Profile of Smith Wesson Executive Summary Smith Wesson

Profile of Smith Wesson Executive Summary Smith Wesson (SW) is the nations leading manufacturer of handguns, hunting accessories and safety equipment, and has one of the strongest brand names in this specific area of the firearms industry, with a 153 year old legacy to build on. The company is publicly traded on the NASDAQ exchange under the symbol SWHC, and currently has a market capitalization of 518M with a P/E Ratio of 59.64. The turn-around strategy defined in this profile has been very successful, as their latest quarterly results attest with total revenue of 48M, gross profit of 16.6M, operating income of 5.8M and net income of 3.37M. With 854 employees producing their pistols, firearms, accessories and safety products in two manufacturing plants, Smith Wesson is well positioned to move into entirely new segments of the firearms and weapons market. One manufacturing center is in Springfield, Massachusetts where revolvers and pistols are produced, and a second center in Houlton, Maine that manufactures handcuffs and pistols. The company has a series of impressive accomplishments including being the largest U.S. manufacturer of handguns, the largest U.S. exporter of handguns, the largest U.S. manufacturer of handcuffs. In addition Smith Wessons revolvers have the 1 market share position in the U.S., and this manufacturer also has the 3 U.S. Pistol Market share. Most significantly of all Smith Wesson has 87 brand awareness with the general public. Smith Wesson senior managements biggest challenge is turning this significant brand identity into greater growth in high-growths security markets. A new leadership team has been brought in, and their immediate results have been impressive. This team was brought in during CY 2004. There has been a 20 growth in sales, primarily driven by an aggressive new marketing campaign, a greater focus on core markets, and more aggressive selling and distribution strategies in the fragmented handgun industry in the U.S. Smith Wessons financial performance, markets served, existing an planned new product lines, competitors, and key differentiators are provided in this company profile Financial Performance The strategy of bringing in a turn-around team of senior executives by the Smith Wesson Board of Directors is working. Presented in Table 1, Smith Wesson Holding Company Income Statement Comparisons, the impressive turnaround underway is quantified in both Total Revenues and a gain of 3.4M in Net Income between 2005 and 2006. The most recent 10-Q filed by Smith Wesson on July 31, 2006 with the Securities and Exchange Commission on shows continue strength in sales, with a quarterly net product and services sales of 48M and a gross margin of 35 with a net income of 3,37M, Smith Wessons turn-around is in full force. Table 1 Smith Wesson Holding Co. Income Statement Comparisons4/30/20064/30/20054/30/20044/30/20034/30/2002Total Revenues 160,049 125,788 119,515 99,971 76,547 Cost of Revenues 110,442 84,900 80,787 70,164 56,866 Selling, General Administrative 37,802 29,508 31,941 25,098 17,100 Research Development 349 199 558 906 629 Other Indirect Expenses 18,167 15,926 20,218 13,759 9,024 Total Indirect Expenses 35,063 29,707 33,500 26,004 17,729 Interest Income 112 290 319 681 880 Interest Expense 1,638 2,675 3,340 3,588 9,405 Realized Capital Gains (Losses) – – – 1,666 – Foreign Exchange Gain (Loss) 344 (660) (1,133) (9) – Income Taxes 5,063 3,426 (84) (12,404) 71 Net Income 8,702 5,249 1,389 15,663 (5,463)Average Shares (Basic)36,586.7931,361.0130,719.1129,860.2320,566.88Average Shares (Diluted)39,787.0536,636.1736,615.5635,694.9920,566.88Outstanding Shares39,310.5431,974.0230,935.8030,619.6329,683.61Earnings per share – Net Income (Basic)0.240.170.050.52-0.27Earnings per share – Net Income (Diluted)0.220.140.040.44-0.27 The financial ratio analysis shown in Table 2, Smith Wesson Holding Company Financial Ratio Analysis also shows the strength of the turn-around now in progress at the company. Return on Equity (ROE) continues to post very solid gains as the company moves into higher margin, and much more in-demand pistols and security products at the regional, national, and global level. Return on Assets (ROA) has also turned around, mainly as the result of more efficient processes being put into place within the key manufacturing centers the company owns in Massachusetts and Maine. Most significant results of the turnaround team is the dramatic turn-around on EBITA. This comes from rejuvenating the value of the brand, bringing in better cost controls and better distribution channel processes, and better management of the product mix as it relates to high-growth customer segments including state and local police departments, which has been a high growth area for Smith Wesson. Table 2 Smith Wesson Holding Co Financial Ratio Analysis Profitability Ratios4/30/20064/30/20054/30/20044/30/20034/30/2002Return on Equity ()21.0519.388.26104.22-111.06Return on Assets ()9.196.41.3714.7-6.26Return on Investment107.1370.6812.2615.958.91Gross Margin0.0310.0330.0320.030.026EBITDA of Revenue ()11.8211.085.84.793.76Operating Margin ()9.098.894.373.82.55Pre-Tax Margin8.66.91.093.26-7.04Net Profit Margin ()5.444.171.1615.67-7.14Effective Tax Rate ()36.7839.5-6.41-380.6-1.31Liquidity IndicatorsQuick Ratio0.991.031.061.231.26Current Ratio1.681.831.662.122.09Working Capital/Total Assets0.230.280.190.280.33Debt ManagementCurrent Liabilities/Equity0.771.031.761.775.38Total Debt to Equity0.390.652.492.869.15Long Term Debt to Assets0.150.20.370.40.52Asset ManagementRevenues/Total Assets1.691.531.180.940.88Revenues/Working Capital7.465.466.133.352.65Interest Coverage9.44.241.391.910.43 Markets Served Smith Wessons revenue growth is attributable to 20 sales growth in sports, law, military federal, and international markets, including new sales to the California Highway Patrol and Afghan Army. Here is a brief description of each of the core markets Smith Wesson competes in Sporting Goods The turn-around management team has abandoned an indirect sales force and moved to a direct sales force of 16 salespersons at last count to work with dealers to increase sales into high-margin segments. These segments include engraving, commemorative guns and performance centers. The launch of the SW 460 and 500 revolvers assisted the growth of this segment. Law Enforcement – SW had nearly lost this market during the 1970s to Glock, who had created a polymer revolver that was very popular with law enforcement agencies throughout the U.S. In response to the drop in sales within this segment, SW hired two sales reps away from Glock and increased sales staff by adding eight additional sales reps. With the introduction of the MP pistol SW is also getting more demonstration opportunities with police departments. At last count SW had demonstrated the pistol at 150 departments and 33 law enforcement agencies. Military/Federal Through intensive lobbying and much work with Washington-based agencies stressing the fact the majority of US government agencies were using foreign-manufactured pistols and firearms, SW executives were successful in gaining four US government contracts worth 20M to manufacture firearms for the Afghan Army. SW executives also are working with US government senior contacts to pursue the opportunity of selling weapons to the Iraqi Army and police forces. International After hiring a former executive from Colt who subsequently completely revamped the sales channels for Europe, Latin America, Asia and the Middle East, this segment declined during FDY2003 and 2004 yet has seen a significant rise during FY2006 attributed mostly to sales in Latin America. Licensing Previously unstaffed at the senior management level, the market and business development for Licensing is now managed by a senior executive with over 20 years of experience in this area. The result has been a 1.8M increase from licenses for hearing/eye protection, knives, safes, soft air guns, and branded merchandise. Existing and New Products At present the company is the market share leader in revolvers and pistols, yet does not participate in hunting rifles, tactical rifles, ammunition, and security systems. On November 16th SW announced its move into the shotgun market, valued at 350M a year in sales and an integral part of the 1B per year long gun market. SW will unveil their two models at the January SHOT show, and will produce the shotguns in a manufacturing center in Turkey. What is truly unique about their entrance into the shotgun market is the lifetime Heirloom Warranty on the two shotgun models. Existing products include the SW line of revolvers and pistols. The revolvers including the Scandium, Model 500 and Model 460XR. Pistols include the SW 1911 Family and the MP Pistol launched in 2005. The company is relying on the SW 460 and SW500 to further penetrate the sporting goods channel and segment as well. SW Key Differentiators Emerging during the turn-around the company is experiencing today are a series of key differentiators relative to competitors and market dynamics Regaining market share in the Law Enforcement segment through new product introductions better aligned with the needs of this segment relative to competitors. Rejuvenated Sporting Goods segment through the combination of a more focused product strategy and more aggressive sales strategy. Entrance into the long gun marketplace with the launch of two new shotgun models which will be formally introduced at the SHOT trade show in January. Strengthening brand equity and very strong name awareness throughout the general public. This has translated into strength in Licensing Revenues and an increase of 1.8M in revenues overall for the latest fiscal year. Emerging strength in the Military and Federal markets and strengthening relationships in Washington DC have yielded the company 20M in incremental revenue from four new