Smith & Wesson Holding Corp (SWHC, Financial) filed Quarterly Report for the period ended 2011-10-31.
Smith & Wesson Holding Corp has a market cap of $204.8 million; its shares were traded at around $3.17 with and P/S ratio of 0.5.
Operating expenses increased $557,000 because of a $2.6 million of increase in employee-related costs resulting from $988,000 of severance benefits for our former President and Chief Executive Officer, $1.2 million associated with increased incentive accruals, and $143,000 of expenses related to the closure and consolidation of the Thompson/Center Arms facility in New Hampshire. Research and development costs increased $328,000 over the prior year comparable quarter because of additional costs during the hunting production transition to our Springfield facility as well as certain employee costs previously recorded in cost of sales that were re-evaluated as research and development costs related to our hunting products. Offsetting these increases, total net spending on our DOJ and SEC investigation costs was $1.1 million for the quarter, which was $1.7 million lower than for the prior year comparable quarter. In addition, profit sharing expense declined by $206,000. In spite of numerous one-time costs, operating expenses as a percentage of net sales for the three months ended October 31, 2011 decreased from the prior year comparable quarter as a result of our cost-cutting initiatives during the quarter.
Operating expenses for the six months ended October 31, 2011 were flat with the prior year comparable period, but down as a percentage of net sales as a result of our cost-cutting initiatives noted above. Research and development costs increased $687,000 over the prior year comparable period because of additional costs during the hunting product transition to our Springfield facility as well as certain employee costs previously recorded in cost of sales that were re-evaluated as research and development costs related to our hunting products. Total net spending on our DOJ and SEC investigation costs was $2.4 million for the period, which was $1.9 million lower than for the prior year comparable six-month period. Bad debt recoveries on previously reserved for accounts contributed to an $810,000 reduction in bad debt expense. Trade show and travel expense declined because of multiple international shows in the comparable period last year. In addition, profit sharing was reduced by $400,000 compared with the prior year comparable period. As noted above, employee-related costs were $2.9 million above the prior year comparable six-month period because of the severance benefits for our former President and Chief Executive Officer; $1.3 million in increased incentive accruals; and $305,000 related to the closure and consolidation of the Thompson/Center Arms facility in New Hampshire.
Net sales from discontinued operations for the three and six months ended October 31, 2011 decreased 55.4% and 57.3%, respectively, from the three and six months ended October 31, 2010, respectively. The reduction in security solutions net sales resulted primarily from reduced or delayed demand because of federal budget constraints. The net loss from discontinued operations was significantly lower for the three and six months ended October 31, 2011 due to the inclusion of a $39.5 million impairment charge related to goodwill and intangible assets that was recorded during the three and six months ended October 31, 2010. In addition, the three and six months ended October 31, 2010 included $530,000 and $3.1 million, respectively, of income associated with a reduction in contingent consideration for shares held for issuance to former shareholders in connection with our acquisition of SWSS. Excluding the impairment charge and the income from the valuation of contingent consideration, the adjusted loss for the three and six months ended October 31, 2010 would have been $1.2 million and $1.4 million, respectively. The loss from discontinued operations was $1.3 million and $2.6 million, respectively, higher for the three and six months ended October 31, 2011 than the adjusted loss in the prior comparable periods due to the significant reduction in sales and the related impact on gross margin partially offset by reduced operating expenses due to cost-cutting initiatives and a reduction in payroll and benefit costs resulting from lower headcount.
In the six months ended October 31, 2011, we used $2.2 million in cash from operating activities, a decrease of $9.5 million from the amount used in the first six months of fiscal 2011. Included in cash from operating activities was $976,000 and $2.8 million of cash used by discontinued operations during the six months ended October 31, 2011 and 2010, respectively. The $8.1 million reduction in accounts payable during the six months ended October 31, 2011 was significantly larger than the $2.4 million reduction in the prior year comparable period because of the high level of capital spending present in the end of fiscal year 2011 payables balances. In addition, due to the timing of federal excise tax return due dates, which included three payments during the six months ended October 31, 2011 versus two payments during the six months ended October 31, 2010, the change in cash related to accrued taxes other than income declined by $11.4 million for the current period. Offsetting these reductions, during the six months ended October 31, 2011, accounts receivable declined $12.5 million versus a $6.1 million decline in the prior comparable period driven by a reduction in security solutions sales and increased collection efforts. Discontinued operations had a $4.2 million impact on the reduction in accounts receivable.
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Smith & Wesson Holding Corp has a market cap of $204.8 million; its shares were traded at around $3.17 with and P/S ratio of 0.5.
