Smith & Wesson Holding Corporation reported second-quarter revenues rose 10.5 percent to $92.3 million as strength across nearly all firearm products offset a decline in hunting product sales. 

Gross profit was $24.6 million, or 26.7 percent of sales,
compared with gross profit of $25.4 million, or 30.4 percent of sales, for the
year-ago quarter, reflecting the impact of costs associated with a
Thompson/Center Arms product recall, as well as direct costs and the efficiency
impact associated with the consolidation of the Thompson/Center Arms business
to Springfield,  MA, which was completed
in November. Excluding those items, second quarter gross profit margin would
have been 29.8 percent.

“Our second quarter was a productive one, delivering
sales growth across all of our handgun and modern sporting rifle categories,
and highlighted by a number of accomplishments that demonstrate our sole focus
on firearms,” said James Debney, Smith & Wesson Holding Corporation
President and Chief Executive Officer.  “On
the administrative front, we reduced our line of credit to better match our
current needs, and we successfully settled a patent infringement claim against
a rifle competitor to defend our intellectual property.”  

Jeffrey D. Buchanan, Executive Vice President and Chief
Financial Officer, said, “Our cost reduction efforts began to gain
traction in the second quarter, evidenced by operating expenses that came in
below our expectations.  We had $49.2 million in cash as of October 31,
2011, no borrowings under our $60.0 million credit facility, and working
capital of $84.3 million.  Given our strong balance sheet, we are well
positioned to address the $30.0 million of convertible notes that can be put to
us for repurchase on December 15 of this year.”

Operating expense for the second quarter totaled $21.2
million, or 22.9 percent of sales, compared with operating expense of $20.6
million, or 24.7 percent of sales, for the second quarter last year.  

Net income from continuing operations for the second quarter
was $948,000, or 1 cent per share, compared with net income from
continuing operations of $2.6 million, or 4 cents share, for the second
quarter last year. Net income from continuing operations for the second quarter
included expenses totaling 4 cents per diluted share related to the combined
impact of the Thompson/Center Arms consolidation and product recall as well as
the legal fees incurred in connection with the ongoing DOJ and SEC
investigations.  Net income from continuing operations for the prior year
comparable quarter included expenses totaling 3 cents per diluted share related
to the DOJ and SEC matters.

At the end of the quarter, firearm backlog was $149.9
million, which was $117.5 million higher than at the end of the second quarter
last year and $1.1 million higher than the most recent sequential quarter.
 

Operating cash flow of $13.2 million and capital spending of
$1.6 million resulted in free cash flow of $11.6 million.

Financial Outlook
for Continuing Operations

The company is raising its anticipated net sales from
continuing operations for fiscal 2012 to between $385.0 million and $395.0
million, which would represent year-over-year growth from continuing operations
of between 13 percent and 15 percent, up from the prior outlook of 11 percent
to 13 percent growth. The company now anticipates total gross profit margin for
fiscal 2012 to approach 30 percent and operating expenses to be between 21
percent and 22 percent of net sales.  The tax rate is expected to be
approximately 40 percent.

The company expects net sales from continuing operations for
the third quarter of fiscal 2012 to be between $92.0 million and $96.0 million. 

Gross profit margin for the third quarter is anticipated to be
approximately 30 percent, which takes into account the final expenses and
reduced efficiencies related to the Thompson/Center Arms consolidation. Third
quarter operating expense is expected to be approximately $22.0 million,
including costs related to the ongoing DOJ and SEC matters and final costs
related to the Thompson/Center Arms consolidation, and the tax rate is expected
to be approximately 40 percent.