<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 June 30, 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 or 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)
(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 August 7, 1998 760,000 shares
Class B Common Stock, par value $.01 per share,
outstanding at August 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>
June 30, December 31,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS (Unaudited)
Current Assets
Cash and Cash Equivalents $ 3.2 $ 0.6
Accounts Receivable Trade - net 86.8 56.3
Inventories 96.9 90.0
Supplies 11.9 12.7
Prepaid Expenses and Other Current Assets 10.4 9.3
Deferred Income Taxes 16.0 16.2
-------- --------
Total Current Assets 225.2 185.1
Property, Plant and Equipment - net 86.7 92.0
Intangibles and Debt Issuance Costs - net 91.0 93.1
Deferred Income Taxes 3.4 6.2
Other Noncurrent Assets 3.2 4.3
-------- --------
Total Assets $ 409.5 $ 380.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 26.1 $ 22.7
Short-Term Debt 0.5 1.0
Current Portion of Long-Term Debt 23.2 21.5
Product and Environmental Liabilities 3.2 3.2
Other Accrued Liabilities 27.9 28.5
-------- --------
Total Current Liabilities 80.9 76.9
Long-Term Debt 189.5 173.5
Retiree Benefits 35.0 34.8
Product and Environmental Liabilities 9.5 9.2
-------- --------
Total Liabilities 314.9 294.4
-------- --------
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 18.6 10.3
-------- --------
Total Shareholders' Equity 94.6 86.3
-------- --------
Total Liabilities and Shareholders' Equity $ 409.5 $ 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>
---------------------------------------------------
Unaudited
---------------------------------------------------
Quarter Ended June 30, Year-to-Date June 30,
---------------------- ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales (1) $ 90.9 $ 85.9 $ 179.9 $ 174.4
Cost of Goods Sold 59.4 60.7 119.7 124.7
--------- --------- --------- ---------
Gross Profit 31.5 25.2 60.2 49.7
Selling, General and Administrative
Expenses 16.1 17.5 31.5 34.8
Research & Development Expense 2.0 2.0 3.9 4.1
Other Expense, net 0.7 0.6 1.2 1.4
Restructuring and Nonrecurring Items -- -- (0.4) --
--------- --------- --------- ---------
Operating Profit 12.7 5.1 24.0 9.4
Interest Expense 5.3 6.6 10.4 12.7
--------- --------- --------- ---------
Profit (Loss) Before Income Taxes 7.4 (1.5) 13.6 (3.3)
Provision (Benefit) for Income Taxes 2.8 (0.5) 5.3 (1.0)
--------- --------- --------- ---------
Net Income (Loss) $ 4.6 $ (1.0) $ 8.3 $ (2.3)
========= ========= ========= =========
Per Share Data:
Basic Net Income (Loss) Per Share $ 6.05 $ (1.34) $ 10.92 $ (3.07)
========= ========= ========= =========
Diluted Net Income (Loss) Per Share $ 6.05 $ (1.34) $ 10.92 $ (3.07)
========= ========= ========= =========
Weighted average common stock outstanding
and assumed conversions (000s) 760 750 760 750
========= ========= ========= =========
</TABLE>
(1) Sales are presented net of Federal Excise Taxes of $7.2 and $6.9 for the
three months ended June 30, 1998 and 1997, respectively, and $14.0 and
$13.4 for the year-to-date periods ended June 30, 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>
----------------------
Unaudited
----------------------
Year-to-Date June 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Operating Activities
Net Cash used in Operating Activities $ (13.1) $ (15.4)
Investing Activities
Capital Expenditures (1.5) (2.6)
------- -------
Net Cash used in Investing Activities (1.5) (2.6)
Financing Activities
Net borrowings under Revolving Credit Facility 28.4 24.0
Principal payments on Long-Term Debt (10.7) (10.6)
Principal payments on Short-Term Debt (0.5) (0.7)
Debt Issuance Costs -- (0.5)
------- -------
Net Cash provided by Financing Activities 17.2 12.2
------- -------
Increase (Decrease) in Cash and Cash Equivalents 2.6 (5.8)
Cash and Cash Equivalents at beginning of period 0.6 9.6
------- -------
Cash and Cash Equivalents at end of period $ 3.2 $ 3.8
======= =======
</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
June 30, 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 and six month periods ended June 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
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") pursuant
to an asset purchase agreement (the "Asset Purchase Agreement").
