24% Sales Growth
Third Quarter Marks Successful Launch of M&P Pistols and Tactical Rifles
FY 2006 Revenue Growth Forecast Increased to 19%-20%
FY 2007 Forecast Issued: Revenue Up 20%-24%; EPS Approximately $0.30
SPRINGFIELD, Mass., March 8 /PRNewswire-FirstCall/ -- Smith & Wesson
Holding Corporation (Amex: SWB), parent company of Smith & Wesson Corp., the
legendary 154-year old company in the global business of safety, security,
protection and sport, today announced net product sales of $38.6 million for
the third quarter ended January 31, 2006, a 24% increase over the comparable
quarter of the prior year, and the highest quarterly revenue in the company's
history.
Third Quarter Financial Results (in millions, except EPS):
John Kelly, Chief Financial Officer, said, "Net product sales of $38.6
million for the quarter ended January 31, 2006 were $7.5 million higher than
net product sales of $31.1 million for the quarter ended January 31, 2005, a
24% increase. Firearms sales in the third quarter of fiscal 2006 grew 25.9%
over the comparable quarter in fiscal 2005. Net income for the quarter ended
January 31, 2006 of $1.1 million, or $0.03 per diluted share, was $1.3
million, or $0.03 per diluted share, higher than the $153,000 loss for the
quarter ended January 31, 2005."
Gross profit of $11.3 million for the third quarter of fiscal 2006 was
$3.5 million, a 45.5% increase, over gross profit of $7.7 million for the
third quarter of fiscal 2005. Gross profit as a percentage of sales and
licensing of 28.9% for the quarter ended January 31, 2006 was higher than
gross profit of 24.5% for the quarter ended January 31, 2005. We increased
quarterly net product sales by $7.5 million and converted approximately $2.6
million, or 35% of that amount, into gross margin. Improvements in production
and labor efficiencies resulted in savings of approximately $240,000 over the
comparable quarter of fiscal 2005.
Gross profit as a percentage of sales and licensing for the third quarter
of fiscal 2006 was slightly lower than anticipated due to utility cost
increases announced previously, start-up costs relative to the introduction of
our new M&P pistol series and costs associated with transitioning from a
seven-day workweek to a five-day workweek in November 2005. By quarter's end,
we had concluded negotiations with a new energy supplier and had initiated
shipments of the new M&P pistol series. So far, fourth quarter data indicates
that we are currently achieving improvements in operating efficiencies under
the new five-day work schedule.
Operating expenses for the third quarter of fiscal 2006 of $9.4 million
increased by $2.3 million over the $7.1 million in expenses for the comparable
quarter of fiscal 2005. Sales and marketing expenses for the quarter
increased as expected by approximately $427,000 over the comparable quarter
last year, as a result of marketing expenses related to the launch of the M&P
pistols series and promotional costs for our NASCAR program. Despite the
increase, sales and marketing expenses as a percentage of sales in the third
quarter of fiscal 2006 were less than the comparable quarter last year. In
June of 2005, 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 approximately $662,000 for the quarter ended January 31, 2006
compared with stock compensation expenses of approximately $206,000 for the
quarter ended January 31, 2005. During the third quarter of fiscal 2006 we
recognized income of approximately $286,000 on a fair value adjustment
relative to the liability associated with warrants issued in a private equity
placement in September 2005. This benefit was offset by $675,000 in
consulting fees incurred during the third quarter of fiscal 2006 relative to
the implementation of Sarbanes-Oxley 404 compliance.
Net cash flow from operations for the nine months ended January 31, 2006
increased to $1.7 million compared with $800,000 for the nine months ended
January 31, 2005. Capital expenditures for the nine months ended January 31,
2006 were $8.8 million, $1.4 million higher than the $7.4 million in capital
expenditures for the first nine months of fiscal 2005. The Company had
short-term borrowings of $2.5 million at January 31, 2006.
Michael Golden, President and CEO, said, "This has been a good quarter for
us. In addition to achieving 24% sales growth, attaining profitability versus
breakeven for the same quarter one year ago, and establishing a record level
of revenue, we also achieved some significant milestones in our strategy to
grow our core handgun business, to diversify the company, and to enter into
new markets with new products."
