Michael Bane: My S&W's Internal Lock Just Catastrophically Failed

[Troutman]

<<It's more likely that all they look at are sales numbers.>>

As crazy as it sounds…..about the lock that is….the numbers, don’t lie.
As much as I don’t want the lock. Overall, it’s not a big concern, even to ones (handgun buyers) buying them.
Speaking for myself, I never had a problem about the lock anyway.
For some reason, when I bought mine, they never came with the “flag” portion of the lock. I guess, I was lucky!

http://biz.yahoo.com/prnews/070906/lath070.html?.v=101&amp;.pf=family-home



Smith & Wesson Holding Corporation Posts Record First
Quarter Revenues and Profits
Thursday September 6, 4:10 pm ET

Record Revenue of $74.4 Million vs. $47.6 Million in Prior Year (+56.3%)

Operating Income of $9.8 Million vs. $5.9 Million in Prior Year (+66.7%)

Quarterly Net Income of $4.7 Million vs. $3.4 Million in Prior Year (+39.2%)

Increasing FY2008 Net Income and Earnings Per Share Expectations
SPRINGFIELD, Mass., Sept. 6 /PRNewswire-FirstCall/ -- Smith & Wesson Holding Corporation (Nasdaq: SWHC - News), parent company of Smith & Wesson Corp., the legendary 155-year old company in the global business of safety, security, protection and sport, today announced financial results for its first fiscal quarter ended July 31, 2007.
Record revenue of $74.4 million for the quarter ended July 31, 2007 reflects an increase of 56.3% over the comparable quarter last year. Revenue from the sale of firearms for the quarter ended July 31, 2007 grew 55.2% over the comparable quarter last year. Excluding revenue from Thompson/Center Arms, a rifle maker we acquired in January 2007, revenue increased by 17.8% over the comparable quarter last year.
Net income for the quarter was $4.7 million, or $0.11 per diluted share, compared with $3.4 million, or $.08 per diluted share, for the comparable quarter last year.
Smith & Wesson President and CEO Michael F. Golden said, "Our results for the first quarter of fiscal 2008 demonstrate progress across many initiatives and reflect growth in our core handgun business as well as our newly established long gun business. Our sales growth was particularly strong given that the comparable quarter of the prior year included $5.2 million in U.S. government orders for Afghanistan that were not duplicated in the current quarter. Handgun sales into the retail channel increased by 41.0% for the quarter, driven by our direct sales force and a number of ongoing retail initiatives. We continued to penetrate the law enforcement channel in the first quarter. Our Military & Police (M&P) polymer pistols have a cumulative win rate of over 80% in all test and evaluation processes in which they have competed. The number of law enforcement agencies that have purchased or approved for carry our M&P pistol has now grown to 231, including recent wins at sizeable agencies such as the Hartford, Connecticut Police and the New Hampshire State Police."
Golden continued, "On the diversification front, we continued to deliver as well. Long guns, a category that we entered in late fiscal 2006, accounted for over 25% of our revenue for the quarter. We continue to be extremely pleased with our acquisition of Thompson/Center, which has now delivered its second consecutive quarter of 22% revenue growth. We have commenced production on our Thompson/Center ICON(TM) and our Smith & Wesson i-Bolt(TM) bolt-action rifles, and both of these new category entries are beginning to arrive in retail locations. We have also commenced shipments of our Smith & Wesson shotguns. They are beginning to arrive in retail locations as well. As we have stated, our goal is to become a significant player in the $1.1 billion long-gun market."
Golden added, "We are very pleased with our profit performance on a number of fronts. Gross margin for the quarter was 36.4%, an increase of 170 basis points over our gross margin of 34.7% for the comparable quarter last year. Operating income increased by 66.7% over the comparable quarter last year, driven by the combination of higher sales and improved gross margins. Both our revenue and our earnings came in above our expectations. It should be noted that our stronger-than-expected results in the first quarter reflect not only growth in our business but also the integration of Thompson/Center and the impact of hunting on our traditional seasonality."
Outlook for Fiscal 2008
We continue to expect revenue to increase to approximately $330 million in fiscal 2008, which would represent a 40% increase over fiscal 2007 revenue. This revenue expectation does not include the results of any potential future, diversification initiatives, but does include growth in our existing consumer market, as well as continued penetration of the law enforcement, federal government, and international markets. Sales of our M&P pistols, M&P tactical rifles, our new shotguns and both of our new lines of hunting rifles are all expected to be key drivers of the revenue increase for fiscal 2008. We expect second quarter revenue to increase by approximately 60% over revenue in second quarter of fiscal 2007, driven by continued expansion in our existing markets and the addition of revenue from Thompson/Center.
