXVWE\WKHFLW\RI*DU\,QGLDQDDJDLQVWQXPHURXV ILUHDUPPDQXIDFWXUHUVGLVWULEXWRUVDQGGHDOHUVVHHNLQJWRUHFRYHUPRQHWDU\GDPDJHVDVZHOODVLQMXQFWLYHUHOLHI DOOHJHGO\DULVLQJRXWRIWKHPLVXVHRIILUHDUPVE\WKLUGSDUWLHV,Q-DQXDU\WKHWULDOFRXUWJUDQWHGGHIHQGDQWV¶ 0RWLRQIRU-XGJPHQWRQWKH3OHDGLQJVGLVPLVVLQJWKHFDVHLQLWVHQWLUHW\,Q)HEUXDU\SODLQWLIIVDSSHDOHGWKH GLVPLVVDOWRWKH,QGLDQD&RXUWRI$SSHDOV2Q0D\WKH,QGLDQD&RXUWRI$SSHDOVLVVXHGDGHFLVLRQZKLFK DIILUPHGLQSDUWDQGUHYHUVHGLQSDUWDQGUHPDQGHGIRUIXUWKHUSURFHHGLQJVWKHWULDOFRXUW¶VGLVPLVVDORIWKH&LW\¶V FRPSODLQW2Q -XO\   GHIHQGDQWV ILOHG D 3HWLWLRQ WR 7UDQVIHU MXULVGLFWLRQ WR WKH ,QGLDQD 6XSUHPH &RXUW %ULHILQJ ZDV FRPSOHWHG LQ WKH ,QGLDQD 6XSUHPH &RXUW RQ $XJXVW   2Q 1RYHPEHU   WKH ,QGLDQD 6XSUHPH&RXUWGHQLHGRXUSHWLWLRQWRWUDQVIHU7KHFDVHZDVUHWXUQHGWRWKHWULDOFRXUW

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

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¶PRWLRQWRGLVPLVVZLWKRXWSUHMXGLFHDQGJUDQWHGSODLQWLIIVOHDYHWR DPHQG WKHLU FRPSODLQW  2Q 'HFHPEHU   SODLQWLIIV ILOHG D 6HFRQG $PHQGHG &RPSODLQW IRU 'HFODUDWRU\ 5HOLHI2Q'HFHPEHUGHIHQGDQWVILOHGD0RWLRQWR'LVPLVV3ODLQWLIIV¶6HFRQG$PHQGHG&RPSODLQW2Q 1RYHPEHUWKHFRXUWJUDQWHGGHIHQGDQWV¶PRWLRQWRGLVPLVVSODLQWLIIV¶VHFRQGDPHQGHGFRPSODLQWZLWK SUHMXGLFH

,Q$XJXVW3ULPXV*URXS//&ILOHGDQDFWLRQLQWKH86'LVWULFW&RXUWIRUWKH6RXWKHUQ'LVWULFWRI 2KLR (DVWHUQ 'LYLVLRQ DJDLQVW XV DQG RWKHU ILUHDUPV PDQXIDFWXUHUV DOOHJLQJ 5DFNHWHHU ,QIOXHQFHG &RUUXSW 2UJDQL]DWLRQV $FW 5,&2  YLRODWLRQV UDFNHWHHULQJ HQWHUSULVH DQG LQWHQWLRQDO PLVUHSUHVHQWDWLRQ  3ODLQWLII ZKLFK RSHUDWHV DV DQ ³HQWHUWDLQPHQW YHQXH´ LQ &ROXPEXV 2KLR SXUSRUWV WR EULQJ WKLV DFWLRQ RQ EHKDOI RI ³DOO SHUVRQV HQWLWOHGWRIUHHO\DWWHQGVFKRROVVKRSSLQJORFDWLRQVFKXUFKHVHQWHUWDLQPHQWYHQXHVDQGZRUNSODFHVLQWKH8QLWHG 6WDWHVZLWKRXWWKHLQWUXVLRQRILQGLYLGXDOVDUPHGZLWKDVVDXOWZHDSRQV´,QDGGLWLRQWRFRPSHQVDWRU\DQGSXQLWLYH GDPDJHVSODLQWLIIVHHNVSUHOLPLQDU\DQGSHUPDQHQWLQMXQFWLYHUHOLHIHQMRLQLQJWKHGLVWULEXWLRQDQGVDOHRI³DVVDXOW ZHDSRQV´2Q$XJXVWWKHFRXUWGHQLHGZLWKRXWSUHMXGLFHSODLQWLII¶V0RWLRQIRU7HPSRUDU\5HVWUDLQLQJ 2UGHU2Q6HSWHPEHUGHIHQGDQWVPRYHGWRGLVPLVVSODLQWLII¶VFRPSODLQW2Q6HSWHPEHUSODLQWLII ILOHGDQDPHQGHGFRPSODLQWDGGLQJFODLPVRISXEOLFQXLVDQFHQHJOLJHQWGHVLJQDQGIDLOXUHWRZDUQ2Q2FWREHU WKH86'LVWULFW&RXUWJUDQWHGGHIHQGDQWV¶PRWLRQGLVPLVVLQJWKHFDVHLQLWVHQWLUHW\2Q2FWREHU SODLQWLIIILOHGDQRWLFHRIDSSHDOZLWKWKH86&RXUWRI$SSHDOVIRUWKH6L[WK&LUFXLW2Q1RYHPEHUWKH 6L[WK &LUFXLW GLVPLVVHG SODLQWLII¶V DSSHDO IRU IDLOXUH WR SD\ WKH UHTXLUHG IHH 2Q 1RYHPEHU   SODLQWLII DSSHOODQWILOHGDQGWKH6L[WK&LUFXLWJUDQWHGDPRWLRQWRUHLQVWDWHWKHFDVH+RZHYHURQ0DUFKDWWKH UHTXHVW RI WKH $SSHOODQW DQG EDVHG RQ WKH GHDWK RI FRFRXQVHO WKH 6L[WK &LUFXLW KHOG WKH FDVH LQ DEH\DQFH DQG RUGHUHGWKDWWKH$SSHOODQWILOHDVWDWXVUHSRUWHYHU\GD\V2Q$SULOWKH$SSHOODQWILOHGD6WDWXV5HSRUW VWDWLQJWKDWLWLQWHQGHGWRUHDFWLYDWHWKHFDVHRUGLVPLVVWKHDSSHDOZLWKLQGD\V7KH$SSHOODQWKDVILOHGQRIXUWKHU 6WDWXV5HSRUWV

