Smith & Wesson Holding Corporation Reports Record Second Quarter Fiscal 2013 Financial Results - Record Fiscal Second Quarter 2013 Net Sales from Continuing Operations of $136.6 Million, Up 48.0% Year-Over-Year - Fiscal Second Quarter 2013 Net Income from Continuing Operations of $16.4 Million, or $0.24 Per Diluted Share - Company Raising Full Year Fiscal 2013 Financial Guidance - Board of Directors Approves Plan to Repurchase Up to $20.0 Million in Common Stock PR Newswire SPRINGFIELD, Mass., Dec. 6, 2012 SPRINGFIELD, Mass., Dec. 6, 2012 /PRNewswire/ --Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for the fiscal 2013 second quarter ended October 31, 2012. Second Quarter Fiscal 2013 Financial Highlights oNet sales from continuing operations for the second quarter were a record $136.6 million, up 48.0% from the second quarter last year. The increase was led by continued strong sales across all of the company's firearm product lines, including M&P™ branded products, such as pistols, modern sporting rifles, and the recently launched Shield™ pistol designed for concealed carry and personal protection. oGross profit for the second quarter was $48.5 million, or 35.5% of net sales, compared with gross profit of $24.6 million, or 26.7% of net sales, for the comparable quarter last year. Increased sales volume of polymer pistols and modern sporting rifles positively impacted gross profit. In addition, gross margin last year reflected costs related to the consolidation of our Thompson/Center Arms business to Springfield, Massachusetts. oOperating expenses for the second quarter were $21.9 million, or 16.0% of net sales, compared with operating expense of $21.2 million, or 22.9% of net sales, for the second quarter last year. Increased profit sharing and incentive compensation expenses were almost entirely offset by savings resulting from an ongoing company-wide focus on cost reduction activities and the favorable impact in the current year of the Thompson/Center Arms consolidation that occurred in the prior year. oOperating income from continuing operations for the second quarter was $26.6 million, or 19.5% percent of net sales, compared with operating income from continuing operations of $3.4 million, or 3.7% percent of net sales for the comparable quarter last year. oNet income from continuing operations for the second quarter was $16.4 million, or $0.24 per diluted share, compared with net income from continuing operations of $948,000, or $0.01 per diluted share, for the second quarter last year. oNon-GAAP Adjusted EBITDAS from continuing operations for the second quarter increased to $32.0 million compared with $10.2 million for the second quarter last year. oAt October 31, 2012, firearm backlog was $332.7 million, an increase of $182.8 million, or 122.0%, compared with the end of the second quarter last year, and a decrease of $59.7 million, or 15.2%, from the most recent sequential quarter. oOperating cash flow of $4.5 million and net capital spending of $9.6 million for the second quarter resulted in free cash outflow of $5.1 million. The sequentially lower operating cash flow reflected hunting seasonality, in which some receivables are extended until after the hunting season, as well as $8.0 million in early employee profit sharing payments. Profit sharing payments historically occurred in the company's third quarter. Despite the free cash outflow, cash and cash equivalents increased to $61.3 million at the end of the second quarter, primarily as a result of proceeds from the exercise of options. The company also today announced that its Board of Directors has approved a program to repurchase up to $20.0 million of the company's outstanding shares of common stock from time to time until June 30, 2013. The amount and timing of any repurchases will depend on a number of factors, including price, trading volume, general market conditions, legal requirements, and other factors. The repurchases may be made on the open market, in block trades, or in privately negotiated transactions. Any shares of common stock repurchased under the program will be considered issued but not outstanding shares of the company's common stock. James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, "Our strong fiscal second quarter financial performance reflects the ongoing successful execution of our strategic plan, and accordingly today we are increasing our full year fiscal 2013 financial guidance. During the second quarter, consumers continued to demonstrate their desire for our products, driving strong demand for our M&P modern sporting rifles and polymer pistols, including our M&P Shield pistol designed for concealed carry and personal protection. Increases in internal production capacity combined with