<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997...............................
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from........................ to ....................
Commission file number......333-4520.......................................
...............................RACI HOLDING, INC................................
(Exact name of registrant as specified in its charter)
...................Delaware ........................ .......51-0350929..........
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
870 Remington Drive
P.O. Box 700
.......................Madison, North Carolina 27025-0700.......................
(Address of principal executive offices)
(Zip Code)
................................(910) 548-8700..................................
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes...X ...No......
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class A Common Stock, par value $.01 per share, outstanding at
October 31, 1997 750,000 shares
Class B Common Stock, par value $.01 per share, outstanding at
October 31, 1997 0 shares
1
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in Millions except per share and share data) SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ------------------
(Unaudited)
ASSETS
------
Current Assets
--------------
<S> <C> <C>
Cash and Cash Equivalents $ 8.1 $ 9.6
Accounts Receivable Trade - net 100.4 71.1
Inventories 88.2 101.9
Supplies 12.9 13.9
Prepaid Expenses and Other Current Assets 7.6 10.7
Deferred Income Taxes 13.1 13.4
----------------- ------------------
Total Current Assets 230.3 220.6
Property, Plant and Equipment - net 92.5 98.4
Intangibles and Debt Issuance Costs - net 94.1 96.4
Deferred Income Taxes 11.4 14.0
Other Noncurrent Assets 4.2 5.6
------------------ ------------------
TOTAL ASSETS $ 432.5 $ 435.0
================== ==================
---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Current Liabilities
-------------------
Accounts Payable $ 30.4 $ 32.9
Short-Term Debt 0.1 1.2
Current Portion of Long-Term Debt 20.9 20.9
Product and Environmental Liabilities 4.4 7.2
Income Taxes 1.9 -
Other Accrued Liabilities 35.2 22.3
------------------ ------------------
Total Current Liabilities 92.9 84.5
Long-term Debt 211.5 232.2
Retiree Benefits 34.2 31.9
Product and Environmental Liabilities 9.6 6.6
------------------ ------------------
Total Liabilities 348.2 355.2
Commitments and Contingencies
Shareholder's Equity
--------------------
Class A Common Stock, par value $.01; 1,250,000 shares
authorized, 750,000 issued and outstanding - -
Class B Common Stock, par value $.01; 1,250,000 shares
authorized, none issued and outstanding - -
Paid in Capital 75.0 75.0
Retained Earnings 9.3 4.8
------------------ ------------------
Total Shareholder's Equity 84.3 79.8
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 432.5 $ 435.0
================== ==================
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
Financial Statements.
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in Millions except per share data)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Unaudited
-------------------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30, YEAR-TO-DATE SEPTEMBER 30,
------------------------------- --------------------------------
1997 1996 (1) 1997 1996 (1)
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
SALES (2) $ 125.4 $ 139.4 $ 299.8 $ 316.5
Cost of Goods Sold 88.8 100.8 213.5 224.1
--------------- -------------- --------------- ----------------
Gross Profit 36.6 38.6 86.3 92.4
Selling, General and Administrative
Expenses 17.7 21.9 53.8 63.7
Research & Development Expense 1.6 2.4 5.7 7.4
Other (Income) Expense, net - 0.7 0.1 1.4
Restructuring and Nonrecurring Items - 0.1 - 1.3
--------------- -------------- --------------- ----------------
Operating Profit 17.3 13.5 26.7 18.6
Interest Expense (6.0) (6.9) (18.7) (19.2)
--------------- -------------- --------------- ----------------
Profit (Loss) Before Income Taxes 11.3 6.6 8.0 (0.6)
Provision (Benefit) for Income Taxes 4.5 2.9 3.5 (0.3)
--------------- -------------- --------------- ----------------
NET INCOME (LOSS) $ 6.8 $ 3.7 $ 4.5 $ (0.3)
=============== ============== =============== ================
Per Share Data:
NET INCOME (LOSS) PER SHARE $ 9.07 $ 4.93 $ 6.00 $ (0.40)
=============== ============== =============== ================
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certain reclassifications were made to the prior period's financial
information to conform with the current presentation format.
(2) Sales are presented net of Federal Excise Taxes of $11.0 and $12.3 for
the quarter, and $24.4 and $26.5 for the year-to-date period ended
September 30, 1997 and 1996, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollars in Millions)
<TABLE>
<CAPTION>
---------------------------------
Unaudited
----------------------------------
YEAR-TO-DATE SEPTEMBER 30,
----------------------------------
1997 1996
------------- -------------
Operating Activities
<S> <C> <C>
Net Cash provided by (used in) Operating Activities $ 24.9 $ (47.1)
Investing Activities
Capital Expenditures (3.8) (12.8)
------------ -----------
Net Cash used in Investing Activities (3.8) (12.8)
Financing Activities
Net (payments) borrowings under Revolving Credit Facility (5.0) 83.6
Principal payments on Long-Term Debt (15.7) (11.1)
Principal payments on Short-Term Debt (1.1) (4.1)
Debt Issuance Costs (0.8) -
-------------- -------------
Net Cash (used in) provided by Financing Activities (22.6) 68.4
-------------- -------------
(Decrease) Increase in Cash and Cash Equivalents (1.5) 8.5
Cash and Cash Equivalents at beginning of period 9.6 1.4
-------------- --------------
Cash and Cash Equivalents at end of period $ 8.1 $ 9.9
============== ==============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
RACI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of RACI Holding, Inc.
("Holding") include the accounts of its subsidiary, Remington Arms Company, Inc.
("Remington") and Remington's wholly owned subsidiary, Remington International,
Ltd. (together with Remington and Holding, the "Company"). Holding has no
material assets other than its investment in Remington. All intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
of Holding have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of items of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
Pursuant to an asset purchase agreement (the "Asset Purchase
Agreement"), on December 1, 1993, the Company acquired certain assets and
assumed certain liabilities of the Sporting Goods Business (the "Business" or
the "Predecessor") formerly operated by E.I. du Pont de Nemours and Company,
Inc. ("DuPont") and one of DuPont's subsidiaries ("Sporting Goods", and together
with DuPont, the "Sellers"), for a cash purchase price of $299.8 as adjusted
subsequent to the closing of such acquisition (the "Acquisition").
Certain reclassifications were made to the prior period's financial
information to conform with the current presentation format.
These financial statements should be read in conjunction with the
audited consolidated financial statements of RACI Holding, Inc. and Subsidiaries
as of and for the year ended December 31, 1996.
5
<PAGE>
RACI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
<TABLE>
<CAPTION>
2. INVENTORIES
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw Materials $ 17.2 $ 16.0
Semi-Finished Product 20.0 22.9
Finished Product 51.0 63.0
-------- -------
Total $ 88.2 $ 101.9
======== =======
3. DEBT
September 30, December 31,
1997 1996
---- ----
Credit Agreement:
Term Loans $ 72.7 $ 86.4
Revolving Credit Facility 54.0 59.0
9.5% Senior Subordinated Notes due 2003 99.6 99.6
Capital Lease Obligations 4.6 5.7
Other 1.5 2.4
-------- -------
Subtotal $ 232.4 $ 253.1
Less: Current Portion 20.9 20.9
-------- -------
Long-term Debt $ 211.5 $ 232.2
======== =======
</TABLE>
4. STATEMENT OF ACCOUNTING STANDARDS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
effective for fiscal periods ending after December 15, 1997. The new standard
simplifies the computation of earnings (loss) per share by replacing primary
earnings (loss) per share with basic earnings (loss) per share. Basic earnings
(loss) per share will not include the effect of any potentially dilutive
securities, as under the current accounting standard, and will be computed by
dividing reported income available to common shareholders by the weighted
average number of common shares outstanding during the period. Fully diluted
earnings (loss) per share will now be called diluted earnings (loss) per share
and will reflect the dilution of all potentially dilutive
6
<PAGE>
RACI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
securities. Companies will be required to restate all prior period earnings
(loss) per share data. The adoption of this standard by the Company will have no
impact on the historical reported earnings (loss) per share amounts since the
effect of potentially dilutive securities have been immaterial and therefore
have been excluded from the historical earnings (loss) per share computations.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 requires public business enterprises to adopt its provisions for fiscal
years beginning after December 15, 1997, and to report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to shareholders.
The Company is evaluating the provisions of SFAS No. 131, but has not yet
determined if additional disclosures will be required.
5. RESTRUCTURING
The Company recorded charges for restructuring in 1996 of $4.9. The
restructuring was necessary to reduce production levels, plant overhead
expenses, corporate administrative expense and other costs to correspond with
current sales volumes and to reorganize the Company's international marketing
efforts. The company-wide plan resulted in reductions of approximately 325
salaried and hourly (including bargaining unit) employees during 1996. The
charges incurred include estimated costs for employee severance and other
benefits of $3.2, lease costs of $0.7 and other expenses of $1.0. The majority
of the spending is expected to be completed by the end of 1997.
Components of the restructuring provision recorded in 1996 and utilized
through September 30, 1997 are as follows:
Severance and
Termination Lease Other
Benefits Costs Expenses Total
-------- ----- -------- -----
Original Provision $ 3.2 $ 0.7 $ 1.0 $ 4.9
Payments in 1996 1.3 0.1 0.1 1.5
--- --- --- ---
Balance, December 31, 1996 $ 1.9 $ 0.6 $ 0.9 $ 3.4
Payments in 1997 1.6 0.1 0.4 2.1
--- --- --- ---
Balance, September 30, 1997 $ 0.3 $ 0.5 $ 0.5 $ 1.3
====== ====== ====== ======
The reserve balance at September 30, 1997 is included in other accrued
liabilities in the accompanying balance sheet.
7
<PAGE>
RACI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
6. FINANCIAL POSITION AND RESULTS OF OPERATIONS OF HOLDING AND REMINGTON
The following consolidating condensed financial data provides
information regarding the financial position and results of operations of
Holding and its wholly owned subsidiary, Remington including Remington's wholly
owned subsidiary Remington International, Ltd. Separate financial statements of
Holding are not presented because management has determined that they would not
be material to holders of the Company's public securities, Remington's 9 1/2%
Senior Subordinated Notes due 2003. Further, the Notes are fully and
unconditionalLY guaranteed by Holding.
