<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
----------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER : 333-4520
RACI HOLDING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0350929
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
870 REMINGTON DRIVE
P.O. BOX 700
MADISON, NORTH CAROLINA 27025-0700
(Address of principal executive offices)
(Zip Code)
(336) 548-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class A Common Stock, par value $.01 per share, outstanding at May 7, 1998
760,000 shares
Class B Common Stock, par value $.01 per share, outstanding at May 7, 1998
0 shares
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
MARCH 31, December 31,
1998 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1.0 $ 0.6
Accounts Receivable Trade - net 111.5 56.3
Inventories 94.2 90.0
Supplies 12.3 12.7
Prepaid Expenses and Other Current Assets 9.5 9.3
Deferred Income Taxes 16.2 16.2
--------- ---------
Total Current Assets 244.7 185.1
Property, Plant and Equipment - net 89.3 92.0
Intangibles and Debt Issuance Costs - net 92.0 93.1
Deferred Income Taxes 6.2 6.2
Other Noncurrent Assets 3.7 4.3
--------- ---------
TOTAL ASSETS $ 435.9 $ 380.7
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 27.1 $ 22.7
Short-Term Debt 0.7 1.0
Current Portion of Long-Term Debt 21.2 21.5
Product and Environmental Liabilities 3.2 3.2
Income Taxes 2.4 --
Other Accrued Liabilities 28.9 28.5
--------- ---------
Total Current Liabilities 83.5 76.9
Long-Term Debt 217.7 173.5
Retiree Benefits 35.5 34.8
Product and Environmental Liabilities 9.2 9.2
--------- ---------
Total Liabilities 345.9 294.4
--------- ---------
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Class A Common Stock, par value $.01; 1,250,000 shares
authorized, 760,000 issued and outstanding -- --
Class B Common Stock, par value $.01; 1,250,000 shares
authorized, none issued and outstanding -- --
Paid in Capital 76.0 76.0
Retained Earnings 14.0 10.3
--------- ---------
Total Shareholders' Equity 90.0 86.3
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 435.9 $ 380.7
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
----------------------------
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
Sales (1) $ 89.0 $ 88.5
Cost of Goods Sold 60.3 64.0
---------- ----------
Gross Profit 28.7 24.5
Selling, General and Administrative
Expenses 15.4 17.3
Research & Development Expense 1.9 2.1
Other Expense, net 0.5 0.8
Restructuring and Nonrecurring Items (0.4) --
---------- ----------
Operating Profit 11.3 4.3
Interest Expense 5.1 6.1
---------- ----------
Profit (Loss) before Income Taxes 6.2 (1.8)
Provision (Benefit) for Income Taxes 2.5 (0.5)
---------- ----------
Net Income (Loss) $ 3.7 $ (1.3)
========== ==========
Per Share Data:
Basic Net Income (Loss) Per Share $ 4.87 $ (1.73)
========== ==========
Diluted Net Income (Loss) Per Share $ 4.87 $ (1.73)
========== ==========
Weighted average common stock outstanding and
assumed conversions (000s) 760 750
========== ==========
</TABLE>
(1) Sales are presented net of Federal Excise Taxes of $6.8 and $6.5 for
the three months ended March 31, 1998 and 1997, respectively.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollars in Millions)
<TABLE>
<CAPTION>
YEAR-TO-DATE MARCH 31,
------------------------
1998 1997
------- -------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Cash Used in Operating Activities $ (42.5) $ (41.4)
INVESTING ACTIVITIES:
Capital Expenditures (0.7) (1.2)
--------- ---------
Net Cash Used in Investing Activities (0.7) (1.2)
FINANCING ACTIVITIES:
Net Borrowings under Revolving Credit Facility 49.3 42.3
Principal Payments on Long-Term Debt (5.4) (5.3)
Principal Payments on Short-Term Debt (0.3) (0.3)
Debt Issuance Costs -- (0.3)
--------- ---------
Net Cash Provided by Financing Activities 43.6 36.4
--------- ---------
Increase (Decrease) in Cash and Cash Equivalents 0.4 (6.2)
Cash and Cash Equivalents at Beginning of Period 0.6 9.6
--------- ---------
Cash and Cash Equivalents at End of Period $ 1.0 $ 3.4
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
RACI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated financial statements of RACI Holding, Inc.