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>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Raw Materials $ 12.2 $ 13.9
Semi-Finished Products 18.6 20.0
Finished Product 66.1 56.1
------- -------
Total $ 96.9 $ 90.0
======= =======
</TABLE>
5
<PAGE> 6
Note 3 - Long-Term Debt
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Credit Agreement:
Term Loans $ 59.1 $ 68.2
Revolving Credit Facility 48.3 19.9
9.5% Senior Subordinated Notes due 2003 99.7 99.6
Capital Lease Obligations 4.4 5.3
Other 1.2 2.0
-------- --------
Subtotal $ 212.7 $ 195.0
Less: Current Portion 23.2 21.5
-------- --------
Total $ 189.5 $ 173.5
======== ========
</TABLE>
Note 4 - Restructuring
The Company recorded charges for restructuring in 1996 of $4.9. The
reserve balance of $0.6 at June 30, 1998 is included in other accrued
liabilities in the accompanying balance sheet. In the first quarter of 1998, the
Company paid out $0.1 and reduced 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, 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 "New Notes") due 2003. Further, the New Notes are
fully and unconditionally guaranteed by Holding.
6
<PAGE> 7
RACI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEETS
June 30, 1998
<TABLE>
<CAPTION>
RACI Holding
Inc. and
Holding Remington Eliminations Subsidiaries
------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets $ -- $ 225.2 $ -- $ 225.2
Receivable from Remington 1.0 -- 1.0 --
Noncurrent Assets 93.6 184.3 93.6 184.3
------- -------- -------- --------
Total Assets $ 94.6 $ 409.5 $ 94.6 $ 409.5
======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities $ -- $ 80.9 $ -- $ 80.9
Payable to RACI Holding, Inc. -- 1.0 1.0 --
Noncurrent Liabilities -- 234.0 -- 234.0
Shareholders' Equity 94.6 93.6 93.6 94.6
------- -------- -------- --------
Total Liabilities and
Shareholders' Equity $ 94.6 $ 409.5 $ 94.6 $ 409.5
======= ======== ======== ========
</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
JUNE 30, 1998
Sales $ -- $ 90.9 $ -- $ 90.9
Gross Profit -- 31.5 -- 31.5
Equity in Earnings of Subsidiary 4.6 -- 4.6 --
Net Income $ 4.6 $ 4.6 $ 4.6 $ 4.6
QUARTER ENDED
JUNE 30, 1997
Sales $ -- $ 85.9 $ -- $ 85.9
Gross Profit -- 25.2 -- 25.2
Equity in Loss of Subsidiary (1.0) -- (1.0) --
Net Loss $ (1.0) $ (1.0) $ (1.0) $ (1.0)
</TABLE>
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>
SIX MONTHS ENDED
JUNE 30, 1998
Sales $ -- $ 179.9 $ -- $ 179.9
Gross Profit -- 60.2 -- 60.2
Equity in Earnings of Subsidiary 8.3 -- 8.3 --
Net Income $ 8.3 $ 8.3 $ 8.3 $ 8.3
SIX MONTHS ENDED
JUNE 30, 1997
Sales $ -- $ 174.4 $ -- $ 174.4
Gross Profit -- 49.7 -- 49.7
Equity in Loss of Subsidiary (2.3) -- (2.3) --
Net Loss $ (2.3) $ (2.3) $ (2.3) $ (2.3)
</TABLE>
8
<PAGE> 9
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
generally bears financial responsibility for all product liability cases and
claims relating to occurrences after the closing of the Acquisition, except for
certain cases and claims relating to shotguns as described below and except for
all cases and claims relating to discontinued products. It is difficult to
forecast the outcome of litigation. However, 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), the Company does
not believe that the outcome of all product liability cases and claims involving
post-Acquisition occurrences, which arose prior to June 30, 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 the Sellers
retained liability for future product liability cases and claims involving
pre-Acquisition occurrences and agreed to indemnify 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. Because of the nature of its products, the Company
anticipates that it will continue to be involved in product liability litigation
in the future.