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
September 30, 1997
(Dollars in Millions)
<TABLE>
<CAPTION>
RACI
HOLDING,
INC. AND
HOLDING REMINGTON ELIMINATIONS SUBSIDIARIES
------- --------- ------------ ------------
ASSETS
- ------
<S> <C> <C> <C> <C>
Current Assets $ - $ 230.3 $ - $ 230.3
Noncurrent Assets 84.3 202.2 84.3 202.2
---- ----- ---- -----
Total Assets $ 84.3 $ 432.5 $ 84.3 $ 432.5
======= ======= ======= ========
LIABILITIES AND
SHAREHOLDER'S EQUITY
- --------------------
Current Liabilities $ - $ 92.9 $ - $ 92.9
Noncurrent Liabilities - 255.3 - 255.3
Shareholder's Equity 84.3 84.3 84.3 84.3
---- ---- ---- ----
Total Liabilities and
Shareholder's Equity $ 84.3 $ 432.5 $ 84.3 $ 432.5
======= ======= ======== ========
</TABLE>
8
<PAGE>
RACI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
December 31, 1996
(Dollars in Millions)
<TABLE>
<CAPTION>
RACI
HOLDING,
INC. AND
HOLDING REMINGTON ELIMINATIONS SUBSIDIARIES
------- --------- ------------ ------------
ASSETS
- ------
<S> <C> <C> <C> <C>
Current Assets $ - $ 220.6 $ - $ 220.6
Noncurrent Assets 79.8 214.4 79.8 214.4
---- ----- ---- -----
Total Assets $ 79.8 $ 435.0 $ 79.8 $ 435.0
====== ======== ======= ========
LIABILITIES AND
SHAREHOLDER'S EQUITY
- --------------------
Current Liabilities $ - $ 84.5 $ - $ 84.5
Noncurrent Liabilities - 270.7 - 270.7
Shareholder's Equity 79.8 79.8 79.8 79.8
---- ---- ---- ----
Total Liabilities and
Shareholder's Equity $79.8 $ 435.0 $ 79.8 $ 435.0
===== ======== ======= ========
<CAPTION>
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Millions)
RACI
HOLDING,
INC. AND
HOLDING REMINGTON ELIMINATIONS SUBSIDIARIES
------- --------- ------------ ------------
QUARTER ENDED SEPTEMBER 30, 1997
- --------------------------------
<S> <C> <C> <C> <C>
Sales $ - $ 125.4 $ - $ 125.4
Gross Profit - 36.6 - 36.6
Equity in Earnings of Subsidiary 6.8 - 6.8 -
Net Income $ 6.8 $ 6.8 $ 6.8 $ 6.8
QUARTER ENDED SEPTEMBER 30, 1996
- --------------------------------
Sales $ - $ 139.4 $ - $ 139.4
Gross Profit - 38.6 - 38.6
Equity in Earnings of Subsidiary 3.7 - 3.7 -
Net Income $ 3.7 $ 3.7 $ 3.7 $ 3.7
</TABLE>
9
<PAGE>
RACI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Millions)
<TABLE>
<CAPTION>
RACI HOLDING,
INC. AND
HOLDING REMINGTON ELIMINATIONS SUBSIDIARIES
------- --------- ------------ ------------
YEAR-TO-DATE SEPTEMBER 30, 1997
- -------------------------------
<S> <C> <C> <C> <C>
Sales $ - $ 299.8 $ - $ 299.8
Gross Profit - 86.3 - 86.3
Equity in Earnings of Subsidiary 4.5 - 4.5 -
Net Income $ 4.5 $ 4.5 $ 4.5 $ 4.5
YEAR-TO-DATE SEPTEMBER 30, 1996
- -------------------------------
Sales $ - $ 316.5 $ - $ 316.5
Gross Profit - 92.4 - 92.4
Equity in Loss of Subsidiary (0.3) - (0.3) -
Net Loss $(0.3) $ (0.3) $(0.3) $ (0.3)
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to
product liabilities, governmental regulations, and other matters arising in the
normal course of business. Under the Asset Purchase Agreement, the Company
assumed financial responsibility for certain product liability claims involving
pre-Acquisition occurrences and certain pre-Acquisition environmental
liabilities up to a maximum aggregate amount (the "Cap"), the product liability
portion of which was increased pursuant to an agreement between the Company and
the Sellers in December 1996. Based upon the incurrence of additional product
liability costs chargeable to the Cap in the second quarter of 1997 the
remaining product liability basket has been exceeded. As of September 30, 1997
the Company had charged to the Cap payments of $0.4 relating to environmental
costs, leaving $0.1 to be paid. The Company paid the balance of the product
liability costs and the remaining environmental costs chargeable to the Cap to
the Sellers in the fourth quarter. Except for certain cases and claims relating
to shotguns as described below and for all cases and claims relating to
discontinued products, the Company generally bears financial responsibility for
all cases and claims relating to occurrences after the Closing. Because the
Company's assumption of financial responsibility for certain product liability
cases and claims involving pre-Acquisition occurrences is limited to the amount
of the Cap, with the Sellers retaining liability in excess of the Cap and
indemnifying the Company in respect thereof, and because of the Company's
accruals with respect to such cases
10
<PAGE>
RACI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND SHARE DATA)
and claims, the Company believes that product liability cases and claims
involving occurrences arising prior to the closing of the Acquisition are not
likely to have a material adverse effect upon the financial condition or results
of operations of the Company. While it is difficult to forecast the outcome of
litigation, the Company does not believe, in light of relevant circumstances
(including the current availability of insurance for personal injury and
property damage with respect to cases and claims involving occurrences arising
after the closing of the Acquisition, the Company's accruals for the uninsured
costs of such cases and claims and the Sellers' agreement to be responsible for
certain post-Acquisition shotgun-related costs) that the outcome of all product
liability cases and claims involving post-Acquisition occurrences, which
occurrences have arisen prior to September 30, 1997, individually or in the
aggregate, will be likely to have a material adverse effect upon the financial
condition or results of operations of the Company. Because of the nature of its
products, the Company anticipates that it will continue to be involved in
product liability litigation in the future.
8. STOCK PURCHASE PLAN
On July 22, 1997 the Board of Directors approved the RACI Holding, Inc.
Director Stock Purchase Plan and reserved an additional 12,500 shares of Class A
Common Stock, par value $.01 per share, of Holding ("Common Stock") for issuance
in accordance therewith. To date, no Common Stock has been issued under this
plan.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the accompanying Condensed Consolidated Financial Statements and related notes
of RACI Holding, Inc. ("Holding") and its subsidiary, Remington Arms Company,
Inc. ("Remington") and Remington's wholly owned subsidiary, Remington
International, Ltd. (together with Remington and Holding, the "Company"), and
with the Company's audited consolidated financial statements as of and for the
year ended December 31, 1996 and the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the Company's
Registration Statement on Form S-4 (File No. 333-4520) on file with the
Securities and Exchange Commission. The results of operations for the three and
nine months ended September 30, 1997 are not necessarily indicative of results
that may be expected for the year ended December 31, 1997, in part due to the
seasonality of the Company's business.
BUSINESS TRENDS AND INITIATIVES
The Company believes that several of its key customers instituted
tighter inventory control practices to reduce inventory levels during 1996. The
Company also believes that during 1997 additional key customers began to
institute tighter inventory control practices by delaying purchases until
product is needed to fill orders. This continued shift in customer buying
patterns has resulted in sales of the Company's products becoming increasingly
seasonal. See "- Seasonality." In addition, modest softness in demand for
firearms products contributed to lower sales volumes in the third quarter. While
the Company cannot predict whether the demand for firearms products will
improve, or when, the Company does not believe that the tighter inventory
control practices of its customers are likely to have a material adverse impact
on full year sales volumes, although no assurance can be given in this regard.
However, the tighter inventory control practices have caused, and are likely to
continue to cause, the Company to experience increased liquidity and working
capital requirements in producing and carrying inventory for later sale to meet
customers' shorter lead time order requirements.
The Company began its 1997 sales plan year on December 1, 1996 rather
than on January 1, 1997. This change in the sales plan year extended the
qualifying period for the early order or "dating" plan by one month to include
December orders which, the Company believes, had the effect of reducing orders
for firearms products in the first quarter. The 1998 sales plan year will begin
on December 1, 1997.
The Company believes that consumer concerns about regulation, which were
a factor in market growth in 1994 and early 1995, will not be a significant
market influence in the near term. In part as a result of this change, the
Company believes that the markets for its firearms and ammunition products
generally will remain relatively flat, at least in the near future.
In light of these market constraints on sales growth opportunities and
the Company's increased liquidity and working capital needs, the Company
continues to focus on increasing profitability by increasing brand name
awareness, introducing new products and containing costs. In 1996, the Company
undertook a number of cost containment initiatives. The Company will continue to
review all aspects of the Company's operations with a view towards managing
costs in response to competitive pressures.
12
<PAGE>
RESULTS OF OPERATIONS FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30,
1997 AS COMPARED TO THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
Sales. Sales for the third quarter of 1997 were $125.4 million, a
decrease of $14.0 million, or 10.0%, from 1996 third quarter sales of $139.4
million. This decrease was primarily due to lower firearms sales volume. Sales
for the first nine months of 1997 ("year-to-date") were $299.8 million, a
decrease of $16.7 million, or 5.3%, from 1996 year-to-date sales of $316.5
million. The decline in sales for the year-to-date period was primarily due to
lower demand for the Company's firearms products. The Company believes the
declines in demand for firearms in the third quarter and first nine months of
1997 versus the same periods of 1996 were primarily due to changes in customer
buying patterns and modest softness in demand for firearms products, although
other factors contributed to the decline. See "- Business Trends and
Initiatives."
Firearms sales decreased $11.3 million, or 21.1%, to $42.2 million for
the third quarter of 1997 from $53.5 million in the third quarter of 1996.
Year-to-date sales in 1997 were $132.5 million, $14.9 million, or 10.1%, lower
than the prior year-to-date period. The Company believes the decrease in both
the quarterly and year-to-date period was primarily the result of customers'
tighter inventory management practices and a modest softness in demand for
firearms products. The year-to-date results were also affected by the change in
the Company's 1997 sales plan year, which adversely impacted first quarter sales
as discussed above.
Ammunition sales for the third quarter of 1997 were $69.6 million, a
decrease of $2.3 million, or 3.2% lower than 1996 sales of $71.9 million.
Year-to-date sales in 1997 were $128.6 million, $1.1 million, or 0.8%, lower
than the prior year-to-date period. The decrease in ammunition sales in both the
quarterly and year-to-date periods was primarily due to a slight change in the
mix of products sold.
Sales of fishing products increased from the third quarter and nine
months ended September 30, 1996 primarily due to increased sales volumes as a
result of better product placement and the introduction of new products. Sales
of accessory products also increased in comparison to the comparable periods of
the prior year primarily due to higher sales volumes resulting from new product
introductions.
Cost of Goods Sold. Cost of goods sold for the third quarter of 1997 was
$88.8 million, a decrease of $12.0 million, or 11.9%, versus $100.8 million for
the third quarter of 1996. This decrease resulted principally from the
corresponding decrease in sales discussed above and to a lesser extent from
product mix. Cost of goods sold as a percentage of sales decreased between the
two quarterly periods from 72.3% in 1996 to 70.8% in 1997. Cost of goods sold
for the first nine months of 1997 decreased $10.6 million or 4.7% over the same
period in 1996. As a percentage of sales, cost of goods sold increased slightly
from 70.8% for the first nine months in 1996 to 71.2% for the same period in
1997. This increase as a percentage of sales for the year-to-date period was due
to start-up costs at the Mayfield facility.
Gross Profit. Gross profit was $36.6 million for the third quarter of
1997, a decrease of $2.0 million, or 5.2%, from the third quarter 1996 gross
profit of $38.6 million. Year-to-date gross profit was $86.3 million in the
current year versus $92.4 million in the same period of the prior year. The
decrease in gross profit for both the quarterly and the year-to-date periods was
primarily due to lower sales volume in the Company's firearms business and, to a
lesser extent, start-up costs at the Mayfield facility, partially offset by
increased prices on the Company's firearms products.
Operating Expenses. Operating expenses consist of selling, general and
administrative expense; research and development expense; and other income and
expense. Operating expenses for the third quarter
13
<PAGE>
of 1997 were $19.3 million, a decrease of $5.7 million, or 22.8%, from $25.0
million for the third quarter of 1996. Year-to-date operating expenses for 1997
were $59.6 million, a decrease of $12.9 million, or 17.8%, from $72.5 million
for the same period of 1996 for the reasons set forth below.
