<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 SEPTEMBER 30, 2000
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 November 13, 2000 763,050 shares
Class B Common Stock, par value $.01 per share,
outstanding at November 13, 2000 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>
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 3.1 $ 26.3
Accounts Receivable Trade - net 94.7 56.6
Inventories 87.0 70.8
Supplies 11.1 10.6
Prepaid Expenses and Other Current Assets 8.8 7.8
Deferred Income Taxes 10.5 9.1
-------- --------
Total Current Assets 215.2 181.2
Property, Plant and Equipment - net 89.0 87.8
Intangibles and Debt Issuance Costs - net 84.8 84.5
Deferred Income Taxes 3.5 4.3
Other Noncurrent Assets 1.0 1.0
-------- --------
TOTAL ASSETS $ 393.5 $ 358.8
======== ========
LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 26.3 $ 23.7
Book Overdraft 6.6 6.4
Short-Term Debt 1.4 1.0
Current Portion of Long-Term Debt 1.4 29.2
Product and Environmental Liabilities 2.3 2.6
Income Taxes 2.4 0.4
Other Accrued Liabilities 45.6 26.8
-------- --------
Total Current Liabilities 86.0 90.1
Long-Term Debt 165.1 89.3
Retiree Benefits 32.3 36.9
Product and Environmental Liabilities 10.1 9.9
-------- --------
Total Liabilities 293.5 226.2
Redeemable Deferred Shares of Class A Common Stock,
par value $.01; 25,718 and 25,869 issued at
September 30, 2000 and December 31, 1999, respectively 5.3 5.4
Redeemable Shares of Class A Common Stock, par
value $.01; 5,082 issued at September 30, 2000
and December 31, 1999 1.0 1.0
Commitments and Contingencies
Shareholders' Equity
Class A Common Stock, par value $.01; 1,250,000 shares
authorized, 763,050 issued and outstanding at
September 30, 2000 and December 31, 1999, respectively -- --
Class B Common Stock, par value $.01; 1,250,000 shares
authorized, none issued and outstanding -- --
Paid in Capital 76.6 76.6
Due from Shareholders -- (0.5)
Accumulated Other Comprehensive Loss (0.4) (0.4)
Retained Earnings 17.5 50.5
-------- --------
Total Shareholders' Equity 93.7 126.2
-------- --------
TOTAL LIABILITIES, REDEEMABLE SHARES AND
SHAREHOLDERS' EQUITY $ 393.5 $ 358.8
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 3
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in Millions, Except Per Share Data)
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Unaudited
--------------------------------------------------------------------
Quarter Ended September 30, Year-to-Date September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Sales (1) $ 113.6 $ 124.6 $ 311.7 $ 311.9
Cost of Goods Sold 73.5 85.2 205.9 211.5
--------------- -------------- --------------- --------------
Gross Profit 40.1 39.4 105.8 100.4
Selling, General and Administrative
Expenses 18.6 16.8 54.5 48.6
Research and Development Expenses 1.6 1.7 4.9 5.5
Other Expense 0.7 0.5 8.4 5.4
--------------- -------------- --------------- --------------
Operating Profit 19.2 20.4 38.0 40.9
Interest Expense 4.5 3.6 11.8 11.4
--------------- -------------- --------------- --------------
Profit Before Income Taxes 14.7 16.8 26.2 29.5
Provision for Income Taxes 5.4 6.0 10.1 11.5
--------------- -------------- --------------- --------------
Net Income $ 9.3 $ 10.8 $ 16.1 $ 18.0
=============== ============== =============== ==============
Per Share Data:
Basic Income Per Share $ 11.71 $ 13.71 $ 20.30 $ 23.35
=============== ============== =============== ==============
Diluted Income Per Share $ 11.36 $ 13.38 $ 19.71 $ 22.78
=============== ============== =============== ==============
Dividend per Common and Redeemable Share $ -- $ -- $ 63.93 $ --
=============== ============== =============== ==============
</TABLE>
(1) Sales are presented net of Federal Excise Taxes of $10.2 and $11.0 for
the quarter ended and $27.0 and $26.4 for the year-to-date periods
ended September 30, 2000 and 1999, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollars in Millions)
<TABLE>
<CAPTION>
-----------------------------------
Unaudited
-----------------------------------
Year-To-Date September 30,
-----------------------------------
2000 1999
-------------- ------------
<S> <C> <C>
Operating Activities
Net Cash (used in) provided by Operating Activities $ (7.7) $ 26.7
-------------- ------------
Investing Activities
Capital Expenditures (11.8) (8.6)
-------------- ------------
Net Cash used in Investing Activities (11.8) (8.6)
-------------- ------------
Financing Activities
Net Borrowings under Revolving Credit Facility 76.0 3.0
Cash Dividends Paid, Net of Shareholder Loan Repayments (48.6) --
Repurchase of Senior Subordinated Notes -- (5.5)
Proceeds from Common Stock Issuance -- 0.7
Principal Payments on Long-Term Debt (28.0) (18.6)
Book Overdraft 0.2 --
Net Borrowings (Payments) on Short-Term Debt 0.4 (0.4)
Debt Issuance Costs Paid (3.7) --
-------------- ------------
Net Cash used in Financing Activities (3.7) (20.8)
-------------- ------------
Decrease in Cash and Cash Equivalents (23.2) (2.7)
Cash and Cash Equivalents at Beginning of Period 26.3 4.9
-------------- ------------
Cash and Cash Equivalents at End of Period $ 3.1 $ 2.2
============== ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
RACI HOLDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Shareholders' Equity
and Comprehensive Income
(Dollars in Millions)
<TABLE>
<CAPTION>
Accumulated
Other Total
Paid-in Due from Comprehensive Retained Shareholders'
Capital Shareholders Loss Earnings Equity
------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 $ 76.6 $ (0.5) $ (0.4) $ 50.5 $ 126.2
------------- ------------ ------------- ------------ -------------
Comprehensive Net Income:
Net Income (Unaudited) -- -- -- 16.1 16.1
Repayment of Loans issued under the
1999 Stock Incentive Plan (Unaudited) -- 0.5 -- -- 0.5
Cash Dividends Paid (Unaudited) -- -- -- (49.1) (49.1)
------------- ------------ ------------- ------------ -------------
BALANCE, SEPTEMBER 30, 2000 (UNAUDITED) $ 76.6 $ -- $ (0.4) $ 17.5 $ 93.7
============= ============ ============= ============ =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 subsidiaries, Remington
International, Ltd., RA Brands, L.L.C. and RA Factors, L.L.C. (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 nine month period ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000 or any future periods.
