SMITH & WESSON HOLDING CORP 
By SPRINGFIELD, Mass., March 8, 2012 /PRNewswire-FirstCall/ -- Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for its fiscal 2012 third quarter ending January 31, 2012.
Third Quarter Fiscal 2012 Financial Highlights
-- Net sales from continuing operations for the third quarter of $98.1
million were up 23.8% from the third quarter last year. The increase
was driven by strong sales of M&P(TM) handguns, M&P(TM) sporting rifles,
and all Smith & Wesson personal protection and concealed carry pistols.
-- Gross profit for the third quarter was $30.0 million, or 30.6% of net
sales, compared with gross profit of $19.4 million, or 24.5% of net
sales, for the same period last year. The improvement in gross profit
was driven by increased sales volume and increased overhead absorption
due to higher production levels; as well as cost-reduction initiatives
across the organization, including the completion of the consolidation
of the Thompson/Center Arms business to Springfield, Massachusetts,
which concluded in November 2011. In addition, the same period last year
included costs associated with the company's strategic price
repositioning activities. That strategic repositioning also resulted in
lower ongoing promotion costs.
-- Operating expense for the third quarter totaled $19.7 million, or 20.1%
of net sales, compared with operating expense of $21.3 million, or 26.9%
of net sales, for the third quarter last year. The decrease in
operating expense reflected cost-reduction initiatives across the
organization as well as reduced legal fees related to the company's
ongoing DOJ and SEC investigations.
-- Net income from continuing operations for the third quarter was $5.4
million, or $0.08 per diluted share, compared with a net loss from
continuing operations of $2.7 million, or $0.05 per diluted share, for
the third quarter last year. Net income from continuing operations for
the third quarter resulted from increased sales volumes and
corresponding gross profit as well as reduced operating expenses.
-- Non-GAAP adjusted EBITDAS from continuing operations for the third
quarter increased to $14.8 million compared with $4.6 million for the
same period last year.
-- At January 31, 2012, firearm backlog was $198.5 million, an increase of
$124.7 million, or 168.9%, compared with the end of the third quarter
last year, and an increase of $48.6 million, or 32.0%, from the most
recent sequential quarter.
-- Operating cash flow of $8.5 million and net capital spending of $3.5
million resulted in free cash flow of $5.0 million from continuing
operations.
-- Debt was reduced by $30.0 million through the repayment of outstanding
convertible notes.
James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, said, "Our third quarter results demonstrated the positive impact of our concentrated, strategic focus on firearms. We delivered sales growth across our M&P(TM) handgun and M&P(TM) modern sporting rifle categories as well as our personal protection and concealed carry pistols, while achieving a number of key accomplishments. We continued to work on expanding our firearm manufacturing capacity to meet increased demand, an objective we plan to continue in the coming months as we address our robust backlog. During the quarter, we successfully completed our Thompson/Center Arms consolidation, an action designed to improve efficiencies and enhance gross margins. On the new product front, at the SHOT Show in January we launched two extensions to our M&P(TM) modern sporting rifles as well as our new Thomson/Center Arms Dimension(TM) hunting rifle. We also commenced the manufacturing of a brand new handgun that we have designed for the personal protection market. We look forward to launching this exciting new product at the upcoming NRA show in April. Lastly, during the quarter, we successfully sold our foundry business in New Hampshire, and we continued to work with our advisor on divesting our perimeter security business."
Jeffrey D. Buchanan, Executive Vice President and Chief Financial Officer, said, "Our cost reduction initiatives yielded clear results in the third quarter. Operating expenses were 20.1% of net sales, compared with 26.9% for the third quarter last year. We are also pleased to report that we paid down $30.0 million in convertible debt during the quarter without accessing our line of credit, which substantially reduced our overall debt and further strengthened our balance sheet. As of January 31, 2012, we had $25.7 million in cash on hand, no borrowings under our $60.0 million credit facility, and working capital of $92.4 million."
Financial Outlook for Continuing Operations
The company is raising its anticipated net sales outlook from continuing operations for fiscal 2012 to between $395.0 million and $400.0 million, which would represent year-over-year growth from continuing operations of more than 15%, up from the prior outlook of 13% to 15% growth. The company anticipates total gross profit margin for fiscal 2012 to approach 30% and operating expense to be approximately 21% of net sales. The tax rate is expected to be approximately 41%.
