SMITH & WESSON BRANDS, INC. - FORM 8-K/A - EX-99.2

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EX-99.1 - EX-99.1 - SMITH & WESSON BRANDS, INC.	d880945dex991.htm
EX-23.1 - EX-23.1 - SMITH & WESSON BRANDS, INC.	d880945dex231.htm
8-K/A - AMENDMENT NO. 1 TO FORM 8-K - SMITH & WESSON BRANDS, INC.	d880945d8ka.htm

Exhibit 99.2

UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS

On December 11, 2014, Smith & Wesson Holding Corporation, or SWHC, completed its previously announced acquisition of all of the issued and outstanding stock of Battenfeld Acquisition Company Inc., including its wholly owned subsidiary, Battenfeld Technologies, Inc., or BTI, for $130.5 million, plus a $3.8 million working capital adjustment for a total purchase price consideration of $134.3 million, pursuant to a Stock Purchase and Sale Agreement. The acquisition was financed using a combination of existing cash balances and cash from a $100.0 million draw on our existing line of credit, which was expanded to $125.0 million as a result of our partial exercise of the accordion feature on that line of credit, as further described in Item 2.03 of our Form 8-K filed with the Securities and Exchange Commission on November 26, 2014.

The unaudited pro forma consolidated combined financial statements reflect our acquisition of BTI on December 11, 2014. The unaudited pro forma consolidated combined financial statements are based on the respective historical consolidated financial statements and the notes thereto of SWHC and BTI. The acquisition is reflected using the purchase method of accounting and the estimates, assumptions and adjustments described below and in the notes to the unaudited pro forma consolidated combined financial statements.

For purposes of preparing the unaudited pro forma consolidated combined balance sheet, historical financial information of SWHC and the pre-acquisition results of BTI are being presented as of October 31, 2014. For the unaudited pro forma consolidated combined financial statements of income, historical financial information of SWHC and the pre-acquisition results of BTI are being presented for the year ended April 30, 2014 and the six months ended October 31, 2014.

The unaudited pro forma consolidated combined financial statements are presented for illustrative purposes only and do not purport to be indicative of the results of operations or financial position for future periods or the results that would have been realized had the acquisition of BTI been consummated as of May 1, 2013 or October 31, 2014. The pro forma adjustments are based upon available information and certain estimates and assumptions as described in the notes to the unaudited pro forma consolidated combined financial statements that SWHC believes are reasonable in the circumstances.

The unaudited pro forma consolidated combined financial statements and accompanying notes should be read in conjunction with the historical consolidated financial statements and notes thereto of SWHC included in our Annual Report on Form 10-K for the year ended April 30, 2014, our Quarterly Report on Form 10-Q for the six months ended October 31, 2014, and our previously filed Forms 8-K. These financial statements should also be read in conjunction with the audited and unaudited financial statements of BTI that are presented within this amended Current Report on Form 8-K/A.

FOOTNOTE REFERENCE TO THE COLUMNS ON THE UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL STATEMENTS:

(A)

As reported in our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended April 30, 2014, as filed with the Securities and Exchange Commission, or SEC, or our Quarterly Report on Form 10-Q for the six months ended October 31, 2014, as filed with the SEC, as applicable.

(B)

Derived from BTI’s unaudited financial statements for the period from May 1, 2013 through April 30, 2014. In the opinion of SWHC, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the results of operations for the period presented have been included.

(C)

Derived from BTI’s unaudited financial statements for the period from May 1, 2014 through October 31, 2014. In the opinion of SWHC, all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair presentation of the results of operations for the period presented have been included.

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET


	As of October 31, 2014:
	Historical SWHC (A)			Historical BTI (C)			Pro Forma Adjustments			Pro Forma Combined
	(In thousands, except par value and share data)
ASSETS
Current assets:
Cash and cash equivalents	$	64,373		$	337		$	(35,757	)(1)	$	28,953
Accounts receivable, net of allowance for doubtful accounts		51,411			7,759			—			59,170
Inventories		99,243			7,972			4,154	(2)		111,369
Prepaid expenses and other current assets		8,744			474			—			9,218
Deferred income taxes		16,917			578			(1,790	)(3)		15,705
Income tax receivable		4,230			393			—			4,623

Total current assets		244,918			17,513			(33,393	)		229,038

Property, plant, and equipment, net		134,027			2,700			(204	)(4)		136,523
Intangibles, net		3,891			18,966			53,234	(5)		76,091
Goodwill		14,110			13,343			47,782	(6)		75,235
Other assets		19,043			773			(261	)(7)		19,555

	$	415,989		$	53,295		$	67,158		$	536,442

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	23,852		$	699			—		$	24,551
Accrued expenses		15,112			1,312			—			16,424
Accrued payroll		7,165			—			—			7,165
Accrued taxes other than income		4,371			9			—			4,380
Accrued profit sharing		2,500			—			—			2,500
Accrued product/municipal liability		965			—			—			965
Accrued warranty		5,054			—			—			5,054
Current portion of notes payable		—			2,714			(2,714	)(8)		—

