10-Q 1 form10q3rdq.txt 3RD QUARTER 10Q 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, 2002 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 (I.R.S. Employer Identification No.) of 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 [ ] No [X] 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 12, 2002 765,050 shares Class B Common Stock, par value $.01 per share, outstanding at November 12, 2002 0 shares PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RACI HOLDING, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in Millions, Except Per Share Data) Unaudited ------------------------------- September 30, December 31, 2002 2001 ------------- ------------ ASSETS Current Assets Cash and Cash Equivalents $ 0.7 $ 13.5 Accounts Receivable Trade - net 85.9 45.5 Inventories 88.4 84.0 Supplies 5.6 6.0 Prepaid Expenses and Other Current Assets 4.3 2.0 Deferred Income Taxes 10.6 11.8 -------- -------- Total Current Assets 195.5 162.8 Property, Plant and Equipment - net 77.7 81.0 Intangibles (Goodwill, Trademarks and Debt Issuance Costs) - net 76.1 79.9 Deferred Income Taxes -- 1.0 Other Noncurrent Assets 7.6 7.4 -------- -------- TOTAL ASSETS $ 356.9 $ 332.1 ======== ======== LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts Payable $ 25.9 $ 21.2 Book Overdraft 1.8 7.8 Short-Term Debt 1.1 -- Current Portion of Long-Term Debt 43.9 1.1 Product and Environmental Liabilities 2.2 2.2 Income Taxes 1.2 1.9 Other Accrued Liabilities 39.6 32.0 -------- -------- Total Current Liabilities 115.7 66.2 Long-Term Debt 87.8 113.2 Retiree Benefits 34.2 32.8 Product and Environmental Liabilities 6.7 8.3 Other Long-Term Liabilities 0.5 0.2 -------- -------- Total Liabilities 244.9 220.7 Redeemable Deferred Shares of Class A Common Stock, par value $.01; 24,191 issued September 30, 2002 December 31, 2001 5.0 5.0 Redeemable Shares of Class A Common Stock, par value $.01; 6,789 issued at September 30, 2002, net of 328 treasury shares and 6,198 issued, net of 28 treasury shares at December 31, 2001 1.3 1.2 Commitments and Contingencies Shareholders' Equity Class A Common Stock, par value $.01; 1,250,000 shares authorized, 765,050 and 763,050 issued and outstanding at September 30, 2002 and December 31, 2001, respectively -- -- Class B Common Stock, par value $.01; 1,250,000 shares authorized, none issued and outstanding -- -- Paid in Capital 76.8 76.6 Accumulated Other Comprehensive Loss (0.4) (0.2) Retained Earnings 29.3 28.8 -------- -------- Total Shareholders' Equity 105.7 105.2 -------- -------- TOTAL LIABILITIES, REDEEMABLE SHARES AND SHAREHOLDERS' EQUITY $ 356.9 $ 332.1 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. 2 RACI HOLDING, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Dollars in Millions, Except Per Share Data) Unaudited ------------------------------------- Quarter Ended Year-to-Date September 30, September 30, ---------------- ----------------- 2002 2001 2002 2001 ------- ------- ------- ------- Sales (1) $ 122.5 $ 114.1 $ 314.2 $ 291.4 Cost of Goods Sold 86.2 83.5 218.9 207.3 ------- ------- ------- ------- Gross Profit 36.3 30.6 95.3 84.1 Selling, General and Administrative Expenses 17.7 17.5 51.2 50.0 Research and Development Expenses 1.5 1.4 4.5 4.3 Other Expense 1.9 0.7 2.3 2.2 ------- ------- ------- ------- Operating Profit 15.2 11.0 37.3 27.6 Interest Expense 3.2 3.9 9.4 12.2 ------- ------- ------- ------- Profit Before Income Taxes and Change in Accounting Principle 12.0 7.1 27.9 15.4 Provision for Income Taxes 4.7 2.7 10.9 5.9 ------- ------- ------- ------- Net Income before Effect of Change in Accounting Principle 7.3 4.4 17.0 9.5 ------- ------- ------- ------- Loss from Cumulative Effect of Change in Accounting Principle, Net of $1.0 Tax Benefit -- -- (1.4) -- ------- ------- ------- ------- Net Income $ 7.3 $ 4.4 $ 15.6 $ 9.5 ======= ======= ======= ======= Earnings Per Share: Basic: Income before effect of net change in Accounting Principle $ 9.17 $ 5.54 $ 21.37 $ 11.96 Loss from effect of net change in Accounting Principle -- -- (1.76) -- ------- ------- ------- ------- Net Income $ 9.17 $ 5.54 $ 19.61 $ 11.96 ======= ======= ======= ======= Diluted: Income before effect of net change in Accounting Principle $ 9.01 $ 5.44 $ 20.99 $ 11.72 Loss from effect of net change in Accounting Principle -- -- (1.73) -- ------- ------- ------- ------- Net Income $ 9.01 $ 5.44 $ 19.26 $ 11.72 ======= ======= ======= ======= Dividend per Common and Redeemable Share $ 19.54 $ -- $ 19.54 $ -- ======= ======= ======= ======= (1) Sales are presented net of Federal Excise Taxes of $11.3 and $10.3 for the quarters and $26.7 and $24.8 for the year-to-date periods ended September 30, 2002 and 2001, respectively. The accompanying notes are an integral part of these condensed consolidated financial statements. 3 RACI HOLDING, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Dollars in Millions) Unaudited --------------------------- Year-To-Date September 30, --------------------------- 2002 2001 -------- -------- Operating Activities Net Cash used in Operating Activities $ (6.0) $ (7.6) -------- -------- Investing Activities Capital Expenditures (4.5) (2.8) -------- -------- Net Cash used in Investing Activities (4.5) (2.8) -------- -------- Financing Activities Net Borrowings under Revolving Credit Facility 18.0 10.2 Cash Dividends Paid (15.1) -- (Decrease) Increase Book Overdraft (6.0) 4.5 Principal Payments on Long-Term Debt (0.6) (1.0) Net Borrowings (Payments) on Short-Term Debt 1.1 (1.2) Purchase of Treasury Stock (0.1) -- Proceeds from Issuance of Common Stock and Redeemable Common Stock 0.4 0.2 -------- -------- Net Cash (used in) provided by Financing Activities (2.3) 12.7 -------- -------- Decrease in Cash and Cash Equivalents (12.8) 2.3 Cash and Cash Equivalents at Beginning of Period 13.5 2.7 -------- -------- Cash and Cash Equivalents at End of Period $ 0.7 $ 5.0 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements. 4 RACI HOLDING, INC. AND SUBSIDIARIES Condensed Consolidated Statement of Shareholders' Equity and Comprehensive Income (Dollars in Millions) (Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements. 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Millions, Except Per Share Data) NOTE 1 - BASIS OF PRESENTATION The unaudited 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., RBC Holdings, Inc. and RA Factors, Inc. (collectively with Remington and Holding, the "Company"). Holding has no material assets other than its investment in Remington. All inter-company accounts and transactions have been eliminated in consolidation. RA Brands, L.L.C., RA Factors, Inc., and RBC Holdings, Inc. were established for Federal and State tax planning purposes. 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, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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, 2001. 