:HDUHDGHIHQGDQWLQDSXWDWLYHFODVVSURFHHGLQJEHIRUHWKH2QWDULR6XSHULRU&RXUWRI-XVWLFHLQ7RURQWR &DQDGD 7KH DFWLRQ ZDV ILOHG RQ 'HFHPEHU   7KH DFWLRQ FODLPV &$' PLOOLRQ LQ DJJUHJDWH JHQHUDO GDPDJHV &$' PLOOLRQ LQ DJJUHJDWH SXQLWLYH GDPDJHV VSHFLDO GDPDJHV LQ DQ XQVSHFLILHG DPRXQW WRJHWKHU ZLWKLQWHUHVWDQGOHJDOFRVWV7KHQDPHGSODLQWLIIVDUHWZRYLFWLPVRIDVKRRWLQJWKDWWRRNSODFHLQ7RURQWRRQ-XO\   DQG WKHLU IDPLO\ PHPEHUV2QH YLFWLP ZDV VKRW DQG LQMXUHG GXULQJ WKH VKRRWLQJ7KH RWKHU VXIIHUHG XQVSHFLILHGLQMXULHVZKLOHIOHHLQJWKHVKRRWLQJ7KHSODLQWLIIVDUHVHHNLQJWRFHUWLI\DFODLPRQEHKDOIRIFODVVHVWKDW LQFOXGHDOOSHUVRQVZKRZHUHNLOOHGRULQMXUHGLQWKHVKRRWLQJDQGWKHLULPPHGLDWHIDPLO\PHPEHUV7KHSODLQWLIIV DOOHJH QHJOLJHQW GHVLJQ DQG SXEOLF QXLVDQFH 7KH FDVH KDV QRW EHHQ FHUWLILHG DV D FODVV DFWLRQ  :H LQWHQG WR YLJRURXVO\RSSRVHWKHSURFHHGLQJV

,Q0D\ZHZHUHQDPHGLQDQDFWLRQUHODWHGWRWKH&KDEDGRI3RZD\V\QDJRJXHVKRRWLQJWKDWWRRN SODFHRQ$SULO7KHFRPSODLQWZDVILOHGLQWKH6XSHULRU&RXUWRIWKH6WDWHRI&DOLIRUQLDIRUWKH&RXQW\RI 6DQ'LHJR±&HQWUDODQGDVVHUWVFODLPVDJDLQVWXVIRUSURGXFWOLDELOLW\XQIDLUFRPSHWLWLRQQHJOLJHQFHDQGSXEOLF QXLVDQFH7KHSODLQWLIIVDOOHJHWKH\ZHUHSUHVHQWDWWKHV\QDJRJXHRQWKHGD\RIWKHLQFLGHQWDQGVXIIHUHGSK\VLFDO DQGRUHPRWLRQDOLQMXU\7KHSODLQWLIIVVHHNFRPSHQVDWRU\DQGSXQLWLYHGDPDJHVDWWRUQH\V¶IHHVDQGLQMXQFWLYH UHOLHI:HKDYHQRW\HWEHHQVHUYHGLQWKHOLWLJDWLRQ