Total current liabilities		59,019			4,734			(2,714	)		61,039

Deferred income taxes		11,241			(379	)		20,295	(3)		31,157

Notes payable, net of current portion of notes payable		175,000			16,495			83,505	(8)		275,000

Other non-current liabilities		11,017			—			—			11,017

Total liabilities		256,277			20,850			101,086			378,213

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, 69,264,706 shares issued and 53,702,084 shares outstanding on October 31, 2014		69			—			—			69
Additional paid-in capital		214,548			24,240			(24,240	)(9)		214,548
Retained earnings		117,345			8,205			(9,688	)(10)		115,862
Accumulated other comprehensive income		73			—			—			73
Treasury stock, at cost (15,562,622 common shares on October 31, 2014)		(172,323	)		—			—			(172,323	)

Total stockholders’ equity		159,712			32,445			(33,928	)		158,229

	$	415,989		$	53,295		$	67,158		$	536,442

The accompanying notes are an integral part of these unaudited pro forma consolidated combined financial statements

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENTS OF INCOME

For The Year Ended April 30, 2014


	Historical SWHC (A)			Historical BTI (B)			Pro Forma Adjustments			Pro Forma Combined
	(In thousands, except per share data)
Net sales	$	626,620		$	43,543		$	—		$	670,163
Cost of sales		367,515			22,969			4,254	(11)		394,738

Gross profit		259,105			20,574			(4,254	)		275,425

Operating expenses:
Research and development		5,648			876			—			6,524
Selling and marketing		33,515			4,180			—			37,695
General and administrative		68,954			9,168			7,478	(12)		85,600

Total operating expenses		108,117			14,224			7,478			129,819

Operating income from continuing operations		150,988			6,350			(11,732	)		145,606

Other income/(expense):
Other income/(expense), net		(2,154	)		—			—			(2,154	)
Interest income		149			—			—			149
Interest expense		(12,261	)		(1,779	)		(141	)(13)		(14,181	)

Total other income/(expense), net		(14,266	)		(1,779	)		(141	)		(16,186	)

Income from continuing operations before income taxes		136,722			4,571			(11,873	)		129,420
Income tax expense/(benefit)		48,095			1,776			(4,393	)(14)		45,478

Income from continuing operations	$	88,627		$	2,795		$	(7,480	)	$	83,942


Net income per share:
Basic - continuing operations	$	1.51								$	1.43

Basic - net income	$	1.52								$	1.44

Diluted - continuing operations	$	1.47								$	1.40

Diluted - net income	$	1.49								$	1.41

Weighted average number of common shares outstanding:
Basic		58,668									58,668
Diluted		60,114									60,114

The accompanying notes are an integral part of these unaudited pro forma consolidated combined financial statements

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENTS OF INCOME

For The Six Months Ended October 31, 2014


	Historical SWHC (A)			Historical BTI (C)			Pro Forma Adjustments			Pro Forma Combined
	(In thousands, except per share data)
Net sales	$	240,315		$	24,996		$	—		$	265,311
Cost of sales		156,357			12,691			—			169,048

Gross profit		83,958			12,305			—			96,263

Operating expenses:
Research and development		2,929			476			—			3,405
Selling and marketing		16,797			2,186			—			18,983
General and administrative		27,627			5,489			3,689	(15)		36,805

Total operating expenses		47,353			8,151			3,689			59,193

Operating income from continuing operations		36,605			4,154			(3,689	)		37,070

Other income/(expense):
Other income/(expense), net		(17	)		—			—			(17	)
Interest income		44			—			—			44
Interest expense		(4,898	)		(561	)		(399	)(13)		(5,858	)

Total other income/(expense), net		(4,871	)		(561	)		(399	)		(5,831	)

Income from continuing operations before income taxes		31,734			3,593			(4,088	)		31,239
Income tax expense/(benefit)		12,026			625			(1,513	)(14)		11,138

Income from continuing operations	$	19,708		$	2,968		$	(2,575	)	$	20,101


Net income per share:
Basic - continuing operations	$	0.36								$	0.37

Basic - net income	$	0.36								$	0.37

Diluted - continuing operations	$	0.36								$	0.36

Diluted - net income	$	0.35								$	0.36

Weighted average number of common shares outstanding:
Basic		54,188									54,188
Diluted		55,435									55,435

The accompanying notes are an integral part of these unaudited pro forma consolidated combined financial statements

SMITH & WESSON HOLDING CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED

COMBINED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited pro forma consolidated combined balance sheet as of October 31, 2014 includes the historical results of SWHC and BTI as if these transactions had occurred on October 31, 2014 and the unaudited pro forma consolidated combined statements of income for the year ended April 30, 2014 and the six months ended October 31, 2014 include the historical results of SWHC and BTI as if these transactions had occurred on May 1, 2013.

