Smith & Wesson Holding Corporation Posts Second Quarter Net Sales and Profits

Quarterly Net Sales +39%

SPRINGFIELD, Mass., Dec. 6 /PRNewswire-FirstCall/ -- Smith & Wesson
Holding Corporation (Nasdaq: SWHC), parent company of Smith & Wesson Corp.,
the legendary 155-year old company in the global business of safety, security,
protection and sport, today announced financial results for its second fiscal
quarter ended October 31, 2007.
Net product sales for the quarter ended October 31, 2007 were $70.8
million, an increase of 39.4% over the comparable quarter last year. Gross
margin increased to 32.3% for the quarter ended October 31, 2007 as compared
to 31.2% for the same period last year. Net income of $2.9 million, or $0.07
per fully diluted share, for the quarter ended October 31, 2007 was $87,000
higher than the comparable quarter last year. Net income of $7.6 million, or
$0.18 per fully diluted share, for the six months ended October 31, 2007 was
$1.4 million, or $0.03 per fully diluted share higher than for the six months
ended October 31, 2006. Net income for the second quarter of fiscal 2008
reflects a 54.5% year-over-year increase in operating expenses, combined with
a $1.7 million year-over-year increase in interest expense, both attributable
to the acquisition of Thompson/Center Arms in January 2007.
Michael F. Golden, President and Chief Executive Officer said, "The second
fiscal quarter was a challenging one for the sporting goods channel for not
only Smith & Wesson, but for the entire firearms industry as well. While we
delivered a 56.2% increase in sales to the channel for the quarter, this was
driven by the addition of Thompson/Center, which we acquired in January of
this year. Despite these challenges, we delivered solid performance in the
second quarter in both our international and law enforcement sales channels.
Our overall results reinforce our strategy to continue to grow and diversify
Smith & Wesson into a global leader in safety, security, protection and
sport."
Golden added, "We continued to make significant strides in both the law
enforcement and the international sales channels of our business during the
second quarter. Our M&P pistols delivered year-over-year growth of 54% and
continued to win in the law enforcement arena. Recently, our M&P pistols were
selected by a number of new police departments, including the New Mexico State
Police, the Charlotte Police Department, and the Syracuse Police Department.
To date, the M&P has won over 80% of all law enforcement test and evaluation
processes in which it has competed, and has so far been selected by 264 law
enforcement agencies across the United States. We will continue to expand
this successful product line, designed especially for law enforcement and
military professionals, at SHOT Show 2008, to be held February 2-5 in Las
Vegas.
International sales were extremely robust during the second quarter at
$7.8 million, an increase of 122% over the comparable quarter one year ago.
The M&P is delivering a tremendous boost in our efforts to expand in the
international military and law enforcement markets, and during the second
quarter we secured several new customers in key countries including Mexico,
Canada and Thailand. Our M&P pistol is now carried on duty by over 5,000 law
enforcement personnel in 13 countries outside of the United States.
As we announced last month, our results for the second quarter of fiscal
2008 in the consumer channel were impacted by a combination of factors,
including softness in the market for hunting rifles and shotguns driven by
lower than expected consumer demand, an industry-wide buildup of pre-season
retail inventories, and unseasonably warm autumn weather, which compressed the
fall hunting season. Within the consumer channel, the reduced retail activity
not only affected long guns but handguns as well, and was compounded by the
fact that inventory in the channel was at an extremely high level, due in part
to the anticipation of a strong hunting season. In fact, during the first six
months of calendar 2007, federal excise tax data indicates that industry-wide
long gun sales into the distribution channel increased 20% year-over-year and
handgun sales increased 37% year-over-year. However, federal background check
data, which is an indicator of retail purchases, reflects that retail
purchases for the same period of time increased by only 5.2%. The resulting,
industry-wide inventory buildup, accentuated by lower retail traffic, caused
order activity to slow beginning in October. Several manufacturers responded
with significant discounts on both long guns and handguns. This caused
increased price competition in the channel and served to exacerbate already
inflated inventory levels.
Early feedback on our handgun promotions, designed to clear Smith & Wesson
product from the sales channel, has been positive. However, industry-wide
channel inventories remain high, limiting the ability of both distributors and
dealers to purchase products and thereby limiting our sales.
Golden concluded, "Despite circumstances that occurred in our consumer
channel during the second quarter and that appear to be continuing throughout
the fiscal year, both our long-term outlook and our strategy remain unchanged.
Our ongoing sales growth in sporting goods despite the inventory over-stock
situation indicates that we continue to grow market share within the consumer
channel. Our acquisition and integration of Thompson/Center Arms continues to