We are increasing our expectations for fiscal 2008 net income to approximately $28.5 million, or $0.63 per diluted share, which is higher than our earlier expectation of $28.0 million, or $0.62 per share. These results would represent an increase of 119% over net income for fiscal 2007. While first quarter results were $0.02 per diluted share higher than our expectations, approximately one-half of this increase was due to timing on depreciation expense. Our capital expenditures for the first quarter were lower than anticipated, though we still expect to spend $17.7 million in fiscal 2008. We continue to expect gross margin improvement to the range of 35% to 36% for the full fiscal year, with second quarter gross margins of approximately 33%, reflecting the impact of the annual two week plant shutdown which occurs each August at our Springfield and Houlton facilities. The 33% gross margin reflects a 180 basis point increase over the second quarter of fiscal 2006. The seasonal nature of the hunting business will be reflected in higher marketing expenditures in the second quarter as a result of our increased advertising efforts during this peak buying period. We still expect operating expenses to be in the 20% to 21% range for the full fiscal year.
We continue to expect positive cash flow in fiscal 2008 of approximately $41 million, with net cash flow of $23.0 million after capital expenditures of $17.7 million. We also continue to expect cash flow for the first half of fiscal 2008 to be negative, becoming positive in the third quarter and strengthening in the fourth quarter.
Golden concluded, "We are extremely pleased with our progress to date. We are excited about delivering new long gun products and look forward to establishing a prominent position in that very sizeable market. We continue to explore opportunities to diversify, and we remain committed to our growing presence in the areas of safety, security, protection and sport."
Conference Call
The Company will host a conference call today, September 6, 2007, to discuss its first quarter results and its outlook for 2008. The conference call may include forward-looking statements. The conference call will be Web cast and will begin at 5:00pm Eastern Time (2:00pm Pacific). The live audio broadcast and replay of the conference call can be accessed on the Company's Web site at http://www.smithandwesson.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.
About Smith & Wesson
Smith & Wesson Holding Corporation, a global leader in safety, security, protection and sport, is parent company to Smith & Wesson Corp., one of the world's largest manufacturers of quality firearms and firearm safety/security products and parent company to Thompson/Center Arms, Inc., a premier designer and manufacturer of premium hunting rifles, black powder rifles, interchangeable firearms systems and accessories under the Thompson/Center brand. Smith & Wesson licenses shooter eye and ear protection, knives, apparel, and other accessory lines. Smith & Wesson is based in Springfield, Massachusetts with manufacturing facilities in Springfield, Houlton, Maine, and Rochester, New Hampshire. The Smith & Wesson Academy is America's longest running firearms training facility for law enforcement, military and security professionals. For more information on Smith & Wesson, call (800) 331-0852 or log on to http://www.smith-wesson.com. For more information on Thompson/Center Arms, log on to http://www.tcarms.com.
Safe Harbor Statement
Certain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and the Company intends that such forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements include statements regarding the Company's anticipated sales, income, income per share, cash flows, sales margins, gross margins, expenses, including anticipated energy costs, earnings, capital expenditures, penetration rates for new and existing markets and new product shipments, for the fiscal year ending April 30, 2008; the Company's strategies; the demand for the Company's products; the success of the Company's efforts to achieve improvements in manufacturing processes; the ability of the Company to introduce any new products; the success of any new products, including the Military and Police pistol series and long guns(rifles and shotguns); the anticipated benefits of the acquisition of Thompson/Center Arms; the expected financial effect of the acquisition of Thompson/Center Arms; and the effect of the Thompson/Center Arms acquisition on the Company's growth strategy. The Company cautions 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 the Company's products, the Company's growth opportunities, the ability of the Company to obtain operational enhancements, the ability of the Company to increase its production capacity, the ability of the Company to engage additional key employees, the ability of the Company's management to integrate Thompson/Center Arms in a successful manner, and other risks detailed from time to time in the Company's reports filed with the SEC, including its Form 10-K Report for the fiscal year ended April 30, 2007.
Contacts:
John Kelly, Chief Financial Officer
Smith & Wesson Holding Corp.
(413) 747-3305

Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corp.
(413) 747-3305
[email protected]


SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF INCOME
For the Three Months Ended:

July 31, 2007 July 31, 2006

Net product and services sales $74,411,708 $47,604,449
License revenue 429,840 398,385
Cost of products and services sold 47,632,762 31,324,719

Gross profit 27,208,786 16,678,115

Operating expenses:
Research and development, net 412,537 168,094
Selling and marketing 6,650,446 4,711,932
General and administrative 10,336,871 5,915,185

Total operating expenses 17,399,854 10,795,211

Income from operations 9,808,932 5,882,904

Other income/(expense):
Other income/(expense), net (37,166) (123,737)
Interest income 20,692 30,711
Interest expense (2,233,969) (344,961)

Total other expense, net (2,250,443) (437,987)

Income before income taxes 7,558,489 5,444,917
Income tax expense 2,867,998 2,075,601

Net income $4,690,491 $3,369,316

Weighted average number of common
and common equivalent shares
outstanding, basic 39,954,492 39,447,960

Net income per share, basic $0.12 $0.09


Weighted average number of common
and common equivalent shares
outstanding, diluted 48,056,811 41,045,839

Net income per share, diluted $0.11 $0.08


SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of:

July 31, 2007 April 30, 2007

(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $1,008,379 $4,065,328
Accounts receivable, net of
allowance for doubtful accounts
of $197,846 on July 31, 2007 and
$146,354 on April 30, 2007 52,124,823 52,005,237
Inventories, net of excess and
obsolescence reserve 41,239,542 32,022,293
Other current assets 7,934,743 4,154,595
Deferred income taxes 7,809,939 7,917,393
Income tax receivable 365,195 2,098,087

Total current assets 110,482,621 102,262,933

Property, plant and equipment, net 48,899,824 44,424,299
Intangibles, net 68,519,971 69,548,017
Goodwill 40,608,259 41,955,182
Other assets 10,469,635 10,066,997

$278,980,310 $268,257,428



LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $19,807,043 $22,636,163
Accrued expenses 11,154,386 9,479,490
Accrued payroll 6,590,790 7,370,804
Accrued taxes other than income 1,617,680 2,648,698
Accrued profit sharing 2,432,397 5,869,677
Accrued workers' compensation 425,414 428,136
Accrued product liability 2,288,444 2,873,444
Accrued warranty 1,676,427 1,564,157
Deferred revenue 185,132 190,350
Current portion of notes payable 14,792,758 2,887,403

Total current liabilities 60,970,471 55,948,322

Deferred income taxes 21,527,515 23,590,404

Notes payable, net of current portion 120,069,452 120,538,598

Other non-current liabilities 10,450,245 9,074,905

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,
41,329,534 shares issued and
40,129,534 shares outstanding on
July 31, 2007 and 40,983,196 shares
issued and 39,783,196 shares
outstanding on April 30, 2007 41,330 40,983
Additional paid-in capital 46,670,943 44,409,668
Retained earnings 25,573,703 20,977,897
Accumulated other comprehensive
income 72,651 72,651
Treasury stock, at cost (1,200,000
common shares) (6,396,000) (6,396,000)

Total stockholders' equity 65,962,627 59,105,199

$278,980,310 $268,257,428


________________________________________
Source: Smith & Wesson Holding Corporation

 

[buzz_knox]

How much of that growth can be attributed to the M&P line (both pistols and rifles) along with S&W's considerable diversification?