Selling, general and administrative expenses for the third quarter of
1997 were $17.7 million, a decrease of $4.2 million, or 19.2%, from $21.9
million for the third quarter of 1996. Year-to-date selling, general and
administrative expenses were $53.8 million, a $9.9 million decrease from $63.7
million in the prior year-to-date period. The decrease in both the quarterly and
year-to-date periods was primarily attributable to lower expenditures as a
result of the restructuring in 1996 and tighter controls over discretionary
spending during 1997, a reduction in bad debt expense and reduced product
liability expense. Bad debt expense in 1997 was lower than 1996 for both the
quarter and year-to-date periods due to improved credit procedures and favorable
collection of accounts receivable with significant recoveries of previously
reserved receivables. Selling, general and administrative expenses decreased
from 15.7% of sales in the third quarter of 1996 to 14.1% of sales in the third
quarter of 1997 and from 20.1% of sales for the nine months ended September 30,
1996 to 17.9% for the nine months ended September 30, 1997 primarily as a result
of the reduction in costs discussed above.
Research and development expenses were $1.6 million for the third
quarter of 1997, a decrease of $0.8 million, or 33.3%, from $2.4 million in the
third quarter of 1996. For the nine months ended September 30, 1997, research
and development expenses were $5.7 million, a $1.7 million, or 23.0% decrease
from the same period of the prior year. The decrease in research and development
expenses for both the quarterly and year-to-date periods was primarily a result
of the Company consolidating research and development activities into the new
research and development facility in Elizabethtown, Kentucky.
Operating Profit. Operating profit increased to $17.3 million for the
third quarter of 1997, an increase of $3.8 million from 1996's third quarter
operating profit of $13.5 million. Operating profit increased to $26.7 million
for the year-to-date period, an $8.1 million or 43.5% increase from 1996's
year-to-date operating profit of $18.6 million. Operating profit for the third
quarter and nine months ended September 30, 1996, however, included a
restructuring charge of $0.1 million and $1.3 million, respectively, recognized
when the Company reduced production levels, plant overhead expenses and other
costs to correspond with current sales volumes, and reorganized the
international marketing efforts. Excluding the restructuring related charges
from both the quarterly and year-to-date periods of 1996, operating profit
increased $3.7 million for the 1997 quarterly period and $6.8 million for the
1997 year-to-date period primarily as a result of decreases in operating
expenses, partially offset by lower gross profit as discussed above.
Interest Expense. Interest expense for the quarter ended September 30,
1997 was $6.0 million, a decrease of $0.9 million, or 13.0%, from the third
quarter 1996 level of $6.9 million. The decrease in interest expense for the
quarter was primarily a result of a reduction in outstanding debt. Year-to-date
interest expense was $18.7 million versus $19.2 million in the prior
year-to-date period. The decrease in interest expense for the year-to-date
period was primarily due to lower interest on the Company's term loan borrowings
due primarily to lower term debt levels resulting from scheduled debt
repayments, partially offset by increased interest expense resulting from higher
average borrowings on the Company's revolving credit facility (the "Revolving
Credit Facility") under its senior bank credit agreement (as amended, the
"Credit Agreement").
Net Income / Loss. Net income for the third quarter of 1997 was $6.8
million, an increase of $3.1 million from the third quarter 1996 net income of
$3.7 million, and net income for the nine months ended September 30, 1997 was
$4.5 million, an increase of $4.8 million from 1996 net loss of $0.3 million.
These
14
<PAGE>
increases in net income for the quarter and year-to-date periods were due
primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company's operating activities provided cash of $24.9 million for
the nine month period ended September 30, 1997 primarily as a result of net
income adjusted for non-cash items and improved management of working capital.
Accounts receivable increased $29.3 million to $100.4 million principally due to
$23.1 million of sales on extended payment terms granted to customers consistent
with industry-wide programs and with prior year experience. The extended sales
terms provide cash discount incentives and, in the majority of cases, require
payment by October 10, 1997. The Company intends to apply the proceeds from
these receivables to the existing balance on its Revolving Credit Facility. Net
cash used in investing activities in the first nine months of 1997 was $3.8
million consisting of capital expenditures for maintenance of operations and
improvement projects concentrated on enhancing the efficiency of existing
facilities as well as investment in the Company's new manufacturing facility in
Mayfield, Kentucky. Net cash used in financing activities in the first nine
months of 1997 was $22.6 million, primarily resulting from $15.7 million in
principal payments on outstanding indebtedness (including capital leases), a net
repayment of $5.0 million on the Revolving Credit Facility, repayment of $1.1
million of short-term debt and $0.8 million of debt issuance costs. Cash flow
from operating activities for the nine month period ended September 30, 1997 was
sufficient to fund the Company's capital expenditure program and scheduled
principal payments on outstanding indebtedness.
At present, the principal sources of liquidity for the Company's
business and operating needs are internally generated funds from its operations
and revolving credit borrowings under the Credit Agreement. The Credit Agreement
contains various default provisions and affirmative and negative covenants,
including a negative pledge with respect to the Company's unencumbered assets,
and certain financial covenants that require the Company to meet certain
financial ratios and tests. As of September 30, 1997, the Company was in
compliance in all material respects with the financial covenants under the
Credit Agreement. The Company believes that it will be able to meet its debt
service obligations and fund its operating requirements with cash flow from
operations and revolving credit borrowings prior to the maturity of the
Revolving Credit Facility, although no assurance can be given in this regard. In
addition, the Company has implemented certain programs and initiatives in order
to improve cash flow from operations. The Company expects that it will have to
replace the Revolving Credit Facility and refinance any outstanding amounts
thereunder upon its maturity on December 31, 2000. No assurance can be given
that the Company will be able to obtain such a replacement working capital
facility or refinance such amounts on terms acceptable to the Company.
Working Capital
Working capital increased slightly from $136.1 million at December 31,
1996 to $137.4 million at September 30, 1997 primarily as a result of an
increase in accounts receivable, partially offset by decreases in inventories
and other current assets and increases in other accrued liabilities. During the
fourth quarter of 1996, the Company implemented an ongoing working capital
management program to help maximize cash from operations. This program includes
improved collection of accounts receivable, maintaining inventory levels in line
with sales projections and increased focus on management of accounts payable. As
of September 30, 1997 inventories were $88.2 million, a $13.7 million reduction
from the December 31, 1996 ending balance of $101.9 million. The September 30,
1997 accounts receivable balance
15
<PAGE>
was $29.3 million higher than the December 31, 1996 balance as a result of sales
on extended terms consistent with industry standards and prior practices. See
"-Liquidity and Capital Resources."
Capital Expenditures
Capital expenditures for the nine months ended September 30, 1997 were
$3.8 million, of which approximately 23% was related to the new firearms
manufacturing facility in Mayfield, Kentucky. The remainder of the capital
expenditures in the first nine months of 1997 were principally for maintenance
of operations and improvement projects concentrated on enhancing the efficiency
of existing facilities.
Liquidity
The Company incurred substantial indebtedness in connection with the
Acquisition. As of September 30, 1997 the Company had outstanding approximately
$232.4 million of indebtedness, consisting of approximately $99.6 million
($100.0 million face amount) in 9 1/2% Senior Subordinated Notes due 2003,
Series B, $72.7 million in term loan borrowings and $54.0 million in revolving
credit borrowings under the Credit Agreement, $4.6 million in capital lease
obligations, and $1.5 million of other long-term debt. As of September 30, 1997
the Company also had aggregate letters of credit outstanding of $6.8 million.
$91.2 million of the Company's Revolving Credit Facility was available for
borrowing as of September 30, 1997.
On June 23, 1997 the Company completed its offer to exchange (the
"Exchange Offer") up to $100 million aggregate principal amount of Remington's
registered 9 1/2% Senior Subordinated Notes due 2003, Series B (the "New Notes")
for a like principal amount of Remington's issued and outstanding 9 1/2% Senior
Subordinated Notes due 2003, Series A (the "Existing Notes" and, together with
the New Notes, the "Notes"). All of the Existing Notes were exchanged for New
Notes. The interest rate on the Notes was 10% per annum from April 30, 1994
until June 22, 1997, the day before the date of consummation of the Exchange
Offer, and is currently 9 1/2% per annum. The reduction in interest payments
will amount to $0.5 million per year.
SEASONALITY
The Company produces and markets a broad range of firearms and
ammunition products used in various shooting sports. Several models of the
Company's shotguns and several types of ammunition are intended for target
shooting which generally occurs in the "off season." The majority of the
Company's firearm and ammunition products, however, are manufactured for hunting
use. As a result, sales of the Company's products are seasonal and concentrated
toward the fall hunting season. The Company follows the industry practice of
selling firearms pursuant to a "dating" plan allowing the customer to buy the
products commencing at the beginning of the Company's dating plan year and pay
for them on extended terms. The Company believes that this dating plan has
historically had the effect of shifting some firearms sales from the second and
third quarters to the first quarter. Recently, however, more of the Company's
customers appear to be instituting tighter inventory management practices such
as delaying purchases until product is needed to fill orders closer to the fall
hunting season and relying more on manufacturers to stock inventory and supply
products within a narrower order period. The Company believes that both firearms
and ammunition sales have become increasingly seasonal as a result of these
changes in customers' buying patterns.
16
<PAGE>
STATEMENT OF ACCOUNTING STANDARDS NOT YET ADOPTED
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
effective for fiscal periods ending after December 15, 1997. The new standard
simplifies the computation of earnings (loss) per share by replacing primary
earnings (loss) per share with basic earnings (loss) per share. Basic earnings
(loss) per share will not include the effect of any potentially dilutive
securities, as under the current accounting standard, and will be computed by
dividing reported income available to common shareholders by the weighted
average number of common shares outstanding during the period. Fully diluted
earnings (loss) per share will now be called diluted earnings (loss) per share
and will reflect the dilution of all potentially dilutive securities. Companies
will be required to restate all prior period earnings (loss) per share data. The
adoption of this standard by the Company will have no impact on the historical
reported earnings (loss) per share amounts since the effect of potentially
dilutive securities have been immaterial and therefore have been excluded from
the historical earnings (loss) per share computations.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." SFAS
No. 131 requires public business enterprises to adopt its provisions for periods
beginning after December 15, 1997, and to report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to shareholders.
The Company is evaluating the provisions of SFAS No. 131, but has not yet
determined if additional disclosures will be required.
YEAR 2000 COMPLIANCE
While the Company's new computer system, which was installed at the
Company's headquarters in 1996, is able to accommodate the "year 2000" dating
changes necessary to permit correct recording of year dates for 2000 and later
years, the Company is currently in the process of converting its manufacturing
systems at its other facilities to year 2000 compliant software. The Company
does not expect that the cost of converting such systems will be material to its
financial condition or results of operations. The Company believes it will be
able to achieve year 2000 compliance at its other facilities by the end of 1999,
and does not currently anticipate any material disruption in its operations as
the result of any failure by the Company to be in compliance. In the event that
any of the Company's significant suppliers or customers do not successfully and
timely achieve year 2000 compliance, the Company's business or operations could
be adversely affected.
