24% Sales Growth 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 http://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
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, 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
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 DATASOURCE: Smith & Wesson
Holding Corporation CONTACT: John Kelly, Chief Financial Officer,
+1-413-747-3305, or Liz Sharp, VP Investor Relations,
+1-413-747-3304, , both of Smith & Wesson Holding Corporation
Web site: http://www.smith-wesson.com/
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