contracts. Porter Five Forces Analysis The five forces that comprise Dr. Porters model are industry competitors, pressure for substitute products, bargaining power of suppliers, bargaining power of buyers, and the influence of potential entrants. Figure 1 shows the Porter Five Forces Model graphically. Each of these areas is now discussed in bullet form in the following series of sections. Rivalry or Industry Competitors Despite the fragmented nature of the handgun market, SW faces strong competition from global competitors. This is true across all customer segments and most intense in the federal and military market. In this segment SW competes with Beretta from Italy, Heckler Koch from Germany and Fabrique Nationale from Belgium. The most dominant competitor in this segment is Glock of Austria, which sold 50,000 Glock Model 19 pistols to Iraqi Security Forces without the consent and approval of U.S.-based collation command or the U.S. Congress. Glock, in refusing to cooperate with the U.S. military, has opened up a significant opportunity for SW in government markets based on the conflict Glock has created and the preference of Congressional members to buy from domestic suppliers. Available Substitute Products There is an abundance of substitute products as the handgun marketplace is fragmented with nine different manufacturers, each with between 5 to 14 market shares. Glock and their innovation in polymer pistols and firearms revolutionized the industry in the 1980s, yet SW was able to regain their market share by working with distributors, dealers and key channel partners to understand unmet needs and design pistols that were more closely aligned with what buyers were looking for according to Smith Wesson (2005). Supplier Power As of April 30th 2006, SW had a backlog worth 42.1M in orders, the majority of which is for the MP pistol orders from the Afghan Army, in addition to the successful launch of the MP15 rifle. This is a firm backlog based on purchase orders already received, and puts pressure on SW to manage their key suppliers for inventory positions to fulfill these orders on time, as Glock is now considered by many in the US Government to be an unreliable supplier. In the Form 8-K filed by SW with the Securities and Exchange Commission on September 19, 2006 Michael Golden, President and CEO, and John Kelly, CFO discussed the implications of managing suppliers in light of the major turn-around in manufacturing process efficiencies. In the Form 8-K the impressive performance of manufacturing is discussed, with guns per day output going up 40 year over year, on-time delivery of orders increased from 60 of all orders to 85, machine uptimes increased from 60 to 80 and inventory turns up 3 times over the previous fiscal year. With production efficiencies being a major part of SWs turnaround, there is the need to closely integrate all these activities with suppliers and build comprehensive supplier relationship management (SRM) strategies so manufacturing operations can have visibility multiple layers deep into the supply chain. Competitive pressures arent simply on a given supply of raw materials its on which manufacturers can get a specific level of supply chain visibility and be able to synchronize their production efforts with the incoming series of materials from suppliers according to Wainwright (2006). This integration between suppliers and manufacturers is defined by strategic partnerships between SW and selected materials suppliers, and as a result SW has been able to attain its production efficiency goals. Suppliers in the firearms marketplace are more integrated with manufacturers than many other industries, and as a result exert a much greater influence on profitability of manufacturers they choose to partner with. With many of the sales being made today based on project-by-product sales, both suppliers and manufacturers have realized that having a stable and integrated Supplier Relationship Management (SRM) strategy. As a result of all these factors, the balance of power is shifting to suppliers and their ability to provide visibility into their supply chains as well, making it possible for manufacturers to quote accurate delivery dates for large orders, as is the case with SW today. Buyer Power SW customers and the broader buyer population of rifle, revolver, and pistol purchasers across all served segments have a broad selection of manufacturers to choose from, including several dominant international brands. As the firearms market is very fragmented and there has been single-digit growth in terms of sales over the last three years as defined by Cowen Company (2006), buyers are in the position to choose from multiple manufacturers. Cowen Company (2006) also has estimated the total U.S. Gun Industry to have a market size of 2B in 2006, with no single manufacturer dominating all segments. While SW does have a 40 share of revolvers and the market leadership position in pistols, their