The company expects net sales from continuing operations for the fourth quarter of fiscal 2012 to be between $113.0 million and $118.0 million. Gross profit margin for the fourth quarter is anticipated to be between 32.0% and 33.0%. Fourth quarter operating expense is expected to be approximately $22.0 million, and the tax rate is expected to be approximately 41%.
Conference Call and Webcast
The company will host a conference call and webcast today, March 8, 2012, to discuss its third quarter fiscal 2012 financial and operational results. Speakers on the conference call will include James Debney, President and CEO, and Jeffrey D. Buchanan, Executive Vice President and CFO. The conference call may include forward-looking statements. The conference call and webcast will begin at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Those interested in listening to the call via telephone may call directly at 857-350-1594 and reference conference code 86489727. No RSVP is necessary. The conference call audio webcast can also be accessed live and for replay on the company's website at www.smith-wesson.com, under the Investor Relations section. The company will maintain an audio replay of this conference call on its website for a period of time after the call. No other audio replay will be available.
Reconciliation of U.S. GAAP to Non-GAAP Adjusted EBITDAS
In this press release, a non-GAAP financial measure known as "Adjusted EBITDAS" is presented. From time-to-time, the company considers and uses Adjusted EBITDAS as a supplemental measure of operating performance in order to provide the reader with an improved understanding of underlying performance trends. Adjusted EBITDAS excludes the effects of interest expense, income taxes, depreciation of tangible fixed assets, amortization of intangible assets, stock-based employee compensation expense, impairment charge to goodwill and indefinite lived long-lived intangible assets related to the acquisition of Smith & Wesson Security Solutions(TM) (SWSS), DOJ and SEC investigation costs, and certain other transactions. See the attached "Reconciliation of GAAP Net Income/(Loss) to Non-GAAP Adjusted EBITDAS" for a detailed explanation of the amounts excluded and included from net income to arrive at Adjusted EBITDAS for the three-month and nine month periods ended January 31, 2011 and January 31, 2012. Adjusted or non-GAAP financial measures provide investors and the company with supplemental measures of operating performance and trends that facilitate comparisons between periods before, during, and after certain items that would not otherwise be apparent on a GAAP basis. Adjusted financial measures are not, and should not be viewed as, a substitute for GAAP results. The company's definition of these adjusted financial measures may differ from similarly named measures used by others.
About Smith & Wesson
Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC) is a U.S.-based leader in firearm manufacturing and design, delivering a broad portfolio of quality firearms, related products, and training to the global military, law enforcement, and consumer markets. The company's brands include Smith & Wesson®, M&P(TM) and Thompson/Center Arms. Smith & Wesson facilities are located in Massachusetts and Maine. For more information on Smith & Wesson, call (800) 331-0852 or log on to www.smith-wesson.com.
Safe Harbor Statement
Certain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and we intend that such forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements include the success of our plan to continue to work on expanding our firearm manufacturing capacity; the success of our Thompson/Center Arms consolidation in improving our efficiencies and enhancing gross margins; the success of our new products, including a new handgun that we expect to launch in April 2012; the outcome of the divestiture of our perimeter security business; our outlook for net sales from continuing operations and net sales growth from continuing operations for fiscal 2012; our outlook for total gross profit margin, operating expenses, and our tax rate for fiscal 2012; our outlook for net sales from continuing operations, gross profit margin, operating expenses; and our tax rate for the fourth quarter of fiscal 2012. We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by such forward-looking statements. Such factors include the demand for our products; the costs and ultimate conclusion of certain legal matters, including the DOJ and SEC matters; the state of the U.S. economy; general economic conditions, and consumer spending patterns; the potential for increased gun control; speculation surrounding fears of terrorism and crime; our growth opportunities; our anticipated growth; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; the position of our hunting products in the consumer discretionary marketplace and distribution channel; our penetration rates in new and existing markets; our strategies; our ability to introduce new products; the success of new products; our ability to expand our markets; the potential for cancellation of orders from our backlog; the success of the divestiture of our security solutions business and its effects on our core firearm business; and other risks detailed from time to time in our reports filed with the SEC, including our Form 10-K Report for the fiscal year ended April 30, 2011.
Contacts:
Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corp.