("Holding") include the accounts of its subsidiary, Remington Arms Company, Inc.
("Remington") and Remington's wholly owned subsidiary, Remington International,
Ltd. (together with Remington and Holding, the "Company"). Holding has no
material assets other than its investment in Remington. All intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying unaudited interim condensed consolidated financial
statements of Holding have been prepared by the Company in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of items of a normal recurring
nature) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998.
Pursuant to an asset purchase agreement (the "Asset Purchase
Agreement"), on December 1, 1993, the Company acquired certain assets and
assumed certain liabilities (the "Acquisition") of the Sporting Goods Business
(the "Business") formerly operated by E.I. du Pont de Nemours and Company
("DuPont") and one of DuPont's subsidiaries (together with DuPont, the
"Sellers").
These financial statements should be read in conjunction with the
audited consolidated financial statements of RACI Holding, Inc. and Subsidiaries
as of and for the year ended December 31, 1997.
Certain reclassifications were made to the prior period's financial
information to conform to the current presentation format.
NOTE 2 - INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------- -------
(Unaudited)
<S> <C> <C>
Raw Materials $ 12.9 $ 13.9
Semi-Finished Products 19.9 20.0
Finished Product 61.4 56.1
--------- ---------
Total $ 94.2 $ 90.0
========= =========
</TABLE>
5
<PAGE> 6
NOTE 3 - LONG-TERM DEBT
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
Credit Agreement:
Term Loans $ 63.6 $ 68.2
Revolving Credit Facility 69.2 19.9
9.5% Senior Subordinated Notes due 2003 99.6 99.6
Capital Lease Obligations 4.8 5.3
Other 1.7 2.0
--------- ---------
Subtotal $ 238.9 $ 195.0
Less: Current Portion 21.2 21.5
--------- ---------
Total $ 217.7 $ 173.5
========= =========
</TABLE>
NOTE 4 - RESTRUCTURING
The Company recorded charges for restructuring in 1996 of $4.9. The
restructuring was necessary to reduce production levels, plant overhead
expenses, corporate administrative expense and other costs to correspond with
current sales volumes and to reorganize the Company's international marketing
efforts. The company-wide plan resulted in reductions of approximately 325
salaried and hourly (including bargaining unit) employees during 1996. The
charges incurred include estimated costs for employee severance and other
benefits of $3.2, lease costs of $0.7 and other expenses of $1.0. A majority of
the remaining balance is expected to be paid out by the end of 1998.
Components of the restructuring provision recorded in 1996 and utilized
through March 31, 1998 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
Reserve Adjustment in 1998 0.1 -- 0.3 0.4
------ ------ ------ ------
Balance, March 31, 1998 $ 0.1 $ 0.5 $ 0.1 $ 0.7
====== ====== ====== ======
</TABLE>
The reserve balance at March 31, 1998 is included in other accrued
liabilities in the accompanying balance sheet. In the first quarter of 1998, the
Company adjusted the reserve by $0.4 to reflect changes between the amount
originally estimated and the actual amount incurred.
