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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 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
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RACI HOLDING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0350929
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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)
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Yes [X] No [ ]
As of March 17, 1998, the registrant had outstanding 760,000 shares of
Class A Common Stock, par value $.01 per share and 0 shares of Class B Common
Stock, par value $.01 per share.
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TABLE OF CONTENTS TO FORM 10-K
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PART I............................................................ 3
ITEM 1. BUSINESS............................................... 3
ITEM 2. PROPERTIES............................................. 14
ITEM 3. LEGAL PROCEEDINGS...................................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.... 16
PART II........................................................... 17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................ 17
ITEM 6. SELECTED FIVE-YEAR FINANCIAL DATA...................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK.................................... 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............ F-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................ 33
PART III.......................................................... 34
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.... 34
ITEM 11. EXECUTIVE COMPENSATION................................ 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................... 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........ 41
PART IV........................................................... 43
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K...................................... 43
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PART I
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Item 1. BUSINESS
Pursuant to an asset purchase agreement (the "Asset Purchase Agreement")
among Remington Arms Company, Inc. ("Remington"), Sporting Goods Properties,
Inc. ("Sporting Goods") and its parent E. I. du Pont de Nemours and Company
("DuPont"), at a closing on December 1, 1993 (the "Closing"), Remington acquired
(the "Acquisition") substantially all the assets and business of Sporting Goods,
as well as certain other assets of DuPont used in connection with the marketing
of fishline and fishline accessories (collectively, the "Business"). Remington
and its parent, RACI Holding, Inc. ("Holding"), are Delaware corporations
organized in 1993 at the direction of Clayton, Dubilier & Rice, Inc. ("CD&R"), a
private investment firm, to acquire the Company from Sporting Goods and DuPont
(the "Sellers"). Remington is a wholly owned subsidiary of Holding. Unless the
context otherwise requires, the term "Company" means, with respect to periods
prior to the Acquisition, the business conducted by the Sellers, and with
respect to periods after the Acquisition, Holding and its subsidiaries
(including Remington). The market share and competitive position data contained
in this report is based on industry and government sources. The Company
believes that such data is inherently imprecise, but is generally indicative of
its relative market share and competitive position. Certain market share data
is based on the latest available information published by the National Sporting
Goods Association ("NSGA"), American Sports Data Incorporated ("ASD"), the
National Sporting Markets Research Group ("SMRG") and The Martec Group ("MG").
Remington(R), Blue Rock(R), Core-Lokt(R), Duplex(R), Express(R), Nitro-
27(R), Peerless(R), Peters(R), Power Piston(R), Premier(R), Stren(R), UMC(R),
Viper(R), and Wingmaster(R) are registered trademarks of Remington, and Copper
Solid(TM), Disintegrator(TM), Golden Saber(TM), Model 11-87(TM), Sporting Clays
Model 11-87(TM), Model Seven(TM), Model 396(TM), Model 700(TM), Model 870(TM),
Model 1100(TM), Model 7400(TM), Model 7600(TM), Model 597(TM), Express-
Steel(TM), Nitro-Steel(TM), Leadless(TM), Premier Steel(TM), STS(TM),
Supertough(TM), and Model 90-T(TM) are trademarks of Remington.
GENERAL
Founded in 1816, the Company is engaged in the design, manufacture and sale
of sporting good products for the hunting, shooting sports and fishing markets.
The Company's product lines consist of firearms, ammunition and hunting/gun care
accessories sold under the Remington name and other labels, fishing products
sold under the Stren name and other labels and clay targets. The Company is the
only domestic manufacturer of both firearms and ammunition and, according to the
NSGA, is the largest U.S. manufacturer of shotguns and rifles. The Company
manufactures firearms at a one million square foot facility in Ilion, New York,
ammunition at a 750 thousand square foot plant in Lonoke, Arkansas, and clay
targets at two plants located in Findlay, Ohio and Ada, Oklahoma. The Company
recently completed construction of a new 44 thousand square foot firearms
manufacturing facility in Mayfield, Kentucky, at which the Company began
manufacturing rimfire rifles in April 1997. In 1995, the Company completed the
consolidation of its research and development activities at a new 33 thousand
square foot facility in Elizabethtown, Kentucky. The Company markets fishline
sourced from third party manufacturers. The Company's products are distributed
throughout the United States and in over 60 other countries, with distribution
in the United States occurring primarily through wholesalers, distributors and
major retail chains. In 1997, 8% of the Company's revenues were attributable to
sales outside the United States.
Remington enjoys a domestic market leadership position for many of its
firearms product lines and is one of the three major manufacturers in the
domestic ammunition market. According to studies conducted for the Company,
among hunters and anglers, Remington and Stren are among the most-recognized
brand names in their markets. The Company believes that its substantial market
positions are attributable to the strength of the Remington and Stren brand
names, the Company's family of well-established products, the breadth of
products sold by the Company, product innovation and quality and the Company's
marketing, distribution and manufacturing expertise. The market share data
included herein is the most recent market share data available from third party
sources. Such data may not accurately reflect the Company's market shares for
more recent periods, although the Company believes such data is generally
indicative of its relative market share and competitive position. In 1996,
according to NSGA, the Company had the largest share of the U.S. retail shotgun
market based on sales volume, at approximately 32%, with its nearest competitor
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holding a market share of approximately 19%. Remington was also the largest
brand of rifles in the United States in 1996 based on sales volume, according to
NSGA, with a market share of approximately 21%, with its nearest competitor
holding a market share of approximately 16%. In the ammunition market, the
Company was one of the largest brands in the United States in 1996, based on MG
data, with a market share of approximately 26% based on sales dollars, with its
leading competitor holding a market share of approximately 27%. In November
1997, Blount International, Inc. acquired Federal Cartridge Company. According
to MG data, the combined companies could potentially be the largest seller of
ammunition in the United States. Sales of firearms and ammunition comprised
approximately 44% and 42%, respectively, of the Company's sales in 1997. In the
U.S. retail fishline market segment, the Company held a share of approximately
25% in 1996 based on sales dollars, with its leading competitor holding a market
share of approximately 39%, according to SMRG.
The Company's management team intends to continue a strategy aimed at
increasing sales and improving operating margins, focusing on the following key
elements: continuing to support the Company's brand name franchise and
maintaining its focus on its core product lines and businesses; pursuing growth
in revenues through a continuing emphasis on new product introductions and
product line extensions; and continuing to pursue cost reduction and
productivity improvement measures, particularly in the Company's manufacturing
operations and in its purchasing, customer service and information systems
functions.
INDUSTRY
According to ASD as of 1996, approximately 27 million people in the United
States enjoy shooting sports, including approximately 18 million who hunt
annually. The markets for shotguns, rifles and hunting-related products, such
as ammunition and accessories, are large, mature markets that the Company
believes generally will remain relatively flat, at least in the near future.
Total domestic consumer expenditures in these markets for 1996 are estimated by
the NSGA to have been $429 million for shotguns, $452 million for rifles, and
$681 million for ammunition.
The Company believes that a number of trends currently exist that are
potentially significant to the firearms and ammunition markets. First, the
Company believes that the development of rural property in many locations has
curtailed or eliminated access by hunters to private and public lands. However,
the Company also believes that the number of private hunting facilities is
increasing, as is the availability of alternatives to traditional hunting
activities, such as sporting clays and shooting games that simulate hunting, and
that these trends may help offset increasing restrictions on access and land
use. Second, environmental issues, such as concern about lead in the
environment, may also adversely affect the industry. See "-- Environmental
Matters." The Company has developed a line of shotshells that use steel shot
instead of the industry standard lead shot, and that are intended to reduce the
amount of lead being introduced into the environment and to appeal not only to
the shooter legally required to use steel shot, but also to the environmentally
concerned shooter. Third, the Company believes that safety issues may affect
sales of firearms, ammunition and other hunting-related products; in the
northeastern United States, for example, some communities permit hunters to use
only shotguns (which have a shorter average range than rifles) for deer hunting
in order to minimize the possibility of shooting accidents in more densely
populated areas. The Company has developed specialized ammunition, its Premier
Copper Solid sabot slug, that is intended for use in a shotgun but that is
designed to give hunters the accuracy and effectiveness of a rifle. Although
the Company believes that these trends have not had a material adverse effect on
its business in the past, there can be no assurance that they will not do so in
the future, or that industry sales of firearms, ammunition and other shooting-
related products will not decline. See "--Regulation."
According to ASD as of 1996, approximately 50 million people participated
in fishing activities. Fishing is considered an inexpensive sport that can be
enjoyed by people of widely varying ages, skills and abilities. The SMRG
estimates that the U.S. retail market for recreational fishline exceeded $88
million in 1996, of which the Company has a 25% market share based on sales
dollars.
PRODUCTS
The Company's product offerings include a comprehensive line of
recreational shotguns and rifles, sporting ammunition and ammunition reloading
components, a line of hunting knives, maintenance and repair items for the
Company's line of firearms, related firearms accessories (belts, clips, and
protective cases), clay targets and other products and accessories for the
recreational hunting, target shooting and outdoor markets, as well as small
powdered
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metal product ("PMP") parts for the automotive and firearms industries. In
addition, the Company distributes a range of monofilament fishline, terminal
tackle and accessories under the brand name Stren. During its 180-year history,
the Company has introduced to the firearms market its versions of the
autoloading shotgun (1905), the repeating centerfire rifle (1906), the pump-
action shotgun (1907) and the bolt-action centerfire rifle (1921), all of which
became standards in the industry. The following sets forth the Company's sales
for its principal product lines for the periods shown:
YEAR ENDED DECEMBER 31,
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1997 1996 1995
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Firearms $ 170 $ 178 $ 203
Ammunition 159 160 174
Other (a) 52 52 50
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Total Sales $ 381 $ 390 $ 427
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(a) Consists of fishline, accessories, guncare products and commercial PMP
parts.
Firearms
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The Company produces and markets a broad selection of shotguns and rifles
under the Remington brand name. The Company's goal has been to market a
combination of general-purpose firearms together with more specialized products
that embody Remington's emphasis on value, performance and design. In addition,
the Company produces custom-made shotguns and rifles in the custom shop at its
Ilion facility.
Shotguns. The Company produces numerous variations of shotguns. The
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Company's most popular shotguns, the Model 1100 and Model 11-87 auto-loading and
the Model 870 pump-action, range in retail list price from approximately $300 to
$800. Remington shotguns are offered in versions that are marketed to both the
novice and the experienced gun owner. Specialty shotguns focus on the growing
deer and turkey hunting markets. In addition, the Company has recently
introduced new shotguns intended for various law enforcement applications and
light contoured barrels for both auto-loading and pump-action Premier shotguns.
The Company also manufactures its over-under Peerless and Model 396 shotguns,
which were developed by the Company to compete in the break action shotgun
market. The Company also manufactures products for recreational and competitive
clay target shooting, such as the Sporting Clays Model 11-87 and trap and skeet
versions of the Model 11-87.
Rifles. The Company's most popular rifles are the Model 700, Model Seven,
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Model 7400 and Model 7600 centerfire rifles and the new family of Model 597
rimfire rifles. To appeal to a broad range of shooters, the Company
manufactures these rifles in a wide variety of calibers, configurations and
finishes. The Company presently manufactures three types of centerfire rifles:
bolt-action, pump-action and auto-loading. In addition, the Company produces
bolt-action, pump-action and auto-loading .22 caliber rimfire rifles. The
Company's bolt-action Model 700 rifle is a standard in the industry, and the
Company has also recently introduced new versions utilizing stainless steel
barrels and synthetic stocks for weather durability. Recent innovations include
a new line of muzzleloading rifles, a new line of .22 caliber rimfire rifles and
fine line engraving and scrollwork processes to enhance the appearance of the
existing product lines. Retail list prices for the Company's most popular
rifles range from approximately $160 to $900.
Ammunition
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The Company designs, manufactures and markets a complete line of sporting
ammunition products, including shotgun shells, metallic centerfire ammunition
for use in rifles and handguns and .22 caliber rimfire ammunition. The Company
also produces and markets sporting ammunition components used by smaller
ammunition manufacturers, as well as by private consumers engaged in the
practice of reloading centerfire cases or shotgun shells.
The Company distributes its ammunition products primarily under the brand
names Remington, Peters and UMC, through firearms dealers, sporting goods stores
and mass merchandisers. In general, Remington branded products compete in both
the middle and high performance categories, while the UMC and Peters brands are
used for popularly priced ammunition.
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In recent years the Company introduced a number of new ammunition product
lines intended to satisfy the trend towards more specialized, high performance
products. Typical of Remington's more recent introductions is the STS, a
premium quality shotshell for clay target shooting.
In addition, the Company is committed to maintaining a leadership position
in the design and manufacture of products that address hunting and shooting
regulations focusing on environmental issues, and recently introduced the
Disintegrator, a lead free frangible pistol ammunition, that breaks into small
pieces upon impact, for practice shooting and training.
Other Products
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The Company's Stren product line offers seven families of fishline for the
recreational fisherman. The Company also markets a limited line of fishing
accessories, including tools, knives, terminal tackle and lure accessories.
Remington produces a complete line of clay targets for use in trap and
skeet shooting activities, marketed under the Blue Rock brand name.
The Company also markets gun parts, gun safes, gun care products, hunting
knives and PMP parts for the automotive and firearms industries. The Company has
licensed third parties to manufacture and market sporting and outdoor apparel
products. See "--Licensing."
SERVICE AND WARRANTY
The Company supports service and repair facilities for all of its firearm
products in order to meet the service needs of its distributors and customers
nationwide. Distributors and customers may return products to the Company only
after receiving authorization for the return by the Company's customer service
department. Returns that are caused by the Company's error, such as a shipment
of the wrong product or of an incorrect quantity, are at the Company's expense.
The Company has no formal consumer warranty program for firearms or ammunition
products. The number of returns received by the Company annually in the past
has not been material.
MARKETING AND DISTRIBUTION
In the United States, Remington products are distributed primarily through
a network of wholesalers and retailers who purchase the product directly from
the Company for resale predominantly to gun dealers and end users, respectively.
The end users include sportsmen, hunters, target shooters, gun collectors and
law enforcement and other government organizations.
The Company's products are marketed primarily through manufacturer's sales
representatives. In 1997, approximately 61% of the Company's sales consisted of
sales made through five manufacturer's sales representative groups who market
principally to wholesalers, dealers and regional chains. Such sales
representatives are prohibited from selling competing goods from other
manufacturers and are paid variable commissions based on the product sold. The
customers to which the sales representatives market the Company's products are
authorized to carry specified types of Remington products for a non-exclusive
one-year term, though not all carry the full range of products. These customers
generally carry broader lines of merchandise than do the mass merchandisers and
are less seasonal in sales. While the wholesalers, dealers and regional chains
are currently experiencing a trend toward consolidation, the Company does not
believe that this trend will materially adversely affect the Company's sales or
profitability.
The Company's in-house sales force markets the Company's product lines
directly to national accounts (consisting primarily of mass merchandisers) and
to federal, state and local government agencies. Approximately 20% of the
Company's total net revenues in 1997 consisted of sales made to a national
account, Wal-Mart Stores, Inc. ("Wal-Mart"). National accounts generally
provide convenient access for hunting and shooting consumers to the Company's
products but carry a more limited array of products and are more seasonal in
sales. The Company's sales to Wal-Mart are not governed by a written contract
between the parties. Although the Company believes its relationship with Wal-
Mart is good, the loss of this customer or a substantial reduction in sales to
this customer could adversely affect the Company's financial condition or
results of operations. During 1996, changes in the inventory management
practices and purchasing patterns of several key customers, including Wal-Mart,
had a material effect on the Company's
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financial results and cash flows. See "Management's Discussion of Financial
Conditions and Results of Operations." No material portion of the Company's
business is subject to renegotiation of profits or termination of contracts at
the election of a governmental purchaser.
Foreign sales were approximately 8% of the Company's total revenues for
1997, 1996 and 1995. Company sales personnel market directly to foreign
purchasers consisting primarily of authorized export distributors and sales
representatives, generally on a nonexclusive basis and for a one-year term.
Vios S.a.r.l., a company formerly owned in part by a former Company employee,
also provided administrative support for the Company with its international
operations. Vios S.a.r.l. was dissolved in 1997 and certain of its
administrative operations were taken over by a branch of the Company located in
Switzerland. In 1995, Remington formed a wholly owned subsidiary, Remington
International, Ltd., which is a foreign sales corporation.
Most of the Company's firearms products that are generally used during the
fall hunting season have been sold pursuant to a "dating" plan which allows the
purchasing distributor to buy the products commencing at the beginning of the
Company's dating plan year, and pay for them on extended terms. Discounts are
offered for early payment under this plan. In the first quarter of each dating
plan year, the Company receives orders from its customers, which are designated
as firm by such customers, although the Company generally permits adjustments in
outstanding unfilled orders. The Company also follows industry practice in
canceling most firearms orders from its distributors that remain unfilled at the
end of each dating plan year. The backlog of unfilled firearms orders was
approximately $25 million as of November 30, 1997, compared to $27 million in
the prior year.
In addition, the Company formerly maintained a separate program that
provided an incentive to prepay for ammunition purchases prior to shipment.
While the Company believes that allowing both extended payment terms for early
orders and discounts for prepayment helps to level out the demand for these
otherwise seasonal products throughout the year, the Company discontinued the
ammunition prepayment program effective with the 1997 sales year in response to
competitive actions. The Company maintains a dating plan relating to ammunition
which offers discounts for payment prior to the Company's usual 90 day payment
period. For further discussion of seasonality and related matters, see
"Management's Discussion of Financial Condition and Results of Operations --
Recent Purchasing Patterns; Seasonality."
MANUFACTURING
The Company currently manufactures its products at five plants, located
within the United States. The Company's facility in Ilion, New York,
manufactures shotguns, rifles and accessory parts such as extra barrels, and
also houses a portion of the Company's gunsmith repair services, custom gun
shop, the Remington Country Store and the Remington Museum. Company products
have been continuously produced at the Ilion site since 1816. The Company's
facility in Lonoke, Arkansas, manufactures loaded ammunition and ammunition
components. The Company's clay targets are manufactured at facilities located at
Ada, Oklahoma and Findlay, Ohio. The Company recently completed construction of
a new firearms manufacturing facility in Mayfield, Kentucky at which the Company
began manufacturing rimfire rifles in April 1997. The Company also purchases
certain component parts from third party vendors.
Firearms
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To manufacture its various firearm models, the Company utilizes a
combination of parts manufactured from raw materials at the Ilion and Mayfield
facilities or components purchased from independent manufacturers. Prior to
assembly, purchased parts may be modified through several secondary processes
such as metal removal, joining, heat treating and coloring. Manufactured parts,
including many of the basic metal component parts of the firearms manufactured
by the Company, are produced from raw materials via the processes of material
removal, finishing, heat treating, assembly/gallery testing and forming using
metal and plastic injection molding techniques. Quality control processes are
employed throughout the production process, utilizing specifically tailored
testing procedures and analyses. The Company believes that its manufacturing
safety record is excellent.
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Ammunition
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The manufacturing of ammunition at Lonoke consists of four major production
areas: Primer, Centerfire, Shotshell and Rimfire. In the Primer area,
ingredients are manufactured on site utilizing two separate precipitation
processes and then combined with fuels and binders to form primer mixture. The
Centerfire operation consists of bullet manufacture, shell manufacture, priming,
loading and packaging. The Shotshell operation consists of shot manufacture,
head manufacture, body manufacture, assembly and prime, loading and packaging.
Lead shot is manufactured by pouring molten lead through a screen, forming lead
spheres which solidify as they fall over 100 feet into a cushion of water. The
other components of a shotshell are formed from brass strip, brass plated steel
and polyethylene hulls and wads via several stamping and extrusion processes.
The Rimfire operation consists of shell manufacture, priming, loading and
packaging. Several continuous rotary machines form shells, insert bullets and
add smokeless powder. Throughout the various processes, Company technicians
continuously monitor and test the velocity, pressure, and accuracy levels of the
ammunition. The Company believes that its manufacturing safety record is among
the best in the U.S. ammunition market.
Clay Targets
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Targets are manufactured from a mixture of limestone and melted pitch. The
mixture is fed into a continuous motion press that forms the target, cools the
target and paints the top.
SUPPLY OF RAW MATERIALS
To manufacture its various products, the Company utilizes numerous raw
materials, including steel, lead, brass, plastics and wood, as well as
manufactured parts purchased from independent manufacturers. For a number of
the Company's raw materials, it relies on one or a few suppliers. The Company's
requirements for carbon steel, stainless steel, brass strip and walnut gun
stock blanks are each currently being met by a single vendor. Generally, the
Company has had satisfactory, long-term relationships with these suppliers. The
Company has purchase contracts with certain of these suppliers for periods
ranging from one to seven years, but no formal contracts with others.
Alternative vendors could be found for brass strip, carbon steel, stainless
steel and walnut gun stock blanks. However, any disruption in the Company's
relationships with any of these vendors or reductions in the production of the
material supplied could, in each case, adversely affect the Company's ability to
obtain an adequate supply of the material. The Company believes that it has a
good relationship with each of these vendors and does not currently anticipate
any material shortages or disruptions in supply from these vendors.
Three companies in the United States and Canada produce smokeless powder,
which is an indispensable component in the ammunition manufactured and sold by
the Company. The Company currently purchases powder from each of these three
suppliers. The Company believes that any two of these three companies could
supply substantially all of the Company's powder requirements. However, given
the complex formulae and production processes involved in manufacturing the
powder mixtures used by the Company, obtaining powder from sources other than
these three companies may not be feasible.
The Company purchases a number of stamped parts from one vendor. While
alternative vendors can be found to replace this supplier, any disruption in the
Company's relationship with this supplier could result in substantial
expenditures for tooling. The Company believes that it has a good relationship
with its current supplier and does not currently anticipate any material
shortages or disruptions in supply of these stamped parts.
The Company purchases most of the fishline it requires for its product
lines from DuPont under a supply agreement, the initial term of which expires in
December 1998 and which is automatically renewed annually unless either party
notifies the other of its intent to terminate. Any disruption in the Company's
relationship with DuPont, or reductions in fishline production by DuPont, could
adversely affect the Company's ability to obtain an adequate supply of fishline
on terms favorable to the Company.
Alternative sources, many of which are foreign, exist for each of these
materials from which the Company could obtain such raw materials. Nonetheless,
the Company does not currently have significant supply relationships with any of
these alternative sources and cannot estimate with any certainty the length of
time that would be required to
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establish such a supply relationship, or the sufficiency of the quantity or
quality of materials that could be so obtained. In addition, the Company may
incur additional costs in sourcing raw materials from alternative producers.
The price and availability of raw materials are affected by a wide variety
of interrelated economic and other factors, including alternative uses of
materials and their components, changes in production capacity, energy prices
and governmental regulations. Industry competition and the timing of price
increases by suppliers limits to some extent the ability of the Company and
other industry participants to pass raw material cost increases on to customers.
The Company uses commodity futures contracts to hedge against the risk of
increased prices for raw materials. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Financial Instruments."
RESEARCH AND DEVELOPMENT
The Company maintains a research and development program, with
approximately 50 employees assigned to these efforts as of December 31, 1997.
New products and improvements to existing products are developed based upon the
perceived needs and demands of consumers, as well as successful products
introduced to the market by the Company's competitors. The Company's research
and development program involves an in-house team of engineers, draftsmen,
product testers and marketing managers using tools such as computer-assisted
design and a variety of consumer research techniques. Research and plant
technical staff then collaborate to produce an experimental prototype, ensuring
that products and manufacturing processes are concurrently designed. Following a
successful prototype, a pilot run is commenced to ensure that plant personnel
and equipment can manufacture the product efficiently. The Company has
introduced several new products employing innovations in design and
manufacturing, including the new Model 597 family of autoloading rimfire rifles,
a new muzzle-loading black powder rifle, and a 3 1/2" Express Super Magnum
Shotgun. The Company has also directed its research efforts to developing lead-
free primer mixes and steel shot shotshells as well as lead free frangible
pistol ammunition, to prepare for anticipated trends toward products that
address environmental concerns.
In 1995, the Company completed the consolidation of its research and
development function into a new facility in Elizabethtown, Kentucky. Research
and development expenses of $5.3 million for 1995 were net of a $1.0 million
benefit as the actual relocation-related severance costs resulting from the
Company's consolidation of its research and development function were less than
estimated in 1994. Excluding this nonrecurring item in 1995, research and
development expenditures for the continuing operations of the Company in 1995,
1996 and 1997 amounted to approximately $6.3 million, $10.2 million and $7.4
million, respectively.
PATENTS AND TRADEMARKS
The Company's operations are not dependent to any significant extent upon
any single or related group of patents. The Company believes that its most
significant patents are three patents relating to the Model 700 rifle and the
Model 870 and Model 11-87 shotguns, which patents expire in 1998, 1999 and 2006,
respectively. The Company does not believe that the expiration of any of these
patents will have a material adverse effect on the Company's financial condition
or its results of operations. The Company's operations are not dependent upon
any single trademark other than the Remington word mark, the Remington logo
mark, and, to a lesser extent, the Stren mark. Some of the trademarks used by
the Company, however, are identified with and important to the sale of the
Company's products. Some of the more important trademarks used by the Company,
all of which are owned by the Company, are: Remington, the Remington scroll
logo, Stren, Core-Lokt (jacketed centerfire bullets), Express (long range
shotshells), Power Piston (shotshell wads), Premier (the Company's highest
quality ammunition), Copper Solid (solid copper slugs), Golden Saber (high
performance jacketed hollow point bullets for pistols/revolvers), Nitro-Steel
(high powered steel shotshells), UMC (popularly priced ammunition, in a limited
line of popular specifications), Leadless (reduced lead-releasing bullets),
Nitro-27 (handicap trap loads), Model 90-T (a family of single-barrel trap
guns), Model 700 (a family of bolt-action centerfire rifles), Model 870 (a
family of autoloading shotguns), Model 11-87 (a family of semi-automatic
shotguns), Model 7600 (a family of pump-action centerfire rifles), Model 7400 (a
family of semi-automatic centerfire rifles), Wingmaster (a family of pump-action
shotguns) and Model 597 (a family of .22 caliber rimfire rifles). The Company
believes it has adequate policies and procedures in place to protect its
intellectual property.
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The Company owns the Remington marks (and registrations thereof) for use in
its firearms and ammunition product lines, as well as for certain related
products associated with hunting, wildlife and the outdoors. The Company does
not own, but has the right to use, the Remington mark with respect to certain
other products marketed by it (the "Ancillary Products"), including certain
hunting knives and other merchandising items, pursuant to the Trademark
Settlement Agreement, dated December 5, 1986 (the "Trademark Settlement
Agreement"), between the Company and Remington Products, Inc. ("RPI"). The
Trademark Settlement Agreement resulted from the settlement of certain
litigation between the Company and RPI over the use of the Remington mark on
products marketed by both parties. RPI is not affiliated with Remington,
Holding, DuPont or Sporting Goods and was not involved with the Acquisition.
The Trademark Settlement Agreement provided for the formation of Remington
Licensing Corporation ("RLC"), the capital stock of which is owned equally by
the Company and Remington Products Company LLC ("RPC") as successor to RPI,
which also holds as transferee RPI's interest in respect of the Trademark
Settlement Agreement. RLC owns the Remington marks in the United States with
respect to products of mutual interest to the Company and RPC, and licenses such
marks on a royalty-free basis to the Company and RPC for products in their
respective markets. The Trademark Settlement Agreement does limit, however, the
Company's ability to expand the use of the Remington mark into product areas
claimed by RPC, particularly personal care products. The Trademark Settlement
Agreement is currently relevant primarily to the Company's U.S. operations, but
does provide for cross-licensing between the Company and RPC outside the United
States. The Trademark Settlement Agreement also provides that, if certain
bankruptcy or insolvency-related events occur with respect to either of RLC's
shareholders, such shareholder may be contractually required to sell such
shareholder's RLC stock to RLC or RLC's other shareholder at its book value or,
under certain circumstances, at fair market value. While in some cases such
requirement may not be enforceable under the U.S. Bankruptcy Code, such a
purchase from the Company could provide RPC with greater leverage over RLC's
licensing relationship with the Company with respect to Ancillary Products.
The Company does not own any patents or other intellectual property with
respect to the manufacture of the nylon monofilament fishline products that it
markets and distributes. The Company purchases most of its fishline
requirements under a supply agreement with DuPont. See "--Supply of Raw
Materials."
LICENSING
The Company licenses the Remington mark to certain companies that
manufacture and market products that complement the Company's product line.
Currently, the Remington mark is licensed for use on, among other things,
sporting and outdoor apparel, caps, tents, backpacks, sleeping bags, leather
products, non-prescription sun/safety eyeglasses, and certain other
nostalgia/novelty goods. The Company strives to ensure that the quality, image
and appeal of these licensed products are consistent with the high-quality image
of its core products. These licenses generally grant an exclusive right to sell
a specific product category, with the normal term being six years. Licenses
increase the market recognition of the Remington trademark and enhance the
Company's ability to market core products. Licensing facilitates new cross-
marketing promotional opportunities and generates income. Certain of the
Company's licensing efforts are carried out under terms established in the
Trademark Settlement Agreement described above.
COMPETITION
The markets in which the Company operates are highly competitive.
Competition is based primarily on quality of products, product innovation, price
and customer service and support. Product image, quality and innovation are the
dominant competitive factors in the firearms industry, with price the dominant
factor in the ammunition industry.
The Company's competitors vary according to product line. Certain of these
competitors are subsidiaries of large corporations with substantially greater
financial resources than the Company. The Company's shotgun products compete
primarily with products offered by USRAC (which produces Winchester firearms)
and Browning (both formerly units of GIAT Industries that were purchased by the
Walloon regional government of Belgium during the fourth quarter of 1997), O.F.
Mossberg & Sons, Inc., Sturm, Ruger & Co., Inc. and Beretta U.S.A. Corporation.
The Company's rifles compete primarily with products offered by Browning and
USRAC, Marlin Firearms Co., Sturm, Ruger & Co., Inc. and Savage Arms, Inc. In
the ammunition market, the Company competes primarily with the Winchester unit
of Olin Corporation, and the Federal Cartridge Co. and CCI units of Blount, Inc.
(Federal Cartridge Co.
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was acquired by Blount in November 1997). The Company's main competitor in the
fishing line market is Berkley, Inc.
The Company believes that it competes effectively with all of its present
competitors. However, there can be no assurance that the Company will continue
to do so, and the Company's ability to compete could be adversely affected by
its leveraged condition.
SEASONALITY
Historically, the Company's sales have been moderately seasonal, with
generally higher sales during the third quarter of each year, and generally
lower sales during the other quarters, principally due to the need to meet
customer requirements for firearms and ammunition during the primary hunting
season.
In 1995 and 1996, the Company's sales were more seasonal than in prior
years. The Company believes this increased seasonality was due in part to a
shift in the timing of consumer demand as consumer concern over the impact of
regulation on the cost and availability of ammunition and firearms eased, and to
a lesser extent changes in its ammunition prepayment program. In 1997, the
Company's sales continued to be seasonal, although less so than in 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Purchasing Patterns; Seasonality."
REGULATION
The purchase of firearms is subject to federal, state and local
governmental regulation. The basic federal laws are the National Firearms Act
and the Federal Firearms Act, which were originally enacted in the 1930s and
which have been amended from time to time. Federal laws generally prohibit the
private ownership of fully automatic weapons and place certain restrictions on
the interstate sale of firearms unless certain licenses are obtained. The
Company does not manufacture fully automatic weapons. The Company possesses
valid federal licenses for all of its owned and leased sites to manufacture
and/or sell firearms and ammunition.
In 1994, a federal law was enacted that generally prohibits the manufacture
of 19 models of "assault weapons" as well as the sale or possession of "assault
weapons" except for those that, prior to the law's enactment into law, were
legally in the owner's possession. This law exempts from its prohibition
approximately 650 models of firearms that are generally used by hunters and
sporting enthusiasts, including all of the Company's current firearm products.
Various bills have been introduced in Congress in recent years to repeal the ban
on semi-automatic assault weapons and large-capacity ammunition feeding devices;
the likelihood of their passage is uncertain. Another federal law enacted in
1993, the so-called "Brady Bill," provides among other things for a waiting
period of five business days before a prospective purchaser of a handgun may
take possession of the handgun, in order to give law enforcement officials time
to make a background check on the prospective purchaser. The Company does not
currently produce handguns.