2Q-XO\RXUFRPSHWLWRU6WXUP5XJHU &R,QFILOHGDFRPSODLQWDQGPRWLRQIRUSUHOLPLQDU\ LQMXQFWLRQDJDLQVWXVLQWKH86'LVWULFW&RXUW'LVWULFWRI1HZ+DPSVKLUHVHHNLQJLQMXQFWLYHUHOLHIDQGGDPDJHV 3ODLQWLIIDOOHJHVWUDGHGUHVVLQIULQJHPHQWLQYROYLQJRXU7KRPSVRQ&HQWHUEUDQG7&5ULIOHDVZHOODVYLRODWLRQ RIWKH1HZ+DPSVKLUH&RQVXPHU3URWHFWLRQ$FW$KHDULQJRQSODLQWLII¶VPRWLRQIRUSUHOLPLQDU\LQMXQFWLRQZDV KHOGLQ1RYHPEHU2Q'HFHPEHUSODLQWLIIZLWKGUHZLWVPRWLRQIRUSUHOLPLQDU\LQMXQFWLRQ  -RKQ3LGFRFNDVWUXVWHHRIWKH$63&&UHGLWRU7UXVW DSSRLQWHGXQGHUWKHSODQRIUHRUJDQL]DWLRQRI$FX6SRUW &RUSRU$FX6SRUWDVGHEWRULQSRVVHVVLRQXQGHUFKDSWHURIWKH86%DQNUXSWF\&RGH LVWKHSODLQWLIILQWKUHH

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

VHSDUDWHDFWLRQVDJDLQVWXVLQWKH86%DQNUXSWF\&RXUWIRUWKH6RXWKHUQ'LVWULFWRI2KLR7ZRVHHNUHFRYHU\RI DOOHJHGSUHIHUHQWLDOWUDQVIHUVUHFHLYHGE\XVIURP$FX6SRUWLQWKHDJJUHJDWHDPRXQWRIPLOOLRQ7KHWKLUGVHHNV WXUQRYHURIJRRGVDOOHJHGO\RZHGWR$FX6SRUWE\XVXQGHURQHRUPRUHRIRXUSURPRWLRQDOSURJUDPVLQWKHDPRXQW RIPLOOLRQ:HGHQ\DOOPDWHULDODOOHJDWLRQVDQGKDYHDVVHUWHGDIILUPDWLYHGHIHQVHV:HEHOLHYHZHKDYHVWURQJ GHIHQVHVWRWKHVHDFWLRQVDQGLQWHQGWRFRQWLQXHWRYLJRURXVO\GHIHQGWKHP

:H EHOLHYH WKDW WKH YDULRXV DOOHJDWLRQV DV GHVFULEHG DERYH DUH XQIRXQGHG DQG WKDW DQ\ LQFLGHQW DQG DQ\ UHVXOWVIURPWKHPRUDQ\LQMXULHVZHUHGXHWRQHJOLJHQFHRUPLVXVHRIWKHILUHDUPE\WKHFODLPDQWRUDWKLUGSDUW\

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

:HDUHYLJRURXVO\GHIHQGLQJRXUVHOYHVLQWKHODZVXLWVWRZKLFKZHDUHVXEMHFW$QXQIDYRUDEOHRXWFRPHRU SURORQJHGOLWLJDWLRQFRXOGKDUPRXUEXVLQHVV/LWLJDWLRQRIWKLVQDWXUHDOVRLVH[SHQVLYHWLPHFRQVXPLQJDQGGLYHUWV WKHWLPHDQGDWWHQWLRQRIRXUPDQDJHPHQW

:HPRQLWRUWKHVWDWXVRINQRZQFODLPVDQGWKHUHODWHGSURGXFWOLDELOLW\DFFUXDOZKLFKLQFOXGHVDPRXQWVIRU GHIHQVHFRVWVIRUDVVHUWHGDQGXQDVVHUWHGFODLPV$IWHUFRQVXOWDWLRQZLWKOLWLJDWLRQFRXQVHODQGDUHYLHZRIWKHPHULW RIHDFKFODLPZHKDYHFRQFOXGHGWKDWZHDUHXQDEOHWRUHDVRQDEO\HVWLPDWHWKHSUREDELOLW\RUWKHHVWLPDWHGUDQJHRI UHDVRQDEO\SRVVLEOHORVVHVUHODWHGWRPDWHULDODGYHUVHMXGJPHQWVUHODWHGWRVXFKFODLPVDQGWKHUHIRUHZHKDYHQRW DFFUXHGIRUDQ\VXFKMXGJPHQWV,QWKHIXWXUHVKRXOGZHGHWHUPLQHWKDWDORVV RUDQDGGLWLRQDOORVVLQH[FHVVRIRXU DFFUXDO LVDWOHDVWUHDVRQDEO\SRVVLEOHDQGPDWHULDOZHZRXOGWKHQGLVFORVHDQHVWLPDWHRIWKHSRVVLEOHORVVRUUDQJH RIORVVLIVXFKHVWLPDWHFRXOGEHPDGHRUGLVFORVHWKDWDQHVWLPDWHFRXOGQRWEHPDGH:HEHOLHYHWKDWZHKDYH SURYLGHGDGHTXDWHDFFUXDOVIRUGHIHQVHFRVWV