NOTE 5 - 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,
6
<PAGE> 7
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 (the "Notes") due
2003. Further, the Notes are fully and unconditionally guaranteed by Holding.
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
March 31, 1998
<TABLE>
<CAPTION>
RACI
Holding,
Inc. and
Holding Remington Eliminations Subsidiaries
------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets $-- $ 244.7 $-- $ 244.7
Receivable from Remington 1.0 -- 1.0 --
Noncurrent Assets 89.0 191.2 89.0 191.2
------- -------- ------- --------
Total Assets $ 90.0 $ 435.9 $ 90.0 $ 435.9
======= ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities $-- $ 83.5 $-- $ 83.5
Payable to RACI Holding, Inc. -- 1.0 1.0 --
Noncurrent Liabilities -- 262.4 -- 262.4
Shareholders' Equity 90.0 89.0 89.0 90.0
------- -------- ------- --------
Total Liabilities and
Shareholders' Equity $ 90.0 $ 435.9 $ 90.0 $ 435.9
======= ======== ======= ========
</TABLE>
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
December 31, 1997
<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>
7
<PAGE> 8
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
RACI
Holding,
Inc. and
Holding Remington Eliminations Subsidiaries
------- --------- ------------ ------------
<S> <C> <C> <C> <C>
QUARTER ENDED
MARCH 31, 1998
Sales $-- $ 89.0 $-- $ 89.0
Gross Profit -- 28.7 -- 28.7
Equity in Earnings of Subsidiary 3.7 -- 3.7 --
Net Income $ 3.7 $ 3.7 $ 3.7 $ 3.7
QUARTER ENDED
MARCH 31, 997
Sales $-- $ 88.5 $-- $ 88.5
Gross Profit -- 24.5 -- 24.5
Equity in Loss of Subsidiary (1.3) -- (1.3) --
Net Loss $ (1.3) $(1.3) $ (1.3) $ (1.3)
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is subject to various lawsuits and claims with respect to
product liabilities, governmental regulations, and other matters arising in the
normal course of business. Under the Asset Purchase Agreement, the Company
assumed financial responsibility for certain product liability claims involving
pre-Acquisition occurrences and certain pre-Acquisition environmental
liabilities up to a maximum aggregate amount (the "Cap"), the product liability
portion of which was increased pursuant to an agreement between the Company and
the Sellers in December 1996. The increased 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 all cases and claims relating to occurrences after
the closing of the Acquisition. 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 of the Acquisition are not
likely to have a material adverse effect upon the financial condition or results
of operations of the Company. While it is difficult to forecast the outcome of
litigation, the Company does not believe, in light of relevant circumstances
(including the current availability of insurance for personal injury and
property damage with respect to cases and claims involving occurrences arising
after the closing of the Acquisition, the Company's accruals for the uninsured
costs of such cases and claims and the Sellers' agreement to be responsible for
a portion of certain post-Acquisition shotgun-related costs) that the outcome of
all product liability cases and claims involving post-Acquisition occurrences,
which have arisen prior to March 31, 1998, individually or in the aggregate,
will be likely to have a material adverse effect upon the financial condition or
results of operations of the Company. Because of the nature of its products, the
Company anticipates that it will continue to be involved in product liability
litigation in the future.
8
<PAGE> 9
NOTE 7 - RECENT ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 requires public business
enterprises to adopt its provisions for periods beginning after December 15,
1997, and to report certain information about operating segments in complete
sets of financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. This statement does not
require application to interim financial statements in the initial year. 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 be adopted by the Company for the year ended
December 31, 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 to the
provisions of this statement.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the accompanying Condensed Consolidated Financial Statements and related
notes of RACI Holding, Inc. ("Holding") and its subsidiary, Remington Arms
Company, Inc. ("Remington") and Remington's wholly owned subsidiary, Remington
International, Ltd. (together with Remington and Holding, the "Company"), and
with the Company's audited consolidated financial statements as of and for the
year ended December 31, 1997, on file with the Securities and Exchange
Commission. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of results that may be expected for the year
ended December 31, 1998, in part due to the seasonality of the Company's
business.
BUSINESS TRENDS AND INITIATIVES
The Company believes that during 1996 and 1997 several of its key
customers instituted tighter inventory control practices to reduce inventory
that resulted in a modest softness in the demand for the Company's products
during those years. Although tighter inventory control practices have caused,
and may 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 is stabilizing as customers'
inventories reach their targeted levels.