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
formerly operated by E. I. du Pont de Nemours and Company ("DuPont") and one of
DuPont's subsidiaries (together with DuPont, the "Sellers").
These condensed consolidated 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, 1999.
Certain reclassifications were made to the prior period's financial
information to conform with the current presentation format.
NOTE 2 - INVENTORIES
Inventories consisted of the following at:
September 30, December 31,
2000 1999
--------- ---------
(Unaudited)
Raw Materials $ 16.7 $ 14.9
Semi-Finished Products 23.2 18.9
Finished Product 47.1 37.0
--------- ---------
Total $ 87.0 $ 70.8
========= =========
NOTE 3 - LONG-TERM DEBT
Long-term debt consisted of the following at:
September 30, December 31,
2000 1999
--------- ---------
(Unaudited)
Term Loans (Paid in 2000) $ -- $ 27.3
Revolving Credit Facility 76.0 --
9.5% Senior Subordinated Notes due 2003 86.8 86.7
Capital Lease Obligations 3.7 4.2
Other -- 0.3
--------- ---------
Subtotal 166.5 118.5
Less: Current Portion 1.4 29.2
--------- ---------
Total $ 165.1 $ 89.3
========= =========
6
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Data)
On April 28, 2000 the Company entered into an amended and restated
credit agreement with certain lending institutions (the "Credit Agreement") that
provides for aggregate borrowings of $170.0 million under a revolving credit
facility (the "Revolving Credit Facility"). All borrowings under the Credit
Agreement are guaranteed by Holding, RA Brands, L.L.C. and RA Factors, L.L.C.
and are collateralized by substantially all of the assets of the Company. The
Company may borrow up to $170.0 million (including certain letters of credit)
under the Revolving Credit Facility through September 30, 2003. Financing costs
paid in connection with the Credit Agreement of $3.7 million were capitalized
and will be amortized over the remaining term of the Credit Agreement. In
connection with the amendment and restatement, the remaining balance on the Term
Loans of $18.3 million was paid and the remaining unamortized debt issuance
costs of $0.3 million were expensed.
Loans under the Credit Agreement generally bear interest, at the
Company's option, at a variable rate equal to either (i) the rate that is the
highest of the administrative agent's prime rate, or certain alternative rates,
in each case plus a margin of up to 1.25% per annum ("ABR Loans"), or (ii) the
rate at which certain Eurodollar deposits are offered in the interbank
Eurodollar market plus a margin of up to 2.25% per annum ("Eurodollar Loans").
The Company's interest rate margin for the first six months under the Credit
Agreement was set at 1.0% and 2.0% for ABR Loans and Eurodollar Loans,
respectively. Effective October 31, 2000, the interest rate margin was adjusted
under the Credit Agreement to 0.5% and 1.5% for ABR Loans and Eurodollar Loans,
respectively. Each quarter the interest rate margin will be subject to
adjustment based upon maintenance of a certain consolidated leverage ratio,
based on EBITDA and total indebtedness, for the four quarters most recently
ended and will range from 0.5% to 1.25% per annum for ABR Loans and from 1.5% to
2.25% per annum for Eurodollar Loans. Commitment fees of 0.5% are payable on the
average daily unused portion of the Revolving Credit Facility. Mandatory
prepayments of borrowings may be required under the Credit Agreement upon the
occurrence of certain changes in control.
NOTE 4 - INCOME PER SHARE
The basic and diluted income per share was determined as follows:
<TABLE>
<CAPTION>
(Unaudited)
-----------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic Income Per Share:
Net Income Available to Common Shareholders $9.3 $10.8 $16.1 $18.0
Weighted Average Common Shares 793,850 788,409 792,622 770,586
Basic Income Per Share $11.71 $13.71 $20.30 $23.35
Diluted Income Per Share:
Net Income Available to Common Shareholders $9.3 $10.8 $16.1 $18.0
Weighted Average Common Shares 793,850 788,409 792,622 770,586
Effect of Outstanding Options 24,666 18,740 24,854 18,901
Weighted Average Common Shares and Dilutive Potential
Common Stock 818,516 807,148 817,476 789,487
Diluted Income Per Share $11.36 $13.38 $19.71 $22.78
Options Outstanding at September 30 69,053 69,113 69,053 69,113
</TABLE>
7
<PAGE> 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Data)
NOTE 5 - REDEEMABLE CLASS A COMMON STOCK
Certain employees and key management of the Company who hold or have
the right to receive (i.e.: deferred shares) Class A common stock may require
Holding to repurchase, under certain conditions, namely, death, disability or
retirement at normal retirement age, all of such shares. This repurchase right
terminates upon the consummation of an initial equity public offering of
Holding's Class A common stock. In connection with the redemption feature
described above, Holding has classified, outside of permanent equity, an amount
representing the initial fair value of the redeemable shares. These shares have
not been marked to market since the events of redemption are considered remote.