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: (Unaudited) ----------- September 30, December 31, 2002 2001 ------------ ----------- Raw Materials $ 14.6 $ 14.6 Semi-Finished Products 24.5 21.8 Finished Product 49.3 47.6 ---------- --------- Total $ 88.4 $ 84.0 ========== ========= NOTE 3 - INTANGIBLES Intangibles consisted of the following at: (Unaudited) ----------- September 30, December 31, 2002 2001 ------------ ----------- Goodwill $ 26.8 $ 28.1 Trademarks (Not subject to Amortization) 47.4 48.5 Debt Issuance Costs, net 1.9 3.3 ---------- --------- Total $ 76.1 $ 79.9 ========== ========= 6 NOTE 4 - LONG-TERM DEBT Long-term debt consisted of the following at: (Unaudited) ----------- September 30, December 31, 2002 2001 -------------- ------------- Revolving Credit Facility $ 43.0 $ 25.0 9.5% Senior Subordinated Notes due 2003 86.9 86.9 Capital Lease Obligations 1.8 2.4 ---------- --------- Subtotal $ 131.7 $ 114.3 Less: Current Portion 43.9 1.1 ---------- --------- Total $ 87.8 $ 113.2 ========== ========= The Company's amended and restated credit agreement (the "Credit Agreement") dated April 28, 2000 provides for aggregate borrowings of $170.0 under a revolving credit facility (the "Revolving Credit Facility") through September 30, 2003. The balance of $43.0 outstanding on the revolving credit facility as of September 30, 2002 was reclassified from long-term debt to current portion of long term debt due to its maturity date being within a year of the balance sheet date. Additionally, the Company's 9.5% Senior Subordinated Notes due 2003 (the "Notes"), which have a current outstanding principal amount of $86.9, mature on December 1, 2003. Given the maturities of the Notes and the Credit Agreement, the Company is currently seeking refinancing options and will seek to refinance its Credit Agreement and the Notes prior to their respective maturities, although no assurance can be given in this regard. Such a refinancing could involve, among other possibilities, new senior secured debt, new debt securities or a combination thereof, and could increase the Company's debt levels. The terms of any new debt, including interest rates and other economic terms, as well as the financial, operating and other covenants, could differ significantly from the Company's existing financing arrangements. Failure to refinance either the Notes or the Credit Agreement would adversely impact the Company's liquidity and operations and could have a material adverse effect on the financial condition, results of operations and cash flows of the Company. 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"). Each quarter the interest rate margin is 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 and can be reduced up to 0.125% based upon the same financial performance measures. As a result of the Company's performance, on May 15, 2002, the interest rate margin was reduced 0.25% and the commitment fees remained unchanged. The Company's performance for the third quarter will result in the interest rate margin being reduced 0.25% effective as of the filing date of this Quarterly Report on Form 10-Q. Mandatory prepayments of borrowings may be required under the Credit Agreement upon the occurrence of certain changes in control. 7 NOTE 5 - EARNINGS PER SHARE The computations of the basic and diluted per share amounts for the Company's income before cumulative effect of change in accounting principle were determined as follows for the three months and nine months ended September 30:

During the quarter ended September 30, 2002 and 2001, 30,212 and 35,822 outstanding options were excluded, respectively, from the calculation of diluted income per share, because the exercise prices for the options were greater than the fair market value of the common stock. NOTE 6 - STOCK PURCHASE AND OPTION PLANS In February 2002, options to purchase 2,000 shares of Common Stock were exercised at a price of $100 per share and options to purchase 1,000 shares of Common Stock were cancelled. In March 2002, certain members of management acquired an aggregate of 891 redeemable shares of Common Stock at a purchase price of $185 per share and were granted options to purchase 891 shares of Common Stock, under the RACI Holding, Inc. Stock Incentive Plan at an exercise price of $185 per share. In connection with the purchase of the shares, certain members of management financed a portion of the cash purchase price of the shares of Common Stock they acquired through loans from Bank of America, N.A. on market terms. To assist members of management in obtaining such terms for financing, Remington fully and unconditionally guaranteed such loans. Remington guaranteed loans totaling $0.1, which remain outstanding. These options vest ratably on the first, second and third anniversaries of the options' grant date and expire in March 2012. 8 NOTE 7 - REDEEMABLE CLASS A COMMON STOCK Certain employees and key management of Holding who hold or have the right to receive (i.e.: deferred shares) Class A common stock may require Holding to repurchase, under certain conditions, (death, disability or retirement in each case as defined by the relevant plan document) 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. As of September 30, 2002, the redeemable value would be approximately $5.7, using a fair market value of $185 per share, as determined by an independent third party. These shares have not been marked to market since the events of redemption are considered remote. During the first quarter of 2002, 891 shares of Common Stock were purchased by management at a purchase price of $185 per share, and options to purchase 891 shares of Common Stock were granted to management at an exercise price of $185 per share under the RACI Holding, Inc. Stock Incentive Plan. NOTE 8 - DIVIDENDS AND OTHER COMPENSATION On July 31, 2002 the Company declared a special dividend of $19.54 per share, in an aggregate amount of $15.1 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 $19.54 per share, in an aggregate amount $1.8 million on that date which was recorded as other expense. The special dividend and special payment were paid on August 2, 2002 with proceeds from borrowings under the Revolving Credit Facility. NOTE 9 - STOCK REPURCHASES For the year-to-date period ended September 30, 2002, the Company repurchased 300 shares of redeemable common stock at a total of $0.1 million. All shares were repurchased at the fair market value of $185 per share, as determined by an independent valuation. NOTE 10 - ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES The Company purchases copper and lead futures and options contracts to hedge against price fluctuations of anticipated commodity purchases. The futures and options contracts limit the unfavorable effect that price increases will have on metal purchases, and the futures contracts likewise limit the favorable effect of price declines. At September 30, 2002, the fair value of the Company's outstanding derivative contracts relating to firm commitments and anticipated purchases (aggregate notional amount 28 million pounds of copper and lead) up to fifteen months from such date was $0.2 as determined by an independent third party, which is recorded in prepaid expenses and other current assets. A net loss of $0.2 on derivative instruments was reclassified to earnings and recorded in accumulated other comprehensive loss, during the quarter ended September 30, 2002. NOTE 11 - GOODWILL AND OTHER INTANGIBLE ASSETS Effective January 1, 2002 the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 142, Goodwill and Other Intangible Assets, which requires goodwill and other intangible assets with indefinite lives acquired in a business combination before July 1, 2001 not be amortized. The Statement further requires that the fair value of goodwill and other intangible assets with indefinite lives be tested for impairment upon adoption of the standard and annually thereafter or upon an occurrence of certain events. Under the transitional provisions of SFAS No. 142, the Company established its reporting units and allocated all assets, liabilities, goodwill, and other intangibles