(413) 747-3304
lsharp@smith-wesson.com
SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(Unaudited)
For the Three Months For the Nine Months Ended
Ended January 31, January 31,
-------------------- -------------------------
2012 2011 2012 2011
---- ---- ---- ----
(In thousands, except per share data)
Net sales $98,125 $79,238 $282,154 $240,566
Cost of sales 68,121 59,847 201,028 167,118
-------
Gross profit 30,004 19,391 81,126 73,448
------ ------ ------ ------
Operating expenses:
Research and development 992 1,207 3,571 3,099
Selling and marketing 8,062 8,921 24,823 26,206
General and administrative 10,666 11,203 33,483 34,344
------ ------ ------ ------
Total operating expenses 19,720 21,331 61,877 63,649
------ ------ ------ ------
Operating income/(loss) from continuing operations 10,284 (1,940) 19,249 9,799
------ ------ ------ -----
Other income/(expense):
Other income/(expense), net 8 (463) 62 692
Interest income 394 289 1,196 849
Interest expense (1,629) (1,453) (6,044) (3,659)
------ ------ ------ ------
Total other income/(expense), net (1,227) (1,627) (4,786) (2,118)
------ ------ ------ ------
Income/(loss) from continuing operations before income taxes 9,057 (3,567) 14,463 7,681
Income tax expense/(benefit) 3,664 (852) 5,845 3,994
----- ---- ----- -----
Income/(loss) from continuing operations 5,393 (2,715) 8,618 3,687
Discontinued operations:
Loss from operations of discontinued security solutions division (1,600) (53,908) (8,306) (93,143)
Income tax benefit (645) (3,787) (3,326) (5,547)
Loss on discontinued operations (955) (50,121) (4,980) (87,596)
---- ------- ------ -------
Net income/(loss)/comprehensive income/(loss) $4,438 $(52,836) $3,638 $(83,909)
====== ======== ====== ========
Net income/(loss) per share:
Basic - continuing operations $0.08 $(0.05) $0.13 $0.06
===== ====== ===== =====
Basic - net income/(loss)/comprehensive income/(loss) $0.07 $(0.88) $0.06 $(1.40)
===== ====== ===== ======
Diluted - continuing operations $0.08 $(0.05) $0.13 $0.06
===== ====== ===== =====
Diluted - net income/(loss)/comprehensive income/(loss) $0.07 $(0.88) $0.06 $(1.33)
===== ====== ===== ======
Weighted average number of common shares outstanding:
Basic 64,874 60,248 64,700 60,086
Diluted 66,582 60,248 65,154 63,201
SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of:
January
31, 2012 April 30,
(Unaudited) 2011
----------- ---------
(In thousands,
except par value
and share data)
ASSETS
Current assets:
Cash and cash equivalents,
including restricted cash of
$3,331 on January 31, 2012 and
$5,821 on April 30, 2011 $25,745 $58,292
Accounts receivable, net of
allowance for doubtful accounts
of $1,767 on January 31, 2012 and
$2,147 on April 30, 2011 47,247 64,753
Inventories 60,159 51,720
Other current assets 8,269 10,212
Assets held for sale 2,517 -
Deferred income taxes 14,334 14,073
Income tax receivable 3,274 4,513
----- -----
Total current assets 161,545 203,563
------- -------
Property, plant and equipment, net 62,251 62,390
Intangibles, net 8,045 8,692
Other assets 5,952 6,804
----- -----
$237,793 $281,449
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $26,397 $40,119
Accrued expenses 20,093 25,356
Accrued payroll 8,094 5,309
Accrued taxes other than income 3,421 11,421
Accrued profit sharing 3,622 4,081
Accrued product/municipal
liability 2,435 2,584
Accrued warranty 5,112 3,424
Current portion of notes payable - 30,000
--- ------
Total current liabilities 69,174 122,294
------ -------
Deferred income taxes 5,319 5,309
----- -----
Notes payable, net of current
portion 50,000 50,000
------ ------
Other non-current liabilities 12,331 8,763
------ -----
Total liabilities 136,824 186,366
------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value,
20,000,000 shares authorized, no
shares issued or outstanding - -
Common stock, $.001 par value,
100,000,000 shares authorized,
66,080,283 shares issued and
64,880,283 shares outstanding on
January 31, 2012 and 65,710,531
shares issued and 64,510,531
shares outstanding on April 30,
2011 66 66
Additional paid-in capital 188,050 185,802