Acquisition of BTI

On December 11, 2014, SWHC acquired all of the issued and outstanding stock of BTI, for $130.5 million, plus a $3.8 million working capital adjustment for a total purchase price consideration of $134.3 million, pursuant to a Stock Purchase and Sale Agreement. The acquisition was financed using a combination of existing cash balances and cash from a $100.0 million draw on our existing line of credit, which was expanded to $125.0 million as a result of our partial exercise of the accordion feature on that line of credit.

BTI, based in Columbia, Missouri, is an industry-leading provider of hunting and shooting accessories and has an established track record of launching high-quality, innovative products across its brand portfolio.

SMITH & WESSON HOLDING CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED

COMBINED FINANCIAL STATEMENTS

We are currently finalizing the valuation of the assets acquired and liabilities assumed; therefore, the fair values set forth below are subject to adjustment as additional information is obtained during the measurement period, which will not exceed 12 months from the acquisition date.

The following table summarizes the estimated preliminary allocation of the purchase price at the acquisition date (in thousands):


Cash	$	24
Accounts receivable		7,696
Inventories		12,804
Other current assets		563
Income tax receivable		393
Property, plant, and equipment		2,757
Intangibles		72,200
Goodwill		61,661

Total assets acquired		158,098

Accounts payable		1,456
Accrued expenses		327
Accrued payroll		904
Accrued taxes other than income		9
Deferred income taxes		21,128

Total liabilities assumed		23,824

	$	134,274

Previously acquired goodwill of $12.0 million will continue to be deductible for tax purposes over its remaining useful life. The remaining goodwill recorded as a result of the acquisition is not expected to be deductible for tax purposes.

SMITH & WESSON HOLDING CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED

COMBINED FINANCIAL STATEMENTS

We amortize intangible assets in proportion to expected yearly revenue generated from the intangibles acquired. We amortize order backlog over the contract lives as they are executed. The following are the identifiable intangible assets acquired and their respective estimated lives (in thousands):


	Amount		Estimated Life (In years)
Developed technology	$	16,400		14.0
Customer relationships		25,100		13.0
Trade names		30,600		10.0
Order backlog		100		0.3

	$	72,200

SMITH & WESSON HOLDING CORPORATION

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED

COMBINED FINANCIAL STATEMENTS

NOTE 2 — PRO FORMA AJUSTMENTS AND ASSUMPTION

Pro forma adjustments reflect only those adjustments that are factually determinable. The allocation of the purchase price relating to the acquisition is preliminary, pending the finalization of our review of certain of the accounts.

The following describes the pro forma adjustments made to the accompanying unaudited pro forma consolidated combined financial statements:

(1)	Adjustment includes a $34.3 million reduction in cash as a result of the acquisition and also includes a $1.5 million reduction in cash related to acquisition-related payments that would have been paid had the acquisition occurred on October 31, 2014.

(2)	Adjustment to record the fair value step-up of inventory as a result of the acquisition.

(3)	Adjustment to record deferred tax asset/liability as a result of fair value adjustments.

(4)	Adjustment to record fixed assets at fair value.

(5)	Adjustment to record intangible assets at fair value.

(6)	Adjustments to goodwill as a result of the acquisition.

(7)	Adjustment to write off deferred financing costs that have no value.

(8)	Adjustment to eliminate the debt of BTI that was not assumed as part of the acquisition. The long-term portion of debt includes $100.0 million of borrowings from our expanded line of credit to fund the acquisition.

(9)	Adjustment to eliminate additional paid-in capital of BTI.

(10)	Adjustment to eliminate retained earnings of BTI. The adjustment also includes the negative impact on retained earnings for the acquisition-related cash payments mentioned in Note 1.

(11)	Adjustment to record inventory step-up expense and backlog amortization.

(12)

The historical unaudited pro forma consolidated statements of income of BTI for the year ended April 30, 2014 included $2.7 million of amortization relating to intangible assets that were removed from the historical BTI consolidated statements of income and offset by $10.2 million of amortization expense related to the acquisition of BTI.

(13)

Adjustment to eliminate interest expense that would not have been incurred because SWHC did not assume any BTI external debt as part of the acquisition. The adjustment also includes interest expense recorded related to the $100.0 million borrowing under our expanded line of credit to fund the acquisition at the applicable interest rate.

(14)	Adjustment to record income tax expense at the estimated effective tax rate of the consolidated entity.

(15)

The historical unaudited pro forma consolidated statements of income of BTI for the six months ended October 31, 2014 included $1.4 million of amortization relating to intangible assets that was removed from the historical BTI consolidated statements of income and offset by $5.1 million of amortization expense related to the acquisition of BTI.

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