Core Handgun Business
Golden continued, "Our efforts to become a significant supplier of pistols
to the federal government continued to yield results, and we recently won our
fourth order in the last nine month period for Sigma 9VE pistols to be sold to
the federal government for shipment to the Afghanistan Army. The value of the
most recent contract is $15 million, most of which will be shipped in fiscal
2007. We view our ability to secure incremental orders from the federal
government as a reflection of our growing visibility with purchasing agencies
and key individuals in Washington, and as an indication of the quality and
reliability of the products that we have delivered. While we have won this
business with our traditional pistol series, we are optimistic that our new
M&P polymer pistol series will open additional doors within the federal
government."
Military & Police (M&P) Polymer Pistols
"In December 2005 we launched our M&P polymer pistol series, which is
designed especially to meet the needs of law enforcement professionals. We
currently have units undergoing test and evaluation with over 150 law
enforcement agencies. Within one month of our initial shipment of test units,
we secured our first full police department conversion in January from the
Patrick County, Virginia Sheriff's Office. To date, we have received orders
from a total of eight domestic law enforcement agencies. We are working with
a number of additional law enforcement agencies that have completed testing,
have selected the M&P pistol, and are either processing orders or pending
budget approvals. Today, we are announcing that we have received our first
international law enforcement order for M&P pistols. The order, from the Peel
Regional Police Department (PRPD) of Ontario, Canada, calls for pistols that
will be assigned to newly appointed officers. Representatives of PRPD have
also indicated to us their intent to eventually convert the entire
1,800-officer force to the M&P. We expect these are the first of many orders
we will receive as various departments complete their test and evaluation
processes," continued Golden.
Military & Police (M&P) Tactical Rifle Series
"In February of this year, at our industry's largest trade show in Las
Vegas, Nevada, we unveiled our highly anticipated entry into the long-gun
market with a family of Smith & Wesson M&P tactical rifles. Our research
indicates that the Smith & Wesson brand has earned a place in the long-gun
market, and the bullish response to our M&P 15 and M&P 15T tactical rifles so
far, from both the sporting goods and the law enforcement sales channels,
reinforces that point. By designing a product and finalizing a manufacturing
agreement within a six-month time frame, we moved into this market quickly.
Today I am pleased to announce that we have begun shipping initial test and
evaluation units of our tactical rifles to a variety of law enforcement
agencies. In addition, we have now received an initial order from the Las
Vegas Metropolitan Police Department for our M&P15 tactical rifles. We expect
to begin receiving additional orders from other law enforcement agencies
within the current quarter," added Golden.
Accounting Matters
Results for the quarter ended January 31, 2005 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 and Fiscal 2007
Fiscal 2006 Outlook
We expect net product sales for fiscal 2006 to increase by 19% to 20%
percent over fiscal 2005 compared with our earlier expectations for growth in
the 13% to 15% range. This increase is expected to come from continued sales
penetration of the sporting goods channel, increased international sales, and
initial shipments of the pistol order for shipment to Afghanistan, as
announced in February.
We expect gross profit as a percentage of product sales and licensing
revenue to increase from 29.1% before the impact of the one-time insurance
recovery in fiscal 2005, to approximately 30% in fiscal 2006. This
anticipated gross margin improvement is slightly lower than previously
expected due to oil and natural gas cost increases and production ramp-up
costs for the M&P pistols series. While we have secured a more competitive
rate from an alternative energy supplier, we expect energy costs in fiscal
2006 to increase over $1.0 million, or 38% over fiscal 2005.
As a percentage of sales and licensing, we still expect operating expenses
in fiscal 2006, excluding the favorable environmental adjustment in the first
quarter, to be approximately the same percentage compared with fiscal 2005
levels. We expect interest expense in fiscal 2006 to be approximately $1.6
million, substantially lower than fiscal 2005 levels, reflecting our
refinancing activities in January 2005.
We continue to expect net income for fiscal 2006 to increase to between
$7.5 million and $8.0 million, or $0.19 to $0.20 per diluted share.
We are increasing our anticipated capital expenditures in fiscal 2006 by
$4.0 million to approximately $16.0 million, based on our rapid progress in
securing federal government orders, as well as the success of our polymer
pistol series. We will reduce our capital expenditure requirements for 2007
by the same amount to reflect this acceleration. The $4.0 million increase
will be used entirely to support additional pistol manufacturing requirements,
which have grown by over 61% in the current fiscal year. We expect to fund
this capital expenditure requirement from operating cash flow.
Fiscal 2007 Outlook
Sales are expected to increase to between $172 and $180 million in fiscal
2007, or 20% to 24% over anticipated sales in fiscal 2006. This increase in
sales is expected to come from growth in our existing consumer market, as well
as continued penetration of the law enforcement, federal government, and
international markets. Both the M&P pistol series and the M&P tactical rifles
series are expected to be key drivers in the sales increase for fiscal 2007.