)RU WKH ILVFDO \HDUV HQGHG $SULO   DQG  ZH SDLG   DQG  UHVSHFWLYHO\LQGHIHQVHDQGDGPLQLVWUDWLYHFRVWVUHODWLYHWRSURGXFWOLDELOLW\DQGPXQLFLSDOOLWLJDWLRQ,QDGGLWLRQZH VSHQWDQDJJUHJDWHRIDQGUHVSHFWLYHO\LQWKRVHILVFDO\HDUVLQVHWWOHPHQWIHHVUHODWHGWR SURGXFWOLDELOLW\FDVHV

:H KDYH UHFRUGHG RXU OLDELOLW\ IRU GHIHQVH FRVWV EHIRUH FRQVLGHUDWLRQ IRU UHLPEXUVHPHQW IURP LQVXUDQFH FDUULHUV:HKDYHDOVRUHFRUGHGWKHDPRXQWGXHDVUHLPEXUVHPHQWXQGHUH[LVWLQJSROLFLHVIURPWKHLQVXUDQFHFDUULHUV DVDUHFHLYDEOHVKRZQLQRWKHUFXUUHQWDVVHWVDQGRWKHUDVVHWV

:H UHFRJQL]H JDLQV DQG H[SHQVHV IRU FKDQJHV LQ RXU SURGXFW OLDELOLW\ SURYLVLRQV DQG PXQLFLSDO OLWLJDWLRQ OLDELOLWLHV,QILVFDOZHUHFRUGHGH[SHQVHRILQILVFDOZHUHFRUGHGH[SHQVHRIDQGLQ ILVFDOZHUHFRUGHGH[SHQVHRI

$W WKLV WLPH DQ HVWLPDWHG UDQJH RI UHDVRQDEO\ SRVVLEOH DGGLWLRQDO ORVVHV UHODWLQJ WR XQIDYRUDEOH RXWFRPHV FDQQRWEHPDGH

Environmental Remediation :HDUHVXEMHFWWRQXPHURXVIHGHUDOVWDWHDQGORFDOODZVDQGUHJXODWLRQVWKDWUHJXODWHWKHKHDOWKDQGVDIHW\RI RXU ZRUNIRUFH LQFOXGLQJ EXW QRW OLPLWHG WR WKRVH UHJXODWLRQV PRQLWRUHG E\ WKH 2FFXSDWLRQDO +HDOWK DQG 6DIHW\ $GPLQLVWUDWLRQRU26+$WKH1DWLRQDO)LUH3URWHFWLRQ$VVRFLDWLRQDQGWKH'HSDUWPHQWRI3XEOLF+HDOWK7KRXJK QRW H[KDXVWLYH H[DPSOHV RI DSSOLFDEOH UHJXODWLRQV LQFOXGH FRQILQHG VSDFH VDIHW\ ZDONLQJ DQG ZRUNLQJ VXUIDFHV PDFKLQHJXDUGLQJDQGOLIHVDIHW\

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

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

:H KDYH LQ SODFH SURJUDPV DQG SHUVRQQHO WR PRQLWRU FRPSOLDQFH ZLWK YDULRXV IHGHUDO VWDWH DQG ORFDO HQYLURQPHQWDOUHJXODWLRQV,QWKHQRUPDOFRXUVHRIRXUPDQXIDFWXULQJRSHUDWLRQVZHDUHVXEMHFWWRJRYHUQPHQWDO SURFHHGLQJVDQGRUGHUVSHUWDLQLQJWRZDVWHGLVSRVDODLUHPLVVLRQVDQGZDWHUGLVFKDUJHVLQWRWKHHQYLURQPHQW:H IXQG RXU HQYLURQPHQWDO FRVWV WKURXJK FDVK IORZV IURP RSHUDWLRQV :H EHOLHYH WKDW ZH DUH LQ FRPSOLDQFH ZLWK DSSOLFDEOHHQYLURQPHQWDOUHJXODWLRQVLQDOOPDWHULDOUHVSHFWV

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

$VRI$SULOZHGRQRWKDYHDQRSHQHQYLURQPHQWDOUHVHUYHUHFRUGHGLQRXUFRQVROLGDWHGEDODQFH VKHHW $V RI $SULO   ZH UHFRUGHG DSSUR[LPDWHO\   RI HQYLURQPHQWDO UHVHUYH LQ QRQFXUUHQW OLDELOLWLHV