entrance into the rifle market, aimed primarily at the sporting goods channel, is one of the most competitive segments to participate in. The buyer exerts high levels of influence across all segments, and most notably in the sporting goods market where there are many competitors and alternatives. The difference for SW has been their strong focus on building channels and markets instead of merely trying to participate in them. This is evident in the 19.4 revenue growth in the sporting goods channel and a 250 increase in the engraving and performance center and commemoratives market, where aggressive pull-oriented growth strategies including a NASCAR sponsorship, Shooting events in Hawaii, and an aggressive PR ad campaign all lead to buyers in this specific segment becoming much more aware of and considering SW for their recreational and collecting firearm needs. The effort the company has made specifically in this segment has been world-class and exemplifies the level of effort required to gain new customers in a slow-growth market according to DataMonitor (2006). The bottom line is that the pressure buyers exert across all segments is very significant and given the brand loyalty to SW the company has still had to work harder than every before to attract buyers in the sporting goods or retail segment. Awareness hasnt instantly translated into sales buyers across all segments are being much more discerning and price-sensitive. Threat of New Entry SW has over the last three years developed stronger barriers to entry in their core markets through relationships, lobbying and strong selling organizations developed by market segment served, in addition to greater production efficiencies and accuracy of manufacturing. The combination of stronger relationships in the government market, better sales teams in the sporting goods, law enforcement, military and federal, international and licensing market segments bring synchronization to SWs marketing and selling efforts according to DataMonitor (2006). In many of their competitors, this is not the case. As SW continues to gain market share and brand momentum, all these factors in addition to the dominance of their brand will become significant barriers to entry. Production efficiencies in the form of shorter order-to-ship, quote-to-order, and guns manufactured per day due to just-in-time inventory are also significant barriers to entry for any new entrant into the firearms market. Creating these levels of efficiency requires seeking out process re-engineering expertise and making the commitment internally to change production processes for greater efficiency, and that is a very difficult task for many firearms manufacturers to undertake. Five Forces Analysis Competitive Summary SW faces different competitive dynamics in each of the key markets served, some requiring a predominately brand-centric response while others are more focused on product development and relationship-building, as is the case in the Military Federal market. The aggressive product development plans and product introductions SW has completed however have been the best competitive strategy the company could have undertaken to initiate a turn-around, in conjunction with bringing in key sales personnel with expertise in each segment. This combination of selling expertise and unique and new pistols and revolvers gave the sporting goods market a major increase in sales throughout FY2006 to date, and has also significantly increased sales into the Law Enforcement market as well. The combination of relationship-building, lobbying and unique product designs that align with customers unique needs has also come out in the Federal Military market as well, where SW has won four contracts to date worth 20M. International sales have also been increased using the same strategy. From a five forces perspective, the ability of SW to generate and then capitalize on customer demand across all sectors has also influenced both supplier and buyer power, making both more manageable due to the voice of the customer defining the need for cooperation. In terms of threat of new entry and threat of substitution, the production efficiencies gained by SW and their brand dominance will make it difficult for new competitors to enter their markets and for existing ones to replace them in larger accounts and with loyal sporting goods customers. External Factor Evaluation Matrix The following ten factors are chosen as the basis of creating an EFE Analysis of Smith Wesson, and they are organized first by opportunity factors and second by threats Opportunities Capitalize on unmet needs in the homeland security and law enforcement markets. 