Net income is currently anticipated to be approximately $12.5 million, or
$0.30 per diluted share. We expect the 50% increase in net income to be
driven by the higher sales volume, gross margin improvement to 32% as well as
holding operating expenses constant as a percentage of sales and licensing.
We are reducing our anticipated capital expenditures in fiscal 2007 by
$4.0 million to approximately $8.0 million. Our fiscal 2007 expectation now
reflects the acceleration of $4.0 million in capital expenditures into fiscal
2006 to support current pistol manufacturing requirements. Capital
expenditures for fiscal 2007 are based upon our core handgun business and
exclude any new business opportunities we may pursue.
Golden concluded, "I am pleased with our results this quarter, which
reflect that we are executing on our strategy to move deeper into our existing
handgun business while diversifying our company by moving into new markets
with new and existing products. We will intensify our focus on every element
of this strategy in order to position ourselves increasingly as a global
supplier in the business of safety, security, protection and sport."
Conference Call
The Company will host a conference call today, March 8, 2006, to discuss
its third quarter results and its outlook for the balance of fiscal 2006 and
fiscal 2007. 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 www.smithandwesson.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
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, operating
efficiencies, expenses, including anticipated energy costs, earnings, capital
expenditures, penetration rates for new and existing markets and new product
shipments, for the fiscal years ending April 30, 2006 and April 30, 2007; 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 Corporation
(413) 747-3305
Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corporation
(413) 747-3304
lsharp@smith-wesson.com
SMITH & WESSON HOLDING CORPORATION and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of:
January 31, 2006 April 30, 2005
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $955,405 $4,081,475
Accounts receivable, net of
allowance for doubtful accounts
of $71,422 on January 31, 2006 and
$75,000 on April 30, 2005 19,225,900 18,373,713
Inventories 20,776,154 19,892,581
Other current assets 2,856,223 2,388,286
Deferred income taxes 4,722,853 6,119,561
Income tax receivable 410,541 3,701
Total current assets 48,947,076 50,859,317
Property, plant and equipment, net 22,775,166 16,726,361
Intangibles, net 348,530 364,908
Notes receivable 1,000,000 1,029,812
Deferred income taxes 6,688,268 7,806,702
Other assets 4,332,878 5,205,246
Total Assets $84,091,918 $81,992,346
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $9,143,342 $12,034,692
Accrued other expenses 3,524,225 3,482,425
Accrued payroll 4,105,737 3,220,730
Accrued taxes other than income 700,429 589,449
Accrued profit sharing 1,165,751 2,403,019
Accrued workers' compensation 428,884 536,773
Accrued product liability 2,750,000 2,524,996
Accrued warranty 1,203,002 1,416,092
Deferred revenue 4,836 15,646
Financial instrument liability 1,021,200 --
Current portion of notes payable 4,164,292 1,586,464
Total current liabilities 28,211,698 27,810,286
Notes payable 14,773,894 16,028,424
Other non-current liabilities 6,887,464 11,062,459
Commitments and contingencies
Common stock 23,197,357 --
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, 33,206,647 shares on
January 31, 2006 and
31,974,017 shares on April 30, 2005
issued and outstanding 33,207 31,974
Additional paid-in capital 7,171,980 27,744,819
Retained earnings (deficit) 3,816,318 (685,616)
Total stockholders' equity 11,021,505 27,091,177
Total Liabilities & Stockholders'
Equity $84,091,918 $81,992,346
SMITH & WESSON HOLDING CORPORATION and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended:
Restated
January 31, 2006 January 31, 2005
Cash flows from operating
activities:
Net income $4,501,934 $3,420,297
Adjustments to reconcile net income
to cash provided by operating
activities:
Amortization and depreciation 2,960,393 1,718,205
Gain on disposal of IdentiKit -- (450,515)
Loss (gain) on disposal of assets 48,220 (94,377)
Write-off of patents -- 39,741