Note 7 - Recent Accounting Developments
In June 1997, the Financial Accounting Standards Board ("FASB") 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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for all fiscal quarters for the fiscal years beginning after June
15, 1999. The Company is evaluating the provisions of SFAS No. 133, but the
impact, if any, of its adoption has not yet been determined.
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 and six month periods ended
June 30, 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 and Six Month Periods Ended June 30, 1998 as
Compared to the Three and Six Month Periods Ended June 30, 1997
Sales. Sales for the second quarter of 1998 were $90.9 million, an
increase of $5.0 million, or 5.8%, from 1997 second quarter sales of $85.9
million. Sales for the first six months of 1998 were $179.9 million, an increase
of $5.5 million, or 3.2%, from 1997 year-to-date sales of $174.4 million. The
increase in sales for the quarter and year-to-date periods was primarily due to
increased sales in ammunition, accessories and fishline products.
Firearms sales decreased $4.5 million, or 10.1%, to $40.0 million for
the second quarter of 1998 from $44.5 million in the second quarter of 1997. The
decrease in the quarter was primarily the result of lower volumes of
higher-priced firearms, but was somewhat offset by recent product introductions,
including the Model 870(TM) 3 1/2" Express(R) Super Magnum(TM) shotgun, and
higher pricing. Year-to-date sales in 1998 were $87.9 million, $2.4 million, or
2.7%, lower than the prior year-to-date period, primarily the result of the
shift in product mix noted above.
Ammunition sales for the second quarter of 1998 were $34.7 million, an
increase of $4.9 million, or 16.4%, higher than the comparable 1997 sales of
$29.8 million. The increase in ammunition sales in the quarter was primarily due
to a favorable mix resulting from the promotion of higher-priced centerfire
rifle ammunition. The Company believes that this promotion may have shifted some
demand for centerfire rifle ammunition from the latter half of the year to the
second quarter and therefore does not anticipate that the promotion will have a
significant impact on full year sales. Year-to-date sales in 1998
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were $62.9 million, $3.9 million, or 6.6%, higher than the prior year-to-date
period, primarily due to increased sales of centerfire rifle ammunition.
Fishing product sales in 1998 increased $3.5 million in the second
quarter, and $2.1 million in the year-to-date period over the same periods in
1997, primarily as a result of new fishline product introductions. Accessory
product 1998 sales increased $1.1 million and $1.3 million in the second quarter
and year-to-date periods, respectively, over the same periods in 1997, primarily
as a result of increased sales of gun safes.
Cost of Goods Sold. Cost of goods sold for the second quarter of 1998
was $59.4 million, a decrease of $1.3 million, or 2.1%, versus $60.7 million for
the second quarter of 1997. For the first six months of 1998, cost of goods sold
decreased $5.0 million, or 4.0%, to $119.7 million from $124.7 million for the
same period in 1997. The decrease in both the quarter and year-to-date periods
principally was due to a mix of lower-cost firearm products, favorable commodity
prices and reductions in other manufacturing costs (including the elimination of
some nonrecurring and startup costs incurred in 1997). These decreases were
partially offset by a mix of higher-cost ammunition and accessories products and
increased volumes in fishing products. As a percentage of sales, cost of goods
sold for the second quarter of 1998 decreased to 65.3% from 70.7% and for the
first six months of 1998 decreased to 66.5% from 71.5% for the same periods in
1997. These decreases, as a percentage of sales, are due mainly to a mix of
higher-margin ammunition products, the reductions in commodity prices and other
manufacturing costs noted above and price increases on firearms.