27 core business growth for Smith Wesson has come from their Safety-Security-Protection-Sport (SSPS) strategy that has led to their continual growth in homeland security sales. This strategy is credited with winning 20M in new business in FY 2006, according to the Form 10-K (2006). Moving into this market is also accentuated by the companys strength of relationships in Washington DC and strong wins over Glock and other international competitors for US-based global business. Continue growing the long run product line with additional shot guns for the sporting goods channel or segment. Fiscal year 2006 overall growth in the Sorting Good channel is 19.4, with Q1, 2006 delivering 36.7 alone. The company has recently added 30 additional sales persons specifically for the sporting goods channel. This has resulted in significant growth in the channel as sales productivity per employee dedicated to this segment has significantly increased. New product support for this channel includes the SW460, MP40, MP9, MP15 Tactical Rifle Series. Smith Wessons core marketing efforts continue in this channel with NASCAR partnerships, strong public relations and article generation in industry publications, and shooting tournaments Define strategies to dominate global law enforcement markets with the MP Pistol line. According to Form 10K (2006) Smith Wesson achieved a 106.7 growth in revenue in the law enforcement segment and won 106 law enforcement departments to the MP pistol since January, 2006. The series of new product introductions specifically aimed at this market include the MP40, MP9 launched in May, 2006, MP15 and MP15T specifically designed for law enforcement SWAT teams, and the planning and initial production of the MP Compacts and MP45. Look for new approaches to licensing brand and growing licensing revenue as a result (Harley-Davidson Strategy) According to BusinessWeek (2005) the Harley Davidson brand ranks 46th in the world in value at 7.3B. In the latest fiscal quarter Smith Wesson reported 1.8M in license sales, and could effectively look at a multitude of co-branding initiatives, following the Harley-Davidson strategy and stressing the freedom of owning a gun in the United States. Harley-Davidson also capitalizes on the freedom message as is shown in License Magazine (2005). Expand leadership in the Revolver and Pistol markets, taking share in a fragmented market arena. According to Bureau of Alcohol Tobacco and Firearms BATF (2005) studies, Smith Wesson has 61M or 45 of the 136M U.S. Domestic Non-Military Revolver Market in 2006, and 52M or 11 of the 490M U.S. pistol market. This gives Smith Wesson a powerful position to move into greater market growth from. Threats U.S. legislation favoring stricter gun controls takes effect, drastically impacting the sporting goods market. In October 2005 the Lawful Commerce In Arms Act was signed into law, preventing gun makers from being sued for unlawful use of their products, alleviating the risk of liability suits, Wainright (2006). Despite the passing of this Act. with the presidential election in 2008 looming and the Democratic party appearing to have a strong chance at winning, its important to realize that partys frontrunners for the nomination of their party as Presidential candidates both favor a national gun license program and also a national database or registry of all guns produced and sold. This is a major risk to the cost of doing business for Smith Wesson, and will impose additional significant costs to the level the Sarbanes-Oxley Act (2002) did for all publicly traded companies in the U.S. Acquisition by an unwelcome larger company looking to transform Smith Wesson away from its core strengths. SW has previously been owned by Lear, a conglomerate in the aerospace and defense sector. Given the turnaround and the high P/E of 59 and the companys ability to generate cash and Return on Equity of 30.89 it could easily become an acquisition target. In addition, the stock has a relatively high level of institutional ownership at 38, which makes it even more attractive for take-over according to Form 10K (2006). Suppliers decide not to integrate scheduling systems and delivery systems due to cost. Using Electronic Data Interchange (EDI) and private trading exchanges has gradually caught on with other supplier-manufacturer relationships. Whats a major risk is the cost of these links proving to be too high for the suppliers to maintain. Private trading exchanges from suppliers are just becoming used and providing auction capability for example for more in-demand materials and assemblies. Key External Factors Analysis for Smith Wesson Holding Company Opportunities Weight Rating Weighted Score Capitalize on unmet needs in the homeland security and law enforcement markets.0.203.500.70Continue growing the long run product line with additional shot guns for the sporting goods channel or segment.0.153.500.53Define strategies to dominate global law enforcement markets with the MP Pistol line. 0.103.500.35Look for new approaches to licensing brand and growing licensing revenue as a result (Harley-Davidson Strategy)0.102.000.20 Expand leadership in the Revolver and Pistol markets, taking share in a fragmented market arena.0.053.000.15Threats Weight Rating Weighted