In addition, bills have been introduced in Congress in the past several
years that would affect the manufacture and sale of handgun ammunition,
including bills to regulate the manufacture, importation and sale of any
projectile that is capable of penetrating body armor, to impose a tax and import
controls on bullets designed to penetrate bullet-proof vests, to prohibit the
manufacture, transfer or importation of .25 caliber, .32 caliber and 9mm handgun
ammunition, to increase the tax on handgun ammunition, to impose a special
occupational tax and registration requirements on manufacturers of handgun
ammunition, and to drastically increase the tax on certain handgun ammunition,
such as 9mm, .25 caliber, and .32 caliber bullets. Certain of these bills would
apply to handgun ammunition of the kind produced by the Company, and
accordingly, if enacted, could have a material adverse effect on the business of
the Company. The Company believes that existing regulations applicable to
handgun ammunition have not had such an effect.
State and local laws and regulations vary significantly in the level of
restrictions they place on gun ownership and transfer. Some states have
recently enacted, and others are considering, legislation restricting or
prohibiting the ownership, use or sale of certain categories of firearms and
ammunition. Many states currently have mandatory waiting period laws for
handguns in effect similar to that imposed by the Brady Bill. Currently,
however, there are few restrictive state regulations applicable to handgun
ammunition. The Company's current firearm and ammunition products generally are
not subject to current state restrictions on ownership, use or sale of certain
categories of firearms
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and ammunition, and generally would not be subject to any known proposed state
legislation relating to regulation of "assault weapons."
The Company believes that existing federal and state legislation relating
to the regulation of firearms and ammunition has not had a material adverse
effect on its sales of these products from 1995 through 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
However, there can be no assurance that the regulation of firearms and
ammunition will not become more restrictive in the future and that any such
development would not have a material adverse effect on the business of the
Company.
In addition, regulatory proposals, even if never enacted, may affect
firearms or ammunition sales as a result of consumer perceptions. The Company
believes that its increased ammunition sales in early 1995 resulted in part from
consumer fear that proposed legislation would increase taxes on ammunition and
from consumer uncertainty over the Brady Bill, and that the lessening of these
consumer concerns has been a factor in decreased ammunition sales since early
1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."
EMPLOYEES
As of December 31, 1997, the Company employed approximately 2,400 full-time
employees of whom approximately 400 were salaried and approximately 2,000 were
hourly. Nearly 2,170 of the Company's employees are engaged in manufacturing,
with approximately 180 engaged in sales and general administration and
approximately 50 in research and development. An additional work force of
temporary employees is engaged during peak production schedules. The Company
laid off 220 employees at its Ilion plant, 88 at its Lonoke facility and 18 at
its corporate headquarters during 1996 in response to the decline in sales of
the Company's products during that year.
The United Mine Workers of America ("UMWA") represent hourly employees at
the Company's plant in Ilion, New York. The collective bargaining agreement
with UMWA was renegotiated effective September 1997 for a five year period
expiring in September 2002. The Company also has a labor agreement with Local
366 of the United Automobile, Aircraft and Agricultural Implement Workers of
America, U.A.W., which represents hourly employees at the Company's plant in
Findlay, Ohio, which agreement is terminable by either party on notice.
Employees at the Company's Lonoke, Arkansas and Ada, Oklahoma facilities are not
represented by unions. There have been no significant interruptions or
curtailments of operations due to labor disputes since prior to 1968 and the
Company believes that relations with its employees are satisfactory.
THE ACQUISITION
Under the Asset Purchase Agreement, Remington acquired the Business at the
Closing and, in connection therewith, assumed (i) certain specified liabilities,
including certain trade payables and contractual obligations of Sporting Goods,
(ii) financial responsibility up to a maximum aggregate amount of $25 million
(the "Cap"), for certain product liability claims relating to disclosed
occurrences prior to the Closing and for environmental claims relating to the
operation of the Business prior to the Closing and (iii) liabilities for product
liability claims relating to occurrences after the Closing, except for claims
involving discontinued products. All other liabilities relating to or arising
out of the operation of the Business prior to the Closing are excluded
liabilities (the "Excluded Liabilities") which the Sellers retained and with
respect to which the Sellers have certain obligations to indemnify Remington, as
discussed below.
The Asset Purchase Agreement requires the Sellers to indemnify Remington
and its affiliates for inaccuracies in the representations and warranties made
in the Asset Purchase Agreement (environmental matters being addressed
separately), for the Sellers' failure to comply with covenants made in the Asset
Purchase Agreement, and in respect of the Excluded Liabilities, which include,
among other liabilities, certain tax liabilities and certain employee and
retiree compensation and benefit liabilities. Subject to certain exceptions,
the Sellers' indemnification obligation with respect to inaccuracies in their
representations and warranties is subject to a deductible of $1.5 million and is
limited to individual claims that exceed $25,000. The Sellers' overall
liability in respect of their representations and warranties, covenants and the
Excluded Liabilities, excluding environmental liabilities and certain product
liability matters of the Company, is limited to an amount equal to the $299.8
million cash portion of the adjusted purchase price for the Acquisition plus $25
million. With certain exceptions, the Sellers' representations and warranties
in the Asset Purchase Agreement expired 18 months after the Closing, and all
claims for indemnification with respect thereto under the Asset
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<PAGE>
Purchase Agreement were to have been asserted within 30 days of such expiration.
The Company made claims for such indemnification involving product liability
issues within such time period. See "Legal Proceedings."
Under the Asset Purchase Agreement, Remington's financial responsibility
for all environmental liabilities relating to the ownership or operation of the
Business prior to the Closing, and for liabilities relating to any product
liability claims arising from occurrences prior to the Closing, was limited to
the Cap, which has been fully utilized. The Sellers retained all liabilities in
respect of such environmental and product liability matters in excess of such
amount, as well as for all claims relating to discontinued products, and are
required to indemnify Remington with respect thereto. The Sellers are also
required to indemnify Remington for certain other product-related claims for
economic loss. In addition, pursuant to the separate agreement relating to the
Garza litigation discussed under "Legal Proceedings," the Sellers have agreed to
indemnify Remington against certain product liability costs involving shotguns
and arising from occurrences on or prior to November 30, 1999. These
indemnification obligations of the Sellers relating to product liability and
environmental matters (subject to a limited exception) are not subject to any
survival period limitation, deductible or other dollar threshold or cap. The
Sellers and Remington are also party to separate agreements setting forth agreed
procedures for the management and disposition of environmental and product
liability claims and proceedings relating to the operation or ownership of the
Business prior to the Closing, and are currently engaged in the joint defense of
certain product liability claims and proceedings. See "Legal Proceedings."
ENVIRONMENTAL MATTERS
The Company has in place programs that monitor compliance with various
federal, state and local environmental regulations. In the normal course of its
manufacturing operations, the Company is subject to occasional governmental
proceedings and orders pertaining to waste disposal, air emissions and water
discharges into the environment. The Company believes that it is in compliance
with applicable environmental regulations in all material respects, and that the
outcome of any such proceedings and orders will not have a material adverse
effect on its business.
The Company also has directed research efforts to developing more
environmentally safe products. In particular, recent efforts to eliminate the
promulgation of lead into the environment have led to local prohibitions on
traditional lead shot shotshells in waterfowl hunting and have also forced the
closing of several prominent target shooting clubs. The Company has responded
to these concerns by adding steel shot shotshells to its product line for
hunters, by introducing steel target shooting ammunition and frangible pistol
ammunition.
The Company has not been identified by any state or federal regulatory
authorities as a potentially responsible party (a "PRP") with respect to any
sites under any applicable state or federal environmental regulations. The
Sellers retained liability for environmental losses and liabilities relating to
the ownership or operation of the Business prior to the Closing that, together
with liabilities relating to product liability cases and claims arising from
occurrences prior to the Closing and disclosed to the Company, exceed the Cap,
which was exhausted in 1997, as discussed under "Legal Proceedings." The
Sellers applied approximately $0.5 million of the Cap to environmental cases.
Based on information known to the Company, the Company does not expect current
environmental regulations or environmental proceedings and claims to have a
material adverse effect on the results of operations or financial condition of
the Company. However, it is not possible to predict with certainty the impact
on the Company of future environmental compliance requirements or of the cost of
resolution of future environmental proceedings and claims, in part because the
scope of the remedies that may be required is not certain, liability under
federal environmental laws is joint and several in nature, and environmental
laws and regulations are subject to modification and changes in interpretation.
There can be no assurance that environmental regulation will not become more
burdensome in the future and that any such development would not have a material
adverse effect on the Company.
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<PAGE>
ITEM 2. PROPERTIES
The Company's manufacturing operations are currently conducted at five
owned facilities. The following table sets forth certain information regarding
each of these facilities:
<TABLE>
<CAPTION>
Square Feet
Plant Product (In thousands)
- -------------------- -------------------------------------------- --------------
<S> <C> <C>
Ilion, New York Shotguns; centerfire and rimfire rifles 1,000
Lonoke, Arkansas Shotshell; rimfire and centerfire ammunition 750
Mayfield, Kentucky Rimfire rifles 44
Findlay, Ohio Clay targets 40
Ada, Oklahoma Clay targets 21
</TABLE>
The Company believes that these facilities are suitable for the
manufacturing conducted therein and have capacities appropriate to meet existing
production requirements. In February 1997, the Company completed construction
of the Mayfield, Kentucky facility, at which the Company began manufacturing
rimfire rifles in April 1997, which will allow for expansion of sales in this
product line. The Lonoke, Ilion and Mayfield facilities each contain enclosed
ranges for testing firearms and ammunition.
The Company's headquarters and related operations are conducted in an
office building owned by the Company in Madison, North Carolina. Research and
development is conducted at a facility owned by the Company in Elizabethtown,
Kentucky. All of the real property owned by the Company has been mortgaged to
secure the Company's obligations under the Credit Agreement. The Company also
leases or contracts for services from various warehouses and is a party to a
leasing arrangement involving a facility operated by a Company contractor.
ITEM 3. 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 the Cap in an
aggregate amount of $25.0 million, 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. 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. Pursuant to
the Asset Purchase Agreement, the Sellers designated $24.5 million of the Cap
for assumed product liability costs and the remainder for environmental costs.
In December 1996, the Company and the Sellers resolved questions that had been
raised by the Sellers concerning certain product liability related costs that
the Company had allocated to the Cap or that were billed to cases for which the
Sellers assumed responsibility under the Asset Purchase Agreement. As a result
of this agreement between the Sellers and the Company, the Company recorded a
nonrecurring charge of $4.7 million. This charge in effect increased the product
liability portion of the Cap from $24.5 million to $28.4 million. In 1997, the
remaining Cap was exhausted. See Note 15 to the Company's consolidated
financial statements for the year ended December 31, 1997 appearing elsewhere in
this Report. 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.
Prior to the Acquisition, the Sellers were self-insured for product
liability obligations of the Business, with excess insurance coverage available
at $50.0 million per occurrence. Since December 1, 1993, the Company has
maintained insurance coverage for product liability claims subject to certain
self-insured retentions both on a per-occurrence basis and in the aggregate for
personal injury or property
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<PAGE>
damage relating to occurrences arising after the Closing. The Company believes
that its current product liability insurance coverage for personal injury and
property damage is adequate for its needs. The Company's current product
liability insurance policy provides for a self-insured retention of $0.5 million
per occurrence, with an aggregate annual limit of $7.0 million for liability
indemnity and defense and other expenses combined, and aggregate annual
sublimits of $4.5 million for indemnity and $4.5 million for expenses. The
current policy has a batch clause endorsement, which in general provides that if
a batch of firearms were to be defective, the Company's liability for expenses
and damages related to the entire batch would be capped at the amount of self-
insured retention for a single occurrence. The current policy excludes from
coverage any pollution-related liability. The current policy period runs from
December 1, 1995 through November 30, 2000.
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 December 31, 1997, approximately 30 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 individual cases, approximately 3 involve discontinued
products and approximately 3 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 3 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"), 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 manufactured from 1960 to 1995,
including Model 1100, 11-87 and 870 shotguns. Pursuant to the settlement, funds
of approximately $19.0 million were distributed to eligible shotgun owners in
the second quarter of 1997. The disposition of any unclaimed funds is expected
to be decided in 1998. Except for a 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.
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 and
again in July 1996, sought 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 was not named as a defendant until
July 1996, after the class certification was appealed, and was not a party to
the appeal. On July 16, 1996 plaintiffs further amended the complaint to
include Remington and 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. On February 11, 1998, the Texas appellate court
reversed the trial court's decision certifying the class against the Sellers, on
the ground that class treatment was not a superior method for resolving disputes
relating to the plaintiffs' alleged losses. One judge dissented from this
holding. Although Remington was not a party to the appeal, the appellate
court's decision should govern class action claims against it as well as the
claims against the Sellers. Plaintiffs have filed a motion requesting a
rehearing. If that request is denied, the plaintiffs have 30 days thereafter to
seek review by the Texas Supreme Court. The Sellers' obligations with respect to
Luna include a requirement that they indemnify the Company against claims for
economic loss involving Model 700 rifles shipped up to 42 calendar months after
the Closing (prior to the end of May 1997). Claims of economic loss involving
Model 700 rifles thereafter would be the Company's responsibility and, to
15
<PAGE>
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 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
No matter was submitted to a vote of the Company's stockholders during
the fourth quarter of 1997.
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for either Holding's or
Remington's common stock. Prior to 1997, the only holder of Holding's common
stock was The Clayton & Dubilier Private Equity Fund IV Limited Partnership
("C&D Fund IV"). 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 RACI Holding, Inc. Director Stock Purchase Plan. As of
December 31, 1997, a total of 10,000 shares of Class A Common Stock had been
issued to four directors. See "Ownership of Capital Stock." The only holder of
Remington's common stock is Holding. No dividends have been paid by Holding on
its shares of common stock nor does Holding expect to pay dividends on its
common stock in the foreseeable future. As Holding has no separate operations,
its ability to pay dividends is dependent upon the extent to which it receives
dividends or other funds from Remington. The declaration and payment of future
dividends, if any, will be at the sole discretion of the Board of Directors of
the respective company, subject to the restrictions set forth in the Company's
senior bank credit agreement and the indenture for its subordinated notes, which
currently restrict the payment of cash dividends to stockholders, and
restrictions, if any, imposed by other indebtedness outstanding from time to
time. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations --Liquidity and Capital Resources," " --Credit Agreement"
and " --Notes" and Note 13 to the Company's consolidated financial statements
for the year ended December 31, 1997 appearing elsewhere in this Report.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL INFORMATION
The following table sets forth certain selected financial information
derived from the Company's consolidated financial statements for the five year
period ended December 31, 1997. The financial information for the five-year
period ended December 31, 1997 has been derived from the Company's consolidated
financial statements as audited by its independent accountants Coopers & Lybrand
L.L.P. The balance sheet and statement of operations information as of and for
the eleven-month period ended November 30, 1993, relate to the businesses
conducted through Sporting Goods prior to the Acquisition. The consolidated
balance sheet and consolidated income statement information as of and for the
one-month period ended December 31, 1993 and as of and for the four years ended
December 31, 1994, 1995, 1996 and 1997, respectively, relate to Remington and
its operations. Generally, the comparability of the Company's results of
operations for the years ended December 31, 1997, 1996, 1995 and 1994 and the
one-month period ended December 31, 1993, to its results of operations for the
eleven-month period ended November 30, 1993 are significantly limited because of
the effects of the Acquisition. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Company's consolidated financial statements and related
notes and other financial information included elsewhere in this Report.
<TABLE>
<CAPTION>
REMINGTON
----------------------------------------------------------------------- SPORTING GOODS
BUSINESS ELEVEN
ONE MONTH MONTHS
YEAR ENDED DECEMBER 31 ENDED ENDED
--------------------------------------------------------- DEC. 31 NOV. 30
1997 1996 1995 1994 1993 1993
---- ---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA: (Dollars In Millions Except Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Sales (a).............................. $381.2 $ 390.4 $427.0 $417.7 $ 19.2 $346.9
Gross Profit (b)....................... 111.3 108.7 134.3 123.5 3.0 99.4
Operating Expenses (b)................. 78.7 94.8 92.8 87.1 5.1 92.8
Restructuring And Nonrecurring Items... - 9.6 - - - -
Operating Profit (Loss)................ 32.6 4.3 41.5 36.4 (2.1) 6.6
Interest Expense....................... 23.6 25.1 21.5 20.6 1.5 5.3
Profit (Loss) Before Income Taxes...... 9.0 (20.8) 20.0 15.8 (3.6) 2.0
Net Income (Loss) Before
Effect of Accounting Changes........... 5.5 (13.8) 11.5 9.4 (2.3) 1.4
Effect of Changes In Accounting
For Postretirement Benefits
other than Pensions and
Postemployment Benefits (c)............ - - - - - (74.1)
Net Income (Loss)...................... 5.5 (13.8) 11.5 9.4 (2.3) (72.7)
Basic & Diluted Net Income (Loss) Per
Common Share.. ..................... 7.33 (18.40) 15.33 12.53 (3.07) -
Ratio Of Earnings To Fixed Charges (d). 1.4x 0.2x 1.9x 1.8x - -
Operating And Other Data:
EBITDA (e)............................. $ 52.2 $ 29.4 $ 56.0 $ 68.0 $ 1.4 $ 16.8
EBITDA Margin (e)(f)................... 13.7% 7.5% 13.1% 16.3% 7.3% 4.8%
Depreciation and Amortization(g)....... 15.1 13.9 11.7 10.4 1.0 9.5
Other Noncash Charges (h).............. 3.7 - - 16.8 2.5 -
Nonrecurring and Restructuring
Expense(i)............................. 0.8 11.2 2.8 4.4 - -
Ratio of Ebitda to Interest
Expense (e) ........................... 2.2x 1.2x 2.6x 3.3x 0.9x 3.2x
Consolidated Fixed Charge Coverage
Ratio (j).............................. 2.2x 0.7x 2.4x 3.1x 0.9x 3.0x
Capital Expenditures................... 5.8 22.5 18.9 9.3 0.8 9.1
Cash flows provided by (used in):
Operating Activities................... 55.9 (2.7) (12.5) 48.8 30.8 23.5
Investing Activities................... (5.8) (22.5) (17.5) (16.2) (307.4) (9.1)
Financing Activities................... (59.1) 33.4 (10.5) (9.7) 295.6 (14.4)
Balance Sheet Data (end of period):
Working Capital........................ $108.2 $ 136.1 $125.0 $131.3 $ 125.8 $ 93.9
Total Assets........................... 380.7 435.0 404.4 403.3 403.2 175.6
Total Debt (k)......................... 195.0 253.1 213.2 219.8 229.4 -
Shareholders' Equity................... 86.3 79.8 93.6 82.1 72.7 115.0
</TABLE>
(Footnotes on following page)
18
<PAGE>
(FOOTNOTES)
______________
(a) Sales are presented net of federal excise taxes. Excise taxes were $28.8
for the eleven-month period ended November 30, 1993 and $1.4 million for
the one-month period ended December 31, 1993, $33.7 million, $36.0 million,
$31.7 million and $31.0 million for the years ended December 31, 1994,
1995, 1996 and 1997, respectively.
(b) Property and payroll taxes of $6.6 million for the eleven-month period
ended November 30, 1993 and $0.4 million for the one-month period ended
December 31, 1993, $7.1 million, $7.4 million and $6.6 million for the
years ended December 31, 1994, 1995 and 1996, respectively, have been
reclassified from operating expenses to cost of goods sold to conform with
the current presentation format.
(c) Effective January 1, 1993 the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits (an amendment of FASB Statements No. 5 and 43)."
The Company recorded charges of $74.1 million to its net income for the
eleven-month period ended November 30, 1993 for the cumulative effect of
transition to this new standard.
(d) For purposes of computing this ratio, earnings consists of earnings before
income taxes and fixed charges, excluding capitalized interest. Fixed
charges consists of interest expense, capitalized interest, amortization of
discount on indebtedness and one-third of rental expense (the portion
deemed representative of the interest factor). Earnings were inadequate to
cover fixed charges for the year ended December 31, 1996, the eleven-month
period ended November 30, 1993 and the one-month period ended December 31,
1993 by $22.6 million, $72.1 million and $3.6 million, respectively.
However, excluding the impact of the $74.1 million cumulative effect of an
accounting change noted above, the ratio of earnings to fixed charges for
the eleven month period ended November 30, 1993 would have been 1.4x.
(e) EBITDA as presented is calculated in accordance with the definition of that
term contained in the Company's Credit Agreement, and may not be comparable
to similar measures reported by other companies. Generally, the Credit
Agreement defines EBITDA 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, and the Ratio of EBITDA to Interest Expense,
are 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.
(f) Represents EBITDA as a percentage of revenues.
(g) Excludes amortization of deferred financing costs of $1.7 million, $1.6
million, $1.5 million and $1.7 million in 1997, 1996, 1995 and 1994,
respectively, which is included in interest expense.
(h) Non-cash charges consist of a pension accrual of $3.2 million and $0.5
million loss on disposal of assets in 1997, an Acquisition-related
inventory charge of $16.8 million in 1994 and $2.5 million in the one month
ended December 31, 1993.
(i) Nonrecurring and restructuring expenses excluded in calculating EBITDA
consist of the following: (1) for 1997, $0.8 million of unusual and
nonrecurring charges; (2) for 1996, $4.9 million in restructuring charges,
a $4.7 million nonrecurring charge related to resolving a dispute with the
Sellers, and $1.6 million for corporate relocation and employee retraining;
(3) for 1995, $2.8 million in nonrecurring charges for computer system
implementation and $1.0 million for corporate relocation, net of a $1.0
million nonrecurring research and development-related benefit; and (4) for
1994, $2.3 million for relocating and consolidating the Company's research
and development function, $1.8 million in nonrecurring charges for computer
system implementation, and $0.3 million for discontinuing the Company's
apparel business.
19
<PAGE>
(j) The Consolidated Fixed Charge Coverage Ratio is a financial measure used in
the Indenture to determine when the Company can incur certain kinds of new
debt and engage in certain other transactions. It measures the ratio of
(a) the sum of Consolidated Net Income, Consolidated Interest Expense,
Consolidated Income Tax Expense and Consolidated Non-Cash Charges
(including depreciation, amortization and other non-cash charges) deducted
in computing Consolidated Net Income (Loss), all determined in accordance
with GAAP, to (b) the sum of Consolidated Interest Expense and cash
dividends paid, if any, on any Preferred Stock, as each of these terms is
defined in the Indenture. Generally, the principal difference between the
Ratio of EBITDA to Interest Expense and the Consolidated Fixed Charge
Coverage Ratio arises from the exclusion of nonrecurring and restructuring
expenses in calculating EBITDA.
(k) Total debt consists of long-term debt, current portion of long-term debt,
and capital lease commitments.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Financial Information" and the Company's consolidated financial
statements and related notes and the other financial information appearing
elsewhere in this Report.
OVERVIEW
General
- -------
The following discussion and analysis relates to Holding, its subsidiary
Remington, and Remington's wholly owned subsidiary, Remington International,
Ltd., on a consolidated basis. Holding has virtually no operations and its only
significant asset is its investment in Remington.
The Company operates in one industry segment, and its sales are derived
primarily from two sources: sales of firearm products and sales of ammunition
products. These two product lines accounted for approximately 86% of the
Company's sales in 1997 and 87% of the Company's sales in 1996 and 1995. Other
Company product lines include firearm-related accessories, clay targets,
fishline and related fishline accessories.
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 was
needed to fill orders. This continued shift in customer buying patterns resulted
in a modest softness in demand for the Company's products during 1996 and 1997.
Although tighter inventory control practices have caused, and are likely to
continue to cause, the Company to experience increased liquidity and working
capital requirements to meet customers' shorter lead time order requirements,
management believes that demand will stabilize as customers' inventories reach
their targeted levels.
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 of 1997. The 1998 sales plan year began
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
20
<PAGE>
awareness, introducing new products and containing costs. In 1996, the Company
undertook a number of cost containment initiatives, strengthened the management
team and improved operating efficiencies at the manufacturing facilities. The
majority of the benefits from the 1996 restructuring initiatives were realized
in 1997. During 1997 the Company's management team continued to focus on
controlling costs. The Company will continue to review all aspects of the
Company's operations with a view towards managing costs in response to
competitive pressures.
RESULTS OF OPERATIONS
The following table shows, for the periods indicated, the percentage
relationships to sales of certain selected financial data. Management's
discussion and analysis of the Company's results of operations compares 1997 to
1996 results, and 1996 to 1995 results.
<TABLE>
<CAPTION>
HOLDING AND REMINGTON
---------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996(1) 1995(1)
------------ ------------ ------------
<S> <C> <C> <C>
Sales 100% 100% 100%
Cost of Goods Sold 71% 72% 69%
Gross Profit 29% 28% 31%
Operating Expenses 20% 24% 21%
Restructuring and Nonrecurring Items 0% 3% 0%
Operating Profit 9% 1% 10%
Net Income (Loss) 1% (4)% 3%
</TABLE>
(1) Property and payroll taxes of $6.6 million and $7.4 million,
respectively, have been reclassified from operating expenses to cost of goods
sold to conform with the current presentation format.
Year Ended December 31, 1997 as Compared to Year Ended December 31, 1996
- ------------------------------------------------------------------------
Sales. Sales for year ended December 31, 1997 were $381.2 million, a
-----
decrease of $9.2 million, or 2%, from 1996 sales of $390.4 million. The decline
in sales was primarily due to lower demand for the Company's firearms products.
The Company believes the decline in demand for firearms was primarily due to a
continued tightening of inventories by customers. See "Results of Operations --
Business Trends and Initiatives."
Firearms sales decreased $8.7 million, or 5%, to $169.5 million for the
year ended December 31, 1997 from $178.2 million in 1996. The Company believes
the decrease was primarily the result of customers' tighter inventory management
practices which created a modest softness in demand for firearms products
partially offset by increased prices. Firearms sales for 1997 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 1997 were $159.3 million, a decrease of $0.9 million,
or less than 1% reduction from 1996 sales of $160.2 million. The decrease in
ammunition sales was primarily due to a slight change in the mix of products
sold.
Sales of fishing products increased in 1997 from 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 1997
in comparison to the prior year, primarily due to higher sales volumes resulting
from new product introductions.
21
<PAGE>
Cost of Goods Sold. Cost of goods sold for 1997 was $269.9 million, a
------------------
decrease of $11.8 million, or 4%, versus $281.7 million for 1996. This decrease
resulted principally from the corresponding decrease in sales discussed above
combined with lower manufacturing costs. The Company's manufacturing costs were
lower than the prior year primarily as a result of management's emphasis on
controlling costs and improving efficiencies coupled with the positive effects
of lead and copper price decreases on the cost of raw materials in the
ammunition business. These reductions in manufacturing costs were partially
offset by start-up costs at the Company's facility in Mayfield. Cost of goods
sold as a percentage of sales decreased between the two periods from 72% in 1996
to 71% in 1997.
Gross Profit. Gross profit was $111.3 million for 1997, an increase of
------------
$2.6 million, or 2%, from 1996 gross profit of $108.7 million. The increase in
gross profit was primarily due to lower manufacturing costs as previously
discussed and increased prices on the Company's firearms products, partially
offset by lower sales volume in the Company's firearms business and, to a lesser
extent, start-up costs at the Mayfield facility.
Operating Expenses. Operating expenses consist of selling, general and
------------------
administrative expenses; research and development expense; and other expense.
Operating expenses for 1997 were $78.7 million, a decrease of $16.1 million, or
17%, from $94.8 million for 1996 for the reasons set forth below. Property and
payroll taxes of $6.6 million for 1996 have been reclassified from operating
expenses to cost of goods sold to conform with the current presentation format.
Selling, general and administrative expenses for 1997 were $71.2 million, a
decrease of $11.6 million, or 14%, from $82.8 million for 1996. The decrease
between the two periods was primarily attributable to lower expenditures as a
result of the restructuring in 1996 and 1997, 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 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 21% of sales in 1996 to 19% of sales
in 1997 primarily as a result of the reduction in costs discussed above.
Research and development expenses were $7.4 million for 1997, a $2.8
million, or 27% decrease from $10.2 million in 1996. The decrease in research
and development expenses was primarily a result of a more focused approach
toward spending on research and development activities.
Operating Profit. Operating profit increased to $32.6 million for 1997, an
----------------
increase of $28.3 million from 1996's operating profit of $4.3 million.
Operating profit for 1996, however, included a restructuring charge of $9.6
million 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 this restructuring
charge from 1996, operating profit increased from $13.9 million for 1996 to
$32.6 million for 1997 primarily as a result of decreases in operating expenses
and higher gross profit as discussed above.
Interest Expense. Interest expense for the year ended December 31, 1997
----------------
was $23.6 million, a decrease of $1.5 million, or 6%, from the 1996 level of
$25.1 million. The decrease in interest expense was primarily due to lower term
debt levels resulting from scheduled debt repayments, and to a lesser extent,
lower average borrowings on the Company's revolving credit facility (the
"Revolving Credit Facility") under its senior bank credit agreement (as amended,
the "Credit Agreement") and a reduction in the interest rate on the Senior
Subordinated Notes due 2003, Series B from 10% to 9.5% effective June 23, 1997.
Net Income / Loss. Net income for 1997 was $5.5 million, an increase of
-----------------
$19.3 million from 1996 net loss of $13.8 million. However, excluding the
restructuring and nonrecurring charges from 1996 results, net income for 1997
increased $13.5 million over the 1996 net loss of $8.0 million. The increase
in net income was due primarily to the factors discussed above.
Year Ended December 31, 1996 as Compared to Year Ended December 31, 1995
- ------------------------------------------------------------------------
Sales. Sales for the year ended December 31, 1996 were $390.4 million,
-----
which was $36.6 million, or 9%, lower than 1995 sales of $427.0 million. The
decline in sales was primarily due to lower demand for the Company's firearms
products and ammunition products, partially offset by increased sales of
accessories products and higher firearms prices. The Company believes the
decline in demand in 1996 was primarily due to several key customers,
22
<PAGE>
including Wal-Mart, instituting tighter inventory control practices to reduce
inventory levels. These changes had the effect of reducing the Company's sales
of new firearms and ammunition products during 1996 in comparison to 1995.
Firearms sales decreased $24.4 million or 12% to $178.2 million for the
year ended December 31, 1996 from $202.6 million in 1995. The decrease was
primarily due to decreased sales of the Company's less expensive shotguns and
rifles, partially offset by increased sales of black powder guns and higher
firearms prices. The Company believes that lower demand for its less expensive
shotguns and rifles is due to tighter inventory management practices by several
key customers, which are the Company's primary customers for such less expensive
firearms.
Ammunition sales for 1996 were $160.2 million, $13.6 million, or 8%, lower
than 1995 sales of $173.8 million. The Company believes that the sales decline
for 1996 was primarily due to the changes in customers' inventory management
practices discussed above. In addition, the Company believes that the first
quarter of 1995 was an exceptional quarter and represented a continuation of the
strong market for ammunition experienced in 1994, and that a portion of the
decline between the two years was due to the exceptional results in the first
quarter of 1995.
Fishline product sales decreased between 1995 and 1996 primarily due to
lower volumes and prices. Sales of accessory products increased primarily due
to increased sales of gun safes.
Cost of Goods Sold. Cost of goods sold for 1996 was $281.7 million, a
-------------------
decrease of $11.0 million, or 4%, versus $292.7 million for 1995. Cost of goods
sold increased between the two periods as a percentage of sales from 69% in 1995
to 72% in 1996. Cost of goods sold increased as a percentage of sales primarily
due to lower sales volumes of both firearms and ammunition products and higher
manufacturing costs in the Company's firearms business. Increased costs
associated with production line changes to meet increased demand for centerfire
rifles, price increases on purchased parts, and costs related to the lengthening
of the traditional end-of-year shutdown period, were the primary factors
contributing to the higher overall manufacturing costs.
Gross Profit. Gross profit was $108.7 million for 1996, a decrease of
-------------
$25.6 million, or 19%, from 1995 gross profit of $134.3 million. Gross profit
margins declined from 31% in 1995 to 28% in 1996 as a percentage of sales. The
decrease in gross profit dollars between the two periods was related to lower
sales volume in the Company's firearms and ammunition businesses and the higher
firearms manufacturing costs as discussed above, partially offset by higher
pricing on the Company's firearms products.
