Good day, ladies and gentlemen, and welcome to the secondquarter 2008 Smith & Wesson Holdings Corporation Earnings Call. (OperatorInstructions) I would now like to turn the presentation over to your hostfor today's call, Ms. Liz Sharp, Vice President of Investor Relations. Pleaseproceed.

Thank you and good afternoon. Before we begin the formal part of our presentation, let metell you that what we're about to say, as well as any questions we may answer,could contain predictions, estimates and other forward-looking statements. Ouruse of words like project, estimate, forecast and other similar expressions isintended to identify those forward-looking statements. Any forward-lookingstatements that we might make represent our current judgment on what the futureholds. As such, such statements are subject to a variety of risks anduncertainties. Important risk factors and other considerations that could causeour actual results to be materially different are described in our securitiesfilings, including our Forms F-3, 10-K, and 10-Q. I encourage you to reviewthose documents. A replay of this call can be found on our website latertoday at www.smith-wesson.com. This conference contains time sensitiveinformation that is accurate only as of the time hereof. If any portion of thispresentation is rebroadcast, retransmitted or redistributed at a later date, wewill not be reviewing or updating the material content herein. Our actualresults could differ materially from these statements. Our speakers on today's call are Mike Golden, President andCEO; and John Kelly, Chief Financial Officer. With that, I'll turn it over toMike.

Thank you, Liz, and thanks everyone for joining us. Let me give you the agenda for today's call. First, I willshare my thoughts with you regarding our performance in the quarter, as well asour strategy and outlook for the future. Then, John will review our financialresults in more detail. After that, we will open up the call for questions fromour analysts. This is a change from our standard agenda. But, given the changesthat occur within our second quarter, I think it's appropriate. Today's press release clearly laid out the issues thatimpacted our results in the consumer channel during the second quarter, and howthose issues are closing us to revise both our net sales and our earningsguidance for the balance of the year. In summary, our environment changed abruptly late in aquarter, due to a number of factors. We responded immediately in October, byimplementing new consumer focus promotional programs, reducing our costs,adjusting our expectations for the fiscal year, and communicating with you, ourshareholders. While these promotional programs are meeting with somesuccess, the environment has not improved to the degree that we had originallyexpected. In addition, recently released market data, which I will cover in a moment,has indicated that the industry-wide inventory overstock situation is much moreextreme than we estimated three weeks ago. Today, we are providing you with our updated expectationsfor the current fiscal year. We will continue to respond as needed, until boththe consumer environment, and the industry-wide inventory overstock situation,have corrected. We believe that the current situation will not extend beyond ourcurrent fiscal year, which ends April 30th, 2008. Let me say upfront, that theinventory overstock issue is an industry situation, and we believe theinventory correction for Smith & Wesson is near its end. What I'll like to do now, is walk you through our key saleschannels, and share…

Thanks, Mike. Sales for the three months ended October 31,2007 were $70.8 million, a $20 million, or 39.4% increase, over sales of $50.8million for the three months ended October 31, 2006. Firearm sales, our corebusiness, increased by $18 million, or 37.8% over the comparable three monthsperiod in the prior year. Net income of $2.9 million, or $0.07 per diluted share, forthe three months ended October 31, 2007 was equal to net income and dilutedearnings per share for the comparable period last year. Net income for thesecond quarter of fiscal 2008 reflects a 54.5% year-over-year increase inoperating expenses, combined with $1.7 million increase in interest expense,both attributable to the acquisition of Thompson/Center Arms in January 2007. The increase in firearm sales in the quarter wasattributable to the addition of Thompson/Center Arms, which we acquired inJanuary 2007. Smith & Wesson firearmsales were down 10% for the second quarter of fiscal 2008. Pistol sales for the three months ended October 31, 2007were $4.9 million lower to the comparable period in the prior year. Thedecrease is attributable to $6.2 million in shipments to Afghanistan and the California HighwayPatrol in the second quarter of last year, which did not recur in the second quarterof fiscal 2008. Sales in the M&P pistol grew at a rate of 54.2% for thesecond quarter of fiscal 2008, while revolver sales declined by approximately18% for the same period, reflecting the soft domestic consumer market. Sales of short guns and i-Bolts were below expectations,largely because shipments of these products commenced in late September, whenmarket conditions were deteriorating and because distributors were reluctant totake on new products given their already inflated inventory levels. Thompson/Center Arms product sales exceeded our expectations,primarily due to the preseason launch of the ICON and Triumph rifles, and thebenefit of a full season order cycle for those products,…

Thank you, John. While the current environment has presentedus with some short-term challenges, I want to emphasize, today, that this in noway changes our long-term strategy. We will continue to respond aggressively tocreate demand at every level, and reduce costs in every corner, until theconsumer market is a healthier environment for us. And we will continue to stayfocused on the diversification and growth efforts that will grow our presencein safety, security, protection and sport. With that operator, I would like to open up the call forquestions from our analysts.