meet all of our expectations. Moreover, we are dedicated to expanding the
Smith & Wesson brand more deeply into non-consumer sales channels and into new
non-firearms categories that will diversify our base of revenue and build upon
our reputation for safety, security, protection and sport. Today we filed an
8-K indicating that we have increased our credit facility to $110 million. We
believe this expanded resource positions us to be fully prepared to take
advantage of opportunities to grow our business both organically and through
acquisitions.
Fiscal 2008 Outlook
We now expect net product sales to increase to approximately $300 million
in fiscal 2008, which would represent a 28% increase over fiscal 2007 net
product sales. This expectation does not include the results of any potential
future diversification initiative, but does include growth in our existing
consumer market, as well as continued penetration of the law enforcement,
federal government and international markets. We expect gross margins of
approximately 32%, a reduction from our earlier expectations, reflecting
increased promotional costs, an extended Springfield plant shutdown in
December, and the lower absorption rate of overhead costs due to lower
production volumes. We now expect net income for the fiscal year ending April
30, 2008 of approximately $17.0 million, or $0.40 per diluted share, which
would represent an increase in net income of 33% over net income for fiscal
2007, and an increase in earnings of $0.09 per diluted share, or 29%, over the
fiscal year ended April 30, 2007.
We are adjusting our capital expenditure expectations for the balance of
fiscal 2008 to reflect our current sales and net income projections. Capital
expenditures are now expected to be $15.9 million, a decrease of approximately
$1.8 million from our previously announced projection. We do not expect that
the lowered capital expenditures will impact our long term growth plans. Free
cash flow for fiscal 2008 is now expected to be $29 million, with net cash
flow after capital expenditures projected to be $13 million. The strong cash
flow will allow us to reserve our newly expanded credit lines solely for
growth opportunities.
We expect net sales for the third quarter of fiscal 2008 to increase by
approximately 5 to 10% over net sales for the third quarter of fiscal 2007.
We anticipate that gross margin as a percentage of sales and licensing in the
third quarter of fiscal 2008 will be approximately 26%, due to costs
associated with a three week shutdown at our Springfield facility in December,
as well as increased costs for consumer focused promotions. As a result, we
anticipate net income for the third quarter of fiscal 2008 to be break even.
We expect the industry-wide inventory over-stock situation to improve in
the fourth quarter of fiscal 2008, and therefore expect net sales for the
quarter of 10% to 15% over net sales for the fourth quarter of fiscal 2007.
We anticipate that gross margin as a percentage of sales and licensing in the
fourth quarter of fiscal 2008 to improve to approximately 33%. We expect net
income for the fourth quarter of fiscal 2008 of approximately $10 million, or
$0.22 per diluted share.
Conference Call
The Company will host a conference call today, December 6, 2007, to
discuss its second quarter results and its outlook for fiscal 2008. The
conference call may include forward-looking statements. The conference call
will be Web cast and will begin at 5:00 p.m. Eastern Time (2:00 Pacific). The
live audio broadcast and replay of the conference call can be accessed on the
Company's Web site 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.
About Smith & Wesson
Smith & Wesson Holding Corporation, a global leader in safety, security,
protection and sport, is parent company to Smith & Wesson Corp., one of the
world's largest manufacturers of quality firearms and firearm safety/security
products and parent company to Thompson/Center Arms, Inc., a premier designer
and manufacturer of premium hunting rifles, black powder rifles,
interchangeable firearms systems and accessories under the Thompson/Center
brand. Smith & Wesson licenses shooter eye and ear protection, knives,
apparel, and other accessory lines. Smith & Wesson is based in Springfield,
Massachusetts with manufacturing facilities in Springfield, Houlton, Maine,
and Rochester, New Hampshire. The Smith & Wesson Academy is America's longest
running firearms training facility for law enforcement, military and security
professionals. For more information on Smith & Wesson, call (800) 331-0852 or
log on to www.smith-wesson.com. For more information on
Thompson/Center Arms, log on to www.tcarms.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, income, income per share, cash flows, 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, 2008; 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; the success of any new
products, including the Military and Police pistol series and long guns(rifles
and shotguns); the anticipated benefits of the acquisition of Thompson/Center
Arms; the expected financial effect of the acquisition of Thompson/Center
Arms; and the effect of the Thompson/Center Arms acquisition on the Company's
growth strategy. 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, the ability of the Company's management to
integrate Thompson/Center Arms in a successful manner, 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, 2007.