ScoreU.S. legislation favoring stricter gun controls takes effect, drastically impacting the sporting goods market.0.102.000.20Acquisition by an unwelcome larger company looking to transform Smith Wesson away from its core strengths.0.102.000.20Suppliers decide not to integrate scheduling systems and delivery systems due to cost. 0.203.000.60TOTALS1.002.93 Internal Factor Evaluation Matrix The following are the key strengths and weaknesses of Smith Wesson and are used for completing the Internal Factor Evaluation Analysis Strengths From FY2004 forward the company has posted significant financial performance as measured by key financial ratios. These ratios are provided below 04/30/200604/30/2005Variance07/31/200610/31/2005VarianceCompound Annual Growth RateUSDUSDUSDUSDUSDUSD3 Year5 YearROE 21.0519.381.678.627.32.145.16241.120.37-ROA 9.196.42.7943.593.350.82.55318.750.89-Gross Margin 3133(2)(6.06)3529620.69(0.01)0.04EBITA of Revenue11.8211.080.746.6814.823.4411.38330.810.270.26Pre-Tax Margin 8.66.91.7024.6411.343.048.30273.030.99-Net Profit Margin 5.444.171.2730.467.021.925.10265.630.67-Quick Ratio0.991.03(0.04)(3.88)0.950.830.1214.46(0.02)(0.05)Current Ratio1.681.83(0.15)(8.20)1.711.70.010.590.00(0.04)Long Term Debt to Equity0.350.59(0.24)(40.68)0.30.47(0.17)(36.17)(0.46)(0.48)Total Debt To Equity0.390.65(0.26)(40.00)0.40.66(0.26)(39.39)(0.46)(0.47)Interest Coverage9.44.245.16121.7016.784.0212.76317.410.890.85Working Cap/Total Assets0.230.28(0.05)(17.86)0.240.25(0.01)(4.00)0.07(0.07) Return on Equity (ROE) has grown 241 from 10/31/05 to 7/31/06 and has a 37 compound annual growth rate, mainly as the result of larger margins being generated and repurchase of stock to drive up valuations. The ROE performance of Smith Wesson far outpaces the competitive set as defined by Dun Bradstreet with a median level of 9 annually. Due to significantly increased manufacturing efficiencies Smith and Wesson has been able to complete a major turn-around on their Return on Assets (ROA, posting a 318 increase from 10/31/2005 to 7/31/2006. Smith Wesson is outperforming its industry, sector and SP 500 peers on key financial metrics of performance measuring management effectiveness. Source HYPERLINK http//www.investor.reuters.wallst.com/stocks/Ratios.asprpc66tickerSWHC.O http//www.investor.reuters.wallst.com/stocks/Ratios.asprpc66tickerSWHC.O Return on Assets (ROA) is leading across all three areas of comparison due to production efficiencies and best practices in sourcing, fulfillment, and manufacturing as has been discussed throughout this assignment. Through more aggressive hiring of competitive sales force management, Smith Wesson has been able to grow sales in both the Asian and Latin American Markets as shown in the following table from their 8K filed during FY2006. RevenuesReport Date04/30/200604/30/200504/30/2004Europe5,0325,3773,121Asia7,5013,5815,434Latin America3,1469512,029All Others1,8879981,567Total Region17,56610,90712,151 Excellent Marketing strategies in the Sporting Goods Channel and the continually strengthening of the brand messaging in this specific market. The Engraving/Performance Center and Commemoratives sales are up 250 during FY 2006 as a result of efforts in this specific market. Smith Wesson is holding constant at 87 unaided awareness across the U.S. public, with significantly higher awareness in key markets served as a result of efforts in the Sporting Goods Channel. Union-free manufacturing makes labor costs more predictable for the long-term and therefore the entire company will be more profitable as a result. With greater predictability of direct labor costs Smith Wesson will be able to more effectively budget for new product development and gain greater market share in selected segments. Smith Wesson is actively defining best practices for manufacturing efficiencies in their industry. According to the companys 8-K (2006) throughout FY 2006 Smith Wesson has held inventory flat while increasing sales 27, improving on-time delivery from 60 to 85, increasing machine uptime from 60 to 80, increased guns/day output by 40 compared to the previous year, and increased guns per labor hour produced by 20 over the previous year. Weaknesses Lack of influence on handgun laws and pro-gun legislators in Washington, D.C. While the current legislative climate is favoring gun manufacturers, with a major shift in the political climate in 2008 probable there is the need to get closer to pro-gun members of Congress to ensure the costly Sarbanes-Oxley like controls advocated by some candidates do not turn into law. This would impact Smith Wessons profitability significant and for the l,ong-term. No participation in the hunting rifle, security systems and ammunition markets. According to the many filings by the company with the SEC, there is ample production capacity in the two factories in the U.S. in addition to the one Turkey for initiating production of these products. This scope of these products and their