In light of market constraints on sales growth opportunities and
the Company's increased liquidity and working capital needs, the Company
continues to focus on increasing profitability by increasing brand name
awareness, introducing new products and containing costs. The Company continues
to review all aspects of the Company's operations with a view towards managing
costs in response to competitive pressures.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1997
Sales. Sales for the first quarter of 1998 were $89.0 million, an
increase of $0.5 million, or 0.6%, from 1997 first quarter sales of $88.5
million.
Firearms sales increased $2.1 million, or 4.6%, to $47.9 million for
the first quarter of 1998 from $45.8 million in the first quarter of 1997. The
Company believes the increase in the quarter was primarily the result of
successful product introductions, such as the Model 870(TM) 3 1/2" Express(R)
Super Magnum(TM) shotgun, higher pricing and, to a lesser extent, improved
product mix primarily due to higher sales of centerfire rifles.
Ammunition sales for the first quarter of 1998 were $28.2 million, a
decrease of $1.0 million, or 3.4% lower than 1997 sales of $29.2 million. The
decrease in ammunition sales in the quarter was primarily due to lower sales
volumes.
Sales of fishing products decreased from the three months ended March
31, 1997, primarily due to lower sales volumes. Sales of accessory products
increased in comparison to the comparable period of the prior year primarily due
to higher gun safe sales.
Cost of Goods Sold. Cost of goods sold for the first quarter of 1998
was $60.3 million, a decrease of $3.7 million, or 5.8%, versus $64.0 million for
the first quarter of 1997. This decrease resulted from lower raw material costs,
mainly lead and brass, in ammunition in the first quarter of 1998, coupled with
10
<PAGE> 11
$1.2 million of nonrecurring expenses incurred in the first quarter of 1997
primarily related to the start-up of the Mayfield plant. Cost of goods sold as a
percentage of sales decreased to 67.8% during the first quarter of 1998, from
72.3% during the first quarter of 1997, due to higher pricing and lower raw
material cost.
Operating Expenses. Operating expenses consist of selling, general and
administrative expense, research and development expense, restructuring and
nonrecurring items and other income and expense. Operating expenses for the
first quarter of 1998 were $17.4 million, a decrease of $2.8 million, or 13.9%,
from $20.2 million for the first quarter of 1997.
Selling, general and administrative expenses for the first quarter of
1998 were $15.4 million, a decrease of $1.9 million, or 11.0%, from $17.3
million for the first quarter of 1997. The decrease was primarily attributable
to lower distribution expense and lower bad debt expense. The Company also
realized approximately $0.2 million of cost savings in the first quarter of 1998
compared to 1997 as a result of eliminating outsourced computer operations.
Research and development expenses were $1.9 million for the first
quarter of 1998, a decrease of $0.2 million, or 9.5%, from $2.1 million in the
first quarter of 1997. The decrease in research and development expenses for the
quarterly period was primarily a result of a more focused approach toward
spending on research and development activities.
Restructuring and nonrecurring items include a first quarter 1998
restructuring reserve adjustment of $0.4 to reflect actual versus expected
expenses.
Interest Expense. Interest expense for the quarter ended March 31, 1998
was $5.1 million, a decrease of $1.0 million, or 16.4%, from $6.1 million during
the first quarter 1997. The decrease in interest expense for the quarter was
primarily a result of a reduction in average outstanding debt, coupled with a
decrease in the interest rate on Remington's subordinated debt as a result of
the completion of the Exchange Offer. See "Liquidity and Capital Resources -
Liquidity."
Provision (Benefit) for Income Taxes. The provision for income taxes
for the quarter ended March 31, 1998 was $2.5 million, compared to a benefit of
$0.5 million for the quarter ended March 31, 1997. The Company's effective tax
rate was 40% and 28% for the first quarter of 1998 and 1997, respectively. The
1998 effective rate exceeds the federal statutory rate of 35% due primarily to
the impact of state income taxes and nondeductible expenses. The 1997 rate is
less than the federal statutory rate due to nondeductible expenses decreasing
the benefit of the net operating loss.