NOTE 6 - DIVIDENDS AND OTHER COMPENSATION
On April 25, 2000, the Company declared a special dividend of $63.933
per share, in an aggregate amount of $49.1 million, to all shareholders of
record on that date. The Company also declared a special payment to holders of
all stock options and deferred shares of $63.933 per share, in an aggregate
amount of $6.1 million on that date, which was recorded as other expense. The
special dividend and special payment were paid on April 28, 2000 with proceeds
from the borrowings under the Credit Agreement. All loans due from shareholders
were repaid with proceeds from the special dividend and special payment.
On October 24, 2000, the Company declared a special dividend of $7.996
per share, in an aggregate amount of $6.1 million, to all shareholders of record
on that date. The Company also declared a special payment to holders of all
stock options and deferred shares of $7.996 per share, in an aggregate amount of
$0.8 million on that date, which was recorded as other expense. The special
dividend and special payment were paid on October 31, 2000 with proceeds from
the borrowings under the Credit Agreement. An unaudited consolidated condensed
pro-forma table of capitalization is presented below giving effect to the
transaction as of October 31, 2000.
RACI Holding, Inc. and Subsidiaries
Proforma Condensed Consolidated Table of Capitalization
(Dollars in Millions)
Proforma
September 30, 2000 September 30, 2000
------------------ ------------------
(Unaudited) (Unaudited)
Long-Term Debt, including Current Portion $ 166.5 $ 173.4
Redeemable Deferred Shares 5.3 5.3
Redeemable Shares 1.0 1.0
Shareholder's Equity 93.7 86.8
---------- ----------
Total Capitalization $ 266.5 $ 266.5
========== ==========
8
<PAGE> 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Data)
NOTE 7 - SEGMENT INFORMATION
Information on Segments:
(Unaudited)
-------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ---------------------
2000 1999 2000 1999
------- ------- ------- -------
Net Sales:
Hunting/Shooting Sports $ 103.8 $ 111.9 $ 276.5 $ 272.2
All Other 9.8 12.7 35.2 39.7
------- ------- ------- -------
Consolidated Net Sales $ 113.6 $ 124.6 $ 311.7 $ 311.9
======= ======= ======= =======
EBITDA:
Hunting/Shooting Sports $ 23.3 $ 23.2 $ 51.7 $ 49.8
All Other 0.5 1.8 5.4 7.8
------- ------- ------- -------
Consolidated EBITDA $ 23.8 $ 25.0 $ 57.1 $ 57.6
======= ======= ======= =======
September 30, December 31,
2000 1999
------------- ------------
(Unaudited)
Assets:
Hunting/Shooting Sports $ 250.4 $ 189.5
All Other 143.1 169.3
------- -------
Consolidated Assets $ 393.5 $ 358.8
======= =======
Reconciliation of Reportable Segments:
(Unaudited)
-------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ---------------------
2000 1999 2000 1999
------- ------- ------- -------
Consolidated EBITDA $ 23.8 $ 25.0 $ 57.1 $ 57.6
Less: Interest Expense 4.5 3.6 11.8 11.4
Depreciation and
Amortization (1) 4.2 4.1 12.2 11.9
Other Noncash Charges 0.2 0.5 0.6 4.8
Nonrecurring and
Restructuring Items 0.2 -- 0.2 --
Special Payment -- -- 6.1 --
------- ------- ------- -------
9.1 8.2 30.9 28.1
------- ------- ------- -------
Consolidated Income from
Continuing Operations
Before Taxes $ 14.7 $ 16.8 $ 26.2 $ 29.5
======= ======= ======= =======
(1) Excludes amortization of deferred financing costs of $0.4 and $0.5 for the
quarters ended September 30, 2000 and 1999, respectively, and $1.2 and $1.3
deferred financing costs and $0.3 and $0.2 loss on early extinguishment of debt
for the year-to-date periods ended September 30, 2000 and 1999, respectively,
which were included in interest expense.
9
<PAGE> 10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Data)
NOTE 8 - FINANCIAL POSITION AND RESULTS OF OPERATIONS OF HOLDING AND REMINGTON
The following condensed consolidating 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 subsidiaries Remington International, Ltd., RA Brands, L.L.C. and RA
Factors, L.L.C. Separate financial statements of Holding are not presented
because management has determined that they would not be material to holders of
the Company's public securities, Remington's 9.5% Senior Subordinated Notes due
2003, Series B (the "Notes"). Further, the Notes are fully and unconditionally
guaranteed by Holding and the subsidiaries of Remington, other than Remington
International, Ltd., which has no significant operations.
RACI HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Combined
Guarantor RACI Holding, Inc.
Subsidiaries Remington Holding Eliminations and Subsidiaries
------------ --------- ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets $ 96.7 $ 118.5 $ -- $ -- $ 215.2
Receivable from Remington 93.0 -- 8.0 101.0 --
Receivable from RACI Holding, Inc. -- 0.1 -- 0.1 --
Receivable from RA Brands, L.L.C. -- 0.4 -- 0.4 --
Receivable from RA Factors, L.L.C. -- 83.2 -- 83.2 --
Noncurrent Assets 4.2 279.5 92.1 197.5 178.3
------- ------- ------- ------- -------
Total Assets $ 193.9 $ 481.7 $ 100.1 $ 382.2 $ 393.5
======= ======= ======= ======= =======
LIABILITIES, REDEEMABLE SHARES
AND SHAREHOLDERS' EQUITY
Current Liabilities $ 4.9 $ 81.1 $ -- $ -- $ 86.0
Payable to Remington 83.6 -- 0.1 83.7 --
Payable to RACI Holding, Inc. -- 8.0 -- 8.0 --
Payable to RA Brands, L.L. C. -- 8.6 -- 8.6 --
Receivable from RA Factors, L.L.C. -- 84.4 -- 84.4 --
Noncurrent Liabilities -- 207.5 -- -- 207.5
Redeemable Shares -- -- 6.3 -- 6.3
Shareholders' Equity 105.4 92.1 93.7 197.5 93.7
------- ------- ------- ------- -------
Total Liabilities, Redeemable Shares
and Shareholders' Equity $ 193.9 $ 481.7 $ 100.1 $ 382.2 $ 393.5
======= ======= ======= ======= =======
</TABLE>
10
<PAGE> 11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Data)
RACI HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 1999
<TABLE>
<CAPTION>
RACI Holding, Inc.