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

Contracts Employment Agreements ²:HKDYHHPSOR\PHQWVHYHUDQFHDQGFKDQJHRIFRQWURODJUHHPHQWVZLWKFHUWDLQ RIILFHUVDQGPDQDJHUV

Other Agreements ² :H KDYH GLVWULEXWLRQ DJUHHPHQWV ZLWK YDULRXV WKLUG SDUWLHV LQ WKH RUGLQDU\ FRXUVH RI EXVLQHVV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

Leases 7KHIROORZLQJVXPPDUL]HVRXURSHUDWLQJOHDVHVIRURIILFHDQGRUPDQXIDFWXULQJVSDFH

/RFDWLRQRI/HDVH  ([SLUDWLRQ'DWH 6SULQJILHOG0DVVDFKXVHWWV  1RYHPEHU 6FRWWVGDOH$UL]RQD  $SULO 6RPHUVZRUWK1HZ+DPSVKLUH  -XQH 6KHQ]KHQ&KLQD  $XJXVW +RXOWRQ0DLQH  -DQXDU\ :LOVRQYLOOH2UHJRQ  2FWREHU &ROXPELD0LVVRXUL   $SULO %HQWRQYLOOH$UNDQVDV  'HFHPEHU 'HHS5LYHU&RQQHFWLFXW  0D\ 3DUN&LW\8WDK  $XJXVW +HUVWDO%HOJLXP  -DQXDU\ 0HULGLDQ,GDKR   2FWREHU &ROXPELD0LVVRXUL  1RYHPEHU

 3URSHUWLHVDUHVXEOHDVHG

:HDOVROHDVHPDFKLQHU\SKRWRFRSLHUVDQGYHKLFOHVIRURXUQDWLRQDOVDOHVIRUFHZLWKYDULRXVH[SLUDWLRQGDWHV

4XDUWHUO\)LQDQFLDO,QIRUPDWLRQ 8QDXGLWHG  7KH IROORZLQJ WDEOH VXPPDUL]HV TXDUWHUO\ ILQDQFLDO UHVXOWV LQ ILVFDO  DQG  ,Q RXU RSLQLRQ DOO DGMXVWPHQWVQHFHVVDU\WRSUHVHQWIDLUO\WKHLQIRUPDWLRQIRUVXFKTXDUWHUVKDYHEHHQUHIOHFWHG LQWKRXVDQGVH[FHSW SHUVKDUHGDWD 

  )RUWKH

 )RUWKH

'LOXWHG±WRWDO                      D %DVLFDQGGLOXWHGHDUQLQJVSHUVKDUHPD\QRWHTXDOWKHVXPRIWKHTXDUWHUO\EDVLFDQGGLOXWHGHDUQLQJVSHU VKDUHGXHWRURXQGLQJ E $PRXQWV LQFOXGHV D  PLOOLRQ QRQFDVK JRRGZLOO LPSDLUPHQW UHODWLQJ WR RXU 2XWGRRU 3URGXFWV  $FFHVVRULHVVHJPHQW F  $PRXQWV LQFOXGHV D  PLOOLRQ QRQFDVK JRRGZLOO LPSDLUPHQW UHODWLQJ WR RXU 2XWGRRU 3URGXFWV  $FFHVVRULHVVHJPHQW

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

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

6HJPHQWDVVHWVDUHWKRVHGLUHFWO\XVHGLQRUFOHDUO\DOORFDEOHWRDUHSRUWDEOHVHJPHQW¶VRSHUDWLRQV$VVHWVE\ EXVLQHVVVHJPHQWDUHSUHVHQWHGLQWKHIROORZLQJWDEOHDVRI$SULODQG LQWKRXVDQGV 

  $VRI$SULO   $VRI$SULO  2XWGRRU 2XWGRRU 3URGXFWV 3URGXFWV   )LUHDUPV   $FFHVVRULHV  7RWDO   )LUHDUPV   $FFHVVRULHV   7RWDO  7RWDODVVHWV    3URSHUW\SODQWDQGHTXLSPHQWQHW        ,QWDQJLEOHVQHW       

*RRGZLOO        

5HVXOWVE\EXVLQHVVVHJPHQWDUHSUHVHQWHGLQWKHIROORZLQJWDEOHIRUWKH\HDUVHQGHG$SULODQG  LQWKRXVDQGV 

  )RUWKH

,QFRPHWD[H[SHQVH EHQHILW          ²   

  )RUWKH

,QFRPHWD[H[SHQVH EHQHILW          ²   

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

  )RUWKH

D )RUWKH\HDUVHQGHG$SULODQGZHDOORFDWHGDOORIFRUSRUDWHRYHUKHDGH[SHQVHVH[FHSW IRULQWHUHVWDQGLQFRPHWD[HVVXFKDVJHQHUDODQGDGPLQLVWUDWLYHH[SHQVHVDQGRWKHUFRUSRUDWHOHYHOH[SHQVHV WRERWKRXU)LUHDUPVDQG2XWGRRU3URGXFWV $FFHVVRULHVVHJPHQWV E $PRXQWLQFOXGHVDQRQFDVKJRRGZLOOFKDUJHRIPLOOLRQ F $PRXQWLQFOXGHVDQRQFDVKJRRGZLOOFKDUJHRIPLOOLRQ G $PRXQWLQFOXGHVRIDGGLWLRQDOFRVWRIJRRGVVROGIURPWKHIDLUYDOXHLQYHQWRU\VWHSXSUHODWHGWRRXU $FTXLVLWLRQV