to these reporting units. The Company performed impairment tests on the goodwill and intangible assets associated with each of the reporting units by comparing the fair value of each reporting unit with the carrying value. The fair value was determined by the use of a discounted cash flow methodology by an independent third party. Based on the initial impairment tests, the Company recognized an impairment loss, net of tax, of $0.8 and $0.6 associated with the goodwill and trademarks in the Powder Metal Products and the Accessories reporting units, respectively. The adjustment made to Powder Metal Products was primarily due to lower than expected sales growth 9 and the adjustment to Accessories was primarily due to a decline in sales volumes and margins, which reduced the estimated future performance for these reporting units. Under SFAS No. 142, the impairment adjustment recognized at adoption of the Statement was recorded as a cumulative effect of change in accounting principle in the first quarter income statement of 2002. Impairment adjustments recognized after the adoption, if any, are required to be recorded as operating expenses. The carrying amount of goodwill and trademarks attributable to each reporting segment and the adjustments are outlined in the following tables: (Unaudited) ------------------------------------------- December 31, Impairment September 30, Goodwill 2001 Adjustments 2002 ------------------------- ------------ ----------- ----------- Hunting /Shooting Sports $ 18.0 $ -- $ 18.0 All Other 10.1 1.3 8.8 ------------ ----------- ----------- Consolidated Goodwill $ 28.1 $ 1.3 $ 26.8 ============ =========== =========== (Unaudited) ------------------------------------------- December 31, Impairment September30, Trademarks 2001 Adjustments 2002 ------------------------- ------------ ----------- ----------- Hunting /Shooting Sports $ 39.8 $ -- $ 39.8 All Other 8.7 1.1 7.6 ------------ ----------- ----------- Consolidated Goodwill $ 48.5 $ 1.1 $ 47.4 ============ =========== =========== Actual results of operations for the three-month and nine-month periods ended September 30, 2002 and the pro-forma results of operations for the three-month and nine-month periods ended September 30, 2001 had the Company applied the non-amortization provisions of SFAS No. 142 in the period, follow:

10 NOTE 12 - SEGMENT INFORMATION Information on Segments: (Unaudited) Three-Months Ended Nine-Months Ended September 30, September 30, ------------------- --------------------- 2002 2001 2002 2001 -------- ------- --------- --------- Net Sales: Hunting/Shooting Sports $ 111.9 $ 104.1 $ 279.5 $ 257.6 All Other 10.6 10.0 34.7 33.8 -------- ------- --------- --------- Consolidated Net Sales $ 122.5 $ 114.1 $ 314.2 $ 291.4 ======== ======= ========= ========= EBITDA: Hunting/Shooting Sports $ 18.0 $ 15.3 $ 38.8 $ 37.0 All Other 1.8 1.1 8.7 5.3 -------- ------- ---------- --------- Consolidated EBITDA $ 19.8 $ 16.4 $ 47.5 $ 42.3 ======== ======= ========== ========= (Unaudited) September 30, December 31, 2002 2001 ------------- ----------- Assets: Hunting/Shooting Sports $ 236.2 $ 194.5 All Other 120.7 137.6 ---------- ---------- Consolidated Assets $ 356.9 $ 332.1 ========== ========== Reconciliation of EBITDA to Profit Before Income Taxes and Change in Accounting Principle:

(1) EBITDA as presented is calculated in accordance with the definition of that term contained in the Credit Agreement, and may not be comparable to similarly titled measures reported by other companies. Generally, the Credit Agreement defines EBITDA to consist of net income (loss) adjusted to exclude cash interest expense, income tax expense, depreciation, amortization, non-cash expenses and charges, gain or loss on sale or write-off of assets, extraordinary, unusual or nonrecurring gains, losses, charges or credits, and amounts paid as permitted dividends that are treated as compensation expense and defines interest expense as cash interest. EBITDA, and the Ratio of EBITDA to Interest Expense, are presented to facilitate a more complete analysis of the Company's financial performance, by adding back non-cash and nonrecurring items to operating income, as an indicator of the Company's ability to generate cash to service debt and other fixed obligations. Investors should not rely on EBITDA as an alternative to operating income or cash flows, as determined in accordance with generally accepted accounting principles, as an indicator of the Company's operating performance, liquidity or ability to meet cash needs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for further discussion of the Company's operating income and cash flows. 11 (2) Includes amortization of deferred financing costs of $0.5 and $0.4 for the three-month periods ended September 30, 2002 and 2001, respectively and $1.4 and $1.3 for the year-to-date periods ended September 30, 2002 and 2001, respectively. (3) The three-month and year-to-date periods ended September 30, 2001 include amortization of intangibles of $0.6 and $1.8, respectively. (4) Payment made to holders of all stock options and deferred shares of $19.54 per share in connection with the dividend payment. NOTE 13 - 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., RBC Holding, Inc. and RA Factors, Inc. 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, 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 UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS SEPTEMBER 30, 2002 (UNAUDITED)

12 RACI HOLDING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS DECEMBER 31, 2001 (UNAUDITED)

13 RACI HOLDING, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (UNAUDITED)

14 RACI HOLDING, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR- TO-DATE -SEPTEMBER 30, 2002

15 RACI HOLDING, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS YEAR-TO-DATE -SEPTEMBER 30, 2001

NOTE 14 - COMMITMENTS AND CONTINGENCIES The Company has various purchase commitments for services incidental to the ordinary conduct of business, including services relating to its E-Commerce activities and NASCAR sponsorship. Such commitments are not at prices in excess of current market prices. In addition, the Company has purchase contracts with certain raw material suppliers, for periods ranging from one to seven years, some of which contain firm commitments to purchase minimum specified quantities. However, such contracts had no significant impact on the financial condition or results of operations during the reporting period. 