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of:
October 31, 2007 April 30, 2007
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $590,670 $4,065,328
Accounts receivable, net of
allowance for doubtful accounts
of $181,676 on October 31, 2007
and $146,354 on April 30, 2007 49,514,344 52,005,237
Inventories, net of excess and
obsolescence reserve 51,850,324 32,022,293
Other current assets 5,369,553 4,154,595
Deferred income taxes 7,809,939 7,917,393
Income tax receivable 5,704,748 2,098,087
Total current assets 120,839,578 102,262,933
Property, plant and equipment, net 49,175,126 44,424,299
Intangibles, net 67,483,517 69,548,017
Goodwill 40,677,343 41,955,182
Other assets 10,278,450 10,066,997
$288,454,014 $268,257,428

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $22,067,239 $22,636,163
Accrued expenses 11,271,076 9,479,490
Accrued payroll 5,472,813 7,370,804
Accrued taxes other than income 2,088,156 2,648,698
Accrued profit sharing 2,416,028 5,869,677
Accrued workers' compensation 442,577 428,136
Accrued product liability 2,373,444 2,873,444
Accrued warranty 1,708,020 1,564,157
Deferred revenue 179,915 190,350
Current portion of notes payable 15,652,733 2,887,403
Total current liabilities 63,672,001 55,948,322
Deferred income taxes 21,527,515 23,590,404
Notes payable, net of current portion 119,595,015 120,538,598
Other non-current liabilities 10,661,003 9,074,905
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,
41,582,673 shares issued and
40,382,673 shares outstanding on
October 31, 2007 and 40,983,196
shares issued and 39,783,196 shares
outstanding on April 30, 2007 41,582 40,983
Additional paid-in capital 50,764,744 44,409,668
Retained earnings 28,515,503 20,977,897
Accumulated other comprehensive
income 72,651 72,651
Treasury stock, at cost (1,200,000
common shares) (6,396,000) (6,396,000)
Total stockholders' equity 72,998,480 59,105,199
$288,454,014 $268,257,428

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF INCOME

For the Three Months Ended: For the Six Months Ended:
October 31, October 31, October 31, October 31,
2007 2006 2007 2006
Net product and
services sales $70,775,676 $50,784,461 $145,187,384 $98,388,910
License revenue 620,614 598,035 1,050,454 996,420
Cost of products
and services
sold 48,318,050 35,312,326 95,950,812 66,637,045
Cost of license
revenue 0 15,492 0 15,492
Gross profit 23,078,240 16,054,678 50,287,026 32,732,793
Operating
expenses:
Research and
development 476,468 362,174 889,005 530,268
Selling and
marketing 7,223,154 4,573,201 13,873,600 9,285,133
General and
administrative 8,845,011 5,774,835 19,181,882 11,690,020
Total operating
expenses 16,544,633 10,710,210 33,944,487 21,505,421
Income from
operations 6,533,607 5,344,468 16,342,539 11,227,372
Other income/
(expense):
Other income/
(expense), net 213,419 (205,574) 176,253 (329,311)
Interest income 9,189 38,595 29,881 69,306
Interest expense (2,082,840) (373,259) (4,316,809) (718,220)
Total other
expense, net (1,860,232) (540,238) (4,110,675) (978,225)
Income before
income taxes 4,673,375 4,804,230 12,231,864 10,249,147
Income tax
expense 1,731,575 1,949,266 4,599,573 4,024,867
Net income $2,941,800 $2,854,964 $7,632,291 $6,224,280
Weighted average
number of common
and common
equivalent shares
outstanding,
basic 40,284,784 39,804,578 40,119,638 39,626,269
Net income per
share, basic $0.07 $0.07 $0.19 $0.16
Weighted average
number of common
and common
equivalent shares
outstanding,
diluted 48,336,522 41,502,465 48,276,242 41,408,240

Net income per
share, diluted $0.07 $0.07 $0.18 $0.15

Contacts:
John Kelly, Chief Financial Officer
Smith & Wesson Holding Corp.
(413) 747-3305

Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corp.
(413) 747-3305
lsharp@smith-wesson.com

SOURCE Smith & Wesson Holding Corporation

John Kelly, Chief Financial Officer, or Liz Sharp, VP Investor Relations,
lsharp@smith-wesson.com, both of Smith & Wesson Holding Corp.,
+1-413-747-3305