Company Posts Year-Over-Year Sales Growth of 22.2% SPRINGFIELD,
Mass., Dec. 7 /PRNewswire-FirstCall/ -- Smith & Wesson Holding
Corporation (AMEX:SWB), parent company of Smith & Wesson Corp.,
the legendary 153-year old company in the global business of
safety, security, protection and sport, today announced financial
results for the second quarter ended October 31, 2005. Second
Quarter Financial Results (in millions, except EPS): Net product
sales were $35.5 million for the quarter ended October 31, 2005, an
increase of 22.2% over net product sales of $29.1 million for the
comparable quarter of 2004. Firearms sales for the second quarter
of fiscal 2006 grew 25.5% over the quarter ended October 31, 2004.
The increase in firearm sales reflected a 54.3% increase in pistol
sales as well as a 14.5% increase in revolver sales. Net income for
the quarter ended October 31, 2005 was $692,377, or $.02 per
diluted share, as compared with $2.1 million, or $.06 per diluted
share, for the quarter ended October 31, 2004. The results for the
quarter ended October 31, 2005 included $579,011 in stock option
expense relative to our recent election under FAS 123(R), compared
with $119,582 for the quarter ended October 31, 2004. The impact of
that option expense election on the quarter ended October 31, 2005
was to reduce net income by approximately $0.01 per diluted share.
In addition, results for the quarter ended October 31, 2004
included $4.1 million in one-time insurance benefits, which on an
after-tax basis increased net income in that previous quarter by
approximately $2.1 million, or $.06 per diluted share. Gross profit
of $10.5 million, or 29.3%, for the quarter ended October 31, 2005
was lower than gross profit of $12.4 million, or 41.8%, for the
comparable quarter of 2004. The gross profit for the quarter ended
October 31, 2004 included the $4.1 million in one-time insurance
benefits. Without the impact of that one-time insurance event,
gross profit for the quarter ended October 31, 2004 would have been
$8.3 million, or 27.9%. On a year-over-year basis, we increased
quarterly net product sales by $6.5 million and converted
approximately $2.3 million, or 35% of that amount, into gross
margin. We continue to improve our production and labor
efficiencies, which resulted in savings of approximately $166,000
over the comparable quarter ended October 31, 2004. Operating
expenses of $9.3 million for the quarter ended October 31, 2005
increased $1.2 million over operating expenses of $8.1 million for
the comparable quarter in 2004. Sales and marketing expenses
increased as expected due to our investment in a NASCAR program and
marketing programs supporting the launch of the Military &
Police pistol series. In June of the current fiscal year, we
announced that we intended to early adopt Statement of Financial
Accounting Standards No. 123(R), "Share-based Payment (Revised
2004)" (SFAS 123(R)) using the modified retrospective application
method. Consequently, we have restated prior periods to reflect the
impact of SFAS 123(R). The adoption of SFAS 123(R) resulted in
additional stock compensation expense of $579,011 for the quarter
ended October 31, 2005 compared with stock compensation expense of
$119,582 for the quarter ended October 31, 2004. We also incurred
approximately $484,000 in consulting fees relative to the
implementation of Sarbanes-Oxley 404 compliance. Finally, we
incurred $398,500 in payroll tax expense relative to the exercise
of warrants by, and repurchase of warrants from, two of our
original investors during the second quarter of fiscal 2006. Net
cash outflow from operations for the six months ended October 31,
2005 was $3.6 million compared with $1.1 million for the six months
ended October 31, 2004. Capital expenditures for the six months
ended October 31, 2005 were $6.0 million, or $2.1 million, higher
than the $3.9 million spent in the six months ended October 31,
2004. We had short-term borrowings of $4.5 million at October 31,
2005. Michael Golden, President and CEO, said, "I am pleased with
the progress we made this quarter on several fronts. First, our
25.5% growth rate in firearms sales was fueled by a follow-on order
to the U.S. government for Afghanistan soldiers. We have received
three orders this year from the U.S. government for shipment to
Afghanistan, which reflects the effectiveness of a newly
established segment of the Smith & Wesson sales team that
focuses on growing our business with the military and federal
government. In fact, military and federal government firearms
sales, which were virtually non-existent one year ago, have so far
totaled over $4.4 million for the first six months of fiscal 2006.