Net Income/Loss. Net income for the first quarter of 1998 was $3.7
million, an increase of $5 million from first quarter 1997 net loss of $1.3
million, due primarily to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company's operating activities used cash of $42.5 million for the
three month period ended March 31, 1998, primarily as a result of an increase in
accounts receivable, partly offset by operating earnings and an increase in
accounts payable. Accounts receivable increased $55.2 million to $111.5 million
principally due to $53.3 million of sales on extended payment terms. These terms
provide cash
11
<PAGE> 12
discount incentives, require payment by September 10, 1998, and are granted to
customers consistent with industry-wide programs and with prior year's
experience. The Company intends to apply the proceeds from these receivables to
the existing balance on its Revolving Credit Facility. Net cash used in
investing activities in the first three months of 1998 was $0.7 million
consisting of capital expenditures. Net cash provided by financing activities in
the first three months of 1998 was $43.6 million, primarily resulting from
increased borrowings under the Revolving Credit Facility of approximately $49.3
million, partly offset by $5.7 million in principal payments on outstanding
indebtedness (including capital leases).
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 a credit agreement with certain lending
institutions (the "Credit Agreement"). The Credit Agreement contains various
default provisions and affirmative and negative covenants, including a negative
pledge with respect to the Company's unencumbered assets, and certain financial
covenants that require the Company to meet certain financial ratios and tests.
As of March 31, 1998, the Company was in compliance in all material respects
with the financial covenants under the Credit Agreement. The Company believes
that it will be able to meet its debt service obligations and fund its operating
requirements with cash flow from operations and revolving credit borrowings
prior to the maturity of the Revolving Credit Facility, although no assurance
can be given in this regard. In addition, the Company has implemented certain
programs and initiatives in order to improve cash flow from operations. The
Company expects that it will have to replace the Revolving Credit Facility and
refinance any outstanding amounts thereunder upon its maturity on December 31,
2000. No assurance can be given that the Company will be able to obtain such a
replacement working capital facility or refinance such amounts on terms
acceptable to the Company.
Working Capital
Working capital increased to $161.2 million at March 31, 1998 from
$108.2 million at December 31, 1997, primarily as a result of an increase in
accounts receivable, partly offset by operating earnings and an increase in
accounts payable. The March 31, 1998 accounts receivable balance was $55.2
million higher than the December 31, 1997 balance as a result of sales on
extended terms consistent with industry standards and prior practices. See
"-Cash Flows." The Company continues to focus on collection of accounts
receivable, maintaining inventory levels in line with sales projections and
management of accounts payable.
Capital Expenditures
Capital expenditures for the three months ended March 31, 1998 were
$0.7 million, principally for maintenance of operations and improvement projects
concentrated on enhancing the efficiency at existing facilities.
Liquidity
The Company incurred substantial indebtedness in connection with the
Acquisition. As of March 31, 1998, the Company had outstanding approximately
$238.9 million of indebtedness, consisting of approximately $99.6 million
($100.0 million face amount) in 9.5% Senior Subordinated Notes due 2003, Series
B, $63.6 million in term loan borrowings and $69.2 million in revolving credit
borrowings under the Credit Agreement, $4.8 million in capital lease
obligations, and $1.7 million of other long-term debt. As of March 31, 1998 the
Company also had aggregate letters of credit outstanding of $5.9 million. The
Company's Revolving Credit Facility had $76.0 million available for borrowing as
of March 31, 1998.
12
<PAGE> 13
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 "Existing Notes" and, together with
the New Notes, the "Notes"). All of the Existing Notes were exchanged for New
Notes. The interest rate on the Notes was 10% per annum from April 30, 1994
until June 22, 1997, the day before the date of consummation of the Exchange
Offer, and is currently 9.5% per annum. The reduction in interest payments will
amount to $0.5 million per year.
