remington outdoor company, inc.

ANNUAL REPORT
For the fiscal year-ended:
December 31, 2013
REMINGTON OUTDOOR COMPANY, INC.
(Exact name of company as specified in its charter)
Also known as Freedom Group, Inc.
Delaware
(State or other jurisdiction of incorporation or organization)
870 Remington Drive
P.O. Box 1776
Madison, North Carolina 27025-1776
(Address of principal executive offices) (Zip Code)
(336) 548-8700
(Company’s telephone number, including area code)
REMINGTON OUTDOOR COMPANY, INC.
(Also known as Freedom Group, Inc.)
December 31, 2013
INDEX
1. BUSINESS .........................................................................................................................
1
1A. RISK FACTORS ...........................................................................................................
17
2. PROPERTIES ..................................................................................................................
27
3. LEGAL PROCEEDINGS ................................................................................................
28
6. SELECTED FINANCIAL DATA ...................................................................................
31
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................................................
33
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ...............................................................................................................
53
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .................................
54
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ......................................................
102
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE…...
103
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS ............................. 106
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE ........................................................................... 108
14. PRINCIPAL ACCOUNTING FEES AND SERVICES ................................................ 109
Information Concerning Forward-Looking Statements
This annual report contains statements which constitute forward-looking statements, including statements
relating to trends in the operations, financial results, businesses and the products of Remington Outdoor Company,
Inc. (also known as Freedom Group, Inc.) as well as other statements including words such as ―anticipate,‖
―believe,‖ ―plan,‖ ―estimate,‖ ―expect,‖ ―intend‖ and other similar expressions. Forward-looking statements are
made based upon management’s current expectations and beliefs concerning future developments and their potential
effects on us. Such forward-looking statements are not guarantees of future performance. The following important
factors, and those important factors described elsewhere in this annual report, including the matters set forth under
the section entitled ―Risk Factors,‖ could affect (and in some cases have affected) our actual results and could cause
such results to differ materially from estimates or expectations reflected in such forward-looking statements.
•
We are subject to the effects of general global economic and market conditions. Increases in
commodity prices, higher levels of unemployment, higher consumer debt levels, declines in consumer
confidence, uncertainty about economic stability and other economic factors that may affect consumer
spending or buying habits could adversely affect the demand for products we sell. Persistent economic
uncertainty or a deterioration of economic conditions could have a material adverse effect on our
business, results of operations and financial condition.
•
Our ability to make scheduled payments of principal or interest on, or to refinance our obligations with
respect to, our indebtedness, as well as our ability to comply with the covenants and restrictions
contained in the instruments governing such indebtedness, will depend on our future operating
performance and cash flow, which are subject to prevailing economic conditions, prevailing interest
rate levels, and financial, competitive, business and other factors beyond our control including the
responses of competitors, changes in customer inventory management practices, changes in customer
buying patterns, regulatory developments and increased operating costs, all of which could materially
adversely affect our business.
•
The degree to which we are leveraged could have important consequences, all of which could
materially adversely affect our business, including the following: (i) our ability to obtain additional
financing for working capital or other purposes in the future may be limited; (ii) a substantial portion
of our cash flow from operations is dedicated to the payment of principal and interest on our
indebtedness, thereby reducing funds available for operations; (iii) certain of our borrowings are at
variable rates of interest, which could cause us to be vulnerable to increases in interest rates; and
(iv) we may be more vulnerable to economic downturns and be limited in our ability to withstand
competitive pressures.
•
The development of rural property in many locations has curtailed or eliminated access to private and
public lands previously available for hunting, and the continuation of the development of rural
property could materially adversely affect our industry as well as our business and results of
operations.
•
A portion of our sales are seasonal. As a result of the seasonal nature of our sales, our historical
working capital financing needs generally have exceeded cash provided by operations during certain
parts of the year. Our ability to meet our debt service and other obligations depends in significant part
on customers purchasing our products during the fall hunting season. Notwithstanding our continuing
management of costs, a decrease in demand during the fall hunting season for our higher priced, higher
margin products would require us to further reduce costs or increase our reliance on borrowings under
our credit facility to fund operations. If we are unable to reduce costs or increase our borrowings
sufficiently to adjust to such a reduction in demand, our financial condition and results of operations
could be adversely affected.
•
Lead, copper, steel, brass and zinc prices historically have experienced significant increases and
volatility primarily due to increased global demand and industry supply issues. Furthermore, fuel and
energy costs have increased and have remained volatile over the same time period, although at a
slower rate of increase. We currently purchase copper and lead commodity option and swap contracts
to hedge against price fluctuations of anticipated commodity purchases. With the volatility of pricing
that we have recently experienced, there can be no assurance that we will not see further material
adverse changes in commodity pricing or energy costs, and such further changes, were they to occur,
could have a material adverse impact on our consolidated financial position, results of operations, or
cash flows.
•
We utilize numerous raw materials, including steel, zinc, lead, copper, brass, plastics, gunpowder, and
wood, as well as manufactured parts, which are purchased from one or a few suppliers. Any disruption
in our relationship with these suppliers could increase our cost of operations. Such a disruption may
result from or be amplified by the volatility of and uncertainty in the U.S. and global financial markets.
•
Achieving the benefits of our acquisitions will depend in part on the integration of products and
internal operating systems in a timely and efficient manner. Such integration may be unpredictable,
and subject to delay because the products and systems typically were developed independently and
were designed without regard to such integration. If we cannot successfully integrate such products
and internal operating systems on a timely basis, we may lose customers and our business and results
of operations may be harmed.
•