With regard to firearms sold into the sporting goods channel,
during the second quarter, we completed our transition from a sales
network of independent manufacturers representatives to a directly
employed, Smith & Wesson sales force. We believe this new
organization is beginning to have positive impact. International
sales have increased by over 51% for the first six months of this
fiscal year. We believe the launch of our new Military & Police
(M&P) pistol series, announced earlier this week, will help
support continued strong growth in each of these markets, as well
as the law enforcement market. Response to this exciting new
polymer pistol series, designed specifically for law enforcement
and military users, has been tremendously positive." "We made
notable operating improvements in our Springfield factory in the
areas of manufacturing processes, supply chain management, and lean
manufacturing practices. In November, efficiencies allowed us to
return to a five-day work schedule throughout most of our machining
operations, from the seven-day schedule we implemented in January
of this year. The transition went extremely well, with production
rates for the month of November meeting, and in some cases
exceeding, the levels we were achieving under the seven-day
schedule. This change, coupled with others, will begin to
contribute to improved gross margins beginning in the third quarter
of fiscal 2006." Accounting Matters Results for the quarter ended
October 31, 2004 have been restated to correct the accounting for
certain stock awards under APB 25 and the adoption of SFAS 123(R).
Updated Outlook for Fiscal 2006 We are raising our sales
expectations and now expect net product sales for fiscal 2006 to
increase by 13% to 15% over fiscal 2005 compared with our earlier
expectations of growth in the 10% to 12% range, excluding potential
additional revenue from new business ventures we may pursue. This
increase is expected to come from improved sales penetration of the
current sporting goods channel and new sales in law enforcement,
fueled by enhancements to our sales organization structure and the
introduction of the M&P pistol series in December 2005. The
multiple orders we have received so far in fiscal 2006 from the
U.S. government give us confidence that our sales to the federal
government will continue to grow. We also expect that the
international trade channels will continue to yield higher
year-over-year sales levels, supported by new product
introductions, including the M&P pistol series. Estimated gross
profit, as a percentage of product sales and licensing revenue, is
expected to increase from 29.1%, before the impact of the one-time
insurance recovery last year, to approximately 31% in fiscal 2006.
We have adjusted our gross margin expectation down slightly
compared with previous estimates, due entirely to oil and natural
gas cost increases that have occurred as a result of Hurricane
Katrina. Generally, electricity rates are expected to nearly triple
by January 2006 compared with pre-Hurricane Katrina levels. While
we are exploring alternative energy sources and implementing
conservation programs in an effort to reduce the impact, we
anticipate our energy costs will increase by $800,000 for fiscal
2006 over our initial expectations. Our adjusted gross margin
expectation of 31% for fiscal 2006 incorporates this higher,
anticipated energy expense. As a percentage of sales and licensing,
operating expenses in fiscal 2006, excluding the favorable
environmental adjustment in the first quarter, are still expected
to increase slightly compared with prior year levels as we expand
our sales and marketing resources and activities. We expect our
interest expense in fiscal 2006 to be approximately $1.5 million,
substantially lower than fiscal 2005 levels, reflecting our
refinancing activities in January 2005. Net income for fiscal 2006
is still expected to increase to between $6.9 million and $7.5
million, or between $.19 and $.20 per diluted share. Though we have
increased our sales growth expectations, rising utility costs will
offset the benefit of this increased sales volume. Our current
expectation includes an anticipated compensation expense relative
to SFAS 123(R) of $1.9 million, or $.03 per share. While we are not
providing quarterly guidance, we expect that the fourth quarter
will be significantly stronger than the third quarter. This is due
to our M&P start-up, launch, and production ramp-up costs, as
well as the brunt of the increased energy costs. Golden added, "We
focused heavily during the second quarter on efforts to diversify
and grow our business and have now identified several
opportunities. We have decided to enter a segment of the long-gun
market and plan to introduce our first new products in that
category at SHOT Show, our industry's major event, at the Las Vegas
Convention Center in February 2006. The long-gun market presents a
tremendous opportunity to leverage the historic Smith & Wesson
brand name and to further develop our reputation as a company in
the business of safety, security, protection and sport. We look
forward to sharing more details of this entry in February. We are
very excited at the prospect of returning Smith & Wesson to the
long gun market after a 21 year absence." Conference Call The
Company will host a conference call today, December 7, 2005, to
discuss its second quarter results and its outlook for 2006. The
conference call may include forward-looking statements. The
conference call will be Web cast and is scheduled to begin at
5:00pm Eastern Time (2:00pm Pacific). The live audio broadcast and
replay of the conference call can be accessed on the Company's Web
site at http://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. About Smith & Wesson
Smith & Wesson Holding Corporation, through its subsidiary
Smith & Wesson Corp., is one of the world's largest
manufacturers of quality handguns, law enforcement products and
firearm safety/security products. The Company also licenses shooter
protection, knives, apparel, footwear and other accessory lines.