Operating Expenses. Operating expenses consist of selling, general and
-------------------
administrative expenses; research and development expense; and other expense.
Operating expenses in 1996 were $94.8 million, an increase of $2.0 million, or
2%, from $92.8 million for 1995. This increase resulted from a $4.9 million
increase in research and development expenses and a $1.6 million increase in
other income and expenses, partially offset by a $4.5 million decrease in
selling, general and administrative expenses. Property and payroll taxes of
$6.6 million for 1996 and $7.4 million for 1995 have been reclassified from
operating expenses to cost of goods sold to conform with the current
presentation format.
Selling, general and administrative expenses for 1996 were $82.8 million, a
decrease of $4.5 million, or 5%, from $87.3 million in 1995. The decrease in
expenses between the periods was primarily the result of a reduction in bad debt
expense, reduced marketing expenditures, lower incentive compensation charges,
and elimination of transitional service fees charged by DuPont for systems and
services provided prior to implementation of the Company's new computer system
during the second quarter of 1995. Bad debt expense was lower in 1996 than 1995
due to increased efforts in the collection and resolution of disputed amounts.
These decreases were partially offset by continued costs associated with the
implementation of a new computer system and higher outside professional fees.
Selling, general and administrative expenses increased from 20% of sales in 1995
to 21% of sales in 1996 primarily as a result of the lower sales discussed
above.
Research and development expenses were $10.2 million for 1996, an increase
of $4.9 million, from $5.3 million in 1995. Research and development expenses
for 1995, however, include a benefit of $1.0 million as the actual relocation
costs for the Company's consolidation of its research and development function
into a new facility in Elizabethtown, Kentucky were less than estimated.
Excluding the nonrecurring benefit from 1995, research and development expense
increased $3.9 million. This increase was primarily due to the Company's
strategy to increase
23
<PAGE>
spending on new product development and the effect of full period operations of
the new research and development facility on 1996 results.
Restructuring and Nonrecurring Items. The Company recorded charges for
-------------------------------------
restructuring in 1996 of $4.9 million. The restructuring was undertaken to
reduce production levels, plant overhead expenses 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, hourly and bargaining unit employees during the
year. The charges incurred include estimated costs for employee severance and
other benefits of $3.2 million, lease costs of $0.7 million and other expenses
of $1.0 million.
In December 1996, the Company and the Sellers resolved questions that had been
raised by the Sellers concerning certain product liability related costs that
the Company had allocated to the Cap or that were billed to cases for which the
Sellers assumed responsibility under the Asset Purchase Agreement. As a result
of this agreement between the Sellers and the Company, the Company recorded a
nonrecurring charge of $4.7 million. See "Legal Proceedings."
Operating Profit. Operating profit declined to $4.3 million for 1996, a $37.2
-----------------
million or 90% decrease from 1995's operating profit of $41.5 million, primarily
due to lower gross profit and the impact of restructuring and nonrecurring
items, as discussed above.
Interest Expense. Interest expense for the year ended December 31, 1996
----------------
was $25.1 million, an increase of $3.6 million, or 17%, from the 1995 level of
$21.5 million. The increase in interest expense was primarily due to additional
borrowings on the Company's Revolving Credit Facility and slightly higher
interest rates on the Company's term loan and revolving credit borrowings,
partially offset by lower interest on the Company's term loan borrowings due to
scheduled debt repayments.
Net Income / Loss. Net loss for 1996 was $13.8 million, a decrease of
------------------
$25.3 million from 1995 net income of $11.5 million. However, excluding the
restructuring and nonrecurring charges from 1996 results, net loss was $8.0
million for 1996 compared to net income of $11.5 million for 1995, decreasing
$19.5 million.
TAXES
The Company's balance sheet as of December 31, 1997 includes net deferred tax
assets in the amount of $22.4 million. See Note 16 to the Company's
consolidated financial statements for the year ended December 31, 1997 appearing
elsewhere in this Report. Excluding the $13.7 million of deferred tax assets
related to postretirement benefits, the Company must generate approximately $23
million in future taxable income to realize the deferred tax assets. The
postretirement benefits asset is not expected to reverse for approximately 20
years. Management expects that the Company will generate sufficient taxable
income in future periods to fully utilize all deferred tax assets. Accordingly,
the Company has not established a valuation allowance against the net deferred
tax assets.
The Company's effective tax rate for 1997 of 39% is higher than the Federal
statutory rate due principally to the impact of state income taxes and certain
non-deductible expenses. At December 31, 1997, the Company had a $15.0 million
net operating loss carryforward for income tax purposes that expires in 2011.
The Company's effective tax rate for 1996 was 33.7% which approximates the
Federal statutory rate. The Company's effective tax rate for 1995 of 42.5% is
higher than the Federal statutory rate due principally to the impact of state
income taxes and certain non-deductible expenses.
Holding and Remington file a consolidated return for Federal income tax
purposes. As a result of the Acquisition, the Company's Federal income tax
basis for its assets approximates the fair market value of those assets on the
Acquisition date. The excess of the sum of the adjusted purchase price, assumed
liabilities and capitalizable and deductible acquisition costs over the
aggregate tax basis of such assets will generally be amortizable over 15 years
and deductible for Federal income tax purposes. Such amortization deductions,
other deductions resulting from the adjusted tax basis for such assets, and
deductions for interest on the Company's indebtedness will reduce the Company's
taxable income for periods after the Acquisition.
24
<PAGE>
RECENT PURCHASING PATTERNS; SEASONALITY
The Company's firearms products that are generally used during the fall
hunting season may be purchased under an early order or "dating" plan. Under
the dating plan, the Company allows a distributor to purchase these products
commencing in December, the start of the Company's dating plan year, and to pay
for them on extended terms. Discounts are offered for early payment under this
plan. Discounts amounting to $3.6 million, $4.6 million and $4.1 million were
given in 1997, 1996 and 1995, respectively. The Company believes that allowing
extended payment terms for early orders helps to level out the demand for these
otherwise seasonal products throughout the year. Historically, use of the
dating plan has had the effect of shifting some firearms sales from the second
and third quarters to the first quarter. The Company believes that the dating
plan helps facilitate a more efficient manufacturing schedule. Use of the dating
plan, however, also results in significant deferral of collection of accounts
receivable until the latter part of the year.
The Company had a separate program in 1996 and 1995 prior to shipment, now
discontinued, that provided an incentive to prepay for ammunition purchases
prior to shipment. While the Company believes that allowing both extended
payment terms for early orders and discounts for prepayment helps to level out
the demand for these otherwise seasonal products throughout the year, the
Company discontinued the ammunition prepayment program effective with the 1997
sales year in response to competitive actions. The Company is selling the
majority of its ammunition products on terms of 90 days or less and offering
discounts for earlier payments. Effective with the 1998 sales year, an early
order program was instituted which allows customers an additional 30 days to pay
for ammunition purchased prior to April 1, 1998.
As a result of the seasonal nature of the Company's sales, combined with
the Company's dating plan billing practices, the Company's working capital
financing needs generally have significantly exceeded cash provided by
operations during the middle of a year, until its deferred accounts receivable
were collected in the third and fourth quarters. As a result, the Company's
working capital financing needs tend to be greatest during the spring and summer
months, decreasing during the fall and reaching their lowest point during the
winter. See "Business -- Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
- ----------
The Company's operating activities provided cash of $55.9 million for the
year ended December 31, 1997 primarily as a result of net income adjusted for
non-cash items and improved management of working capital. Accounts receivable
decreased $14.8 million to $56.3 million and inventories decreased $11.9
million to $90.0 million primarily as a result of the Company's ongoing working
capital management program to help maximize cash from operations. Net cash used
in investing activities in 1997 was $5.8 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 1997 was $59.1 million, primarily resulting from $20.8
million in principal payments on outstanding indebtedness (including capital
leases) and a net repayment of $39.1 million on the Revolving Credit Facility.
Cash flow from operating activities for the year ended December 31, 1997 was
sufficient to fund the Company's capital expenditure program, scheduled
principal payments on outstanding indebtedness and a significant reduction in
amounts outstanding under the Revolving Credit Facility.
Net cash used in operating activities for the year ended December 31, 1996
was $2.7 million, resulting primarily from elimination of the Company's
ammunition prepayment program as discussed above, nonrecurring cash payments
(consisting primarily of $4.7 million for the relocation of the Company's
corporate headquarters and $1.5 million in restructuring costs) and an increase
in inventories (as a result of lower demand for the Company's products) in
response to which the Company undertook a number of cost containment
initiatives. See "Results of Operations-- Business Trends and Initiatives."
These uses of cash were substantially offset by extended payment terms which the
Company negotiated with many of its major suppliers in 1996 that increased
accounts payable from $14.6 million at December 31, 1995 to $32.9 million at
December 31, 1996. Net cash used in investing activities in 1996 was $22.5
million, principally consisting of investments in property and facilities in
Mayfield and Elizabethtown, Kentucky and Madison, North Carolina. Net cash
provided by financing activities in 1996 was $33.4 million, primarily resulting
from increased revolving credit borrowings of approximately $50 million offset
in part by $15 million in principal payments on term loan borrowings under the
Company's Credit Agreement.
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<PAGE>
Net cash used in operating activities for the year ended December 31, 1995
was $12.5 million, resulting primarily from an increase in accounts receivable
at year-end which was the result of sales in November and December 1995 being
approximately $16 million higher than the same period in 1994 and also due to
extended terms given to international customers under a Winter Sales Program on
November and December 1995 sales. Net cash used in investing activities in 1995
was $17.5 million, principally consisting of the Company's investment in a new
computer system, and buildings and equipment related to the new research and
development facility in Elizabethtown, Kentucky. Net cash used in financing
activities in 1995 was $10.5 million, principally consisting of principal
payments on term loan borrowings offset in part by increased revolving credit
borrowings.
Working Capital
- -----------------
Working capital decreased from $136.1 million at December 31, 1996 to
$108.2 million at December 31, 1997 primarily as a result of the Company's
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 December 31, 1997 the accounts
receivable balance was $56.3 million, a $14.8 million reduction from the
December 31, 1996 ending balance and inventories were $90.0 million, an $11.9
million reduction from the December 31, 1996 ending balance.
Capital Expenditures
- --------------------
Capital expenditures were $5.8 million, $22.5 million and $18.9 million in
1997, 1996 and 1995, respectively. Approximately 17% of the 1997 capital
expenditures were related to the new firearms manufacturing facility in
Mayfield, Kentucky. The remainder of the capital expenditures in 1997 were
principally for maintenance of operations and improvement projects concentrated
on enhancing the efficiency of existing facilities. The Company anticipates that
capital expenditures in 1998 will be approximately $8.8 million, principally for
maintenance of operations and improvement projects concentrated on enhancing the
efficiency of existing facilities. The Company expects to fund capital
expenditures primarily from operational cash flow.
Liquidity
- ---------
The Company incurred substantial indebtedness in connection with the
Acquisition. As of December 31, 1997, the Company had outstanding approximately
$195.0 million of indebtedness, consisting of approximately $99.6 million
($100.0 million face amount) in 9.5% Senior Subordinated Notes due 2003, Series
B (the "New Notes"), $68.2 million in term loan borrowings, $19.9 million in
revolving credit borrowings under the Credit Agreement, $5.3 million in capital
lease obligations, and $2.0 million of other long-term debt. As of December 31,
1997 the Company also had aggregate letters of credit outstanding of $5.9
million.
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 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. See "--
Cash Flows." 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.
Financial Instruments
- ---------------------
The Company has only limited involvement with financial instruments and
does not use them for trading purposes. Financial instruments, which are a type
of financial derivative instrument, are used to manage well-defined interest
rate and commodity price risks. The criteria to qualify for hedge accounting are
that the instrument must be related to an asset, liability, firm commitment or
anticipated transaction that is probable and whose characteristics and terms
have been identified. In addition, the investment must reduce the risks of
commodity price movements or change the character of the interest rate.
26
<PAGE>
The estimated value of the Company's debt at December 31, 1997 was $192.4
million compared to a carrying value of $195.0 million. The estimated value of
the Company's debt at December 31, 1996 was $234.5 million compared to a
carrying value of $253.1 million.
The Company was not a party to any interest rate cap, hedging or other
protection arrangements with respect to its variable rate indebtedness as of
December 31, 1996 or December 31, 1997. The Company had two interest rate cap
agreements that expired in June, 1996. Prior to their termination, these caps
had reduced the potential impact of increases in interest rates on approximately
50% of the Company's variable rate term loan debt under the Credit Agreement.
The estimated fair value of the caps at December 31, 1995 was approximately $0.1
million. See Note 18 to the Company's consolidated financial statements for the
year ended December 31, 1997 appearing elsewhere in this Report.
Commodity call options, swaps and futures are used to hedge the price risk
related to firm commitments and anticipated purchases of lead and copper to be
used in the manufacture of the Company's products. Call options give the
Company the right to purchase a specified amount of metal at a fixed price on a
pre-determined date for an up front fee. Swaps are purchased at a percentage of
the face amount and additional payments are then made or received based on the
difference between the pre-determined metal price and the actual metal price on
specified dates. The futures contracts are a commitment to purchase a given
amount of metal at an agreed upon price on a future date. The face amount of
commodity contracts outstanding at December 31, 1997, 1996 and 1995 was $0.6
million, $1.3 million and $3.4 million, respectively. At December 31, 1997,
1996 and 1995, the market value of the Company's outstanding contracts relating
to firm commitments and anticipated purchases up to one year from the respective
balance sheet date was $0.2 million, $1.2 million and $3.4 million,
respectively. As of December 31, 1997 and 1995 hedging losses related to closed
commodity futures contracts of $0.2 million and $0.1 million, respectively, were
included in inventory. There were no hedging losses included in inventory at
December 31, 1996. See Note 18 to the Company's consolidated financial
statements for the year ended December 31, 1997 appearing elsewhere in this
Report.
Credit Agreement
- ----------------
The Company is currently party to the Credit Agreement with The Chase
Manhattan Bank ("Chase"), Union Bank of Switzerland ("UBS") and certain other
lenders, which was initially entered into in connection with the Acquisition.
The Credit Agreement provides for a term loan facility (the "Term Loan
Facility"), originally in an aggregate principal amount of $130 million, in
addition to the Revolving Credit Facility. Both facilities have a final
maturity of December 31, 2000. Up to $40 million of Revolving Credit Facility
availability may be used for standby and commercial letters of credit. In
addition, for at least 30 consecutive days of each 12-month period commencing on
December 1, outstanding amounts under the Revolving Credit Facility are limited
to $60 million or less.
The obligations under the Credit Agreement are guaranteed by Holding and
are secured by a pledge of the Company's capital stock and by pledges of and
security interests in substantially all the Company's property and assets. 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. Since September 1995, the Company has
obtained four amendments to its Credit Agreement, which, among other things,
modified (i) the minimum earnings, minimum interest coverage ratio and net worth
covenants to decrease the required levels, (ii) the maximum debt to earnings
ratio covenant to increase the permissible debt levels and (iii) the capital
expenditure covenant initially to increase but ultimately to reduce the
permissible levels of capital expenditures. The Company sought these
modifications in part because of the earnings impact of decreased ammunition and
firearms sales volumes and the additional interest expense resulting from
increased working capital borrowings due to changes in customer purchasing
patterns, and in part to make longer term adjustments to the covenant
requirements. See "-- Results of Operations" and "-- Recent Purchasing Patterns;
Seasonality." As of December 31, 1997, after giving effect to these
modifications, the Company was in compliance in all material respects with the
financial covenants under the Credit Agreement.
In accordance with the Credit Agreement, the Company made scheduled
principal payments on the term loans thereunder of $18.2 million in 1997, $13.6
million in 1996, $9.3 million in 1995 and $10.0 million in 1994. The Credit
Agreement requires the Company to make further quarterly principal payments on
the term loans thereunder (after pro rata reduction for certain prepayments and
subject to further pro rata or other reduction, if any, in the future) in an
aggregate amount of approximately $18.2 million in 1998, $22.7 million in 1999
and $27.3 million in 2000 with all
27
<PAGE>
remaining amounts then outstanding under the Credit Agreement to be repaid on
December 31, 2000. The Credit Agreement also requires the Company to make
mandatory prepayments on the term loans thereunder annually, in an amount equal
to 50% of the Company's Excess Cash Flow (as defined therein) for the preceding
fiscal year. Any such prepayment will result in a pro rata reduction in all
subsequently scheduled principal payments on such term loans, except that any
such payment made within the twelve months prior to the date on which an
installment or other payment of principal is scheduled to be paid on the term
loans may, at the option of the Company, be applied first to such installment or
other payment. The Company made a prepayment of approximately $10.7 million in
1995 for the year ended December 31, 1994. The Company did not have Excess Cash
Flow for the years ended December 31, 1997, 1996 or 1995 and accordingly no such
prepayment is required in 1998 nor was a prepayment made in 1997 or 1996.
Loans under the Credit Agreement generally bear interest, at the Company's
option, at a variable rate equal to either (i) the rate that is the highest of
the administrative agent's prime rate, or certain alternative rates, in each
case plus up to 1.25% per annum, or (ii) the rate at which certain Eurodollar
deposits are offered in the interbank Eurodollar market plus up to 2.50% per
annum. The interest rate on the Company's Credit Agreement borrowings can be
reduced by 0.25% to 1.0% per annum from the levels originally in effect if the
Company meets certain financial ratios, based on EBITDA and consolidated
interest expense, for the four quarters most recently ended. Once reduced, such
interest rate can also be increased up to the original levels if the Company no
longer meets the financial ratios making it eligible for interest rate
reduction. The interest rate currently applicable to borrowings under the
Credit Agreement is the maximum rate provided for thereunder. The weighted
average interest rate for borrowings under the Term Loan was 8.2% per annum in
1997 and 8.1% per annum in 1996. The weighted average interest rate for
borrowings under the Revolving Credit Facilities was 8.4% in 1997 and 1996.
Notes
- -----
In connection with the Acquisition, the Company issued $100 million
aggregate principal amount of its 9.5% Senior Subordinated Notes due 2003,
Series A ( the "Old Notes" together with the New Notes, the "Notes"). On June
23, 1997 the Company completed its offer to exchange (the "Exchange Offer") up
to $100 million aggregate principal amount of Remington's New Notes for a like
principal amount of Remington's issued and outstanding Old Notes. All of the
Old 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 9.5% per annum. The
reduction in interest payments will amount to $0.5 million per year. Interest
on the Notes is payable semi-annually and principal is payable at maturity on
December 1, 2003.
PRODUCT LIABILITY
For information concerning product liability cases and claims involving the
Company, see "Legal Proceedings." 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, which has been
exhausted, 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 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 Seller's agreement to be responsible for
certain post-Closing firearm-related costs), 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. Because of the nature
of its products, the Company anticipates that it will continue to be involved in
product liability cases and claims in the future.
In December 1996, the Company and the Sellers resolved questions that had been
raised by the Sellers concerning certain product liability related costs that
the Company had allocated to the Cap or that were billed to cases for which the
Sellers assumed responsibility under the Asset Purchase Agreement. As a result
of this agreement
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<PAGE>
between the Sellers and the Company, the Company recorded a nonrecurring charge
of $4.7 million. This charge in effect increased the product liability portion
of the Cap from $24.5 million to $28.4 million. See "Legal Proceedings."
Since December 1, 1993 the Company has maintained insurance coverage for
product liability claims for personal injury or property damage relating to
occurrences after the Closing, subject to certain self-insured retentions both
on a per-occurrence basis and in the aggregate. The current insurance policy
extends through November 30, 2000. Based on actual defense and disposition costs
incurred by the Company and Sporting Goods with respect to product liability
cases and claims in recent years, management estimates that the Company's
liability for product liability cases and claims relating to occurrences during
1997 will be in the range of $3.1 million to $7.0 million, and that the
liability for product liability cases and claims relating to occurrences during
1996 and 1995 will be in the range of $4.5 million to $9.0 million per year.
Management estimates that the amount of the self insured retention accrued each
year will be paid out over the following three to five years. The Company
charged $4.3 million, $5.7 million and $6.5 million of payments for product and
environmental liabilities (including pre-Acquisition occurrences which were
subject to the Cap) in the years ended December 31, 1997, 1996 and 1995,
respectively, against the amounts previously accrued.
YEAR 2000 COMPLIANCE
In 1995, the Company decided to replace most of the existing computer systems
at its various facilities with an integrated system, in which all facilities
would use the same software. The Company would have undertaken this upgrade
regardless of the need to address the year 2000 problem and has therefore
capitalized the cost of the new system. The new system is able to accommodate
the year 2000 dating changes necessary to permit correct recording of year
dates for 2000 and later years. Most of the Company's computer systems other
than manufacturing are utilizing this new software, and the Company is currently
in the process of converting its manufacturing computer systems. 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 remaining 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.
ACQUISITION ACCOUNTING
On December 1, 1993, the Company acquired the Business from the Sellers
through the Acquisition. The Company accounted for the Acquisition using the
purchase accounting method, in accordance with Accounting Principles Board
Opinion No. 16. Accordingly, the adjusted purchase price of $299.8 million (net
of a $0.2 million post-Acquisition purchase price adjustment in the Company's
favor) and other acquisition costs which together total $313.5 million, have
been allocated to the assets and liabilities acquired, based on their respective
fair values as of the Acquisition date. Intangible assets arising from the
Acquisition, consisting principally of goodwill and trade names of $95.9
million, are being amortized over their estimated useful lives, generally 40
years.
ADOPTION OF NEW ACCOUNTING STANDARDS
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 Company adopted SFAS No.
128 effective with the reporting period ended December 31, 1997. The new
standard simplified 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 does not include the effect of any potentially
dilutive securities, as under the previous accounting standard, and is 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 reflects the dilution of all potentially dilutive securities. Companies were
required to restate all prior period earnings (loss) per share data. The
adoption of this standard by the Company had no impact on the historical
reported earnings (loss) per share amounts since the effect of potentially
dilutive securities has been immaterial and therefore has been excluded from the
historical earnings (loss) per share computations.
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<PAGE>
STATEMENT OF ACCOUNTING STANDARDS NOT YET ADOPTED
SFAS No. 129, "Disclosure of Information about Capital Structure," will become
effective in 1998 and will not have a material effect on the information
currently reported by the Company.
SFAS No. 130, "Reporting Comprehensive Income," will become effective in 1998.
This statement establishes standards for reporting and display of comprehensive
income and its components in the financial statements. Its adoption will not
have a material effect on the information currently reported by the Company.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," will become effective for the year ended December 31, 1998. This
statement requires public business enterprises 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.
SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits," will become effective in 1998. This statement standardizes the
disclosure requirements for pensions and postretirement benefits and will
require changes in disclosures of benefit obligations and fair values of plan
assets. Comparative disclosures which include prior period information will be
restated to conform with the provision of this statement.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
The statements contained in this Report (other than the Company's consolidated
financial statements and other statements of historical fact) are forward-
looking statements, including, without limitation, (i) the statement in
"Business--Industry" that the Company believes the markets for shotguns, rifles
and hunting-related products will generally remain relatively flat at least in
the near future; (ii) the statement in "Business--Marketing and Distribution"
that the Company does not believe that the trend toward consolidation among
wholesalers, dealers and regional chains will materially adversely affect the
Company's sales or profitablility; (iii) the statement in "Business--Patents and
Trademarks" concerning the Company's belief that the expiration of the
identified patents will not have a material adverse effect on the Company's
financial condition or its results of operations; (iv) the statement in
"Business--Environmental Matters" concerning the Company's belief that the
outcome of any governmental proceedings and orders pertaining to environmental
compliance will not have a material adverse effect on its business; (v) other
statements as to management's or the Company's expectations and beliefs
presented in "Business;" (vi) the statements in "--Overview--Product Liability"
concerning (a) the Company's belief that product liability cases and claims
involving occurrences arising prior to the Closing are not likely to have a
material adverse effect upon the financial condition or results or operations of
the Company, (b) the Company's belief that the outcome of all pending product
liability cases and claims will not have a material adverse effect upon the
financial condition or result of operations of the Company and (c) management's
estimates concerning the Company's liability for product liability cases and
claims relating to occurrences arising during 1997, 1996 and 1995 and the time
period during which the amount of the Company's self insured retention will be
paid out; (vii) the statements in "Results of Operations -- Business Trends and
Initiatives" concerning (a) the Company's belief that the tighter inventory
control practices will continue and are likely to cause the Company to
experience increased liquidity and working capital requirements, (b)
management's belief that demand will stabilize as customers' inventories reach
their targeted levels, (c) the Company's belief that consumer concerns about
regulation will not be a significant market influence in the near term, and (d)
the Company's belief that the markets for its firearms and ammunition products
generally will remain relatively flat, at least in the near future; (viii) the
statements in "--Taxes" that (a) the Company expects that the postretirement
benefits asset will not reverse for approximately 20 years and (b) management
expects the Company will generate sufficient taxable income in future periods to
fully utilize all deferred tax assets; (ix) 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; (x) 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 remaining facilities by the end of
1999 without material disruption in its operations; (xi) other statements as to
management's or the Company's expectations and beliefs presented in this
"Management's
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<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations;" (xii)
the statements in "Legal Proceedings" concerning (a) the Company's belief that
its current product liability insurance coverage for personal injury and
property damage is adequate for it needs, (b) 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 (c) 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 (xiii) 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
following important factors, and those important factors described elsewhere in
this Report (including, without limitation, those discussed in "Business --
Industry," "--Marketing and Distribution," "--Patents and Trademarks" and "--
Environmental Matters" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview," "--Taxes," "--Liquidity and
Capital Resources," "--Product Liability," "--Year 2000 Compliance" and "Legal
Proceedings"), or in other Securities and Exchange Commission filings of the
Company, 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.
- - The Company's ability to make scheduled payments of principal or interest on,
or to refinance its obligations with respect to its indebtedness and to
comply with the covenants and restrictions contained in the instruments
governing such indebtedness will depend on its future operating performance
and cash flow, which are subject to prevailing economic conditions,
prevailing interest rate levels, and financial, competitive, business and
other factors beyond its control including the responses of competitors,
changes in customer inventory management practices, changes in customer
buying patterns, regulatory developments and increased operating costs.
- - The degree to which the Company is leveraged could have important
consequences to the holders of the notes relating to the Company's
indebtedness, including the following: (i) the Company's ability to obtain
additional financing for working capital or other purposes in the future may
be limited; (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing funds available for operations; (iii) certain
of the Company's borrowings will be at variable rates of interest, which
could cause the Company to be vulnerable to increases in interest rates; and
(iv) the Company may be more vulnerable to economic downturns and be limited
in its ability to withstand competitive pressures.
- - The Company's ability to meet its debt service and other obligations will
depend in significant part on customers purchasing the Company's products
during the fall hunting season. Notwithstanding the Company's cost
containment initiatives and continuing management of costs, a decrease in
demand during the fall hunting season for the Company's higher priced, higher
margin products would require the Company to further reduce costs or increase
its reliance on borrowings under the Company's Revolving Credit Facility to
fund operations. No assurance can be given that the Company would be able to
reduce costs or increase its borrowings sufficiently to adjust to such a
reduction in demand.
- - Because of the nature of its products, the Company anticipates that it will
continue to be involved in product liability litigation in the future. The
Company's ability to meet its product liability obligations will depend
(among other things) upon the availability of insurance, the adequacy of
Company accruals, the Sellers' ability to satisfy their obligations to
indemnify the Company against certain product liability cases and claims and
Sellers' agreement to be responsible for certain post-Acquisition shotgun
related costs.
- - The Company's sales revenues have been adversely affected by changes in
inventory management practices at several of its key customers. In addition,
changes in customer buying patterns at certain key customers have increased
the seasonality of the Company's sales of certain higher priced, higher
margin products. The Company cannot control the inventory management
practices or timing of its customers' purchases, and the
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<PAGE>
adoption of similar policies by more of the Company's customers could lead to
further constraints on sales and increased liquidity and working capital
requirements.
- - The Company faces significant competition. The Company's competitors vary
according to product line. Certain of these competitors are subsidiaries of
large corporations with substantially greater financial resources than the
Company. There can be no assurance that the Company will continue to compete
effectively with all of its present competition, and the Company's ability to
so compete could be adversely affected by its leveraged condition.
- - Sales made to Wal-Mart Stores, Inc. ("Wal-Mart") accounted for approximately
20% of the Company's total net revenues in 1997. The Company's sales to Wal-
Mart are not governed by a written contract between the parties. In the event
that Wal-Mart were to significantly reduce or terminate its purchases of
firearms and/or ammunition from the Company, the Company's financial
condition or results of operations could be adversely affected.
- - The Company utilizes numerous raw materials, including steel, lead, brass,
plastics and wood, as well as manufactured parts, that are purchased from one
or a few suppliers. In addition, the Company purchases most of the fishline
it requires for its product lines from DuPont under a supply agreement that
was renewed in January 1997. Any disruption in the Company's relationship
with these suppliers could increase the cost of operations.
- - The purchase of firearms is subject to federal, state and local governmental
regulation. Regulatory proposals, even if never enacted, may affect firearms
or ammunition sales as a result of consumer perceptions. The Company believes
that its ammunition sales levels in 1994 and 1995 were affected by proposed
legislation increasing the taxes on ammunition and by consumer uncertainty
over the impact of the Brady Bill. While the Company does not believe that
existing federal and state legislation relating to the regulation of firearms
and ammunition has had a material adverse effect on its sales from 1994
through 1997, no assurance can be given that more restrictive regulations, if
proposed or enacted, will not have a material adverse effect on the Company
in the future.
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 Financial Condition and
Results of Operations 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable for 1997.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Pages
-----
RACI Holding, Inc.
- ------------------
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.............. F-3
Consolidated Statements of Operations and Retained Earnings for the
years ended December 31, 1997, 1996 and 1995.......................... F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995................................................... F-5
Consolidated Statement of Changes in Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995............................... F-6
Notes to Consolidated Financial Statements................................ F-7
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders of RACI Holding, Inc.
We have audited the accompanying consolidated balance sheets of RACI Holding,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of RACI Holding, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Greensboro, North Carolina
March 2, 1998
F-2
<PAGE>
RACI Holding, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Millions except per share and share data)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
- ------
Current Assets
- --------------
Cash and Cash Equivalents $ 0.6 $ 9.6
Accounts Receivable Trade - net of allowances
of $5.2 and $5.7, respectively 56.3 71.1
Inventories 90.0 101.9
Supplies 12.7 13.9
Prepaid Expenses and Other Current Assets 9.3 10.7
Deferred Income Taxes 16.2 13.4
------ ------
Total Current Assets 185.1 220.6
Property, Plant and Equipment - net 92.0 98.4
Intangibles and Debt Issuance Costs - net 93.1 96.4
Deferred Income Taxes 6.2 14.0
Other Noncurrent Assets 4.3 5.6
------ ------
Total Assets $380.7 $435.0
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities
- -------------------
Accounts Payable $ 22.7 $ 32.9
Short-Term Debt 1.0 1.2
Current Portion of Long-Term Debt 21.5 20.9
Product and Environmental Liabilities 3.2 7.2
Other Accrued Liabilities 28.5 22.3
------ ------
Total Current Liabilities 76.9 84.5
Long-Term Debt 173.5 232.2
Retiree Benefits 34.8 31.9
Product and Environmental Liabilities 9.2 6.6
------ ------
Total Liabilities 294.4 355.2
Commitments and Contingencies ------ ------
Shareholders' Equity
- --------------------
Class A Common Stock, par value $.01; 1,250,000 shares authorized;
760,000 and 750,000 shares, respectively,
issued and outstanding -- --
Class B Common Stock, par value $.01; 1,250,000 shares
authorized, none issued and outstanding -- --
Paid in Capital 76.0 75.0
Retained Earnings 10.3 4.8
------ ------
Total Shareholders' Equity 86.3 79.8
------ ------
Total Liabilities and Shareholders' Equity $380.7 $435.0
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
RACI Holding, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Millions except per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1996 1995
-------------- ----------------- -------------
<S> <C> <C> <C>
Sales(1) $ 381.2 $ 390.4 $ 427.0
Cost of Goods Sold 269.9 281.7 292.7
------- ------- ------
Gross Profit 111.3 108.7 134.3
Selling, General and Administrative
Expenses 71.2 82.8 87.3
Research & Development Expense 7.4 10.2 5.3
Other Expense, net 0.1 1.8 0.2
Restructuring and Nonrecurring Items -- 9.6 --
------- ------- ------
Operating Profit 32.6 4.3 41.5
Interest Expense (23.6) (25.1) (21.5)
------- ------- ------
Profit (Loss) before Income Taxes 9.0 (20.8) 20.0
Provision (Benefit) for Income Taxes 3.5 (7.0) 8.5
------- ------- ------
Net Income (Loss) $ 5.5 $ (13.8) $ 11.5
------- ------- ------
Per Share Data:
Basic Net Income (Loss) Per Share $ 7.33 $(18.40) $ 15.33
======= ======= ======
Diluted Net Income (Loss) Per Share $ 7.33 $(18.40) $ 15.33
======= ======= ======
</TABLE>
(1) Sales are presented net of Federal Excise Taxes of $31.0, $31.7 and $36.0,
for the years ended 1997, 1996 and 1995, respectively.
