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Smith & Wesson Reports Second Quarter Earnings Increase

SPRINGFIELD, Mass.--(BUSINESS WIRE)--Dec. 9, 2004--Smith & Wesson Holding Corporation (AMEX:SWB), announced today that net income for the three months ended October 31, 2004 was $2.2 million, or $0.07 per diluted share, compared with net income of approximately $671,000, or $0.02 per diluted share, for the three months ended October 31, 2003. Net product sales for the second quarter were $29.1 million, a slight increase over net product sales of $28.9 million for the quarter ended October 31, 2003.

Net income for the six months ended October 31, 2004 was $3.7 million, or $0.11 per diluted share, compared with net income of $1.3 million, or $0.03 per diluted share, for the six months ended October 31, 2003. Net product sales for the six months ended October 31, 2004 were $56.8 million, an $820,100, or 1.4%, decrease from net product sales for the six months ended October 31, 2003.

Firearms sales, the Company's core business, were $26.4 million for the quarter, an increase of $1.8 million, or 7.4%, versus the comparable quarter last year. Non-firearms sales were $2.6 million, a decline of $1.6 million. Firearms sales for the six months ended October 31, 2004 were $51.8 million, a $2.4 million, or 4.8%, increase over the six months ended October 31, 2003. Non-firearms sales for the six-month period were $5.1 million, down $3.2 million, or 38.5%, from the previous year. Non-firearms sales were lower in both the three- and six-month periods as a result of lower handcuff sales and the discontinued optics and third-party machining businesses.

The substantial increase in net income in the second quarter was attributable to an agreement reached with one of the Company's insurance carriers regarding municipal litigation costs. The carrier agreed to reimburse the Company for certain past litigation costs incurred by the Company and agreed to pay a portion of ongoing costs. As a result of the settlement, the profit for the second quarter includes the net refund of $2.0 million and an additional increase in insurance receivables of $2.1 million to reflect the agreement to pay ongoing costs for which the Company has previously provided reserves. Earnings for the quarter were adversely impacted by a provision for severance costs for the Company's former CEO and recruiting costs for his replacement. The total of the severance and recruiting costs was $626,000. These items, after consideration of profit sharing, had an after-tax impact of approximately $1.8 million, or $0.05 per diluted share.

John Kelly, CFO of Smith & Wesson Holding Corporation, said, "Firearms sales were up for the quarter as we continue to grow the core business. We experienced some production difficulties in the second quarter that had an adverse impact on sales and profits. Those problems have been corrected as additional capacity will be coming on line in the next quarter."

For the six months ended October 31, 2004, the Company had a cash outflow of $1.1 million, compared with an outflow of $1.7 million for the six months ended October 31, 2003. The cash flow for the six months included $2.0 million in repayment of existing debt, compared with $1.0 million for the six months ended October 31, 2003. Cash flow from operating activities was $2.0 million for the six months ended October 31, 2004, as compared with $1.1 million for the six months ended October 31, 2003.

Outlook for the Remainder of Fiscal Year 2005

In July of this year, the Company retained Merriman, Curhan, Ford & Company to assist in the restructuring of its existing debt. The Company noted that its current debt structure contains restrictive covenants that are no longer consistent with its growth plans. The Company has received proposals from a number of financial institutions and is now in final negotiations on a $40 million credit facility. Upon completion of the restructuring, the Company expects to reduce significantly its outstanding debt through utilization of the cash currently collateralizing the existing debt. The Company also expects interest costs to decrease by over $1.5 million on an annual basis as a result of the lower debt level and a lower interest rate than is currently being paid by the Company. The Company expects to complete the debt restructuring by the end of December.

The Company currently expects sales for the fiscal year ending April 30, 2005 to increase by approximately 5% over the $117.9 million reported for the fiscal year ended April 30, 2004. The Company continues to expect net income to be in the range of $5.4 million to $6.4 million, or between $0.16 and $0.19 per diluted share, compared with $1.4 million, or $0.04 per diluted share, for the fiscal year ended April 30, 2004.

Commenting on the annual projections, John Kelly said, "The decline in the dollar has increased the cost of our Walther imports, which accounts for about 10% of our sales. Thus, we will be forced to increase prices on our Walther products in the second half in order to maintain acceptable margins. As a result of the increased prices, we are forecasting a decline in Walther sales in the remainder of the fiscal year. Despite that reduction in sales, our profit projections for the year are unchanged because we expect the results of the insurance agreement will offset the lost profits from the lower sales and the one-time severance and recruiting costs that we have incurred this year."

