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2014

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

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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

  • Net 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. 
  • Gross 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 as the absence of Walther product sales.
  • Operating 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.
  • Operating income for the second quarter was 20.7% percent of net sales compared with 19.5% percent for the second quarter last year.
  • Income 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. 
  • Non-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.
  • Operating 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 Ended:


For the Six Months Ended:





October 31, 2013


October 31, 2012


October 31, 2013


October 31, 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 development


1,305



1,268



2,664



2,439




 Selling and marketing


7,681



8,077



15,229



14,916




 General and administrative


20,177



12,499



36,029



24,417




 Total operating expenses


29,163



21,844



53,922



41,772



Operating income from continuing operations


28,774



26,624



76,788



57,922



Other income/(expense):















 Other income/(expense), net


36



39



41



39




 Interest income


8



335



110



703




 Interest expense


(2,046)



(1,344)



(8,719)



(3,331)




 Total other income/(expense), net


(2,002)



(970)



(8,568)



(2,589)



Income from continuing operations before income taxes


26,772



25,654



68,220



55,333



Income tax expense


9,627



9,253



24,549



20,061



Income from continuing operations


17,145



16,401



43,671



35,272



Discontinued operations:















 Loss from operations of discontinued security solutions division


(222)



(867)



(274)



(2,550)




 Income tax benefit


(64)



(5,651)



(66)



(6,249)




 Income/(loss) from discontinued operations


(158)



4,784



(208)



3,699



Net income/comprehensive income

$

16,987


$

21,185


$

43,463


$

38,971


















Net income per share:















Basic - continuing operations

$

0.29


$

0.25


$

0.71


$

0.54




Basic - net income

$

0.28


$

0.32


$

0.70


$

0.59




Diluted - continuing operations

$

0.28


$

0.24


$

0.69


$

0.53




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 30, 2013

$

52,922


$

100,487




Accounts receivable, net of allowance for doubtful accounts of $1,166 on October 31, 2013 and $1,128 on April 30, 2013


68,521



46,088




Inventories


76,261



62,998




Prepaid expenses and other current assets


6,660



4,824




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, $.001 par value, 20,000,000 shares authorized, no shares issued or outstanding






Common stock, $.001 par value, 100,000,000 shares authorized, 68,244,648 shares issued and 55,930,917 shares outstanding on October 31, 2013 and 67,596,716 shares issued and 64,297,113 shares outstanding on April 30, 2013


68



68



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 3,299,603 common shares on April 30, 2013)


(127,244)



(26,396)





 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, including $45 of stock-based compensation expense 




798





Loss on sale/disposition of assets


77



292





Provisions for losses on accounts receivable


33



380





Change in disposal group assets and liabilities




(1,232)





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 assets


(1,836)



(1,213)





 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 operating activities


23,983



13,771



 Cash flows from investing activities:









Proceeds from sale of business




7,500




 Receipts from note receivable


38



36




 Payments to acquire patents and software


(81)



(22)




 Proceeds from sale of property and equipment


15



13




 Payments to acquire property and equipment


(26,075)



(15,836)






 Net cash used in investing activities


(26,103)



(8,309)



 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 stock purchase plan


1,689



4,084




Taxes paid related to restricted stock issuance


(791)






Excess tax benefit of stock-based compensation


1,395



984






 Net cash used in financing activities


(45,445)



(884)



 Net increase in cash and cash equivalents


(47,565)



4,578



 Cash and cash equivalents, beginning of period


100,487



56,717



 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 31, 2013:



For the Three Months Ended October 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 development


1,305



(97)

(1)



1,208




1,268



(19)

(1)



1,249



 Selling and marketing


7,681



(127)

(1)



7,554




8,077



(98)

(1)



7,979



 General and administrative


20,177



(3,653)

(2)



16,524




12,499



(1,716)

(2)



10,783



 Total operating expenses


29,163



(3,877)




25,286




21,844



(1,833)




20,011


 Operating income from continuing operations


28,774



8,032




36,806




26,624



5,316




31,940


 Other income/(expense):























 Other income/(expense), net


36






36




39






39



 Interest income


8






8




335



(291)

(5)



44



 Interest expense


(2,046)



2,046

(3)






(1,344)



1,344

(3)





 Total other income/(expense), net


(2,002)



2,046




44




(970)



1,053




83
























 Income from continuing operations before income taxes


26,772



10,078




36,850




25,654



6,369




32,023


 Income tax expense


9,627



(9,627)

(4)






9,253



(9,253)

(4)




Income from continuing operations


17,145



19,705




36,850




16,401



15,622




32,023


Discontinued operations:






















Loss from operations of discontinued security solutions division


(222)






(222)




(867)



222

(7)



(645)


Income tax benefit


(64)



64

(4)






(5,651)



5,651

(4)




Income/(loss) on discontinued operations


(158)



(64)




(222)




4,784



(5,429)




(645)


Net income/comprehensive income

$

16,987


$

19,641



$

36,628



$

21,185


$

10,193



$

31,378
















































SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDAS (Unaudited)


























For the Six Months Ended October 31, 2013:



For the Six Months Ended October 31, 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 development


2,664



(164)

(1)



2,500




2,439



(103)

(1)



2,336



 Selling and marketing


15,229



(192)

(1)



15,037




14,916



(144)

(1)



14,772



 General and administrative


36,029



(6,460)

(2)



29,569




24,417



(2,904)

(2)



21,513



 Total operating expenses


53,922



(6,816)




47,106




41,772



(3,151)




38,621


 Operating income from continuing operations


76,788



15,144




91,932




57,922



10,068




67,990


 Other income/(expense):























 Other income/(expense), net


41






41




39






39



 Interest income


110






110




703



(608)

(5)



95



 Interest expense


(8,719)



8,719

(3)






(3,331)



3,331

(3)





 Total other income/(expense), net


(8,568)



8,719




151




(2,589)



2,723




134
























 Income from continuing operations before income taxes


68,220



23,863




92,083




55,333



12,791




68,124


 Income tax expense


24,549



(24,549)

(4)






20,061



(20,061)

(4)




Income from continuing operations


43,671



48,412




92,083




35,272



32,852




68,124


Discontinued operations:






















Loss from operations of discontinued security solutions division


(274)






(274)




(2,550)



1,428

(6)



(1,122)


Income tax benefit


(66)



66

(4)






(6,249)



6,249

(4)




Income/(loss) on discontinued operations


(208)



(66)




(274)




3,699



(4,821)




(1,122)


 Net income/comprehensive income

$

43,463


$

48,346



$

91,809



$

38,971


$

28,031



$

67,002
















































(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



RELATED LINKS
http://www.smith-wesson.com

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