Smith & Wesson Holding Corporation reported net sales for the fourth quarter ended April 30 were a record $111.8 million compared with $103.8 million in the year-ago quarter, an increase of 7.7%.


Gross profit margin for the fourth quarter was 30.2% compared with 31.3% for the prior year quarter, including the impact of costs associated with the consolidation of the Thompson/Center Arms operations. Excluding those costs, fourth quarter gross profit margin would have slightly exceeded the prior year quarter.


Operating expense for the fourth quarter totaled $28.4 million, or 25.4% of sales, compared with operating expense of $23.7 million, or 22.8% of sales, for the fourth quarter of last year.  The increased operating expense included increased legal costs in the firearm division and downsizing costs in the security solutions division.


Net income for the fourth quarter was $1.1 million, or 2 cents per diluted share, compared with net income of $2.7 million, or 4 cents per diluted share, for the comparable quarter last year.  Current fourth quarter results include the negative impact of $0.08 per diluted share related to our security solutions division and the negative impact of $0.05 per diluted share related to unusual expenses during the quarter, including costs associated with the Thompson/Center Arms consolidation and the previously announced DOJ and SEC investigations. Net income for the fourth quarter last year included a non-cash, fair-value adjustment to the contingent consideration liability related to the company’s acquisition of Universal Safety Response (since renamed Smith & Wesson Security Solutions) that decreased fully diluted earnings by $0.04 per share. 

Non-GAAP adjusted EBITDAS for the fourth quarter totaled $12.9 million compared with $15.1 million for the year-ago quarter.Michael F. Golden, Smith & Wesson Holding Corporation President and Chief Executive Officer, said, “We completed fiscal 2011 with strong manufacturing performance in our core firearm business, highlighted by record quarterly sales, record units shipped, and a 153% sequential quarterly increase in our backlog. These achievements for the quarter were driven by significant growth in demand across nearly all firearm product lines, with particular strength exhibited by our recently launched products and our repositioned products, including the BODYGUARD� line as well as the polymer framed pistol and modern sporting rifle lines. With our firearm business running at record production levels at year-end and the consolidation of our Thomson/Center Arms operations underway, we intend to remain focused on adding highly flexible manufacturing capacity and implementing lean initiatives.  These actions are directly aimed at increasing shippable product to meet demand as well as improving margins in fiscal 2012.

“While the recent strategic rebranding of our security solutions division under the globally recognized Smith & Wesson brand has been well received, the environment in which this business operates remains challenging. Lower levels of government and corporate capital funding, as well as the presence of price-focused competition, remain near-term factors.  Accordingly, our efforts have centered on reducing costs as well as developing and deploying new products to address broader customer requirements.  We believe we are taking the necessary actions to get this business aligned with current market conditions, and we remain committed to this business as a platform for expansion beyond firearms into the security market,” concluded Mr. Golden. 

Full Year Fiscal 2011 Financial Highlights

� Total company net sales were $392.3 million compared with $406.2 million for the prior year, down 3.4%.  The prior year included a period of heightened consumer demand in firearms, which began in fiscal 2009.

� Gross profit margin was 29.5% compared with 32.4% for the prior year.

� As previously announced, the company determined that the goodwill and certain long-lived intangible assets related to its acquisition of Universal Safety Response were impaired because of changing market conditions. Therefore, the company recorded noncash impairment charges totaling $90.5 million related to its security solutions division. 

� Operating expenses were $196.3 million, or 50.0% of sales, compared with operating expenses of $89.1 million, or 21.9% of sales, in fiscal 2010. Excluding the impairment charges described above, operating expenses for fiscal 2011 would have been $105.8 million, or 27.0% of sales. The increase in operating expenses included $9.2 million in sales and administrative costs to stabilize and enhance the security solutions division and increased legal costs of $6.7 million associated with the DOJ and SEC investigations.

� Net loss was $82.8 million, or $1.37 per diluted share, compared with net income of $32.5 million, or $0.53 per diluted share, a year ago.  The net loss for fiscal 2011 included a $1.44 per diluted share negative

impact of the impairment charges described above.

� Non-GAAP Adjusted EBITDAS for fiscal 2011 totaled $36.7 million compared with $61.3 million last year.

Firearm Division


Net sales for the fourth quarter of fiscal 2011 were a record $101.7 million, a 12.7% increase over the fourth quarter last year.  Higher sales were evident across nearly all product lines, with BODYGUARD products, price repositioned polymer framed pistols, and modern sporting rifles as primary drivers.  Pistol sales grew 29.9% in the quarter as the consumer trend toward smaller firearms designed for concealed carry and personal protection appeared to continue, benefiting the company, which is well positioned with a wide portfolio of products. Firearm net sales for fiscal 2011 were $342.2 million compared with $357.9 million a year ago, a decline of 4.4%. Fourth quarter fiscal 2011 gross profit totaled $31.2 million, or 30.7% of sales, compared with gross profit of $29.8 million, or 33.0% of sales, for the year ago quarter. Fiscal 2011 gross profit was $104.7 million, or 30.6% of sales, compared with gross profit of $119.5 million, or 33.4% of sales, for the prior fiscal year.