Deferred taxes 2,515,142 1,963,039
Provision for losses on accounts
receivable 14,700 9,800
Provision for excess and obsolete
inventory 830,857 408,104
Valuation adjustment of derivative
financial instruments (166,800) --
Stock option expense 1,516,903 416,457
Changes in operating assets and
liabilities
(Increase) decrease in assets:
Accounts receivable (866,887) 367,494
Inventories (1,714,430) (1,412,775)
Other current assets (467,937) (551,331)
Income tax receivable (143,180) 25,809
Increase (decrease) in liabilities:
Accounts payable (2,891,350) 1,145,549
Accrued payroll 885,007 (1,329,941)
Accrued profit sharing (1,237,268) (548,233)
Accrued taxes other than income 110,980 (18,824)
Accrued other expenses 41,800 (387,151)
Accrued income taxes 32,388 --
Accrued workers' compensation (107,889) 75,000
Accrued product liability 225,004 (302,640)
Accrued warranty (213,090) (167,367)
Other non-current liabilities (4,174,996) (3,829,915)
Deferred revenue (10,810) 285,160
Net cash provided by operating
activities 1,688,691 781,586
Cash flows from investing
activities:
Note receivable 29,812 31,669
Proceeds from sale of marketable
securities -- 1,518,493
Reductions in collateralized cash
deposits -- 22,673,059
Payments to acquire patents (2,870) (25,477)
Proceeds from sale of IdentiKit -- 300,000
Proceeds from sale of property and
equipment 35,901 105,375
Payments to acquire property and
equipment (8,798,886) (7,387,105)
Net cash (used for) provided by
investing activities (8,736,043) 17,216,014
Cash flows from financing
activities:
Other assets 597,184 1,378,860
Payment on notes payable, Tomkins -- (27,000,000)
Proceeds from loans and notes
payable 2,500,000 18,000,000
Debt issuance costs -- (644,843)
Proceeds from exercise of options
to acquire common stock including
employee stock purchase plan 649,712 476,184
Proceeds from sale of common stock
and common warrants 24,385,357 123,307
Repurchase of warrants (23,950,701) --
Proceeds from exercise of warrants
to acquire common stock 916,432 --
Payments on loans and notes payable (1,176,702) (14,909,502)
Net cash provided by (used for)
financing activities 3,921,282 (22,575,994)
Net decrease in cash and cash
equivalents (3,126,070) (4,578,394)
Cash and cash equivalents, beginning
of year 4,081,475 5,510,663
Cash and cash equivalents, end of
period $955,405 $932,269
SMITH & WESSON HOLDING CORPORATION and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
Restated Restated
January 31, January 31, January 31, January 31,
2006 2005 2006 2005
Net product and
services sales $38,635,764 $31,145,521 $106,022,454 $87,992,435
License revenue 418,462 417,100 1,700,652 1,339,868
Cost of products and
services sold 27,777,988 23,813,847 76,222,532 59,796,476
Cost of license
revenue 3,222 600 83,867 34,421
Gross profit 11,273,016 7,748,174 31,416,707 29,501,406
Operating expenses:
Research and
development, net 73,816 64,862 215,682 140,185
Selling and
marketing 4,143,553 3,716,024 11,864,313 9,737,460
General and
administrative 5,177,335 3,323,250 14,491,382 11,902,266
Environmental
(credits) -- -- (3,087,810) --
Total operating
expenses 9,394,704 7,104,136 23,483,567 21,779,911
Income from
operations 1,878,312 644,038 7,933,140 7,721,495
Other income
(expense):
Other income
(expense) 239,880 (234,744) 461,557 (27,438)
Interest income 26,091 89,957 84,246 273,256
Interest expense (389,498) (711,161) (1,301,117) (2,365,799)
(123,527) (855,948) (755,314) (2,119,981)
Income (loss) before
income taxes 1,754,785 (211,910) 7,177,826 5,601,514
Income tax provision
(benefit) 632,491 (58,798) 2,675,892 2,181,217
Net income (loss) $1,122,294 $(153,112) $4,501,934 $3,420,297
Weighted average
number of common
and common equivalent
shares outstanding,
basic 39,206,647 31,499,193 35,727,717 31,262,905
Net income (loss) per
share, basic $0.03 $(0.00) $0.13 $0.11
Weighted average
number of common
and common equivalent
shares outstanding,
diluted 40,209,451 31,499,193 39,588,585 36,301,824
Net income (loss) per
share, diluted $0.03 $(0.00) $0.11 $0.09
SOURCE Smith & Wesson Holding Corporation
CONTACT: John Kelly, Chief Financial Officer, +1-413-747-3305, or Liz
Sharp, VP Investor Relations, +1-413-747-3304, lsharp@smith-wesson.com, both
of Smith & Wesson Holding Corporation