As to people not having an issue with the lock, the Pinto was a popular car until 1) the problem with the gas tank was made clear and 2) the memo in which Ford made a decision that it was less expensive to litigate wrongful death suits than fix the vehicles was made public.

 

[Ghost Walker]

^^^ Good points!

 

[nvcdl]

The gunwriters seem to have given S&W a pass on the trigger lock - Charlie Petty seems to specialize in being an apologist for silly things like the trigger lock and limiting "tatical" ammo sales to civilians. At least that is my opinion as a "knuckle dragging mouthbreather" (as Petty so eloquently calls those who dare critize his writing). Funny how Petty has to resort to ad hominem attacks to defend his stance.

However it seems that more enthusiasts get their info of the internet nowadays and the trigger locks seems to be almost universally disliked.

S&W's new line of M&P auto pistols and their AR-15 rifles probably account for the increase in sales....

 

[sig228]

A Little Off Topic....

But Michael Bane, what's with the '666' in your user name?

(PS - I enjoy your show!!!)

 

[Ghost Walker]

Originally posted by nvcdl
The gunwriters seem to have given S&W a pass on the trigger lock - Charlie Petty seems to specialize in being an apologist for silly things like the trigger lock and limiting "tatical" ammo sales to civilians. At least that is my opinion as a "knuckle dragging mouthbreather" (as Petty so eloquently calls those who dare critize his writing). Funny how Petty has to resort to ad hominem attacks to defend his stance.

The Hell you say! I thought Charlie was retired. Haven't seen him in TAR in quite some time. It's all about the internet, anyway, nowadays - Isn't it?

 

[Barr]

Here is a copy of the letter I sent to Smith-Wesson regarding my stance on this issue. Some of the posts and thoughts on this thread I used as a starting position to describe my position.

Good evening,

I am writing you to express my deep disatisfaction with your new internal lock configuration built in to all of your new guns, most notably your revolvers. I have heard of several instances of your locks catastrophically failing and locking up the action of a gun while being used. This phenomenon mostly seems to center around your lightest weight scandium framed revolvers in the magnum calibers.

I have not personally seen a failure in front of me, but that is most likely because I refuse to buy from or support a company that manufactures a gun with an internal lock. I object to the internal lock for several reasons:

1) I should not have to pay extra for an option that is useless to me. The internal lock is an option that I do not want as a paying consumer.

2) If I do require a lock to secure my firearm, I will purchase a suitable cable lock that is secure and is instinctively and intuitively obvious by a visual glance that the gun is inoperable and unable to fire under any circumstance due to the gun action being secured in the open position.

3) The revolver is one of the most popular handgun designs for several reasons. It is mechanically simple and sound and is rarely prone to malfunction and breakage except under the harshest and most extreme conditions. It has a simple manual of arms to operate and fire it under the most extremely stressful conditions. Adding this lock has compromised the basic operating principles that have made this design so popular. Smith-Wesson has effectively removed every reason I had for buying a double-action revolver from you.

4) The notion that I as a customer need an internal lock to keep myself or my loved oned ones safe is inherently flawed. As a responsible gun owner, all of my firearms stay locked up in a reputable safe out of sight of visitors to my home unless the gun is either actively being used or is loaded for self or home defense. Gun safety and security is a responsibility that starts and ends with me as a responsible American owner.

I am a very big fan of Smith-Wesson revolvers. My family has been shooting your pistols for four generations now. Smith-Wesson used to make one of the finest firearms in America and certainly the best double-action revolvers. By adding this lock, Smith-Wesson has bent to public anti-gun pressure and lawyers seeking to avoid liability in frivolous firearms lawsuits. Smith-Wesson has allowed this lock to become incorporated into its most basic designs. I support my beliefs with actions, words, and my wallet. None of my family or I will buy any of the new Smith-Wesson products until this lock has been removed from Smith-Wessons' designs. I will continue to discourage my friends and associates from buying newer products as well based on the reasons listed above. I own several older Smiths and will continue to enjoy shooting and buying them, but regretfully none of them will be newer products or have the latest advances in technology. I sincerely hope this letter will help to change your political, design, manufacturing, and engineering position and stance on this issue.