Remington Holding Eliminations and Subsidiaries
--------- ------- ------------ ------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets $ 181.2 $ -- $ -- $ 181.2
Receivable from Remington -- 7.5 7.5 --
Receivable from RACI Holding, Inc. 0.1 -- 0.1 --
Noncurrent Assets 177.6 125.2 125.2 177.6
------- ------- ------- -------
Total Assets $ 358.9 $ 132.7 $ 132.8 $ 358.8
======= ======= ======= =======
LIABILITIES, REDEEMABLE SHARES
AND SHAREHOLDERS' EQUITY
Current Liabilities $ 90.1 $ -- $ -- $ 90.1
Payable to Remington -- 0.1 0.1 --
Payable to RACI Holding, Inc. 7.5 -- 7.5 --
Noncurrent Liabilities 136.1 -- -- 136.1
Redeemable Shares -- 6.4 -- 6.4
Shareholders' Equity 125.2 126.2 125.2 126.2
------- ------- ------- -------
Total Liabilities, Redeemable Shares
and Shareholders' Equity $ 358.9 $ 132.7 $ 132.8 $ 358.8
======= ======= ======= =======
</TABLE>
11
<PAGE> 12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Data)
RACI HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Combined
QUARTER ENDED Guarantor RACI Holding, Inc.
September 30, 2000 Subsidiaries Remington Holding Eliminations and Subsidiaries
----------------------------------- ------------ --------- ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Sales $ -- $ 113.6 $ -- $ -- $ 113.6
Gross Profit -- 40.1 -- -- 40.1
Royalty Income (Expense) 8.9 (8.9) -- -- --
Factoring Income (Expense) 4.1 (4.1) -- -- --
Income from Equity Investees -- 8.0 9.3 17.3 --
Net Income 8.0 9.3 9.3 17.3 9.3
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED RACI Holding, Inc.
September 30, 1999 Remington Holding Eliminations and Subsidiaries
----------------------------------- --------- ------- ------------ ------------------
<S> <C> <C> <C> <C>
Sales $ 124.6 $ -- $ -- $ 124.6
Gross Profit 39.4 -- -- 39.4
Income from Equity Investees -- 10.8 10.8 --
Net Income 10.8 10.8 10.8 10.8
</TABLE>
<TABLE>
<CAPTION>
Combined
NINE MONTHS ENDED Guarantor RACI Holding, Inc.
September 30, 2000 Subsidiaries Remington Holding Eliminations and Subsidiaries
----------------------------------- ------------ --------- ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Sales $ -- $ 311.7 $ -- $ -- $ 311.7
Gross Profit -- 105.8 -- -- 105.8
Royalty Income (Expense) 8.9 (8.9) -- -- --
Factoring Income (Expense) 4.1 (4.1) -- -- --
Income from Equity Investees -- 8.0 16.1 24.1 --
Net Income 8.0 16.1 16.1 24.1 16.1
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED RACI Holding, Inc.
September 30, 1999 Remington Holding Eliminations and Subsidiaries
----------------------------------- --------- ------- ------------ ------------------
<S> <C> <C> <C> <C>
Sales $ 311.9 $ -- $ -- $ 311.9
Gross Profit 100.4 -- -- 100.4
Income from Equity Investees -- 18.0 18.0 --
Net Income 18.0 18.0 18.0 18.0
</TABLE>
NOTE 9 - 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 arising after the closing of the Acquisition,
except for certain cases and claims relating to certain shotguns, all cases and
claims relating to discontinued products and for limited other costs. Because
the Company's assumption of financial responsibility for certain product
liability cases and claims involving pre-Acquisition occurrences was limited to
a fixed amount, with the Sellers retaining liability in excess of such fixed
amount 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 conditions, results of operations or cash flows of the Company.
Moreover, although 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
12
<PAGE> 13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, Except Per Share Data)
damage with respect to cases and claims involving occurrences arising after the
Acquisition, its 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 well as the type of
firearms products made by the Company), that the outcome of all pending product
liability cases and claims will be likely to have a material adverse effect upon
the financial condition, results of operations or cash flows of the Company.
Nonetheless, in part because of the uncertainty as to the nature and extent of
manufacturer liability for personal injury due to alleged product defects, there
can be no assurance that the Company's resources will be adequate to cover
future product liability occurrences, cases or claims, in the aggregate, or that
such a material adverse effect will not result therefrom. Because of the nature
of its products, the Company anticipates that it will continue to be involved in
product liability litigation in the future.
