SEC Comment Letter for SMITH & WESSON BRANDS, INC. (SWBI) (CIK 0001092796) (SWBI) — Jan 16, 2014
SMITH & WESSON BRANDS, INC. (SWBI) (CIK 0001092796)
Date: Jan. 16, 2014 · CIK: 0001092796 · Accession: 0000000000-14-002392
AI Filing Summary & Sentiment
Reasoning
Letter
January 16, 2014 Via E -mail Jeffrey D. Buchanan Chief Financial Officer Smith & Wesson Holding Corporation 2100 Roosevelt Avenue Springfield, Massachusetts 01102 -2208
Re: Smith & Wesson Holding Corporation Form 10 -K for Fiscal Year Ended April 30, 2013 Filed June 25, 2013 Form 8 -K Filed June 25, 2013 Form 10 -Q for Fiscal Quarter Ended October 31, 2013 Filed December 10, 2013 File No. 1-31552
Dear Mr. Buchanan :
We have limited our review to only your financial statements and related disclosures and do not intend to expand our review to other portions of your documents. In some of our comments, we may ask you to provide us with information so we may better unders tand your disclosure.
Please respond to this letter within ten business days by providing the requested information or by advising us when you will provide the requested response. If you do not believe our comments apply to your facts and circumstances, please tell us why in your response.
After reviewing the information you provide in response to these comments, we may have additional comments.
Form 10 -K for Fiscal Year Ended April 30, 2013
Item 7. Management’s Discussion and Analysis o f Financial Condition and Results of Operations, page 33 Results of Operations, page 34
1. Please confirm to us that i n future filings you will quantify the extent to which increases/decreases in volume s sold, increases/decreases in pricing, and new products contributed to the increase or decrease in net sales . Please refer to Item s 303(a)(3)(iii), and 303(a)(3)(iv) of Regulation S -K and Section 501.12.b.3 of the Financial Reporting Codification for guidance.
Mr. Buchanan Smith & Wesson Holding Corporation January 16, 2014 Page 2
2. We note your discussion of key performance ind icators on page 34 where you state that you “evaluate various firearm products by such measurements as gross margin per unit produced, units produced per day and incoming orders per day.” Tell us why you have not included discussion of these metrics in yo ur MD&A.
2. Significant Accounting Policies, page F -8 Segment Information, page F -10
3. In future filings, please expand your disclosure regarding your reportable segment to clarify for investors how your CODM is managing the business (i.e., based on prod ucts and services, geographic areas, distribution channels, et cetera). Please refer to ASC 280 -10-50-21.a. for guidance. Please provide us with the disclosure you intend to provide in your next Form 10 - K. Please also confirm to us, if correct, that you are not aggregating two or more operating segments into one reportable segment.
19. Commitments and Contingencies, page F -34 Litigation, page F -34
4. Regarding known claims and product liability, we note your statements that “it is uncertain whether the outcome of these claims will have a material adverse effect on [y]our financial position, results of operations, or cash flows.” We further note your a dditional statement, “[w]e do not anticipate material adverse judgments.” Finally, we note your disclosure on page 45 that the estimated range of the reasonably possible losses for product liabilities is zero. There is a concern that your investors may not understand management’s conclusions regarding your known claims, as these two statements appear to be contradictory. Please note that ASC 450 -20 does not require management to make judgments about loss contingencies with precision or confidence but rathe r with reasonable estimation about the materiality of the outcome to the consolidated financial statements. Please revise your disclosures in future filings to ensure that the statements made are consistent. Please provide us with the disclosures you wou ld have included in your fiscal year 2013 Form 10 -K in response to this comment. Please also confirm to us that you have provided a description of the nature of all loss contingencies that are probable and/or reasonably possible of materially impacting yo ur consolidated financial statements.
Form 8 -K Filed June 25, 2013
5. We note that y ou present a full statement of income to reconcile GAAP net income to Adjusted EBITDAS . We believe that the presentation of a full non -GAAP income statement attaches undue prominence to the non -GAAP information, results in the creation of many additional non -GAAP measures (e.g. non -GAAP cost of goods sold, interest income and selling, general and administrative expense, et cetera ) and may give the impression that the non-GAAP income statement represents a comprehensive basis of accounting. Please confirm to us that you will no longer present these tables in future Item 2.02 Form 8 -K submissions or elsewhere and will provide a reconciliation that begins with GAAP net income and ends with Adjusted EBITDAS and includes all of the individual items removed
Mr. Buchanan Smith & Wesson Holding Corporation January 16, 2014 Page 3
from your GAAP measure to arrive at your non -GAAP measure. Please see Question 102.10 of our Compliance & Disclosure Interpretations for Non -GAAP Financial Measures. Please also see Instruction 2 to Item 2.02 of Form 8 -K which indicates that the provisions of Item 10(e)(1)(i) apply to these public disclosures.