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
RACI Holding, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Millions)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Operating Activities
- --------------------
Net Income (Loss) $ 5.5 $ (13.8) $ 11.5
Adjustments to reconcile Net Income (Loss) to Net Cash (used in)
provided by Operating Activities:
Restructuring -- 3.4 --
Depreciation 12.7 11.5 9.7
Amortization 4.1 4.0 3.5
Loss on disposal of Property, Plant and Equipment 0.5 0.4 0.6
Provision for Retiree Benefits 2.9 3.1 0.2
Deferred Income Taxes 5.0 (4.8) 1.8
Changes in Operating Assets and Liabilities:
Accounts Receivable Trade - Net 14.8 (0.7) (21.2)
Inventories 11.9 (4.6) (10.8)
Supplies 1.2 1.5 (1.2)
Prepaid Expenses and Other Current Assets 1.4 (3.0) 2.9
Other Noncurrent Assets 1.3 (1.0) (4.6)
Accounts Payable (10.2) 18.3 (1.1)
Customer Prepayments (0.2) (7.8) (2.8)
Product and Environmental Liabilities 0.4 7.7 3.3
Income Taxes Payable -- (5.4) 5.4
Other Accrued Liabilities 6.4 (7.8) (4.1)
Payments for Assumed Pre-Acquisition Product and Environmental Liabilities (1.8) (3.7) (5.6)
------ ------ ------
Net Cash provided by (used in) Operating Activities 55.9 (2.7) (12.5)
Investing Activities
- --------------------
Purchase of Property, Plant and Equipment (5.8) (22.5) (18.9)
Purchase of DuPont Sporting Goods Business -- -- 1.4
------ ------ ------
Net Cash used in Investing Activities (5.8) (22.5) (17.5)
Financing Activities
- --------------------
Proceeds from Revolving Credit Facility 163.8 416.3 278.4
Principal Payments on Revolving Credit Facility (202.9) (366.7) (269.0)
Proceeds from Issuance of Long-Term Debt 0.8 2.5 --
Principal Payments on Long-Term Debt (20.8) (15.0) (20.8)
Proceeds from Short-Term Debt 1.0 1.3 4.5
Principal Payments on Short-Term Debt (1.2) (4.6) (3.6)
Proceeds from Issuance of Common Stock 1.0 -- --
Debt Issuance Costs (0.8) (0.4) --
------ ------ ------
Net Cash (used in) provided by Financing Activities (59.1) 33.4 (10.5)
------ ------ ------
Increase (Decrease) in Cash and Cash Equivalents (9.0) 8.2 (40.5)
Cash and Cash Equivalents at beginning of period 9.6 1.4 41.9
------ ------ ------
Cash and Cash Equivalents at end of period $ 0.6 $ 9.6 $ 1.4
====== ====== ======
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 22.2 $ 24.0 $ 21.7
Income Taxes $ 1.3 $ 6.1 $ 0.8
Noncash activities:
Capital lease obligations incurred $ 1.0 $ 2.7 $ 4.7
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
RACI Holding, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(Dollars in Millions except share and per share data)
<TABLE>
<CAPTION>
Additional Total
Paid-in Retained Shareholders'
Capital Earnings Equity
---------- -------- ------------
<S> <C> <C> <C>
Balance, December 31, 1994 $75.0 $ 7.1 $82.1
Net Income 11.5 11.5
----- ----- -----
Balance, December 31, 1995 75.0 18.6 93.6
Net Loss (13.8) (13.8)
----- ----- -----
Balance, December 31, 1996 75.0 4.8 79.8
Net Income 5.5 5.5
Issuance of 10,000 shares
of Class A Common Stock
to non-employee directors 1.0 1.0
----- ----- -----
Balance, December 31, 1997 $76.0 $10.3 $86.3
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying 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.
Certain reclassifications were made to the prior year's financial information
to conform with the current presentation format.
NOTE 2 - DESCRIPTION OF THE BUSINESS
- ------------------------------------
The Company is engaged in the design, manufacture and sale of sporting goods
products for the hunting, shooting sports and fishing markets. The Company's
product lines consist of firearms, ammunition, and hunting/gun care accessories,
sold under the Remington name and other labels, and fishing products, sold under
the Stren name and other labels.
Holding was formed to effect the acquisition, through Remington, of certain
assets and liabilities of the Sporting Goods Business ("Sporting Goods"),
formerly operated by E. I. du Pont de Nemours and Company ("DuPont"), and one of
DuPont's subsidiaries ("Old Remington," and together with DuPont, the
"Sellers"). This acquisition (the "Acquisition") was completed on December 1,
1993 pursuant to an asset purchase agreement (the "Asset Purchase Agreement")
for a cash purchase price of $300.0, and was accounted for using the purchase
method of accounting. Accordingly, the purchase price (net of a $0.2 post-
closing purchase price adjustment in the Company's favor) and other acquisition
costs, together totaling $313.5, have been allocated to the acquired assets and
liabilities based on their fair values as of December 1, 1993. This allocation
was finalized during 1994 upon completion of appraisals and other studies of
fair value.
The Company acquired substantially all the assets (other than discontinued
properties, certain real property, and certain other assets) of Old Remington
and certain other assets of the Sellers used in connection with the marketing of
fishline and fishline accessories (collectively, the "Business"). The Company
also assumed certain specified liabilities, including trade payables,
postretirement benefits for certain retained employees and certain other
contractual obligations of the Sellers, totaling $55.8. In addition, the
Company assumed financial responsibility up to a maximum aggregate amount of
$25.0 (the "Cap") for certain product liability related claims involving pre-
Acquisition occurrences, and for certain environmental liabilities. Liabilities
for costs in excess of $25.0 for such matters, were retained by the Sellers, as
were liabilities for discontinued products. Pursuant to the Asset Purchase
Agreement, the Sellers designated $24.5 of the Cap for assumed product liability
costs and the remainder for environmental costs. The Sellers also retained
pension and postretirement benefit liabilities for all retirees as of the
Acquisition date as well as the postretirement benefit liability for those
employees eligible to retire as of that date.
In December 1996, the Company and the Sellers resolved questions that had been
raised by the Sellers concerning certain product liability related costs that
the Company had allocated to the Cap or which were billed to cases for which the
Sellers assumed responsibility under the Asset Purchase Agreement. As a result
of this agreement between the Sellers and the Company, the Company recorded a
non-recurring charge of $4.7, which in effect increased the product liability
portion of the Cap. The Cap was exhausted in 1997.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Cash and Cash Equivalents:
- -------------------------
Cash and cash equivalents include demand deposits with banks and highly liquid
investments with remaining maturities, when purchased, of three months or less.
Inventories:
- -----------
Inventories are stated at the lower of cost or market. The cost of
inventories is determined by the first-in, first-out ("FIFO") method.
Supplies:
- --------
The cost of supplies is determined by the average cost method.
Property, Plant and Equipment:
- -----------------------------
Investments in land, buildings and improvements, and machinery and equipment
acquired subsequent to the Acquisition are stated at cost. Property, plant and
equipment obtained through the Acquisition were recorded at their appraised
values on the Acquisition date. Depreciation is determined on a straight-line
basis over the estimated lives of the assets. Assets obtained through the
Acquisition are being depreciated over their remaining useful lives as
determined by appraisal. The estimated useful lives are principally 20 to 40
years for buildings and improvements, and 5 to 15 years for machinery and
equipment. Maintenance and repairs are charged to operations; replacements and
betterments are capitalized. Computer hardware and software costs under capital
leases are amortized over the term of the lease. The cost and related
accumulated depreciation applicable to assets sold or retired are removed from
the accounts and the gain or loss on disposition is recognized in income.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's useful life. Approximately, $0.2
of interest cost was capitalized in both 1997 and 1996. No interest cost was
capitalized in 1995.
Intangibles and Debt Issuance Costs:
- -----------------------------------
Intangibles, consisting primarily of goodwill and trade names, are amortized
on a straight-line basis over their estimated useful lives of 40 years. Debt
issuance costs are being amortized over the life of the related debt. Management
assesses goodwill for impairment whenever facts and circumstances indicate that
the carrying amount may not be fully recoverable. To analyze recoverability,
management projects future cash flows, undiscounted and before interest, over
the remaining life of the goodwill. If these projected cash flows are less than
the carrying amount of the goodwill, an impairment loss would be recognized,
resulting in a writedown of goodwill with a corresponding charge to income. The
impairment loss would be measured based upon the difference between the carrying
amount of the goodwill and the present value of future cash flows before
interest. The Company uses a discount rate equal to its average cost of funds
to discount the expected future cash flows.
Financial Instruments:
- ----------------------
The Company has only limited involvement with financial instruments and does
not use them for trading purposes. Financial instruments, which are a type of
financial derivative instrument, are used to manage well-defined commodity price
and interest rate risks and are considered hedges when certain criteria are
met. The criteria to qualify for hedge accounting are that the instrument must
be related to an asset, liability, firm commitment or anticipated transaction
that is probable and whose characteristics and terms have been identified. In
addition, the investment must reduce the risks of commodity price movements or
change the character of the interest rate.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the term of the agreements. Unamortized premiums are
included in prepaid expenses and other current assets on the balance sheet.
Amounts receivable under interest rate cap agreements are accrued as a reduction
of interest expense. Gains and losses on commodity futures contracts qualifying
as hedges are deferred and recognized as a component of the cost of acquiring
the related inventory. Market values of financial instruments were estimated
based on quoted market prices, where available, or on current rates offered to
the Company for debt with similar terms and maturities. Unless otherwise
disclosed, the fair value of financial instruments approximates their recorded
values.
Income Taxes:
- ------------
The Company accounts for income taxes in accordance with the method prescribed
by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes", which requires recognition of deferred tax assets and liabilities
based on the difference between the financial reporting and tax bases of assets
and liabilities, applying tax rates applicable to the year in which the
differences are expected to reverse. A valuation allowance is recorded when it
is more likely than not that the deferred tax asset will not be realized.
Product Liability:
- -----------------
The Company provides for estimated defense and settlement costs related to
product liabilities when it becomes probable that a liability has been incurred
and reasonable estimates of such costs are available. The Company maintains
insurance coverage for product liability claims, subject to certain policy
limits and to certain self-insured retentions for personal injury or property
damage relating to occurrences arising after the Closing. The current insurance
policy extends through November 30, 2000. Product liabilities are not recorded
net of recoveries that are probable of realization. At December 31, 1997, 1996
and 1995, no recoveries have been recorded.
Revenue Recognition:
- --------------------
Sales, net of an estimate for discounts, returns and allowances, and related
cost of sales are included in income when goods are shipped to the customer.
Advertising and Promotional Costs:
- ---------------------------------
Advertising and promotional costs are expensed as incurred. In 1997, 1996 and
1995 advertising and promotional costs totaled $17.2, $18.3 and $18.2,
respectively.
Self-Insurance:
- --------------
The Company is self-insured for elements of its employee benefit plans
including, among others, workers' compensation and elements of its property and
liability insurance programs, but limits its liability through stop-loss
insurance and annual plan maximum coverage limits. Self-insurance liabilities
are based on claims filed and estimates for claims incurred but not yet
reported.
Pension and Postretirement:
- --------------------------
Unrecognized prior service costs are being amortized over the estimated
remaining service lives of employees. The unrecognized net gain or loss
resulting from changes in the amount of either the projected benefit obligation
or plan assets from experience different from that assumed are amortized over
five years.
Industry Segment:
- ----------------
The Company operates within a single industry segment. Sales outside the
United States of product manufactured in and exported from the United States
were $29.8 in 1997, $32.1 in 1996 and $32.8 in 1995.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
Use of Estimates:
- -----------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements:
- ------------------------------
SFAS No. 129, "Disclosure of Information about Capital Structure," will become
effective in 1998 and will not have a material effect on the information
currently reported by the Company.
SFAS No. 130, "Reporting Comprehensive Income," will become effective in 1998.
This statement establishes standards for reporting and display of comprehensive
income and its components in the financial statements. Its adoption will not
have a material effect on the information currently reported by the Company.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," will become effective for the year ended December 31, 1998. This
statement requires public business enterprises 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.
SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits," will become effective in 1998. This statement standardizes the
disclosure requirements for pensions and postretirement benefits and will
require changes in disclosures of benefit obligations and fair values of plan
assets. Comparative disclosures which include prior period information will be
restated to conform with the provision of this statement.
NOTE 4 - RESTRUCTURING AND NON-RECURRING ITEMS
- ----------------------------------------------
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 the year. 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. A majority of
the remaining balance is expected to be paid out by the end of 1998.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
Components of the restructuring provision recorded in 1996 and utilized
through December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Severance and
Termination Lease Other
Benefits Costs Expenses Total
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
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 1.7 0.1 0.5 2.3
---- ---- ---- ----
Balance, December 31, 1997 $0.2 $0.5 $0.4 $1.1
==== ==== ==== ====
</TABLE>
The Company and the Sellers resolved questions that had been raised by the
Sellers concerning certain product liability related costs that the Company had
allocated to the Cap or which were billed to cases for which the Sellers assumed
responsibility under the Asset Purchase Agreement. As a result of this
agreement, the Company recorded a non-recurring charge of $4.7 in 1996. (See
Notes 2 and 15).
NOTE 5 - CONCENTRATIONS OF CREDIT RISK
- --------------------------------------
Concentrations of credit risk with respect to trade accounts receivable are
generally diversified, except as noted below, due to the large number of
customers comprising the Company's customer base. The Company reviews a
customer's credit history before extending credit and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. Bad debt expense for 1997,
1996 and 1995 was $0.4, $1.9 and $3.9, respectively.
The Company's cash and cash equivalents are invested in high-quality
securities placed with institutions with high credit ratings. This investment
policy limits the Company's exposure to concentrations of credit risk.
Sales to the Company's largest customer approximated 20%, 18% and 22% of
sales in 1997, 1996 and 1995, respectively.
NOTE 6 - INVENTORIES
- --------------------
At December 31, Inventories consist of the following:
1997 1996
---- ----
Raw Materials $13.9 $ 16.0
Semi-Finished Products 20.0 22.9
Finished Products 56.1 63.0
----- ------
Total $90.0 $101.9
===== ======
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
At December 31, Property, Plant and Equipment consist of the following:
1997 1996
---- ----
Land $ 1.5 $ 1.5
Building and Improvements 23.0 20.5
Leased Assets 7.9 7.7
Machinery and Equipment 97.4 84.1
Construction in Progress 2.9 13.8
------ ------
Subtotal 132.7 127.6
Less: Accumulated Depreciation (40.7) (29.2)
------ ------
Total $ 92.0 $ 98.4
====== ======
NOTE 8 - INTANGIBLES AND DEBT ISSUANCE COSTS
- --------------------------------------------
At December 31, Intangibles and Debt Issuance Costs consist of the
following:
1997 1996
---- ----
Intangibles $ 95.9 $ 95.9
Debt Issuance Costs 13.3 12.5
------ ------
Subtotal 109.2 108.4
Less: Accumulated Amortization (16.1) (12.0)
------ ------
Total $ 93.1 $ 96.4
====== ======
NOTE 9 - OTHER ACCRUED LIABILITIES
- -----------------------------------
At December 31, Other Accrued Liabilities consist of the following:
1997 1996
----- -----
Marketing $ 9.5 $ 7.1
Health Costs 6.4 4.9
Restructuring 1.1 3.4
Compensation 4.0 0.5
Customer Prepayments -- 0.2
Other 7.5 6.2
----- -----
Total $28.5 $22.3
===== =====
NOTE 10 - RETIREE BENEFITS
- --------------------------
Pension Plans:
- --------------
The Company sponsors a defined benefit pension plan (the "Plan") which
covers substantially all employees hired prior to June 1, 1996. The Plan
provides retirement benefits based on years of service and compensation during
the last ten years of employment. The Company intends to fund this Plan
consistent with the requirements of federal laws and regulations.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
Pension cost consists of:
1997 1996 1995
---- ---- ----
Service costs $ 4.1 $ 4.9 $ 4.3
Interest costs 4.3 4.2 4.0
Return on plan assets (7.2) (1.1) (8.6)
Net amortization and deferral 2.0 (5.0) 4.8
----- ----- -----
Net pension costs $ 3.2 $ 3.0 $ 4.5
===== ===== =====
The funded status of the Plan at December 31, was as follows:
1997 1996
---- ----
Accumulated benefit obligation
including vested benefits of $36.9 and
$28.8, respectively. $ 56.1 $ 44.8
====== ======
Projected benefit obligation 64.1 59.8
Less: plan assets at fair value (63.4) (56.4)
------ ------
Deficiency of assets over projected
benefit obligations 0.7 3.4
Unrecognized prior service cost 3.6 2.3
Unrecognized net gain from experience
differences 8.1 3.5
------ ------
Pension liability $ 12.4 $ 9.2
====== ======
Actuarial assumptions:
Discount rate 7.3% 7.8%
Rate of compensation increase 3.5% 4.0%
Long-Term rate of return on plan assets 8.5% 8.5%
Under the Acquisition agreement, DuPont was required to transfer funds to
the Plan in an amount equal to the actuarial present value of the projected
pension benefit obligation as of December 1, 1993 related to transferred
employees. Management estimated the amount of such assets to be transferred to
the Plan by DuPont to be $39.8, plus interest of $4.7 at December 31, 1995. The
Company and DuPont were unable to agree upon this amount, and the parties
initiated the process to arbitrate the matter pursuant to the terms of the
Acquisition agreement. On December 20, 1996, the Company and DuPont agreed to a
final settlement of $42.6, including interest. The difference between the final
settlement and the amount estimated by management is being treated as an
adjustment to plan assets resulting from experience different from that assumed,
and accordingly will be amortized into income over a five year period in
accordance with the Company's policy for recording pension costs.
In addition to the defined benefit pension plan, the Company also sponsors
a qualified defined contribution plan covering substantially all employees. The
Company matches 50% of a participant's contributions up to a maximum of 6% of a
participant's compensation. All employees hired after May 31, 1996 are also
eligible for a discretionary contribution. The Company's contribution to this
plan was $1.4 each year in 1997, 1996 and 1995.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
Postretirement Benefit Plan:
- ---------------------------
The Company sponsors a postretirement defined benefit plan which provides
certain employees hired prior to June 1, 1996, their covered dependents and
beneficiaries with retiree health and welfare benefits. Generally, employees
who have attained a certain age and who have rendered a minimum required term of
service, on or after December 1, 1993 (including service rendered prior to the
Acquisition), will be eligible for these benefits. The Company will fund
postretirement benefit claims as they are incurred. Postretirement benefits for
employees who were eligible to retire under the DuPont postretirement benefit
scheme are covered by that scheme.
In 1995, the Company amended its retiree medical program by changing the
cost sharing provisions including the introduction of a cap on the Company's
share of Medicare eligible retiree costs. These changes reduced the accumulated
postretirement obligation by approximately $5.2.
Postretirement benefit cost consists of:
1997 1996 1995
---- ---- ----
Service costs $ 0.5 $ 0.9 $ 1.4
Interest costs 0.6 0.9 1.4
Amortization (1.4) (1.3) (0.2)
----- ----- -----
Postretirement (income) expense $(0.3) $ 0.5 $ 2.6
===== ===== =====
Accumulated postretirement benefit obligation at December 31, consist of:
1997 1996
----- -----
Retirees $ 0.3 $ 0.3
Fully eligible active plan participants 0.4 0.1
Other active plan participants 6.1 8.2
----- -----
Total accumulated postretirement obligation $ 6.8 $ 8.6
Unrecognized prior service cost 10.0 8.2
Unrecognized net gain from experienced
differences 5.6 5.9
----- -----
Accrued postretirement benefit liability $22.4 $22.7
===== =====
The assumed health care trend rate used in measuring the accumulated
postretirement benefit obligation was 8.9% for 1996 and 8.3% for 1997 declining
to 5.5% ultimately in 2007. A one-percentage-point increase in the assumed
health care cost trend rate would increase the accumulated postretirement
benefit obligation as of December 31, 1997 by approximately 3.7% and the
postretirement health care cost for the year then ended by approximately 7.2%.
The assumed discount rate used to determine the accumulated postretirement
benefit obligation was 7.3% and 7.8% at December 31, 1997 and 1996,
respectively.
The Company also provides certain severance benefits. At December 31, 1997
and 1996, the accumulated postemployment benefit obligation and the annual
periodic cost of these obligations is not significant.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
NOTE 11 - DEBT
- --------------
Short-Term debt consists of unsecured, fixed interest rate agreements for
financing insurance premiums. The interest rate under these agreements was 6.1%
at December 31, 1997 and 1996.
Long-Term Debt at December 31, consist of the following:
1997 1996
---- ----
Credit Agreement:
Term Loans $ 68.2 $ 86.4
Revolving Credit Facility 19.9 59.0
9.5% Senior Subordinated Notes due 2003 99.6 99.6
Capital Lease Obligations (Note 12) 5.3 5.7
Other 2.0 2.4
------ ------
Subtotal $195.0 $253.1
Less: Current Portion 21.5 20.9
------ ------
Total $173.5 $232.2
====== ======
The Company has a credit agreement, as amended, with certain lending
institutions (the "Credit Agreement") that provides for aggregate borrowings of
$280.0, including a term loan facility of $130.0 (the "Term Loan Facility") and
a revolving credit facility of $150.0 (the "Revolving Credit Facility"). All
borrowings under the Credit Agreement are guaranteed by Holding, and are
collateralized by substantially all of the assets of the Company. The Company
may borrow up to $150.0 (including certain letters of credit) under the
Revolving Credit Facility through 2000, provided that such borrowings are
reduced for a period of 30 consecutive days of each 12-month period commencing
on December 1 to $60.0 or less. The weighted average interest rate for
borrowings under the Term Loan was 8.2% per annum in 1997 and 8.1% per annum in
1996. The weighted average interest rate for borrowings under the Revolving
Credit Facilities was 8.4% in 1997 and 1996. The interest rate cap agreements
which were required by the Credit Agreement, expired in June, 1996. The Company
is not currently a party to any interest rate cap, hedging or other protection
arrangements with respect to its variable rate indebtedness. Commitment fees of
1/2 of 1% are payable on the average daily unused portion of the Revolving
Credit Facility. At December 31, 1997, the Company had $4.8 in letters of credit
and $19.9 of borrowings outstanding with the remaining $125.3 of the Company's
Revolving Credit Facility available for borrowing. At December 31, 1996, the
Company had $4.8 in letters of credit and $59.0 of borrowings outstanding with
the remaining $86.2 of the Company's Revolving Credit Facility available for
borrowing. Borrowings under the Revolving Credit Facility are classified as
long-term as the Company has the intent and ability, supported by the terms of
the Credit Agreement, to maintain amounts outstanding through the year 2000.
In accordance with the Credit Agreement, the Company has made all scheduled
principal payments on the term loans through December 31, 1997. The Credit
Agreement requires the Company to make further quarterly principal payments on
the term loans thereunder (after pro rata reduction for certain prepayments and
subject to further pro rata or other reduction in the future) in an aggregate
amount of approximately $18.2 in 1998, $22.7 in 1999 and $27.3 in 2000 with all
remaining amounts then outstanding under the Credit Agreement to be repaid on
December 31, 2000. The Credit Agreement also requires the Company to make
mandatory prepayments on the term loans thereunder annually, in an amount equal
to 50% of the Company's Excess Cash Flow (as defined therein) for the preceding
fiscal year. Any such prepayment will result in a pro rata reduction in all
subsequently scheduled principal payments on such term loans, except that any
such payment made within the twelve months prior to the date on which an
installment or other payment of principal is scheduled to be paid on the term
loans may, at the option of the Company, be applied first
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
to such installment or other payment. The Company has made such a prepayment in
the amount of approximately $10.7 in 1995 for the year ended December 31, 1994.
The Company did not have Excess Cash Flow for the years ended December 31, 1997,
1996 and 1995 and accordingly no such prepayment is required in 1998, nor was
any such prepayment made in 1997 and 1996.
Loans under the Credit Agreement generally bear interest, at the Company's
option, at a variable rate equal to either (i) the rate that is the highest of
the administrative agent's prime rate, or certain alternative rates, in each
case plus up to 1.25% per annum, or (ii) the rate at which certain Eurodollar
deposits are offered in the interbank Eurodollar market plus up to 2.50% per
annum. Beginning in 1995, upon the Company's delivery to the Credit Agreement's
administrative agent of the Company's quarterly financial statements the
interest rate on the Company's Credit Agreement borrowings can be reduced by
0.25% to 1.0% per annum from levels in effect at December 31, 1994 if the
Company has met certain financial ratios, based on EBITDA and consolidated
interest expense, for the four quarters then ended. Once reduced, such interest
rate can also be increased up to the original levels if the Company no longer
meets the financial ratios making it eligible for interest rate reduction. The
interest rate currently applicable to borrowings under the Credit Agreement is
the maximum rate provided for thereunder. During 1996, the Company obtained
three successive amendments to its Credit Agreement to modify various EBITDA (as
defined), interest expense ratio maintenance, EBITDA ratio maintenance and net
worth requirements as well as the permissible levels of capital expenditures
under the relevant financial covenants as of the end of each fiscal quarter in
1996, as well as in all future periods. The Company sought these modifications
in part because of the current earnings impact of decreased ammunition and
firearms sales volumes and the additional interest expense resulting from
increased working capital borrowings due to changes in customer purchasing
patterns, and in part to make longer term adjustments to the covenant
requirements. At December 31, 1997, the Company was in compliance in all
material respects with the financial covenants under the Credit Agreement.
Mandatory prepayments of borrowings may also be required under the Credit
Agreement upon the occurrence of any of the following: certain changes in
control, the sale of a class of equity securities, the issuance or sale of a
class of debt securities or redeemable preferred stock, the incurrence of
indebtedness not permitted by the Credit Agreement, certain sales of assets
other than in the normal course of business and any receipt of certain insurance
or litigation proceeds relating to the loss of or damage to any assets in
amounts exceeding $5.0.
The Company's 9.5% Senior Subordinated Notes (the "Notes"), in an aggregate
$100.0 principal amount, mature on December 1, 2003. The Notes are redeemable
at the option of the Company, in whole or in part, any time on or after December
1, 1998. The redemption price ranges from 104.5% of the principal amount in
1998 to 101.5% in the year 2000. In the event of a change in control, the Notes
may be redeemed at the option of the Company for the principal amount plus
applicable interest and premium at that date. The Notes, issued by Remington,
are subordinate to borrowings under the Credit Agreement and are fully and
unconditionally guaranteed on a subordinated basis by Holding. See Note 22 for
Holding's Consolidating Condensed Financial Data. The Notes are not
collateralized by any of the Company's assets. 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 9.5% Senior Subordinated
Notes due 2003, Series B (the "New Notes") for a like principal amount of
Remington's issued and outstanding 9.5% Senior Subordinated Notes due 2003,
Series A (the "Old Notes"). All of the Old 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 9.5% per annum. The reduction in interest payments will amount to
$0.5 million per year. The original issue discounts on the Notes of $0.6 are
being amortized at 9.6% per annum. As of December 31, 1997, the total
accumulated amortization was $0.2.
The Indenture for the Notes and the Credit Agreement contain various
restrictions on the Company's ability to incur debt, pay dividends and enter
into certain other transactions. In addition, the Credit Agreement contains
certain requirements with respect to minimum working capital, net worth and
earnings levels, as well as minimum ratios
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
regarding profitability and interest expense. Under the Credit Agreement,
dividends by Remington to Holding are not to exceed $1.0 annually unless for
certain specific purposes, as defined in the Credit Agreement.
As of December 31, 1997 and 1996, the Company also had additional letters
of credit outstanding of $1.1 and $2.3, respectively.
The aggregate payments of Long-Term debt outstanding at December 31, 1997,
for the next four years are $21.5, $25.0, $48.6, and $0.3, respectively. No
payments are due in the fifth year.
NOTE 12 - LEASES
- ----------------
Future minimum lease payments under capital leases and operating leases,
together with the present value of the net minimum capital lease payments at
December 31, 1997, are as follows:
Capital Operating
Leases Leases
-------- ---------
Minimum Lease Payments for Years
Ending December 31:
1998 $ 2.1 $ 0.7
1999 2.1 0.7
2000 1.3 0.6
2001 0.3 0.3
2002 - 0.2
------- -------
Total minimum lease payments 5.8 $ 2.5
=======
Less amount representing interest (0.5)
-------
Present value of net minimum lease
payments $ 5.3
=======
NOTE 13 - STOCK PURCHASE AND OPTION PLANS
- -----------------------------------------
As of December 31, 1996, the Company had reserved 132,380 shares of the
Class A Common Stock, par value $.01 per share, of Holding ("Common Stock") for
issuance in accordance with the terms of the Amended and Restated RACI Holding,
Inc. Stock Option Plan (the "Option Plan"), the RACI Holding, Inc. Stock
Purchase Plan (the "Purchase Plan") and the RACI Holding, Inc. 1994 Directors'
Stock Plan (the "1994 Directors' Plan"). On July 22, 1997 the Board of
Directors of Holding adopted the RACI Holding, Inc. Director Stock Purchase Plan
(the "1997 Directors' Plan") and reserved an additional 12,500 shares of the
Class A Common Stock, par value $.01 per share, of Holding for issuance
thereunder. As of December 31, 1997, 10,000 shares of Class A Common Stock have
been issued under the 1997 Directors' Plan and no shares of Common Stock have
been issued under the Option Plan, Purchase Plan or 1994 Directors' Plan. As of
December 31, 1997, the Company has 134,880 shares of Class A Common Stock
reserved for issuance which remain available for grant under the above mentioned
plans.
The Option Plan provides for the grant of options (the "Options") which are
generally exercisable in three equal annual installments, beginning on the
second anniversary of the date of grant, subject to the continued employment of
any employee optionholder. The vesting of Options may be accelerated upon the
occurrence of certain
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
events specified in the Option Plan, as amended, including
a change in control as defined therein. Options not exercised will expire on
the tenth anniversary of the date of grant. The following is a summary of stock
option activity:
Number of
Shares ($100
Per Share)
-----------------
Unexercised options outstanding at December 31, 1995 35,905
Forfeited (5,490)
- -----------------------------------------------------------------------------
Unexercised options outstanding at December 31, 1996 30,415
Forfeited (125)
Granted 12,850
- -----------------------------------------------------------------------------
Unexercised options outstanding at December 31, 1997 43,140
Price Range $100 (Weighted-average contractual life of
8.0 years)
- -----------------------------------------------------------------------------
Exercisable options -
December 31, 1996 0
======
December 31, 1997 11,614
======
- -----------------------------------------------------------------------------
The Company has adopted the disclosure-only provision of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, since options have been
granted at an option exercise price equal to the estimated fair value of the
underlying Common Stock, no compensation expense has been recognized with
respect to grants of stock options granted to date. Had compensation expense
for such option grants been recognized under SFAS No. 123 based on the fair
value of such options at the grant dates thereof in 1995 and 1997, the Company's
net earnings and earnings per share on a pro forma basis would have been as
follows:
1997 1996 1995
----- ----- -----
Net Income / (Loss) - as reported $ 5.50 $(13.80) $11.50
====== ======= ======
Net Income / (Loss) - pro forma $ 5.40 $(13.90) $11.40
====== ======= ======
Earnings / (Loss) Per Share - as reported $ 7.33 $(18.40) $15.33
====== ======= ======
Earnings / (Loss) Per Share - pro forma $ 7.20 $(18.53) $15.20
====== ======= ======
Value of Option Grant Per Share $20.97 n/a $24.68
====== ======
For purposes of the foregoing the fair value of each option grant is
estimated as of the date of grant using a modified-Black Scholes Option Model
with the following weighted average assumptions for 1997 and 1995.
