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Press release from PR Newswire

Smith & Wesson Holding Corporation Reports Second Quarter Fiscal 2014 Financial Results

Tuesday, December 10, 2013

Smith & Wesson Holding Corporation Reports Second Quarter Fiscal 2014 Financial Results

16:05 EST Tuesday, December 10, 2013

- 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

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 OutlookThe 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 WebcastThe 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 MeasuresIn 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 & WessonSmith & 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 StatementCertain 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) 747-3304lsharp@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

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