Smith & Wesson Holding Corporation Reports Second Quarter Fiscal 2014 Financial Results

    Smith & Wesson Holding Corporation Reports Second Quarter Fiscal 2014
                              Financial Results

- Net Sales Growth of 9.2% Excluding Walther

- Net Income of $0.28 Per Diluted Share on Net Sales of $139.3 Million

- Quarterly Gross Margin of 41.6% vs. 35.5% a Year Ago

PR Newswire

SPRINGFIELD, Mass., Dec. 10, 2013

SPRINGFIELD, Mass., Dec. 10, 2013 /PRNewswire/ --Smith & Wesson Holding
Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing
and design, today announced financial results for the second fiscal quarter
ended October 31, 2013.

Second Quarter Fiscal 2014 Financial Highlights

  oNet sales for the second quarter were $139.3 million, up 2.0% from the
    second quarter last year. Excluding last year's sales of $9.7 million of
    Walther products pursuant to a distribution agreement that Smith & Wesson
    ended in April 2013 and was previously announced, net sales grew by 9.2%.
    Handgun sales, which included sales of the company's popular M&P pistols,
    grew 27.4%. The second quarter included a reduced number of manufacturing
    days related to the planned two week annual factory shut down as well as
    previously announced downtime related to the company's enterprise resource
    planning (ERP) implementation.
  oGross profit for the second quarter was $57.9 million, or 41.6% of net
    sales, compared with gross profit of $48.5 million, or 35.5% of net sales,
    for the comparable quarter last year. Gross profit margin improved as a
    result of favorable product mix,absorption, and manufacturing
    efficiencies,as well asthe absence of Walther product sales.
  oOperating expenses for the second quarter were $29.2 million, or 20.9% of
    net sales, compared with operating expenses of $21.8 million, or 16.0% of
    net sales, for the second quarter last year. Excluding one-time go-live
    costs related to the company's new ERP system, operating expenses would
    have been $25.3 million, or 18.2% of net sales.
  oOperating income for the second quarter was 20.7% percent of net sales
    compared with 19.5% percent for the second quarter last year.
  oIncome from continuing operations for the second quarter was $17.1
    million, or $0.28 per diluted share, compared with $16.4 million, or $0.24
    per diluted share, for the second quarter last year.
  oNon-GAAP Adjusted EBITDAS from continuing operations for the second
    quarter increased to $36.9 million from $32.0 million for the second
    quarter last year.
  oOperating cash flow for the second quarter of $5.0 million and capital
    spending of $14.1 million resulted in cash outflow of $9.1 million.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive
Officer, stated, "Our results for the second quarter of fiscal 2014 reflected
the continued successful execution of our growth strategy. By maintaining a
strategic focus on increasing market share of our M&P polymer pistol family of
products, we delivered handgun revenue growth of over 27% and a significant
expansion of our gross margins. For the first six months of this fiscal year,
our gross margins were 42.1%. At the same time, we continued to drive a
number of initiatives in the quarter designed to strengthen our business and
return increased value to our stockholders."

Jeffrey D. Buchanan, Smith & Wesson Holding Corporation Executive Vice
President and Chief Financial Officer, stated, "During the second quarter, we
continued to optimize our capital structure by successfully completing our
$100 million stock buyback program. In addition, our Board of Directors
authorized the repurchase of an additional $15 million of our common stock,
which will be permitted to commence after the full dissemination of the
financial results we are announcing today. We ended the second quarter with a
cash balance of $52.9 million, $100 million of outstanding senior notes, and
no borrowings under our credit facility.

"Our new enterprise resource planning (ERP) system, a key strategic building
block that will provide our business with scalability and visibility for
growth, 'went live' early in the second quarter. We have moved through the
challenging go-live phase of the implementation; the project is proceeding on
track; and we have already begun to see daily improvements in the quality of
our business functionality," Buchanan concluded. 

Financial Outlook
The company estimates net sales for the third quarter of fiscal 2014 to be
between $140.0 million and $145.0 million and GAAP earnings per diluted share
from continuing operations of between $0.28 and $0.30. This estimate takes
into account $1.5 million in expected, non-recurring costs related to the ERP
conversion. As previously noted, the company ended its Walther distribution
agreement at the end of fiscal 2013 and therefore the third quarter of fiscal
2014 will not contain Walther sales, which amounted to $12.7 million in the
comparable quarter a year ago.

The company continues to expect full year fiscal 2014 net sales of between
$610.0 million and $620.0 million and GAAP earnings per diluted share from
continuing operations of between $1.30 and $1.35 for fiscal 2014. As
previously noted, the company ended its Walther distribution agreement at the
end of fiscal 2013 and therefore fiscal 2014 will not contain Walther sales,
which amounted to $41.6 million in fiscal 2013.