SEASONALITY
The Company produces and markets a broad range of firearms and
ammunition products used in various shooting sports. Several models of the
Company's shotguns and several types of ammunition are intended for target
shooting that generally occurs in the "off season." The majority of the
Company's firearm and ammunition products, however, are manufactured for hunting
use. As a result, sales of the Company's products are seasonal and concentrated
toward the fall hunting season. The Company follows the industry practice of
selling firearms pursuant to a "dating" plan allowing the customer to buy the
products commencing at the beginning of the Company's dating plan year and pay
for them on extended terms. The Company believes that this dating plan
historically has had the effect of shifting some firearms sales from the second
and third quarters to the first quarter. Recently, however, more of the
Company's customers have been instituting tighter inventory management practices
such as delaying purchases until product is needed to fill orders closer to the
fall hunting season and relying more on manufacturers to stock inventory and
supply products within a narrower order period. The Company believes that both
firearms and ammunition sales have become increasingly seasonal as a result of
these changes in customers' buying patterns.
RECENT ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 requires public business
enterprises to adopt its provisions for periods beginning after December 15,
1997, and to report certain information about operating segments in complete
sets of financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. This statement does not
require application to interim financial statements in the initial year. 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 be adopted by the Company for the year ended
December 31, 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 to the
provisions of this statement.
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 new system
13
<PAGE> 14
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 other
facilities by the end of 1999, and does not currently anticipate any material
disruption in its operations as the result of any failure by the Company to be
in compliance. In the event that any of the Company's significant suppliers or
customers do not successfully and timely achieve year 2000 compliance, the
Company's business or operations could be adversely affected.
REGULATORY DEVELOPMENTS
The Company believes that there could be consumer concerns about the
expected extension of the Brady Handgun Violence Prevention Act of 1993 (the
"Brady Bill") to shotguns and rifles that could impact future results of
operations, although the effect of such consumer concerns, if any, on the
financial condition or results of operations of the Company cannot be determined
at this time. In addition, there can be no assurance that federal, state, local
or foreign 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 financial condition or results of operations of
the Company.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report (other than the
financial statements and other statements of historical fact) are
forward-looking statements, including, without limitation, (i) the statements in
"-Business Trends and Initiatives" concerning (a) the Company's belief that
tighter inventory control practices will continue and are likely to cause the
Company to experience increased liquidity and working capital requirements, and
(b) management's belief that demand is stabilizing as customers' inventories
reach their targeted levels; (ii) the statements in "-Liquidity and Capital
Resources - Cash Flows" concerning (a) the Company's belief that it will be able
to meet its debt service obligations and fund its operating requirements with
cash flow from operations and revolving credit borrowings prior to the maturity
of the Revolving Credit Facility and (b) the Company's expectation that it will
have to replace the Revolving Credit Facility and refinance any outstanding
amounts thereunder upon its maturity on December 31, 2000; (iii) the statements
in "-Year 2000 Compliance" concerning the Company's expectation that the cost of
converting manufacturing systems at its facilities will not be material to its
financial condition or results of operations and that it will be able to achieve
year 2000 compliance at its facilities by the end of 1999 without material
disruption in its operations; (iv) other statements as to management's or the
Company's expectations and beliefs presented in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations"; (v) the
statements in "-Regulatory Developments" concerning the Company's belief that
consumer concerns about the expected extension of the Brady Bill to shotguns and
rifles may impact future results of operations; (vi) the statements in "Legal
Proceedings" concerning (a) the Company's belief that the disposition of Garza
(including any individual personal injury actions which might be filed as a
result of the settlement) is not likely to have a material adverse effect upon
its financial condition or results of operations and (b) the Company's belief
that although it anticipates that it will continue to be involved in product
liability cases and claims in the future, the outcome of all pending product
liability cases and claims will not be likely to have a material adverse effect
upon the financial conditions or results of operations of the Company; and (vii)
other statements as to management's or the Company's expectations and beliefs
presented in "Legal Proceedings."