6. We note that you present free cash flow as a measure of your operating performance. Given that “free cash flow ” is widely understood to be a liquidity measure, there is a concern that investors may not fully understand your basis for characterizing this non -GAAP measure as a performance measure. Also, the use of the words “cash flow” in the measure’s title is confusingly similar to the GAAP financial measures included in the Statements of Cash Flows. Further, we note your definition of this measure as starting with GAAP cash flow provided by operating activities. If you maintain that free cash flow is not a liqu idity measure, then please prospectively change the title of this measure to delete the words “cash flow”. Alternatively, if you conclude that this measure is useful as a liquidity measure, then the presentation should be revised to include the GAAP opera ting, investing and financing cash flow amounts with equal or greater prominence. Please refer to the guidance Questions 102.05 -.07 of our Compliance & Disclosure Interpretations for Non -GAAP Financial Measures .
7. In future filings please include a recon ciliation of free cash flows from the most comparable GAAP financial measure in accordance with Item 10(e)(1)(i)(b) of Regulation S -K.
Form 10 -Q for Fiscal Quarter Ended October 31, 2013
(13) Commitments and Contingencies, page 14 Litigation, page 14
8. We note that you reached a preliminary settlement for one of your purported stockholder derivative lawsuits. However, you did not provide investors with any indication as to whether the preliminary settlement will result in a material impact to your consoli dated financial statements. Please confirm that you will provide investors with expanded disclosure in your next periodic report. Please provide us with the expanded disclosure that you intend to provide.
Item 4. Controls and Procedures, page 26
9. We no te that your new ERP system went live during the second quarter of fiscal year 2014. We further note your disclosure that there were no changes in your internal control over financial reporting during the quarter. It is unclear how you were able to arriv e at this conclusion with a new ERP system. Please advise.
We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing to be certain that the filing includes the information the Securities Exchange Act of 1934 an d all applicable Exchange Act rules require. Since the company and its management are
Mr. Buchanan Smith & Wesson Holding Corporation January 16, 2014 Page 4
in possession of all facts relating to a company’s disclosure, they are responsible for the accuracy and adequacy of the disclosures they have made.
In responding to our comments, please provide a written statement from the company acknowledging that:
the company is responsible for the adequacy and accuracy of the disclosure in the filing;
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
You may contact Tracey Smith , Staff Accountant, at (202) 551 -3736, or in her absence, me at (202) 551 -3854 , if you have questions regarding comments on the financial statements and related matters.
Sincerely,
/s/ Melissa N. Rocha
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January 16, 2014 Via E -mail Jeffrey D. Buchanan Chief Financial Officer Smith & Wesson Holding Corporation 2100 Roosevelt Avenue Springfield, Massachusetts 01102 -2208 Re: Smith & Wesson Holding Corporation Form 10 -K for Fiscal Year Ended April 30, 2013 Filed June 25, 2013 Form 8 -K Filed June 25, 2013 Form 10 -Q for Fiscal Quarter Ended October 31, 2013 Filed December 10, 2013 File No. 1-31552 Dear Mr. Buchanan : We have limited our review to only your financial statements and related disclosures and do not intend to expand our review to other portions of your documents. In some of our comments, we may ask you to provide us with information so we may better unders tand your disclosure. Please respond to this letter within ten business days by providing the requested information or by advising us when you will provide the requested response. If you do not believe our comments apply to your facts and circumstances, please tell us why in your response. After reviewing the information you provide in response to these comments, we may have additional comments. Form 10 -K for Fiscal Year Ended April 30, 2013 Item 7. Management’s Discussion and Analysis o f Financial Condition and Results of Operations, page 33 Results of Operations, page 34 1. Please confirm to us that i n future filings you will quantify the extent to which increases/decreases in volume s sold, increases/decreases in pricing, and new products contributed to the increase or decrease in net sales . Please refer to Item s 303(a)(3)(iii), and 303(a)(3)(iv) of Regulation S -K and Section 501.12.b.3 of the Financial Reporting Codification for guidance. Mr. Buchanan Smith & Wesson Holding Corporation January 16, 2014 Page 2 2. We note your discussion of key performance ind icators on page 34 where you state that you “evaluate various firearm products by such measurements as gross margin per unit produced, units produced per day and incoming orders per day.” Tell us why you have not included discussion of these metrics in yo ur MD&A. 2. Significant Accounting Policies, page F -8 Segment Information, page F -10 3. In future filings, please expand your disclosure regarding your reportable segment to clarify for investors how your CODM is managing the business (i.e., based on prod ucts and services, geographic areas, distribution channels, et cetera). Please refer to ASC 280 -10-50-21.a. for guidance. Please provide us with the disclosure you intend to provide in your next Form 10 - K. Please also confirm to us, if correct, that you are not aggregating two or more operating segments into one reportable segment. 