17
<PAGE>
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report (other than the
financial statements and other statements of historical fact) are
forward-looking statements, including, without limitation, (i) the statements in
"-Business Trends and Initiatives" concerning (a) the Company's expectation that
the institution of tighter inventory control practices by additional customers
will not have a material adverse impact on full year sales volumes, and the
Company's belief that these practices will continue and are likely to cause the
Company to experience increased liquidity and working capital requirements, (b)
the Company's belief that consumer concerns about regulation will not be a
significant market influence in the near term, and (c) the Company's belief that
the markets for its firearms and ammunition products generally will remain
relatively flat, at least in the near future; (ii) the statements in "-Liquidity
and Capital Resources - Cash Flows" concerning (a) the Company's belief that it
will be able to meet its debt service obligations and fund its operating
requirements with cash flow from operations and revolving credit borrowings
prior to the maturity of the Revolving Credit Facility and (b) the Company's
expectation that it will have to replace the Revolving Credit Facility and
refinance any outstanding amounts thereunder upon its maturity on December 31,
2000; (iii) the statements in "-Year 2000 Compliance" concerning the Company's
expectation that the cost of converting manufacturing systems at its facilities
will not be material to its financial condition or results of operations and
that it will be able to achieve year 2000 compliance at its facilities by the
end of 1999 without material disruption in its operations; (iv) other statements
as to management's or the Company's expectations and beliefs presented in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"; (v) the statements in "Legal Proceedings" concerning (a) the
Company's belief that any additional claims for personal injury resulting from
the disposition of Garza will be unlikely to have a material adverse effect upon
its financial condition or results of operations and (b) the Company's belief
that although it anticipates that it will continue to be involved in product
liability cases and claims in the future, the outcome of all pending product
liability cases and claims will not be likely to have a material adverse effect
upon the financial conditions or results of operations of the Company; and (vi)
other statements as to management's or the Company's expectations and beliefs
presented in "Legal Proceedings."
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
important factors described in this report (including, without limitation, those
discussed in "-Business Trends and Initiatives", "-Liquidity and Capital
Resources", "-Year 2000 Compliance" and "Legal Proceedings"), in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1997, or
in other Securities and Exchange Commission filings, could affect (and in some
cases have affected) the Company's actual results and could cause such results
to differ materially from estimates or expectations reflected in such forward-
looking statements.
While the Company periodically reassesses material trends and
uncertainties affecting the operations and financial condition in connection
with its preparation of management's discussion and analysis of results of
operations and financial condition contained in its quarterly and annual
reports, the Company does not intend to review or revise any particular
forward-looking statement referenced in this report in light of future events.
18
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
Pursuant to the Asset Purchase Agreement, the Sellers retained liability
for, and are required to indemnify the Company against, (1) all product
liability cases and claims (whenever they may arise) involving discontinued
products and (2) all product liability cases and claims involving products that
had not been discontinued as of the Closing ("extant products") and relating to
occurrences that took place, but were not disclosed to the Company, prior to the
Closing. The Company assumed financial responsibility, up to a stated amount
(the "Cap"), for (1) product liability cases and claims involving extant
products and relating to occurrences that took place, and were disclosed to the
Company, prior to the Closing, and (2) any environmental liabilities relating to
the ownership or operation of the Business prior to the Closing. Product
liability costs chargeable to the Cap exceeded the Cap in April 1997. The
Sellers retained liability for, and are required to indemnify the Company
against, all such disclosed product liability occurrences and such environmental
liabilities in excess of the Cap. This indemnification obligation of the Sellers
is not subject to any survival period limitation. Except for certain cases and
claims relating to shotguns as described below and for all cases and claims
relating to discontinued products, the Company generally bears financial
responsibility for product liability cases and claims relating to occurrences
after the Closing. Because of the nature of firearm and ammunition products, the
Company anticipates that it, as well as other manufacturers of firearm or
ammunition products, will continue to be involved in product liability cases and
claims in the future.
The Company and the Sellers are engaged in the joint defense of product
liability litigation involving Remington brand firearms and Company ammunition
products. As of September 30, 1997, approximately 34 such cases were pending,
primarily alleging defective product design or manufacture, or failure to
provide adequate warnings. All but two of these cases are individual actions
alleging personal injury, and many seek punitive as well as compensatory
damages. Of these pending cases, approximately 4 involve discontinued products
and approximately 6 involve undisclosed pre-Closing occurrences. Accordingly,
these are cases for which the Sellers retained liability and are required to
indemnify the Company for the full amount. In addition, approximately 5 of the
pending cases are subject to the Cap and are cases for which the Sellers
retained liability and are required to indemnify the Company for amounts in
excess of the Cap. The remaining approximately 19 of the pending cases involve
post-Closing occurrences for which the Company bears responsibility under the
Asset Purchase Agreement. The Company has previously disposed of a number of
other cases involving post-Closing occurrences by settlement.
Two cases, Leonel Garza et al. v. Sporting Goods Properties, Inc., et al.
-------------------------------------------------------------
("Garza") and Joe Luna, et al. v. Remington Arms Company, Inc. and E. I. du Pont
------------------------------------------------------------------
de Nemours and Company et al. ("Luna"), involving Company products which were
- ----------------------------
pending at the time of the Closing, and for which the Company assumed financial
responsibility up to the amount of the Cap, were asserted as class actions, one
involving shotguns and the other bolt-action rifles. In each case certification
was sought of a class of owners of Remington brand firearms, generally claiming
economic loss based on alleged product defect, and seeking compensatory,
punitive and treble damages, plus other costs.
On February 6, 1996, the Court in San Antonio, Texas gave final approval
to a settlement of the Garza class action relating to Remington brand shotguns,
and that decision has become final and non-appealable. The Garza case involved
certain Remington brand 12-gauge shotguns, including Model 1100, 11-87 and 870
shotguns, manufactured from 1960 to 1995. Pursuant to the settlement, funds of
approximately $19.0 million were distributed to eligible shotgun owners in the
second quarter of 1997. The
19
<PAGE>
disposition of any unclaimed funds is expected to be decided by early 1998.
Approximately 500,000 class members filed valid claims covering approximately
800,000 guns. Defense costs associated with Garza are subject to the Cap.
However, pursuant to a separate agreement between the Company and the Sellers,
the Sellers will pay for the settlement fund of approximately $19.0 million
which was distributed to class members, related expenses of approximately $12.0
million for plaintiffs' counsel fees and costs, and more than $1.0 million for
costs of administering the fund, without regard to the Cap. Approximately 350
class members (including two institutions) opted out and chose not to
participate in the settlement, although approximately 15 of them (including such
institutions) have filed claims, apparently in an effort to rejoin the
settlement class. Except for these few class members who have opted out, the
settlement resolves all claims that might be brought by owners of the shotguns
at issue in connection with the barrel steel formerly used in such firearms,
other than claims for personal injury. Publicity regarding the Garza agreement
led, and may continue to lead, to some additional claims of personal injury
allegedly involving use of the shotguns included in the class action lawsuit.
Most of the additional claims received were settled in 1996 without lawsuits
being filed. The Company does not believe that the disposition of Garza
(including any individual personal injury actions which might be filed as a
result of the settlement) is likely to have a material adverse effect upon its
financial condition or results of operations.
The other purported class action, Luna, filed in 1989 against the
Sellers in Texas district court in Jim Wells County, and amended in December
1993, seeks certification of a class consisting of all Texas owners, allegedly
400,000 in number, of Model 700 bolt-action rifles. In June 1996, the district
court issued a ruling that certified for class treatment the limited issues of
whether the Model 700 fire control system is "defective" and, if so, the "cost
of repair." Pursuant to Texas law, the Sellers filed a timely appeal of this
ruling to the intermediate level state appellate court, and oral argument was
held on June 19, 1997. Remington had not been named as a defendant at the time
of the decision or the filing of the appeal, and is not a party to the appeal.
On July 16, 1996, plaintiffs further amended the complaint to include Remington,
which filed an answer in September 1996. A hearing in the district court on the
class certification motion against Remington took place on June 9, 1997. Holding
has not been named as a defendant in this case. The Sellers' obligations with
respect to Luna include a requirement that they indemnify the Company against
all claims in that case for economic loss involving firearms similar to those
involved in that case and shipped up to 42 calendar months after the Closing
(prior to the end of May 1997). Any such claims of economic loss involving such
firearms shipped thereafter will be the Company's responsibility and, to the
extent that such claims do not involve personal injury or property damage, they
would not be covered by the Company's product liability insurance.
The representations and warranties in the Asset Purchase Agreement
expired 18 months after the Closing, with certain exceptions, and claims for
indemnification with respect thereto were to be made within 30 days of such
expiration. The Company made claims for such indemnification involving product
liability issues within that time period. In connection with the consummation of
the Garza settlement, the Company and the Sellers agreed that the Sellers shall
assume financial responsibility for a portion of the costs relating to product
liability claims and cases involving certain shotguns manufactured prior to
mid-1995 and based on occurrences arising prior to November 30, 1999, and that
any claims the Company and the Sellers may have against each other under the
Asset Purchase Agreement relating to shotguns (excluding various indemnification
rights and the allocation of certain costs under the Cap) are released. Any
claims between the Company and the Sellers relating to other product liability
issues remain open.
Because the Company's assumption of financial responsibility for certain
product liability cases and claims involving pre-Acquisition occurrences was
limited to the amount of the Cap, with the Sellers retaining liability in excess
of the Cap and indemnifying the Company in respect thereof, and because of the
Company's accruals with respect to such cases and claims, the Company believes
that product liability cases and claims involving occurrences arising prior to
the Closing are not likely to have a material adverse
20
<PAGE>
effect upon the financial condition or results of operations of the Company.
While it is difficult to forecast the outcome of litigation, the Company does
not believe, in light of relevant circumstances (including the current
availability of insurance for personal injury and property damage with respect
to cases and claims involving occurrences arising after the Closing, the
Company's accruals for the uninsured costs of such cases and claims and the
Sellers' agreement to be responsible for certain post-Closing firearm-related
costs, as described above), that the outcome of all pending product liability
cases and claims will be likely to have a material adverse effect upon the
financial condition or results of operations of the Company. However, in part
because of the uncertainty as to the nature and extent of manufacturer liability
for personal injury due to alleged product defects, there can be no assurance
that the Company's resources will be adequate to cover future product liability
occurrences, cases or claims, in the aggregate, or that such a material adverse
effect will not result therefrom.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 26, 1997 the sole stockholder of Holding, by unanimous written
consent ratified the appointment of Coopers & Lybrand L.L.P. as Holding's
independent auditors for fiscal year 1997. On August 28, 1997 the sole
stockholder of Remington, by unanimous written consent ratified the appointment
of Coopers & Lybrand L.L.P. as Remington's independent auditors for fiscal year
1997.
ITEM 5. OTHER INFORMATION
On August 25, 1997 Holding filed a registration statement on Form S-8
with the Securities and Exchange Commission to register 12,500 shares of Class A
Common Stock, par value $.01 per share, of Holding for issuance in accordance
with the Director Stock Purchase Plan (and an indeterminable number of
additional shares as may be issuable pursuant to the operation of the
recapitalization provisions of the Director Stock Purchase Plan). To date, no
Common Stock has been issued under this plan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
The exhibits listed on the accompanying Index to Exhibits are filed as part
of this quarterly report on Form 10-Q.