Barr

 

[fastbolt]

Nothing heard back from S&W on Mr Bane's revolver yet?

I keep checking this thread to see if anything has developed.

Granted, probably still a bit soon, though.

I'm curious to hear the answer.

Like maybe a stronger torque lock spring being used, if nothing else.

Also, I must admit I'm glad I own a number of pre-lock S&W revolvers.

 

[2ndamd]

To: S&W and any one else for that matter
From: Me

Please see me signature line. "If ye love welth greater than freedom..."
What liitle progress we have made when over 200 years ago Samuel Adams Quote rings true today.....sad it is one of our "own" that needs to be reminded of the enduring price of freedom. The tree of liberty does need refreshing from time-to-time.

 

[drforsythe]

Not just a problem with the 329...

I recently purchased a S&W 640 and the internal lock failed on my second round of five... I was able to get off a couple more shots in between 'clicks' before it completely failed on the 13th round (unlucky 13?). S&W performed a warranty repair on the unit stating it was a broken firing pin and the unit was returned to me. The internal lock problem was not even addressed by them, even though I sent a very detailed letter with questions in it. I have not had problems since, but am not confident to carry it. Recoil is said to be a problem in the lighter guns, but this one is stainless and I was using factory self-defense loads that were lighter than target loads I use in my old 686. I wish I would have researched this subject prior to purchase.

 

[Vern Humphrey]

I can't see carrying a gun in which I have no confidence. The key to winning is to visualize winning -- but carrying a gun you think will fail is visualizing losing.

 

[18DAI]

The two reasons we purchase, and choose to carry a revolver, are it's simplicity, and reliability. A revolver with an internal lock is neither.

 

[fastbolt]

the internal lock failed on my second round of five... I was able to get off a couple more shots in between 'clicks' before it completely failed on the 13th round

Did the trigger completely lock up and not move? Or, did the trigger function and the cylinder rotated but the gun just didn't fire?

S&W performed a warranty repair on the unit stating it was a broken firing pin and the unit was returned to me.

It might well have been what was stated.

I've heard that some guns have been returned to the factory with other functioning problems, with the owners complaining it was a "lock problem", when it was something else. This isn't uncommon when folks bring other things in for repair, from computers to motor vehicles, you know.

I was told that in some instances the sears hadn't been fitted in the guns properly and weren't clearing the trigger, causing the guns to 'lock up' sometimes. If so, then it sounds like a production problem that could use some attention.

Having experienced an improperly fitted sear stubbing in a M66, which 'locked up' the gun a couple of times, I can see how it might seem to be mistaken for a 'lock problem' if something similar were to happen to a gun equipped with a lock ... except, of course, that my M66 was pre-lock. It didn't take much to adjust and correct the sear engagement.

FWIW, I took my new MP340 out and shot it again yesterday. It still functioned fine with both standard pressure .38 Spl. 38 Spl +P and Magnum ammunition. Another fellow at work who does a reasonable amount of practice with his 442-2 has yet to have a problem with unintentional engagement or activation of the lock in his gun, which he carries as a back-up weapon.

I'd still like to hear something from S&W about confirmed lock problems, aside from any resulting from improper production/assembly, and what steps are taken to resolve such issues, but I'm not yet prepared to accept that the locks are failing left & right ...

I'm interested to hear the results of S&W examining Mr Bane's revolver and its unintentional lock activation.

S&W briefly attempted to use a trigger guard locking system in a limited number of their TDA pistols several years ago ... but they were discontinued. Good decision. They were ugly and awkward.