NOTE 10 - RECENT ACCOUNTING DEVELOPMENTS
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires entities to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at their fair value. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment
of FASB Statement No. 133", that revises SFAS No. 133 to become effective in the
first quarter of fiscal 2001. The Company is evaluating the provisions of SFAS
No. 133, but does not anticipate its adoption to have a material impact on the
Company's financial position, results of operation or cash flows.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with the accompanying Condensed Consolidated Financial Statements
and related notes of Holding and its subsidiary, Remington and Remington's
wholly owned subsidiaries, Remington International, Ltd., RA Brands, L.L.C. and
RA Factors L.L.C., and with the Company's audited consolidated financial
statements as of and for the year ended December 31, 1999, included in the
Company's Annual Report on Form 10K, on file with the Securities and Exchange
Commission. The results of operations for the nine month period ended September
30, 2000 are not necessarily indicative of results that may be expected for the
year ending December 31, 2000 or any future periods; in part due to the
seasonality of the Company's business.
BUSINESS TRENDS AND INITIATIVES
The markets in which the Company competes are highly competitive.
Product image, quality and innovation are the dominant competitive factors in
firearms products and price is the dominant factor in ammunition products. While
the Company intends to respond to competitive pressures, such responses may
affect quarterly results. The Company believes that the market for firearms and
ammunition is a mature market, which the Company expects will remain flat, at
least in the near term.
Although the Company believes that state, local, and federal
regulations have not had a significant influence on the market for its firearms
and ammunition products for the periods presented herein, there can be no
assurance that the regulation of firearms and ammunition (and consumer concerns
about such regulation) will not become more restrictive in the future and that
any such development would not adversely affect these markets or the Company.
See "-Regulatory Developments" and "Legal Proceedings."
In light of market constraints on sales growth opportunities and its
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
its operations with a view towards managing costs in response to competitive
pressures.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
2000 AS COMPARED TO THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999
Sales. Consolidated sales for the third quarter ended September 30,
2000 decreased $11.0 million or 8.8% from the quarter ended September 30, 1999
and consolidated sales for the first nine months of the year decreased $0.2
million from the same period in 1999. The following tables compare sales by
segment for each of the periods ended September 30:
Three Months Ended September 30,
----------------------------------------
Percent Percent
2000 of Total 1999 of Total
-------- -------- -------- --------
Net Sales
Hunting/Shooting Sports $ 103.8 91% $ 111.9 90%
All Other 9.8 9% 12.7 10%
-------- -------- -------- --------
Consolidated Net Sales $ 113.6 100% $ 124.6 100%
======== ======== ======== ========
Nine Months Ended September 30,
----------------------------------------
Percent Percent
2000 of Total 1999 of Total
-------- -------- -------- --------
Net Sales
Hunting/Shooting Sports $ 276.5 89% $ 272.2 87%
All Other 35.2 11% 39.7 13%
-------- -------- -------- --------
Consolidated Net Sales $ 311.7 100% $ 311.9 100%
======== ======== ======== ========
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Hunting/Shooting Sports sales decreased $8.1 million or 7.2% in the
third quarter of 2000 as compared to the same period in 1999. Hunting/Shooting
Sports sales for the first nine months of 2000 increased $4.3 million or 1.6%
from the same period in 1999.
Firearm sales of $44.9 million for the quarter ended September 30, 2000
increased $3.9 million or 9.5% from the quarter ended September 30, 1999,
primarily as a result of higher sales volumes in centerfire rifles together with
higher overall pricing of firearms products. Year-to-date firearms sales were
$145.2 million, an increase of $9.2 million, or 6.8%, from the same period in
1999, due to overall higher pricing of firearm products together with an
increase in sales volumes of higher priced shotguns and centerfire rifles
partially offset by lower sales volumes in most of the other firearm product
categories.
Ammunition sales of $58.9 million for the quarter ended September 30,
2000 decreased $12.0 million or 16.9% from the same quarter in 1999 and
year-to-date ammunition sales were $131.3 million, a decrease of $4.9 million,
or 3.6%, from the same period in 1999. These decreases primarily resulted from
lower sales volumes in all ammunition categories, mainly shotshell, rimfire and
pistol and revolver, partially offset by higher overall pricing in ammunition
products.
Sales of all other products, including fishline, accessories, targets
and powder metal products decreased in the third quarter 2000 from the same
period 1999 by $2.9 million or 22.8%, primarily attributable to a decrease in
sales in fishing, target and accessory products, slightly offset by sales of new
gun parts and gun safes introduced in 2000. Year-to-date sales were $4.5
million, or 11.3% lower than the comparable 1999 period, primarily as a result
of lower demand for certain fishline and target products, slightly offset by
sales of new product introductions in fishline and accessories, mainly gun safes
and gun parts.
Cost of Goods Sold. Cost of goods sold for the third quarter of 2000 of
$73.5 million decreased $11.7 million, or 13.7%, from the third quarter of 1999.
For the first nine months of 2000, cost of goods sold of $205.9 million
decreased $5.6 million, or 2.6%, from the same period in 1999. The decrease
during the third quarter primarily resulted from decreased sales volumes in both
the Hunting/Shooting Sports and the All Other segments. The decrease in the
year-to-date period was primarily due to lower sales volumes in the All Other
segment, offset by slightly higher sales volumes in the Hunting/Shooting Sports
segment. As a percentage of sales, cost of goods sold for the third quarter of
2000 decreased to 64.7% from 68.4% and for the first nine months of 2000 cost of
goods sold decreased to 66.1% from 67.8% due mainly to the higher overall
pricing in the Hunting/Shooting Sports segment, partially offset by higher other
manufacturing costs associated with line enhancement projects and retiree
benefit expense.
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
third quarter of 2000 were $20.9 million, an increase of $1.9 million, or 10.0%,
from the third quarter of 1999. Year-to-date operating expenses for 2000 were
$67.8 million, an increase of $8.3 million, or 14.0%, from the same period of
1999, due primarily to the factors discussed below.