(b) Reports on Form 8-K
-------------------
During the quarter ended September 30, 1997, the Company filed no reports on
Form 8-K.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RACI HOLDING, INC.
/s/ Mark A. Little
------------------
Mark A. Little
Vice President, Chief Financial Officer
and Controller (Principal Financial Officer)
November 14, 1997
22
<PAGE>
INDEX TO EXHIBITS
The File Number of the Registrant, RACI Holding, Inc. is 333-4520.
Exhibit No. Description
- ----------- -----------
10.1 RACI Holding, Inc., Director Stock Purchase Plan, adopted
on July 22, 1997.
10.2 Form of Director Stock Subscription Agreement
27 Financial Data Schedule
99 Reconciliation of Loss from Operations to EBITDA
23
<PAGE>
EXHIBIT 10.1
RACI HOLDING, INC. DIRECTOR STOCK PURCHASE PLAN
-----------------------------------------------
Section 1. Purpose
-------------------
The purpose of this RACI Holding, Inc. Stock Purchase Plan is to
incentivize eligible directors to foster and promote the long-term financial
success of Holding and the Company and to increase materially stockholder value
by (a) motivating superior performance by participants in the Plan, (b)
- -
providing participants in the Plan with an ownership interest in Holding and
(c) enabling the Company to attract and retain the services of highly qualified
-
individuals to serve as members of its Board of Directors.
Section 2. Definitions
-----------------------
2.1. Definitions. Whenever used herein, the following terms shall have
-----------
the respective meanings set forth below:
(1) "Board" means the Board of Directors of Holding.
(2) "C&D Fund" means The Clayton & Dubilier Private Equity Fund IV
Limited Partnership, a Connecticut limited partnership, and any successor
investment vehicle managed by Clayton, Dubilier & Rice, Inc.
(3) "Common Stock" means the Class A Common Stock, par value $.01 per
share, of Holding.
(4) "Company" means Remington Arms Company, Inc., a Delaware
corporation, and any successor thereto.
(5) "Effective Date" means July 1, 1997.
(6) "Eligible Director" means each individual serving as a member of
the Board who is not an employee
<PAGE>
of Holding, the Company or any Subsidiary and is not an employee of or
associated with the C&D Fund or Clayton, Dubilier & Rice, Inc.
(7) "Holding" means RACI Holding, Inc., a Delaware corporation, and
any successor thereto.
(8) "Participant" means each Eligible Director who is serving as a
member of the Board on the Effective Date.
(9) "Plan" means this RACI Holding, Inc. Stock Purchase Plan.
(10) "Public Offering" means the first day as of which sales of
Common Stock are made to the public in the United States pursuant to an
underwritten public offering of the Common Stock led by one or more under-
writers at least one of which is an underwriter of nationally recognized
standing.
(11) "Shares" means the shares of Common Stock acquired by a
Participant pursuant to the Plan.
(12) "Subscription Agreement" means a director stock subscription
agreement between Holding and the Participant embodying the terms of any
stock purchase made pursuant to the Plan, which agreement shall, unless
the Board otherwise determines, be substantially in the form attached
hereto as Exhibit A.
(13) "Subsidiary" means any corporation a majority of whose
outstanding voting securities is owned, directly or indirectly, by the
Company or Holding.
2.2. Gender and Number. Except when otherwise indicated by the
-----------------
context, words in the masculine gender used in the Plan shall include the
feminine gender, the singular shall include the plural, and the plural shall
include the singular.
2
<PAGE>
Section 3. Eligibility and Participation
-----------------------------------------
Each Eligible Director who is serving on the Board on the Effective
Date shall be eligible to participate in the Plan by reason of their expected
contribution to the growth and success of Holding, the Company and their
Subsidiaries.
Section 4. Administration of the Plan
-------------------------------------
The Board shall be responsible for the administration of the Plan.
Any authority exercised by the Board under the Plan shall be exercised by the
Board in its sole discretion. Subject to the terms of the Plan, the Board, by
unanimous action thereof, is authorized to prescribe, amend and rescind rules
and regulations relating to the administration of the Plan, to provide for
conditions and assurances deemed necessary or advisable to protect the interests
of Holding and the Company, and to make all other determinations necessary or
advisable for the administration and interpretation of the Plan in order to
carry out its provisions and purposes. Determinations, interpretations or other
actions made or taken by the Board pursuant to the provisions of the Plan shall
be final, binding and conclusive for all purposes and upon all persons.
All of the powers, duties and responsibilities of the Board specified
in this Plan may, to the full extent permitted by applicable law, be exercised
and performed by any duly constituted committee thereof to the extent authorized
by the Board to exercise and perform such powers, duties and responsibilities.
Section 5. Shares of Common Stock Subject to Plan
--------------------------------------------------
5.1. Number. Subject to the provisions of Section 5.2, the maximum
------
number of shares of Common Stock sub-
3
<PAGE>
ject to offers made under the Plan may not exceed 12,500. The shares of Common
Stock to be delivered upon the purchase of any Common Stock under the Plan may
consist, in whole or in part, of treasury Common Stock or authorized but
unissued Common Stock, not reserved for any other purpose.
5.2. Adjustment in Capitalization. The number of shares of Common
----------------------------
Stock available for issuance under the Plan may be adjusted by the Board, in its
sole discretion, if it shall deem such an adjustment to be necessary or
appropriate to reflect any Common Stock dividend, stock split or share
combination or any recapitalization, merger, consolidation, exchange of shares,
liquidation or dissolution of Holding.
Section 6. Terms of Offers to
Purchase Common Stock
------------------------------
6.1. Offers to Purchase Common Stock. Offers to purchase Common
-------------------------------
Stock shall be made to Participants as soon as reasonably practicable following
the Effective Date. Each purchase of Common Stock by a Participant shall be made
pursuant to a Subscription Agreement that shall include customary
representations, warranties, covenants and other terms and conditions with
respect to securities law matters and such other terms and conditions that the
Board shall determine. Unless otherwise determined by the Board, such
Subscription Agreement shall also state that in respect of any Shares purchased
by the Participant pursuant to such Subscription Agreement such Participant will
be entitled to the benefits of and shall be bound by the obligations set forth
in the Registration and Participation Agreement, dated as of November 30, 1993,
between Holding and the C&D Fund (as the same may be amended, waived, modified
or supplemented from time to time) to the extent set forth in such Subscription
Agreement.
6.2. Purchase Price. The purchase price per share of Common Stock to
--------------
be purchased under the Plan shall be one hundred dollars ($100).
4
<PAGE>
Section 7. Take-Along Rights
-----------------------------
7.1. Take-Along Notice. Unless otherwise provided in the
-----------------
Subscription Agreement or otherwise determined by the Board, so long as the C&D
Fund holds a number of shares of Common Stock equal to at least one-third of the
Common Stock originally purchased by the C&D Fund at the closing of the
acquisition of the Company, if the C&D Fund intends to effect a sale of all of
its shares of Common Stock to a third party (a "100% Buyer") and elects to
exercise its rights under this Section 7, the C&D Fund shall deliver written
notice (a "Take-Along Notice") to the Participant, which notice shall (a) state
-
(i) that the C&D Fund wishes to exercise its rights under this Section 7 with
-
respect to such transfer, (ii) the name and address of the 100% Buyer, (iii) the
-- ---
per share amount and form of consideration the C&D Fund proposes to receive for
its shares of Common Stock and (iv) the terms and conditions of payment of such
--
consideration and all other material terms and conditions of such transfer, (b)
-
contain an offer (the "Take-Along Offer") by the 100% Buyer to purchase from the
Participant all of its Shares on and subject to the same terms and conditions
offered to the C&D Fund and (c) state the anticipated time and place of the
closing of the purchase and sale of the shares (a "Section 7 Closing"), which
(subject to such terms and conditions) shall occur not fewer than five (5) days
nor more than ninety (90) days after the date such Take-Along Notice is
delivered, provided that if such Section 7 Closing shall not occur prior to the
--------
expiration of such 90-day period, the C&D Fund shall be entitled to deliver
additional Take-Along Notices with respect to such Take-Along Offer.
7.2. Conditions to Take-Along. Unless otherwise provided in the
------------------------
Subscription Agreement or otherwise determined by the Board, upon delivery of
a Take-Along Notice, the Participant shall have the obligation to transfer all
of its Shares pursuant to the Take-Along Offer, as the same may be modified from
time to time, provided that the C&D Fund transfers all of its shares of Common
--------
Stock to the 100%
5
<PAGE>
Buyer at the Section 7 Closing. Within 10 days of receipt of the Take-Along
Notice, the Participant shall (i) execute and deliver to the C&D Fund a power of
-
attorney and a letter of transmittal and custody agreement in favor of, and in
form and substance satisfactory to, the C&D Fund constituting the C&D Fund,
Clayton, Dubilier & Rice, Inc. or one or more of their respective affiliates
designated by the C&D Fund (the "Custodian"), the true and lawful attorney-in-
fact and custodian for the Participant, with full power of substitution, and
authorizing the Custodian to take such actions as the Custodian may deem
necessary or appropriate to effect the sale and transfer of the Shares to the
100% Buyer, upon receipt of the purchase price therefor at the Section 7
Closing, free and clear of all security interests, liens, claims, encumbrances,
charges, options, restrictions on transfer, proxies and voting and other
agreements of whatever nature, and to take such other action as may be necessary
or appropriate in connection with such sale, including consenting to any
amendments, waivers, modifications or supplements to the terms of the sale
(provided that the C&D Fund also so consents, and sells and transfers its shares
- ---------
of Common Stock on the same terms as so amended, waived, modified or
supplemented) and (ii) deliver to the C&D Fund certificates representing the
--
Shares, together with all necessary duly executed stock powers.
7.3. Remedies. Unless otherwise provided in the Subscription
--------
Agreement or otherwise determined by the Board, the Participant shall
acknowledge that the C&D Fund would be irreparably damaged in the event of a
breach or a threatened breach by the Participant of any of its obligations under
this Section 7 and the Participant shall agree that, in the event of a breach or
a threatened breach by the Participant of any such obligation, the C&D Fund
shall, in addition to any other rights and remedies available to it in respect
of such breach, be entitled to an injunction from a court of competent
jurisdiction granting it specific performance by the Participant of its
obligations under this Section 7. In the event that the C&D Fund shall file
suit to enforce the covenants contained in this Section 7 (or obtain any other
6
<PAGE>
remedy in respect of any breach thereof), the prevailing party in the suit shall
be entitled to recover, in addition to all other damages to which it may be
entitled, the costs incurred by such party in conducting the suit, including
reasonable attorney's fees and expenses. In the event that, following a breach
or a threatened breach by a Participant of the provisions of this Section 7, the
C&D Fund does not obtain an injunction granting it specific performance of the
Participant's obligations under this Section 7 in connection with such proposed
sale prior to the time the C&D Fund completes the sale of its shares of Common
Stock or, in its sole discretion, abandons such sale, then Holding shall have
the option to purchase the Shares from the Participant at a purchase price per
Share equal to the lesser of (i) the Fair Market Value of such Shares as of the
-
date of the breach or threatened breach that gives rise to the right to
repurchase and (ii) the price at which the Participant purchased such Shares
--
from Holding.