improvements in our supply chain integration allowed us to offset the impact of the annual two-week shutdown as well as exceed our revenue and earnings guidance. As always, we engaged in product innovation and marketing activities designed to support and expand our user base. We unveiled several high-end pistols for our competitive and professional customers, including our M&P™ Pro Series C.O.R.E. pistols. We also announced our presenting sponsorship of the NRA Women's Network, a meaningful resource for the growing number of female gun enthusiasts of all ages and skill levels." Jeffrey D. Buchanan, Executive Vice President and Chief Financial Officer, stated, "By continuing to focus on our core firearm business, we delivered a second consecutive quarter of record sales combined with strong net income growth and earnings per share performance. In addition, our Board of Directors has approved a program authorizing the repurchase of up to $20.0 million of our common stock. We believe that this program demonstrates the confidence that our Board and management team have in the future of the company and our ongoing commitment to enhancing stockholder value." Financial Outlook for Continuing Operations The company expects net sales from continuing operations for the third quarter of fiscal 2013 to be between $126.0 million and $131.0 million, which would represent year-over-year growth from continuing operations in excess of 30.0%. The company anticipates GAAP earnings per diluted share from continuing operations of between $0.19 and $0.21 for the third quarter of fiscal 2013. The company is raising its full year fiscal 2013 financial guidance. The company now anticipates net sales from continuing operations for fiscal 2013 of between $550.0 million and $560.0 million, which would represent year-over-year growth from continuing operations of approximately 35.0% at the midpoint. The company anticipates fiscal 2013 GAAP earnings per diluted share from continuing operations of between $1.00 and $1.05. Conference Call and Webcast The company will host a conference call and webcast today, December 6, 2012, to discuss its second quarter fiscal 2013 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 866-770-7129 and reference conference code 97402682. 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, loss on the sale of discontinued operations, 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 from and included in net income to arrive at Adjusted EBITDAS for the three-month and six-month periods ended October 31, 2012 and October 31, 2011. 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™ 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 ongoing company-wide focus on cost reduction activities; our expectation that some hunting receivables will be extended until after the hunting season; future repurchases of our common stock under our stock repurchase program, including the amount, time, and manner of repurchases, if any; the success of our strategic plan; increasing our full year fiscal 2013 financial guidance; our belief regarding our Board's and management team's confidence in our future and our ongoing commitment to enhancing stockholder value; and our outlook for net sales from continuing operations, year-over-year growth from continuing operations, and GAAP earnings per diluted share from continuing operations for the third quarter of fiscal 2013 and the full 2013 fiscal year. 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 effects of the divestiture of our security solutions business 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, 2012. Contacts: Liz Sharp, VP Investor Relations Smith & Wesson Holding Corp. (413) 747-3304 email@example.com SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME/(LOSS) AND COMPREHENSIVE INCOME/(LOSS) (Unaudited) For the Three Months For the Six Months Ended: Ended: October 31, October 31, October 31, October 2012 2011 2012 31, 2011 (In thousands, except per share data) Net sales $ 136,560 $ 92,299 $ 272,555 $ 184,029 Cost of sales 88,037 67,693 172,739 132,907 Gross profit 48,523 24,606 99,816 51,122 Operating expenses: Research and development 1,278 1,241 2,420 2,579 Selling and marketing 8,042 8,636 14,870 16,761 General and 12,579 11,295 24,604 22,817 administrative Total operating expenses 21,899 21,172 41,894 42,157 Operating income from 26,624 3,434 57,922 8,965 continuing operations Other income/(expense): Other income/(expense), 39 20 39 54 net Interest income 335 399 703 802 Interest expense (1,344) (2,477) (3,331) (4,416) Total other (970) (2,058) (2,589) (3,560) income/(expense), net Income from continuing operations before income 25,654 1,376 55,333 5,405 taxes Income tax expense 9,253 428 20,061 2,182 Income from continuing 16,401 