Highlight of Business Operations:
Net sales for the six months ended October 31, 2011 were $184.0 million, an increase of $22.7 million, or 14.1%, over net sales of $161.3 million for the six months ended October 31, 2010. The increase in handgun and modern sporting rifle product sales resulted from the same factors noted above for the three months ended October 31, 2011. Walther product sales for the six months ended October 31, 2011 declined because of increased competition in our .380 caliber products, partially offset by the introduction of a new model pistol. The decline in hunting product sales from the prior year comparable period resulted from decreased black powder sales and the productivity and efficiency issues arising from the move of our hunting production. Gross profit as a percentage of net sales was 27.8% for the six months ended October 31, 2011 compared with 33.5% for the six months ended October 31, 2010. The decrease in gross profit margin was attributable to $2.1 million in warranty costs associated with the recall of all Thompson/Center Arms Venture Rifles manufactured since the products introduction in mid 2009; changes in our product sales mix, which reduced the average selling price of our products; and $2.0 million in costs associated with the relocated hunting production from Rochester, New Hampshire to our Springfield, Massachusetts facility.Operating expenses increased $557,000 because of a $2.6 million of increase in employee-related costs resulting from $988,000 of severance benefits for our former President and Chief Executive Officer, $1.2 million associated with increased incentive accruals, and $143,000 of expenses related to the closure and consolidation of the Thompson/Center Arms facility in New Hampshire. Research and development costs increased $328,000 over the prior year comparable quarter because of additional costs during the hunting production transition to our Springfield facility as well as certain employee costs previously recorded in cost of sales that were re-evaluated as research and development costs related to our hunting products. Offsetting these increases, total net spending on our DOJ and SEC investigation costs was $1.1 million for the quarter, which was $1.7 million lower than for the prior year comparable quarter. In addition, profit sharing expense declined by $206,000. In spite of numerous one-time costs, operating expenses as a percentage of net sales for the three months ended October 31, 2011 decreased from the prior year comparable quarter as a result of our cost-cutting initiatives during the quarter.
Operating expenses for the six months ended October 31, 2011 were flat with the prior year comparable period, but down as a percentage of net sales as a result of our cost-cutting initiatives noted above. Research and development costs increased $687,000 over the prior year comparable period because of additional costs during the hunting product transition to our Springfield facility as well as certain employee costs previously recorded in cost of sales that were re-evaluated as research and development costs related to our hunting products. Total net spending on our DOJ and SEC investigation costs was $2.4 million for the period, which was $1.9 million lower than for the prior year comparable six-month period. Bad debt recoveries on previously reserved for accounts contributed to an $810,000 reduction in bad debt expense. Trade show and travel expense declined because of multiple international shows in the comparable period last year. In addition, profit sharing was reduced by $400,000 compared with the prior year comparable period. As noted above, employee-related costs were $2.9 million above the prior year comparable six-month period because of the severance benefits for our former President and Chief Executive Officer; $1.3 million in increased incentive accruals; and $305,000 related to the closure and consolidation of the Thompson/Center Arms facility in New Hampshire.
Net sales from discontinued operations for the three and six months ended October 31, 2011 decreased 55.4% and 57.3%, respectively, from the three and six months ended October 31, 2010, respectively. The reduction in security solutions net sales resulted primarily from reduced or delayed demand because of federal budget constraints. The net loss from discontinued operations was significantly lower for the three and six months ended October 31, 2011 due to the inclusion of a $39.5 million impairment charge related to goodwill and intangible assets that was recorded during the three and six months ended October 31, 2010. In addition, the three and six months ended October 31, 2010 included $530,000 and $3.1 million, respectively, of income associated with a reduction in contingent consideration for shares held for issuance to former shareholders in connection with our acquisition of SWSS. Excluding the impairment charge and the income from the valuation of contingent consideration, the adjusted loss for the three and six months ended October 31, 2010 would have been $1.2 million and $1.4 million, respectively. The loss from discontinued operations was $1.3 million and $2.6 million, respectively, higher for the three and six months ended October 31, 2011 than the adjusted loss in the prior comparable periods due to the significant reduction in sales and the related impact on gross margin partially offset by reduced operating expenses due to cost-cutting initiatives and a reduction in payroll and benefit costs resulting from lower headcount.
In the six months ended October 31, 2011, we used $2.2 million in cash from operating activities, a decrease of $9.5 million from the amount used in the first six months of fiscal 2011. Included in cash from operating activities was $976,000 and $2.8 million of cash used by discontinued operations during the six months ended October 31, 2011 and 2010, respectively. The $8.1 million reduction in accounts payable during the six months ended October 31, 2011 was significantly larger than the $2.4 million reduction in the prior year comparable period because of the high level of capital spending present in the end of fiscal year 2011 payables balances. In addition, due to the timing of federal excise tax return due dates, which included three payments during the six months ended October 31, 2011 versus two payments during the six months ended October 31, 2010, the change in cash related to accrued taxes other than income declined by $11.4 million for the current period. Offsetting these reductions, during the six months ended October 31, 2011, accounts receivable declined $12.5 million versus a $6.1 million decline in the prior comparable period driven by a reduction in security solutions sales and increased collection efforts. Discontinued operations had a $4.2 million impact on the reduction in accounts receivable.
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