14
<PAGE> 15
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
important factors described in this report (including, without limitation, those
discussed in "-Business Trends and Initiatives", "-Liquidity and Capital
Resources", "-Year 2000 Compliance", "-Regulatory Developments" and "Legal
Proceedings"), in the Company's Annual Report on Form 10-K for the period ended
December 31, 1997, or in other Securities and Exchange Commission filings (which
factors are incorporated herein by reference), could affect (and in some cases
have affected) the Company's actual results and could cause such results to
differ materially from estimates or expectations reflected in such
forward-looking statements.
While the Company periodically reassesses material trends and
uncertainties affecting the operations and financial condition in connection
with its preparation of management's discussion and analysis of results of
operations and financial condition contained in its quarterly and annual
reports, the Company does not intend to review or revise any particular
forward-looking statement referenced in this report in light of future events.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pursuant to the Asset Purchase Agreement, the Sellers retained
liability for, and are required to indemnify the Company against, (1) all
product liability cases and claims (whenever they may arise) involving
discontinued products and (2) all product liability cases and claims involving
products that had not been discontinued as of the closing of the Acquisition
("extant products") and relating to occurrences that took place, but were not
disclosed to the Company, prior to the Acquisition. The Company assumed
financial responsibility, up to 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 Acquisition, and (2) any
environmental liabilities relating to the ownership or operation of the Business
prior to the Acquisition. 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. In 1997, the remaining Cap was exhausted and the Sellers are now
required to indemnify the Company for all costs relating to pre-closing cases
and claims. 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 Acquisition. Because of the nature
of firearm and ammunition products, the Company anticipates that it, as well as
other manufacturers of firearm or ammunition products, will continue to be
involved in product liability cases and claims in the future.
The Company and the Sellers are engaged in the joint defense of product
liability litigation involving Remington brand firearms and Company ammunition
products. As of March 31, 1998, approximately 23 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 five either involve
discontinued products or pre-Acquisition occurrences, for which the Sellers
retained liability and are required to indemnify the Company. The remaining
approximately 18 of the pending cases involve post-Acquisition 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-Acquisition 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 Acquisition, 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 unclaimed funds was decided by
the Court in April 1998. Except for a few class members who have opted
16
<PAGE> 17
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 appealed
this ruling to the intermediate level state appellate court, and oral argument
was held on June 19, 1997. On February 11, 1998, the Texas appellate court, with
one judge dissenting, 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. The
court of appeals subsequently denied the plaintiffs' request for rehearing and
on May 8, 1998, plaintiffs served a petition for further review by the Texas
Supreme Court. Remington was not named as a defendant until July 1996, after the
class certification was appealed, and was not a party to the appeal. Although a
motion to certify a class against Remington was briefed and argued in June 1997,
it has not yet been decided. (Holding has not been named as a defendant in this
case.) Nevertheless, the appellate court's decision should govern class action
claims against it as well as the claims against the Sellers. 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 Acquisition (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 Acquisition, 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 Acquisition are not likely to have a material adverse effect upon
the financial condition or results of operations of the Company. While it is
difficult to forecast the outcome of litigation, the Company does not believe,
in light of relevant circumstances (including the current availability of
insurance for personal injury and property damage with respect to cases and
claims involving occurrences arising after the Acquisition, the Company's
accruals for the uninsured costs of such cases and claims and the Sellers'
agreement to be responsible for a portion of
17
<PAGE> 18
certain post-Acquisition shotgun-related product liability 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 5. OTHER INFORMATION
On April 9, 1998, the Company announced it had engaged the investment
banking firm of Goldman, Sachs & Company to evaluate various strategic options
that will ensure Remington's long-term competitiveness. In the announcement, the
Company said there is no certainty that there will be any change in the
Company's status as a result of this review.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
99.1 Reconciliation of Income (Loss) from Operations to EBITDA.
99.2 Press Release dated April 9, 1998.
(b) Reports on Form 8-K
During the quarter ended March 31, 1998, the Company filed no reports on
Form 8-K.
18
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RACI HOLDING, INC.