7.4. Public Offering. Unless otherwise provided in the Subscription
---------------
Agreement or otherwise determined by the Board, in the event that a Public
Offering has been consummated, the provisions of this Section 7 shall
terminate and cease to have further effect.
Section 8. Amendment, Modification,
and Termination of the Plan
-------------------------------------
The Board at any time may terminate or suspend the Plan, and from time
to time may amend or modify the Plan. No amendment, modification, termination or
suspension of the Plan shall in any manner adversely affect the rights of any
Participant with respect to any Shares purchased hereunder by such Participant
prior to such action unless such Participant consents. Stockholder approval
of any such amendment, modification, termination or suspension shall be obtained
to the extent mandated by applicable law, or if otherwise deemed appropriate by
the Board.
7
<PAGE>
Section 9. Miscellaneous Provisions
------------------------------------
9.1. No Guarantee of Board Membership. Nothing in the Plan or in any
--------------------------------
Subscription Agreement shall interfere with or limit in any way the right of the
Board or Holding's stockholders to terminate any Participant's membership on the
Board at any time, or confer upon any Participant any right to continue as a
member of the Board.
9.2. No Limitation on Compensation. Nothing in the Plan shall be
-----------------------------
construed to limit the right of Holding to establish other plans or to pay
compensation to its directors, in cash or property, in a manner that is not
expressly authorized under the Plan.
9.3. Requirements of Law. The offer, sale and issuance of shares of
-------------------
Common Stock pursuant to the Plan shall be subject to all applicable laws, rules
and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required. No such offers or sales shall be made
under the Plan, and no shares of Common Stock shall be issued under the Plan, if
such offer, sale or issuance would result in a violation of applicable law,
including the federal securities laws or any applicable state securities laws.
9.4. Freedom of Action. Subject to Section 8, nothing in the Plan or
-----------------
any Subscription Agreement shall be construed as limiting or preventing Holding,
the Company or any Subsidiary from taking any action that it deems appropriate
or in its best interest.
9.5. Term of Plan. The Plan shall be effective as of the Effective
------------
Date. The Plan shall continue in effect, unless sooner terminated pursuant to
Section 8, until the earlier of the fifth anniversary of the Effective Date and
the date on which all shares of Common Stock to be offered pursuant to Section
5 of the Plan have been issued.
8
<PAGE>
9.6. No Voting Rights. Except as otherwise required by law, no
----------------
Participant under the Plan shall have any right to vote on any matter submitted
to Holding's stockholders until such time as he has purchased shares of Common
Stock under the Plan and become a stockholder of Holding.
9.7. Governing Law. The Plan, and all agreements hereunder, shall be
-------------
governed by and construed in accordance with the laws of the State of New York,
except to the extent that the corporate law of the State of Delaware
specifically and mandatorily applies.
9
<PAGE>
Exhibit A
---------
[Please refer to ANNEX A to the Offering Memorandum.]
<PAGE>
EXHIBIT 10.2
DIRECTOR STOCK SUBSCRIPTION AGREEMENT
-------------------------------------
STOCK SUBSCRIPTION AGREEMENT, dated as of _____ __, 1997 (the "Agreement"),
---------
between RACI Holding, Inc., a Delaware corporation ("Holding"), and the
-------
Purchaser whose name appears on the signature page hereof (the "Purchaser").
---------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, on December 1, 1993, Remington Arms Company, Inc., a Delaware
corporation formerly named RACI Acquisition Corporation, and a wholly-owned
subsidiary of Holding, acquired (the "Acquisition") substantially all the assets
-----------
and business of Sporting Goods Properties, Inc., formerly named Remington Arms
Company, Inc. ("Sporting Goods"), and certain related assets of Sporting Goods'
-------- -----
parent E. I. du Pont de Nemours and Company;
WHEREAS, pursuant to Holding's Director Stock Purchase Plan (the "Plan"),
the Board of Directors of Holding (the "Board") has authorized Holding to offer
the Purchaser the opportunity to purchase 2,500 shares of Class A Common Stock,
par value $.01 per share ("Common Stock"), of Holding (each a "Share" and,
-----
collectively, the "Shares"), at a price of $100.00 per share;
------
WHEREAS, the Purchaser desires to subscribe for and purchase from Holding
all of such Shares;
WHEREAS, the terms of the offering of the Shares of Common Stock being made
as of the date hereof are set forth in an Offering Prospectus dated ____ __,
1997 (the "Offering Prospectus"), a copy which has been furnished to the
-------- ----------
Purchaser by Holding; and
WHEREAS, Holding desires to sell to the Purchaser and the Purchaser desires
to purchase from Holding the Shares, on the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, to implement the foregoing and in consideration of the
mutual agreements contained herein, the parties hereto hereby agree as follows:
1. Purchase and Sale of Common Stock.
---------------------------------
(a) Purchase of Common Stock. Subject to all of the terms and conditions
------------------------
of this Agreement, the Purchaser hereby subscribes for and shall purchase and
Holding shall
<PAGE>
sell to the Purchaser, the Shares, at a purchase price of $100.00 per Share, at
the Closing referred to in Section 2(a) hereof. Notwithstanding anything in
this Agreement to the contrary, Holding shall have no obligation to sell any
shares of Common Stock to any person who is a resident of a jurisdiction in
which the sale of Common Stock to such person would constitute a violation of
the securities, "blue sky" or other laws of such jurisdiction.
(b) Consideration. Subject to all of the terms and conditions of this
-------------
Agreement, the Purchaser shall deliver to Holding at the Closing referred to
in Section 2(a) hereof, immediately available funds in the amount of $250,000.
2. Closing.
-------
(a) Time and Place. Except as otherwise mutually agreed by Holding and
--------------
the Purchaser, the closing (the "Closing") of the transaction contemplated by
-------
this Agreement shall be held at the offices of Debevoise & Plimpton, 875 Third
Avenue, New York, New York at 10:00 a.m. (New York time) on or about ____ __,
1997.
(b) Delivery by Holding. At the Closing, Holding shall deliver to the
-------------------
Purchaser a stock certificate registered in such Purchaser's name and
representing the Shares, which certificate shall bear the legends set forth in
Section 3(b) hereof.
(c) Delivery by the Purchaser. At the Closing, the Purchaser shall
-------------------------
deliver to Holding the consideration referred to in Section 1(b) hereof.
3. Purchaser's Representations, Warranties and Covenants.
-----------------------------------------------------
(a) Investment Intention. The Purchaser represents and warrants that the
--------------------
Purchaser is acquiring the Shares solely for the Purchaser's own account for
investment and not with a view to or for sale in connection with any
distribution thereof. The Purchaser agrees that the Purchaser will not,
directly or indirectly, offer, transfer, sell, pledge, hypothecate or otherwise
dispose of any of the Shares (or solicit any offers to buy, purchase or
otherwise acquire or take a pledge of any Shares), except in compliance with
the Securities Act of 1933, as amended (the "Securities Act"), and the rules
---------------
and regulations of the Securities and Exchange Commission (the "Commission")
----------
thereunder,
2
<PAGE>
and in compliance with applicable state securities or "blue sky" laws and
foreign securities laws, if any. The Purchaser further understands,
acknowledges and agrees that none of the Shares may be transferred, sold,
pledged, hypothecated or otherwise disposed of (i) unless any transferee of the
-
Purchaser shall have agreed in writing, pursuant to an instrument of assumption
satisfactory in form and substance to Holding, to make the representations and
warranties set forth in Section 3 hereof, other than Section 3(f), and to be
bound by the provisions of Sections 3 through 5 hereof, inclusive, (ii) unless
--
(A) such disposition is pursuant to an effective registration statement under
-
the Securities Act, (B) the Purchaser shall have delivered to Holding an opinion
-
of counsel, which opinion and counsel shall be reasonably satisfactory to
Holding, to the effect that the Purchaser is not an "affiliate" of Holding
within the meaning of Rule 405 promulgated under the Securities Act ("Rule 405")
--------
or, if the Purchaser is an affiliate within the meaning of Rule 405, to the
effect that such disposition is exempt from the provisions of Section 5 of the
Securities Act or (C) a no-action letter from the Commission, reasonably
-
satisfactory to Holding, shall have been obtained with respect to such
disposition and (iii) unless such disposition is pursuant to registration under
---
any applicable state or foreign securities laws or an exemption therefrom.
(b) Legends. The Purchaser acknowledges that the certificate or
-------
certificates representing the Shares shall bear the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A STOCK SUBSCRIPTION AGREEMENT, DATED AS OF [_________,
1997], AND NEITHER THIS CERTIFICATE NOR THE SHARES REPRESENTED BY IT ARE
ASSIGNABLE OR OTHERWISE TRANSFERABLE EXCEPT IN ACCORDANCE WITH THE PROVI-
SIONS OF SUCH STOCK SUBSCRIPTION AGREEMENT, AS THE SAME MAY BE AMENDED FROM
TIME TO TIME, A COPY OF THE CURRENT FORM OF WHICH IS ON FILE WITH THE
SECRETARY OF HOLDING. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
ENTITLED TO THE BENEFITS OF AND ARE BOUND BY THE OBLIGATIONS SET FORTH IN A
REGISTRATION AND PARTICIPATION AGREEMENT, DATED AS OF NOVEMBER 30, 1993,
AMONG HOLDING AND CERTAIN STOCKHOLDERS OF HOLDING, AS THE SAME MAY BE
AMENDED FROM TIME TO TIME, A COPY OF THE CURRENT FORM OF WHICH IS ON FILE
WITH THE SECRETARY OF HOLDING."
3
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF (i) UNLESS ANY
-
TRANSFEREE OF THE HOLDER HEREOF SHALL HAVE AGREED IN WRITING TO MAKE THE
REPRESENTATIONS AND AGREEMENTS SET FORTH IN SECTION 3 OF THE STOCK
SUBSCRIPTION AGREEMENT AND TO BE BOUND BY THE PROVISIONS OF SECTIONS 3
THROUGH 5, INCLUSIVE, OF SUCH STOCK SUBSCRIPTION AGREEMENT, (ii) UNLESS (A)
-- -
SUCH DISPOSITION IS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, (B) THE HOLDER HEREOF SHALL HAVE
-
DELIVERED TO HOLDING AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL
BE REASONABLY SATISFACTORY TO HOLDING, TO THE EFFECT THAT THE HOLDER IS NOT
AN AFFILIATE OF HOLDING OR, IF THE HOLDER IS AN AFFILIATE, TO THE EFFECT
THAT SUCH DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SUCH
ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION,
-
REASONABLY SATISFACTORY TO HOLDING, SHALL HAVE BEEN OBTAINED WITH RESPECT
TO SUCH DISPOSITION AND (iii) SUCH DISPOSITION IS PURSUANT TO REGISTRATION
---
UNDER ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION THEREFROM. IF
THE HOLDER HEREOF IS A CITIZEN OR RESIDENT OF ANY JURISDICTION OTHER THAN
THE UNITED STATES, OR SUCH HOLDER DESIRES TO EFFECT ANY TRANSFER IN ANY
SUCH JURISDICTION, THEN, IN ADDITION TO THE FOREGOING, COUNSEL FOR SUCH
HOLDER (WHICH COUNSEL SHALL BE REASONABLY SATISFACTORY TO HOLDING) SHALL
HAVE FURNISHED HOLDING WITH AN OPINION OR OTHER ADVICE REASONABLY
SATISFACTORY TO HOLDING TO THE EFFECT THAT SUCH TRANSFER WILL COMPLY WITH
THE SECURITIES LAWS OF SUCH JURISDICTION."