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. Pursuant to an asset purchase agreement (the "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"). Under the 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 costs relating to certain shotguns, for 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 that has now been fully paid, with the Sellers retaining liability in excess of that 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 or results of operations 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, the Company's accruals 16 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 or results of operations 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. One of the cases pending during the third quarter for which Remington bore financial responsibility involved the accidental fatal shooting in October 2000 of a nine-year-old boy, Gus Barber, with a Remington Model 700 bolt-action rifle being unloaded by his mother after a hunting trip in Montana. This tragedy was the focus of repeated local and national media attention, and the subject of a lawsuit filed in December 2001, in federal district court in Montana naming Remington and the Sellers as defendants. The lawsuit was resolved in May 2002 and was formally dismissed in July 2002. Like many Remington bolt-action centerfire firearms made before 1982, the Barber rifle was manufactured with a feature known as a `bolt-lock,' which requires the manual safety to be moved to the `fire' position to begin the process of unloading the rifle. Partly in response to this accident, in early March 2002, the Company initiated a nationwide product safety program under which the Company will clean, inspect and modify such centerfire firearms to remove the bolt-lock feature for $20. Participating customers will receive a transferable $20 rebate coupon on the purchase of specified Remington safety products. Approximately 2.5 million guns manufactured before 1982 may be eligible for this offer. The Company is unable to estimate the ultimate cost of this modification program, due to various uncertainties, including the number of customers who choose to participate in the program and the condition of their firearms. However, based in part on the length of time since these products were manufactured and the number of firearms submitted to date, the Company does not believe that the ultimate cost of the safety program will have a material adverse impact on financial condition or liquidity, but there can be no assurance of such an outcome. NOTE 15 - STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 145, Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections. In rescinding SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, SFAS 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. Generally, SFAS 145 is effective for transactions occurring after May 15, 2002. Management is currently evaluating the effects of this statement for future events and transactions. In June 2002 the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. Management is currently evaluating the effects of this statement but does not believe that it will have a material impact on the financial condition, results of operation or cash flows of the Company. 17 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 unaudited Condensed Consolidated Financial Statements and related notes of Holding its subsidiary, Remington and Remington's wholly owned subsidiaries Remington International, Ltd., RA Brands, L.L.C., RBC Holdings, Inc. and RA Factors Inc. as of and for the quarter ended September 30, 2002, and with the Company's audited consolidated financial statements as of and for the year ended December 31, 2001, on file with the Securities and Exchange Commission. The results of operations for the nine month period ended September 30, 2002 are not necessarily indicative of results that may be expected for the year ended December 31, 2002, in part due to the seasonality of the Company's business. BUSINESS TRENDS AND INITIATIVES The sale of hunting/shooting sports and fishing products depends upon a number of factors related to the level of consumer spending, including the general state of the economy and the willingness of consumers to spend on discretionary items. Historically, the general level of economic activity has significantly affected the demand for sporting goods products in the hunting/shooting sports and related markets. As economic activity slowed, as it did beginning in the fourth quarter 2000, confidence and discretionary spending by consumers declined. Management believes that if the general level of economic activity continues to decline, it could have a negative impact on sales of the Company's products, and that competitive pressures arising from any significant or prolonged economic downturn could have a material adverse impact on the Company's financial condition, results of operation or cash flows. Although the Company experienced a decrease in demand that coincided with the economic downturn that began in the fourth quarter of 2000 and continued through all of 2001, the Company did experience an increased demand for its Hunting/Shooting sports products in the fourth quarter of 2001, which has continued into the first nine months of 2002. Management believes that this increase in demand is attributable, at least in part, to the impact on consumers and government agencies resulting from the terrorist attacks on New York and Washington on September 11, 2001. Because the longer-term effects of such events are inherently unpredictable, management cannot determine with certainty the impact of these events on future demand. Management believes that the demand for Hunting/Shooting sports products depends on a number of factors, including the general state of the economy, and the Company can give no assurance that the recent increase in sales will continue. Although the Company believes that regulation of firearms and ammunition, and consumer concerns about such regulation, 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 will not become more restrictive in the future and that any such development would not adversely affect these markets. See "Business--Regulation" and "Legal Proceedings." The Company believes that the market for hunting/shooting sports products is stable and mature. In light of modest sales growth opportunities and the Company's working capital seasonality, the Company continues to focus on improving profitability through increased efficiency and cost containment. In recent years, the Company has undertaken a number of working capital management and cost containment initiatives, strengthened the management team and invested capital to continue improvement in operating efficiencies at its manufacturing facilities. The Company's management team will continue to review all aspects of the Company's operations with a view towards controlling costs in response to competitive pressures. The Company is also focused on maintaining its preeminent market position through increased brand awareness, ongoing product innovation and the introduction of new products. The United Mine Workers of America ("UMWA") represent hourly employees at the Company's plant in Ilion, New York. The collective bargaining agreement with UMWA was renegotiated effective October 2002 with the contract expiring in September 2007. There have been no significant interruptions or curtailments of operations due to labor disputes since prior to 1968 and the Company believes that relations with its employees are satisfactory. 