) 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 127(672&2162/,'$7('),1$1&,$/67$7(0(176² &RQWLQXHG

6&+('8/(,, 60,7+ :(6621%5$1'6,1&$1'68%6,',$5,(6 9$/8$7,21$1'48$/,)<,1*$&&28176 )RUWKH



    $GGLWLRQV       

    &KDUJHGWR   &KDUJHGWR       

 %DODQFHDW   &RVWVDQG   2WKHU      %DODQFHDW 

 0D\   ([SHQVHV   $FFRXQWV   'HGXFWLRQV   $SULO 

                   

$OORZDQFHIRUGRXEWIXODFFRXQWV          ²        

'HIHUUHGWD[YDOXDWLRQDOORZDQFH          ²   ²    

                   

$OORZDQFHIRUGRXEWIXODFFRXQWV           ²        

'HIHUUHGWD[YDOXDWLRQDOORZDQFH          ²   ²    

                   

$OORZDQFHIRUGRXEWIXODFFRXQWV                     

 'HIHUUHGWD[YDOXDWLRQDOORZDQFH          ²   ²     

) STATEMENT REGARDING RECONCILIATION OF U.S. GAAP TO FORWARD-LOOKING INFORMATION NON-GAAP FINANCIAL MEASURES

&HUWDLQVWDWHPHQWVFRQWDLQHGLQWKLV$QQXDO5HSRUWPD\EHGHHPHGWREHIRUZDUG ΖQWKLVDQQXDOUHSRUWFHUWDLQQRQ*$$3ȴQDQFLDO ORRNLQJVWDWHPHQWVXQGHUIHGHUDOVHFXULWLHVODZVDQGZHLQWHQGWKDWVXFKIRUZDUGORRNLQJ PHDVXUHVLQFOXGLQJȊQRQ*$$3QHWLQFRPHȋ VWDWHPHQWVEHVXEMHFWWRWKHVDIHKDUERUFUHDWHGWKHUHE\6XFKIRUZDUGORRNLQJVWDWHPHQWV Ȋ$GMXVWHG(%Ζ7'$6ȋDQGȊIUHHFDVKȵRZȋDUH LQFOXGHEXWDUHQRWOLPLWHGWRRXUEHOLHIWKDWWKHVSLQR΍ZLOODOORZWKHPDQDJHPHQWWHDPV SUHVHQWHG)URPWLPHWRWLPHWKHFRPSDQ\ LQERWKȴUHDUPVDQGRXWGRRUSURGXFWVDQGDFFHVVRULHVWRIRFXVRQWKHLUUHVSHFWLYHJURZWK FRQVLGHUVDQGXVHVWKHVHVXSSOHPHQWDOPHDVXUHV VWUDWHJLHVWDLORUWKHLUEXVLQHVVDQGȴQDQFLDOPRGHOVWRWKRVH VWUDWHJLHVDQGDOLJQWKHLU RIRSHUDWLQJSHUIRUPDQFHLQRUGHUWRSURYLGH ȴQDQFLDOUHVRXUFHVZLWKWKHLUSDUWLFXODUEXVLQHVVRXUEHOLHIWKDWLWZLOOSURYLGHWKHLQYHVWPHQW WKHUHDGHUZLWKDQLPSURYHGXQGHUVWDQGLQJRI FRPPXQLW\FOHDUHULQVLJKWLQWRWKHYDOXHFUHDWLRQSRWHQWLDOLQ HDFKLQGHSHQGHQWFRPSDQ\ XQGHUO\LQJSHUIRUPDQFHWUHQGV7KHFRPSDQ\ XOWLPDWHO\GULYLQJVWRFNKROGHUYDOXHRXUEHOLHIWKDWRXUVWURQJEDODQFHVKHHWZLOOSURYLGHXV EHOLHYHVLWLVXVHIXOIRULWVHOIDQGWKHUHDGHUWR ZLWKVXɝFLHQWUHVRXUFHVWRIXHOPXOWLSOHRUJDQLFJURZWKRSSRUWXQLWLHVLQȴUHDUPVDQGWR UHYLHZDVDSSOLFDEOHERWK  *$$3PHDVXUHV VXSSRUWRXUSODQWRUHWXUQH[FHVVFDSLWDOWRRXUVWRFNKROGHUVRXUEHOLHIWKDWRXUJURZLQJ WKDWLQFOXGH L DPRUWL]DWLRQRIDFTXLUHGLQWDQJLEOH SRUWIROLRRISRSXODUFRQVXPHUȴUHDUPEUDQGVFRPELQHGZLWKRXU VWURQJEDODQFHVKHHW DVVHWV LL WUDQVLWLRQFRVWV LLL IDLUYDOXHLQYHQWRU\ SRVLWLRQXVZHOOIRUȴVFDORXUEHOLHIWKDWRXUSURGXFWGHYHORSPHQWDQGHQJLQHHULQJ VWHSXSH[SHQVH LY UHFDOOUHODWHGH[SHQVHV Y WHDPVZLOOUHPDLQIRFXVHGRQLQQRYDWLRQWDSSLQJLQWRWKHLUSDVVLRQIRUSHUVRQDOSURWHFWLRQ FKDQJHLQFRQWLQJHQWFRQVLGHUDWLRQ YL JRRGZLOO DQGWKHVKRRWLQJVSRUWVWRGHVLJQDQGGHOLYHUQHZSURGXFWVWKDWWUXO\H[FLWHRXUFRQVXPHUV LPSDLUPHQW YLL &(2VHSDUDWLRQ YLLL DFTXLVLWLRQ DQGRXUEHOLHIWKDWWKLVDELOLW\WRXQGHUVWDQGWKHQHHGVRIRXUFRQVXPHUFRPELQHGZLWKRXU UHODWHGFRVWV L[ WKHWD[H΍HFWRIQRQ*$$3 LPSUHVVLYHEUDQGSRUWIROLRDQGRXUDELOLW\WRUDSLGO\LQQRYDWHZLOOEHLQVWUXPHQWDOLQDOORZLQJ DGMXVWPHQWV [ &29Ζ'H[SHQVHV [L QHWFDVK XVWRGHOLYHUORQJWHUPPDUNHWVKDUHJDLQVDQGWRUHWXUQH[FHVVFDSLWDOWRRXUVWRFNKROGHUV XVHGLQLQYHVWLQJDFWLYLWLHV [LL UHFHLSWVIURPQRWH :HFDXWLRQWKDWWKHVHVWDWHPHQWVDUHTXDOLȴHGE\LPSRUWDQWIDFWRUVWKDWFRXOGFDXVHDFWXDO UHFHLYDEOH [LLL LQWHUHVWH[SHQVH [LY LQFRPHWD[ UHVXOWVWRGL΍HUPDWHULDOO\IURPWKRVHUHȵHFWHGE\VXFKIRUZDUGORRNLQJVWDWHPHQWV6XFK H[SHQVH [Y GHSUHFLDWLRQDQGDPRUWL]DWLRQDQG IDFWRUVLQFOXGHEXWDUHQRWOLPLWHGWRHFRQRPLFVRFLDOSROLWLFDOOHJLVODWLYHDQGUHJXODWRU\ [YL VWRFNEDVHGFRPSHQVDWLRQH[SHQVHVDQG IDFWRUVWKHSRWHQWLDOIRULQFUHDVHGUHJXODWLRQRIȴUHDUPVDQG ȴUHDUPUHODWHGSURGXFWVDFWLRQV  WKHQRQ*$$3PHDVXUHVWKDWH[FOXGHVXFK RIVRFLDODFWLYLVWVWKDWFRXOGKDYHDQDGYHUVHH΍HFWRQRXUEXVLQHVVWKHLPSDFWRIODZVXLWVWKH LQIRUPDWLRQ7KHFRPSDQ\SUHVHQWVWKHVHQRQ*$$3 GHPDQGIRURXUSURGXFWVWKHVWDWHRIWKH86HFRQRP\LQJHQHUDODQGWKHȴUHDUPLQGXVWU\ PHDVXUHVEHFDXVHLWFRQVLGHUVWKHPDQLPSRUWDQW LQSDUWLFXODUJHQHUDOHFRQRPLFFRQGLWLRQVDQGFRQVXPHUVSHQGLQJSDWWHUQVRXUFRPSHWLWLYH VXSSOHPHQWDOPHDVXUHRILWVSHUIRUPDQFH7KH HQYLURQPHQWWKHVXSSO\DYDLODELOLW\DQGFRVWVRIUDZPDWHULDOVDQGFRPSRQHQWVWKHLPSDFW FRPSDQ\ȇVGHȴQLWLRQRIWKHVHDGMXVWHGȴQDQFLDO RISURWHFWLRQLVWWDUL΍VDQGWUDGHZDUVVSHFXODWLRQVXUURXQGLQJIHDUVRIWHUURULVPDQGFULPH PHDVXUHVPD\GL΍HUIURPVLPLODUO\QDPHG RXUDQWLFLSDWHGJURZWKDQGJURZWKRSSRUWXQLWLHVRXUDELOLW\WRLQFUHDVHGHPDQGIRURXU PHDVXUHVXVHGE\RWKHUV7KHFRPSDQ\EHOLHYHV SURGXFWVLQYDULRXVPDUNHWVLQFOXGLQJFRQVXPHUODZHQIRUFHPHQWDQGPLOLWDU\FKDQQHOV WKHVHPHDVXUHVIDFLOLWDWHRSHUDWLQJSHUIRUPDQFH GRPHVWLFDOO\DQGLQWHUQDWLRQDOO\RXUSHQHWUDWLRQUDWHVLQQHZ DQGH[LVWLQJPDUNHWVRXU FRPSDULVRQVIURPSHULRGWRSHULRGE\HOLPLQDWLQJ VWUDWHJLHVRXUDELOLW\WRPDLQWDLQDQGHQKDQFHEUDQGUHFRJQLWLRQDQGUHSXWDWLRQRXUDELOLW\ SRWHQWLDOGL΍HUHQFHVFDXVHGE\WKHH[LVWHQFHDQG WRLQWURGXFHQHZSURGXFWVWKHVXFFHVVRIQHZSURGXFWVRXUDELOLW\WRH[SDQGRXUPDUNHWV WLPLQJRIFHUWDLQH[SHQVHLWHPVWKDWZRXOGQRW WKHJHQHUDOJURZWKRIRXURXWGRRUSURGXFWVDQGDFFHVVRULHVEXVLQHVVWKHSRWHQWLDOIRU RWKHUZLVHEHDSSDUHQWRQD*$$3EDVLV7KHVH FDQFHOODWLRQRIRUGHUVIURPRXUEDFNORJDQGRWKHUULVNVGHWDLOHGIURPWLPHWRWLPHLQRXU QRQ*$$3PHDVXUHVKDYHOLPLWDWLRQVDVDQDQDO\WLFDO UHSRUWVȴOHGZLWKWKH6HFXULWLHVDQG([FKDQJH&RPPLVVLRQLQFOXGLQJRXU$QQXDO5HSRUWRQ WRRODQGVKRXOGQRWEHFRQVLGHUHGLQLVRODWLRQRU )RUP.IRUWKHȴVFDO\HDUHQGHG$SULO DVDVXEVWLWXWHIRUWKHFRPSDQ\ȇV*$$3PHDVXUHV 7KHSULQFLSDOOLPLWDWLRQVRIWKHVHPHDVXUHVDUHWKDW :HGRQRWKDYHDQGH[SUHVVO\GLVFODLPDQ\REOLJDWLRQWRUHOHDVHSXEOLFO\DQ\XSGDWHVRUDQ\ WKH\GRQRWUHȵHFWWKHFRPSDQ\ȇVDFWXDOH[SHQVHV FKDQJHVLQRXUH[SHFWDWLRQVRUDQ\FKDQJHLQHYHQWVFRQGLWLRQVRUFLUFXPVWDQFHVRQZKLFK DQGPD\WKXVKDYHWKHH΍HFWRILQȵDWLQJLWVȴQDQFLDO DQ\IRUZDUGORRNLQJVWDWHPHQWLVEDVHG PHDVXUHVRQD*$$3EDVLV