We face significant domestic and international competition and our competitors vary according to
product line. Certain of these competitors are subsidiaries of large corporations with substantially
greater financial resources than we have. There can be no assurance that we will continue to compete
effectively with all of our present competition, and our ability to so compete could be adversely
affected by the degree to which we are our leveraged.
•
Sales made to Wal-Mart accounted for approximately 11%, 16% and 15% of our total sales for the
years ended December 31, 2013, 2012, and 2011, respectively. Our sales to Wal-Mart are generally not
governed by a written long-term contract between the parties. In the event that Wal-Mart were to
significantly reduce or terminate its purchases of firearms, ammunition and/or other products from us,
our financial condition or results of operations could be adversely affected.
•
The manufacture, sale and purchase of firearms and ammunition are subject to extensive governmental
regulation on the federal, state and local levels. Changes in regulation could materially adversely affect
our business by restricting the types of products we manufacture or sell or by imposing additional costs
on us or our customers in connection with the manufacture or sale of our products. Regulatory
proposals, even if never enacted, may affect firearms or ammunition sales as a result of consumer
perceptions. While we do not believe that existing federal and state legislation relating to the regulation
of firearms and ammunition will have a material adverse effect on our sales, no assurance can be given
that more restrictive regulations, if proposed or enacted, will not have a material adverse effect on us in
the future.
•
As a manufacturer of firearms, we were previously named as a defendant, and may in the future be
named as a defendant, in certain lawsuits brought by municipalities or organizations challenging
manufacturers’ distribution practices and alleging that the defendants have also failed to include a
variety of safety devices in their firearms. Our insurance primarily excludes coverage regarding such
claims. In the event that additional such lawsuits are filed, or if certain legal theories advanced by
plaintiffs are generally accepted by the courts, our financial condition and results of operations could
be adversely affected.
•
Unfavorable publicity or public perception of the firearms industry could adversely impact our
operating results and reputation.
Any forward-looking statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement to reflect events or circumstances after the date on which the
statement is made or to reflect the occurrence of unanticipated events. Except as required by law, we undertake no
obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the
date of this annual report.
1. BUSINESS
References in this report to (1) the terms „„we,‟‟ „„us,‟‟ „„our,‟‟ the „„Company,” “Remington Outdoor Company‟‟
and „„Remington Outdoor‟‟ refer to Remington Outdoor Company, Inc. and its subsidiaries on a consolidated basis,
(2) the terms „„FGI‟‟ and “Freedom Group” refer to Freedom Group, Inc., the former legal name of the Company,
(3) the term “FGI Holding” refers to FGI Holding Company, LLC, (4) the term “FGI Opco” refers to FGI
Operating Company, LLC, (5) the term “FGI Finance” refers to FGI Finance, Inc., (6) the term „„Remington‟‟
refers to Remington Arms Company, LLC and its direct and indirect subsidiaries, (7) the term “Outdoor Services”
refers to Outdoors Services, LLC, (8) the term „„EOTAC‟‟ refers to EOTAC, LLC, (9) the term “Mountain Khakis”
refers to Mountain Khakis, LLC, (10) the term “AAC” refers to Advanced Armament Corp., LLC, (11) the term
“Barnes” refers to Barnes Bullets, LLC, (12) the term “Para” refers to Para USA, LLC, (13) the term “TAPCO”
refers to The American Parts Company, Inc., (14) the term “LAR” refers to LAR Manufacturing, Inc., (15) the term
“Dublin Dog” refers to Dublin Dog Company, (16) the term “TMRI” refers to TMRI, Inc., (17) the term
“Remington UK” refers to Remington Outdoor (UK) Ltd., (18) the term “SMK” refers to Tech Group (UK) Ltd.,
(19) the term “Storm Lake” refers to Storm Lake, Inc. , (20) the term “Great Outdoors” refers to Great Outdoors
Holdco, LLC and (21) “2020 Notes,” “Term Loan B,” “ABL,” and “ABL Revolver” have the respective meanings
given to them in the “Notes to Consolidated Financial Statements –note 8 – Debt.”
Company Overview
Our Company
We are a leading global manufacturer of firearms, ammunition and related products for commercial,
military and law enforcement markets with a diverse portfolio of category-defining brands, including Remington,
Marlin, Bushmaster, Barnes Bullets, Para and DPMS, among others. We were formed through a series of focused
acquisitions over the past eight years and have assembled a premier brand portfolio that offers a wide suite of
outdoor products, from value to premium price points. Our strategic goals are to leverage our brand equity to
achieve market leading positions in each of our product categories, create scale in our distribution channels, develop
and introduce new products that achieve market leading positions in their categories, and optimize our
manufacturing operations and supply chain to continuously improve profitability. We have held the #1 or #2 market
position in the United States for all long gun categories and modern sporting rifles (―MSRs‖) and the #3 market
position for ammunition (#1 in hunting calibers) since 2008.
We are America’s oldest and among its largest firearms and ammunition manufacturers, with our flagship
Remington brand founded in 1816. As of December 2013, we have sold over 5.8 million of our Remington
Model 700 Bolt Action rifles, which celebrated its 50th anniversary during 2012, demonstrating the multigenerational appeal of our products. 2013 also marked the 50th anniversary of the Remington Model 1100, one of
the most popular shotguns of all time, with nearly 4 million sold as of December 2013. In 2014, we will celebrate
the 75th anniversary of the Remington Core-Lokt, our best-selling centerfire hunting ammunition. In 2012,
Remington ranked as top shotgun brand (19.7% of all purchases), top rifle ammunition brand (21.4% of all
purchases) and tied for top rifle brand (11.5% of all purchases) in the United States, based on Hunter/Shooter survey
data from Southwick Associates. We believe that our rich heritage and reputation for quality have resulted in strong
brand recognition and customer loyalty for all of our products and that our Remington brand represents an enduring
symbol of American values that is trusted and respected by generations of sportsmen. We intend to leverage the
strength of the Remington brand by selling an increasing variety of outdoor products under this name, which we
believe will provide an opportunity to grow our share of the equipment, apparel and accessories upon which the
outdoorsman relies.
We believe that the strength and scale of our brand portfolio, led by Remington, has enabled us to develop a
strong and differentiated distribution channel. By leveraging our portfolio of 17 brands within our distribution
channel, we have significantly expanded the sales opportunities for the brands that we have acquired. For example,
Para USA Inc., which we acquired at the beginning of 2012, doubled its revenue in the year following the
acquisition, demonstrating the power of our manufacturing and distribution strength. Unlike many of our
competitors that sell their products exclusively to distributors, approximately 45% of our commercial net sales in
2013 were directly to major retail and sporting goods chains, such as Cabela’s, Gander Mountain, Academy Sports +
Outdoors, Wal-Mart, Bass Pro Shops, and Dick’s Sporting Goods. We believe our relationships with leading
1
retailers enable us to collaboratively develop favorable product mix and stocking strategies, ensuring that our full
suite of firearms and ammunition is widely available to consumers.