18 RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2002 AS COMPARED TO THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 Sales. Consolidated sales for the quarter ended September 30, 2002 increased $8.4 million or 7.4% from the quarter ended September 30, 2001 and consolidated sales for the first nine months of the year increased $22.8 million or 7.8% from the same period in 2001. The following tables compare sales by segment for each of the periods ended September 30: Three Months Ended Septemer 30, ------------------------------------------ Percent Percent 2002 of Total 2001 of Total ------- --------- ------- -------- Net Sales Hunting/Shooting Sports $ 111.9 91% $ 104.1 91% All Other 10.6 9% 10.0 9% ------- --------- ------- ------- Consolidated Net Sales $ 122.5 100% $ 114.1 100% ======= ========= ======= ======= Nine Months Ended September 30, ------------------------------------------ Percent Percent 2002 of Total 2001 of Total ------- --------- ------- -------- Net Sales Hunting/Shooting Sports $ 279.5 89% $ 257.6 88% All Other 34.7 11% 33.8 12% ------- --------- ------- ------- Consolidated Net Sales $ 314.2 100% $ 291.4 100% ======= ========= ======= ======= Hunting/Shooting Sports sales increased $7.8 million or 7.5% in the third quarter of 2002 as compared to the same period in 2001. Hunting/Shooting Sports sales for the first nine months of 2002 increased $21.9 million or 8.5% from the same period in 2001. Firearm sales of $47.7 million for the quarter ended September 30, 2002 increased $5.0 million or 11.7% from the quarter ended September 30, 2001 and year-to-date sales of $148.2 million increased $8.7 million or 6.2% from the same year-to-date period in 2001, resulting primarily from higher sales volumes in shotguns and centerfire rifles, mainly the 870 Express series of shotguns, the Model 700, the Model 710 centerfire rifles and M-24 military rifle system combined with higher pricing in both the centerfire and shotgun product lines. Ammunition sales of $64.2 million for the quarter ended September 30, 2002 increased $2.8 million or 4.6% from the same quarter in 2001 and year-to-date ammunition sales were $131.3 million, an increase of $13.2 million, or 11.1%, from the same period in 2001 primarily attributable to higher sales volumes across all product categories, especially the new tungsten-nickel iron alloy shotshell product and rimfire ammunition. The increase in sales in the Hunting/Shooting Sports segment for the first nine months of 2002 can be attributed in part to the lower level of shipments that were experienced in the first nine months of 2001. This lower level of shipments was due in part to a decrease in demand for Hunting/Shooting Sports products in such period, which management believes was related to the economic slowdown in 2001. The Company has experienced an increased demand for its Hunting/Shooting sports products in the fourth quarter of 2001, which has continued into the first nine months of 2002. See "--Business Trends and Initiatives." Sales of all other products, including fishline, accessories, targets and powder metal products increased in the third quarter 2002 from the same period 2001 by $0.6 million or 6.0%, primarily attributable to an increase in sales of fishline products. Year-to-date sales were $0.9 million, or 2.7% higher than the comparable 2001 period, primarily as a result of higher sales of accessory products, mainly gun parts combined with higher sales of target products slightly offset by lower sales of fishline products. Cost of Goods Sold. Cost of goods sold for the third quarter of 2002 increased $2.7 million, or 3.2%, from the third quarter of 2001. For the first nine months of 2002, cost of goods sold increased $11.6 million, or 5.6%, from the same period in 2001. The increase in both the quarter and year-to-date periods is primarily due to higher 19 sales volumes in both the Hunting/Shooting Sports and All Other segments. As a percentage of sales, cost of goods sold for the third quarter of 2002 decreased to 70.4% from 73.2% and for the first nine months of 2002 decreased to 69.7% from 71.1% due primarily to higher sales volumes of higher margin firearm products combined with improved manufacturing costs associated with higher production levels at the ammunition facility and lower depreciation expense, slightly offset by higher retiree benefits costs and workers compensation expense. Operating Expenses. Operating expenses consist of selling, general and administrative expense, research and development expense and other income and expense. Operating expenses for the third quarter of 2002 were $21.1 million, an increase of $1.5 million, or 7.7%, from the third quarter of 2001. Year-to-date operating expenses for 2002 were $58.0 million, an increase of $1.5 million, or 2.7%, from the same period of 2001, due primarily to the factors discussed below. Selling, general and administrative expenses for the third quarter of 2002 were $17.7 million, an increase of $0.2 million, or 1.1%, from the third quarter of 2001. Year-to-date selling, general and administrative expenses were $51.2 million, a $1.2 million or a 2.4% increase from the same year-to-date period in 2001. The increase from the prior year periods for the quarter and year-to-date was primarily attributable to increases in variable administrative expense and insurance premiums offset by a reduction in distribution and bad debt expense combined with an increase in licensing income. Other expense for the quarter and year to date periods ended September 30, 2002 increased $1.2 million and $0.1 million from the same periods in 2001, respectively. The increase for the quarter and year-to-date periods was due to a special payment made in connection with dividends paid during the third quarter, offset by the elimination of the amortization of certain intangibles under SFAS No. 142. Interest Expense. Interest expense for the quarter ended September 30, 2002 was $3.2 million, a decrease of $0.7 million, or 17.9%, from the third quarter of 2001, and year-to-date interest expense was $9.4 million, a decrease of $2.8 million, or 23.0% from the same period in 2001. The decrease in interest expense from 2001 to 2002 for both the quarter and year-to-date period resulted from a decrease in interest rates combined with a decrease in average outstanding debt under the Company's Revolving Credit Facility. LIQUIDITY AND CAPITAL RESOURCES The following represents the contractual and other commercial commitments of the Company: Payments Due by Period -----------------------------------------

Liquidity. As of September 30, 2002, the Company had outstanding $131.7 million of indebtedness, consisting of approximately $86.9 million (face amount) of the Company's 9.5% Senior Subordinated Notes, $43.0 million in revolving credit borrowings under the Company's Credit Agreement, and $1.8 million in capital lease obligations. As of September 30, 2002, the Company also had aggregate letters of credit outstanding of $5.1 million and $121.9 million was available for borrowing under the Company's Revolving Credit Facility. 20 At present, the principal sources of liquidity for the Company's business and operating needs are internally generated funds from its operations and revolving credit borrowings under the Credit Agreement. The Company believes that it will be able to meet its debt service obligations and fund its operating requirements with cash flow from operations and revolving credit borrowings prior to the maturity of the Revolving Credit Facility, although no assurance can be given in this regard. The Company continues to focus on working capital management, including the collection of accounts receivable, decreasing inventory levels to bring them in line with sales projections and management of accounts payable. The Company's Credit Agreement provides for aggregate borrowings of $170.0 million under a revolving credit facility through September 30, 2003. The outstanding balance of $43.0 million at September 30, 2002 was reclassified from long-term debt to current portion of long term debt. The current outstanding principal amount of $86.9, on the Notes matures on December 1, 2003. Given the maturities of the Notes and the Credit Agreement, the Company is currently seeking refinancing options and will seek to refinance its Credit Agreement and the Notes prior to their respective maturities, although no assurance can be given in this regard. Such a refinancing could involve, among other possibilities, new senior secured debt, new debt securities or a combination thereof, and could increase the Company's debt levels. The terms of any new debt, including interest rates and other economic terms, as well as the financial, operating and other covenants, could differ significantly from the Company's existing financing arrangements. Failure to refinance either the Notes or the Credit Agreement would adversely impact the Company's liquidity and operations and could have a material adverse effect on the financial condition, results of operations and cash flows of the Company. Credit Agreement. The obligations under the Credit Agreement are guaranteed by Holding and are secured by a pledge of the Company's capital stock and by pledges of and security interests in substantially all the Company's property and assets, including the Company's ownership interests in its subsidiaries RA Brands, L.L.C., RBC Holdings, Inc. and RA Factors, Inc. 