19. Commitments and Contingencies, page F -34 Litigation, page F -34 4. Regarding known claims and product liability, we note your statements that “it is uncertain whether the outcome of these claims will have a material adverse effect on [y]our financial position, results of operations, or cash flows.” We further note your a dditional statement, “[w]e do not anticipate material adverse judgments.” Finally, we note your disclosure on page 45 that the estimated range of the reasonably possible losses for product liabilities is zero. There is a concern that your investors may not understand management’s conclusions regarding your known claims, as these two statements appear to be contradictory. Please note that ASC 450 -20 does not require management to make judgments about loss contingencies with precision or confidence but rathe r with reasonable estimation about the materiality of the outcome to the consolidated financial statements. Please revise your disclosures in future filings to ensure that the statements made are consistent. Please provide us with the disclosures you wou ld have included in your fiscal year 2013 Form 10 -K in response to this comment. Please also confirm to us that you have provided a description of the nature of all loss contingencies that are probable and/or reasonably possible of materially impacting yo ur consolidated financial statements. Form 8 -K Filed June 25, 2013 5. We note that y ou present a full statement of income to reconcile GAAP net income to Adjusted EBITDAS . We believe that the presentation of a full non -GAAP income statement attaches undue prominence to the non -GAAP information, results in the creation of many additional non -GAAP measures (e.g. non -GAAP cost of goods sold, interest income and selling, general and administrative expense, et cetera ) and may give the impression that the non-GAAP income statement represents a comprehensive basis of accounting. Please confirm to us that you will no longer present these tables in future Item 2.02 Form 8 -K submissions or elsewhere and will provide a reconciliation that begins with GAAP net income and ends with Adjusted EBITDAS and includes all of the individual items removed Mr. Buchanan Smith & Wesson Holding Corporation January 16, 2014 Page 3 from your GAAP measure to arrive at your non -GAAP measure. Please see Question 102.10 of our Compliance & Disclosure Interpretations for Non -GAAP Financial Measures. Please also see Instruction 2 to Item 2.02 of Form 8 -K which indicates that the provisions of Item 10(e)(1)(i) apply to these public disclosures. 6. We note that you present free cash flow as a measure of your operating performance. Given that “free cash flow ” is widely understood to be a liquidity measure, there is a concern that investors may not fully understand your basis for characterizing this non -GAAP measure as a performance measure. Also, the use of the words “cash flow” in the measure’s title is confusingly similar to the GAAP financial measures included in the Statements of Cash Flows. Further, we note your definition of this measure as starting with GAAP cash flow provided by operating activities. If you maintain that free cash flow is not a liqu idity measure, then please prospectively change the title of this measure to delete the words “cash flow”. Alternatively, if you conclude that this measure is useful as a liquidity measure, then the presentation should be revised to include the GAAP opera ting, investing and financing cash flow amounts with equal or greater prominence. Please refer to the guidance Questions 102.05 -.07 of our Compliance & Disclosure Interpretations for Non -GAAP Financial Measures . 7. In future filings please include a recon ciliation of free cash flows from the most comparable GAAP financial measure in accordance with Item 10(e)(1)(i)(b) of Regulation S -K. Form 10 -Q for Fiscal Quarter Ended October 31, 2013 (13) Commitments and Contingencies, page 14 Litigation, page 14 8. We note that you reached a preliminary settlement for one of your purported stockholder derivative lawsuits. However, you did not provide investors with any indication as to whether the preliminary settlement will result in a material impact to your consoli dated financial statements. Please confirm that you will provide investors with expanded disclosure in your next periodic report. Please provide us with the expanded disclosure that you intend to provide. Item 4. Controls and Procedures, page 26 9. We no te that your new ERP system went live during the second quarter of fiscal year 2014. We further note your disclosure that there were no changes in your internal control over financial reporting during the quarter. It is unclear how you were able to arriv e at this conclusion with a new ERP system. Please advise. We urge all persons who are responsible for the accuracy and adequacy of the disclosure in the filing to be certain that the filing includes the information the Securities Exchange Act of 1934 an d all applicable Exchange Act rules require. Since the company and its management are Mr. Buchanan Smith & Wesson Holding Corporation January 16, 2014 Page 4 in possession of all facts relating to a company’s disclosure, they are responsible for the accuracy and adequacy of the disclosures they have made. In responding to our comments, please provide a written statement from the company acknowledging that: the company is responsible for the adequacy and accuracy of the disclosure in the filing; staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and the company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. You may contact Tracey Smith , Staff Accountant, at (202) 551 -3736, or in her absence, me at (202) 551 -3854 , if you have questions regarding comments on the financial statements and related matters. Sincerely, /s/ Melissa N. Rocha Melissa N. Rocha Senior Assistant Chief Accountant