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
second quarter of 1998 were $18.8 million, a decrease of $1.3 million, or 6.5%,
from $20.1 million for the second quarter of 1997. Year-to-date operating
expenses for 1998 were $36.2 million, a decrease of $4.1 million, or 10.2%, from
$40.3 million for the same period of 1997.
Selling, general and administrative expenses for the second quarter of
1998 were $16.1 million, a decrease of $1.4 million, or 8.0%, from $17.5 million
for the second quarter of 1997. Year-to-date selling, general and administrative
expenses were $31.5 million, a $3.3 million decrease from $34.8 million in the
prior year-to-date period. The decrease for the quarter and year to date periods
was primarily attributable to lower bad debt expense and lower distribution
expense, in addition to savings resulting from the elimination of outsourced
computer operations.
Research and development expenses were $2.0 million in each of the
second quarters of 1998 and 1997. For the six months ended June 30, 1998,
research and development expenses were $3.9 million, a $0.2 million, or 4.9%,
decrease from the same period in the prior year, primarily as a result of a more
focused approach toward spending on research and development activities.
Restructuring and nonrecurring items year-to-date include a first
quarter 1998 restructuring reserve reduction of $0.4 million to reflect actual
versus expected expenses.
Interest Expense. Interest expense for the quarter ended June 30, 1998
was $5.3 million, a decrease of $1.3 million, or 19.7%, from $6.6 million during
the second quarter 1997. Year-to-date interest expense was $10.4 million versus
$12.7 million in the prior year-to-date period. The decrease in interest expense
for the periods was primarily a result of a reduction in average outstanding
debt, coupled with a reduction in the interest rate on the New Notes as a result
of the completion of the Exchange Offer (as defined below). Also, interest
expense decreased, to a lesser extent, as a result of a reduction in the
interest rate charged under a
11
<PAGE> 12
credit agreement with certain lending institutions (the "Credit Agreement"),
related to improved financial performance. See "-Liquidity and Capital Resources
- - Liquidity."
Provision (Benefit) for Income Taxes. The provision for income taxes
for the quarter ended June 30, 1998 was $2.8 million, compared to a benefit of
$0.5 million for the quarter ended June 30, 1997. The Company's effective tax
rate was 39.0% and 30.3% for year-to-date 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 the benefit of the net operating loss.
Net Income (Loss). Net income for the second quarter of 1998 was $4.6
million, an increase of $5.6 million from the second quarter 1997 net loss of
$1.0 million. Net income for the six months ended June 30, 1998 was $8.3
million, an increase of $10.6 million from the 1997 net loss of $2.3 million,
due primarily to the factors discussed above.
Liquidity and Capital Resources
Cash Flows. Net cash used in operating activities for the six month
period ended June 30, 1998 was $13.1 million, resulting primarily from a $30.6
million increase in accounts receivable and a $7.0 million increase in
inventories. Sources of cash in operating activities included $8.3 million in
operating income and a $3.4 million increase in accounts payable. Accounts
receivable increased to $86.8 million at June 30, 1998 principally due to $38.5
million of sales on extended payment terms. These terms provide cash discount
incentives, and require payment by September 10, 1998, for shipments prior to
April 1, and payment by October 10, 1998 for shipments after March 31. The terms
are granted to customers consistent with industry-wide programs and with prior
years' experience. The Company intends to apply the proceeds from these
receivables to the existing balance on its revolving credit facility. The
increase in inventories is due to the seasonal buildup in ammunition of $11.2
million, partly offset by a $3.8 million decrease in firearms. Net cash used in
investing activities in the first six months of 1998 was $1.5 million consisting
of capital expenditures for replacement equipment and improvement projects
concentrated on enhancing the efficiency of existing facilities, particularly at
the Lonoke facility and corporate headquarters. Net cash provided by financing
activities in the first six months of 1998 was $17.2 million, primarily
resulting from increased borrowings under the revolving credit facility of $28.4
million, offset in part by $10.7 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 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 June 30, 1998, the Company was in compliance
in all material respects with the financial covenants under the Credit
Agreement, and during the second quarter the Company qualified for a reduction
in interest rates based on recent financial performance. 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
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<PAGE> 13
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 $144.3 million at June
30, 1998 from $108.2 million at December 31, 1997, primarily as a result of a
$30.6 million increase in accounts receivable, and a $7.0 million increase in
inventories, partly offset by a $3.4 million increase in accounts payable. The
June 30, 1998 accounts receivable balance was higher than the December 31, 1997
balance partly as a result of sales on extended terms consistent with industry
standards and prior practices. See "-Cash Flows." Additionally, the seasonality
of the Company's business causes accounts receivable and inventories to increase
in the first half of the year. See "-Seasonality." The Company continues to
focus on working capital management, including the collection of accounts
receivable, maintaining inventory levels in line with sales projections and
management of accounts payable. As a result, accounts receivable were $4.1
million lower and inventories were $13.0 million lower at June 30, 1998 than at
June 30, 1997.