The aggregate commercial firearms, ammunition and accessories markets in the United States were
approximately $12 billion in 2012. As a result of favorable industry-wide trends, including broader participation in
hunting and shooting sports, an increasing number of female shooters, an increased focus on home and self-defense
and recent rises in demand brought about by regulatory and legislative concerns, our markets have expanded over
the past five years, and recently have resulted in significant demand in excess of our production capacity. Given this
unsatisfied demand experienced in the market and for our products, we have continued to invest in new product
development and additional manufacturing capacity.
We believe our scale and product breadth are unmatched within our industry, with
approximately 1.8 million firearms and 3.1 billion rounds of ammunition sold by us during the year ended
December 31, 2013, and approximately 1.4 million firearms and 2.1 billion rounds of ammunition sold by us during
the year ended December 31, 2012. We are one of only two major U.S. companies that manufacturers both firearms
and ammunition, which we believe provides a competitive advantage, supports our market leadership position and
adds a recurring revenue component to our sales. We also believe that our portfolio of products is more diverse and
expansive than those of other manufacturers of both firearms and ammunition based on the number of product
categories in which we participate. Due to the scale and strength of our brand portfolio, we have been able to
capitalize on favorable industry trends to generate net sales, Adjusted EBITDA and net income of $1,268.2 million,
$236.4 million and $59.6 million, respectively, in 2013 and $931.9 million, $156.5 million and $7.3 million,
respectively, in 2012. Between 2008 and 2012, our net sales and Adjusted EBITDA increased at compound annual
growth rates (―CAGR‖) of 6.6% and 10.6%, respectively.
Our Defense Division has been active in the Law Enforcement, International Military, and U.S. Federal and
Military markets for ammunition, shotgun, carbine, sniper rifle, and suppressor categories in 2013. We are one of
the market leaders in the law enforcement sniper rifle and shotgun markets and a major provider of service and
training ammunition. Remington Defense is a sniper rifle vendor of choice for the U.S. Military as we provide the
U.S. Army the M2010 Sniper Rifle and SOCOM the Precision Sniper Rifle (PSR). This government contract,
awarded to Remington Defense in 2013, provides SOCOM with a total sniper rifle solution including rifle,
suppressor, ammunition and parts. This helps to establish Remington Defense as a market leader in the sniper rifle
space. Additionally, our work in shaping International requirements for the last 5 years has resulted in an estimated
$50.0 million carbine contract with the Republic of the Philippines. This is the largest scale small arms procurement
in the Philippines’ history and will support this U.S. ally in domestic and regional security operations. We believe
that our commitment to researching and developing creative new products with end user input, along with our
commitment to providing the highest quality firearm solutions available for law enforcement and military customers
provides an opportunity for attractive revenue diversification while reinforcing the strength of our brands with
consumers.
We have been led by our Chief Executive Officer, George K. Kollitides II, since March 2012. Under the
direction of Mr. Kollitides, we have developed a focused acquisition strategy while positioning all of our firearm
and ammunition products, across all brands, to achieve top market share in their respective categories. Mr.
Kollitides has also enhanced our management team with experienced leaders from the automotive and medical
device industries, in part because we believe that the highly refined production and manufacturing best practices
associated with those industries can be implemented across our organization. Our team has implemented margin
improvement programs, capacity expansions and supply chain and production efficiencies that, together with the
increase in demand we have experienced over recent years, have bolstered profitability. As a result, our Adjusted
EBITDA margin has expanded from 15.5% of net sales in 2011 to 16.8% in 2012 and 18.6% in 2013. We expect
that these initiatives will continue to drive significant margin improvement in the future. In connection with our
operational improvement programs, we have also invested approximately $60 million in capital equipment and new
product innovation in 2013. In addition to the profitability improvements, we believe that these initiatives will also
help to increase production output and satisfy the unsatisfied demand for our products that we have experienced in
recent years.
We currently manufacture our products in 12 primary facilities with an aggregate 2.4 million square feet of
manufacturing space, enabling us to deliver our products in the U.S. and globally to over 60 countries.
Approximately 60% of our revenue in 2013 was derived from two key firearms facilities in Ilion, New York and
Mayfield, Kentucky and our primary ammunition plant in Lonoke, Arkansas. We are continuously evaluating
options to expand our domestic manufacturing capacity while simultaneously implementing production best
2
practices to drive margin improvement within our existing facilities. We are currently expanding operations at our
ammunition facility in Lonoke, Arkansas. In February 2014, we agreed to acquire a facility in Huntsville, Alabama,
in order to increase capacity and expand research and development capabilities.
Our History and Corporate Structure
We have nearly 200 years of operational history in firearms, ammunition and related products. Remington
Outdoor Company (formerly named American Heritage, Inc. through October 2008 and subsequently Freedom
Group, Inc.) is a holding company currently controlled by Cerberus Capital Management (―CCM‖). Our
predecessor company, Bushmaster Firearms International, LLC, was created on February 17, 2006 by CCM for the
purpose of acquiring the business of Bushmaster Firearms, Inc. CCM completed the acquisition of certain assets and
assumed certain liabilities of Bushmaster Firearms, Inc. on April 1, 2006. Remington Outdoor Company was formed
by CCM for the purpose of acquiring Remington Arms Company, Inc., which occurred on May 31, 2007.
Bushmaster Firearms International, LLC and Remington Outdoor Company were merged on December 12, 2007,
creating Freedom Group, Inc., which was subsequently renamed Remington Outdoor Company on October 19,
2012.
Our Market Opportunity
We compete in multiple marketplaces for firearms, ammunition and related accessories. End-user markets
include U.S. and international consumers, such as sportsmen, hunters and recreational shooters, police departments,
the U.S. Military and allied foreign governments. The total size of the domestic commercial market for firearms
was approximately $4.1 billion in 2012 according to Federal Excise Tax data. Through our broad portfolio of
brands, we are active in many growth segments of the firearms industry, which helped us achieve the #1 market
position in many of the categories in which we compete in 2012. We are also a leading provider of ammunition,
which had a total domestic commercial market of approximately $1.9 billion in 2012, holding the #1 market share
for hunting caliber ammunition and the #3 position overall in 2012. According to the National Shooting Sports
Foundation (NSSF), domestic consumer long gun sales (based on Federal Excise Tax data) have grown at a 16.4%
CAGR from 2009 through 2012. We believe we are the largest producer of commercial MSRs, a market that has
grown at a 22.5% CAGR from 2009 through 2012. Further, the NSSF estimates that domestic consumer
ammunition sales grew at a 12.6% CAGR from 2009 to 2012.
We are a leading competitor in the following:

Long Guns: Since 2008, we have been the #1 provider of firearms in the long gun market, which was
estimated to be $2.1 billion in 2012 based on Federal Excise Tax data. According to Southwick
Associates, our brands represented 21.7% of all domestic rifle market and 15.3% of domestic shotgun
market share in 2012.

Handguns: We re-entered the handgun market in 2010 with our R1 1911 pistol, and in 2012, the R1
gained the #2 market position in the 1911 category. Within the $2 billion handgun market, the 1911
category represented approximately $250 million of sales in 2012, providing a significant amount of
uncaptured market share. We plan to introduce additional handgun product platforms in 2014, which
will enable us to actively grow within the handgun market.

MSRs: Through our Remington, Bushmaster and DPMS brands, we were the #1 provider of MSRs in
the domestic market in 2012.

Ammunition: We estimate, based on Federal Excise Tax data, that the domestic commercial
ammunition market was $1.9 billion in 2012. Overall, our brands held the #3 position in the
ammunition market in 2012. However, for the higher margin products that we produce, including
many hunting calibers, we believe we have the highest market share. For instance, Remington is the
top rifle ammunition brand, representing 19.0% of market share in 2012 according to Southwick
Associates.

Accessories / Other: Through our Mountain Khakis, 1816 and Dublin Dog brands, we offer outdoor
and consumer apparel. We also provide on- and off-gun accessories and firearm cleaning supplies
through our AAC, TAPCO, Storm Lake and Ultimate Firearms brands.
3
Our consumers include people of all ages, genders, educational backgrounds and income levels. The
National Rifle Association (the ―NRA‖) estimates that 70-80 million civilians in the U.S. owned nearly 300 million
firearms in 2010. This figure does not include firearms sold for international or police and military users. These
products are used for hunting, target shooting, competition and self-defense.
According to an ongoing National Sporting Goods Association study, there were approximately
36.6 million active shooters in the United States in 2012, an increase of 21.8% from 2008, representing a 5.0%
CAGR. These 36.6 million shooters include approximately 14.6 million handgun shooters, 13.3 million rifle target
shooters and 10.9 million shotgun target shooters, representing a significant installed customer base that generates a
recurring revenue stream for ammunition, parts and accessory sales. In addition, a number of developments in the
industry are broadening and expanding consumer interest in hunting and shooting sports, including a renewed
interest in the outdoors and product offerings designed to introduce new shooters to hunting and shooting activities.
According to the NSSF, for the period between 2008 and 2012, 66% of new shooters were between the ages of 18
and 34 and 37% of new target shooters were female, demonstrating the industry’s favorable and sustainable
demographic growth trends. We believe that these factors also lead to consumers purchasing multiple firearm and
ammunition products as their participation in shooting sports broadens.
The number of firearm background checks initiated through the National Instant Criminal Background
Check System (―NICS‖) has increased strongly, with more than 21.0 million checks in 2013, compared to more than
19.5 million checks in 2012 and approximately 12.7 million in 2008. We believe that a portion of the increase in
NICS checks is driven by concern over the potential for more restrictive government regulation on the federal, state
and local levels; however, the industry is continuing to experience other, sustainable industry-wide growth trends,
including favorable demographics among new shooters, an increasing number of female shooters and a greater focus
on home and self-defense. We view the increase in demand as having significant long-term benefits, including
expanding the popularity of shooting sport categories and providing an opportunity to cultivate new, and renew
existing, long-term customer relationships across our portfolio of products and brands.
As the popularity of hunting, shooting and outdoor sports increases, retailers serving this market continue
to expand their locations and product offerings to capitalize on these trends. For example, retailers such as Cabela’s,
Gander Mountain, Academy Sports + Outdoors, Wal-Mart, Bass Pro Shops and Dick’s Sporting Goods continue to
expand the number of their locations that stock our products. Moreover, the growing popularity of outdoor sports is
also demonstrated by new retail concepts, such as Field & Stream, which was recently introduced by Dick’s
Sporting Goods. We maintain direct sales relationships with these retailers, with each stocking a variety of our
firearm and ammunition brands.
Our Competitive Strengths
Our competitive strengths include:
Category Defining Brands
Our brand names are some of the most widely recognized in the hunting, shooting sports, law enforcement
and military firearm and ammunition end-markets. As a result, we have achieved significant commercial market
shares in all of our major firearm and ammunition products in the markets in which we participate, as noted in the
table below.
Categories(1)
Firearms
Long Guns ........................................................
Modern Sporting Rifles ....................................
Ammunition ..........................................................
U.S. Market
Position
#1
#1
#3
Selected Brands
Remington, Marlin, Parker, H&R, Dakota Arms
Bushmaster, DPMS, Remington
Remington, Remington Core-Lokt, UMC,
Barnes
(1) Based on 2012 Firearms and Ammunition Market Data from Southwick Associates.
Established in 1816 and built on a legacy of quality and innovation, we believe the Remington brand
represents an enduring symbol of American values that is trusted and respected by generations of sportsmen,
lawmen and members of the military. The Remington brand has been deployed across virtually every category of
our firearms and ammunition. Remington’s category-defining firearms are some of the best-known and longest
4
selling products in the hunting and shooting sports market. For example, we celebrated the 50th anniversary of the
Remington Model 700 bolt-action rifle in 2012. With over 5.8 million Model 700s sold, we believe it is currently
the most widely distributed rifle in its class. Furthermore, the Remington Model 870 shotgun is the best-selling
shotgun of all time, with over 11 million units sold. In 2014, we will celebrate the 75th anniversary of our best
selling centerfire rifle ammunition, the Remington Core-Lokt. We believe the strong brand equity associated with the
Remington name provides us with significant benefits, including customer loyalty, which leads to repeat purchases
and incremental sales opportunities across our product portfolio. It further serves to help create market acceptance
for new product introductions in our core business, in addition to enabling the expansion of our portfolio into other
outdoor product categories.
In addition to Remington, our portfolio of brands also includes Marlin, Harrington & Richardson, Parker
and Dakota in long guns; Bushmaster and DPMS in the MSR market and Para in handguns.
Our ammunition brands, including Remington, UMC and Barnes, also enjoy leading market positions,
strong brand recognition and multi-generational customer loyalty. We believe that Remington Core-Lokt centerfire
ammunition is the most widely used ammunition in its class. Our Premier STS and Nitro 27 target loads have won
more trophies at the Grand American Trap and World Skeet championship than any other brand. The Grand
American is believed to be the largest shooting tournament in the world and offers competitors the opportunity to
explore the most advanced products and services in the shooting industry.
Broad Product Portfolio
We have the broadest firearms, ammunition, components, parts and accessory portfolio in our industry.
This broad product portfolio provides a wide assortment of choices and options for end-users, enables us to be a key
supplier to our commercial, law enforcement and military customers and creates significant cross-selling and
bundling opportunities. The breadth and scale of our product portfolio also provides us with leverage in the
distribution channel, enabling us to optimize the mix of our products sold to our retailer and distributor customer
base. Our product portfolio consists of:

Long Guns: We provide a full product line of both shotguns and rifles. Our long gun products range
in price from entry level, sold under the Harrington & Richardson brand, to the aspirational, handcrafted firearms sold under the Parker Gun and Dakota brands, in addition to our core brands of
Remington and Marlin. Our pricing strategy enables us to build lifetime relationships and brand
loyalty with our customers. We believe that we offer the widest variety of products of any long gun
manufacturer.

Handguns: In 2010, we re-entered the handgun market after 91 years with the introduction of the
Model 1911 R1 pistol. Since re-entering this market, we have continued to expand on the popularity
of the 1911 R1 with products including the 1911 R1 Stainless, the 1911 R1 Threaded Barrel, and most
recently, the 1911 R1 Carry and R1 Carry Commander. In 2012, we further expanded our handgun
business with the acquisition of Para USA, Inc., a producer of 1911 style handguns.

MSRs: Through our Bushmaster and DPMS brands, we held the #1 market share position in the core
MSR category in 2012. Within the MSR market, we have also recently made acquisitions that enable
us to provide components and parts to customize MSRs, allowing us to generate additional sales to
existing customers, with component systems and parts often yielding higher margins than complete
rifles.

Ammunition: We believe our prominence in the ammunition market and ability to leverage brand
loyalty creates a recurring and growing revenue stream in ammunition to complement our firearms
business. We currently produce over 1,100 SKUs of ammunition (loaded rounds and components) in
60 calibers and gauges for use across the entire spectrum of firearms, including centerfire rifles, rimfire
rifles, shotguns, and handguns, at a variety of price points and for a broad range of applications.

Accessories / Other: We sell a wide variety of accessories that leverage our core brands, including gun
care and cleaning products and folding and collectible knives. We also license our trademarks to a
carefully selected number of third parties that manufacture sporting and outdoor products in order to
expand our brand recognition, enhance our ability to market our core products and generate attractive,
high margins.
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Multiple Distribution Channels, Reaching Diverse End-Markets
We believe the combination of our strong brands, broad product assortment, leading market share and
ability to offer both firearms and ammunition has made us a key partner with commercial retailers and distributors.
Unlike many of our competitors that sell their products exclusively to distributors, approximately 45% of our
commercial net sales in 2013 were directly to major retail and sporting goods chains, such as Cabela’s, Gander
Mountain, Academy Sports + Outdoors, Wal-Mart, Bass Pro Shops and Dick’s Sporting Goods. Our relationships
with these retailers enable us to develop favorable product mix and stocking strategies, ensuring that our full suite of
products is widely available to consumers while also serving to optimize our profitability. In addition, we maintain
strong relationships with major sporting goods distributors such as Sport South, AcuSport, Jerry’s Sport Center and
Ellett Brothers, which collectively accounted for approximately 30% of our commercial net sales in 2013. We also
have strong relationships with dealers and shooting ranges, and actively work to grow net sales within these
channels.
In addition to our significant commercial business, we sell products to law enforcement, government and
military end-markets in the U.S. and internationally. These markets represented approximately 5% of net sales in
2013. Our current customers include, among others, the Texas Department of Public Safety, Los Angeles County
Sheriff’s Department, Los Angeles Police Department, the California Highway Patrol, the Federal Law Enforcement
Training Center (―FLETC‖), SOCOM, the U.S. Secret Service, and important U.S. foreign allies. Although these
end-markets comprise a smaller portion of our total net sales than our commercial business, we believe that the
research and development investments in our military and law enforcement business generates significant benefits to
our overall product portfolio and creates an aspirational aspect to similar products that we sell to consumers.
Differentiated, Customer-Focused Sales and Marketing Approach
We have shifted our business from a manufacturing-based ―push system,‖ in which product volumes and
mix are determined based on available capacity, to a customer-focused ―pull system,‖ in which customer preference
and consumer demand determine manufacturing decisions. We are able to determine what products customers
demand by mining our extensive and proprietary database of consumer data and we believe we are an industry
leader in capturing and analyzing point-of-sale statistics from key customers and distributors.
We continue to grow our sales force and have transitioned to a two-tiered structure whereby dedicated key
account managers sell our full product offering to our top five retail and top 11 wholesale accounts, while our
internal field sales force calls on a network of approximately 750 distributors and dealers. We believe this sales
structure has led to better mix management and has provided the ability to leverage our flexible manufacturing
capacity to quickly respond to changes in consumer preferences and demands. Our transition from a manufacturingbased ―push system‖ to a customer-focused ―pull system‖ has also significantly reduced our use of third-party, nonexclusive sales representatives.
Significant Capital Investment to Increase Earnings
In order to enhance our mix management through flexible manufacturing and to meet the demand for our
products, a sizable portion of which has gone unsatisfied in recent years, we have embarked on a significant capital
investment program that will add capacity to our manufacturing operations at attractive margins. During 2012 and
2013, we invested approximately $28.1 million and $59.2 million in capital expenditures, respectively. The
majority of this investment is above our annual historical capital expenditure rate of approximately $25 million per
year, and is focused on product categories that are experiencing historically high demand such as ammunition,
hunting rifles, shotguns and our new pistol product lines. This investment will also spur the introduction of new
products in each of our key categories. The largest individual capital investment initiative we are undertaking is an
approximately $30 million capacity expansion at our Lonoke ammunition factory. This production facility,
expected to come on-line in the second half of 2014, will significantly expand our centerfire pistol and revolver
(―P&R‖) ammunition capacity, enabling us to meet the robust industry-wide demand for these rounds. In addition to
capacity expansion to meet demand, our capital investment program is also a key to our margin improvement
initiative, as new and more efficient machines enable us to realize lower manufacturing costs.
Proven and Experienced Management Team and Board of Directors
We are led by a senior management team with substantial industry and related operational, sales and
marketing and financial experience. Our Chairman and Chief Executive Officer, George Kollitides II, has over 22
years of experience in acquiring, financing, operating and growing businesses. Mr. Kollitides was employed at
6
Cerberus Capital Management, L.P. (―CCM‖) from 2003 until 2012, where he was the architect of the strategy that
formed our company. Our Chief Financial Officer and board member, Ronald E. Kolka, has over 25 years of
experience in finance and is the former Chief Financial Officer of Chrysler Motors LLC. In April 2012, we hired
Kevin Miniard as our Chief Operating Officer. Mr. Miniard brings 20 years of operations experience in leadership
roles with globally recognized companies such as Toyota and Smith & Nephew Medical.
Our Growth Strategy
We intend to grow our revenue and earnings pursuant to the following strategies:
Strategically Invest Capital to Increase Capacity and Efficiency
We have undertaken a capital investment program under which we have spent more than $80 million in
2012 and 2013 in equipment and new product innovation to increase capacity and improve overall production
efficiency through enhanced mix management and flexible manufacturing. Our capital investment strategy targets
increasing production capacity in product lines and categories with attractive margins and persistent unsatisfied
demand. This strategy is demonstrated by the initiative we are undertaking at our Lonoke ammunition factory. The
Lonoke facility expansion, expected to come on-line in the second half of 2014, will considerably increase our
centerfire P&R ammunition capacity, enabling us to meet the significant industry-wide demand for P&R rounds
while expanding margins.
Continued Focus on Innovation and New Product Development
We believe that continuously developing innovative new products and improving existing offerings is
paramount to the success of businesses in our industry. We introduced several new products in 2012 and 2013, and
we plan to introduce more new products in 2014 than in any other year of our almost 200-year history. We will
introduce new products in each of our major categories.

Long Guns: New long gun products for 2013 included the Remington Model 783 bolt-action centerfire
rifle, which is positioned to capture market share in the mid-level price point hunting rifle category.
We have also continued to grow and expand in the autoloading shotgun category with the introduction
of the Versa Max Sportsman series, bringing the patented Versa Port gas system into reach for a larger
segment of the overall marketplace. In 2014, we plan to introduce a new shotgun platform that is
specifically designed for female and youth shooters.

Handguns: After re-entering the handgun market in 2010, we have continued to expand on the
popularity of the 1911 R1 with products including the 1911 R1 Stainless, the 1911 R1 Threaded
Barrel, and most recently, the 1911 R1 Carry and R1 Carry Commander. In 2014, we expect to
introduce new handgun platforms, which will significantly expand our handgun offering beyond our
current 1911 range and broaden our participation into new handgun market segments. Our first new
handgun platform in 2014 will be the introduction of the Remington R51 Subcompact Pistol, which
will compete in the fast-growing concealed carry handgun market.

MRSs: In 2014, within our DPMS MSR portfolio, we introduced the 308 GEN II firearm, which, while
approximately two pounds lighter than competing products, will still enhance performance over those
products, and a line of DPMS MSRs in hunting calibers, which will capitalize on the weight reduction
technology developed in conjunction with the 308 GEN II.