(Operator Instructions) Your first question comes from the line of Eric Wold. Pleaseproceed. Eric Wold - MerrimanCurhan Ford & Company: Hi, good afternoon.

Hi, Eric. How are you doing? Eric Wold - MerrimanCurhan Ford & Company: Good. A couple of questions. I know you talked about how youare starting to see some improvements in your trends and you are optimisticthat you'll kind of get through this before the end of the fiscal year or bythe end of fiscal year, and so kind of will linger to next year. Talk a little bit about what you're hearing from thedistributors and retailers during the situation in terms of what their thinkingis for next year. I mean, obviously, everyone is having issues right now. Butif the other manufactures are having more issues maybe don't come out asunscathed as you do, does this put you in a better situation going into nextyear with the distributor if they don't want to kind of repeat the samemistakes that happened this year?

Well, let me try to answer in a couple of ways, Eric. Whatwe're hearing is that our promotions, specifically our handgun promotions areworking fairly well. And we have some experience of that, which is helping totake inventory down because there was a lot of Smith & Wesson inventory outthere at the beginning of the second half also. And we're also seeing from a number of our distributorsdouble-digit increases out the door year-on-year of Smith & Wessonproducts, so dealers are pulling product out, which is another good indicationthat things are coming down. And the third thing is what John said is we'reseeing that reflected in our order rates in the first eight days of this month.This fiscal month has been significantly better than the last couple of months.So, many encouraging signs that we're seeing out there. We don't believe that the inventory that is out in thechannel will carry on. A whole lot of that will carry into next season becauseof just the nature of the dealer base and the distribution base that we haveout there. We think that there will be some promoting of the product to move theproduct out. It probably won't all go away, but they're clearly gone into nextyear. What we're hearing though from our all of our customers isthe promotions that were put in place that Smith & Wesson is reallycertainly on the forefront and the only manufacturer that is reacting to thesituation, which certainly will put us in good stead as we go into next year.We're selling programs into next year, the entire hunting program, but also onregular handguns. So we think the signs are looking pretty good.

Eric, just to give a little more color on that, the networkof dealers and distributors is not heavily capitalized and has liquidityconcerns. They can't afford to carry inventory for too long a period. Thedistributors were typically in a margin of 5% to 7%. So, carrying costs ofinventory become pretty critical on their profitability. So I think you're going to see that come out, and I thinkit's going to be a situation where it's more been in the buying patterns. Welook at our top two distributors in the out of the door. For example, inOctober with them it was in the double-digits, and then our side, we're downsubstantially, one was down 44% in October in terms of year-over-year purchasesand the other was down 61%. If they're out of the door we're up 37% and 18%. So they are correcting their inventories as we go here. Andso, it's going to be a situation where it doesn't necessarily whole have to bediscounted. It's going to be reduced purchases, which is what we saw in Octoberand significantly in November too.

One other thing on that, Eric, it's a really good question,is the SHOT Show is the first weekend of February this year. At the SHOT Show,Smith & Wesson will launch 62 new items into the world, expanding our lineof hunting rifles and shotguns, handguns, Thompson product, I mean there is alot of stuff going on that's going a fuel the calendar year 2008. Eric Wold - MerrimanCurhan Ford & Company: Okay. And then just last question then. You kind of playeddevil's advocate a little bit. If some of these other manufacturers are, aseveryone knows, kind of have a little capital constraint, not in the bestfinancial situation relative to Smith & Wesson, is there a chance that theykind of get spooked and really need to move inventory and generate any cashthey can and start discounting even heavier in the months to come and thesituation maybe gets a little bit worse or gets better?

Well, if you take a look, as we said, we've already soldsome of that stuff going on. And we have taken that into account as we buildour estimate going forward. We think that we are close to the end of ouradjustment, but we are not reflecting that over the next couple of months. Youare going to see growth levels like we had been seeing prior to that until thestuff gets through the channel. Eric Wold - MerrimanCurhan Ford & Company: I apologize, Mike. I mean less so on your side, more sort ofother manufacturers start giving even more aggressive rebates happening inchannels such that they attract consumers away from your products near term,because they are discounting it even more heavily?