In line with record sales for the fourth quarter, the company also experienced record production levels. In the fourth quarter, sales into the consumer channel were $90.2 million, accounting for nearly 90% of total firearm revenue and an increase of 17% over the comparable period last year. 

Firearm backlog grew to $186.7 million at year end, an increase of $112.9 million from the end of the third quarter and $78.7 million higher than at the end of the previous fiscal year.  The increase reflected strong orders for Smith & Wesson products that were strategically price repositioned as well as several recently launched new products.  Backlog in the firearm division is typically cancellable until shipped and reflects orders that are shippable throughout the entire fiscal year. 

The consolidation of the Thompson/Center Arms operations into the company’s Springfield, Massachusetts facility remains scheduled for completion by November 2011.

Security Solutions Division

Net sales for the fourth quarter of fiscal 2011 were $10.1 million compared with net sales of $13.6 million for the fourth quarter last year, a decline of 25.6%. Security solutions division net sales for fiscal 2011 were $50.1 million compared with net sales of $48.3 million for the prior year, a period that reflected the approximate nine-month period in fiscal 2010 beginning with the company’s acquisition of the division in July 2009. Gross profit for the fourth quarter was $2.5 million, or 24.8% of sales, compared with gross profit of $2.7 million, or 20.2% of sales, for the comparable quarter last year.  Gross profit for fiscal 2011 was $11.2 million, or 22.4% of  sales, compared with gross profit of $11.9 million, or 24.7% of sales, reflecting the approximate nine-month, post-acquisition period in fiscal 2010.  Backlog was $20.6 million at year end, a sequential increase of $1.6 million from the end of the third quarter, but a decrease of $14.5 million from the end of the prior fiscal year.

The decision to rebrand the division to Smith & Wesson Security Solutions (SWSS) has proven to be a positive move as the company has seen a measurable improvement in customer awareness, interest level, and inquiries. The company has recently taken steps to right-size the organization to match the current market conditions through a range of cost reduction measures as well as the consolidation of personnel into a single facility.  These actions are aimed at improving the company’s ability to capture new business and increasing market share while facilitating longer term margin improvement in order to establish a more competitive posture for the business.

Business Outlook

The company currently anticipates total net sales for fiscal 2012 of between $420.0 million and $440.0 million, which would represent growth of between 7% and 12%. Full year firearm division sales are anticipated to increase between 11% and 13% year-over-year, with security solutions division sales anticipated to be flat to down versus fiscal 2011.  The company expects total gross profit margin for fiscal 2012 to be approximately 30%, including expenses related to the Thompson/Center Arms consolidation and anticipated gross margin pressure in the security solutions division. 

The company expects total net sales for the first quarter of fiscal 2012 to be between $92.0 million and $95.0 million.  Firearm division net sales are anticipated to be between $86.0 million and $89.0 million, with the security solutions division contributing the balance. Total company gross profit margin is anticipated to be between 28.0% and 29.0%, inclusive of expenses relating to the Thompson/Center Arms consolidation, which are expected to cause about a one percent reduction in gross margin for the quarter. Total company operating expense is expected to be approximately 28.0% of sales, reflecting ongoing DOJ and SEC matters, and including severance and other costs relating to the Thompson/Center Arms consolidation.

Jeffrey D. Buchanan, Executive Vice President and Chief Financial Officer, said, “We had $58.3 million in cash as of April 30, 2011, no borrowings under our $120.0 million credit facility, and working capital of $81.3 million.  Given our strong balance sheet, we expect to have ample cash and funding sources to address the $30.0 million of convertible notes that can be put to us for repurchase in December of this year. As we proceed through fiscal 2012, our financial focus will center on optimizing cost-efficiencies across the organization and translating our planned revenue growth into increased profitability.”

 

 


























































































































































































































SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)












For the Three Months Ended April 30,



For the Year Ended April 30,





2011



2010



2011



2010



2009





(In thousands, except per share data)



Net product and services sales:


















Firearm division


$


101,667



$


90,236



$


342,233



$


357,926



$


334,955




Security solutions division



10,090




13,563




50,067




48,250




�




Total net product and services sales



111,757




103,799




392,300




406,176




334,955



Cost of products and services sold:


















Firearm division



70,427




60,481




237,545




238,463




237,812




Security solutions division



7,589




10,823




38,849




36,314




�




Total cost of products and services sold



78,016




71,304




276,394




274,777




237,812



Gross profit



33,741




32,495




115,906




131,399




97,143



Operating expenses: