Welcome to the second quarter fiscal 2009 Smith & Wesson Holdings Corporation earnings conference call. My name is Melanie and I will be your coordinator today. (Operator instructions) As a reminder, today’s call is being recorded for replay purposes. I would like to turn the call over to Ms. Liz Sharp, Vice President of Investor Relations.

Thank you, and good afternoon. Before we begin the formal part of our presentation, let me tell you that what we are about to say, as well as any questions we may answer, could contain predictions, estimates, and other forward-looking statements. Our use of words like project, estimate, forecast, and other similar expressions is intended to identify those forward-looking statements. Any forward-looking statements that we might make represent our current judgment on what the future holds. As such, those statements are subject to a variety of risks and uncertainties. Important risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings including our forms F3, 10-K, and 10-Q. I encourage you to review those documents. A replay of this call can be found on our website later today at www.smith-wesson.com. This conference contains time-sensitive information that is accurate only as of the time hereof. If any portion of this presentation is rebroadcast, retransmitted, or redistributed at a later date, we will not be reviewing or updating the material content herein. Our actual results could differ materially from these statements. Our speakers on today’s call are Mike Golden, President and CEO, and Bill Spengler, Executive Vice President and Chief Financial Officer. And with that I’ll turn the call over to Mike.

Thanks everyone for joining us. Second quarter delivered mixed results, some very exciting, and some obviously very disappointing. It was a stark contrast between strong, solid performance in parts of our handgun and tactical rifle products, offset by very tough, ongoing challenges in the hunting business. Today, Bill will provide a detailed financial analysis of the quarter, but first I will address each part of our business. I will review our performance in key areas, what we are doing to address current challenges, and why believe that despite the challenges that we, and all businesses, fact today, our strategy, and our structure position us well for the future. With that, let’s begin. Our handgun and tactical rifle categories continued to deliver positive results in the second quarter. It is especially important to realize that these product lines have delivered positive results consistently over the past several quarters, despite the fact that we now appear to have been in a recession for nearly a year. Piston sales of $18.5 million reflected growth in the quarter of over 40% versus the prior year. Within that category sales of our Sigma piston line grew by 77% in the second quarter versus a year ago. The Sigma is a well-positioned product that is performing well in the consumer market place, both for sports shooting and for self-defense. Sales of our M&P pistols grew nearly 45% year-over-year. And here I want to make a couple of important points. First, those M&P results contain our first shipments into Iraq for distribution to the Iraqi military and security forces. We believe that order indicates that we continue to maintain a high degree of positive visibility with the Defense Department, boding well for future orders. Second, our 45% growth also reflects our ongoing success in selling M&P polymer…

Total company sales for the second quarter were $72.7 million, a $2.0 million, or 2.8%, increase over the three months ended October 31, 2007. Within that, sales of all firearms totaled $67.5 million, an increase of $1.7 million, or 2.6%, over the second quarter of last year. The balance of revenue, largely handcuffs and non-firearms accessories, totaled $5.2 million and grew by $225,000, or 4.5%. As Mike commented, results in our sales of firearms were mixed, with strength in some categories and continued weakness in others, specifically those related to hunting. Handgun sales totaled $43.6 million, an increase of 11.6% over the year-ago quarter. Tactical rifle sales of $8.7 million represent an increase of 308% year-over-year and hunting rifle revenue totaled $11.5 million, a decrease of 41% on a year-over-year basis. Gross profit for the second quarter of fiscal 2009 was $20.0 million, or 27.3% of revenue, as compared with $23.1 million, or 32.3% of revenue, for the second quarter of fiscal 2008. This represents a deterioration of 5% in terms of gross margin percentage from the year-ago quarter. Approximately 60% of this gross margin erosion was caused by continued weakness in the hunting market where lower sales volume led to reduction in production levels resulting in lower fixed overhead absorption at our Thompson/Center facility. In the face of weak demand we implemented a series of consumer promotions on our hunting guns, which further eroded gross margins. Finally, we did experience a shift in sales from high-end hunting rifles to lower-prices hunting rifles, resulting in further margin erosion. The other significant contributor to our margin erosion versus the prior year continues to be our consumer and to a lesser extent, distributor promotions, in the handgun and tactical rifle categories. These promotions totaled approximately $1.4 million for the quarter versus essentially…

Before I close, I would like to make just a few more comments. With regard to military opportunities, at this point in time we do not have any new information to share with you on the U.S. Air Force solicitation to replace their M9 pistol with a new, modern 45-caliber pistol. From what we know, this initiative is still listed as an unfunded requirement within their budget. On the rifle side, efforts to review the military rifles seem to be gaining traction as the Army is moving forward to review the M4 rifle and determine if there is a need to pursue an upgrade. In fact, we were invited, and attended, an industry day with the Army last month where we shared our design ideas and how to enhance and improve the current M4 carbine platform. We expect the Army to issue a request for information to the industry next spring that could lead to a rifle solicitation later next year. On the consumer side, many of you have seen the media reports on the surge in gun sales, as indicated by the NICS background check data. For those of you who don’t know, those background checks were up 45% in the month of November, an historical record. At Smith & Wesson are certainly seeing the benefit. It is important to note that the bulk of the surge did not begin until just after the election and is largely not reflected in the revenue gains for the quarter we are reporting. From our perspective, the surge is effecting handguns and tactical rifles and our weekly read on distributor inventories indicates that these shipments are flowing immediately through to retailers. I want to point out that there is no way to know how long this surge will last. But for at least the short term, this growth in orders and shipments will help offset some of the costs we will incur as we take the proper steps to lower our inventories and costs. In closing, I want to make sure I have left you with a couple of key points today. First, we have a strong, robust business in handguns and tactical rifles. Not only is that business delivering growth results today, but it has been doing so consistently throughout the last several quarters. Second, we currently face significant challenges in our hunting business. Despite this, and the large impairment we took in the second quarter, we believe for a number of strategic reasons that keeping the Thompson/Center business unit in our company is the right thing to do at this time. We will continue to revisit that decision and we reserve the right to make any changes in our strategy as circumstances evolve. With that I would like to open the call now for questions from our analysts.

(Operator Instructions) Your first question comes from Reed Anderson - D. A. Davidson & Co. Reed Anderson - D. A. Davidson & Co.: First of all, nice job on the sales, particularly in the M&P and the tactical. Curious on the promotional environment. Obviously you were promotional but it seems like the demand is there right now. To what extent does your outlook today continue to bake in assumptions that promotional activity is going to be here for the next couple of quarters?

That’s a good question. And just to kind of refresh everyone, last year in the third quarter was when we began the aggressive consumer promotions to help stimulate the business and move product through the channels, so we’re just really anniversarying, in the current quarter, those changes. We have some rebate promotions in place that ago through the end of December. They were put in place earlier this summer based on what we were seeing in the business. So they were in place prior to what we’re calling this retail surge that we are seeing. At this point in time, we are not expecting to continue those rebates after December 31,2008. And we will see how things go and kind of react off of the market. But certainly with the retail environment that we’re seeing today, if it continues through the first half of next year, we don’t see that as necessary. Reed Anderson - D. A. Davidson & Co.: And on a related note, you also had commented in your prepared remarks that Sigma was very strong, I think you said 77% up.

Yes, yes. Reed Anderson - D. A. Davidson & Co.: Should we read that to mean that, because that’s a little bit lower price point, is that partly a trade down, do you think, or do you think that’s just a function of the promotions you’re running? How would you read that?

The Sigma product has got kind of a unique position. It’s a very good product at a lower price point. It’s out there. And certainly the economic environment is driving people to certainly look at how they’re spending money and what they’re spending it on. But don’t forget, the M&P did well, too, even prior to this surge. So but certainly the price point is affecting the Sigma sales. Reed Anderson - D. A. Davidson & Co.: On the gross margin piece, from my expectation it is obviously a little disappointing in this quarter, given particularly where sales were. Your comment that at least in the third quarter and potentially in the fourth, you are going to have this absorption issue. Should we think it’s going to get even worse than the sequential trend we saw from Q1 to Q2 or just your thoughts on the order of magnitude.

Without heading too far down the path on guidance, one way to look on it is that Q2 still has hunting season effects in it for Thompson. And Q3, then we’re out of season. As you have lower revenue you have worse absorption, irrespective of the actions that were taken. Reed Anderson - D. A. Davidson & Co.: It’s still a factor but it’s not the meat and potatoes of your hunting business, is what you’re saying basically?

That’s true. Reed Anderson - D. A. Davidson & Co.: I just wanted to clarify, you had said that the savings you would pick up because you have basically gotten rid of the intangible piece that you’re amortizing off, that amounts to, on an after-tax basis, $2.3 million per year?

Annually, yes.

Your next question comes from Chris Krueger - Northland Securities.

Based on your own Smith & Wesson records, and your own work you have done with your customers, going back to the 90s and the early months or quarters of the Clinton administration, can you give us any kind of history lesson there? What happened? I know there wasn’t NICS data back then, but I am sure you have done some work on how that went at that time for sales at the retail level.

I certainly will. And we have done research on this. And these are industry numbers on handguns. Back in the mid-90s there was a surge in firearm sales. I think that’s what you’re talking about. And it was a pretty interesting phenomenon. The surge lasted about, ballpark, 18 months and the years after the surge there was a little bit of a dip but not much. It kind of came right back down to the trend line and just started back on the GDP growth level. Now, circumstances, are they different today? We’ve got a pretty severe recession going on. That’s hard to guess. But that’s kind of what history would say, is that the surge lasted for a while and you saw a little bit of a dip as you went back and it kind of stayed at a little bit of a lower level, but not significant.

For our tactical rifles, obviously you had another great quarter there. I think, doing the math, you did about $8.6 million in sales?

That sounds about right.

As far as your capacity and all that goes, if you sell them as quick as you can make them, is that a kind of maximum level, $8.0 million to $9.0 million range? Or what would you say there, in a quarter?

We don’t give capacity numbers out. But certainly the current surge is impacting tactical rifles and because we manufacture it internally, we have some control. Some parts come from the outside, we’re working with suppliers to try to increase the product of. But the real surge, as I said, did not have a significant impact on Q2, it really started hitting the full impact in Q3.

That included tactical as well?

Yes.

Your next question comes from Cai von Rumohr - Cowen and Company.

Good work on the cash flow. Could you give us a little more color sort of by market channel, approximately the sales comparing law enforcement, fed military, and international year-over-year?

How we did year-over-year in the quarter?

Yes.

The consume channel for Smith &Wesson product was up, in the quarter, about 35%. Law enforcement was up about 20%. Our international business was actually down a little bit. As I mentioned to you, we had that Japan order that was in there last year.

And fed military?

Federal government was down 9% but it’s small numbers.

And where do you think you are in terms of the channel, in terms of inventory? That was a problem going into the hunting season. Do you feel that’s been pretty well cleared out or is that still an issue?

I think you guys know, we work closely with our distributors and we do look at their inventory on a weekly basis. Certainly this retail surge has had a pretty significant impact on distributors’ inventory where to say it’s not an issue anymore is probably an understatement. There still is some hunting product out there. In fact, this focus on tactical rifles at retail and handguns has really had a corresponding negative effect on people spending money on hunting products because the surge is on handguns and tactical rifles, like I said. But distributors’ inventories, the product is selling right through distributors right out to retailers as quick as they get it.

So that’s in the handguns and the tactical rifles. But on the hunting product, is that pretty well skinnied back or is that still an overhang?

It certainly has come down since last year. It is certainly not the problem that it was. But there are still some pockets that it’s working through.

You’re talking a pretty impressive decline in the inventories in the third quarter. Because last year, as I recall, the inventories were just flattish. So if in fact, if you come down $4.0 million to $8.0 million, is that what you said?

Yes, we said $4.0 million to $8.0 million off the balance at the end of Q2.

So if we come down to $49.0 million we are going to be at a little under 17% of sales, or maybe even less, depending on where those sales are. What is the right number? Should we expect, hopefully then, that inventories go down again in the fourth quarter, which is a good quarter for handguns, or what should we look for?

Without putting the same kind of clarity on it we did with Q3, yes, we will again take actions in the fourth quarter to bring the inventory down again from the level we end up at Q3 with.

Any comp in terms of with these kinds of numbers, where the net debt can be? Is there a target for where you would like to have the net debt at the end of the third quarter?

Hopefully, we can pay down a little bit more on some of the smaller loans, but we’re really down now to not having a particularly large draw on the revolver. We’re sticking with, at this point, the $80.0 million in the convert and then we will bounce around with some level of draw on the revolver, based on working capital needs at the time, but that will be a narrow range. So net debt, I don’t want to forecast it, but you start with $80.0 million and you shouldn’t be able to get over $100.0 million.

In this tougher time are you having any issues with receivables, folks paying or paying late? Has that been a problem?

Infrequent. Not really. But what we do do is we did bump up our reserve, just because of the general economic conditions, that our trade or segments of our trade are operating in.

How large was that increase in the reserve, approximately?

In the quarter I think we go up about $300,000. I don’t have the exact number in front of me. But if I recall, it’s about $340,000.

Keep in mind that we, by and large, bill distributors. And their experience in this surge in retail, which is bringing cash into them, too.

The other thing I want to add is that is a bad debt provision. We really don’t have write-off experiences.

With what you are talking, the receivables in last year held relatively level in the January quarter then they go up a little bit in the fourth as the inventory comes down. Should we expect that kind of a pattern, which would suggest that hopefully the working capital comes down, in both the third and fourth quarter.

I think that pattern is not bad. Depending on where the revenue comes out in Q3, you could have some growth in receivables, particularly driven by the other-than-hunting-business segment, but it will be offset by a decline, because we will be in a lower-revenue period, really, on the hunting business. We are also not altering, we are not varying, from normal terms. That’s not part of our promotional activity. And inventory should follow the trend we were discussing before.

How should we think as we’re doing our modeling on your handgun and tactical rifle business with converting NICS data into sales? I mean, like we’re up over 40% in November. On average, and I think it’s a fair question because we don’t know what December or January is going to be, but if it continues up 40% should we expect your sales to be up 40% or 20% to 30%? What’s the rough?

Keep in mind, that becomes a little tricky. We use a number of factors to try to understand and forecast our business. NICS is only one of the factors that we look at. And remember, NICS is one number, they don’t break it between handguns or long guns, and used guns are in that number, also. So we’re selling into distributors so there is an inventory buff that is out there. NICS is reflecting retail sales. We use it as one of the indicators of the trend, are people buying firearms, is what that basically tells us. And certainly when you go from September, say business was up .08%, the NICS data, October was up about 15%, and then November up 45% is an indication that people are buying guns. But there are a lot of factors that go into the NICS data. So it’s one factor we use. Certainly an overall indicator, but you can’t draw a direct line.

Your next question comes from Eric Would - Merriman Curhan Ford & Co. Eric Would - Merriman Curhan Ford & Co.: I think Cai asked a question about distributors and you responded saying your distributors are really selling this stuff through as fast as they can get it. Taking that a step further, what are seeing from distributors in terms of their propensity to order? Are they really kind of being very cautious with orders, ordering smaller amounts than they normally would, given the headaches of last year, or do they take a little more risk and maybe order more, kind of get more come through their doors? Less real time basis, more kind of taking some chances on future trends. And then if we do get the surge continuing for some amount of time in the coming months and quarters, how would you say Smith & Wesson is positioned to handle that surge relative to other manufacturers that may not have the right products, may not have the manufacturing capacity, may not have the capital, however you want to position it.

Right now, on distributors, and you talk to retailers and you hear the same thing that we hear and see from retailers, is as quick as the product is hitting the retail store, it’s gone out the door. On handguns and tactical rifles, again; not on hunting products. So distributors are ordering, by my view, aggressively. But many of them have been around for a long time and they have experience of dealing with these surges so they are monitoring it as we are monitoring it, but they are ordering aggressively, as the product comes in and comes through. No one knows how long this surge is going to last, so we’re not putting capital expenditures in place to increase capacity simply because of the surge. That would be a mistake, in our view. But we think we are positioned to respond. Our manufacturing guys have built a fair amount of flexibility into our facility so it gives us an advantage to be able to shift the mix. And some of our foreign competitors have a longer supply line back to the factories outside the United States than we have. Our guys are looking at it on a daily basis to make sure that we are adjusting our mix to meet with what the distributors are ordering. But I would say by and large, through the channel, from the retailer end and the distributor end, they are taking a fairly aggressive stance on the categories that I mentioned where the product is selling through fairly well.

We have no further questions at this time.

I want to thank each of our employees at Smith & Wesson and Thompson/Center for the hard work they have done this year. It has obviously been a difficult year. Together we want to wish all of you very happy holidays and a prosperous New Year. Thanks for joining us and we will see you again next quarter.

This concludes today’s conference call.