(c) Securities Law Matters. The Purchaser acknowledges receipt of
----------------------
advice from Holding that (i) the offer and sale of the Shares hereby have been
-
registered on Form S-8 under the Securities Act but have not been qualified
under any state securities or "blue sky" laws or foreign securities laws, (ii)
--
the resale of the Shares by persons who are affiliates of Holding, within the
meaning of Rule 405, has not been registered under the Securities Act or
qualified under any state securities or "blue sky" laws or foreign securities
laws, (iii) it is not anticipated that there will be any public market for the
---
Shares, (iv) the Shares must be held indefinitely and the Purchaser must
--
continue to bear the economic risk of the investment in the Shares unless there
is a public market for the Shares and
4
<PAGE>
the Shares are registered for resale under the Securities Act (to the extent
required under the Securities Act), and such state and foreign laws or an
exemption from registration is available, (v) while Rule 144 promulgated under
-
the Securities Act ("Rule 144") is presently available with respect to sales of
--------
the Shares, Holding has made no covenant to continue to make Rule 144 available,
(vi) when and if the Shares may be disposed of without registration in reliance
--
upon Rule 144, such disposition by an affiliate of Holding, within the meaning
of Rule 405, can be made only in limited amounts in accordance with the terms
and conditions of Rule 144, (vii) Holding does not plan to file reports with the
---
Commission or make public information concerning Holding available unless
required to do so by law or the terms of its financing agreements, (viii) if the
----
exemption afforded by Rule 144 is not available, sales of the Shares may be
difficult to effect because of the absence of public information concerning
Holding, (ix) a restrictive legend in the form heretofore set forth shall be
--
placed on the certificates representing the Shares and (x) a notation shall be
-
made in the appropriate records of Holding indicating that the Shares are
subject to restrictions on transfer set forth in this Agreement and, if Holding
should in the future engage the services of a stock transfer agent, appropriate
stop-transfer restrictions will be issued to such transfer agent with respect to
the Shares.
(d) Compliance with Rule 144. If any of the Shares are to be
------------------------
disposed of in accordance with Rule 144, the Purchaser shall transmit to Holding
an executed copy of Form 144 (if required by Rule 144) no later than the time
such form is required to be transmitted to the Commission for filing and such
other documentation as Holding may reasonably require to assure compliance with
Rule 144 in connection with such disposition.
(e) Ability to Bear Risk. The Purchaser represents and warrants
--------------------
that (i) the financial situation of the Purchaser is such that the Purchaser can
-
afford to bear the economic risk of holding the Shares for an indefinite period
and (ii) the Purchaser can afford to suffer the complete loss of the Purchaser's
--
investment in the Shares.
5
<PAGE>
(f) Access to Information. The Purchaser represents and warrants
---------------------
that (i) the Purchaser has received the Offering Prospectus, dated as of
-
__________, 1997, relating to this offering of the Shares and the Purchaser has
carefully reviewed such Prospectus and such other materials furnished to the
Purchaser in connection with the transaction contemplated hereby and (ii) the
--
Purchaser has been granted the opportunity to ask questions of, and receive
answers from, representatives of Holding concerning the terms and conditions of
the purchase of the Shares and to obtain any additional information that the
Purchaser deems necessary to verify the accuracy of the information contained in
such materials.
(g) Restrictions on Sale upon Public Offering. The Purchaser
-----------------------------------------
acknowledges and agrees that the Purchaser shall be entitled to the rights and
subject to the obligations created under the Registration and Participation
Agreement, dated as of November 30, 1993, among Holding and certain stockholders
of Holding, as the same may be amended from time to time (the "Registration and
----------------
Participation Agreement"), and the Shares shall be deemed to be "registrable
- -----------------------
securities," as defined in the Registration and Participation Agreement, in each
case, to the extent provided therein.
(h) Registration. The Purchaser acknowledges and agrees that, in the
------------
event that Holding files a registration statement under the Securities Act with
respect to an underwritten public offering of any shares of its capital stock
led by one or more underwriters at least one of which is an underwriter of
nationally recognized standing (a "Public Offering"), the Purchaser will not
------ --------
effect any public sale or distribution of any shares of the Common Stock (other
than as part of such underwritten public offering), including but not limited
to, pursuant to Rule 144 or Rule 144A under the Securities Act, during the 20
days prior to and the 180 days after the effective date of such registration
statement. The Purchaser further understands and acknowledges that any sale,
transfer or other disposition of the Shares by him following a public offering
will be subject to compliance with, and may be limited under, the federal
securities laws and/or state "blue sky" securities laws.
6
<PAGE>
4. Options of Holding and the C&D Fund Upon Proposed Disposition.
--------------------------------------------------------------
(a) Rights of First Refusal. If the Purchaser desires to accept an
-----------------------
offer (which must be in writing and for cash, be irrevocable by its terms for at
least 60 days and be a bona fide offer as determined in good faith by the Board)
from any prospective purchaser to purchase all or any part of the Shares at any
time owned by the Purchaser, the Purchaser shall give notice in writing to
Holding and The Clayton & Dubilier Private Equity Fund IV Limited Partnership, a
Connecticut limited partnership (together with any successor investment vehicle
managed by Clayton, Dubilier & Rice, Inc., the "C&D Fund") (i) designating the
-------- -
number of Shares proposed to be sold, (ii) naming the prospective purchaser of
--
such Shares and (iii) specifying the price (the "Offer Price") at and terms (the
--- ----- -----
"Offer Terms") upon which the Purchaser desires to sell the same. During the 30-
-----------
day period following receipt of such notice by Holding and the C&D Fund (the
"First Refusal Period"), Holding shall have the right to purchase from the
- ---------------------
Purchaser the Shares specified in such notice, at the Offer Price and on the
Offer Terms. Holding hereby undertakes to use rea sonable efforts to act as
promptly as practicable following such notice to determine whether it shall
elect to exercise such right. If Holding fails to exercise such rights within
the First Refusal Period, the C&D Fund shall have the right to purchase the
Shares specified in such notice, at the Offer Price and on the Offer Terms, at
any time during the period beginning at the earlier of (x) the end of the First
-
Refusal Period and (y) the date of receipt by the C&D Fund of written notice
-
that Holding has elected not to exercise its rights and ending 30 days
thereafter (the "Second Refusal Period"). The rights provided hereunder shall
------ ------- ------
be exercised by written notice to the Purchaser given at any time during the
applicable period. If such right is exercised, Holding or the C&D Fund, as the
case may be, shall deliver to the Purchaser, within the applicable Refusal
Period, a check for the Offer Price, payable to the order of the Purchaser,
against delivery of certificates or other instruments representing the Shares so
purchased, appropriately endorsed by the Purchaser. If such right shall not
have been exercised, including the delivery to the Purchaser of a check for the
Offer Price, prior to the expiration of the Second Refusal Period, then at any
time during the 30 days following the expiration of the Second Refusal Period,
the Purchaser may sell such Shares to (but only to) the intended purchaser named
in the Purchaser's notice to Holding and the C&D Fund at the Offer Price and on
7
<PAGE>
the Offer Terms specified in such notice, free of all restrictions or
obligations imposed by, and free of any rights or benefits set forth in, Section
4 of this Agreement, provided that such intended purchaser shall have agreed
--------
in writing, pursuant to an instrument of assumption satisfactory in substance
and form to Holding, to make and be bound by the representations, warranties and
covenants set forth in Section 3 hereof, other than those set forth in Sections
3(f), this Section 4 (as to any subsequent sale of the Shares) and Section 5
hereof.
(b) Public Offering. In the event that a Public Offering has been
---------------
consummated, neither Holding nor the C&D Fund shall have any rights to purchase
the Shares from the Purchaser pursuant to this Section 4 and this Section 4
shall not apply to a sale to the underwriters as part of a Public Offering.
5. Take-Along Rights.
-----------------
(a) Take-Along Notice. So long as the C&D Fund holds a number of
-----------------
shares of Common Stock equal to at least one-third of the Common Stock
originally purchased by the C&D Fund at the closing of the Acquisition, if the
C&D Fund intends to effect a sale of all of its shares of Common Stock to a
third party (a "100% Buyer") and elects to exercise its rights under this
----------
Section 5, the C&D Fund shall deliver written notice (a "Take-Along Notice") to
---------- ------
the Purchaser, which notice shall (a) state (i) that the C&D Fund wishes to
- -
exercise its rights under this Section 5 with respect to such transfer, (ii) the
--
name and address of the 100% Buyer, (iii) the per share amount and form of
---
consideration the C&D Fund proposes to receive for its shares of Common Stock
and (iv) the terms and conditions of payment of such consideration and all other
--
material terms and conditions of such transfer, (b) contain an offer (the
-
"Take-Along Offer") by the 100% Buyer to purchase from the Purchaser all of his
- -----------------
Shares on and subject to the same terms and conditions offered to the C&D Fund
and (c) state the anticipated time and place of the closing of the purchase and
-
sale of the shares (a "Section 5 Closing"), which (subject to such terms and
-----------------
conditions) shall occur not fewer than five (5) days nor more than ninety (90)
days after the date such Take-Along Notice is delivered, provided that if such
--------
Section 5 Closing shall not occur prior to the expiration of such 90-day
period, the C&D Fund shall be entitled to deliver additional Take-Along Notices
with respect to such Take-Along Offer.
8
<PAGE>
(b) Conditions to Take-Along. Upon delivery of a Take-Along Notice,
------------------------
the Purchaser shall have the obligation to transfer all of his Shares pursuant
to the Take-Along Offer, as the same may be modified from time to time, provided
--------
that the C&D Fund transfers all of its Shares to the 100% Buyer at the Section 5
Closing. Within 10 days of receipt of the Take-Along Notice, the Purchaser shall
(i) execute and deliver to the C&D Fund a power of attorney and a letter of
-
transmittal and custody agreement in favor of, and in form and substance
satisfactory to, the C&D Fund, constituting the C&D Fund, Clayton, Dubilier &
Rice, Inc. ("CD&R") or one or more of their respective affiliates designated by
----
the C&D Fund (the "Custodian"), the true and lawful attorney-in-fact and
---------
custodian for the Purchaser, with full power of substitution, and authorizing
the Custodian to take such actions as the Custodian may deem necessary or
appropriate to effect the sale and transfer of the Shares to the 100% Buyer,
upon receipt of the purchase price therefor at the Section 5 Closing, free and
clear of all security interests, liens, claims, encumbrances, charges, options,
restrictions on transfer, proxies and voting and other agreements of whatever
nature, and to take such other action as may be necessary or appropriate in
connection with such sale, including consenting to any amendments, waivers,
modifications or supplements to the terms of the sale (provided that the C&D
--------
Fund also so consents, and sells and transfers its shares of Common Stock on the
same terms as so amended, waived, modified or supplemented) and (ii) deliver to
--
the C&D Fund certificates representing the Shares, together with all necessary
duly executed stock powers.