Accumulated deficit (80,824) (84,462)
Accumulated other comprehensive
income 73 73
Treasury stock, at cost (1,200,000
common shares) (6,396) (6,396)
------ ------
Total stockholders' equity 100,969 95,083
------- ------
$237,793 $281,449
======== ========
SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
-------------------------
January 31, January 31,
2012 2011
------------ ------------
(In thousands)
Cash flows from operating
activities:
Net income/(loss) $3,638 $(83,909)
Adjustments to reconcile net
income/(loss) to net cash
(used in)/provided by
operating activities:
Amortization and depreciation 12,238 10,781
Loss on sale of business 241 -
Loss on sale of assets 282 64
(Recoveries of)/provision for
losses on accounts receivable (297) 287
Impairment of long-lived
assets - 90,503
Deferred income taxes - (1,504)
Stock-based compensation
expense 1,797 976
Change in contingent
consideration - (3,060)
Excess book deduction of
stock-based compensation (266) (245)
Changes in operating assets
and liabilities:
Accounts receivable 17,803 11,290
Inventories (9,006) (5,466)
Other current assets 2,017 (2,150)
Income tax receivable/payable 1,239 (1,004)
Accounts payable (13,722) (8,135)
Accrued payroll 2,785 (4,071)
Accrued taxes other than
income (8,000) 453
Accrued profit sharing (459) (4,919)
Accrued other expenses (5,942) 990
Accrued product/municipal
liability (149) (93)
Accrued warranty 1,688 (485)
Other assets 1,772 (974)
Other non-current liabilities 599 849
--- ---
Net cash provided by operating
activities 8,258 178
----- ---
Cash flows from investing
activities:
Proceeds from sale of business 500 -
Payments to acquire patents
and software (193) (472)
Proceeds from sale of property
and equipment 185 3
Payments to acquire property
and equipment (10,648) (6,822)
------- ------
Net cash used in investing
activities (10,156) (7,291)
------- ------
Cash flows from financing
activities:
Proceeds from loans and notes
payable 1,532 24,520
Cash paid for debt issue costs (1,859) (1,052)
Cash paid for redemption of
convertible notes (30,000) -
Proceeds from energy
efficiency incentive programs 225 -
Proceeds from exercise of
options to acquire common
stock including employee
stock purchase plan 717 679
Taxes paid related to
restricted stock issuance - (50)
Payments on loans and notes
payable (1,264) (24,245)
------ -------
Net cash used in financing
activities (30,649) (148)
------- ----
Net decrease in cash and cash
equivalents (32,547) (7,261)
Cash and cash equivalents,
beginning of period 58,292 39,855
Cash and cash equivalents, end
of period $25,745 $32,594
======= =======
Supplemental disclosure of
cash flow information
Cash paid for:
Interest $5,745 $3,481
Income taxes 1,524 1,884
SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME/(LOSS) TO NON-GAAP ADJUSTED
EBITDAS (Unaudited)
For the Three Months Ended January 31, For the Three Months Ended January 31,
2012: 2011:
-------------------------------------- --------------------------------------
GAAP Adjustments Adjusted GAAP Adjustments Adjusted
---- ----------- -------- ---- ----------- --------
Net sales $98,125 $98,125 $79,238 $79,238
Cost of
sales 68,121 $(3,185) (1) 64,936 59,847 $(3,161) (1) 56,686
------ ------- ------ ------ ------- ------
Gross profit 30,004 3,185 33,189 19,391 3,161 22,552
------ ----- ------ ------ ----- ------
Operating
expenses:
Research and
development 992 (42) (1) 950 1,207 (54) (1) 1,153
Selling and
marketing 8,062 (51) (1) 8,011 8,921 (77) (1) 8,844
General and
administrative 10,666 (1,228) (3) 9,438 11,203 (3,167) (3) 8,036
------ ------ ----- ------ ------ -----
Total
operating
expenses 19,720 (1,321) 18,399 21,331 (3,298) 18,033
------ ------ ------ ------ ------ ------
Operating
income/
(loss) from
continuing
operations 10,284 4,506 14,790 (1,940) 6,459 4,519
------ ----- ------ ------ ----- -----
Other
income/
(expense):
Other
income/
(expense),
net 8 - 8 (463) 498 (4) 35
Interest
income 394 (361) (8) 33 289 (239) (8) -
Interest
expense (1,629) 1,629 (5) - (1,453) 1,453 (5) -
------ ----- --- ------ ----- ---
Total other
income/
(expense),