948 35,272 3,223 operations Discontinued operations: Loss from operations of discontinued security (867) (4,004) (2,550) (6,706) solutions division Income tax benefit (5,651) (1,465) (6,249) (2,681) Income/(loss) from 4,784 (2,539) 3,699 (4,025) discontinued operations Net income/(loss)/comprehensive $ 21,185 $ (1,591) $ 38,971 $ (802) income/(loss) Net income/(loss) per share: Basic - continuing $ 0.25 $ 0.01 $ 0.54 $ 0.05 operations Basic - net income/(loss) $ 0.32 $ (0.02) $ 0.59 $ (0.01) Diluted - continuing $ 0.24 $ 0.01 $ 0.53 $ 0.05 operations Diluted - net $ 0.31 $ (0.02) $ 0.58 $ (0.01) income/(loss) Weighted average number of common shares outstanding: Basic 65,871 64,697 65,611 64,613 Diluted 67,274 65,110 66,914 65,130 SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) As of: October 31, 2012 April 30, 2012 (In thousands, except par value and share data) ASSETS Current assets: Cash and cash equivalents, including restricted cash of $3,340 on October $ 61,295 $ 56,717 31, 2012 and $3,334 on April 30, 2012 Accounts receivable, net of allowance for doubtful accounts of $1,096 on 54,474 48,313 October 31, 2012 and $1,058 on April30, 2012 Inventories 65,335 55,296 Prepaid expenses and other current 6,176 4,139 assets Assets held for sale 1,150 13,490 Deferred income taxes 12,759 12,759 Income tax receivable 8,771 — Total current assets 209,960 190,714 Property, plant and equipment, net 68,954 60,528 Intangibles, net 4,225 4,532 Other assets 5,470 5,900 $ 288,609 $ 261,674 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 24,654 $ 28,618 Accrued expenses 20,310 20,685 Accrued payroll 9,016 9,002 Accrued income taxes — 291 Accrued taxes other than income 4,767 4,270 Accrued profit sharing 4,754 8,040 Accrued product/municipal liability 1,365 1,397 Accrued warranty 5,047 5,349 Liabilities held for sale — 5,693 Current portion of notes payable 789 — Total current liabilities 70,702 83,345 Deferred income taxes 4,537 4,537 Notes payable, net of current portion 43,559 50,000 Other non-current liabilities 10,977 10,948 Total liabilities 129,775 148,830 Commitments and contingencies Stockholders' equity: Preferred stock, $.001par value, 20,000,000shares authorized, no shares — — issued or outstanding Common stock, $.001par value, 100,000,000shares authorized, 67,447,748 shares issued and 66,247,748 shares outstanding on October 31, 2012 67 67 and 66,512,097shares issued and 65,312,097 shares outstanding on April30, 2012 Additional paid-in capital 196,398 189,379 Accumulated deficit (31,308) (70,279) Accumulated other comprehensive income 73 73 Treasury stock, at cost (1,200,000 (6,396) (6,396) common shares) Total stockholders' equity 158,834 112,844 $ 288,609 $ 261,674 SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Six Months Ended: October 31, 2012 October 31, 2011 (In thousands) Cash flows from operating activities: Net income/(loss) $ 38,971 $ (802) Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Amortization and depreciation 8,074 7,881 Loss on sale of discontinued operations, including $45 of 798 — stock-based compensation expense Loss on sale/disposition of assets 292 320 Provision for/(recoveries of) losses 380 (636) on accounts receivable Change in disposal group assets and (1,232) 5,005 liabilities Stock-based compensation expense 1,906 1,124 Excess book deduction of stock-based — (240) compensation Changes in operating assets and liabilities: Accounts receivable (6,541) 7,828 Inventories (10,039) (8,346) Other current assets (1,213) (1,460) Income tax receivable/payable (9,062) (1,417) Accounts payable (3,964) (7,803) Accrued payroll (591) 1,297 Accrued taxes other than income 497 (8,181) Accrued profit sharing (3,286) 1,974 Accrued other expenses (1,175) (1,349) Accrued product/municipal liability (32) (309) Accrued warranty (302) 2,351 Other assets (39) (79) Other non-current liabilities 329 306 Net cash provided by/(used 13,771 (2,536) in) operating activities Cash flows from investing activities: Proceeds from sale of discontinued 7,500 — operations Receipts from note receivable 36 — Payments to acquire patents and software (22) (64) Proceeds from sale of property and 13 — equipment Payments to acquire property and (15,836) (6,086) equipment Net cash used in investing (8,309) (6,150) activities Cash flows from financing activities: Proceeds from loans and notes payable 1,753 1,532 Cash paid for debt issue costs — (1,887) Proceeds from energy efficiency incentive — 225 programs Payments on capital lease obligation (300) — Payments on loans and notes payable (7,405) (990) Proceeds from exercise of options to acquire common stock, including employee 4,084 704 stock purchase plan Excess tax benefit of stock-based 984 — compensation Net cash used in financing (884) (416) activities Net increase/(decrease) in cash and cash 4,578 (9,102) equivalents Cash and cash equivalents, beginning of 56,717 58,292 period Cash and cash equivalents, end of period $ 61,295 $ 49,190 Supplemental disclosure of cash flow information Cash paid for: Interest $ 3,013 $ 2,649 Income taxes 22,204 1,129 SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME/(LOSS) TO ADJUSTED EBITDAS (Unaudited) For the Three Months Ended October For the Three Months Ended October 31, 2012: 31, 2011: GAAP Adjustments Adjusted GAAP Adjustments Adjusted Net sales $ 136,560 — $ 136,560 $ 92,299 — $ 92,299 Cost of sales 88,037 $ (3,428) (9) 84,609 67,693 $ (3,659) (1) 64,034 Gross profit 48,523 3,428 51,951 24,606 3,659 28,265 Operating expenses: Research and 1,278 (29) (9) 1,249 1,241 (45) (1) 1,196 development Selling and marketing 8,042 (63) (9) 7,979 8,636 (90) (1) 8,546 General and 12,579 (1,797) (2) 10,782 11,295 (2,871) (3) 8,424 administrative Total operating 21,899 (1,889) 20,010 21,172 (3,006) 18,166 expenses Operating income from 26,624 5,317 31,941 3,434 6,665 10,099 continuing operations Other income/(expense): Other income/(expense), 39 — (4) 39 20 — (4) 20 net Interest income 335 (291) (7) 44 399 (361) (7) 38 Interest expense (1,344) 1,344 (5) — (2,477) 2,477 (5) — Total other (970) 1,053 83 (2,058) 2,116 58 income/(expense), net Income from continuing operations before income 25,654 6,370 32,024 1,376 8,781 10,157 taxes Income tax expense 9,253 (9,253) (6) — 428 (428) (6) — Income from continuing 16,401 15,623 32,024 948 9,209 10,157 operations Discontinued operations: Loss from operations of discontinued security (867) 1,020 (8) 153 (4,004) 779 (8) (3,225) solutions division Income tax benefit (5,651) 5,651 (6) — (1,465) 1,465 (6) — Income/(loss)from 4,784 (4,631) 153 (2,539) (686) (3,225) discontinued operations Net income/(loss)/comprehensive $ 21,185 $ 10,992 $ 32,177 $ (1,591) $ 8,523 $ 6,932 income/(loss) SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME/(LOSS) TO NON-GAAP ADJUSTED EBITDAS (Unaudited) For the Six Months Ended October 31, For the Six Months Ended October 2012: 31, 2011: GAAP Adjustments Adjusted GAAP Adjustments Adjusted Net sales $ 272,555 — $ 272,555 $ 184,029 — $ 184,029 Cost of sales 172,739 $ (6,796) (9) 165,943 132,907 $ (7,630) (1) 125,277 Gross profit 99,816 6,796 106,612 51,122 7,630 58,752 Operating expenses: Research and 2,420 (57) (9) 2,363 2,579 (103) (1) 2,476 development Selling and marketing 14,870 (125) (9) 14,745 16,761 (174) (1) 16,587 General and 24,604 (3,135) (2) 21,469 22,817 (5,350) (3) 17,467 administrative Total operating 41,894 (3,317) 38,577 42,157 (5,627) 36,530 expenses Operating income from 57,922 10,113 68,035 8,965 13,257 22,222 continuing operations Other income/(expense): Other income/(expense), 39 — (4) 39 54 — (4) 54 net Interest income 703 (608) (7) 95 802 (681) (7) 121 Interest expense (3,331) 3,331 (5) — (4,416) 4,416 (5) — Total other (2,589) 2,723 134 (3,560) 3,735 175 income/(expense), net Income from continuing operations before income 55,333 12,836 68,169 5,405 16,992 22,397 taxes Income tax expense 20,061 (20,061) (6) — 2,182 (2,182) (6) — Income from continuing 35,272 32,897 68,169 3,223 19,174 22,397 operations Discontinued operations: Loss from operations of discontinued security (2,550) 1,383 (8) (1,167) (6,706) 1,501 (8) (5,205) solutions division Income tax benefit (6,249) 6,249 (6) — (2,681) 2,681 (6) — Income/(loss)from 3,699 (4,866) (1,167) (4,025) (1,180) (5,205) discontinued operations Net income/(loss)/comprehensive $ 38,971 $ 28,031 $ 67,002 $ (802) $ 17,994 $ 17,192 income/(loss) (1) To eliminate depreciation, amortization, and plant consolidation costs. (2) To eliminate depreciation, amortization, stock-based compensation expense, and DOJ/SEC costs and related profit sharing impacts of DOJ/SEC. To eliminate depreciation, amortization, stock-based compensation expense, (3) plant consolidation costs, severance benefits for our former President and CEO, and DOJ/SEC costs and related profit sharing impacts of DOJ/SEC. To eliminate unrealized mark-to-market adjustments on foreign exchange (4) contracts. We did not have any foreign exchange contracts that required mark-to-market adjustments for all periods presented. (5) To eliminate interest expense. (6) To eliminate income tax expense. (7) To eliminate intercompany interest income. (8) To eliminate depreciation, amortization, interest expense, and stock-based compensation expense. (9) To eliminate depreciation and amortization. SOURCE Smith & Wesson Holding Corporation Website: http://www.smith-wesson.com
Smith & Wesson Holding Corporation Reports Record Second Quarter Fiscal 2013 Financial Results
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