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. The failure to comply with such affirmative and negative covenants (including financial covenants), or any other default under the Credit Agreement, could result in the acceleration of the Company's obligations under the Credit Agreement. As of September 30, 2002, the Company was in compliance in all-material respects with the financial covenants under the Credit Agreement, as amended on December 6, 2001. 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"). 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 and can be reduced up to 0.125% based upon the same financial performance measures. On May 15, 2002, the interest rate margin was reduced 0.25%, as a result of the consolidated leverage ratio and the commitment fees remained unchanged. The Company's performance for the third quarter will result in the interest rate margin being reduced 0.25% effective as of the filing date of this Quarterly Report on Form 10-Q. The occurrence of certain changes in control is an event of default under the Credit Agreement. Dividends and Other Compensation. On July 31, 2002 the Company declared a special dividend of $19.54 per share, in an aggregate amount of $15.1 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 $19.54 per share, in an aggregate amount $1.8 million on that date which was recorded as other expense. The special dividend and special payment were paid on August 2, 2002 with proceeds from borrowings under the Revolving Credit Facility. As Holding has no separate operations, its ability to pay dividends is dependent upon the extent to which it receives dividends or other funds from Remington. The declaration and payment of future dividends, if any, will be at the sole discretion of the Board of Directors of the respective company and will be subject to the restrictions set forth in the Credit Agreement and the indenture for the Notes, which currently contain certain restrictions on dividends from Remington to Holding and will be subject to restrictions, if any, imposed by other indebtedness outstanding from time to time. Cash Flows. Net cash used in operating activities was $6.0 million and $7.6 million for the nine-month periods ended September 30, 2002 and 2001, respectively. The decrease in cash used in operating activities resulted 21 primarily from an increase in earnings and non-cash add-backs offset by an increase in working capital components. Accounts receivable increased $40.4 million from December 31, 2001 to $85.9 million primarily as a result of approximately $51.7 million of firearms and ammunition sales on extended terms, which is consistent with prior years. Some of these terms provide cash discount incentives and require payment by October and November 2002 and April 2003. Inventories increased $4.4 million from December 31, 2001 to $88.4 million as a result of the seasonality of the business combined with working capital management efforts to keep inventory levels in line with sales projections. See "--Seasonality." Accounts payable increased $4.7 million from December 31, 2001 to $25.9 million as a result of the Company's increased spending due to higher production levels combined with working capital management efforts to purchase on extended terms. Net cash used in investing activities in the first nine months of 2002 and 2001 were $4.5 million and $2.8 million, respectively, consisting primarily of capital expenditures for new equipment related to the manufacture of firearms and ammunition, as well as replacement equipment and improvement projects concentrated on enhancing operating efficiency throughout existing facilities. Net cash used in financing activities during the first nine months of 2002 was $2.3 and net cash provided by financing activities during the first nine months of 2001 was $12.7 million. The increase in cash used in financing activities primarily resulted from payments on long-term capital leases and the book overdraft combined with the dividend payment of $15.1 and cash on hand at the beginning of 2002 offset increased borrowings on the revolving credit facility and short-term debt. Working Capital. Working capital decreased to $79.8 million at September 30, 2002 from $ 96.6 million at December 31, 2001, primarily resulting from reclassifying the outstanding balance of $43.0 million on the revolving credit facility from long term to current combined with increases in accounts payable and other liabilities partially offset by increases in accounts receivable and inventory. See "-Cash Flows." The seasonality of the Company's business generally causes accounts receivables to be higher in the first three quarters of the year. See "-Seasonality." Capital Expenditures. Capital expenditures for the nine months ended September 30, 2002 were $4.5 million, primarily for new equipment related to the manufacture of firearms and ammunition, as well as replacement equipment and improvement projects concentrated on enhancing operating efficiency throughout existing facilities. The Company expects capital expenditures for 2002 to be in a range of $7.0 million to $9.0 million. 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 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. As a competitive measure, the Company also began offering extended payment terms on select ammunition purchases. The Company believes that this dating plan has partially offset the seasonality of the Company's business by shifting some firearm and ammunition sales to the first quarter. STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS NOT YET ADOPTED In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 145, Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections. In rescinding SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements, SFAS 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect. Generally, SFAS 145 is effective for transactions occurring after May 15, 2002. Management is currently evaluating the effects of this statement for future events and transactions. In June 2002 the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force ("EITF") has set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. Management is currently evaluating the effects of this statement but does not believe that it will have a material impact on the financial condition, results of operations or cash flows of the Company. 