The Company is based in Springfield, Mass., with manufacturing
facilities in Springfield and Houlton, Maine. The Smith &
Wesson Academy is America's longest-running firearms training
facility for America's public servants. For more information, call
(800) 331-0852 or log on to http://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 the Company intends that such forward-looking
statements be subject to the safe-harbor created thereby. Such
forward-looking statements include statements regarding the
Company's anticipated sales, sales margins, gross margins,
expenses, including anticipated energy costs, earnings, capital
expenditures, penetration rates for new and existing markets and
new product shipments, for the fiscal year ending April 30, 2006;
the Company's strategies; the demand for the Company's products;
the success of the Company's efforts to achieve improvements in
manufacturing processes; the ability of the Company to introduce
any new products and the success of any new products, including the
Military and Police pistol series and long guns(rifles and
shotguns). The Company cautions 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 the Company's products, the
Company's growth opportunities, the ability of the Company to
obtain operational enhancements, the ability of the Company to
increase its production capacity, the ability of the Company to
engage additional key employees, and other risks detailed from time
to time in the Company's reports filed with the SEC, including its
Form 10-K Report for the fiscal year ended April 30, 2005.
Contacts: John Kelly, Chief Financial Officer Smith & Wesson
Holding Corp. (413) 747-3305 Liz Sharp, VP Investor Relations Smith
& Wesson Holding Corp. (480) 949-9700 x. 115 SMITH & WESSON
HOLDING CORPORATION and Subsidiaries CONSOLIDATED BALANCE SHEETS As
of: October 31, 2005 April 30, 2005 (Unaudited) ASSETS Current
assets: Cash and cash equivalents $497,694 $4,081,475 Accounts
receivable, net of allowance for doubtful accounts of $66,522 on
October 31, 2005 and $75,000 on April 30, 2005 19,477,616
18,373,713 Inventories 23,413,728 19,892,581 Other current assets
3,607,764 2,388,286 Deferred income taxes 5,560,354 6,119,561
Income tax receivable 263,660 3,701 Total current assets 52,820,816
50,859,317 Property, plant and equipment, net 20,926,999 16,726,361
Intangibles, net 354,603 364,908 Notes receivable 1,007,565
1,029,812 Deferred income taxes 6,478,008 7,806,702 Other assets
4,529,507 5,205,246 $86,117,498 $81,992,346 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities Accounts payable
$10,605,985 $12,034,692 Accrued other expenses 4,943,883 4,898,517
Accrued payroll 3,718,139 3,220,730 Accrued taxes other than income
619,737 589,449 Accrued profit sharing 770,694 2,403,019 Accrued
workers compensation 421,000 536,773 Accrued product liability
2,550,616 2,524,996 Deferred revenue 4,836 15,646 Derivative
valuation -- short-term 1,306,800 -- Current portion of notes
payable 6,137,839 1,586,464 Total current liabilities 31,079,529
27,810,286 Notes payable 15,197,862 16,028,424 Other non-current
liabilities 7,484,969 11,062,459 Commitments and contingencies
Stockholders' equity: Preferred stock, $.001 par value, 20,000,000
shares authorized, 0 shares on October 31, 2005 and April 30, 2005
issued and outstanding -- -- Common stock, $.001 par value,
100,000,000 shares authorized, 39,206,647 shares on October 31,
2005 and 31,974,017 shares on April 30, 2005 issued and outstanding
39,207 31,974 Additional paid-in capital 29,740,245 27,744,819
Deferred compensation (118,338) -- Retained earnings (deficit)
2,694,024 (685,616) Total stockholders' equity 32,355,138
27,091,177 $86,117,498 $81,992,346 SMITH & WESSON HOLDING
CORPORATION and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) For the Six Months Ended: Restated October 31, 2005
October 31, 2004 Cash flows from operating activities: Net income
$3,379,640 $3,573,409 Adjustments to reconcile net income to cash
used for operating activities: Amortization and depreciation
2,052,951 1,095,054 Gain on disposal of IdentiKit (450,515) Gain on
disposal of assets (10,780) (7,405) Write-off of patents -- 39,741
Deferred taxes 1,887,901 2,112,714 Provision for losses on accounts
receivable 9,800 6,500 Provision for excess and obsolete inventory