Capital Expenditures. Capital expenditures for the six months ended
June 30, 1998 were $1.5 million, principally for replacement equipment and
improvement projects concentrated on enhancing the efficiency at existing
facilities. On July 2, 1998, the board of directors of the Company approved
purchase commitments for $5.1 million of machinery and equipment to improve
efficiency at the Ilion facility, approximately $1.9 million of which is
expected to be expended in 1998.
Liquidity. The Company incurred substantial indebtedness in connection
with the Acquisition. As of June 30, 1998, the Company had outstanding $212.7
million of indebtedness, consisting of approximately $99.7 million ($100.0
million face amount) in 9.5% Senior Subordinated Notes due 2003, Series B; $59.1
million in term loan borrowings and $48.3 million in revolving credit borrowings
under the Credit Agreement, $4.4 million in capital lease obligations and $1.2
million of other long-term debt. As of June 30, 1998 the Company also had
aggregate letters of credit outstanding of $3.8 million. The Company's revolving
credit facility had $99.0 million available for borrowing as of June 30, 1998.
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
13
<PAGE> 14
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 ("FASB") 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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires all entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for all fiscal quarters for the fiscal years beginning after June
15, 1999. The Company is evaluating the provisions of SFAS No. 133, but the
impact, if any, of its adoption has not yet been determined.
Year 2000 Compliance
In connection with the Acquisition, DuPont agreed to continue to
provide data processing support and services for the Company during a transition
period. In 1995, the Company completed the first phase of replacing its computer
systems, including those provided by DuPont, with an enterprise-wide,
fully-integrated system. This system will eliminate all stand-alone legacy
systems and result in all facilities operating within the same application
software package. The new system accommodates the year 2000 dating changes
necessary to permit correct recording of dates for the year 2000 and later
years. Most of the Company's operations are utilizing this system, other than
one manufacturing facility, which is currently in the process of conversion.
The Company believes it will be able to achieve year 2000 compliance at
its remaining manufacturing facility 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's computer system to be in compliance. Material
non-information technology systems, including microcontrollers used in plant
operations, are in the process of being tested with post-1999 dates. The
Company's telecommunications systems are being upgraded and are expected to be
year 2000 compliant by early 1999. The Company is currently surveying
significant third parties, including major customers, and suppliers of raw
materials, parts and services. Additional evaluation and testing for year 2000
compliance will be performed with third parties that are considered to be
critical. Transaction testing of third parties utilizing electronic data
interchange is
14
<PAGE> 15
planned to be completed by mid-1999. 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.
Due to the implementation of the computer system necessitated by the
Acquisition, costs related specifically to year 2000 compliance, including
allocation of internal salaries and related costs, are estimated to be less than
$1 million. Accordingly, the Company does not expect that the cost of year 2000
compliance will be material to its financial condition or results of operations.