22 REGULATORY DEVELOPMENTS The federal 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. Federal legislation has been proposed to further extend this system to sales made by non-retail sellers at gun shows. State and local laws and regulations vary significantly in the level of additional restriction, beyond those established under federal law, placed on gun manufacture, ownership and transfer. Some states have recently enacted, and others are considering, legislation restricting or prohibiting the ownership, use or sale of certain categories of firearms and/or ammunition. Certain states have enacted, or considered, legislation regarding the sale of locking devices together with firearms; although most are limited to handguns, some would apply to Remington shotguns and rifles. Although many states have mandatory waiting period laws in effect for handguns, there are currently few restrictive state regulations applicable to handgun ammunition. 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." Bills have been introduced in Congress to establish, and to consider the feasibility of establishing, a nationwide database recording so-called "ballistic images" of ammunition fired from new guns. To date, only two states have established such registries, and neither state includes such "imaging" data from long guns. The Company believes that recent federal, state and local legislation relating to the regulation of firearms and ammunition has not had a material adverse effect on its sale of these products to date. However, there can be no assurance that federal, state, local or foreign regulation of firearms or ammunition will not become more restrictive in the future and that any such development would not have a material adverse effect on the business of the Company. 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 statement in "Business Trends and Initiatives" concerning the Company's belief that the demand for hunting/shooting sports products depends on a number of factors including the general state of the economy; (ii) the statement in "Business Trends and Initiatives" that the Company's management will continue to review the Company's operations with a view towards controlling costs in response to competitive pressures; (iii) the statements in "-Liquidity and Capital Resources - Cash Flows" concerning 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; (iv) the statement in "Liqudity and Capital Resources - Liquidity" that the Company will seek to refinance its Credit Agreement and/or the Notes prior to their respective maturities, (v) the statement in "Liquidity and Capital Resources - Capital Expenditures" that the Company expects capital expenditures for 2002 to be in a range of $7.0 million to $9.0 million; (vi) the statement in "Statements of Financial Accounting Standards Not Yet Adopted" that the Company does not believe that SFAS No. 146 will have a material impact on the financial condition, results of operations or cash flows of the Company; (vii) the Company's 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 and that it does not have a material exposure to fluctuations in foreign currencies; (viii) the statements in "Legal Proceedings" concerning 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 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", "-Liquidity and Capital Resources" and "Legal Proceedings"), in the Company's Annual Report on Form 10-K for the period ended December 31, 2001, 23 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. 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 was not a party to any interest rate cap or other protection arrangements with respect to its variable rate indebtedness as of September 30, 2002. The Company uses commodity futures contracts 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, 2002, the Company's outstanding contracts relating to firm commitments and anticipated purchases up to one year from the respective balance sheet date have a fair market value of approximately $0.2 million. 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. 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. ITEM 4. CONTROLS AND PROCEDURES The Company maintains disclosure controls and procedures (as defined in Rule 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), which are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In November 2002, an evaluation of the effectiveness of the Company's disclosure controls and procedures was conducted under the supervision of, and reviewed by, the Company's Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were adequate and designed to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to the Chief Executive Officer and Chief Financial Officer by others within those entities, particularly during the periods when periodic reports under the Exchange Act are being prepared. Furthermore, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the November 2002 evaluation. Refer to the Certifications by the Company's Chief Executive Officer and Chief Financial Officer following the signature page of this report. 24 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Pursuant to the 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, (2) all product liability cases and claims involving products that had not been discontinued as of the Acquisition ("extant products") and relating to occurrences that took place prior to the Acquisition and (3) certain environmental liabilities based on conditions existing at the time of the Acquisition. These indemnification obligations of the Sellers are not subject to any survival period limitation. The Company has no current information on the extent, if any, to which the Sellers have insured these indemnification obligations. Except for certain cases and claims relating to shotguns manufactured prior to 1995 and involved in occurrences arising prior to December 1999, and except for all cases and claims relating to products discontinued prior to the Acquisition, the Company generally bears financial responsibility for product liability cases and claims relating to occurrences after the Acquisition. As a result of contractual arrangements, the Company manages the joint defense of product liability litigation involving Remington brand firearms and Company ammunition products for both Remington and the Sellers. As of September 30, 2002, approximately 16 individual bodily injury cases and claims 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. The Company has previously disposed of a number of other cases involving post-Acquisition occurrences by settlement. Of the pending individual cases and claims, approximately two involve matters for which the Sellers retained liability and are required to indemnify the Company. The remaining approximately 14 pending cases involve post-Acquisition occurrences for which the Company bears responsibility under the Purchase Agreement; the Sellers have some responsibility for the costs of approximately one of these cases involving certain shotguns, as described below. One of the cases pending during the third quarter for which Remington bore financial responsibility involved the accidental fatal shooting in October 2000 of a nine-year-old boy, Gus Barber, with a Remington Model 700 bolt-action rifle being unloaded by his mother after a hunting trip in Montana. This tragedy was the focus of repeated local and national media attention, and the subject of a lawsuit filed in December 2001, in federal district court in Montana naming Remington and the Sellers as defendants. The lawsuit was resolved in May 2002 and was formally dismissed in July 2002. Like many Remington bolt-action