Eric, we've kind of anticipated that into our forecast. Andthat is, I think Mike alluded to, we've scheduled promotions well into thisfourth quarter as well. So, we are not just building promotions or have notbuilt into our forecast promotions to move the inventory where we have doweledin some promotions along the lines that there is going to be some competitiveactivity that we need to respond to. Eric Wold - MerrimanCurhan Ford & Company: Okay. That's perfect. Thank you, guys.

Thanks, Eric.

Your next question comes from the line of Rommel Dionisio.Please proceed.

Yes, good morning. Good afternoon, sir. Hi. I just want tospend a little time talking about the inventory, how big up was in the firstplace. As I look across categories, whether it's sporting goods or fitnessequipment or recreational vehicles, retails have been pretty conservative allyear long. Did you get the sense if there was channel stocking on thepart of some competitors? It just is tough to believe that retails were thataggressive in thinking this would be phenomenal holiday season or huntingseason?

I think 2006 for the industry was a good year. They enjoyedstrong levels. And I think going into the year, people anticipated 2007 wasgoing to be another good year for them. Extended handguns had a very good yearlast year and the sales into the channel were up 38% in the first half of thisyear, and long-guns were up 20%. And I think what happened is when you look at the mix dataand you look at what happened in the third calendar quarter, there was anuptick in retail activity, where we started approaching the high single digits,low double digits in terms of increases in retail activity. And I think that kind of encouraged them that they weregoing to see this kind of year. And then when they ran up against the softhunting season, it kind of started to come apart.

Okay. Thanks very much.

Thanks, Rommel.

Your next question comes from the line of Chris Krueger.Please proceed.

Hi. Good afternoon, guys.

Hi, Chris, how are you doing?

Good. Just a couple of quick questions. You indicated moresuccess on your efforts with domestic law enforcement continuing well over 80%of the T&Es that are out there. Can you remind us again just what the sizeof this market is as in number of departments that are out there?

Yes, Chris. In United States,there are 17,000 police departments in United States, law enforcement agency in United States. A lot of them aresmall, but we have a long way to go, things like the state police like we justsaid the New Mexico State Police, the New Hampshire State Police that weannounced just recently. State police, we think are a big deal, because a lot of tinydepartments in a state will do whatever the state police do. So they'll buywhatever the state will follow their lead. So that is when we win a statepolice department, we are pretty excited about that, and also other big citieslike Hartford, like Charlotte, like Syracuse. But there are about 800,000 law enforcement officers in the United States.And we believe that all these officers that are part of these 246 departments,it's somewhere around 50,000 police officers. So a long runway in front of usthere.

Okay. Further state department wins, how many of those haveyou had, just the New Mexicoso far or is it more than that?

New Hampshire, that was abig one for us because there was a competitor up there and they manufacturedcompetitors' guns in New Hampshire.

Okay.

Iowa State Police that comes to mind right now

Okay. Other question. Your M&P pistols have been growingnicely. I can't remember if you've provided this, but do you provide a percentof what the M&P product line up is as a percent of your total sales?

No we don’t provide that.

It’s okay.

It's obviously a growing part of our sales, though.

Right. All right. That’s all I've got. Thank you.

Okay. Thanks, Chris.

Your next question comes from the line of Reed Anderson.Please proceed.

Good afternoon.

Hi, Reed.

Hi. I guess, Mike, we all get the why kind of (inaudible)inventory and what’s happening. And I think that's understandable. But what Ithink is a struggle, at least for me and I think other people would share this,is the timing of it. I mean you reported your first quarter in early September,and then all of sudden, a couple of weeks later, it seems like the wheels havestarted coming off. And I guess my question is can you just remind us or talk tous about kind of the timing of your orders, et cetera? Because what myrecollection is you have a handful of distributors that are may be upwards of30% in revenue. So, it's hard for me to understand how wouldn't know soonerfrom them until the end of October, say, that things were slowing. Can you helpus connect those dots a little bit?

Yeah. The formal data, the FET data doesn't come out until-- we got it just a short time ago, mid-November, which kind of told us whatwas going on, okay. As we were going through, we had an event. The sales guyshad a promotion last year for our distributors and dealers where the winner,you know, you had to sell so much in one of those things, but the award was atrip to Hawaii. And that was in the middle of September.

Of this year, September '07?