Selling, general and administrative expenses for the third quarter of
2000 were $18.6 million, an increase of $1.8 million, or 10.7%, from the third
quarter of 1999. Year-to-date selling, general and administrative expenses were
$54.5 million, a $5.9 million or 12.1% increase from the same year-to-date
period in 1999. The increase between the two periods for the quarter and
year-to-date was primarily attributable to the Company's contributions in 2000
to The Hunting and Shooting Sports Heritage Fund and an increase in bad debt
expense partially offset by planned decreases in marketing communications
expenses.
Other expense for the year-to-date period ended September 30, 2000
includes a $6.1 million special payment that was declared on April 25, 2000 to
holders of all stock options and deferred shares of $63.933 per share. See Note
6 of the Notes to Condensed Consolidated Financial Statements herein. Other
expense for the year-to-date period ended September 30, 1999 includes $3.1
million for the Company's portion of expenses incurred in connection with the
issuance of stock and the grant of options under the 1999 Stock Incentive Plan.
Interest Expense. Interest expense for the quarter ended September 30,
2000 was $4.5 million, an increase of $0.9 million, or 25.0%, from the third
quarter of 1999. The increase in expense from quarter to quarter was primarily a
direct result of an increase in the average outstanding debt balance and, to a
lessor extent, an increase in the interest
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<PAGE> 16
rates incurred on variable rate debt. Year-to-date interest expense was $11.8
million, an increase of $0.4 million, or 3.5% from the same period in 1999. The
increase in interest expense for the year-to-date period was primarily a result
of a reduction in borrowings on the term loan offset by higher borrowings on the
revolver combined with higher interest rates incurred on variable rate debt.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows. For the nine month period ended September 30, 2000, net
cash used in operating activities was $7.7 million and for the nine month period
ended September 30, 1999, net cash provided was $26.7 million. Compared to the
same period in 1999, the increase in cash used in operating activities resulted
primarily from a greater increase in working capital components and a decrease
in earnings. Accounts receivable increased $38.1 million from December 31, 1999
to $94.7 million primarily as a result of approximately $16.1 million of
firearms and $34.6 million of ammunition sales on extended terms. Some of these
terms provide cash discount incentives and require payment in October 2000.
Inventories increased $16.2 million from December 31, 1999 to $87.0 million as a
result of a decrease in the ammunition sales in the third quarter of 2000.
Accounts payable increased $2.6 million from December 31, 1999 to $26.3 million
as a result of the Company's on-going focus on the management of working
capital. Net cash used in investing activities in the first nine months of 2000
and 1999 were $11.8 million and $8.6 million, respectively, consisting of
capital expenditures for maintenance of operations, which extend the useful life
of existing equipment and improvement projects concentrated on enhancing the
efficiency of existing facilities. Net cash used in financing activities during
the first nine months of 2000 and 1999 were $3.7 million and $20.8 million,
respectively. The decrease in cash used in financing activities primarily
resulted from higher borrowings on outstanding indebtedness under the revolving
credit facility used primarily for the dividend to stockholders and the special
payment to holders of options and deferred shares, partially offset by the early
extinguishment of the term loan.
Working Capital. Working capital increased to $129.2 million at
September 30, 2000 from $91.1 million at December 31, 1999, primarily as a
result of the increase in accounts receivable and inventory paired with a
decrease in the current portion of long-term debt, partially offset by the
increases in accounts payable and other accrued liabilities. See "-Cash Flows."
Other accrued liabilities includes an estimated cash contribution of $7.8
million to be made to the defined benefit pension plan in 2001. 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.
Capital Expenditures. Capital expenditures for the nine months ended
September 30, 2000 were $11.8 million, principally for new equipment related to
improvement projects concentrated on enhancing the operating efficiency in the
manufacturing of firearms and ammunition throughout the existing facilities, as
well as replacement equipment.
Liquidity. As of September 30, 2000, the Company had outstanding $166.5
million of indebtedness, consisting of approximately $86.8 million ($87.0
million face amount) of the Company's 9.5% Senior Subordinated Notes due 2003,
$76.0 million in revolving credit borrowings under the Credit Agreement (as
defined below) and $3.7 million in capital lease obligations. As of September
30, 2000, the Company also had aggregate letters of credit outstanding of $3.6
million. The Revolving Credit Facility (as defined below) had $90.4 million
available for borrowing as of September 30, 2000.
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. On April 28, 2000,
the Company entered into an amended and restated credit agreement (the "Credit
Agreement") which provides for a revolving credit facility of $170.0 million
(the "Revolving Credit Facility.") See "--Credit Agreement." In connection with
the transaction, the outstanding balance of $18.3 million on the term loans
under the Company's old credit facility was repaid. The Company also paid
special dividends of $49.1 million and $6.1 million to stockholders and special
payments of $6.1 million and $0.8 million to holders of stock options and
deferred shares on April 28, 2000 and October 31, 2000, respectively. The
Company believes that over the next twelve months it will be able to meet its
debt service obligations and fund its operating requirements with cash flow from
operations and revolving credit borrowings, although no assurance can be given
in this regard. In addition, the Company has implemented certain programs and
initiatives in order to improve cash flow from operations. See "--Cash Flows."
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<PAGE> 17
Credit Agreement. Effective April 28, 2000, the Company entered into
the Credit Agreement with The Chase Manhattan Bank , Bank of America, N.A.,
Goldman Sachs Credit Partners L.P., and certain other lenders. The Credit
Agreement provides for a Revolving Credit Facility of $170.0 million with a
final maturity of September 30, 2003. Up to $15.0 million of the Revolving
Credit Facility availability may be used for letters of credit.