Ammunition: We have developed a variety of new ammunition products including our Hypersonic
Steel Shotshell, HyperSonic Bonded Rifle ammunition, Hog Hammer Rifle ammunition and Ultimate
Defense P&R ammunition combination packs, as well as High Terminal Performance (―HTP‖) P&R
and target products focusing on our consumers’ demands. In 2013, we successfully introduced a new
TAC-XPD Defense ammunition line under the Barnes brand that has been engineered to provide a
customized solution for personal carry or home defense. In 2014, we plan to introduce Remington
SubSonic Suppressor Loads and a portfolio of advanced slug offerings, marketed under the Barnes
brand. In 2014, we have introduced a Remington portfolio of advanced slug offerings, marketed under
the Remington and Barnes name, as well as the new Remington Ultimate Defense Compact Handgun
and Golden Saber Black Belt Handgun ammunition, and the new Remington Hypersonic Slug.
7

Accessories / Other: We have numerous new accessory products and existing product extensions in
development, with planned introductions in 2014 and beyond. These initiatives support our strategy to
leverage the strength of the Remington brand by selling a variety of outdoor products in order to
provide an increasing share of the equipment, apparel and accessories upon which the outdoorsman
relies. We continue to strategically expand our licensing portfolio. We have over 20 licensing partners,
which provide brand relevant products and services to the outdoorsman. Examples include truck
accessories, logo wear, sporting dog products and guided hunting trips.
Continue to Optimize Manufacturing Operations
In addition to increasing capacity to meet demand that has historically exceeded production, our
management team is focused on optimizing operations through the adoption of lean manufacturing, six sigma, and
other continuous improvement projects focused on inventory and supply chain management, cost reductions and
productivity. Our manufacturing optimization plan also includes the potential to expand our production capacity
while shifting to higher margin products. We expect these efforts will collectively help our drive toward
manufacturing to orders as opposed to manufacturing to safety stock, which will also carry working capital benefits.
Our continuous cost and production volume improvements continue to be our organization’s focus as we build and
optimize our world class manufacturing platform. In February 2014, we agreed to acquire a facility in Huntsville,
Alabama, in order to increase capacity and expand research and development capabilities.
Increase Commercial Market Share
Our industry is currently experiencing strong demand due in part to what we believe to be the changing
dynamics and demographics of the hunting/shooting consumer, as well as the growing popularity of outdoor sports
and lifestyle. Due to the combination of our strong brands, leading market positions and ability to offer a suite of
firearms and ammunition at various price points, we have experienced greater demand for our products than we have
been able to satisfy over the last several years. Between 2009 and 2012, we estimate that we had average annual
unsatisfied demand of approximately $110 million and $100 million for our firearms and ammunition, respectively.
We expect to grow our commercial market share by leveraging our strong brand and product portfolio with our
dedicated sales force to increase shelf space. Twenty-four hour availability and control of e-commerce platforms
offers a new channel to grow our commercial market share. Support for all business channels will come from our
increased focus on social media by leveraging our brand ambassadors and engaging consumers to shape purchase
decisions.
Further Penetrate the Domestic and International Defense and Law Enforcement Channels
We focus our research efforts on developing products in advance of key emerging firearms solicitation
windows for the U.S. government and allied foreign militaries. We have supplied products to the military and law
enforcement channels for over 195 years, leading the military sniper rifle market since the Vietnam era. We were
recently awarded the SOCOM precision sniper rifle contract under which we will provide a complete system
including the rifle, suppressor and ammunition to the U.S. government. We use key relationships to identify defense
and law enforcement needs in anticipation of formal bids, so that research and development investments are focused
on providing products that meet those needs. We are developing several products specific to the anticipated
requirements of U.S. foreign allies, including a 7.62mm semi-automatic sniper system and several personal defense
weapons that we believe will help us improve our international sales efforts. We believe we are a well-positioned
player in this growing global market, as we are able to offer full firearms and ammunition solutions to existing and
new foreign military customers and have been awarded several contracts from allied militaries. We believe that the
research and development investments in our military business have a positive impact on our commercial markets as
consumers ascribe significant brand recognition to, and aspire to own, products used by some of the most discerning
end-users in the world.
Pursue Acquisitions and Strategic Investments
We are committed to enhancing our core businesses and positioning our company to take advantage of
opportunities to strategically grow and improve by identifying and pursuing strategic acquisitions or investments
that expand and enhance our brand, product, supply chain and intellectual property portfolio. We seek to acquire
highly complementary products, brands or external capabilities to expand our product portfolio or extend our brands
and channel relationships. In particular, we will pursue acquisitions that extend our product offerings in handguns,
enhance our ability to better service military and law enforcement markets and extend our reach into accessories
markets that strengthen our brand portfolio.
8
We have a proven track record of successfully identifying and integrating acquisitions, as demonstrated by
the integration of our brands and significant ongoing operational improvements. We have built and strengthened our
family of brands and products primarily through the successful integration of our acquisitions.
We have continued to strategically pursue and successfully integrate acquisitions and arrangements that
complement our existing product base. As demonstrated in the table below, we have completed and successfully
integrated 18 acquisitions across all of our platforms since 2006. These acquisitions have allowed us to better
compete in each of our key categories: long guns (Remington, Marlin, Parker, H&R, Dakota), handguns
(Remington, Para), MSRs (Remington, Bushmaster, DPMS, AAC), ammunition (Remington, Barnes, UMC) and
Accessories / Other (AAC, TAPCO, Mountain Khakis, Dublin Dog, Storm Lake).
Company
Bushmaster
Remington
The Parker Gun
DPMS Firearms, LLC
The Marlin Firearms Company and its subsidiary H&R 1871, LLC
Dakota
S&K
AAC
Barnes
Mountain Khakis
Para USA, Inc.
TAPCO
LAR
Ultimate Firearms
Dublin Dog
TMRI
SMK
Storm Lake
Date
April 2006
May 2007
May 2007
December 2007
January 2008
June 2009
September 2009
October 2009
December 2009
May 2010
January 2012
November 2012
November 2012
November 2012
December 2012
December 2012
March 2013
August 2013
Financial Information about Segments and Geographic Areas
We operate our business under two reporting segments: (1) our ―Firearms‖ segment, which designs,
manufactures and markets primarily sporting shotguns, rifles, handguns, modular firearms and airguns; and (2) our
―Ammunition‖ segment which designs, manufactures and markets primarily sporting ammunition and ammunition
reloading components. Our ―All Other‖ category combines our other operating segments, including accessories,
silencers, other gun-related products, licensed products and lifestyle products, including apparel and pet accessories.
The following table sets forth our sales for our reportable operating segments for the periods shown:
Year Ended December 31,
Firearms
Ammunition
All Other
Totals
2013
$
$
739.7
436.5
92.0
1,268.2
2012
$ 550.9
331.8
49.3
$ 931.9
2011
$ 425.8
313.8
35.4
$ 775.0
Our Products
Firearms
We design, manufacture and market our firearms primarily under the Remington, Marlin, Bushmaster,
DPMS, H&R, Parker, Dakota and Para brand names. Through our diversified portfolio of brands, we offer a wide
variety of firearms and components, which enable gun enthusiasts to build and continually upgrade and customize
our products. Our brand strategy allows us to address a variety of end-user preferences across price points, ranging
from hunting and shooting sports to government, military and law enforcement applications that in each case are
equally attractive to both beginner and accomplished shooters. This strategy also allows us to build strong brand
awareness and generate attractive cross-selling opportunities. As the largest firearms manufacturer in the United
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States, we sold approximately 1.8 and 1.4 million firearms during the years ended December 31, 2013 and 2012,
respectively.
Key Products