1997 1995
------------ ------------
Risk free interest rate 6.0% 6.4%
Dividend yields 0.0% 0.0%
Volatility factor 0.0% 0.0%
Expected option life 4.0 years 4.5 years
NOTE 14 - SHAREHOLDERS' EQUITY
- ------------------------------
Holding has authorized 2,500,000 shares of Common Stock, consisting of
1,250,000 shares of Class A Common Stock, par value $.01 per share, and
1,250,000 shares of Class B Common Stock, par value $.01 per share. The Class A
Common Stock is voting stock and the Class B Common Stock is non-voting stock.
None of the Class B Common Stock has been issued.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
NOTE 15 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company has various purchase commitments approximating $3.7 for 1998,
$4.0 for 1999, $0.2 for 2000, $0.2 for 2001 and $0.1 for 2002 for services
incidental to the ordinary conduct of business. Such commitments are not at
prices in excess of current market prices. In addition, the Company is required
to pay a minimum termination fee of $0.5 should there be a termination prior to
the close of one of the agreements.
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 of the Acquisition (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 an aggregate amount of $25.0 (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
Sporting Goods prior to the Closing. 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. Pursuant to the Asset Purchase Agreement, the Sellers
designated $24.5 of the Cap for assumed product liability costs and the
remainder for environmental costs. In December 1996, the Company and the Sellers
resolved questions that had been raised by the Sellers concerning certain
product liability related costs that the Company had allocated to the Cap or
which were billed to cases for which the Sellers assumed responsibility under
the Asset Purchase Agreement. As a result of this agreement between the Sellers
and the Company, the Company recorded a non-recurring charge of $4.7. This
charge in effect increased the product liability portion of the Cap from $24.5
to $28.4. Included within the $4.7 non-recurring charge is $0.8 of certain
other product liability related defense costs that the Company agreed to pay.
The remaining Cap was exhausted in 1997. 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 litigation in the
future.
Since December 1, 1993, the Company has maintained insurance coverage for
product liability claims subject to certain self-insured retentions both on a
per-occurrence basis and in the aggregate for personal injury or property damage
relating to occurrences arising after the Closing. The current insurance policy
extends through November 30, 2000. Based on actual defense and disposition
costs incurred by the Company and Sporting Goods with respect to product
liability cases and claims in recent years, management estimates that the
Company's liability for product liability cases and claims relating to
occurrences during 1997 will be in the range of $3.1 to $7.0, and that the
liability for product liability cases and claims relating to occurrences during
1996 and 1995 will be in the range of $4.5 to $9.0 per year. The Company
charged $4.3, $5.7 and $6.5 of payments against the accrual for product and
environmental liabilities (including pre-Acquisition occurrences which were
subject to the Cap) in the years ended December 31, 1997, 1996 and 1995,
respectively. Management estimates that the amount of the self insured retention
accrued will be paid out over the following three to five years.
The Company and the Sellers are engaged in the joint defense of certain
product liability litigation involving Remington brand firearms and Company
ammunition products. As of December 31, 1997 approximately 30 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 individual cases, approximately 3 involve discontinued
products and approximately 3 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 3 of the pending cases were
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
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"), 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 disposition of any unclaimed funds is expected to be
decided in 1998. Except for a 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.
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, and
again in July 1996, sought 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 was not named as a defendant until
July 1996, after the class certification was appealed, and was not a party to
the appeal. On July 16, 1996, plaintiffs further amended the complaint to
include Remington and 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. On February 11, 1998, the Texas appellate court
reversed the trial court's decision certifying the class against the Sellers, on
the ground that class treatment was not a superior method for resolving disputes
relating to the plaintiffs' alleged losses. One judge dissented from this
holding. Although Remington was not a party to the appeal, the appellate court's
decision should govern the class action claims against it as well as the claims
against the Sellers. Plaintiffs have filed a motion requesting a rehearing. If
that request is denied, the plaintiffs have 30 days thereafter to seek review by
the Texas Supreme Court. The Sellers' obligations with respect to Luna include
a requirement that they indemnify the Company against all claims for economic
loss involving Model 700 rifles shipped up to 42 calendar months after the
Closing (prior to the end of May 1997). Claims of economic loss involving Model
700 rifles thereafter would 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
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
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 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.
Because of the nature of its products, the Company anticipates that it will
continue to be involved in product liability litigation in the future.
The Company does not expect current environmental regulations to have a
material adverse effect on the results of operations and has not been identified
by regulatory authorities as a potentially responsible party. However, the
Company's liability for future environmental remediation costs is subject to
considerable uncertainty due to the complex, ongoing and evolving process of
identifying the necessity for, and generating cost estimates for, remedial work.
Furthermore, there can be no assurance that environmental regulations will not
become more restrictive in the future.
NOTE 16 - INCOME TAXES
- ----------------------
The provision (benefit) for income taxes consist of the following
components:
1997 1996 1995
------ ------ ------
Federal:
Current $(1.2) $(2.2) $ 5.7
Deferred 4.5 (4.6) 1.1
State:
Current (0.3) - 1.0
Deferred 0.5 (0.2) 0.7
----- ----- -----
$ 3.5 $(7.0) $ 8.5
===== ===== =====
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
1997 1996
----- -----
Deferred tax assets:
Accrued employee and retiree benefits $ 16.6 $14.7
Product, environmental and other liabilities 7.0 8.2
Receivables and inventory 2.8 6.0
Tax credits 3.3 4.2
Net operating losses 6.1 3.3
------ -----
35.8 36.4
------ -----
Deferred tax liabilities:
Property, plant and equipment (10.6) (7.1)
Intangibles (2.8) (1.9)
------ -----
(13.4) (9.0)
------ -----
Net deferred tax assets $ 22.4 $27.4
====== =====
The Company has not established a valuation allowance against the net
deferred tax assets as it is more likely than not that the assets will be fully
utilized against future taxable income.
At December 31, 1997 the Company has the following carryforwards for tax
purposes:
Net operating loss $15.0 Expires 2011
Alternative minimum tax credit $ 3.0 No Expiration
Research & development tax credit $ 0.2 Expires 2011
Research & development tax credit $ 0.1 Expires 2010
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rates:
1997 1996 1995
---- ---- ----
Federal statutory rate 35.0% (35.0)% 35.0%
State income taxes, net of
federal benefits 2.0 (2.8) 5.4
Nondeductible expenses 6.3 2.8 2.8
Other (4.3) 1.3 (0.7)
---- ------ -----
Effective income tax rate 39.0% (33.7)% 42.5%
==== ====== =====
In 1996, the Company made certain adjustments to the deferred tax balance
related to the Acquisition resulting in an increase to goodwill and a reduction
in the net deferred tax asset by $1.2.
NOTE 17 - RELATED PARTY TRANSACTIONS
- ------------------------------------
The Clayton & Dubilier Private Equity Fund IV Limited Partnership ("C&D
Fund IV"), which owns 750,000 shares of the 760,000 shares of Class A Common
Stock outstanding, or 98.7%, is a private investment fund managed by Clayton,
Dubilier & Rice, Inc. ("CD&R"). CD&R receives an annual fee for management
and financial consulting
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
services provided to the Company and reimbursement of related out-of-pocket
expenses. Fees and out-of-pocket expenses paid to CD&R were $0.5, $0.4 and $0.4
in 1997, 1996 and 1995, respectively.
NOTE 18 - FINANCIAL INSTRUMENTS
- -------------------------------
The estimated value of the Company's debt at December 31, 1997 was
$192.4 compared to a carrying value of $195.0. The estimated value of the
Company's debt at December 31, 1996 was $234.5 compared to a carrying value of
$253.1.
Commodity call options, swaps and futures are used to hedge the price risk
related to firm commitments and anticipated purchases of lead and copper to be
used in the manufacture of the Company's products. Call options give the
Company the right to purchase a specified amount of metal at a fixed price on a
pre-determined date for an up front fee. Swaps are purchased at a percentage of
the face amount and additional payments are then made or received based on the
differential between the face amount and the actual price of the metals
contracts at the date sold. The future contracts are a commitment to purchase a
given amount of metal at an agreed upon price on a future date. The face amount
of commodity contracts outstanding at December 31, 1997, 1996 and 1995 was $0.6,
$1.3 and $3.4, respectively. At December 31, 1997, 1996 and 1995, the market
value of the Company's outstanding contracts relating to firm commitments and
anticipated purchases up to one year from the respective balance sheet date was
$0.2, $1.2 and $3.4, respectively. As of December 31, 1997 and 1995, hedging
losses related to closed commodity futures contracts of $0.2 and $0.1,
respectively, were included in inventory. There were no hedging losses
included in inventory at December 31, 1996.
The Company was not a party to any interest rate cap, hedging or other
protection arrangements with respect to its variable rate indebtedness as of
December 31, 1997 or 1996. The Company had two interest rate cap agreements that
expired in June 1996 which reduced the potential impact of increases in interest
rates on approximately 50% of the Company's variable rate term loan debt under
the Credit Agreement. The estimated fair value of the caps at December 31, 1995
was approximately $0.1.
NOTE 19 - RESEARCH AND DEVELOPMENT
- ----------------------------------
Research and development expenses of $5.3 for 1995 included a $1.0 benefit
as the actual relocation-related severance costs resulting from the Company's
consolidation of its research and development function were less than estimated
in 1994. Excluding this nonrecurring item in 1995, research and development
expenditures for the continuing operations of the Company in 1997, 1996 and 1995
amounted to approximately $7.4, $10.2 and $6.3, respectively.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED)
- ----------------------------------------------
<TABLE>
<CAPTION>
1997 Quarter
- ---- -----------------------------------------------------
First Second Third Fourth Total
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales $ 88.5 $ 85.9 $125.4 $81.4 $381.2
Gross Profit 24.5 25.2 36.6 25.0 111.3
Net Income (Loss) $ (1.3) $ (1.0) $ 6.8 $ 1.0 $ 5.5
Basic & Diluted Net
Income (Loss)
Per Share $(1.73) $(1.34) $ 9.07 $1.33 $ 7.33
<CAPTION>
1996 Quarter
- ---- ---------------------------------------------------
First Second Third Fourth Total
----------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $96.3 $ 80.8 $139.4 $ 73.9 $ 390.4
Gross Profit 31.7 22.1 38.6 16.3 108.7
Net Income (Loss) $ 0.6 $ (4.6) $ 3.7 $ (13.5) $ (13.8)
Basic & Diluted Net
Income (Loss)
Per Share $0.80 $(6.13) $ 4.93 $(18.00) $(18.40)
</TABLE>
The Company recorded charges of $1.2, $0.1 and $3.6 for restructuring in
the second, third and fourth quarters of 1996, respectively. Additionally, the
Company recorded a non-recurring charge of $4.7 in the fourth quarter of 1996 as
a result of an agreement reached with the Sellers relating to product liability
costs.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
NOTE 21 - NET INCOME (LOSS) PER SHARE DISCLOSURES
- --------------------------------------------------
In 1997, the Company adopted SFAS No. 128 "Earnings per Share." The impact
of adopting this statement has no effect on net income (loss) per share for the
years ended December 31, 1996 and 1995. The basic and diluted net income (loss)
per share was determined as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
BASIC NET INCOME (LOSS) PER SHARE
<S> <C> <C> <C>
Income (Loss) $ 5.5 $ (13.8) $ 11.5
Income (Loss) available to Common Shareholders $ 5.5 $ (13.8) $ 11.5
Weighted average Common Shares 750,438 750,000 750,000
BASIC NET INCOME (LOSS) PER SHARE $ 7.33 $ (18.40) $ 15.33
DILUTED NET INCOME (LOSS) PER SHARE
Income (Loss) $ 5.5 $ (13.8) $ 11.5
Income (Loss) available to Common Shareholders $ 5.5 $ (13.8) $ 11.5
Weighted average Common Shares 750,438 750,000 750,000
Effect of outstanding options - - -
Weighted average Common Shares plus assumed
conversions 750,438 750,000 750,000
DILUTED NET INCOME (LOSS) PER SHARE $ 7.33 $ (18.40) $ 15.33
OPTIONS OUTSTANDING AT DECEMBER 31, 43,140 30,415 35,905
</TABLE>
As indicated in the above table, there were common stock options
outstanding in 1997, 1996 and 1995. However, the common stock options were not
included in the computation of diluted earnings per share because the options'
exercise price of $100 was equal to the market price of the common shares for
each of the time periods.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per share data)
NOTE 22 - 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 9.5% Senior Subordinated
Notes due 2003. Further, the Notes are fully and unconditionally guaranteed by
Holding.
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
December 31, 1997
(Dollars in Millions)
<TABLE>
<CAPTION>
RACI
HOLDING,
INC. AND
HOLDING REMINGTON ELIMINATIONS SUBSIDIARIES
------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current Assets $ - $185.1 $ - $185.1
Receivable from Remington 1.0 - 1.0 -
Noncurrent Assets 85.3 195.6 85.3 195.6
----- ------ ----- ------
Total Assets $86.3 $380.7 $86.3 $380.7
===== ====== ===== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities $ - $ 76.9 $ - $ 76.9
Payable to RACI Holding, Inc. - 1.0 1.0 -
Noncurrent Liabilities - 217.5 - 217.5
Shareholders' Equity 86.3 85.3 85.3 86.3
----- ------ ----- ------
Total Liabilities and
Shareholders' Equity $86.3 $380.7 $86.3 $380.7
===== ====== ===== ======
</TABLE>
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per 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
------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
- ------
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
SHAREHOLDERS' EQUITY
- --------------------
Current Liabilities $ - $ 84.5 $ - $ 84.5
Noncurrent Liabilities - 270.7 - 270.7
Shareholders' Equity 79.8 79.8 79.8 79.8
----- ------ ----- ------
Total Liabilities and
Shareholders' Equity $79.8 $435.0 $79.8 $435.0
===== ====== ===== ======
</TABLE>
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except share and per shate data)
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Millions)
RACI
HOLDING,
INC. AND
HOLDING REMINGTON ELIMINATIONS STATEMENTS
------- --------- ------------ ----------
Year Ended
December 31, 1997
-----------------
Sales $ - $ 381.2 $ - $ 381.2
Gross Profit - 111.3 - 32.6
Equity in Income of Subsidiary 5.5 - 5.5 -
Net Income $ 5.5 $ 5.5 $ 5.5 $ 5.5
Year Ended
December 31, 1996
------------------
Sales $ - $ 390.4 $ - $ 390.4
Gross Profit - 108.7 - 108.7
Equity in Loss of Subsidiary (13.8) - (13.8) -
Net (Loss) $(13.8) $ (13.8) $ (13.8) $ (13.8)
Year Ended
December 31, 1995
-----------------
Sales $ - $ 427.0 $ - $ 427.0
Gross Profit - 134.3 - 134.3
Equity in Income of Subsidiary 11.5 - 11.5 -
Net Income $ 11.5 $ 11.5 $ 11.5 $ 11.5
F-28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
33
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REMINGTON AND HOLDING
The names, ages and positions of the directors and executive officers of
Remington as of March 17, 1998 are set forth below. Each of the directors of
Remington is also a director of Holding. Messrs. Hendrix, Millner and Little
serve as executive officers in the same capacities with Holding as they do with
Remington, and Mr. Grecco serves as Corporate Secretary and Vice President of
Holding. All directors are elected annually and hold office until their
successors are elected and qualified, or until their earlier removal or
resignation.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Leon J. Hendrix, Jr. (a)(b)(c) 56 Director, Chairman and Chief Executive Officer
Hubbard C. Howe (a) 69 Director
Stephen D. Bechtel (a)(b) 72 Director
Bobby R. Brown (a)(b)(c) 65 Director
Richard C. Dresdale (c)(d) 41 Director
Richard A. Gilleland (b)(c)(d) 53 Director
Richard E. Heckert (b)(d) 74 Director
B. Charles Ames 72 Director
Joseph L. Rice, III (a) 66 Director
H. Norman Schwarzkopf (b) 63 Director
Thomas L. Millner (a)(b) 44 Director, President and Chief Operating Officer
James B. Ackley 58 Vice President - Research and Development
Ronald H. Bristol, II 35 Vice President, General Manager - Firearms
Paul L. Cahan 56 Vice President, General Manager - Ammunition
Robert L. Euritt 63 Vice President - Human Resources & Customer Service
Samuel G. Grecco 44 Vice President - Business Development and Corporate Secretary
Mark A. Little 50 Vice President, Chief Financial Officer and Controller
E. Sam Rensi 50 Vice President - Manufacturing
Arthur W. Wheaton 56 Vice President, General Manager - Worldwide Sales
</TABLE>
(a) Member, Executive Committee
(b) Member, Public Policy Committee
(c) Member, Audit Committee
(d) Member, Compensation Committee
Each officer of the Company is elected by the Board of Directors to hold
office until the next succeeding annual meeting of the Board of Directors.
None of the Company's officers has any family relationship with any
director or other officer. "Family relationship" for this purpose means any
relationship by blood, marriage or adoption, not more remote than first cousin.
The business experience during the past five years of each of the directors
and executive officers listed above is as follows:
Leon J. (Bill) Hendrix, Jr. has been a director of Remington and Holding
--------------------------
since September 1994, and became Chairman and Chief Executive Officer in
December 1997. Mr. Hendrix joined CD&R in November 1993 as a principal and is a
general partner of Clayton & Dubilier Associates IV Limited Partnership
("Associates IV"), the general partner of C&D Fund IV. Mr. Hendrix was Chief
Operating Officer and Executive Vice President from prior to 1993 to October
1993 of Reliance Electric Company, a manufacturing company. Mr. Hendrix
currently serves as a director of Keithley Instruments, NACCO Industries, Inc.
and Cambrex Corp. He is also a director of WESCO Distribution, Inc. and its
parent CDW Holding Corporation, a corporation in which C&D Fund IV has an
investment, and of Riverwood International Corporation, and its parents RIC
Holding, Inc. and Riverwood Holding, Inc., a corporation in which an investment
partnership managed by CD&R has an investment.
34
<PAGE>
Hubbard C. Howe has been a director of Remington and Holding since October
---------------
1993, and was Chairman and Chief Executive Officer of Remington and Holding from
the Closing until December 1997. Mr. Howe served as Vice Chairman from February
1994 to November 1997, and as Chairman from prior to 1993 to February 1994, of
Nu-kote International, Inc., a printing supplies manufacturer, and its parent,
Nu-kote Holding, Inc., a corporation in which an investment partnership managed
by CD&R previously had an investment. Mr. Howe has served as Chairman and as a
director since prior to 1993 of A.P.S., Inc., a distributor of automotive
replacement parts, and its parent, APS Holding Corporation in which an
investment partnership managed by CD&R has an investment. From March 1997 until
January 1998, Mr. Howe served as the interim Chief Executive Officer of APS
Holding Corporation and A.P.S., Inc. Mr. Howe is a director of Riverwood
International Corporation, and its parents RIC Holding, Inc. and Riverwood
Holding, Inc., a corporation in which an investment partnership managed by CD&R
has an investment. Mr. Howe is a principal of CD&R and a general partner of
Associates IV.
Stephen D. Bechtel, Jr. has been a director of Remington and Holding since
----------------------
March 1994. Since prior to 1993 Mr. Bechtel has been Chairman Emeritus of
Bechtel Corp. and of Bechtel Group, Inc., both of which are engineering and
construction companies. Mr. Bechtel had been Chairman of Fremont Investors,
Inc. (previously named Fremont Group, Inc.), a management investment company and
Sequoia Ventures, Inc., an investment company from prior to 1993 until May 1995.
Mr. Bechtel has been Chairman Emeritus of Fremont Investors, Inc. and Sequoia
Ventures, Inc. since June 1995, and Chairman Emeritus of Fremont Group, L.L.C.
since April 1996.
Bobby R. Brown has been a director of Remington and Holding since December
--------------
1993, having previously served as President of the Company from prior to 1993
until the Closing. From prior to 1993 to January 1995, Mr. Brown was President,
and from prior to 1993 to January 1996 was Chairman and Chief Executive Officer
of CONSOL, Inc. and CONSOL Energy, Inc., the parents of Consolidation Coal
Company, a coal mining company. Mr. Brown is currently the Chairman of CONSOL,
Inc. and its parent CONSOL Energy, Inc. From prior to 1993 to April 1993, Mr.
Brown was Vice President of CONOCO, Inc., an oil and natural gas company. Mr.
Brown is also a director of PNC Bank, N.A.
Richard C. Dresdale has been a director of Remington and Holding since
-------------------
October 1993, and served as Vice President of Remington and Holding from October
1993 to December 1993. He has been Managing Director of Fenway Partners, Inc.,
a private investment firm, since March 1994. He was a professional employee of
CD&R from prior to 1993 until March 1994. He was also a limited partner of
Associates IV until March 1994. From prior to 1993 until September 1997, Mr.
Dresdale was a director of Nu-kote International, Inc. and its parent Nu-kote
Holding, Inc. Mr. Dresdale is also a director of Aurora Foods, Inc. and Van de
Kamps, Inc., both of which are companies in the food processing business.
Richard A. Gilleland has been a director of Remington and Holding since
--------------------
March 1994. Mr. Gilleland is now Chairman, Chief Executive Officer and
President of Physicians Resource Group, Inc., which provides management services
to physicians and clinics. He was President and Chief Executive Officer of
AMSCO International, Inc., a manufacturer of medical products, from July 1995 to
July 1996 and Chairman, President and Chief Executive Officer of Kendall
International, Inc., a manufacturer of hospital supplies, from prior to 1993 to
July 1995. Mr. Gilleland currently serves as a director of DePuy Orthopedics
and Tyco International, Ltd. Mr. Gilleland provides advisory and consulting
services to CD&R relating to investments and investment opportunities in
healthcare-related industries.
Richard E. Heckert has been a director of Remington and Holding since March
------------------
1994. Mr. Heckert served as a director of DuPont from prior to 1993 to April
1994 and a director of The Seagram Company, Ltd. from prior to 1993 to April
1995. From prior to 1993 to May 1995, he served on the International Committee
of L'Air Liquide. Mr. Heckert served as a member of the International Advisory
Council of the Broken Hill Proprietary Company (BHP) from prior to 1993 to
October 1994, and was a director of Marsh & McLennan Companies Inc., from prior
to 1993 until 1996.
B. Charles Ames was elected to the Boards of Directors of Remington and
---------------
Holding in December 1997. Mr. Ames is a professional employee, and since prior
to 1993 has been a principal, of CD&R and a general partner of Associates IV.
Mr. Ames is also a director and Chairman of the Board of Riverwood International
Corporation, and its parents RIC Holding, Inc. and Riverwood Holding, Inc., a
corporation in which an investment partnership managed by CD&R has an
investment. Mr. Ames is also Chairman and a director of WESCO Distribution,
Inc. and its parent CDW Holding Corporation, a corporation in which C&D Fund IV
has an investment, and of Lexmark International, Inc., a
35
<PAGE>
manufacturer of laser printers, ink jet printers and related supplies, and its
parent, Lexmark International Group, Inc., a corporation in which C&D Fund IV
has an investment. Mr. Ames serves on the Boards of Directors of The Progressive
Corporation and the M.A. Hanna Company.
Joseph L. Rice, III has been a director of Remington and Holding since
-------------------
November 1993, and served as President of Remington and Holding from October
1993 until the Closing. Mr. Rice is Chairman and Chief Executive Officer of
CD&R, which he joined in 1978, and a general partner of Associates IV. Mr. Rice
is also a director of Uniroyal Holding, Inc., a corporation in which an
investment partnership managed by CD&R has an investment.
H. Norman Schwarzkopf has been a director of Remington and Holding since
---------------------
September 1995. General Schwarzkopf retired in August 1991 following a long and
distinguished career in the U.S. Army. He currently serves as a director of
Borg-Warner Security Corporation, Kuhlman Corporation and USA Network, Inc. and
is a member of the University of Richmond Board of Trustees.
Thomas L. Millner became President and Chief Operating Officer of Remington
-----------------
in May 1994. Mr. Millner has been a director of Remington and Holding since
June 1994. From prior to 1993 to May 1994, Mr. Millner served as President and
Chief Executive Officer of The Pilliod Cabinet Company, a furniture
manufacturer. Prior to January 31, 1994, an investment partnership managed by
CD&R had an investment in Pilliod Holding Company, the parent of The Pilliod
Cabinet Company. Mr. Millner currently serves on the board of directors of
Stanley Furniture Co., Inc., The Atlanta Belting Co., and Old London Foods, Inc.
James B. Ackley joined Remington in March 1996 as Vice President-Research
---------------
and Development. From prior to 1993 until joining the Company, Mr. Ackley was
the Chief Executive Officer for the Joint Service Small Arms Program and
Executive Program Manager with the U.S. Defense Department.
Ronald H. Bristol, II joined Remington in June 1995 as Vice President -
---------------------
Operations, and in December 1997 became Vice President, General Manager -
Firearms. From prior to 1993 to June 1995, Mr. Bristol was a Manager with
Arthur Andersen & Co.
Paul L. Cahan joined Remington in March 1995 as the Vice President -
-------------
Ammunition and in December 1997 became Vice President, General Manager -
Ammunition. From prior to 1993 until joining the Company, Mr. Cahan was
director of Steel Tooling Operations with Kennametal, Inc., a leading
manufacturer of tooling and supplies for the metalworking and mining industries.
Robert L. Euritt joined Remington in September 1994 as Vice President -
----------------
Human Resources and in December 1997 became Vice President - Human Resources and
Customer Service. From February 1993 to August 1994, Mr. Euritt was Senior Vice
President - Human Resources for Goody Products, a haircare products company.
Samuel G. Grecco became Vice President-Business Development and Planning in
----------------
September 1996 and became Vice President - Business Development and Corporate
Secretary in December 1996. From prior to 1993 until the Closing, Mr. Grecco
served as Controller of the Company. From December 1993 until June 1996 he was
Vice President, Controller and Treasurer of the Company. From June 1996 until
September 1996 he was Vice President and Controller of the Company.
Mark A. Little joined Remington in July 1996 as Director of Planning and
--------------
Business Development. In September 1996, he became Vice President, Controller
and in June 1997, he became Vice President, Chief Financial Officer and
Controller. From prior to 1993 until joining Remington, Mr. Little held the
position of Executive Vice President of Finance, Chief Financial Officer of The
Pilliod Cabinet Company, now named Pilliod Furniture, Inc.
E. Sam Rensi became Vice President - Manufacturing in December 1997. From
------------
December 1996 to December 1997 he was Vice President - Firearms, International
and Research and Development. From March 1994 to December 1996 he was Vice
President - Firearms. Mr. Rensi held the position of Plant Manager - Firearms
from the Closing until March 1994. Mr. Rensi held the position of Operations
Superintendent - Ilion at the Company's Ilion plant from prior to 1993 until the
Closing.
36
<PAGE>
Arthur W. Wheaton became Vice President - Sales and Marketing in December
-----------------
1996 and in December 1997, he became Vice President, General Manager - Worldwide
Sales. From March 1995 until December 1996 he was Vice President - Corporate
Marketing. From March 1994 until March 1995 he was Vice President. From prior
to 1993 to March 1994, Mr. Wheaton held the position of Director - Marketing and
Sales. Mr. Wheaton is Chairman of the Board of Directors of the Sporting Arms
and Ammunition Manufacturer's Institute, and serves on the Board of Directors of
the National Shooting Sports Foundation, the Wildlife Management Institute and
Congressional Sportsman Foundation.
ITEM 11. EXECUTIVE COMPENSATION
Members of the Board of Directors of Remington and Holding who are not
employees of the Company or CD&R (each, an "Eligible Director") will receive a
per meeting fee of $1,000 for each Remington board and committee meeting
attended and an annual retainer of $20,000. An additional per meeting fee of
$1,000 is paid to the chairman of each committee. Members of the Board of
Directors of Holding will not receive any additional compensation for their
services in such capacity. All directors will be reimbursed for reasonable
travel and lodging expenses incurred to attend meetings. Each Eligible Director
was also eligible to participate in the RACI Holding, Inc. 1994 Directors' Stock
Plan (the "Directors' Plan") under which a director could forego part or all of
the annual retainer and meeting fee payable to him for calendar years 1995-1997
in exchange for shares of the Holding's Class A Common Stock ("Common Stock").
The number of shares payable is determined by dividing (i) the amount of cash
retainer fees foregone with respect to services provided during a calendar year
by (ii) the greater of (x) the fair market value of a share of Common Stock as
of the last day of such calendar year and (y) $100. As of the date of this
Report, no Common Stock has been issued under this Plan, although it is expected
that shares of Common Stock will be issued in the near future. Effective July
1, 1997 under the RACI Holding, Inc. Director Stock Purchase Plan (the "1997
Directors' Plan"), the Company offered each Eligible Director the opportunity to
purchase up to 2,500 shares of Common Stock at a purchase price per share of
$100. The 1997 Directors' Plan extends until July 1, 2002. As of the date of
this Report, 10,000 shares of Common Stock have been issued under the 1997
Directors' Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes the compensation paid by Remington to each
person who served as its Chief Executive Officer during 1997 and to each of the
Company's four other most highly compensated executive officers (the "Named
Executive Officers") during or with respect to the 1996 and 1997 fiscal years
for services in all capacities rendered to the Company for such fiscal years.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
1996 & 1997 ANNUAL COMPENSATION ($)
-------------------------------------------------------------
SALARY OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION ALL OTHER
- ------------------------------------------------------ ------ ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Leon J. Hendrix, Jr................................... 1996 -- -- -- --
Chairman and Chief Executive Officer (1) 1997 -- -- -- --
Hubbard C. Howe....................................... 1996 -- -- -- --
Chairman and Chief Executive Officer (1) 1997 -- -- -- --
Thomas L. Millner..................................... 1996 337,512 270,000 -- 8,651(2)
President and Chief Operating Officer 1997 350,016 437,500 -- 8,951(2)
Robert L. Euritt...................................... 1996 150,000 80,000(3) 39,328(4) 1,125(5)
Vice President-Human Resources & Customer Service 1997 152,500 165,000 36,818(4) 4,575(5)
Mark A. Little........................................ 1996 68,750(6) -- -- 1,925(7)
Vice President-Chief Financial Officer & 1997 152,500 165,000 -- 6,176(2)
Controller
Ronald H. Bristol, II................................. 1996 133,333 50,000 17,993(8) 2,125(5)
Vice President, General Manager-Firearms 1997 145,000 162,525 -- 4,350(5)
</TABLE>
(1) Mr. Hendrix and Mr. Howe are both principals of CD&R and received no
compensation directly from Remington for their services as Chairman and
Chief Executive Officer. Mr. Howe served in this capacity until December
1997 when Mr. Hendrix assumed the position. Remington pays CD&R an annual
fee (amounting to $400,000 in 1997 and $400,000 in 1996) for management
consulting services (see "Certain Relationships and Related
37
<PAGE>
Transactions" below) which include Mr. Howe's and Mr. Hendrix's services as
Chairman and Chief Executive Officer.
(2) Amount reflects premiums paid by the Company for a Life Insurance Policy
and Remington's matching contributions on behalf of the Named Executive
Officer to the Remington Savings and Investment Plan.
(3) Amount reflects incentive bonus paid in connection with such named
Executive Officer's relocation to the Company's North Carolina
headquarters.
(4) Amount reflects reimbursements for temporary living expenses incurred by
the Named Executive Officer.
(5) Reflects Remington's matching contributions on behalf of the Named
Executive Officer to the Remington Savings and Investment Plan.
(6) The Named Executive Officer was employed for a partial year.
(7) Amount reflects premiums paid by the Company for a Disability Insurance
Policy on behalf of the Named Executive Officer.
(8) Amount reflects reimbursements for moving expenses incurred by the Named
Executive Officer in connection with the Named Executive Officer's
relocation to the North Carolina headquarters.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
---------------------------------
Potential Realized Value/
Assumed Annual Rates of
Number of Percentage of Stock Price Appreciation
Securities Total Options for Option Term (2)
Underlying Granted to Exercise ---------------------------
Options Employees Price Expiration 5% 10%
Name Granted (1) in Fiscal 1997 ($/SH) Date ($162.89) ($259.37)
- ---------------------- ----------- -------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Leon J. Hendrix, Jr. - - - - - -
Hubbard C. Howe - - - - - -
Thomas L. Millner - - - - - -
Robert L. Euritt 500 6% 100 11/04/07 $31,445 $79,685
Mark A. Little 1,000 13% 100 09/22/07 62,890 159,370
Ronald H. Bristol, II 1,000 13% 100 09/22/07 62,890 159,370
Ronald H. Bristol, II 500 6% 100 11/04/07 31,445 79,685
</TABLE>
(1) Subject to the Named Executive Officer's continued employment, the options
become exercisable in three equal installments on each of the second, third
and fourth anniversaries of the date of grant, subject to acceleration under
certain circumstances.