The obligations under the Credit Agreement are guaranteed by Holding,
RA Brands, L.L.C and RA Factors, L.L.C. and are secured by a pledge of the
Company's capital stock and by pledges of and security interests in
substantially all the Company's property and assets. The Credit Agreement
contains various default provisions and affirmative and negative covenants,
including a negative pledge with respect to the Company's unencumbered assets,
and certain financial covenants that require the Company to meet certain
financial ratios and tests. As of September 30, 2000, the Company was in
compliance in all material respects with the financial covenants under the
Credit Agreement.
Loans under the Credit Agreement generally bear interest, at the
Company's option, at a variable rate equal to either (i) the rate that is the
highest of the administrative agent's prime rate, or certain alternative rates,
in each case plus a margin of up to 1.25% per annum, ("ABR Loans") or (ii) the
rate at which certain Eurodollar deposits are offered in the interbank
Eurodollar market plus a margin of up to 2.25% per annum ("Eurodollar Loans").
The Company's interest rate margin for the first six months under the Credit
Agreement was set at 1.0% and 2.0% for ABR Loans and Eurodollar Loans,
respectively. Effective October 31, 2000, the interest rate margin was adjusted
under the Credit Agreement to 0.5% and 1.5% for ABR Loans and Eurodollar Loans,
respectively. Each quarter the interest rate margin will be subject to
adjustment based upon maintenance of a certain consolidated leverage ratio,
based on EBITDA and total indebtedness, for the four quarters most recently
ended and will range from 0.5% to 1.25% per annum for ABR Loans and from 1.5% to
2.25% per annum for Eurodollar Loans. Commitment fees of 0.5% are payable on the
average daily unused portion of the Revolving Credit Facility. Mandatory
prepayments of borrowings may be required under the Credit Agreement upon the
occurrence of certain changes in control.
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 firearms 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 and ammunition pursuant to a "dating" plan allowing
the customer to buy the products commencing at the beginning of the Company's
dating plan year and pay for them on extended terms. The Company believes that
this dating plan has partially offset the seasonality of the Company's business
by shifting some firearms and ammunition sales to the first quarter.
RECENT ACCOUNTING DEVELOPMENTS
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("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. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133-an amendment of FASB Statement No. 133", that revises SFAS No. 133 to become
effective in the first quarter of fiscal 2001. The Company is evaluating the
provisions of SFAS No. 133, but does not anticipate its adoption to have a
material impact on the Company's financial position, results of operations or
cash flows.
REGULATORY DEVELOPMENTS
Firearms and ammunition sales are regulated at the local, state and
federal levels. The Brady Handgun Violence Prevention Act of 1993 (the "Brady
Bill"), which was extended in 1998 to include shotguns and rifles, mandates a
national system of instant background checks for all firearm purchases from
federally-licensed firearms retail dealers, wherever such sales take place.
Legislation has been proposed to further extend this system to sales made by
non-retail sellers at gun shows.
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<PAGE> 18
State and local laws and regulations vary significantly in the level of
restrictions they place on gun manufacture, ownership and transfer. Some states
and localities have recently enacted, and others are considering, legislation
restricting or prohibiting the ownership, use or sale of certain categories of
firearms and/or ammunition. Although many jurisdictions have mandatory waiting
periods or other restrictions on the purchase of handguns, similar limits on
handgun ammunition are not widespread. The Company's current firearm and
ammunition products generally are not subject to such existing state
restrictions, and generally would not be subject to any known proposed state
legislation relating to regulation of "assault weapons."
The Company believes that recent federal, state, local and foreign
legislation relating to the regulation of firearms or ammunition has not had a
material adverse effect on its sale of these products to date. However, there
can be no assurance that such regulation will not become more restrictive in the
future or that any such development would not have a material adverse effect on
the business 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 the
market for firearms and ammunition will remain flat, at least in the near term
and (b) the Company's intention to respond to competitive pressure, which may
affect quarterly results; (ii) the statements in "-Liquidity and Capital
Resources" concerning the Company's belief that over the next twelve months it
will be able to meet its debt service obligations and fund its operating
requirements with cash flow from operations and revolving credit borrowings;
(iii) the statement in "Recent Accounting Developments" concerning the Company's
belief that adoption of SFAS No. 133 would not have a material adverse effect on
financial position, results of operations or cash flows; (iv) the statements in
"Quantitative and Qualitative Disclosures About Market Risk" concerning the
Company's belief that a near-term change in commodity prices will not materially
impact the consolidated financial position, results of operations, future
earnings, fair value or cash flows of the Company; (v) the statements in "Legal
Proceedings" concerning (a) the Company's belief that the outcome of all pending
product liability cases and claims will not be likely to have a material adverse
effect upon the financial condition, results of operations or cash flows of the
Company and (b) the Company's anticipation that because of the nature of its
products, it will continue to be involved in product liability cases and claims
in the future; and (iv) other statements as to management's or the Company's
expectations and beliefs presented in "Legal Proceedings."
Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the Company. There can be no assurance that future developments
will be in accordance with management's expectations or that the effect of
future developments on the Company will be those anticipated by management. The
important factors described in this report (including, without limitation, those
discussed in "-Business Trends and Initiatives", "-Liquidity and Capital
Resources", "-Recent Accounting Developments", "-Quantitative and Qualitative
Disclosures About Market Risk" and "Legal Proceedings"), in the Company's Annual
Report on Form 10-K for the period ended December 31, 1999, 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 financial
condition and results of operations contained in its quarterly and annual
reports, the Company does not intend to review or revise any particular
forward-looking statement referenced in this report in light of future events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Certain of the Company's financial instruments are subject to market
risks, including interest rate risk. The Company uses commodity futures
contracts and options to hedge against the risk of increased prices for lead and
copper to be used in the manufacture of the Company's products. At September 30,
2000, the market value of the Company's outstanding contracts relating to firm
commitments and options to purchase lead and copper were $0.9 million. The
outstanding contracts relate to anticipated purchases up to fifteen months from
the respective balance
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sheet date. The Company believes that a near-term change in commodity prices
will not materially impact the consolidated financial position, results of
operations, future earnings, fair value or cash flows of the Company. The
Company was not a party to any interest rate cap or other protection
arrangements with respect to its variable rate indebtedness as of September 30,
2000. Additionally, the Company believes it does not have a material exposure to
fluctuations in foreign currencies. The Company does not hold or issue financial
instruments for trading purposes.