About Smith & Wesson

Smith & Wesson Holding Corporation is the parent company of Smith & Wesson Corp., one of the world's leading producers of quality handguns, law enforcement products and firearm safety and security products. Law enforcement personnel, military personnel, target shooters, hunters, collectors, and firearms enthusiasts throughout the world have used the Company's products with confidence for more than 150 years. Smith & Wesson Corp. also manufactures and markets Smith & Wesson branded handcuffs. For more information, visit 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 sales and earnings projections for the fiscal year ending April 30, 2005, the Company's debt restructuring efforts, future interest rate savings, the Company's strategies, and the demand for the Company's products, especially the Walther imports. 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.

          SMITH & WESSON HOLDING CORPORATION and Subsidiaries

            CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
                    AND OTHER COMPREHENSIVE INCOME

                      Three months ended         Six months ended
                   October 31,  October 31,  October 31,  October 31,
                        2004         2003         2004        2003
                   ---------------------------------------------------

Net product sales  $29,078,039  $28,874,158  $56,846,914  $57,667,014
License revenue        526,018      362,701      922,768      786,004
Cost of goods sold  19,178,562   19,808,888   37,950,629   40,070,608
Cost of services         4,663       57,496       33,821       57,496
                   ------------ ------------ ------------ ------------
Gross profit        10,420,832    9,370,475   19,785,232   18,324,914
                   ------------ ------------ ------------ ------------

Operating expenses:
  Research and
   development, net     38,184      169,145       75,323      497,763
  Selling and
   marketing         3,160,186    3,319,079    6,021,436    6,275,980
  General and
   administrative    4,799,717    4,580,365    8,400,258    7,900,073
                   ---------------------------------------------------
    Total operating
     expenses        7,998,087    8,068,589   14,497,017   14,673,816
                   ---------------------------------------------------

Income from
 operations          2,422,745    1,301,886    5,288,215    3,651,098
                   ------------ ------------ ------------ ------------

Other
 income/(expense):
  Other
   income/(expense)  1,860,313      494,836    2,175,306     (184,784)
  Interest income      101,049       73,225      183,299      169,896
  Interest expense    (819,261)    (827,499)  (1,654,638)  (1,679,312)
                   ------------ ------------ ------------ ------------
                     1,142,101     (259,438)     703,967   (1,694,200)
                   ------------ ------------ ------------ ------------

Income before
 income taxes        3,564,846    1,042,448    5,992,182    1,956,898
Income tax expense   1,321,639      371,783    2,256,329      700,985
                   ------------ ------------ ------------ ------------
Net income          $2,243,207     $670,665   $3,735,853   $1,255,913
Other comprehensive
 income:
  Unrealized gain
   on marketable
   securities                -       15,738           --        3,465
                   ------------ ------------ ------------ ------------
Comprehensive
 income             $2,243,207     $686,403   $3,735,853   $1,259,378
                   ------------ ------------ ------------ ------------

Weighted average
 number of common
 equivalent shares
outstanding, basic  31,279,739   30,673,786   31,144,761   30,647,088
                   ------------ ------------ ------------ ------------

Net income per
 share, basic            $0.07        $0.02        $0.12        $0.04
                   ------------ ------------ ------------ ------------

Weighted average
 number of common
 equivalent shares
 outstanding,
 diluted            34,381,103   37,126,451   34,215,049   37,098,420
                   ------------ ------------ ------------ ------------

Net income per
 share, diluted          $0.07        $0.02        $0.11        $0.03
                   ------------ ------------ ------------ ------------


The accompanying notes are an integral part of these consolidated
 financial statements.


          SMITH & WESSON HOLDING CORPORATION and Subsidiaries
                      CONSOLIDATED BALANCE SHEETS
                                As of:


                                            October 31,    April 30,
                                                2004         2004
                                             Unaudited
                                            ------------ -------------
                   ASSETS
Current assets:
  Cash and cash equivalents                  $4,391,418    $5,510,663
  Marketable securities                               -     1,538,738
  Accounts receivable, net of allowance for
   doubtful accounts of $104,830 on
   October 31, 2004 and $100,000 on
   April 30, 2004                            14,927,941    20,249,858
  Inventories                                17,480,834    15,986,705
  Other current assets                        4,711,028     1,823,181
  Deferred income taxes                       3,935,099     3,900,480
  Income tax receivable                         160,914       160,596
                                            ------------ -------------
    Total current assets                     45,607,234    49,170,221
                                            ------------ -------------
Property, plant, and equipment, net          13,835,601    11,021,174
Intangibles, net                                323,118       351,908
Collateralized cash deposits                 22,349,528    22,673,059
Notes receivable                              1,051,404     1,072,359
Deferred income taxes                         7,544,851     9,607,287
Other assets                                  6,049,009     7,379,099
                                            ------------ -------------
                                            $96,760,745  $101,275,107
                                            ============ =============

    LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                           $8,580,103    $9,608,975
  Accrued expenses                            7,937,174     8,335,196
  Accrued payroll                             3,015,608     3,920,426
  Accrued taxes other than income             1,049,116     1,055,506
  Accrued profit sharing                      1,577,879     2,272,030
  Deferred revenue                               34,889       442,291
  Current portion of notes payable            4,206,744     4,039,456
                                            ------------ -------------
    Total current liabilities                26,401,513    29,673,880
                                            ------------ -------------
Notes payable                                35,725,062    37,870,046
                                            ------------ -------------
Other non-current liabilities                13,400,626    16,913,947
                                            ------------ -------------
Commitments and contingencies
Stockholders' equity:
  Common stock, $.001 par value,
  100,000,000 shares authorized, 31,499,193
  shares on October 31, 2004 and 30,935,799
  shares on April 30, 2004 issued and
  outstanding                                    31,499        30,936
  Additional paid-in capital                 17,352,073    16,651,934
  Retained earnings                           3,849,972       114,119
  Accumulated other comprehensive income              -        20,245
                                            ------------ -------------
    Total stockholders' equity               21,233,544    16,817,234
                                            ------------ -------------
                                            $96,760,745  $101,275,107
                                            ============ =============

The accompanying notes are an integral part of these consolidated
 financial statements.


          SMITH & WESSON HOLDING CORPORATION and Subsidiaries
            CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
                       For the Six Months Ended:


                                              October 31, October 31,
                                                  2004        2003
                                              ----------- ------------

Cash flows provided by (used
for) operating activities:
  Net income                                  $3,735,853   $1,255,913
  Adjustments to reconcile net income to
   cash provided by (used for) operating
   activities:
     Amortization and depreciation             1,095,054      741,073
     Gain on disposal of product line           (450,515)          --
     Gain on sale of assets                       (7,405)      (8,307)
     Write-off of patents                         39,741           --
     Provision for losses on accounts
      receivable                                   6,500       15,300
     Provision for excess and obsolete
      inventory                                  385,713      375,865
     Stock compensation for services                  --       10,000
  Changes in operating assets and liabilities:
  (Increase) decrease in assets:
     Accounts receivable                       5,315,417     (244,542)
     Inventories                              (1,879,842)    (576,787)
     Other current assets                     (2,887,847)     763,085
     Deferred taxes                            2,129,028      612,398
     Income tax receivable                          (318)      40,670
     Note receivable                              20,955     (129,906)
     Other assets                              1,330,090    3,749,779
  Increase (decrease) in liabilities:
     Accounts payable                         (1,028,872)  (1,872,746)
     Accrued payroll                            (904,818)      99,989
     Accrued profit sharing                     (694,151)   1,176,901
     Accrued taxes other than income              (6,390)     145,340
     Accrued expenses                           (398,022)      66,231
     Other non-current liabilities            (3,513,321)  (5,114,044)
     Deferred revenue                           (256,887)     (31,539)
                                              ----------- ------------

      Net cash provided by operating
       activities                              2,029,963    1,074,673
                                              ----------- ------------

Cash flows (used for) investing activities:
  Payments to acquire marketable securities           --      (15,775)
  Proceeds from sale of marketable securities  1,518,493           --
  Reduction to collateralized cash deposits      323,531      140,033
  Payments to acquire patents                    (17,306)     (13,862)
  Proceeds from sale of property and equipment     7,465       11,209
  Proceeds from sale of product line             300,000           --
  Payments to acquire property and equipment  (3,903,186)  (2,083,982)
                                              ----------- ------------

      Net cash used for investing activities  (1,771,003)  (1,962,377)
                                              ----------- ------------

Cash flows (used for) financing activities:
  Payment on notes payable, Tomkins           (1,417,782)  (1,000,000)
  Proceeds from sale of common stock             123,307      133,593
  Proceeds from exercise of
  options to acquire common stock                476,184       28,700
  Payments on loans and notes payable,
   unrelated parties                            (559,914)          --
                                              ----------- ------------

      Net cash used for financing activities  (1,378,205)    (837,707)
                                              ----------- ------------

Net decrease in cash
 and cash equivalents                         (1,119,245)  (1,725,411)
Cash and cash equivalents, beginning of year   5,510,663   12,182,010
                                              ----------- ------------
Cash and cash equivalents, end of period      $4,391,418  $10,456,599
                                              =========== ============



The accompanying notes are an integral part of these consolidated
 financial statements.

    CONTACT: Smith & Wesson Holding Corporation
             John A. Kelly, 413-747-3305

    SOURCE: Smith & Wesson Holding Corporation