(2) The potential realizable value of each grant of employee stock options,
assuming that the market price of the underlying security appreciates in
value from the date of grant to the end of the option term at the rates of
5% and 10%, are shown above. Hypothetical future values, based on the
difference between the option price at date of grant and the stock prices
shown in parentheses, indicate what gain would be realized if such options
were exercised immediately prior to their expiration date. The actual future
gains, if any, of the stock options will depend upon the future appreciation
in the market price of the Common Stock. There is no assurance that the
assumed future values reflected in this Table will actually be attained. Use
of this model should not be viewed in any way as a forecast of the future
performance of Holding's stock, which will be determined by future events
and unknown factors.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
----------------------------------------------
YEAR AND FY-END OPTION/SAR VALUES
---------------------------------
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Option
Shares Acquired FY-End (#) at FY-End ($)
Name on Exercise (#) Value Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------ ---------------- ------------------ -------------------------- --------------------------
<S> <C> <C> <C> <C>
Leon J. Hendrix, Jr..... -- -- -- --
Hubbard C. Howe......... -- -- -- --
Thomas L. Millner....... -- -- 2,500 / 7,500 --
Robert L. Euritt........ -- -- 613 / 2,340 --
Mark A. Little.......... -- -- 0 / 1,000 --
Ronald H. Bristol, II... -- -- 375 / 2,625 --
</TABLE>
PENSION AND RETIREMENT PLAN
The Remington Arms Company, Inc. Pension and Retirement Plan was
established effective December 1, 1993 to provide retirement income and survivor
benefits to Remington's employees and their beneficiaries through a tax
qualified program.
Retirement benefits under the Pension and Retirement Plan are generally
based on an employee's years of benefit service and highest final average
compensation. Generally, an employee's benefit service under the Pension and
Retirement Plan includes all of his service with Remington and his service, if
any, with DuPont prior to the Closing. DuPont service is not recognized for
benefit accrual or early retirement eligibility, however, in the case of
eligible employees who elected to retire from DuPont and commence receiving
retirement income from the DuPont retirement plan in connection with the
Acquisition. Retirement benefits are generally paid in annuity form, for life,
commencing at the employee's 65th birthday, although longer service employees
may elect to commence receiving retirement income at an earlier age.
38
<PAGE>
<TABLE>
<CAPTION>
Salary and Estimated Annual Retirement Benefits Based on Service of
50% of Incentive ------------------------------------------------------------------
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years
- ------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
100,000 18,000 24,000 30,474 37,656 44,886
125,000 22,551 30,936 39,741 48,780 57,861
150,000 28,056 38,286 49,116 60,030 70,986
200,000 37,776 51,786 66,174 80,856 95,586
250,000 43,426 59,609 76,170 93,025 109,928
</TABLE>
The above table illustrates the annual amounts payable under the Pension
and Retirement Plan in the form of a straight life annuity to employees retiring
at age 65 in 1997. Compensation recognized under the Pension and Retirement
Plan generally includes an employee's average compensation for the three
consecutive year period in the employee's final ten years of service for which
such compensation was the highest. Compensation for this purpose includes
overtime, shift differentials and 50% of any incentive compensation award.
Compensation does not include awards and payments under any other special
compensation plans, payments for severance, relocation or other special payments
or pay in excess of legally restricted amounts ($235,840 for plan years
beginning before 1994 and $150,000 (as adjusted pursuant to legal regulation)
for plan years beginning after 1993). The above benefits are based on the
greater of three formulas, one of which is offset by Social Security Benefits.
The years of benefit service and average monthly pay (expressed as an
annual amount), recognized as of December 31, 1997, under the Pension and
Retirement Plan for each eligible Named Executive Officer are as follows:
<TABLE>
<CAPTION>
- --------------------- ---------------------- Average Pay
Prior to Average Pay Average Pay
Name Years of Service 1994 Plan 1994-1996 1997
- --------------------- ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Thomas L. Millner 3.6 $236,000 $ 150,000 $160,000
Robert L. Euritt 3.3 $156,000 $ 150,000 $152,500
Mark A. Little 1.5 $ 0 $ 135,000 $152,500
Ronald H. Bristol, II 2.5 $ 0 $ 129,167 $145,000
</TABLE>
Neither Mr. Howe nor Mr. Hendrix is a participant in the Pension and
Retirement Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company established a Compensation Committee
to review all compensation arrangements for executive officers of the Company.
The individuals serving on the Compensation Committee during 1997 were Richard
A. Gilleland, Chairman, Richard C. Dresdale and Richard E. Heckert. Prior to
joining the Compensation Committee, Mr. Dresdale served as Vice President of
Remington and Holding from October 1993 to December 1993. Prior to joining the
Compensation Committee, Mr. Heckert served as Chairman of the Board and Chief
Executive Officer of DuPont from May 1986 to April 1989, and also served as a
director of DuPont from April 1989 to April 1994.
ITEM 12. OWNERSHIP OF CAPITAL STOCK
Holding owns all of the outstanding common stock (par value $.01 per share)
of Remington. Each share of common stock is entitled to one vote. The
following table sets forth the beneficial ownership, as of March 17, 1998, of
Common Stock by each director of Holding, by all directors and executive
officers of Holding as a group, by each Named Executive Officer, and by each
person who owns beneficially more than five percent of the outstanding shares of
Common Stock:
39
<PAGE>
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF CLASS (1)
- ----------------------- --------- -----------
<S> <C> <C>
The Clayton & Dubilier Private Equity Fund IV Limited Partnership (2) 750,000 98.7
B. Charles Ames (3)(4) 750,000 98.7
William A. Barbe (3)(4) 750,000 98.7
Donald J. Gogel (3)(4) 750,000 98.7
Leon J. Hendrix, Jr. (3)(4) 750,000 98.7
Hubbard C. Howe (3)(4) 750,000 98.7
Joseph L. Rice, III (3)(4) 750,000 98.7
Stephen D. Bechtel 2,500 *
Bobby R. Brown 2,500 *
Richard C. Dresdale (5) -- --
Richard A. Gilleland 2,500 *
Richard E. Heckert 2,500 *
H. Norman Schwarzkopf -- --
Thomas L. Millner (6) 2,500 *
Robert L. Euritt (6) 613 *
Mark A. Little -- --
Ronald H. Bristol, II (6) 375 *
Executive officers and directors as a group(1)(4)(7) (8) 766,670 100.0
</TABLE>
- --------------------
*Less than 1%
(1) Does not give effect to any exercise of options for 31,526 shares of Common
Stock that have been granted but have not yet vested under the Amended and
Restated RACI Holding, Inc. Stock Option Plan, options for 39,240 shares
that may be granted in the future under such plan or 50,000 shares of
Common Stock that may be sold to eligible employees pursuant to the RACI
Holding, Inc. Stock Purchase Plan.
(2) The business address for The Clayton & Dubilier Private Equity Fund IV
Limited Partnership ("C&D Fund IV") is 270 Greenwich Avenue, Greenwich,
Connecticut 05830.
(3) The business address for such persons is c/o Clayton, Dubilier & Rice,
Inc., 375 Park Avenue, 18th Floor, New York, New York 10152.
(4) Messrs. Ames, Barbe, Gogel, Hendrix, Howe, and Rice may be deemed to share
beneficial ownership of the shares owned of record by C&D Fund IV by virtue
of their status as general partners of Associates IV, the general partner
of C&D Fund IV, but each expressly disclaims such beneficial ownership of
the shares owned by C&D Fund IV. Messrs. Ames, Barbe, Gogel, Hendrix, Howe
and Rice share investment and voting power with respect to securities owned
by C&D Fund IV.
(5) Mr. Dresdale has withdrawn as a limited partner of Associates IV but
retains an economic interest in the shares of Common Stock owned of record
by C&D Fund IV by virtue of his status as a withdrawn limited partner. Mr.
Dresdale disclaims any beneficial ownership of such shares. Mr. Dresdale
has no investment or voting power with respect to the shares of Common
Stock owned by C&D Fund IV.
(6) Represents shares that may be acquired upon exercise of options.
(7) C&D Fund IV owns 750,000 of the shares of Common Stock included herein.
(8) Includes 6,670 vested options for shares of Common Stock owned by executive
officers as a group.
40
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CD&R AND C&D FUND IV
C&D Fund IV, which currently is Holding's largest stockholder, is a private
investment fund managed by CD&R. Amounts contributed to C&D Fund IV by its
limited partners are invested at the discretion of the general partner in equity
or equity-related securities of entities formed to effect leveraged buy-out
transactions and in the equity of corporations where the infusion of capital
coupled with the provision of managerial assistance by CD&R can be expected to
generate returns on investments comparable to returns historically achieved in
leveraged buy-out transactions. The general partner of C&D Fund IV is
Associates IV. Leon J. Hendrix, Jr., a principal of CD&R and a general partner
of Associates IV, is a director and currently serves as Chairman and Chief
Executive Officer of Remington and Holding. Joseph L. Rice, III, Hubbard C.
Howe and B. Charles Ames are principals of CD&R, general partners of Associates
IV, and directors of Remington and Holding. Donald J. Gogel and Joseph L. Rice,
III are the sole stockholders of CD&R. Richard A. Gilleland provides advisory
and consulting services to CD&R relating to investments and investment
opportunities in healthcare-related industries and is a director of Remington
and Holding.
CD&R receives an annual fee for management and financial consulting
services provided to the Company and reimbursement of out-of-pocket expenses,
pursuant to a consulting agreement among Holding, the Company and CD&R. Such
services include helping the Company to establish effective banking, legal and
other business relationships, and assisting management in developing and
implementing strategies for improving the operational, marketing and financial
performance of the Company. In addition, CD&R has agreed to furnish the
services of Mr. Hendrix to serve as Chairman and Chief Executive Officer of the
Company and Holding as a part of the services provided pursuant to that
consulting agreement. Mr. Hendrix's compensation from CD&R is established
without regard to the extent of particular services provided by Mr. Hendrix to
the Company. The number of CD&R employees, and the amount of time spent by
them, working with a particular portfolio varies from time to time with the
scope and type of services provided. The consulting fees paid to CD&R were
$400,000 for each of 1995, 1996 and 1997. The consulting fees to be paid to
CD&R may not exceed $500,000 per year under the terms of the Credit Agreement
and the Indenture unless certain requirements are met. Such consulting fees
will be reviewed on an annual basis and will be calculated with reference to the
size and complexity of the Company's business, the type and magnitude of the
advisory and management consulting services being provided, the fees being paid
to CD&R by other companies for which it provides such services and the fees
charged by other managers with comparable organizations for similar services
provided to companies in which investment funds managed by such managers have
invested.
The Company paid fees to the law firm of Debevoise & Plimpton during 1997
for legal services rendered. Franci J. Blassberg, Esq., a member of Debevoise &
Plimpton, is married to Joseph L. Rice, III, a director of the Company and a
general partner of Associates IV.
CD&R, C&D Fund IV, Holding and the Company have entered into an
indemnification agreement, pursuant to which Holding and the Company have agreed
to indemnify CD&R, C&D Fund IV, Associates IV and their respective directors,
officers, partners, employees, agents and controlling persons against certain
liabilities arising under the federal securities laws, other laws regulating the
business of the Company and certain other claims and liabilities.
As noted under "Ownership of Capital Stock," C&D Fund IV currently owns
98.7% of the outstanding Common Stock. C&D Fund IV and Holding have entered
into a registration rights agreement that, among other things, provides C&D Fund
IV and will provide certain other Holding equity holders with certain
registration rights with respect to their Common Stock.
STOCK OPTION AND PURCHASE PLANS
As of December 31, 1996, the Company had reserved 132,380 shares of the
Class A Common Stock, par value $.01 per share, of Holding ("Common Stock") for
issuance in accordance with the terms of the RACI Holding, Inc. Stock Option
Plan (the "Option Plan"), the RACI Holding, Inc. Stock Purchase Plan ( the
"Purchase Plan") and the RACI Holding, Inc. 1994 Directors' Stock Plan (the
"1994 Directors' Plan"). On July 22, 1997 the Board of Directors of RACI
Holding adopted the RACI Holding, Inc. Director Stock Purchase Plan (the "1997
Directors' Plan) which reserved an additional 12,500 shares of the Class A
Common Stock, par value $.01 per share, of Holding for issuance in
41
<PAGE>
accordance with the terms of the 1997 Directors' Plan. To date 10,000 shares of
Common Stock have been issued under the 1997 Directors' Plan and no shares of
Common Stock have been issued under the Option Plan, Purchase Plan or 1994
Directors' Plan although it is expected that shares of Common Stock will be
issued under the 1994 Directors' Plan in the near future. As of December 31,
1997, the Company had reserved 134,880 shares of Common Stock for issuance under
the above mentioned plans.
At December 31, 1997 options to purchase 43,140 shares of Common Stock were
outstanding, at a per share exercise price of $100, of which 11,614 options
were exercisable.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 --Asset Purchase Agreement, dated as of November 24, 1993,
among Remington Arms Company, Inc., formerly named RACI
Acquisition Corporation ("Remington"), E.I. du Pont de
Nemours and Company ("DuPont") and Sporting Goods
Products, Inc., formerly named Remington Arms Company,
Inc. ("Sporting Goods"); previously filed as Exhibit 2.1
to Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3, 1996,
and herein incorporated by reference.
2.2 --Understanding and Agreement Regarding Product Liability
Litigation, dated as of June 1, 1996 between DuPont and
Remington; previously filed as Exhibit 2.2 to Amendment
No. 2 to Registration Statement No. 333-4520, 333-4520-01
under the Securities Act of 1933, as amended, filed April
23, 1997, and herein incorporated by reference.
2.3 --Non-Competition Agreement, dated as of December 1, 1993,
among DuPont, Sporting Goods and Remington; previously
filed as Exhibit 2.3 to Registration Statement No. 333-
4520, 333-4520-01 under the Securities Act of 1933, as
amended, filed May 3, 1996, and herein incorporated by
reference.
2.4 --Product Liability Services and Defense Coordination
Agreement, dated as of December 1, 1993, among DuPont,
Sporting Goods and Remington; previously filed as Exhibit
2.4 to Registration Statement No. 333-4520, 333-4520-01
under the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
2.5 --Environmental Liability Services Agreement, dated as of
December 1, 1993, between DuPont and Remington; previously
filed as Exhibit 2.5 to Registration Statement No. 333-
4520, 333-4520-01 under the Securities Act of 1933, as
amended, filed May 3, 1996, and herein incorporated by
reference.
3.1 --Certificate of Incorporation of RACI Holding, Inc.
("Holding"), dated October 21, 1993, as amended on June
21, 1995; previously filed as Exhibit 3.1 to Registration
Statement No. 333-4520, 333-4520-01 under the Securities
Act of 1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
3.2 --By-Laws of Holding, as amended and restated on December
16, 1997.
4.1 --Specimen of Holding Class A Common Stock Certificate.
4.2 --Specimen of Holding Class B Common Stock Certificate.
4.3 --Indenture, dated as of November 30, 1993 (the
"Indenture"), among Remington, First Trust National
Association, as Trustee, and Holding, as Guarantor, with
respect to Remington's 9 1/2% Senior Subordinated Notes
due 2003 (the "Notes"); previously filed as Exhibit 4.1 to
Registration Statement No. 333-4520, 333-4520-01 under the
Securities Act of 1933, as amended, filed May 3, 1996, and
herein incorporated by reference.
43
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.4 --Purchase Agreement, dated November 19, 1993, among
Remington, Holding, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), and
CS First Boston Corporation ("First Boston" and, together
with Merrill Lynch, the "Initial Purchaser"); previously
filed as Exhibit 4.2 to Registration Statement No. 333-
4520, 333-4520-01 under the Securities Act of 1933, as
amended, filed May 3, 1996, and herein incorporated by
reference.
4.5 --Registration Rights Agreement, dated as of November 30,
1993, among Remington, Holding and the Initial Purchasers;
previously filed as Exhibit 4.3 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.6 --Credit Agreement, dated as of November 30, 1993, among
Remington, the lenders named therein, The Chase Manhattan
Bank, N.A., Chemical Bank ("Chemical"), and Union Bank of
Switzerland, as co-agents, and Chemical, as administrative
agent (the "Administrative Agent"); previously filed as
Exhibit 4.4 to Registration Statement No. 333-4520, 333-
4520-01 under the Securities Act of 1933, as amended,
filed May 3, 1996, and herein incorporated by reference.
4.7 --First Amendment, dated as of September 29, 1995, to the
Credit Agreement referred to as Exhibit 4.6 above;
previously filed as Exhibit 4.5 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.8 --Second Amendment, dated as of March 29, 1996, to the
Credit Agreement referred to as Exhibit 4.6 above;
previously filed as Exhibit 4.6 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.9 --Third Amendment, dated as of June 28, 1996, to the
Credit Agreement referred to as Exhibit 4.6 above;
previously filed as Exhibit 4.7 Amendment No. 1 to
Registration Statement No. 333-4520, 333-4520-01 under the
Securities Act of 1933, as amended, filed January 10,
1997, and herein incorporated by reference.
4.10 --Fourth Amendment, dated as of December 30, 1996 to the
Credit Agreement referred to as Exhibit 4.6 above;
previously filed as Exhibit 4.8 to Amendment No. 1 to
Registration Statement No. 333-4520, 333-4520-01 under the
Securities Act of 1933, as amended, filed January 10,
1997, and herein incorporated by reference.
4.11 --Borrower Stock Pledge Agreement, dated as of November
30, 1993, between Remington and the Administrative Agent;
previously filed as Exhibit 4.7 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.12 --Borrower Stock Pledge Agreement, dated as of March 30,
1996, between Remington and the Administrative Agent;
previously filed as Exhibit 4.10 to Amendment No. 1 to
Registration Statement No. 333-4520, 333-4520-01 under the
Securities Act of 1933, as amended, filed January 10,
1997, and herein incorporated by reference.
4.13 --Borrower Security Agreement, dated as of November 30,
1993, between Remington and the Administrative Agent;
previously filed as Exhibit 4.8 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.14 --Borrower Patent and Trademark Security Agreement, dated
as of November 30, 1993,
44
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
between Remington and the Administrative Agent; previously
filed as Exhibit 4.9 to Registration Statement No. 333-
4520, 333-4520-01 under the Securities Act of 1933, as
amended, filed May 3, 1996, and herein incorporated by
reference.
4.15 --Holding Stock Pledge Agreement, dated as of November 30,
1993, between Holding and the Administrative Agent;
previously filed as Exhibit 4.10 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.16 --Holding Guarantee, dated as of November 30, 1993, by
Holding to the Administrative Agent; previously filed as
Exhibit 4.11 to Registration Statement No. 333-4520, 333-
4520-01 under the Securities Act of 1933, as amended,
filed May 3, 1996, and herein incorporated by reference.
4.17 --Sublease, dated as of March 1, 1987, between S&K
Industries, Inc., as lessor, and Remington as assignee of
DuPont, as lessee (agreement to furnish such sublease to
the Securities and Exchange Commission upon its request).
10.1 --Filed as Exhibit 2.1.
10.2 --Filed as Exhibit 2.2.
10.3 --Filed as Exhibit 2.3.
10.4 --Filed as Exhibit 2.4.
10.5 --Filed as Exhibit 2.5.
10.6 --Filed as Exhibit 4.4.
10.7 --Filed as Exhibit 4.5.
10.8 --Filed as Exhibit 4.6.
10.9 --Filed as Exhibit 4.7.
10.10 --Filed as Exhibit 4.8.
10.11 --Filed as Exhibit 4.9.
10.12 --Filed as Exhibit 4.10.
10.13 --Filed as Exhibit 4.11.
10.14 --Filed as Exhibit 4.12.
10.15 --Filed as Exhibit 4.13.
10.16 --Filed as Exhibit 4.14.
10.17 --Filed as Exhibit 4.15.
10.18 --Filed as Exhibit 4.16.
10.19 --Registration and Participation Agreement, dated as of
November 30, 1993, between Holding and The Clayton &
Dubilier Private Equity Fund IV Limited Partnership (the
"C&D Fund"); previously filed as Exhibit 10.14 to
Registration Statement No. 333-
45
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4520, 333-4520-01 under the Securities Act of 1933, as
amended, filed May 3, 1996, and herein incorporated by
reference.
10.20 --Stock Subscription Agreement, dated as of November 30,
1993, between Holding and the C&D Fund; previously filed
as Exhibit 10.15 to Registration Statement No. 333-4520,
333-4520-01 under the Securities Act of 1933, as amended,
filed May 3, 1996, and herein incorporated by reference.
10.21 --Indemnification Agreement, dated as of November 30,
1993, among Remington, Holding, Clayton, Dubilier & Rice,
Inc. and the C&D Fund; previously filed as Exhibit 10.16
to Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3, 1996,
and herein incorporated by reference.
10.22 --RACI Holding, Inc. 1994 Directors' Stock Plan, adopted
on June 2, 1994; previously filed as Exhibit 10.18 to
Registration Statement No. 333-4520, 333-4520-01 under the
Securities Act of 1933, as amended, filed May 3, 1996, and
herein incorporated by reference.
10.23 --RACI Holding, Inc. Stock Purchase Plan, adopted on June
2, 1994; previously filed as Exhibit 10.19 to Registration
Statement No. 333-4520, 333-4520-01 under the Securities
Act of 1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
10.24 --Amended and Restated RACI Holding, Inc. Stock Option
Plan, adopted as of July 17, 1995; previously filed as
Exhibit 10.20 to Registration Statement No. 333-4520, 333-
4520-01 under the Securities Act of 1933, as amended,
filed May 3, 1996, and herein incorporated by reference.
10.25 --Amendment No. 1, effective as of July 22, 1996, to the
Amended and Restated RACI Holding, Inc. Stock Option Plan
referred to as Exhibit 10.26 above; previously filed as
Exhibit 10.25 to Amendment No. 1 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed January 10, 1997, and herein
incorporated by reference.
10.26 --Form of Management Stock Option Agreement; previously
filed as Exhibit 10.21 to Registration Statement No. 333-
4520, 333-4520-01 under the Securities Act of 1933, as
amended, filed May 3, 1996, and herein incorporated by
reference.
10.27 --RACI Holding, Inc. Director Stock Purchase Plan, adopted
on July 22, 1997; previously filed as Exhibit 10.1 by the
Company in its Form 10-Q for the quarter ended September
30, 1997, and herein incorporated by reference.
10.28 --Form of Director Stock Subscription Agreement;
previously filed as Exhibit 10.2 by the Company in its
Form 10-Q for the quarter ended September 30, 1997, and
herein incorporated by reference.
10.29 --RACI Holding, Inc. Director Stock Option Plan, adopted
on July 22, 1996; previously filed as Exhibit 10.27 to
Amendment No. 1 to Registration Statement No. 333-4520,
333-4520-01 under the Securities Act of 1933, as amended,
filed January 10, 1997, and herein incorporated by
reference.
10.30 --Consulting Agreement, dated as of December 1, 1993,
among Holding, Remington and Clayton, Dubilier & Rice,
Inc.; previously filed as Exhibit 10.28 to Amendment No. 2
to Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed April 23,
1997, and herein incorporated by reference.
46
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.31 --Loan-Out Agreement, dated as of December 1, 1993, among
Holding, Remington and Clayton, Dubilier & Rice, Inc.;
previously filed as Exhibit 10.29 to Registration
Statement No. 333-4520, 333-4520-01 under the Securities
Act of 1933, as amended, filed April 23, 1997, and herein
incorporated by reference.
10.32 --Loan-Out Agreement, dated as of December 16, 1997 among
Holding, Remington and Clayton, Dubilier & Rice, Inc.
12.1 --Computation of Ratio of Earnings to Fixed Charges.
21.1 --List of Subsidiaries.
23.1 --Consent of Coopers & Lybrand L.L.P. as Independent
Auditors of the Registrant.
27 --Financial Data Schedule.
99 --Reconciliation of Income (Loss) from Operations to
EBITDA.
(b) REPORTS ON FORM 8-K.
During the quarter ended December 31, 1997, the Company filed no reports
on Form 8-K.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of March 30, 1998.
RACI HOLDING, INC.
By: /s/ Leon J. Hendrix, Jr.
-----------------------------------
Leon J. Hendrix, Jr.
Chairman, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 30, 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ Leon J. Hendrix, Jr. Chairman, Chief Executive Officer and Director
- --------------------------------------------
Leon J. Hendrix, Jr. (Principal Executive Officer)
/s/ Thomas L. Millner Director, President and Chief Operating Officer
- --------------------------------------------
Thomas L. Millner
/s/ Mark A. Little Vice President, Chief Financial Officer and Controller
- --------------------------------------------
Mark A. Little (Principal Financial and Accounting Officer)
/s/ B. Charles Ames Director
- --------------------------------------------
B. Charles Ames
/s/ Stephen D. Bechtel, Jr. Director
- --------------------------------------------
Stephen D. Bechtel, Jr.
/s/ Bobby R. Brown Director
- --------------------------------------------
Bobby R. Brown
/s/ Richard C. Dresdale Director
- --------------------------------------------
Richard C. Dresdale
/s/ Richard A. Gilleland Director
- --------------------------------------------
Richard A. Gilleland
/s/ Richard E. Heckert Director
- --------------------------------------------
Richard E. Heckert
/s/ Hubbard C. Howe Director
- --------------------------------------------
Hubbard C. Howe
/s/ Joseph L. Rice, III Director
- --------------------------------------------
Joseph L. Rice, III
/s/ H. Norman Schwarzkopf Director
- --------------------------------------------
H. Norman Schwarzkopf
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders.
<PAGE>
EXHIBIT INDEX
-------------
Form 10-K for Fiscal Year Ended December 31, 1997
-------------------------------------------------
EXHIBIT NO. DESCRIPTION
- ---------- -----------
2.1 --Asset Purchase Agreement, dated as of November 24,
1993, among Remington Arms Company, Inc., formerly named
RACI Acquisition Corporation ("Remington"), E.I. du Pont
de Nemours and Company ("DuPont") and Sporting Goods
Products, Inc., formerly named Remington Arms Company,
Inc. ("Sporting Goods"); previously filed as Exhibit 2.1
to Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
2.2 --Understanding and Agreement Regarding Product Liability
Litigation, dated as of June 1, 1996 between DuPont and
Remington; previously filed as Exhibit 2.2 to Amendment
No. 2 to Registration Statement No. 333-4520, 333-4520-01
under the Securities Act of 1933, as amended, filed April
23, 1997, and herein incorporated by reference.
2.3 --Non-Competition Agreement, dated as of December 1,
1993, among DuPont, Sporting Goods and Remington;
previously filed as Exhibit 2.3 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
2.4 --Product Liability Services and Defense Coordination
Agreement, dated as of December 1, 1993, among DuPont,
Sporting Goods and Remington; previously filed as Exhibit
2.4 to Registration Statement No. 333-4520, 333-4520-01
under the Securities Act of 1933, as amended, filed May
3, 1996, and herein incorporated by reference.
2.5 --Environmental Liability Services Agreement, dated as of
December 1, 1993, between DuPont and Remington;
previously filed as Exhibit 2.5 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
3.1 --Certificate of Incorporation of RACI Holding, Inc.
("Holding"), dated October 21, 1993, as amended on June
21, 1995; previously filed as Exhibit 3.1 to Registration
Statement No. 333-4520, 333-4520-01 under the Securities
Act of 1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
3.2 --By-Laws of Holding, as amended and restated on December
16, 1997.
4.1 --Specimen of Holding Class A Common Stock Certificate.
4.2 --Specimen of Holding Class B Common Stock Certificate.
4.3 --Indenture, dated as of November 30, 1993 (the
"Indenture"), among Remington, First Trust National
Association, as Trustee, and Holding, as Guarantor, with
respect to Remington's 9 1/2% Senior Subordinated Notes
due 2003 (the "Notes"); previously filed as Exhibit 4.1
to Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
48
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.4 --Purchase Agreement, dated November 19, 1993, among
Remington, Holding, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
and CS First Boston Corporation ("First Boston" and,
together with Merrill Lynch, the "Initial Purchaser");
previously filed as Exhibit 4.2 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.5 --Registration Rights Agreement, dated as of November 30,
1993, among Remington, Holding and the Initial
Purchasers; previously filed as Exhibit 4.3 to
Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
4.6 --Credit Agreement, dated as of November 30, 1993, among
Remington, the lenders named therein, The Chase Manhattan
Bank, N.A., Chemical Bank ("Chemical"), and Union Bank of
Switzerland, as co-agents, and Chemical, as
administrative agent (the "Administrative Agent");
previously filed as Exhibit 4.4 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.7 --First Amendment, dated as of September 29, 1995, to the
Credit Agreement referred to as Exhibit 4.6 above;
previously filed as Exhibit 4.5 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.8 --Second Amendment, dated as of March 29, 1996, to the
Credit Agreement referred to as Exhibit 4.6 above;
previously filed as Exhibit 4.6 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.9 --Third Amendment, dated as of June 28, 1996, to the
Credit Agreement referred to as Exhibit 4.6 above;
previously filed as Exhibit 4.7 Amendment No. 1 to
Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed January 10,
1997, and herein incorporated by reference.
4.10 --Fourth Amendment, dated as of December 30, 1996 to the
Credit Agreement referred to as Exhibit 4.6 above;
previously filed as Exhibit 4.8 to Amendment No. 1 to
Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed January 10,
1997, and herein incorporated by reference.
4.11 --Borrower Stock Pledge Agreement, dated as of November
30, 1993, between Remington and the Administrative Agent;
previously filed as Exhibit 4.7 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.12 --Borrower Stock Pledge Agreement, dated as of March 30,
1996, between Remington and the Administrative Agent;
previously filed as Exhibit 4.10 to Amendment No. 1 to
Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed January 10,
1997, and herein incorporated by reference.
4.13 --Borrower Security Agreement, dated as of November 30,
1993, between Remington and the Administrative Agent;
previously filed as Exhibit 4.8 to Registration Statement
No. 333-4520, 333-4520-01 under the Securities Act of
1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
49
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.14 --Borrower Patent and Trademark Security Agreement, dated
as of November 30, 1993, between Remington and the
Administrative Agent; previously filed as Exhibit 4.9 to
Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
4.15 --Holding Stock Pledge Agreement, dated as of November
30, 1993, between Holding and the Administrative Agent;
previously filed as Exhibit 4.10 to Registration
Statement No. 333-4520, 333-4520-01 under the Securities
Act of 1933, as amended, filed May 3, 1996, and herein
incorporated by reference.
4.16 --Holding Guarantee, dated as of November 30, 1993, by
Holding to the Administrative Agent; previously filed as
Exhibit 4.11 to Registration Statement No. 333-4520, 333-
4520-01 under the Securities Act of 1933, as amended,
filed May 3, 1996, and herein incorporated by reference.
4.17 --Sublease, dated as of March 1, 1987, between S&K
Industries, Inc., as lessor, and Remington as assignee of
DuPont, as lessee (agreement to furnish such sublease to
the Securities and Exchange Commission upon its request).
10.1 --Filed as Exhibit 2.1.
10.2 --Filed as Exhibit 2.2.
10.3 --Filed as Exhibit 2.3.
10.4 --Filed as Exhibit 2.4.
10.5 --Filed as Exhibit 2.5.
10.6 --Filed as Exhibit 4.4.
10.7 --Filed as Exhibit 4.5.
10.8 --Filed as Exhibit 4.6.
10.9 --Filed as Exhibit 4.7.
10.10 --Filed as Exhibit 4.8.
10.11 --Filed as Exhibit 4.9.
10.12 --Filed as Exhibit 4.10.
10.13 --Filed as Exhibit 4.11.
10.14 --Filed as Exhibit 4.12.
10.15 --Filed as Exhibit 4.13.
10.16 --Filed as Exhibit 4.14.
10.17 --Filed as Exhibit 4.15.
10.18 --Filed as Exhibit 4.16.