All guidance takes into account the expected impact of the implementation of
the company's new ERP system throughout fiscal 2014.

Conference Call and Webcast
The company will host a conference call and webcast today, December 10, 2013,
to discuss its second quarter fiscal 2014 financial and operational results.
Speakers on the conference call will include James Debney, President and Chief
Executive Officer, and Jeffrey D. Buchanan, Executive Vice President and Chief
Financial Officer. 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 (617) 399-5129 and reference conference code 14738357. 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 Financial Measures
In this press release, certain non-GAAP financial measures, including
"Adjusted EBITDAS" and "free cash flow" are presented. From time to time, the
company considers and uses Adjusted EBITDAS and free cash flow as supplemental
measures 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
compensation expense, plant consolidation costs, DOJ and SEC investigation
costs, and certain other transactions. See the attached "Reconciliation of
GAAP Net Income to 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, 2013 and 2012. Free cash
flow is defined as cash flow provided by operating activities less capital
expenditures, which include purchases of property, equipment, and software.

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 company's belief that
its results for the second quarter of fiscal 2014 reflect the continued
successful execution of its growth strategy; the company's belief that by
maintaining a strategic focus on increasing market share of its M&P polymer
pistol family of products, it delivered handgun revenue growth of over 27% and
a significant expansion of its gross margins expansion; the company's belief
that it continued to drive a number of initiatives in the quarter designed to
strengthen its business and return increased value to its stockholders; the
company's belief that it continued to optimize its capital structure by
successfully completing its $100 million stock buyback program; the company's
expectation that its new ERP system will be a key strategic building block
that will provide the company's business with the scalability and visibility
required for future growth; the company's belief that it has moved through
the challenging go-live phase of the implementation of the new ERP system;
the company's belief that the project is proceeding on track; the company's
belief that it is already beginning to see daily improvements in the quality
of the company's business functionality; the company's expectations for net
sales and GAAP earnings per diluted share from continuing operations for the
third quarter of fiscal 2014; and the company's expectations for net sales and
GAAP earnings per diluted share from continuing operations for fiscal 2014. 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 regulation of
firearms and firearm-related products; 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; 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, 2013.

Contact: 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 INCOME AND COMPREHENSIVE INCOME
(Unaudited)
                          For the Three Months      For the Six Months
                          Ended:                    Ended:
                          October 31,  October 31,  October 31,  October 31,
                          2013         2012         2013         2012
                          (In thousands, except per share data)
Net sales                 $  139,294   $  136,560   $  310,314   $  272,555
Cost of sales                81,357       88,092       179,604      172,861
Gross profit                 57,937       48,468       130,710      99,694
Operating expenses:
  Research and              1,305        1,268        2,664        2,439
  development
  Selling and marketing     7,681        8,077        15,229       14,916
  General and               20,177       12,499       36,029       24,417
  administrative
  Total operating           29,163       21,844       53,922       41,772
  expenses
Operating income from        28,774       26,624       76,788       57,922
continuing operations
Other income/(expense):
  Other                     36           39           41           39
  income/(expense), net
  Interest income           8            335          110          703
  Interest expense          (2,046)      (1,344)      (8,719)      (3,331)
  Total other               (2,002)      (970)        (8,568)      (2,589)
  income/(expense), net
Income from continuing
operations before income     26,772       25,654       68,220       55,333
taxes
Income tax expense           9,627        9,253        24,549       20,061
Income from continuing       17,145       16,401       43,671       35,272
operations
Discontinued operations:
  Loss from operations
  of discontinued            (222)        (867)        (274)        (2,550)
  security solutions
  division
  Income tax benefit        (64)         (5,651)      (66)         (6,249)
  Income/(loss) from        (158)        4,784        (208)        3,699
  discontinued operations
Net income/comprehensive  $  16,987    $  21,185    $  43,463    $  38,971
income
Net income per share:
  Basic - continuing      $  0.29      $  0.25      $  0.71      $  0.54
  operations
  Basic - net income      $  0.28      $  0.32      $  0.70      $  0.59
  Diluted - continuing    $  0.28      $  0.24      $  0.69      $  0.53
  operations
  Diluted - net income    $  0.28      $  0.31      $  0.68      $  0.58
Weighted average number
of common shares
outstanding:
  Basic                      59,620       65,871       61,931       65,611
  Diluted                    60,984       67,274       63,751       66,914



SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
                                          As of:
                                          October 31, 2013     April 30, 2013
                                          (In thousands, except par value and
                                          share data)
ASSETS
Current assets:
    Cash and cash equivalents, including
    restricted cash of $3,345 on April    $     52,922         $   100,487
    30, 2013
    Accounts receivable, net of allowance
    for doubtful accounts of $1,166 on          68,521             46,088
    October 31, 2013 and $1,128 on
    April30, 2013
    Inventories                                 76,261             62,998
    Prepaid expenses and other current          6,660              4,824
    assets
    Deferred income taxes                      12,076             12,076
    Income tax receivable                       9,192              3,093
             Total current assets              225,632            229,566
Property, plant, and equipment, net            103,093            86,382
Intangibles, net                               3,631              3,965
Other assets                                   10,124             7,076
                                          $     342,480        $   326,989
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                     $     45,822         $   31,220
    Accrued expenses                           15,660             16,033
    Accrued payroll                            11,509             13,096
    Accrued taxes other than income            6,502              5,349
    Accrued profit sharing                     5,274              9,587
    Accrued product/municipal liability        1,494              1,551
    Accrued warranty                           5,591              5,757
    Current portion of notes payable           788                —
             Total current liabilities         92,640             82,593
Deferred income taxes                         7,863              7,863
Notes payable, net of current portion          100,000            43,559
Other non-current liabilities                  10,996             11,675
             Total liabilities                 211,499            145,690
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,
 68,244,648 shares issued and 55,930,917
 shares outstanding on October 31, 2013         68                 68
 and 67,596,716shares issued and
 64,297,113 shares outstanding on
 April30, 2013
 Additional paid-in capital                    206,187            199,120
 Retained earnings                              51,897             8,434
 Accumulated other comprehensive income         73                 73
 Treasury stock, at cost (12,313,731
 common shares on October 31, 2013 and          (127,244)          (26,396)
 3,299,603 common shares on April 30,
 2013)
             Total stockholders' equity        130,981            181,299
                                          $     342,480        $   326,989



SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                                          For the Six Months Ended:
                                          October 31, 2013  October 31, 2012
                                          (In thousands)
Cash flows from operating activities:
 Net Income                               $    43,463       $    38,971
 Adjustments to reconcile net income to
 net cash provided by operating
 activities:
  Amortization and depreciation                11,152            8,074
  Loss on sale of business including loss
  on sale of discontinued operations,          —                 798
  including $45 of stock-based
  compensation expense
  Loss on sale/disposition of assets           77                292
  Provisions for losses on accounts            33                380
  receivable
  Change in disposal group assets and          —                 (1,232)
  liabilities
  Stock-based compensation expense             4,774             1,906
  Changes in operating assets and
  liabilities:
  Accounts receivable                         (22,466)          (6,541)
  Inventories                                 (13,263)          (10,039)
  Prepaid expenses and other current          (1,836)           (1,213)
  assets
  Income tax receivable/payable               (6,099)           (9,062)
  Accounts payable                            14,602            (3,964)
  Accrued payroll                             (1,587)           (591)
  Accrued taxes other than income             1,153             497
  Accrued profit sharing                      (4,313)           (3,286)
  Accrued other expenses                      (373)             (1,175)
  Accrued product/municipal liability         (57)              (32)
  Accrued warranty                            (166)             (302)
  Other assets                                (781)             (39)
  Other non-current liabilities               (330)             329
            Net cash provided by              23,983            13,771
            operating activities
Cash flows from investing activities:
 Proceeds from sale of business                —                 7,500
 Receipts from note receivable                38                36
 Payments to acquire patents and              (81)              (22)
 software
 Proceeds from sale of property and           15                13
 equipment
 Payments to acquire property and             (26,075)          (15,836)
 equipment
            Net cash used in investing        (26,103)          (8,309)
            activities
Cash flows from financing activities:
 Proceeds from loans and notes payable         101,583           1,753
 Cash paid for debt issue costs                (3,770)           —
 Payments on capital lease obligation          (349)             (300)
 Payments on loans and notes payable           (44,354)          (7,405)
 Payments to acquire treasury stock            (100,848)         —
 Proceeds from exercise of options to
 acquire common stock, including employee      1,689             4,084
 stock purchase plan
 Taxes paid related to restricted stock        (791)             —
 issuance
 Excess tax benefit of stock-based             1,395             984
 compensation
            Net cash used in financing        (45,445)          (884)
            activities
Net increase in cash and cash                 (47,565)          4,578
equivalents
Cash and cash equivalents, beginning of       100,487           56,717
period
Cash and cash equivalents, end of period $    52,922       $    61,295
Supplemental disclosure of cash flow
information
 Cash paid for:
  Interest                                $    4,600        $    3,013
  Income taxes                                 29,157            22,204





SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDAS (Unaudited)
                      For the Three Months Ended October     For the Three Months Ended October
                      31, 2013:                              31, 2012:
                      GAAP       Adjustments     Adjusted    GAAP       Adjustments     Adjusted
                      (In thousands)
Net sales            $ 139,294  $ —             $ 139,294   $ 136,560  $ —             $ 136,560
Cost of sales          81,357     (4,155)  (1)    77,202      88,092     (3,483)  (1)    84,609
Gross profit           57,937     4,155           62,092      48,468     3,483           51,951
Operating expenses:
    Research and       1,305      (97)     (1)    1,208       1,268      (19)     (1)    1,249
    development
    Selling and        7,681      (127)    (1)    7,554       8,077      (98)     (1)    7,979
    marketing
    General and        20,177     (3,653)  (2)    16,524      12,499     (1,716)  (2)    10,783
    administrative
    Total operating    29,163     (3,877)         25,286      21,844     (1,833)         20,011
    expenses
Operating income
from continuing         28,774     8,032           36,806      26,624     5,316           31,940
operations
Other
income/(expense):
    Other
    income/(expense),   36         —               36          39         —               39
    net
    Interest income    8          —               8           335        (291)    (5)    44
    Interest expense   (2,046)    2,046    (3)    —           (1,344)    1,344    (3)    —
    Total other
    income/(expense),   (2,002)    2,046           44          (970)      1,053           83
    net
Income from
continuing operations   26,772     10,078          36,850      25,654     6,369           32,023
before income taxes
Income tax expense     9,627      (9,627)  (4)    —           9,253      (9,253)  (4)    —
Income from             17,145     19,705          36,850      16,401     15,622          32,023
continuing operations
Discontinued
operations:
Loss from operations
of discontinued         (222)      —               (222)       (867)      222      (7)    (645)
security solutions
division
Income tax benefit      (64)       64       (4)    —           (5,651)    5,651    (4)    —
Income/(loss) on
discontinued            (158)      (64)            (222)       4,784      (5,429)         (645)
operations
Net
income/comprehensive  $ 16,987   $ 19,641        $ 36,628    $ 21,185   $ 10,193        $ 31,378
income
SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDAS (Unaudited)
                      For the Six Months Ended October 31,   For the Six Months Ended October 31,
                      2013:                                  2012:
                      GAAP       Adjustments     Adjusted    GAAP       Adjustments     Adjusted
                      (In thousands)
Net sales            $ 310,314  $ —             $ 310,314   $ 272,555  $ —             $ 272,555
Cost of sales          179,604    (8,328)  (1)    171,276     172,861    (6,917)  (1)    165,944
Gross profit           130,710    8,328           139,038     99,694     6,917           106,611
Operating expenses:
    Research and       2,664      (164)    (1)    2,500       2,439      (103)    (1)    2,336
    development
    Selling and        15,229     (192)    (1)    15,037      14,916     (144)    (1)    14,772
    marketing
    General and        36,029     (6,460)  (2)    29,569      24,417     (2,904)  (2)    21,513
    administrative
    Total operating    53,922     (6,816)         47,106      41,772     (3,151)         38,621
    expenses
Operating income
from continuing         76,788     15,144          91,932      57,922     10,068          67,990
operations
Other
income/(expense):
    Other
    income/(expense),   41         —               41          39         —               39
    net
    Interest income    110        —               110         703        (608)    (5)    95
    Interest expense   (8,719)    8,719    (3)    —           (3,331)    3,331    (3)    —
    Total other
    income/(expense),   (8,568)    8,719           151         (2,589)    2,723           134
    net
Income from
continuing operations   68,220     23,863          92,083      55,333     12,791          68,124
before income taxes
Income tax expense     24,549     (24,549) (4)    —           20,061     (20,061) (4)    —
Income from             43,671     48,412          92,083      35,272     32,852          68,124
continuing operations
Discontinued
operations:
Loss from operations
of discontinued         (274)      —               (274)       (2,550)    1,428    (6)    (1,122)
security solutions
division
Income tax benefit      (66)       66       (4)    —           (6,249)    6,249    (4)    —
Income/(loss) on
discontinued            (208)      (66)            (274)       3,699      (4,821)         (1,122)
operations
Net
income/comprehensive  $ 43,463   $ 48,346        $ 91,809    $ 38,971   $ 28,031        $ 67,002
income
(1) To exclude depreciation, amortization, and stock-based compensation
    expense.
(2) To exclude depreciation, amortization, stock-based compensation expense, and DOJ/SEC costs
    and related profit sharing impacts of DOJ/SEC.
(3) To exclude interest expense.
(4) To exclude income tax expense/(benefit).
(5) To exclude intercompany interest income.
(6) To exclude loss on sale of discontinued operations, depreciation, amortization, interest
    expense, and stock-based compensation expense.
(7) To exclude depreciation, amortization, and stock-based compensation expense.





SOURCE Smith & Wesson Holding Corporation

Website: http://www.smith-wesson.com
 
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