net (1,227) 1,268 41 (1,627) 1,712 35
------ ----- --- ------ ----- ---
Income/
(loss) from
continuing
operations
before
income
taxes 9,057 5,774 14,831 (3,567) 8,171 4,604
Income tax
expense/
(benefit) 3,664 (3,664) (6) - (852) 852 (6) -
----- ------ --- ---- --- ---
Income/
(loss) from
continuing
operations 5,393 9,438 14,831 (2,715) 7,319 4,604
Discontinued
operations:
Loss from
operations
of
discontinued
security
solutions
division (1,600) 759 (7) (841) (53,908) 51,722 (9) (2,186)
Income tax
benefit (645) 645 (6) - (3,787) 3,787 (6) -
---- --- --- ------ ----- ---
Loss on
discontinued
operations (955) 114 (841) (50,121) 47,935 (2,186)
Net income/
(loss)/
comprehensive
income/
(loss) $4,438 $9,552 $13,990 $(52,836) $55,254 $2,418
====== ====== ======= ======== ======= ======
SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME/(LOSS) TO NON-GAAP ADJUSTED
EBITDAS (Unaudited)
For the Nine Months Ended January 31, For the Nine Months Ended January 31,
2012: 2011:
------------------------------------- -------------------------------------
GAAP Adjustments Adjusted GAAP Adjustments Adjusted
---- ----------- -------- ---- ----------- --------
Net sales $282,154 $282,154 $240,566 $240,566
Cost of
sales 201,028 $(10,815) (1) 190,213 167,118 $(7,768) (1) 159,350
------- -------- ------- ------- ------- -------
Gross profit 81,126 10,815 91,941 73,448 7,768 81,216
------ ------ ------ ------ ----- ------
Operating
expenses:
Research and
development 3,571 (145) (1) 3,426 3,099 (107) (1) 2,992
Selling and
marketing 24,823 (225) (1) 24,598 26,206 (184) (1) 26,022
General and
administrative 33,483 (6,578) (2) 26,905 34,344 (9,029) (3) 25,315
------ ------ ------ ------ ------ ------
Total
operating
expenses 61,877 (6,948) 54,929 63,649 (9,320) 54,329
------ ------ ------ ------ ------ ------
Operating
income from
continuing
operations 19,249 17,763 37,012 9,799 17,088 26,887
------ ------ ------ ----- ------ ------
Other
income/
(expense):
Other
income/
(expense),
net 62 - 62 692 (619) (4) 73
Interest
income 1,196 (1,043) (8) 153 849 (653) (8) 196
Interest
expense (6,044) 6,044 (5) - (3,659) 3,659 (5) -
------ ----- --- ------ ----- ---
Total other
income/
(expense),
net (4,786) 5,001 215 (2,118) 2,387 269
Income from
continuing
operations
before
income
taxes 14,463 22,764 37,227 7,681 19,475 27,156
Income tax
expense 5,845 (5,845) (6) - 3,994 (3,994) (6) -
----- ------ --- ----- ------ ---
Income from
continuing
operations 8,618 28,609 37,227 3,687 23,469 27,156
Discontinued
operations:
Loss from
operations
of
discontinued
security
solutions
division (8,306) 2,261 (7) (6,045) (93,143) 89,714 (10) (3,429)
Income tax
benefit (3,326) 3,326 (6) - (5,547) 5,547 (6) -
------ ----- --- ------ ----- ---
Loss on
discontinued
operations (4,980) (1,065) (6,045) (87,596) 84,167 (3,429)
Net income/
(loss)/
comprehensive
income/
(loss) $3,638 $27,544 $31,182 $(83,909) $107,636 $23,727
====== ======= ======= ======== ======== =======
(1) To eliminate depreciation, amortization, and plant consolidation
costs.
(2) To eliminate depreciation, amortization, stock-based
compensation expense, plant consolidation costs, severance benefits
for our former President and CEO, and DOJ/SEC costs and related
profit sharing impacts of DOJ/SEC.
(3) To eliminate depreciation, amortization, stock-based
compensation expense, plant consolidation costs, and DOJ/SEC costs
and related profit sharing impacts of DOJ/SEC.
(4) To eliminate unrealized mark-to-market adjustments on foreign
exchange contracts.
(5) To eliminate interest expense.
(6) To eliminate income tax expense.
(7) To eliminate depreciation, amortization, interest expense, and
stock-based compensation expense.
(8) To eliminate intercompany interest income.
(9) To eliminate depreciation, amortization, impairment of long-
lived assets, interest expense, and stock-based compensation
expense.
(10) To eliminate depreciation, amortization, impairment of long-
lived assets, interest expense, fair value contingent consideration
liability, and stock-based compensation expense.
SOURCE Smith & Wesson Holding Corporation