10.19 --Registration and Participation Agreement, dated as of
November 30, 1993, between Holding and The Clayton &
Dubilier Private Equity Fund IV Limited Partnership (the
50
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
"C&D Fund"); previously filed as Exhibit 10.14 to
Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
10.20 --Stock Subscription Agreement, dated as of November 30,
1993, between Holding and the C&D Fund; previously filed
as Exhibit 10.15 to Registration Statement No. 333-4520,
333-4520-01 under the Securities Act of 1933, as amended,
filed May 3, 1996, and herein incorporated by reference.
10.21 --Indemnification Agreement, dated as of November 30,
1993, among Remington, Holding, Clayton, Dubilier & Rice,
Inc. and the C&D Fund; previously filed as Exhibit 10.16
to Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
10.22 --RACI Holding, Inc. 1994 Directors' Stock Plan, adopted
on June 2, 1994; previously filed as Exhibit 10.18 to
Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
10.23
--RACI Holding, Inc. Stock Purchase Plan, adopted on June
2, 1994; previously filed as Exhibit 10.19 to
Registration Statement No. 333-4520, 333-4520-01 under
the Securities Act of 1933, as amended, filed May 3,
1996, and herein incorporated by reference.
10.24 --Amended and Restated RACI Holding, Inc. Stock Option
Plan, adopted as of July 17, 1995; previously filed as
Exhibit 10.20 to Registration Statement No. 333-4520,
333-4520-01 under the Securities Act of 1933, as amended,
filed May 3, 1996, and herein incorporated by reference.
10.25 --Amendment No. 1, effective as of July 22, 1996, to the
Amended and Restated RACI Holding, Inc. Stock Option Plan
referred to as Exhibit 10.26 above; previously filed as
Exhibit 10.25 to Amendment No. 1 to Registration
Statement No. 333-4520, 333-4520-01 under the Securities
Act of 1933, as amended, filed January 10, 1997, and
herein incorporated by reference.
10.26 --Form of Management Stock Option Agreement; previously
filed as Exhibit 10.21 to Registration Statement No. 333-
4520, 333-4520-01 under the Securities Act of 1933, as
amended, filed May 3, 1996, and herein incorporated by
reference.
10.27 --RACI Holding, Inc. Director Stock Purchase Plan,
adopted on July 22, 1997; previously filed as Exhibit
10.1 by the Company in its Form 10-Q for the quarter
ended September 30, 1997, and herein incorporated by
reference.
10.28 --Form of Director Stock Subscription Agreement;
previously filed as Exhibit 10.2 by the Company in its
Form 10-Q for the quarter ended September 30, 1997, and
herein incorporated by reference.
10.29 --RACI Holding, Inc. Director Stock Option Plan, adopted
on July 22, 1996; previously filed as Exhibit 10.27 to
Amendment No. 1 to Registration Statement No. 333-4520,
333-4520-01 under the Securities Act of 1933, as amended,
filed January 10, 1997, and herein incorporated by
reference.
10.30 --Consulting Agreement, dated as of December 1, 1993,
among Holding, Remington
51
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
and Clayton, Dubilier & Rice, Inc.; previously filed as
Exhibit 10.28 to Amendment No. 2 to Registration
Statement No. 333-4520, 333-4520-01 under the Securities
Act of 1933, as amended, filed April 23, 1997, and herein
incorporated by reference.
10.31 --Loan-Out Agreement, dated as of December 1, 1993, among
Holding, Remington and Clayton, Dubilier & Rice, Inc.;
previously filed as Exhibit 10.29 to Registration
Statement No. 333-4520, 333-4520-01 under the Securities
Act of 1933, as amended, filed April 23, 1997, and herein
incorporated by reference.
10.32 --Loan-Out Agreement, dated as of December 16, 1997 among
Holding, Remington and Clayton, Dubilier & Rice, Inc.
12.1 --Computation of Ratio of Earnings to Fixed Charges.
21.1 --List of Subsidiaries.
23.1 --Consent of Coopers & Lybrand L.L.P. as Independent
Auditors of the Registrant.
27 --Financial Data Schedule.
99 --Reconciliation of Income (Loss) from Operations to
EBITDA.
52
<PAGE>
EXHIBIT 3.2
RACI HOLDING, INC.
BY-LAWS
-------
As amended and restated on December 16, 1997
<PAGE>
RACI HOLDING, INC.
BY-LAWS
-------
TABLE OF CONTENTS
SECTION PAGE
------- ----
ARTICLE I STOCKHOLDERS
1.01 Annual Meetings............................. 1
1.02 Special Meetings............................ 1
1.03 Notice of Meetings; Waiver.................. 1
1.04 Quorum...................................... 2
1.05 Voting...................................... 2
1.06 Voting by Ballot............................ 2
1.07 Adjournment................................. 3
1.08 Proxies..................................... 3
1.09 Organization; Procedure..................... 3
1.10 Consent of Stockholders in Lieu of Meeting.. 4
ARTICLE II BOARD OF DIRECTORS
2.01 General Powers.............................. 4
2.02 Number and Term of Office................... 5
2.03 Election of Directors....................... 5
2.04 Annual and Regular Meetings................. 5
2.05 Special Meetings; Notice.................... 5
2.06 Quorum; Voting.............................. 6
2.07 Adjournment................................. 6
2.08 Action Without a Meeting.................... 6
2.09 Regulations; Manner of Acting............... 6
2.10 Action by Telephonic Communications......... 6
2.11 Resignations................................ 6
2.12 Removal of Directors........................ 7
2.13 Vacancies and Newly Created Directorships... 7
2.14 Compensation................................ 7
2.15 Reliance on Accounts and Reports, etc....... 7
<PAGE>
ARTICLE III EXECUTIVE COMMITTEE AND OTHER
COMMITTEES
3.01 How Constituted............................ 8
3.02 Powers..................................... 8
3.03 Proceedings................................ 9
3.04 Quorum and Manner of Acting................ 10
3.05 Action by Telephonic Communications........ 10
3.06 Absent or Disqualified Members............. 10
3.07 Resignations............................... 10
3.08 Removal.................................... 10
3.09 Vacancies.................................. 10
ARTICLE IV OFFICERS
4.01 Number..................................... 11
4.02 Election................................... 11
4.03 Salaries................................... 11
4.04 Removal and Resignation; Vacancies......... 11
4.05 Authority and Duties of Officers........... 11
4.06 The Chairman and Chief Executive Officer... 12
4.07 The President and Chief Operating Officer.. 12
4.08 The Vice Presidents........................ 12
4.09 The Secretary.............................. 13
4.10 The Chief Financial Officer................ 14
4.11 The Treasurer.............................. 14
4.12 Additional Officers........................ 15
4.13 Security................................... 15
ARTICLE V CAPITAL STOCK
5.01 Certificates of Stock...................... 15
5.02 Signatures; Facsimile...................... 16
5.03 Lost, Stolen or Destroyed Certificates..... 16
5.04 Transfer of Stock.......................... 16
5.05 Record Date................................ 16
5.06 Registered Stockholders.................... 17
5.07 Transfer Agent and Registrar............... 18
ii
<PAGE>
ARTICLE VI INDEMNIFICATION
6.01 Nature of Indemnity................... 18
6.02 Successful Defense.................... 19
6.03 Determination That Indemnification
Is Proper........................... 19
6.04 Advance Payment of Expenses........... 19
6.05 Procedure for Indemnification
of Directors and Officers........... 19
6.06 Survival; Preservation of Other Rights 20
6.07 Insurance............................. 21
6.08 Severability.......................... 21
ARTICLE VII OFFICES
7.01 Registered Office..................... 21
7.02 Other Offices......................... 21
ARTICLE VIII GENERAL PROVISIONS
8.01 Dividends............................. 21
8.02 Reserves.............................. 22
8.03 Execution of Instruments.............. 22
8.04 Corporate Indebtedness................ 22
8.05 Deposits.............................. 23
8.06 Checks................................ 23
8.07 Sale, Transfer, etc. of Securities.... 23
8.08 Voting as Stockholder................. 23
8.09 Fiscal Year........................... 23
8.10 Seal.................................. 23
8.11 Books and Records; Inspection......... 24
8.12 Definitions........................... 24
ARTICLE IX AMENDMENT OF BY-LAWS
9.01 Amendment............................. 24
ARTICLE X CONSTRUCTION
10.01 Construction.......................... 24
iii
<PAGE>
RACI HOLDING, INC.
BY-LAWS
-------
As amended and restated on December 16, 1997
Certain defined terms used herein without definition shall have the
meanings set forth in Section 8.12.
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1.01. Annual Meetings. The annual meeting of the stockholders
---------------
of the Corporation for the election of directors and for the transaction of such
other business as properly may come before such meeting shall be held at such
place, either within or without the State of Delaware, and at such time as shall
be designated for the first regularly-scheduled meeting of the Board of
Directors in each calendar year, or at such other date and hour as may be fixed
from time to time by resolution of the Board of Directors and set forth in the
Notice or Waiver of Notice of the meeting. [Section 211(a), (b).]/1/
Section 1.02. Special Meetings. Special meetings of the stockholders
----------------
may be called at any time by the Chairman and Chief Executive Officer or by the
Board of Directors. A special meeting shall be called by the Chairman and Chief
Executive Officer or by the Secretary, immediately upon receipt of a written
request therefor by stockholders holding in the aggregate not less than a
majority of the outstanding shares of the Corporation at the time entitled to
vote at any meeting of the stockholders. If such officers or the Board of
Directors shall fail to call such meeting within 20 days after receipt of such
request, any stockholder executing such request may call such meeting. Such
special meetings of the stockholders shall be held at such places, within or
without the State of Delaware, as shall be specified in the respective notices
or waivers of notice thereof. [Section 211(d).]
Section 1.03. Notice of Meetings; Waiver. The Secretary or any
--------------------------
Assistant Secretary shall cause written notice of the place, date and hour of
each meeting of the stockholders, and, in the case of a special meeting, the
purpose or purposes for which such meeting is called, to be given personally or
by mail, not less
- ---------------------------
1 Citations are to the General Corporation Law of the State of Delaware as in
effect on August 15, 1995 (the "DGCL"), and are inserted for reference
only, and do not constitute a part of the By-Laws.
1
<PAGE>
than ten nor more than sixty days prior to the meeting, to each stockholder of
record entitled to vote at such meeting. If such notice is mailed, it shall be
deemed to have been given to a stockholder when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the record of stockholders of the Corporation, or, if he shall have filed
with the Secretary of the Corporation a written request that notices to him be
mailed to some other address, then directed to him at such other address. Such
further notice shall be given as may be required by law.
No notice of any meeting of stockholders need be given to any
stockholder who submits a signed waiver of notice, whether before or after the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in a written
waiver of notice. The attendance of any stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting is not lawfully called or convened. [Sections 222, 229.]
Section 1.04. Quorum. Except as otherwise required by law or by the
------
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of a majority of the shares entitled to vote at a meeting of
stockholders shall constitute a quorum for the transaction of business at such
meeting. [Section 216.]
Section 1.05. Voting. If, pursuant to Section 5.05 of these By-Laws,
------
a record date has been fixed, every holder of record of shares entitled to vote
at a meeting of stockholders shall be entitled to one vote for each share
outstanding in his name on the books of the Corporation at the close of business
on such record date. If no record date has been fixed, then every holder of
record of shares entitled to vote at a meeting of stockholders shall be entitled
to one vote for each share of stock standing in his name on the books of the
Corporation at the close of business on the day next preceding the day on which
notice of the meeting is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. Except
as otherwise required by law or by the Certificate of Incorporation, the vote of
a majority of the shares represented in person or by proxy at any meeting at
which a quorum is present shall be sufficient for the transaction of any
business at such meeting. [Sections 212(a), 216.]
Section 1.06. Voting by Ballot. No vote of the stockholders need be
----------------
taken by written ballot or conducted by Inspectors of Elections unless otherwise
required by law. Any vote which need not be taken by ballot may be conducted in
any manner approved by the meeting.
2
<PAGE>
Section 1.07. Adjournment. If a quorum is not present at any meeting
-----------
of the stockholders, the stockholders present in person or by proxy shall have
the power to adjourn any such meeting from time to time until a quorum is
present. Notice of any adjourned meeting of the stockholders of the Corporation
need not be given if the place, date and hour thereof are announced at the
meeting at which the adjournment is taken, provided, however, that if the
adjournment is for more than thirty days, or if after the adjournment a new
record date for the adjourned meeting is fixed pursuant to Section 5.05 of these
By-Laws, a notice of the adjourned meeting, conforming to the requirements of
Section 1.03 hereof, shall be given to each stockholder of record entitled to
vote at such meeting. At any adjourned meeting at which a quorum is present,
any business may be transacted that might have been transacted on the original
date of the meeting. [Section 222(c).]
Section 1.08. Proxies. Any stockholder entitled to vote at any
-------
meeting of the stockholders or to express consent to or dissent from corporate
action without a meeting may authorize another person or persons to vote at any
such meeting and express such consent or dissent for him by proxy. A
stockholder may authorize a valid proxy by executing a written instrument signed
by such stockholder, or by causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature, or by transmitting or authorizing the transmission of a telegram,
cablegram or other means of electronic transmission to the person designated as
the holder of the proxy, a proxy solicitation firm or a like authorized agent.
No such proxy shall be voted or acted upon after the expiration of three years
from the date of such proxy, unless such proxy provides for a longer period.
Every proxy shall be revocable at the pleasure of the stockholder executing it,
except in those cases where applicable law provides that a proxy shall be
irrevocable. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in writing
revoking the proxy or by filing another duly executed proxy bearing a later date
with the Secretary. Proxies by telegram, cablegram or other electronic
transmission must either set forth or be submitted with information from which
it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the stockholder. Any copy, facsimile
telecommunication or other reliable reproduction of a writing or transmission
created pursuant to this section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. [Section 212(b), (c), (d), (e).]
Section 1.09. Organization; Procedure. At every meeting of
-----------------------
stockholders the presiding officer shall be the Chairman and Chief Executive
Officer or, in the event of his absence or disability, a presiding officer
chosen by a majority of the stockholders present in person or by proxy. The
Secretary, or in the event of his
3
<PAGE>
absence or disability, the Assistant Secretary, if any, or if there be no
Assistant Secretary, in the absence of the Secretary, an appointee of the
presiding officer, shall act as Secretary of the meeting. The order of business
and all other matters of procedure at every meeting of stockholders may be
determined by such presiding officer.
Section 1.10. Consent of Stockholders in Lieu of Meeting. To the
------------------------------------------
fullest extent permitted by law, whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken for or in connection with any
corporate action, such action may be taken without a meeting, without prior
notice and without a vote of stockholders, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder or member who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
days of the earliest dated consent delivered in the manner required by law to
the Corporation, written consents signed by a sufficient number of holders or
members to take action are delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders or members are recorded. Delivery made
to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. [Section 228(a), (c).]
ARTICLE II
----------
BOARD OF DIRECTORS
------------------
Section 2.01. General Powers. Except as may otherwise be provided by
--------------
law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation. [Section 141(a).]
4
<PAGE>
Section 2.02. Number and Term of Office. The number of Directors
-------------------------
constituting the entire Board of Directors shall be eleven (11) which number may
be modified from time to time by resolution of the Board of Directors, but in no
event shall the number of Directors be less than one(1). Each Director
(whenever elected) shall hold office until his successor has been duly elected
and qualified, or until his earlier death, resignation or removal. [Section
141(b).]
Section 2.03. Election of Directors. Except as otherwise provided in
---------------------
Sections 2.12 and 2.13 of these By-Laws, the Directors shall be elected at each
annual meeting of the stockholders. If the annual meeting for the election of
Directors is not held on the date designated therefor, the Directors shall cause
the meeting to be held as soon thereafter as convenient. At each meeting of the
stockholders for the election of Directors, provided a quorum is present, the
Directors shall be elected by a plurality of the votes validly cast in such
election. [Sections 211(b), (c), 216.]
Section 2.04. Annual and Regular Meetings. The annual meeting of the
---------------------------
Board of Directors for the purpose of electing officers and for the transaction
of such other business as may come before the meeting shall be held as soon as
possible following adjournment of the annual meeting of the stockholders at the
place of such annual meeting of the stockholders. Notice of such annual meeting
of the Board of Directors need not be given. The Board of Directors from time to
time may by resolution provide for the holding of regular meetings and fix the
place (which may be within or without the State of Delaware) and the date and
hour of such meetings. Notice of regular meetings need not be given, provided,
however, that if the Board of Directors shall fix or change the time or place of
any regular meeting, notice of such action shall be mailed promptly, or sent by
telegram, radio or cable, to each Director who shall not have been present at
the meeting at which such action was taken, addressed to him at his usual place
of business, or shall be delivered to him personally. Notice of such action need
not be given to any Director who attends the first regular meeting after such
action is taken without protesting the lack of notice to him, prior to or at the
commencement of such meeting, or to any Director who submits a signed waiver of
notice, whether before or after such meeting. [Sections 141(g), 229.]
Section 2.05. Special Meetings; Notice. Special meetings of the Board
------------------------
of Directors shall be held whenever called by the Chairman and Chief Executive
Officer or by a majority of the Directors then in office, at such place (within
or without the State of Delaware), date and hour as may be specified in the
respective notices or waivers of notice of such meetings. Special meetings of
the Board of Directors may be called on 24 hours' notice, if notice is given to
each Director personally or by telephone or telegram, or on five days' notice,
if notice is mailed to each Director, addressed to him at his usual place of
business. Notice of any special meeting need not be given to any Director who
attends such meeting without protesting the lack of
5
<PAGE>
notice to him, prior to or at the commencement of such meeting, or to any
Director who submits a signed waiver of notice, whether before or after such
meeting, and any business may be transacted thereat. [Sections 141(g), 229.]
Section 2.06. Quorum; Voting. At all meetings of the Board of
--------------
Directors, the presence of a majority of the total then authorized number of
Directors shall constitute a quorum for the transaction of business. Except as
otherwise required by law, the vote of a majority of the Directors present at
any meeting at which a quorum is present shall be the act of the Board of
Directors. [Section 141(b).]
Section 2.07. Adjournment. A majority of the Directors present,
-----------
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting are not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 shall be given to each Director.
Section 2.08. Action Without a Meeting. Any action required or
------------------------
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all members of the Board of Directors consent thereto in
writing, and such writing or writings are filed with the minutes of proceedings
of the Board of Directors. [Section 141(f).]
Section 2.09. Regulations; Manner of Acting. To the extent consistent
-----------------------------
with applicable law, the Certificate of Incorporation and these By-Laws, the
Board of Directors may adopt such rules and regulations for the conduct of
meetings of the Board of Directors and for the management of the property,
affairs and business of the Corporation as the Board of Directors may deem
appropriate. The Directors shall act only as a Board, and the individual
Directors shall have no power as such.
Section 2.10. Action by Telephonic Communications. Members of the
-----------------------------------
Board of Directors may participate in a meeting of the Board of Directors by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this provision shall constitute presence
in person at such meeting. [Section 141(i).]
Section 2.11. Resignations. Any Director may resign at any time by
------------
delivering a written notice of resignation, signed by such Director, to the
Chairman and Chief Executive Officer and a copy of such notice to the Secretary.
Unless otherwise specified therein, such resignation shall take effect upon
delivery. [Section 141(b).]
6
<PAGE>
Section 2.12. Removal of Directors. Any Director may be removed at
--------------------
any time, either for or without cause, upon the affirmative vote of the holders
of a majority of the outstanding shares of stock of the Corporation entitled to
vote for the election of such Director, cast at a special meeting of
stockholders called for the purpose. Any vacancy in the Board of Directors
caused by any such removal may be filled at such meeting by the stockholders
entitled to vote for the election of the Director so removed in accordance with
Section 2.13 hereof. If such stockholders do not fill such vacancy at such
meeting (or in the written instrument effecting such removal, if such removal
was effected by consent without a meeting), such vacancy may be filled in the
manner provided in Section 2.13 of these By-Laws. [Section 141(k).]
Section 2.13. Vacancies and Newly Created Directorships. If any
-----------------------------------------
vacancies shall occur in the Board of Directors, by reason of death,
resignation, removal or otherwise, or if the authorized number of Directors
shall be increased, the Directors then in office shall continue to act, and such
vacancies and newly created directorships may be filled by a majority of the
Directors then in office, although less than a quorum. A Director elected to
fill a vacancy or a newly created directorship shall hold office until his
successor has been elected and qualified or until his earlier death, resignation
or removal. Any such vacancy or newly created directorship may also be filled
at any time by vote of the stockholders. [Sections 141(b), 223.]
Section 2.14. Compensation. The amount, if any, which each Director
------------
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors, provided that
(a) no director who is an officer or employee of CDR at any time that CDR is
providing consulting services to the Corporation or one or more of its
subsidiaries and (b) no director who is an officer or employee of the
Corporation, shall be entitled to receive any compensation for his or her
services as a Director (although such Director shall be entitled to be
reimbursed for any reasonable out-of-pocket expenses incurred in connection with
his or her services as a Director). [Section 141(h).]
Section 2.15. Reliance on Accounts and Reports, etc. A Director, or a
-------------------------------------
member of any Committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or employees,
or Committees designated by the Board of Directors, or by any other person as to
the matters the member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation. [Section 141(e).]
7
<PAGE>
ARTICLE III
-----------
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
----------------------------------------
Section 3.01. How Constituted. The Board of Directors may, by
---------------
resolution adopted by a majority of the whole Board, designate one or more
Committees, including an Executive Committee, each such Committee to consist of
such number of Directors as from time to time may be fixed by the Board of
Directors. Any Committee may be abolished or redesignated from time to time by
the Board of Directors. The Board of Directors may designate one or more
Directors as alternate members of any such Committee, who may replace any absent
or disqualified member or members at any meeting of such Committee. Members
(and alternate members, if any) of each such Committee may be designated at the
annual meeting of the Board of Directors. Each member (and each alternate
member) of any such Committee (whether designated at an annual meeting of the
Board of Directors or to fill a vacancy or otherwise) shall hold office until
his successor shall have been designated or until he shall cease to be a
Director, or until his earlier death, resignation or removal. [Section 141(b),
(c).]
Section 3.02. Powers. During the intervals between the meetings of
------
the Board of Directors, the Executive Committee, except as otherwise provided in
this section, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the property, affairs and business of
the Corporation. Each such other Committee, except as otherwise provided in
this section, shall have and may exercise such powers of the Board of Directors
as may be provided by resolution or resolutions of the Board of Directors.
Neither the Executive Committee nor any such other Committee shall have the
power or authority:
(a) to amend the Certificate of Incorporation (except that a Committee
may, to the extent authorized in the resolution or resolutions providing
for the issuance of shares of stock adopted by the Board of Directors as
provided in Section 151(a) of the DGCL, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the
conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the Corporation or fix the number of shares of any
series of stock or authorize the increase or decrease of the shares of any
series);
(b) to adopt an agreement of merger or consolidation or a certificate of
ownership or merger;
8
<PAGE>
(c) to recommend to the stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets;
(d) to recommend to the stockholders a dissolution of the Corporation or
a revocation of a dissolution;
(e) to declare a dividend;
(f) to authorize the issuance of stock;
(g) to remove the President and Chief Operating Officer of the
Corporation or a Director;
(h) (i) to authorize the Corporation to enter into or amend any
agreement for the borrowing of funds which provides for additional
indebtedness in excess of $10 million or (ii) to authorize a material
modification of any existing facility, unless in the Executive Committee's
good faith judgment, such modification is not adverse to the Corporation;
(i) to authorize the Corporation to enter into any guarantee of
indebtedness in excess of $10 million;
(j) to authorize any new compensation or benefit program;
(k) to appoint or discharge the Corporation's independent public
accountants;
(l) to authorize the annual operating plan, annual capital expenditure
plan and strategic plan;
(m) to abolish or usurp the authority of the Board of Directors; or
(n) to amend these By-Laws of the Corporation.
The Executive Committee shall have, and any such other Committee may be granted
by the Board of Directors, power to authorize the seal of the Corporation to be
affixed to any or all papers which may require it. [Section 141(c).]
Section 3.03. Proceedings. Each such Committee may fix its own rules
-----------
of procedure and may meet at such place (within or without the State of
Delaware), at such time and upon such notice, if any, as it shall determine from
time to time. Each such Committee shall keep minutes of its proceedings and
shall report such
9
<PAGE>
proceedings to the Board of Directors at the meeting of the Board of Directors
next following any such proceedings.
Section 3.04. Quorum and Manner of Acting. Except as may be otherwise
---------------------------
provided in the resolution creating such Committee, at all meetings of any
Committee the presence of members (or alternate members) constituting a majority
of the total then authorized membership of such Committee shall constitute a
quorum for the transaction of business. The act of the majority of the members
present at any meeting at which a quorum is present shall be the act of such
Committee. Any action required or permitted to be taken at any meeting of any
such Committee may be taken without a meeting, if all members of such Committee
shall consent to such action in writing and such writing or writings are filed
with the minutes of the proceedings of the Committee. The members of any such
Committee shall act only as a Committee, and the individual members of such
Committee shall have no power as such. [Section 141(b), (c),(f).]
Section 3.05. Action by Telephonic Communications. Members of any
-----------------------------------
Committee designated by the Board of Directors may participate in a meeting of
such Committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this provision shall
constitute presence in person at such meeting. [Section 141(i).]
Section 3.06. Absent or Disqualified Members. In the absence or
------------------------------
disqualification of a member of any Committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. [Section 141(c).]
Section 3.07. Resignations. Any member (and any alternate member) of
------------
any Committee may resign at any time by delivering a written notice of
resignation, signed by such member, to the Chairman and Chief Executive Officer.
Unless otherwise specified therein, such resignation shall take effect upon
delivery. [Section 141(b).]
Section 3.08. Removal. Any member (and any alternate member) of any
-------
Committee may be removed at any time, either for or without cause, by resolution
adopted by a majority of the whole Board of Directors.
Section 3.09. Vacancies. If any vacancy shall occur in any Committee,
---------
by reason of disqualification, death, resignation, removal or otherwise, the
remaining
10
<PAGE>
members (and any alternate members) shall continue to act, and any such vacancy
may be filled by the Board of Directors.
ARTICLE IV
----------
OFFICERS
--------
Section 4.01. Number. The officers of the Corporation shall be chosen
------
by the Board of Directors and shall be a Chairman and Chief Executive Officer, a
President and Chief Operating Officer, one or more Vice Presidents, a Secretary
and a Treasurer. The Board of Directors also may elect a Chief Financial
Officer and one or more Assistant Secretaries and Assistant Treasurers in such
numbers as the Board of Directors may determine. Any number of offices may be
held by the same person. No officer need be a Director of the Corporation.
[Section 142(a), (b).]
Section 4.02. Election. Unless otherwise determined by the Board of
--------
Directors, the officers of the Corporation shall be elected by the Board of
Directors at the annual meeting of the Board of Directors, and shall be elected
to hold office until the next succeeding annual meeting of the Board of
Directors. In the event of the failure to elect officers at such annual
meeting, officers may be elected at any regular or special meeting of the Board
of Directors. Each officer shall hold office until his successor has been
elected and qualified, or until his earlier death, resignation or removal. In
the event of a vacancy in the office of a Vice President, Secretary, Assistant
Secretary, Treasurer, or Assistant Treasurer, the Chairman and Chief Executive
Officer may appoint a replacement to serve until the next meeting of the Board
of Directors where a successor is elected and qualified. [Section 142(b).]
Section 4.03. Salaries. The salaries of all officers and agents of
--------
the Corporation shall be fixed by the Board of Directors.
Section 4.04. Removal and Resignation; Vacancies. Any officer may be
----------------------------------
removed for or without cause at any time by the Board of Directors. Any officer
may resign at any time by delivering a written notice of resignation, signed by
such officer, to the Board of Directors or the Chairman and Chief Executive
Officer. Unless otherwise specified therein, such resignation shall take effect
upon delivery. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise, shall be filled by the Board of Directors.
[Section 142(b), (e).]
Section 4.05. Authority and Duties of Officers. The officers of the
--------------------------------
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified in these By-Laws, except that in any event each
officer shall exercise such powers and perform such duties as may be required by
law. [Section 142(a).]
11
<PAGE>
Section 4.06. The Chairman and Chief Executive Officer. The Chairman
----------------------------------------
and Chief Executive Officer shall preside at all meetings of the stockholders at
which he is present, shall be the chief executive officer of the Corporation,
shall have, subject to the direction of, and pursuant to resolutions approved
by, the Board of Directors, general control and supervision of the policies and
operations of the Corporation, shall see that all orders and resolutions of the
Board of Directors are carried into effect and shall report to the Board of
Directors. He shall manage and administer the Corporation's business and
affairs and shall also perform all duties and exercise all powers usually
pertaining to the office of a chief executive officer of a corporation. He
shall have the authority to sign, subject to general or specific resolutions
approved by the Board of Directors, in the name and on behalf of the
Corporation, checks, orders, contracts, leases, notes, drafts and other
documents and instruments in connection with the business of the Corporation,
and together with the Secretary or an Assistant Secretary, conveyances of real
estate and other documents and instruments to which the seal of the Corporation
is affixed. He shall have the authority to cause the employment or appointment
of such employees and agents of the Corporation as the conduct of the business
of the Corporation may require, to fix their compensation, and to remove or
suspend any employee or agent elected or appointed by the Chairman and Chief
Executive Officer or the Board of Directors. The Chairman and Chief Executive
Officer shall perform such other duties and have such other powers as the Board
of Directors may from time to time prescribe.
Section 4.07. The President and Chief Operating Officer. The
-----------------------------------------
President and Chief Operating Officer shall be the chief operating officer of
the Corporation and shall perform, in general, all duties incident to the office
of the President and Chief Operating Officer and shall be responsible for the
operations of the Corporation, including manufacturing, engineering, marketing,
distribution, sales, labor relations and administrative responsibilities and
such other duties as may be specified in these By-Laws or as may be assigned to
him from time to time by the Chairman and Chief Executive Officer. The
President and Chief Operating Officer shall report to the Chairman and Chief
Executive Officer. In the absence of the Chairman and Chief Executive Officer,
the duties of the Chairman and Chief Executive Officer shall be performed and
his powers may be exercised by the President and Chief Operating Officer,
subject in any case to review and superseding action by the Chairman and Chief
Executive Officer.
Section 4.08. The Vice Presidents. Each Vice President shall perform
-------------------
such duties and exercise such powers as may be assigned to him from time to time
by the Chairman and Chief Executive Officer or by the President and Chief
Operating Officer.
12
<PAGE>
Section 4.09. The Secretary. The Secretary shall have the following
-------------
powers and duties:
(a) He shall keep or cause to be kept a record of all the proceedings of
the meetings of the stockholders and of the Board of Directors in books
provided for that purpose. [Section 142(a).]
(b) He shall cause all notices to be duly given in accordance with the
provisions of these By-Laws and as required by law.
(c) Whenever any Committee shall be appointed pursuant to a resolution
of the Board of Directors, he shall furnish a copy of such resolution to
the members of such Committee.
(d) He shall be the custodian of the records and of the seal of the
Corporation and cause such seal (or a facsimile thereof) to be affixed to
all certificates representing shares of the Corporation prior to the
issuance thereof and to all instruments the execution of which on behalf of
the Corporation under its seal shall have been duly authorized in
accordance with these By-Laws, and when so affixed he may attest the same.
(e) He shall properly maintain and file all books, reports, statements,
certificates and all other documents and records required by law, the
Certificate of Incorporation or these By-Laws.
(f) He shall have charge of the stock books and ledgers of the
Corporation and shall cause the stock and transfer books to be kept in such
manner as to show at any time the number of shares of stock of the
Corporation of each class issued and outstanding, the names (alphabetically
arranged) and the addresses of the holders of record of such shares, the
number of shares held by each holder and the date as of which each became
such holder of record.
(g) He shall sign (unless the Treasurer, an Assistant Treasurer or
Assistant Secretary shall have signed) certificates representing shares of
the Corporation the issuance of which shall have been authorized by the
Board of Directors.
(h) He shall perform, in general, all duties incident to the office of
secretary and such other duties as may be specified in these By-Laws or as
may be assigned to him from time to time by the Board of Directors or the
President and Chief Operating Officer.
13
<PAGE>
Section 4.10. The Chief Financial Officer. The Chief Financial Officer
---------------------------
shall be the chief financial officer of the Corporation and shall have the
following powers and duties:
(a) He shall have charge and supervision over and be responsible for the
moneys, securities, receipts and disbursements of the Corporation, and
shall keep or cause to be kept full and accurate records of all receipts of
the Corporation.