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 statement in "-Results of Operations for
the Three and Six Month Periods Ended June 30, 1998 as compared to the Three and
Six Month Periods Ended June 30, 1997 - Sales" concerning the Company's belief
that the promotion of centerfire rifle ammunition is not anticipated to have a
significant impact on full year sales; (iii) 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; (iv) the
statement in "-Liquidity and Capital Resources-Capital Expenditures" concerning
the Company's expectation that it will expend $1.9 million of its existing
purchase commitments at its Ilion Facility in 1998; (v) the statements in "-Year
2000 Compliance" concerning the Company's expectation that (a) it will be able
to achieve year 2000 compliance at its remaining manufacturing facility by the
end of 1999 without material disruption in its operations as the result of any
failure by the Company's computer system, (b) the telecommunications systems
will be year 2000 compliant by early 1999 and (c) the cost of Year 2000
compliance will not be material to its financial condition or results of
operations; (vi) 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"; (vii) 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; (viii) 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
15
<PAGE> 16
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 condition or results of
operations of the Company; and (ix) other statements as to management's or the
Company's expectations and beliefs presented in "Legal Proceedings."
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
important factors described in this report (including, without limitation, those
discussed in "-Business Trends and Initiatives", "-Results of Operations for the
Three and Six Month Periods Ended June 30, 1998 as Compared to the Three and Six
Month Periods Ended June 30, 1997", "-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.
16
<PAGE> 17
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 a maximum aggregate amount (the "Cap"), for (1)
product liability cases and claims involving extant products and relating to
occurrences that took place, and were disclosed to the Company, prior to the
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 June 30, 1998, 29 such cases were pending, primarily alleging
defective product design or manufacture, or failure to provide adequate
warnings, all of which are individual actions alleging personal injury, and many
seek punitive as well as compensatory damages. Of these pending individual
cases, approximately six involve either discontinued products or pre-Acquisition
occurrences, for which the Sellers retained liability and are required to
indemnify the Company. The remaining approximately 23 of the pending cases
involve post-Acquisition occurrences for which the Company bears responsibility
under the Asset Purchase Agreement; the Sellers have some responsibility for the
costs of six of these cases involving certain shotguns, as described below. The
Company has previously disposed of a number of other cases involving
post-Acquisition occurrences by settlement.
Two cases are not included in the figures listed above. 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 both 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.
The Garza class action involved certain Remington brand 12-gauge
shotguns manufactured from 1960 to 1995, including Model 1100, 11-87 and 870
shotguns. On February 6, 1996, the federal district court in San Antonio, Texas
gave final approval to a settlement of Garza, and that decision has become final
and non-appealable. 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
17
<PAGE> 18
by the court in April 1998. No appeals were taken from that order and the
Company does not anticipate further court activity in this case. 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 appealed
this ruling to the intermediate level state appellate court, and on February 11,
1998, that 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. 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. The petition was denied by the Texas Supreme Court on July 3,
1998, and plaintiffs have not sought rehearing of that decision. 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 courts' decisions 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 shipped 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) would be 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. It is difficult
to forecast the outcome of litigation. However, in light of relevant
circumstances (including the current availability of insurance for personal
injury and property damage with respect to
18
<PAGE> 19
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 certain post-Acquisition
shotgun-related product liability costs, as described above), the Company does
not believe that the outcome of all pending post-Acquisition product liability
cases and claims will be likely to have a material adverse effect upon the
financial condition or results of operations of the Company. However, in part
because of the uncertainty as to the nature and extent of manufacturer liability
for personal injury due to alleged product defects, there can be no assurance
that the Company's resources will be adequate to cover future product liability
occurrences, cases or claims, in the aggregate, or that such a material adverse
effect will not result therefrom.
Item 4. Submission of Matters to a Vote of Security Holders
On April 21, 1998, the stockholders of Holding, at their annual
meeting, unanimously re-elected in its entirety the board of directors of
Holding. On the same day, the sole stockholder of Remington, at its annual
meeting, unanimously re-elected in its entirety the board of directors of
Remington.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule.