330,507 385,713 Stock option expense 854,511 210,303 Market
valuation adjustment stock warrants 118,800 -- Warrants issued as
part of sale of common stock (1,188,000) -- Changes in operating
assets and liabilities (Increase) decrease in assets: Accounts
receivable (1,113,703) 5,315,417 Inventories (3,851,654)
(1,879,842) Other current assets (1,219,478) (2,887,847) Income tax
receivable 3,701 (318) Note receivable 22,247 20,955 Other assets
420,183 1,330,090 Increase (decrease) in liabilities: Accounts
payable (1,428,707) (1,028,872) Accrued payroll 497,409 (904,818)
Accrued profit sharing (1,632,325) (725,696) Accrued taxes other
than income 30,288 (6,390) Accrued other expenses (73,434)
(158,670) Accrued income taxes 32,388 -- Accrued workers
compensation (115,773) 75,000 Accrued product liability 25,620
(314,352) Other non-current liabilities (3,577,490) (3,513,321)
Derivative valuation 1,306,800 -- Deferred revenue (10,810)
(256,887) Net cash (used for) provided by operating activities
(3,249,408) 2,029,963 Cash flows from investing activities:
Proceeds from sale of marketable securities -- 1,518,493 Reductions
in collateralized cash deposits -- 323,531 Payments to acquire
patents (2,489) (17,306) Proceeds from sale of IdentiKit 300,000
Proceeds from sale of property and equipment 35,901 7,465 Payments
to acquire property and equipment (6,010,360) (3,903,186) Net cash
(used for) provided by investing activities (5,976,948) (1,771,003)
Cash flows from financing activities: Payment on notes payable,
Tomkins -- (1,417,782) Proceeds from loans and notes payable
4,500,000 -- Proceeds from exercise of options to acquire common
stock 461,481 476,184 Proceeds from sale of common stock 24,612,888
123,307 Repurchase of warrants (23,950,701) -- Compensation expense
-- Non-employee stock option (118,338) -- Proceeds from exercise of
warrants to acquire common stock 916,432 -- Payments on loans and
notes payable, unrelated parties (779,187) (559,914) Net cash
provided by (used for) financing activities 5,642,575 (1,378,205)
Net decrease in cash and cash equivalents (3,583,781) (1,119,245)
Cash and cash equivalents, beginning of year 4,081,475 5,510,663
Cash and cash equivalents, end of period $497,694 $4,391,418 SMITH
& WESSON HOLDING CORPORATION and Subsidiaries CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Six Months Ended Restated Restated October 31,
October 31, October 31, October 31, 2005 2004 2005 2004 Net product
and services sales $35,536,967 $29,078,039 $67,386,690 $56,846,914
License revenue 482,213 526,018 1,282,190 922,768 Cost of products
and services sold 25,469,628 17,210,562 48,444,544 35,982,629 Cost
of license revenue 4,750 4,663 80,645 33,821 Gross profit
10,544,802 12,388,832 20,143,691 21,753,232 Operating expenses:
Research and development, net 102,026 38,184 141,866 75,323 Selling
and marketing 3,770,483 3,160,186 7,720,760 6,021,436 General and
administrative 5,434,206 4,901,362 9,314,047 8,579,016
Environmental expense -- -- (3,087,810) -- Total operating expenses
9,306,715 8,099,732 14,088,863 14,675,775 Income from operations
1,238,087 4,289,100 6,054,828 7,077,457 Other income(expense):
Other income (expense) 178,786 (107,687) 221,677 207,306 Interest
income 39,651 101,049 58,155 183,299 Interest expense (362,282)
(819,261) (911,619) (1,654,638) (143,845) (825,899) (631,787)
(1,264,033) Income before income taxes 1,094,242 3,463,201
5,423,041 5,813,424 Income tax expense 401,865 1,356,791 2,043,401
2,240,015 Net income $692,377 $2,106,410 $3,379,640 $3,573,409
Other comprehensive income: -- -- -- -- Comprehensive income
$692,377 $2,106,410 $3,379,640 $3,573,409 Weighted average number
of common equivalent shares outstanding, basic 35,858,826
31,279,739 33,988,252 31,144,761 Net income per share, basic $0.02
$0.07 $0.10 $0.11 Weighted average number of common equivalent
shares outstanding, diluted 39,662,462 36,329,973 39,290,302
36,278,796 Net income per share, diluted $0.02 $0.06 $0.09 $0.10
DATASOURCE: Smith & Wesson Holding Corporation CONTACT: John
Kelly, Chief Financial Officer, +1-413-747-3305, or Liz Sharp, VP
Investor Relations, +1-480-949-9700, ext. 115, , both of Smith
& Wesson Holding Corporation Web site:
http://www.smith-wesson.com/
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