/s/ Mark A. Little
---------------------------------------------
Mark A. Little
Vice President, Chief Financial Officer
and Controller (Principal Financial Officer)
May 13, 1998
19
<PAGE> 20
INDEX TO EXHIBITS
Exhibit No. Description
27 Financial Data Schedule.
99.1 Reconciliation of Income (Loss) from Operations to EBITDA.
99.2 Press Release dated April 9, 1998.
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE FINANCIAL
STATEMENTS OF RACI HOLDING, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 117,400
<ALLOWANCES> 5,900
<INVENTORY> 94,200
<CURRENT-ASSETS> 244,700
<PP&E> 133,200
<DEPRECIATION> 43,900
<TOTAL-ASSETS> 435,900
<CURRENT-LIABILITIES> 83,500
<BONDS> 217,700
0
0
<COMMON> 0
<OTHER-SE> 90,000
<TOTAL-LIABILITY-AND-EQUITY> 435,900
<SALES> 89,000
<TOTAL-REVENUES> 89,000
<CGS> 60,300
<TOTAL-COSTS> 60,300
<OTHER-EXPENSES> 17,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,100
<INCOME-PRETAX> 6,200
<INCOME-TAX> 2,500
<INCOME-CONTINUING> 3,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,700
<EPS-PRIMARY> 4.87
<EPS-DILUTED> 4.87
</TABLE>
<PAGE> 1
EXHIBIT 99.1
RACI HOLDING, INC. AND SUBSIDIARIES
RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO EBITDA (A)
(Dollars in Millions)
<TABLE>
<CAPTION>
-----------------------
Unaudited
-----------------------
QUARTER ENDED MARCH 31,
-----------------------
1998 1997
------ ------
<S> <C> <C>
NET INCOME (LOSS) FROM OPERATIONS(A) $ 3.7 $(1.3)
Interest Expense 5.1 6.1
Provision (Benefit) for Income Taxes 2.5 (0.5)
Depreciation and Amortization(B) 3.9 3.7
Other Non-cash Charges(C) 0.8 0.0
Nonrecurring and Restructuring Expense(D) (0.4) 0.1
----- -----
Total 11.9 9.4
----- -----
EBITDA $15.6 $ 8.1
===== =====
</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 (see B
below), depreciation, amortization, non-cash expenses and charges, gain or
loss on sale or write-off of assets and extraordinary, unusual or
nonrecurring gains, losses, charges or credits. EBITDA is presented to
facilitate a more complete analysis of the Company's financial performance,
by adding back non-cash and nonrecurring items to operating income, as an
indicator of the Company's ability to generate cash to service debt and
other fixed obligations. Investors should not rely on EBITDA as an
alternative to operating income or cash flows, as determined in accordance
with generally accepted accounting principles, as an indicator of the
Company's operating performance, liquidity or ability to meet cash needs.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for further discussion of the Company's operating income and
cash flows.
(B) Excludes amortization of deferred financing costs of $0.4 for the three
months ended March 31, 1998 and 1997, which is included in interest
expense.
(C) Non-cash charges consist of a pension accrual of $0.7 and a loss on disposal
of assets of $0.1 for the three months ended March 31, 1998.
(D) Nonrecurring and restructuring expenses excluded in calculating EBITDA
consist of $0.4 write-down of restructuring accrual in 1998 and $0.1 of
unusual and nonrecurring charges for 1997.
<PAGE> 1
EXHIBIT 99.2
REMINGTON ARMS COMPANY RETAINS GOLDMAN, SACHS & COMPANY
TO EVALUATE STRATEGIC OPTIONS
MADISON, N.C., April 9, 1998 - Remington Arms Company, Inc. today announced it
has engaged the investment banking firm of Goldman, Sachs & Company to evaluate
various strategic options that will ensure Remington's long-term
competitiveness.
The company said there is no certainty that there will be any change in
the company's status as a result of this review.
Founded in 1816, Remington Arms Company, Inc. 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(R) name
and other labels, fishing products sold under the Stren(R) name and other
labels, and clay targets.