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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 Acquisition (the "Closing")
and which relate to occurrences that took place prior to the Closing. Except for
all cases and claims relating to discontinued products and for limited costs in
cases relating to certain shotguns, the Company generally bears financial
responsibility for product liability cases and claims relating to occurrences
after the Closing.
As a result of contractual arrangements, the Company manages the joint
defense of product liability litigation for both Remington and the Sellers. As
of September 30, 2000, eighteen individual bodily injury cases were pending,
primarily alleging defective product design or manufacture, or failure to
provide adequate warnings, some of these cases seek punitive as well as
compensatory damages. Of these pending individual cases, approximately two
involve either discontinued products or pre-Closing occurrences, for which the
Sellers retained liability and are required to indemnify the Company. The
remaining approximately sixteen of the pending cases involve post-Closing
occurrences for which the Company bears responsibility under the Asset Purchase
Agreement; the Sellers have some responsibility for the costs of four 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.
In addition, Remington (whose only firearms products are shotguns and
rifles) is named in only three of the approximately 30 recent actions brought by
certain municipalities, primarily against manufacturers and sellers of handguns.
In City of Boston et al. v. Smith & Wesson et al., filed in Superior Court,
Suffolk County, Massachusetts, on June 2, 1999 the City of Boston and the Boston
Public Health Commission claim, among other allegations, that industry
distribution practices of the defendants' (including handgun and long gun
manufacturers) permit firearms to enter a secondary market, from which guns may
be obtained by unauthorized users, and that defendants have failed to include
adequate safety devices in their firearms to prevent unauthorized use.
Plaintiffs seek injunctive relief and monetary damages (consisting of the cost
of providing certain city services and lost tax and other revenues.) Defendants'
consolidated motion to dismiss was denied on July 13, 2000 and their
interlocutory appeal was denied on September 19, 2000.
In the third quarter of 2000, Remington was named as a defendant in two
existing municipal lawsuits, when the complaints in those cases were amended.
Both City of St. Louis, Missouri v. Cernicek, et al., filed in Missouri Circuit
Court, Twenty-Second Judicial District, and City of New York, et al. v. Arms
Technology, Inc., filed in the United States District Court for the Eastern
District of New York, make claims similar to those alleged in the City of Boston
case. On October 17, 2000, Remington joined with other defendants in a motion to
dismiss the City of St. Louis complaint. By agreement with plaintiffs, Remington
has until December 1, 2000 to respond to the City of New York complaint.
Remington was not named in Chicago v. Beretta U.S.A. Corp., another
such municipal cost recovery case. However, a motion to intervene was filed in
November 1998 seeking to name as additional defendants unidentified "ammunition
manufacturers." A second motion for the same purpose was filed by a different
entity in February 2000. Such intervention has not been permitted by the Cook
County Court, in which the Chicago case was pending. On September 15, 2000 the
Cook County Court granted the defendants' motion to dismiss the case.
Remington also was named in NAACP et al. v. A.A. Arms, Inc. et al, a
lawsuit filed in federal court in the Eastern District of New York by the
National Association for the Advancement of Colored People on July 16, 1999,
against more than a hundred defendants involved in the manufacture of firearms.
The complaint, as amended in October 1999 to add the National Spinal Cord Injury
Association as a plaintiff, purports to seek injunctive relief rather than
monetary damages and contains allegations about defendants' manufacturing and
distribution practices similar to those in the Boston complaint described above.
Plaintiffs purport to limit their claims to the manufacture and sale of
handguns. Remington has not made or sold handguns, as that term is
conventionally understood, for over 60 years. In September 2000, plaintiffs
agreed to dismiss Remington from this action, and on October 10, 2000, the joint
stipulation of dismissal was "so ordered" by the Court and filed three days
later.
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In recognition of and support of certain legal and legislative
initiatives, the firearms industry has established the Hunting and Shooting
Sports Heritage Fund of which the Company is a member. The Company contributes a
percentage of its domestic net revenue from sales of its hunting and shooting
sports-related products to this organization.
Because the Company's assumption of financial responsibility for
certain product liability cases and claims involving pre-Acquisition occurrences
was limited to a fixed amount, with the Sellers retaining liability in excess of
such fixed amount 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, results of operations or cash flows of the Company.
Moreover, although 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,
its 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 well as the type of firearms
products made by the Company), that the outcome of all pending product liability
cases and claims will be likely to have a material adverse effect upon the
financial condition, results of operations or cash flows of the Company.
Nonetheless, in part because of the uncertainty as to the nature and extent of
manufacturer liability for personal injury due to alleged product defects, there
can be no assurance that the Company's resources will be adequate to cover
future product liability occurrences, cases or claims, in the aggregate, or that
such a material adverse effect will not result therefrom. Because of the nature
of its products, the Company anticipates that it will continue to be involved in
product liability litigation in the future.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule.
99.1 Reconciliation of Income from Operations to EBITDA.
(b) Reports on Form 8-K
During the quarter ended September 30, 2000, the Company filed no reports on
Form 8-K.
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22
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
Executive Vice President, Chief Financial
Officer and Chief Administrative Officer
(Principal Financial Officer)
November 13, 2000
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INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule.
99.1 Reconciliation of Income from Operations to EBITDA.
24