(b) He shall render to the Board of Directors whenever requested, a
statement of the financial condition of the Corporation and of all his
transactions as Chief Financial Officer, and render a full financial report
at the annual meeting of the stockholders, if called upon to do so.
(c) He shall be empowered from time to time to require from all officers
or agents of the Corporation reports or statements giving such information
as he may desire with respect to any and all financial transactions of the
Corporation.
(d) He shall perform, in general, all duties incident to the office of
chief financial officer and such other duties as may be specified in these
By-Laws or as may be assigned to him from time to time by the Board of
Directors or the President and Chief Operating Officer.
(e) The Chief Financial Officer shall report to the President and
Chief Operating Officer.
(f) The President and Chief Operating Officer shall carry out all of
the duties and responsibilities under this Section 4.10 if the Corporation
has no Chief Financial Officer.
Section 4.11. The Treasurer. The Treasurer shall be the treasurer of
-------------
the Corporation and shall have the following powers and duties:
(a) He shall cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers or other
depositories as shall be selected in accordance with Section 8.05 of these
By-Laws.
(b) He shall cause the moneys of the Corporation to be disbursed by
checks or drafts (signed as provided in Section 8.06 of these By-Laws) upon
the authorized depositories of the Corporation and cause to be taken and
preserved proper vouchers for all moneys disbursed.
14
<PAGE>
(c) He may sign (unless an Assistant Treasurer or the Secretary or an
Assistant Secretary shall have signed) certificates representing stock of
the Corporation the issuance of which shall have been authorized by the
Board of Directors.
(d) He shall perform, in general, all duties incident to the office of
treasurer and such other duties as may be specified in these By-Laws or as
may be assigned to him from time to time by the Board of Directors or the
Chief Financial Officer, to whom he shall report.
Section 4.12. Additional Officers. The Board of Directors may appoint
-------------------
such other officers and agents as it may deem appropriate, and such other
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as may be determined from time to time by
the Board of Directors. The Board of Directors from time to time may delegate
to any officer or agent the power to appoint subordinate officers or agents and
to prescribe their respective rights, terms of office, authorities and duties.
Any such officer or agent may remove any such subordinate officer or agent
appointed by him, for or without cause. [Section 142(a), (b).]
Section 4.13. Security. The Board of Directors may require any
--------
officer, agent or employee of the Corporation to provide security for the
faithful performance of his duties, in such amount and of such character as may
be determined from time to time by the Board of Directors. [Section 142(c).]
ARTICLE V
---------
CAPITAL STOCK
-------------
Section 5.01. Certificates of Stock. The shares of the Corporation
---------------------
shall be represented by certificates, provided that the Board of Directors may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the Corporation shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until each
certificate is surrendered to the Corporation. Notwithstanding the adoption of
such a resolution by the Board of Directors, every holder of stock in the
Corporation represented by certificates and upon request every holder of
uncertificated shares shall be entitled to have a certificate signed by, or in
the name of the Corporation, by the Chairman and Chief Executive Officer, the
President and Chief Operating Officer or a Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
representing the number of shares registered in certificate form. Such
certificate shall be in such form as the Board of Directors may determine, to
the extent
15
<PAGE>
consistent with applicable law, the Certificate of Incorporation and these By-
Laws. [Section 158.]
Section 5.02. Signatures; Facsimile. Any or all of such signatures on
---------------------
the certificate may be a facsimile, engraved or printed, to the extent permitted
by law. In case any officer, transfer agent or registrar who has signed, or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue. [Section 158.]
Section 5.03. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate. [Section 167.]
Section 5.04. Transfer of Stock. Upon surrender to the Corporation or
-----------------
the transfer agent of the Corporation of a certificate for shares, duly endorsed
or accompanied by appropriate evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Within a reasonable time after the transfer of uncertificated stock, the
Corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the DGCL. Subject to the
provisions of the Certificate of Incorporation and these By-Laws, the Board of
Directors may prescribe such additional rules and regulations as it may deem
appropriate relating to the issue, transfer and registration of shares of the
Corporation. [Section 151(f).]
Section 5.05. Record Date. In order that the Corporation may
-----------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted by the Board of Directors, and which shall not
be more than sixty nor less than ten days before the date of such meeting. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting, provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
16
<PAGE>
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. [Section 213.]
Section 5.06. Registered Stockholders. Prior to due surrender of a
-----------------------
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are
17
<PAGE>
requested to be transferred, both the transferor and transferee request the
Corporation to do so. [Section 159.]
Section 5.07. Transfer Agent and Registrar. The Board of Directors
----------------------------
may appoint one or more transfer agents and one or more registrars, and may
require all certificates representing shares to bear the signature of any such
transfer agents or registrars.
ARTICLE VI
----------
INDEMNIFICATION
---------------
Section 6.01. Nature of Indemnity. The Corporation shall indemnify any
-------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was or has agreed to become a director, officer, employee or agent of the
Corporation, or is or was serving or has agreed to serve at the request of the
Corporation as a director, officer, employee or agent, of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, and may indemnify
any person who was or is a party or is threatened to be made a party to such an
action, suit or proceeding by reason of the fact that he is or was or has agreed
to become an employee or agent of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as an employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding had no reasonable cause to believe his conduct was
unlawful; except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
-
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
-
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
18
<PAGE>
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---------------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
[Section 145(a), (b).]
Section 6.02. Successful Defense. To the extent that a director,
------------------
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
6.01 hereof or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith. [Section 145(c).]
Section 6.03. Determination That Indemnification Is Proper. Any
--------------------------------------------
indemnification under Section 6.01 hereof (unless ordered by a court) shall be
made by the Corporation unless a determination is made that indemnification of
the director, officer, employee or agent is not proper in the circumstances
because he has not met the applicable standard of conduct set forth in Section
6.01 hereof. Any such determination shall be made (1) by a majority vote of the
-
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
-
so direct, by independent legal counsel in a written opinion, or (3) by the
-
stockholders. [Section 145(d).]
Section 6.04. Advance Payment of Expenses. Expenses (including
---------------------------
attorneys' fees) incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the Board of Directors
deems appropriate. The Board of Directors may authorize the Corporation's
counsel to represent such director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding. [Section 145(e).]
Section 6.05. Procedure for Indemnification of Directors and Officers.
-------------------------------------------------------
Any indemnification of a person seeking indemnification of the Corporation under
Sections 6.01 and 6.02, or advance of costs, charges and expenses to such person
under Section 6.04 of this Article, shall be made promptly, and in any event
within 30 days, upon the written request of such person. If a determination by
the Corporation that such person is entitled to indemnification pursuant to this
Article is required, and
19
<PAGE>
the Corporation fails to respond within sixty days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If the
Corporation denies a written request for indemnity or advancement of expenses,
in whole or in part, or if payment in full pursuant to such request is not made
within 30 days, the right to indemnification or advances as granted by this
Article shall be enforceable by the indemnified person in any court of competent
jurisdiction. Such person's costs and expenses incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Corporation. It shall be a
defense to any such action (other than an action brought to enforce a claim for
the advance of costs, charges and expenses under Section 6.04 of this Article
where the required undertaking, if any, has been received by the Corporation)
that the claimant has not met the standard of conduct set forth in Section 6.01
of this Article, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 6.01 of this Article, nor the fact that
there has been an actual determination by the Corporation (including its Board
of Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 6.06. Survival; Preservation of Other Rights. The foregoing
--------------------------------------
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware Corporation Law are in effect and any repeal or
modification thereof shall not affect any right or obligation then existing with
respect to any state of facts then or previously existing or any action, suit or
proceeding previously or thereafter brought or threatened based in whole or in
part upon any such state of facts. Such a "contract right" may not be modified
retroactively without the consent of such director, officer, employee or agent.
The indemnification and advancement of expenses provided by this
Article VI shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person. [Section 145(f), (j).]
20
<PAGE>
Section 6.07. Insurance. The Corporation shall purchase and maintain
---------
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him or on his behalf in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article,
provided that such insurance is available on acceptable terms, which
- --------
determination shall be made by a vote of a majority of the entire Board of
Directors. [Section 145(g).]
Section 6.08. Severability. If this Article or any portion hereof
------------
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VII
-----------
OFFICES
-------
Section 7.01. Registered Office. The registered office of the
-----------------
Corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle.
Section 7.02. Other Offices. The Corporation may maintain offices or
-------------
places of business at such other locations within or without the State of
Delaware as the Board of Directors may from time to time determine or as the
business of the Corporation may require.
ARTICLE VIII
------------
GENERAL PROVISIONS
------------------
Section 8.01. Dividends. Subject to any applicable provisions of law
---------
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's Capital Stock; provided that stock
dividends on the Corporation's Class A Common Stock shall be paid in shares of
Class A Common Stock and dividends on
21
<PAGE>
the Corporation's Class B Common Stock shall be paid in shares of Class B Common
Stock.
A member of the Board of Directors, or a member of any Committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or Committees of the Board of Directors, or by any other person as to
matters the director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid. [Sections 170, 172, 173.]
Section 8.02. Reserves. There may be set aside out of any funds of
--------
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, thinks proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may similarly modify or abolish any such
reserve. [Section 171.]
Section 8.03. Execution of Instruments. The Board of Directors may
------------------------
authorize the Chairman and Chief Executive Officer or any other officer or agent
to enter into any contract or execute and deliver any instrument in the name and
on behalf of the Corporation. Any such authorization may be general or limited
to specific contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
----------------------
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or, to the extent the
Executive Committee has the power to authorize such loan or evidence of
indebtedness, the Executive Committee. Such authorization may be general or
confined to specific instances. Loans so authorized may be effected at any time
for the Corporation from any bank, trust company or other institution, or from
any firm, corporation or individual. All bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation issued for such
loans shall be made, executed and delivered as the Board of Directors or the
Executive Committee, as the case may be, shall authorize. When so authorized by
the Board of Directors or the Executive Committee, as the case may be, any part
of or all the properties, including contract rights, assets, business or good
will of the Corporation, whether then owned or thereafter acquired, may be
mortgaged, pledged, hypothecated or conveyed or
22
<PAGE>
assigned in trust as security for the payment of such bonds, debentures, notes
and other obligations or evidences of indebtedness of the Corporation, and of
the interest thereon, by instruments executed and delivered in the name of the
Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be deposited
--------
from time to time in such banks, trust companies or other depositories as may be
determined by the Board of Directors or the Chairman and Chief Executive Officer
or by such officers or agents as may be authorized by the Board of Directors or
the Chairman and Chief Executive Officer to make such determination.
Section 8.06. Checks. All checks or demands for money and notes of
------
the Corporation shall be signed by such officer or officers or such agent or
agents of the Corporation, and in such manner, as the Board of Directors, or the
Chairman and Chief Executive Officer from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
----------------------------------
authorized by the Board of Directors, the Chairman and Chief Executive Officer
or any other officers designated by the Board of Directors may sell, transfer,
endorse, and assign any shares of stock, bonds or other securities owned by or
held in the name of the Corporation, and may make, execute and deliver in the
name of the Corporation, under its corporate seal, any instruments that may be
appropriate to effect any such sale, transfer, endorsement or assignment.
Section 8.08. Voting as Stockholder. As directed by resolution of the
---------------------
Board of Directors or the Executive Committee, (a) the President and Chief
Operating Officer or any Vice President shall have full power and authority on
behalf of the Corporation to attend any meeting of stockholders of any
corporation in which the Corporation may hold stock, and to act, vote (or
execute proxies to vote) and exercise in person or by proxy all other rights,
powers and privileges incident to the ownership of such stock, and (b) such
officers acting on behalf of the Corporation shall have full power and authority
to execute any instrument expressing consent to or dissent from any action of
any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
-----------
commence on the first day of January of each year (except for the Corporation's
first fiscal year which shall commence on the date of incorporation) and shall
terminate in each case on the last day of December.
Section 8.10. Seal. The seal of the Corporation shall be circular in
----
form and shall contain the name of the Corporation, the year of its
incorporation and the words "Corporate Seal" and "Delaware". The form of such
seal shall be subject to
23
<PAGE>
alteration by the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed, affixed or reproduced, or may be used in any
other lawful manner.
Section 8.11. Books and Records; Inspection. Except to the extent
-----------------------------
otherwise required by law, the books and records of the Corporation shall be
kept at such place or places within or without the State of Delaware as may be
determined from time to time by the Board of Directors.
Section 8.12. Definitions.
-----------
"CDR" means Clayton, Dubilier & Rice, Inc., a Delaware corporation.
"Committee": See Section 3.01.
"Executive Committee": See Section 3.01.
ARTICLE IX
----------
AMENDMENT OF BY-LAWS
--------------------
Section 9.01. Amendment. These By-Laws may be amended, altered or
---------
repealed:
(a) by resolution adopted by a majority of the Board of Directors at any
special or regular meeting of the Board if, in the case of such special
meeting only, notice of such amendment, alteration or repeal is contained
in the notice or waiver of notice of such meeting; or
(b) at any regular or special meeting of the stockholders if, in the
case of such special meeting only, notice of such amendment, alteration or
repeal is contained in the notice or waiver of notice of such meeting.
[Section 109(a).]
ARTICLE X
---------
CONSTRUCTION
------------
Section 10.01. Construction. In the event of any conflict between the
------------
provisions of these By-Laws as in effect from time to time and the provisions of
the Certificate of Incorporation of the Corporation as in effect from time to
time, the provisions of such Certificate of Incorporation shall be controlling.
24
<PAGE>
EXHIBIT 4.1
NUMBER A0
-----------
SHARES
----------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
RACI HOLDING, INC.
TOTAL AUTHORIZED ISSUE
1,250,000 SHARES PAR VALUE $.01 EACH
CLASS A COMMON STOCK
1,250,000 SHARES PAR VALUE $.01 EACH
CLASS B COMMON STOCK
See Reverse for Certain Definitions
This is to Certify that is the owner of
-------------------
- -----------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS A COMMON STOCK OF RACI HOLDING,
INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed. Witness, the seal of the Corporation and the signatures of its duly
authorized officers.
Dated
- ------------------------
SECRETARY
- ------------------------
PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - Custodian under Uniform Gifts to Minors Act
----- ------ -----
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above list
For value received hereby sell, assign and transfer unto
----------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
------------------------------------------------------------------------
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated 19
------------- -----
In presence of
---------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) (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 THE COMPANY AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE
REASONABLY SATISFACTORY TO THE COMPANY, 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 COUNSEL
FOR THE COMPANY, SHALL HAVE BEEN OBTAINED WITH RESPECT TO SUCH DISPOSITION AND
(ii) SUCH DISPOSITION IS PURSUANT TO REGISTRATION UNDER ANY APPLICABLE STATE
--
SECURITIES LAWS OR AN EXEMPTION THEREFROM.
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 DECEMBER 1, 1993, AMONG THE COMPANY AND CERTAIN
STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS LOCATED AT THE PRINCIPAL OFFICE
OF THE COMPANY.
<PAGE>
EXHIBIT 4.2
NUMBER B0
-----------
SHARES
----------
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
RACI HOLDING, INC.
TOTAL AUTHORIZED ISSUE
1,250,000 SHARES PAR VALUE $.01 EACH
CLASS A COMMON STOCK
1,250,000 SHARES PAR VALUE $.01 EACH
CLASS B COMMON STOCK
See Reverse for Certain Definitions
This is to Certify that is the owner of
-------------------
- -----------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF CLASS B COMMON STOCK OF RACI HOLDING,
INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed. Witness, the seal of the Corporation and the signatures of its duly
authorized officers.
Dated
- ------------------------
SECRETARY
- ------------------------
PRESIDENT
<PAGE>
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - Custodian under Uniform Gifts to Minors Act
----- ------ -----
(Cust) (Minor) (State)
Additional abbreviations may also be used though not in the above list
For value received hereby sell, assign and transfer unto
----------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
------------------------------------------------------------------------
Attorney to transfer the said Shares on the books of the within named
Corporation with full power of substitution in the premises.
Dated 19
------------- -----
In presence of
-------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) (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 THE COMPANY AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE
REASONABLY SATISFACTORY TO THE COMPANY, 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 COUNSEL
FOR THE COMPANY, SHALL HAVE BEEN OBTAINED WITH RESPECT TO SUCH DISPOSITION AND
(ii) SUCH DISPOSITION IS PURSUANT TO REGISTRATION UNDER ANY APPLICABLE STATE
--
SECURITIES LAWS OR AN EXEMPTION THEREFROM.
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 DECEMBER 1, 1993, AMONG THE COMPANY AND CERTAIN
STOCKHOLDERS OF THE COMPANY, A COPY OF WHICH IS LOCATED AT THE PRINCIPAL OFFICE
OF THE COMPANY.
<PAGE>
EXHIBIT 10.32
LOANOUT AGREEMENT
-----------------
This LOANOUT AGREEMENT is dated as of December 16, 1997 (the
"Agreement"), by and among RACI Holding, Inc., a Delaware corporation
("Holding"), Remington Arms Company, Inc., a Delaware corporation and wholly-
owned subsidiary of Holding (the "Company"), and Clayton, Dubilier & Rice, Inc.,
a Delaware corporation ("CD&R").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Holding, the Company and CD&R are parties to a consulting
agreement, dated as of December 1, 1993 (the "Consulting Agreement"), among
Holding, the Company and CD&R, and an indemnification agreement, dated as of
November 30, 1993 (the "Indemnification Agreement"), among Holding, the Company,
CD&R and The Clayton & Dubilier Private Equity Fund IV Limited Partnership, a
Connecticut limited partnership (the "C&D Fund");
WHEREAS, the Company and Holding desire to obtain the services of Mr.
Leon J. Hendrix, Jr. ("Hendrix"), an employee of CD&R, to perform the functions
of Chairman and Chief Executive Officer of the Company and Holding, and CD&R is
willing to make such services available to the Company and Holding upon and
subject to the terms and conditions hereof; and
WHEREAS, this Agreement has been approved by the Boards of Directors
of the Company and Holding, including a majority of the disinterested directors
of each of the Company and Holding;
NOW, THEREFORE, in consideration of the foregoing premises and the
respective agreements hereinafter set forth and the mutual benefits to be
derived herefrom, the parties hereto hereby agree as follows:
<PAGE>
1. Services, etc.
-------------
CD&R shall make the services of Hendrix available to the Company and
Holding, and the Company and Holding shall make use of the services of Hendrix
to serve as Chairman and Chief Executive Officer of each of the Company and
Holding commencing and effective as of December 16, 1997, until the expiration
of the Term (as defined in Section 2 hereof). Hendrix shall be available to
render such services on a part-time basis mutually agreeable to the Company,
Holding, CD&R and Hendrix. Without limiting the foregoing, Hendrix will
continue to serve as an employee of CD&R and may serve as an officer or director
of CD&R or other corporations or entities and devote such time to performing
such services as Hendrix, in his sole discretion, shall deem appropriate. The
services of Hendrix to be made available to the Company, Holding and its
subsidiaries hereunder shall be deemed part of the services provided by CD&R
pursuant to the Consulting Agreement. No separate or additional consideration
shall be payable hereunder for the services of Hendrix, beyond that payable
under the Consulting Agreement.
2. Term.
----
(a) This Agreement shall be effective as of December 16, 1997. The
term of this Agreement (the "Term") shall commence on December 16, 1997 and
shall terminate on the earliest to occur of (i) the termination of the
-
Consulting Agreement, (ii) the date that is ten (10) business days following
--
delivery of written notice of such termination by any party hereto to the other
parties hereto, (iii) the election of a successor Chief Executive Officer of the
---
Company or of Holding by the Board of Directors of the Company or of Holding, as
applicable, in accordance with its by-laws, and (iv) Hendrix's death, permanent
--
disability or resignation from his employment with CD&R.
(b) The expiration of the Term shall not affect the continuing
effectiveness of the Consulting Agreement or the Indemnification Agreement, each
of which shall continue to be in full force and effect and enforceable in
accordance with their respective terms. Without limiting the foregoing, each of
the Company and Holding shall continue to, and to be obligated to, pay and
reimburse all fees, expenses and other amounts as and when due under the
<PAGE>
Consulting Agreement and the Indemnification Agreement and perform all their
other obligations thereunder.
3. Indemnification.
---------------
All performance by, and all actions or omissions of, CD&R or Hendrix
under or in respect of this Agreement shall be deemed to be pursuant to the
Consulting Agreement, and each of CD&R and Hendrix shall be entitled to the
benefits of the indemnification and other provisions of the Consulting Agreement
and the Indemnification Agreement.
4. Independent Contractor Status.
-----------------------------
Each of CD&R, the Company and Holding agree that the furnishing of
Hendrix's services hereunder by CD&R is solely as an independent contractor,
with CD&R retaining control over and responsibility for its own operations and
personnel, including Hendrix. Neither CD&R nor any of its directors, officers,
employees or agents (including Hendrix) shall, solely by virtue of this
Agreement or the arrangements hereunder, be considered employees, principals,
partners, co-venturers or agents of the Company or Holding.
5. Notices.
-------
Any notice or other communication required or permitted to be given or
made under this Agreement by one party to the other parties shall be in writing
and shall be deemed to have been duly given and to be effective (i) on the date
-
of delivery if delivered personally or (ii) when sent if sent by prepaid
--
telegram, or mailed first-class, postage prepaid, by registered or certified
mail or confirmed facsimile transmission, as follows (or to such other address
as shall be given in writing by one party to the other parties in accordance
herewith):
If to the Company to:
Remington Arms Company, Inc.
870 Remington Drive
P.O. Box 700
Madison, N.C. 27025-0700
Attn: Secretary
<PAGE>
Telephone: (910) 548-8511
Telecopy: (910) 548-8810
If to Holding, to it care of
the Company at the address set
forth above.
If to CD&R to:
Clayton, Dubilier & Rice, Inc.
375 Park Avenue, 18th Floor
New York, New York 10152
Attn: Joseph L. Rice, III
Telephone: (212) 407-5200
Telecopy: (212) 407-5252
With a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attn: Franci J. Blassberg, Esq.
Telephone: (212) 909-6000
Telecopy: (212) 909-6836
6. General.
-------
(a) Entire Agreement. This Agreement together with the Consulting
----------------
Agreement and the Indemnification Agreement (i) contain the complete and entire
-
understanding and agreement of CD&R, Holding and the Company with respect to the
subject matter hereof, and (ii) supersede all prior and contemporaneous
--
understandings, conditions and agreements, oral or written, express or implied,
in respect of the subject matter hereof, including but not limited to in respect
of the furnishing of the services of Hendrix in connection with the subject
matter hereof. There are no representations or warranties of Hendrix or CD&R in
connection with this Agreement or the services to be made available hereunder,
except as expressly made and contained in this Agreement.
<PAGE>
(b) Headings. The headings contained in this Agreement are for
--------
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
(d) Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties to this Agreement and their respective
successors and assigns, provided that none of CD&R, the Company or Holding may
--------
assign any of its rights or obligations under this Agreement without the express
written consent of the other parties hereto.
(e) Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT
-------------
MADE UNDER, AND IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK. EACH OF THE COMPANY, HOLDING AND CD&R HEREBY
IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF
NEW YORK AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE
STATE, CITY AND COUNTY OF NEW YORK SOLELY IN RESPECT OF THE INTERPRETATION AND
ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT, AND THE PARTIES HERETO HEREBY
IRREVOCABLY AGREE THAT (i) THE SOLE AND EXCLUSIVE APPROPRIATE VENUE FOR ANY
-
ACTION, SUIT OR PROCEEDING RELATING TO SUCH INTERPRETATION AND ENFORCEMENT SHALL
BE IN SUCH A COURT, (ii) ALL CLAIMS WITH RESPECT TO SUCH PROVISIONS SHALL BE
--
HEARD AND DETERMINED EXCLUSIVELY IN SUCH A COURT, (iii) ANY SUCH COURT SHALL
---
HAVE EXCLUSIVE JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT
MATTER OF ANY DISPUTE RELATING TO SUCH PROVISIONS AND (iv) EACH HEREBY WAIVES,
--
AND AGREES NOT TO ASSERT, ANY AND ALL OBJECTIONS AND DEFENSES BASED ON FORUM,
VENUE OR PERSONAL OR SUBJECT MATTER JURISDICTION AS THEY MAY RELATE TO SUCH AN
ACTION, SUIT OR PROCEEDING BEFORE SUCH A COURT IN ACCORDANCE WITH THE PROVISIONS
OF THIS SECTION 6(e), PROVIDED THAT ENFORCEMENT OF A JUDGMENT RENDERED BY SUCH A
COURT MAY BE SOUGHT IN ANY COURT OF COMPETENT JURISDICTION FOR THE ENFORCEMENT
THEREOF. EACH OF THE COMPANY, HOLDING AND CD&R HEREBY CONSENT TO AND GRANT ANY
SUCH COURT
<PAGE>
JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY
SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION 5, OR IN
SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID AND SUFFICIENT
SERVICE THEREOF.
(f) Waiver of Jury Trial. Each party hereto acknowledges and agrees
--------------------
that any controversy that may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore it hereby irrevocably and
unconditionally waives any right it may have to a trial by jury in respect of
any litigation directly or indirectly arising out of or relating to this
Agreement, or the breach, termination or validity of this Agreement, or the
transactions contemplated by this Agreement. Each party certifies and
acknowledges that (i) no representative, agent or attorney of any other party
-
has represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver, (ii) it understands
--
and has considered the implications of this waiver, (iii) it makes this waiver
---
voluntarily, and (iv) it has been induced to enter into this Agreement by, among
--
other things, the mutual waivers and certifications contained in this Section
6(f).
(g) Amendment; Waivers. No amendment, modification, supplement or
------------------
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, supplement, discharge or waiver is
sought (and in the case of Holding and the Company, approved by resolution of
the Board of Directors of Holding or the Company, as the case may be). Any such
waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any party hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any party, on one or more
occasions, to enforce any of the provisions of this Agreement or to exercise any
right or privilege hereunder, shall be construed as a waiver of any other breach
or default of a similar nature, or as a waiver of any of such provisions, rights
or privileges hereunder.
<PAGE>
The rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity or
otherwise.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
RACI HOLDING, INC.
By /s/ Thomas L. Millner
_________________________________
Name: Thomas L. Millner
Title: President and Chief Operating Officer
REMINGTON ARMS COMPANY, INC.
By /s/ Thomas L. Millner
_________________________________
Name: Thomas L. Millner
Title: President and Chief Operating Officer
CLAYTON, DUBILIER & RICE, INC.
By /s/ Joseph L. Rice, III
_________________________________
Name: Joseph L. Rice, III
Title: Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 12.1
RACI HOLDING, INC. AND REMINGTON ARMS COMPANY, INC.
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
<TABLE>
<CAPTION>
Sporting Goods
Remington Business
-------------------------------------------------------------- -----------------
One Eleven
Month Months
Year Ended December 31, Ended Ended
--------------------------------------------------- Dec. 31, Nov. 30,
1997 1996 1995 1994 1993 1993
--------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net Income (Loss) $ 5.5 $ (13.8) $ 11.5 $ 9.4 $ (2.3) $ (72.7)
Add:
Income Taxes 3.5 (7.0) 8.5 6.4 (1.3) 0.6
Interest Expense (a) 23.6 25.1 21.5 20.6 1.5 5.3
Portion of Rents
Representative of
Interest Factor 0.3 0.3 0.3 0.3 0.0 0.4
--------- --------- -------- -------- --------- --------
$ 32.9 $ 4.6 $ 41.8 $ 36.7 $ (2.1) $ (66.4)
========= ========= ======== ======== ========= ========
Fixed Charges:
Interest Expense (a) $ 23.6 $ 25.1 $ 21.5 $ 20.6 $ 1.5 $ 5.3
Capitalized Interest 0.2 0.2 - - - -
Portion of Rents
Representative of
Interest Factor 0.3 0.3 0.3 0.3 0.0 0.4
--------- --------- -------- -------- --------- --------
$ 24.1 $ 25.6 $ 21.8 $ 20.9 $ 1.5 $ 5.7
========= ========= ======== ======== ========= ========
Ratio of Earnings to
Fixed Charges 1.4 0.2 1.9 1.8 - -
</TABLE>
(a) Includes amortization of discount on indebtedness and excludes
capitalized interest.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY JURISDICTION OF INCORPORATION
- ---------- -----------------------------
Remington Arms Company, Inc. Delaware
Remington International, Ltd. Barbados
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement on
Form S-4 (File No. 333-4520, 333-4520-01) and Form S-8 (File No. 333-
34295) of our report dated, March 2, 1998, on our audits of the
consolidated financial statements of RACI Holding, Inc., and Subsidiaries as
of December 31, 1997 and 1996, and for the years ended December 31, 1997,
1996 and 1995, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Greensboro, North Carolina
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 600
<SECURITIES> 0
<RECEIVABLES> 61,500
<ALLOWANCES> 5,200
<INVENTORY> 90,000
<CURRENT-ASSETS> 185,100
<PP&E> 132,700
<DEPRECIATION> 40,700
<TOTAL-ASSETS> 380,700
<CURRENT-LIABILITIES> 76,900
<BONDS> 173,500
0
0
<COMMON> 0
<OTHER-SE> 76,000
<TOTAL-LIABILITY-AND-EQUITY> 380,700
<SALES> 381,200
<TOTAL-REVENUES> 381,200
<CGS> 269,900
<TOTAL-COSTS> 269,900
<OTHER-EXPENSES> 78,300
<LOSS-PROVISION> 400
<INTEREST-EXPENSE> 23,600
<INCOME-PRETAX> 9,000
<INCOME-TAX> 3,500
<INCOME-CONTINUING> 5,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,500
<EPS-PRIMARY> 7.33
<EPS-DILUTED> 7.33
</TABLE>
<PAGE>
EXHIBIT 99
RACI Holding, Inc. and Subsidiaries
Reconciliation of Income (Loss) from Operations to EBITDA (A)
(Dollars in Millions)
<TABLE>
<CAPTION>
Sporting
Goods
Remington Business
--------------------------------------------------------- ---------
1 Month 11 Months
Ended Ended
Year Ended December 31, Dec. 31, Nov. 30,
--------------------------------------------- ---------- ---------
1997 1996 1995 1994 1993 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) before Effect of
Accounting Changes $ 5.5 $ (13.8) $ 11.5 $ 9.4 $ (2.3) $ 1.4
Interest Expense 23.6 25.1 21.5 20.6 1.5 5.3
Provision (Benefit) for Income Taxes 3.5 (7.0) 8.5 6.4 (1.3) 0.6
Depreciation and Amortization (B) 15.1 13.9 11.7 10.4 1.0 9.5
Other Noncash Charges (C) 3.7 0.0 0.0 16.8 2.5 0.0
Nonrecurring and Restructuring Expense (D) 0.8 11.2 2.8 4.4 0.0 0.0
----- ----- ----- ----- ---- -----
Total 46.7 43.2 44.5 58.6 3.7 15.4
----- ----- ----- ----- ---- -----
EBITDA $ 52.2 $ 29.4 $ 56.0 $ 68.0 $ 1.4 $ 16.8
===== ===== ===== ===== ==== =====
</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 $1.7, $1.6, $1.5 and
$1.7 in 1997, 1996, 1995 and 1994, respectively, which is included in
interest expense.
(C) Non-cash charges consist of a pension accrual of $3.2 million and $0.5
million loss on disposal of assets in 1997, an Acquisition- related
inventory charge of $16.8 million in the year ended December 31, 1994 and
$2.5 million in the one month ended December 31, 1993.
(D) Nonrecurring and restructuring expenses excluded in calculating EBITDA
consist of the following: (1) for 1997, $0.8 million of unusual and
nonrecurring charges; (2) for 1996, $4.9 million in restructuring
charges, a $4.7 million nonrecurring charge related to resolving a
dispute with the Sellers, and $1.6 million for corporate relocation and
employee retraining; (3) for 1995, $2.8 million in nonrecurring charges
for computer system implementation and $1.0 million for corporate
relocation, net of a $1.0 million nonrecurring research and
development-related benefit; and (4) for 1994, $2.3 million for
relocating and consolidating the Company's research and development
function, $1.8 million in nonrecurring charges for computer system
implementation, and $0.3 million for discontinuing the Company's apparel
business.