centerfire firearms made before 1982, the Barber rifle was manufactured with a feature known as a `bolt-lock,' which requires the manual safety to be moved to the `fire' position to begin the process of unloading the rifle. Partly in response to this accident, in early March 2002, the Company initiated a nationwide product safety program under which the Company will clean, inspect and modify such centerfire firearms to remove the bolt-lock feature for $20. Participating customers will receive a transferable $20 rebate coupon on the purchase of specified Remington safety products. In addition to these individual cases, as a manufacturer of shotguns and rifles, Remington has been named in only three of the approximately 30 actions brought by certain municipalities, primarily against manufacturers and sellers of handguns: (i) City of - Boston, et al. v. Smith & Wesson, et al., No. 99-2590 (Suffolk Super Ct.); (ii) City of St. Louis, Missouri v. Henry Cernicek, et al., No. 992-01209 (Cir. Ct. St. Louis) & 00 Civil 1895 (U.S. Dist. Ct.. E.D. Missouri); and (iii) City of New York, et al. v. B.L. Jennings, Inc., et al., 00 Civil 3641 (JBW) (U.S. Dist. Ct. E.D.N.Y.). As a general matter, these lawsuits claim that the distribution practices of defendant firearms manufacturers allegedly permitted their products to enter a secondary market, from which guns can be obtained by unauthorized users; that defendants fail to include adequate safety devices in their firearms to prevent unauthorized use and accidental misuse; and that defendants' conduct has created a public nuisance. Plaintiffs generally seek injunctive relief and money damages (consisting of the cost of providing certain city services and lost tax and other revenues), and in some cases, punitive damages, as well. City of Boston, first filed in 1999, was voluntarily dismissed without prejudice as to all defendants by the plaintiffs on March 27, 2002. In City of St. Louis a First Amended Complaint naming Remington was filed on August 15, 2000, in Circuit Court of the City of St. Louis. The case was removed on November 29, 2000, to the United States District Court for the Eastern District of Missouri by third-party defendant, Denel (Pty) Ltd., a firearms manufacturer majority-owned by the Republic of South Africa. Removal was made pursuant to Title 28, section 1330, of the United States Code, as an action involving a foreign state. On September 25, 2001, the federal court remanded the case to state court, (where motions to dismiss are pending). On March 1, 2002, the St. Louis City court granted the defendants' motion 25 to transfer venue to the Circuit Court for St. Louis County. Plaintiffs' challenge to that ruling was rejected, and defendants' motion to dismiss in this new venue is scheduled to be heard on January 24, 2003. In City of New York, the New York City Health and Hospitals Corp., and certain city officials filed an Amended Complaint, dated September 1, 2000, in the United States District Court for the Eastern District of New York naming Remington and asserting claims similar to those in the City of Boston litigation. The Company answered on December 1, 2000. Plaintiffs' and defendants' initial discovery requests were served in June 2001. In August 2001, the City indicated its intention to file a second amended complaint. However, in part as a result of the events of September 11, the court has granted the City's request that the case be put on hold pending the appeal by the State of New York of the dismissal of its separate lawsuit against handgun manufacturers (in which the Company is not a defendant). The Federal Trade Commission and the attorneys general of several states have instituted investigations into allegations of anticompetitive retaliation against Smith & Wesson by other participants in the firearms industry. To date, Remington has received and replied to civil investigative demands and subpoenae duces tecum and other discovery requests from the State of Connecticut and the Federal Trade Commission. Remington, which makes only long guns, does not compete with Smith & Wesson, which makes handguns. 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. During 2002, the Company will contribute a percentage of its domestic net revenue from sales of its firearms and select accessory 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 an amount that has now been fully paid, with the Sellers retaining liability in excess of that 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 or results of operations 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, 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, as well as the type of firearms products made by the Company), 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. Nonetheless, in part because the nature and extent of liability based on the manufacture and/or sale of allegedly defective products (particularly in connection with the use of firearms) is uncertain, there can be no assurance that the Company's resources will be adequate to cover both pending and future product liability occurrences, cases or claims, in the aggregate, or that a material adverse effect upon our financial condition or results of operations 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. 26 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 99.1 Reconciliation of Income from Operations to EBITDA. (b) Reports on Form 8-K The Company filed Current Report on Form 8-K with the Commission on August 13, 2002 concerning certifications regarding Exchange Act filings. 27 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 12, 2002 28 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas L, Millner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RACI Holding, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): d. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and e. any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Thomas L. Millner ----------------------------------------- Thomas L. Millner President and Chief Executive Officer 29 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Mark A. Little, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RACI Holding, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): d. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and e. any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Mark A. Little --------------------------------------------------- Mark A. Little Executive Vice President, Chief Financial Officer and Chief Administrative Officer 30 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas L. Millner, certify that this quarterly report on Form 10-Q of RACI Holding, Inc. fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the registrant. Date: November 12, 2002 /s/ Thomas L. Millner ------------------------------------------------- Thomas L. Millner President and Chief Executive Officer 31 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Mark A. Little, certify that this quarterly report on Form 10-Q of RACI Holding, Inc. fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this quarterly report fairly presents, in all material respects, the financial condition and results of operations of the registrant. Date: November 12, 2002 /s/ Mark A. Little ---------------------------------------------- Mark A. Little Executive Vice President, Chief Financial Officer and Chief Administrative Officer 32 INDEX TO EXHIBITS Exhibit No. Description 99.1 Reconciliation of Income from Operations to EBITDA. 33

RACI HOLDING INC 10-Q