Yeah, just passed. And our guys came back from that witharguably 50 of our largest and most growing combination dealers anddistributors, and there was no indication that the slowdown at retail was beingfelt. People kind of just thought it was a little bit of a blip. So, it wasn'tuntil when we started to see it reflected in our order level, it was really inOctober. As we got into it, it was like, whoa, we got a lot of stuff here. So, it really was not something that the industry recognizedat the dealer level back through the distributors, and that was kind of part ofthe problem. Our sporting good sales in September we're up 29% versus the yearbefore. So, really that's how it kind of caught us a little bit off guard andthat's why we reacted quickly to it.

Okay. And then in terms of the retailers that sort of thing,I mean at what point are we going to start to see a much more prominence inassortment or representation of your newer product, particular on the long gunside. In some of these larger category killer names like a Cabela's or a GanderMountain or somebody like that, when should we think that we're going to walkinto there and see a much better more jump off the page service assortment ofthose new products?

A couple of things. The short answer is as we get into nextyear's hunting season. And this year, as we explained, we kind of caught it, welaunched it at a time that was unfortunate. But also the offering that we haveat this stage of the game under the Smith & Wesson brand is fairly limited.You're going to see more SKUs added to that to broaden that line at the SHOTShow, which will start to give it more of a presence, plus we're going to catchthe full season.

Okay. And then, I guess last question, in terms of SHOT Show,I mean give us a sense of what kind of order writing or order indication youtypically get there and how we might think about that as we look at your backlogcoming out of April?

Yeah. You won't see people writing orders at the show. Imean they just don't do that. But after the SHOT Show, we try to have productsshown at the SHOT Show that we will begin to shift this fiscal year, in otherwords, not outside that window. So, you'll start to see orders graded after wecome out of the SHOT Show. So that's a February, March, April timeframe you'llstart to see that.

Okay.

The other point to the big boxes just explain why youhaven't seen the presence of Smith & Wesson stuff, is we did not have theproducts available at the beginning of the year when they placed their orderswith the manufacturers. In other words, everybody goes before the big boxes, makesthe presentation of what they have, and they decide what they're going to carryfor the year. We then introduce our rifle until April or May at the NRA Show. Sothat effectively took us out of that game with all the big boxes.

That makes sense. I just wanted to make sure I'm clear. Andthen, lastly, I guess, John, is it possible for you to give the revenuebreakdown by product that you typically do in your Q at this point?

What are you looking for exactly, Reed?

Well, I'd just like to get the detail. I mean, we'llobviously get it out of the Q when that comes out in other week and a half, butit's always nice to get the detail by product categories, if you're willing todo it.

Well, the Q is going to come outon Monday, Reed.

Okay.

But let me also add to what John was saying to really answeryour question. Many of our distributors have their shows where dealers come tothem where they do write orders in the month of January and the month ofFebruary. And the timing of that and the SHOT show and the launching of our newproducts is really actually pretty good to kind of get this whole thing kickedoff.

Okay. But is it still the case though that, I mean, if welook at your backlog, which I know isn't a great indicator all the time, but itshould be something that coming into a new fiscal year that's essentially whereit peaks, and then it runs off from there throughout the year. Is that correct?

That will be probably the case there because the longerbooking orders happen in February, March, April time period. So you're right,Reed. There is a backlog. If I had to tell you when the peak period is, it'sprobably the end of the fiscal year.

Okay. All right. Thanks.

Okay. Thanks, Reed.

(Operator Instructions) Your next question comes from the line of Amit Dayal. Pleaseproceed. Amit Dayal - Rodman& Renshaw: Thank you.

Hi, Amit. Amit Dayal - Rodman& Renshaw: Hi, guys. How are you?

Good. Very good. Amit Dayal - Rodman& Renshaw: Thanks. Just one question in terms of the guidance forfiscal third quarter.

Yes. Amit Dayal - Rodman& Renshaw: Does it come, I hope I'm reading it correctly, but it wouldcome to roughly $57 million to $60 million in terms of what's given in yourpress release?

You're talking about topline? Amit Dayal - Rodman& Renshaw: Yes.

For the third quarter? Amit Dayal - Rodman& Renshaw: Yes.

Approximately? Amit Dayal - Rodman& Renshaw: Yeah. Like in that range, right.

Yes, approximately in $60 million. Amit Dayal - Rodman& Renshaw: Right.

$57 million to $60 million, yes. Amit Dayal - Rodman& Renshaw: Right. So my question to that is, I mean, given that thefourth quarter is usually the slowest for you guys…

No. It's usually the strongest, Amit. Amit Dayal - Rodman& Renshaw: Right, sorry. So we are still confident about making that 85to 95 range in the fourth quarter?

Yes. Amit Dayal - Rodman& Renshaw: Right. Perfect.