99 Reconciliation of Income (Loss) from Operations to EBITDA.
(b) Reports on Form 8-K
During the quarter ended June 30, 1998, the Company filed no reports on Form
8-K.
19
<PAGE> 20
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)
August 12, 1998
20
<PAGE> 21
INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule.
99 Reconciliation of Income (Loss) from Operations to EBITDA.
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,200
<SECURITIES> 0
<RECEIVABLES> 91,000
<ALLOWANCES> 4,200
<INVENTORY> 96,900
<CURRENT-ASSETS> 225,200
<PP&E> 133,900
<DEPRECIATION> 47,200
<TOTAL-ASSETS> 409,500
<CURRENT-LIABILITIES> 80,900
<BONDS> 189,500
0
0
<COMMON> 0
<OTHER-SE> 94,600
<TOTAL-LIABILITY-AND-EQUITY> 409,500
<SALES> 179,900
<TOTAL-REVENUES> 179,900
<CGS> 119,700
<TOTAL-COSTS> 119,700
<OTHER-EXPENSES> 36,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,400
<INCOME-PRETAX> 13,600
<INCOME-TAX> 5,300
<INCOME-CONTINUING> 8,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,300
<EPS-PRIMARY> 10.92
<EPS-DILUTED> 10.92
</TABLE>
<PAGE> 1
EXHIBIT 99
RACI Holding, Inc. and Subsidiaries
Reconciliation of Income (Loss) from Operations to EBITDA (A)
(Dollars in Millions)
<TABLE>
<CAPTION>
---------------------------------------------
Unaudited
---------------------------------------------
Quarter Ended June 30, Year-to-Date June 30,
---------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income (Loss) from Operations (A) $ 4.6 $ (1.0) $ 8.3 $ (2.3)
Interest Expense 5.3 6.6 10.4 12.7
Provision (Benefit) for Income Taxes 2.8 (0.5) 5.3 (1.0)
Depreciation and Amortization (B) 3.9 3.7 7.8 7.4
Other Non-cash Charges (C) (0.4) -- 0.4 --
Nonrecurring and Restructuring Expense (D) 0.2 0.7 (0.2) 0.8
------- ------- ------- -------
Total 11.8 10.5 23.7 19.9
------- ------- ------- -------
EBITDA $ 16.4 $ 9.5 $ 32.0 $ 17.6
======= ======= ======= =======
</TABLE>
Notes:
(A) EBITDA as presented may not be comparable to similar measures reported
by other companies. Generally, EBITDA is defined to consist of net
income (loss), adjusted to exclude cash interest expense, income tax
expense, depreciation, amortization, non-cash expenses and charges,
gain or loss on sale or write-off of assets and extraordinary, unusual
or nonrecurring gains, losses, charges or credits. EBITDA is presented
to facilitate a more complete analysis of the Company's financial
performance, by adding back non-cash and nonrecurring items to
operating income, as an indicator of the Company's ability to generate
cash to service debt and other fixed obligations. Investors should not
rely on EBITDA as an alternative to operating income or cash flows, as
determined in accordance with generally accepted accounting principles,
as an indicator of the Company's operating performance, liquidity or
ability to meet cash needs. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for further
discussion of the Company's operating income and cash flows.
(B) Excludes amortization of deferred financing costs of $0.5 and $0.4 for
the quarter, and $0.9 and $0.9 for the year-to-date periods ended June
30, 1998 and 1997, respectively, which is included in interest expense.
(C) Non-cash charges for the quarter ended June 30, 1998 consist of $0.5
reversal of pension accrual and $0.1 loss on disposal of assets.
Non-cash charges for the six months ended June 30, 1998 consist of a
$0.2 pension accrual and $0.2 for loss on disposal of assets.
(D) Nonrecurring and restructuring expenses excluded in calculating EBITDA
consist of $0.4 write-down of restructuring accrual and $0.2 accrual
for nonrecurring legal expense in 1998 and $0.8 of unusual and
nonrecurring charges for 1997.