(c) Remedies. The Purchaser acknowledges that the C&D Fund would be
--------
irreparably damaged in the event of a breach or a threatened breach by the
Purchaser of any of its obligations under this Section 5 and the Purchaser
agrees that, in the event of a breach or a threatened breach by the Purchaser of
any such obligation, the C&D Fund shall, in addition to any other rights and
remedies available to it in respect of such breach, be entitled to an injunction
from a court of competent jurisdiction granting it specific performance by the
Purchaser of its obligations under this Section 5. In the event that the C&D
Fund shall file suit to enforce the covenants contained in this Section 5 (or
obtain any other remedy in respect of any breach thereof), the prevailing party
in the suit shall be entitled to recover, in addition to all other damages to
which it may be entitled, the costs incurred by such party in conducting the
suit, including reasonable attorney's fees and expenses. In the event that,
following a breach or a threatened breach by
9
<PAGE>
the Purchaser of the provisions of this Section 5, the C&D Fund does not obtain
an injunction granting it specific performance of the Purchaser's obligations
under this Section 5 in connection with such proposed sale prior to the time the
C&D Fund completes the sale of its shares or, in its sole discretion, abandons
such sale, then Holding shall have the option to purchase the Shares from the
Purchaser at a purchase price per Share equal to the lesser of (i) the fair
-
market value of such Shares as of the date of the breach or threatened breach
that gives rise to the right to repurchase and (ii) the price at which the
--
Purchaser purchased such Shares from Holding.
(d) Public Offering. In the event that a Public Offering has been
---------------
consummated, the provisions of this Section 5 shall terminate and cease to have
further effect.
6. Representations and Warranties of Holding. Holding represents and
-----------------------------------------
warrants to the Purchaser that (a) Holding has been duly incorporated and is an
-
existing corporation in good standing under the laws of the State of Delaware,
(b) this Agreement has been duly authorized, executed and delivered by Holding
-
and constitutes a valid and legally binding obligation of Holding enforceable
against Holding in accordance with its terms and (c) the Shares, when issued,
-
delivered and paid for in accordance with the terms hereof, will be duly and
validly issued, fully paid and nonassessable, and free and clear of any liens or
encumbrances other than those created pursuant to this Agreement, or otherwise
in connection with the transactions contemplated hereby.
7. Covenants of Holding.
--------------------
(a) Rule 144. Holding agrees that at all times after it has filed a
--------
registration statement after the date hereof pursuant to the requirements of the
Securities Act or Section 12 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), relating to any class of equity securities of Holding
------------
(other than (i) the registration of equity securities of Holding and/or options
-
or interests in respect thereof to be offered primarily to directors and/or
members of management or employees, sales agents or similar representatives of
Holding, or any subsidiary of Holding, directors or senior executives of
corporations in which entities managed or sponsored by CD&R have made equity
investments and/or other persons with whom CD&R has consulting or other advisory
relationships, or (ii) the registration of equity securities and/or options or
--
10
<PAGE>
other interests in respect thereof solely on Form S-4 or S-8 or any successor
form), it will file the reports required to be filed by it under the Securities
Act and the Exchange Act and the rules and regulations adopted by the Commission
thereunder (or, if Holding is not required to file such reports, it will, upon
the request of the Purchaser, make publicly available such information as
necessary to permit sales pursuant to Rule 144 under the Securities Act), to the
extent required from time to time to enable the Purchaser to sell the Shares
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144, as such Rule may be amended from time to
-
time, or (ii) any successor rule or regulation hereafter adopted by the
--
Commission.
(b) State Securities Laws. Holding agrees to use its best efforts to
---------------------
comply with all state securities or "blue sky" laws applicable to the sale of
the Shares to the Purchaser, provided that Holding shall not be obligated to
--------
qualify or register the Shares under any such law or to qualify as a foreign
corporation or file any consent to service of process under the laws of any
jurisdiction or subject itself to taxation as doing business in any such
jurisdiction.
8. Miscellaneous.
-------------
(a) Notices. All notices and other communications required or
-------
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given if delivered personally or sent by certified or
express mail, return receipt requested, postage prepaid, or by any recognized
international equivalent of such mail delivery, to Holding or the Purchaser, as
the case may be, at the following addresses or to such other address as Holding
or the Purchaser, as the case may be, shall specify by notice to the others:
(i) if to Holding, to it at:
RACI Holding, Inc.
c/o Remington Arms Company, Inc.
870 Remington Drive
P.O. Box 700
Madison, North Carolina 27025-0700
Attention: Chairman
---------
11
<PAGE>
(ii) if to the Purchaser, to the Purchaser at the address set forth on
the signature page hereof.
All such notices and communications shall be deemed to have been received on the
date of delivery if delivered personally or on the third business day after the
mailing thereof. Copies of any notice or other communication given under this
Agreement shall also be given to:
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
New York, New York 10152
Attention: Joseph L. Rice, III
---------
and
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Franci J. Blassberg, Esq.
---------
The C&D Fund shall also be given a copy of any notice or other communication
between the Purchaser and Holding under this Agreement at its address as set
forth below:
The Clayton & Dubilier Private Equity
Fund IV Limited Partnership
270 Greenwich Avenue
Greenwich, Connecticut 06830
Attention: Clayton & Dubilier Associates
---------
IV Limited Partnership,
Joseph L. Rice, III
(b) Binding Effect; Benefits. This Agreement shall be binding upon
------------------------
the parties to this Agreement and their respective successors and assigns and
shall inure to the benefit of the parties to the Agreement, the C&D Fund and
their respective successors and assigns. Except as provided in Sections 4 and
5, nothing in this Agreement, express or implied, is intended or shall be
construed to give any person other than the parties to this Agreement, the C&D
Fund or their respective successors or assigns any legal or equitable right,
remedy or claim under or in respect of any agreement or any provision contained
herein.
(c) Waiver; Amendment.
-----------------
(i) Waiver. Any party hereto or beneficiary hereof may by written
------
notice to the other parties
12
<PAGE>
(A) extend the time for the performance of any of the obligations or other
-
actions of the other parties under this Agreement, (B) waive compliance
-
with any of the conditions or covenants of the other parties contained in
this Agreement and (C) waive or modify performance of any of the
-
obligations of the other parties under this Agreement, provided that any
--------
waiver of the provisions of Sections 4 and 5 must be consented to in
writing by the C&D Fund. Except as provided in the preceding sentence, no
action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party or beneficiary shall be deemed
to constitute a waiver by the party or beneficiary taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein. The waiver by any party hereto or beneficiary hereof of
a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any preceding or succeeding breach and no failure
by a party to exercise any right or privilege hereunder shall be deemed a
waiver of such party's or beneficiary's rights or privileges hereunder or
shall be deemed a waiver of such party's or beneficiary's rights to
exercise the same at any subsequent time or times hereunder.
(ii) Amendment. This Agreement may not be amended, modified or
---------
supplemented orally, but only by a written instrument executed by the
Purchaser and Holding, and (in the case of any amendment, modification or
supplement to or affecting Section 4 or 5 hereof, or that adversely affects
the rights of the C&D Fund hereunder) consented to by the C&D Fund in
writing. The parties hereto acknowledge that Holding's consent to an
amendment or modification of this Agreement may be subject to the terms and
provisions of Holding's financing agreements.
(d) Assignability. Neither this Agreement nor any right, remedy,
-------------
obligation or liability arising hereunder or by reason hereof shall be
assignable by Holding or the Purchaser without the prior written consent of the
other parties and the C&D Fund. The C&D Fund may assign from time to time all
or any portion of its rights under Sections 4 and 5 hereof to one or more
persons or other entities designated by it.
(e) Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
--------------
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
13
<PAGE>
STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE CORPORATE LAW OF THE STATE OF
DELAWARE SPECIFICALLY AND MANDATORILY APPLIES.
(f) Section and Other Headings, etc. The section and other headings
-------------------------------
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
(h) Delegation by the Board. All of the powers, duties and
-----------------------
responsibilities of the Board specified in this Agreement may, to the full
extent permitted by applicable law, be exercised and performed by any duly
constituted committee thereof to the extent authorized by the Board to exercise
and perform such powers, duties and responsibilities.
14
<PAGE>
IN WITNESS WHEREOF, Holding and the Purchaser have executed this
Agreement as of the date first above written.
RACI HOLDING, INC.
By:______________________________
Name:
Title:
THE PURCHASER:
By:______________________________
Name:
Title:
Address of the Purchaser:
Total Number of Shares
of Common Stock to be
Purchased: ____________________________
Cash Purchase
Price: ____________________________
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8100
<SECURITIES> 0
<RECEIVABLES> 106200
<ALLOWANCES> 5800
<INVENTORY> 88200
<CURRENT-ASSETS> 230300
<PP&E> 130900
<DEPRECIATION> 38400
<TOTAL-ASSETS> 432500
<CURRENT-LIABILITIES> 92900
<BONDS> 211500
0
0
<COMMON> 0
<OTHER-SE> 75000
<TOTAL-LIABILITY-AND-EQUITY> 432500
<SALES> 299800
<TOTAL-REVENUES> 299800
<CGS> 213500
<TOTAL-COSTS> 213500
<OTHER-EXPENSES> 59100
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 18700
<INCOME-PRETAX> 8000
<INCOME-TAX> 3500
<INCOME-CONTINUING> 4500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4500
<EPS-PRIMARY> 6.00
<EPS-DILUTED> 6.00
</TABLE>
<PAGE>
EXHIBIT 99
RACI HOLDING, INC. AND SUBSIDIARIES
RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA
(Dollars in Millions)
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Unaudited
-----------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30, YEAR-TO-DATE SEPTEMBER 30,
--------------------------- ---------------------------------
1997 1996 1997 1996
------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) FROM OPERATIONS (A) $ 6.8 $ 3.7 $ 4.5 $ (0.3)
Interest Expense 6.0 6.9 18.7 19.2
Provision (Benefit) for Income Taxes 4.5 2.9 3.5 (0.3)
Depreciation and Amortization (B) 3.9 3.5 11.3 10.2
Other (C) 0.0 0.8 0.8 2.1
-------------- ------------ ------------- ----------------
Total 14.4 14.1 34.3 31.2
-------------- ------------ ------------- ----------------
EBITDA AT SEPTEMBER 30 $ 21.2 $ 17.8 $ 38.8 $ 30.9
============== ============ ============= ================
</TABLE>
Notes:
(A) EBITDA as presented may not be comparable to similar measures reported by
other companies. Generally, EBITDA is defined to consist of net income
(loss), adjusted to exclude cash interest expense, income tax expense,
depreciation, amortization, non-cash expenses and charges, gain or loss on
sale or write-off of assets, and extraordinary, unusual or nonrecurring
gains, losses, charges or credits. EBITDA is presented to facilitate a more
complete analysis of the Company's financial performance, by adding back
non-cash and nonrecurring items to operating income, as an indicator of the
Company's ability to generate cash to service debt and other fixed
obligations. Investors should not rely on EBITDA as an alternative to
operating income or cash flows, as determined in accordance with generally
accepted accounting principles, as an indicator of the Company's operating
performance, liquidity or ability to meet cash needs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for further discussion of the Company's operating income and cash flows.
(B) Excludes amortization of deferred financing costs of $0.4 and $0.4 for the
quarter, and $1.3 and $1.2 for the year-to-date period ended September 30,
1997 and 1996, respectively, which is included in interest expense.
(C) Other includes unusual and nonrecurring charges.