FOR THE THREE MONTHS ENDED FOR THE YEARS ENDED APRIL 30, 2020 APRIL 30, 2019 APRIL 30, 2020 APRIL 30, 2019 *$$31(7 /266 Ζ1&20( $(66,144) $9,825 $(61,230) $18,410 Ζ17(5(67(;3(16( 2,705 2,747 11,604 $9,790 Ζ1&20(7$;(;3(16( (2,258) 2,929 1,281 $10,328 '(35(&Ζ$7Ζ21$1'$0257Ζ=$7Ζ21 12,832 13,908 53,371 52,770 672&.%$6('&203(16$7Ζ21(;3(16( 1,571 1,922 2,921 7,992 *22':Ζ//Ζ03$Ζ50(17 98,662 — 98,662 10,396 )$Ζ59$/8(Ζ19(1725<67(383 — 92 — 454 $&48Ζ6Ζ7Ζ215(/$7('&2676 — 22 — 28 &29Ζ' 2,474 — 2,474 — 75$16Ζ7Ζ21&2676 5,544 434 7,433 1,185 &(26(3$5$7Ζ21 1,037 — 627 — 'Ζ2'(5(&$// — — (769) — &+$1*(Ζ1&217Ζ1*(17&216Ζ'(5$7Ζ21 — — (100) (60) NON-GAAP ADJUSTED EBITDAS $56,423 $31,879 $116,274 $111,293

(In thousands) 5RRVHYHOW$YHQXH6SULQJȴHOG0$ ȏ1$6'$4SWBI SMITH-WESSON.COM

Proud of our American Workforce