inclusion in the broader Smith Wesson product line could significantly increase revenues in all served markets. Lagging the industry, sector and SP 500 on many factors regarding revenue per employee and net income per employee. The following table taken from Reuters Investors site shows the wide variation in performance. It is important to note that while the company has achieved significant gains in asset productivity it still has room to improve in terms of driving up revenue and net income per employee. Source HYPERLINK http//www.investor.reuters.wallst.com/stocks/Ratios.asprpc66tickerSWHC.O http//www.investor.reuters.wallst.com/stocks/Ratios.asprpc66tickerSWHC.O Key Internal Factor Evaluation Analysis StrengthsWeight Rating Weighted ScoreFrom FY2004 forward the company has posted significant financial performance as measured by key financial ratios. 0.203.000.60Smith Wesson is outperforming its industry, sector and SP 500 peers on key financial metrics of performance measuring management effectiveness.0.154.000.60Through more aggressive hiring of competitive sales force management, Smith Wesson has been able to grow sales in both the Asian and Latin American Markets as shown in the following table from their 8K filed during FY20060.104.000.40Excellent Marketing strategies in the Sporting Goods Channel and the continually strengthening of the brand messaging in this specific market.0.104.000.40Union-free manufacturing makes labor costs more predictable for the long-term and therefore the entire company will be more profitable as a result.0.053.000.15Smith Wesson is actively defining best practices for manufacturing efficiencies in their industry.0.103.000.30Weaknesses Weight Rating Weighted Score Lack of influence on handgun laws and pro-gun legislators in Washington, D.C.0.052.500.13No participation in the hunting rifle, security systems and ammunition markets.0.102.000.20Lagging the industry, sector and SP 500 on many factors regarding revenue per employee and net income per employee. 0.152.000.30TOTALS1.003.08 References Cowen Company (2006) Smith Wesson. Initiating to Outperform. May 26, 2006. Analyst Cai von Rumohr. Published in Boston, MA by Cowen and Company. DataMonitor (2006) Smith Wesson Holding Corporation Company profile. Number 16191, June, 2006. London, England. Form 8K, Securities Exchange Commission (2006) Filed by Smith Wesson Holding Corporation on September 19, 2006 pursuant to Section 13 or 15(d) of the SEC Act of 1934. Accessed from HYPERLINK http//www.freeedgar.com www.freeedgar.com on November 23, 2006. Smith Wesson (2005) Smith Wesson Corporate Presentation accessed from the Internet on November 20, 2006 from HYPERLINK http//media.corporate-ir.net/media_files/irol/90/90977/mfcosept2006.pdf http//media.corporate-ir.net/media_files/irol/90/90977/mfcosept2006.pdf Wainwright (2006) Initiate Smith Wesson With Buy Rating Plenty of Bang for the Buck. Michael Rindos, Analyst. July 20, 2006. Published by the firm in New York, NY. Form 10-K (2006) Smith Wesson Form 10-K Filed with the Securities and Exchange Commission on July 14, 2006. Accessed from the Internet on November 13, 2006 from HYPERLINK http//ir.smith-wesson.com/phoenix.zhtmlc90977pirol-seccontrol_selectgroupAnnual20Filings http//ir.smith-wesson.com/phoenix.zhtmlc90977pirol-seccontrol_selectgroupAnnual20Filings Bureau of Alcohol, Tobacco and Firearms BATF (2005) Accessed from Research provided to the public from this agencies website on November 14, 2006 HYPERLINK http//www.atf.treas.gov/firearms/stats/index.htm http//www.atf.treas.gov/firearms/stats/index.htm BusinessWeek (2005) Top 100 Global Brands Scorecard. BusinessWeek Online. Data Provided by Interbrand. Part of the Innovation Metrics Series. Accessed from the Internet on November 20, 2006 from HYPERLINK http//bwnt.businessweek.com/brand/2005/ http//bwnt.businessweek.com/brand/2005/ License Magazine (2005) Why and How Harley-Davidson Has Maintained its Customer Loyalty. License Magazine. August, 2005. Accessed from the Internet on November 20, 2006 HYPERLINK http//www.licensemag.com/licensemag/data/articlestandard/licensemag/332005/174785/article.pdf http//www.licensemag.com/licensemag/data/articlestandard/licensemag/332005/174785/article.pdf Sarbanes-Oxley Act (2002) – Discussion of the Act, downloaded from the Internet on November 20, 2006 from HYPERLINK http//www.sarbanes-oxley.com/section.php http//www.sarbanes-oxley.com/section.php Wainwright (2006) Initiate Smith Wesson With Buy Rating Plenty of Bang for the Buck. Michael Rindos, Analyst. July 20, 2006. Published by the firm in New York, NY. PAGE 20 Figure 1 Porters Five Forces Model RIVALRY Intense/ Cutthroat BARRIERS TO ENTRY High greater production efficiencies BUYER POWER High many different vendors SUPPLIER POWER High integration is critical THREAT OF SUBSTITUTES Medium u@7x COK/1c(IUWuW_O 2_X.mPRWOO)bny -iwlV Nfk@ma_FFeuPgdnnf/TOk2E/RAewVXvWqWi01y46NDdyw(S
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