Like others, I'd also like the option of choosing to buy a S&W revolver not equipped with a lock ... and given the option I'd choose the gun not equipped with the key-operated ILS. I wouldn't be at all surprised if S&W's brisk revolver sales picked up even more if they offered models without the locks.

 

[buzz_knox]

I'd still like to hear something from S&W about any confirmed lock problems, and what steps are taken to resolve such issues, but I'm not yet prepared to accept that the locks are failing left & right ...

We'd all like to hear something. However, the official S&W rules for discussing the lock seem to be 1) the lock is perfect and has no issues and 2) if there is a confirmed problem with a lock, refer back to rule 1.

 

[DawgFvr]

Um...I suggest that you all dump your S&W stock and invest in Ruger.

 

[Master Blaster]

I recently purchased a S&W 640 and the internal lock failed on my second round of five... I was able to get off a couple more shots in between 'clicks' before it completely failed on the 13th round (unlucky 13?). S&W performed a warranty repair on the unit stating it was a broken firing pin

So when you pulled the trigger the cylinder advanced, hammer fell and there was only a click instead of a bang??

Sounds like the firing pin diagnosis is correct, if the lock had failed, it would have locked the hammer and trigger and there would have been no click.

 

[drforsythe]

More info

From my earlier post...
I recently purchased a S&W 640 and the internal lock failed on my second round of five... I was able to get off a couple more shots in between 'clicks' before it completely failed on the 13th round (unlucky 13?). S&W performed a warranty repair on the unit stating it was a broken firing pin

Master Blaster's question...
So when you pulled the trigger the cylinder advanced, hammer fell and there was only a click instead of a bang??

Sounds like the firing pin diagnosis is correct, if the lock had failed, it would have locked the hammer and trigger and there would have been no click.

NEW INFO

I agree with you regarding the CORRECT functioning of the internal lock. Had it completely locked, it would have operated as you say. I indeed had problems with the firing pin, but the other problem came after unloading the last round of five. I removed the cartridges from the cylinder and began cycling the trigger to see if the pin was in fact coming forward. I noticed that the firing pin was not fully extending. After several times repeating this test, the cylinder would not correctly index. After getting home and cleaning the gun, I located the key to the internal lock. I could lock and unlock the unit, but it would not work completely. Sometimes the cylinder would lock and sometimes it would not. Sometimes the trigger would be locked and I could not cycle anything. Sometimes I could get the firing pin to come forward, sometimes not. The actuator for the IL felt "loose" after having the problem. It was much tighter after receiving the repaired unit back.

The long and the short of it is that I have lost confidence in the unit and cannot in good conscience sell it to someone who may be using this as his only means of self defense or protection of his family. No more new S&Ws for me until they stop producing the IL.

I am not trying to be unfair to Smith & Wesson. I love my 686 that I purchased in 1990. I just want others to be aware of this problem. If you carry every day you must know with the utmost confidence that your weapon will work if you need it defend yourself or your family. Right now I have a snubnose range gun.

 

[Ghost Walker]

Very well said, drforsythe! I like my 1997 Model 686, too. (And all of the other 70's vintage Smiths that I have in the safe.) No way, though, that I would purchase one of their locking revolvers. As a matter of fact, the last revolver I purchased, some 18 months ago, is a Ruger SP-101. I couldn't be happier with it, too!

 

[pinkymingeo]

What drforsythe describes is not a lock problem. If the lock is engaged, the "flag" will be up and the hammer won't move. The only way the flag can self-engage is if the small spring that holds it down is incorrectly installed. This problem would appear in the first few rounds fired through the gun, and is easily fixed. The lock offends my sensibilities, but I don't believe it's particularly prone to trouble. I wouldn't own a steel S&W with lock, but I'm also a fan of scandium revolvers so I'm stuck with them on several of my guns. Even though I don't expect lock problems, I always deactivate the thing. Only takes a few minutes.

 

[YosemiteSam357]

If the lock is engaged, the "flag" will be up and the hammer won't move.

What about on the 642, where there is no hammer, and no flag?

-- Sam