Yes. I mean it's basically, Amit, just to take you throughit, what we said is that what's happening as we expect our projections for theinternational law enforcement market, either they are going to grow strongly inthat fourth quarter based on information we have on contracts and thingssomething out. And what we did was we said we are just going to grow at themixed rate, which is about 5%. Amit Dayal - Rodman& Renshaw: Right

We're forecasting we're growing at the market in the fourthquarter. And then there is going to be some good growth in the internationalwhat we see is on the horizon or is in-house for international for Q4. Amit Dayal - Rodman& Renshaw: Right. So the international growth, is it coming frompistols, revolvers, could you just --?

Yes, pistols.

Primarily, the --.

M&P.

The M&P has really provided us with a significant boostto our international business. Prior to the M&P, we did not have pistolthat could compete in the law enforcement or military market worldwide. And now that we have that, the numbers are shown, as Mikehad said, by over 5,000 officers around the world. And basically that's in alittle over year, because that's primarily 9 millimeter caliber. In about 15months time, that's a pretty strong performance. Amit Dayal - Rodman& Renshaw: You haven't provided this in your press release, and I don'tknow if you can give it to us or not, the EBITDA range that you expect forfiscal 2008 or if you could give us depreciation numbers for the next quarter--?

We gave you the depreciation and amortization. I think itwas 12.5. Amit Dayal - Rodman& Renshaw: Okay

Let me just think for a second, Amit? Amit Dayal - Rodman& Renshaw: Right.

Probably about 50 to 55 range, Amit. Amit Dayal - Rodman& Renshaw: Okay. Thank you so much. And just one final question. I mayhave asked you this earlier as well when I spoke to you a couple of weeks ago.But are distributors and dealers allowed to send unsold stock back to thefactory? How does that work for you guys?

No, they are not allow to. Amit Dayal - Rodman& Renshaw: Okay. So it's their responsibility once it's shipped out ofyour factories?

Right.

And as we said, our product is moving through the channelvery nicely, so that's not even a concern.

The issue doesn't appear to be on a dealer level as much asthe distributors' really. I mean from what we are seeing on the feedback fromour distributors is, their out the door is up significantly for Smith &Wesson. Amit Dayal - Rodman& Renshaw: Right.

The October date is the last we have, and our two largestguys were showing up 37% and up 18% out the door. What they are doing is theyhave reduced their inventories. As I said before, they were 44% and 61% lowerwhen they purchased from us. So that's how the inventory correction is taking placereally at this point for us. Amit Dayal - Rodman& Renshaw: Can you give us a sense of what the inventory mix is likefor you right now? Is it more pistols, more rifles?

Given the nature of what happens in the marketplace, it'sacross the board. We are comfortable that it isn't in any one particular area.It's pretty broad based. So as the business picks up, we don't anticipate anyproblems in any particular category where we are more severe than others. Amit Dayal - Rodman& Renshaw: Right. That's all I have guys. Thank you so much.

Thanks, Amit.

Thanks, Amit.

Your next question comes from the line of James Maher.Please proceed.

Good afternoon, guys.

Hi, James.

Hi, Jim.

Most of my questions have already been addressed, althoughlet me ask just a couple of housekeeping items then. In terms of the sharecount, given the convertible, should we still be anticipating $48 million forthe next several quarters?

That's the way it's still calculated, James. It's based onthe if-converted, and the more dilutive impact is to add back the interest coston that of approximately $2 million to the net income number and divide it byapproximately 48.5 million shares. And it doesn’t carry in effect whether thestrike price is in the money or not.

Okay.

Okay.

Okay. And then secondly, I wasn’t doing my math incorrectlyhere. It looks like about $2.94 million net income over 48 million shares, I amgetting $0.06, not $0.07. Am I just not able to do math today or is --?

What you have to do there is to add back approximately $0.5million after-tax impact of the interest on the convert.

Okay. That's the interest again. Okay.

Yes.

Okay. Again, I think most of my other questions have beenaddressed. So thank you.

Okay. Thank you.

Great. Thanks, James.

Ladies and gentlemen, this will conclude the Q&Asession. I’d like to turn the call back over to Mr. Golden for closing remarks.

Thank you, operator. I want to let you all know that we willbe presenting at the Wedbush Morgan Investor Conference next week on December12 in Los Angles. I look forward to seeing some of you there. Thank you everyone for joining us. Happy holidays to all ofyou, and I look forward to speaking with you again in the New Year.

Thank you for your participation in today's conference. Thisconcludes the presentation. You may now disconnect. Good day.