Long Guns: Our most popular Remington long guns are the Model 870 pump-action shotgun, the
Model 1100 and Model 11-87 auto-loading shotguns, the Model 700 and the Model 770 centerfire
rifles and the Model 597 rimfire rifle. Remington long guns are offered in versions that are marketed
to both novices and experienced gun owners. Marlin is synonymous with lever and rimfire rifles. The
Model 336, Model 1895 and Model 1894 lever-rifles are designed for high performance and durability
across multiple medium and large centerfire calibers. Marlin also produces the Model 39A lever
action rimfire rifle, which is the longest continuously manufactured rifle in the world, having
commenced production in 1891 and been used by Annie Oakley. Under our Dakota, Nesika and
Parker brands, we offer premium, aspirational shotguns and rifles.

Handguns: Our Remington 1911 R1 semi-automatic pistol was introduced in 2010. The R1 product
range continued to expand in 2012 and 2013 and has become one of the leading brands of 1911 pistols.
Para USA, Inc., acquired in January 2012, manufactures semi-automatic 1911 style handguns for
discriminating 1911 enthusiasts, using single stack and innovative double stack magazines to deliver
higher capacity for competition shooting and personal protection. In addition, the Para line includes
models with the light double action (LDA™) trigger systems as part of its innovative design. During
2013, the Para line was expanded beyond the .45 Auto caliber, to now include 9mm and .40S&W
calibers in the popular 1911 format.

MSRs: Our Bushmaster brand is well-known for its superior quality and highly advanced MSRs, used
worldwide in the commercial, law enforcement, international and military markets. Bushmaster
includes a wide range of products with a primary focus on the .223 and 5.56mm caliber and innovative
products such as the Bushmaster ACR and caliber offerings such as the .50 BMG and .450 Bushmaster
with several new platforms currently under development. Our DPMS brand is an innovator of MSRs
with a broad range of caliber offerings such as .308, .338 and .243. In addition, DPMS produces a
range of upper and lower assemblies, stocks and other gun components to a diverse customer base
including dealers and end-users. We also offer the R-15 and R-25 MRSs for hunting use through our
Remington brand.
Firearm Product Introductions
In 2013, we introduced the Remington Model 783 bolt-action centerfire rifle, which we believe will capture
market share in the mid-level price point category. We continue to grow and expand in the autoloading shotgun
category with the introduction of the Versa Max Sportsman series, bringing the reliability of the patented Versa Port
gas system into reach for a larger segment of the overall market place. Additionally, 2013 marked the 50th
anniversary of the legendary Remington Model 1100, one of the most popular shotguns of all time. To memorialize
this historic milestone, we have introduced a Limited Edition 50 th anniversary model.
In 2012 and 2013, we continued expansion of the Remington 1911 R1 handgun line with the R1 Carry and
R1 Carry Commander, both targeted at the fast-growing concealed carry pistol segment. During 2013, we expanded
the Para line to include higher-end models, such as our Executive Agent, Black Ops Recon, LDA Officer and LDA
Agent and expanded calibers to include 9mm and .40S&W models.
We will continue to innovate and introduce new products. We plan to introduce a greater number of new
products in 2014 than any year in the history of our company. These new product introductions will span the major
categories within our portfolio, including long guns, handguns, MSRs and ammunition.
Ammunition
We sold approximately 3.1 billion and 2.1 billion rounds of ammunition during the years ended
December 31, 2013 and 2012, respectively, making us one of the largest manufacturers of commercial ammunition
in the United States. The National Rifle Association estimates that approximately 70-80 million people in the
United States owned approximately 300 million firearms in 2010, creating a large installed base for our ammunition
products. As one of only two major manufacturers of both firearms and ammunition in the United States, we believe
10
our ability to manufacture and sell ammunition creates a unique competitive advantage within the industry, allowing
us to solidify and extend our existing long-term relationship with our loyal customer base.
Key Products
Our most popular ammunition products include Remington Core-Lokt centerfire rifle ammunition, Premier
STS and Nitro 27 shotgun target loads, which have won more trophies at the Grand American Trap and World Skeet
championship than any other brand. In addition to copper lead-free bullets, Barnes is a supplier of loaded
ammunition with their Barnes Vor-TX ammunition, including copper-tin composite core bullets.
Ammunition Product Introductions
We focus our product development efforts on introducing new products that satisfy the need for
specialized, high-performance ammunition. Recent ammunition product introductions have focused on developing
exclusive or proprietary technology with applications for the performance oriented hunting segments, personal
defense and special application law enforcement and military needs. Multiple recent product launches include our
Hypersonic Steel Shotshell and Hypersonic Slug, HyperSonic Bonded Rifle ammunition, Hog Hammer Rifle
ammunition, Ultimate Defense P&R ammunition combination packs, Ultimate Defense Compact Handgun
ammunition, Golden Saber Black Belt and HTP P&R.
In addition, the Barnes VOR-TX Rifle ammunition line continues to grow. This year, Barnes also
introduced the new TAC-XPD Defense ammunition line that has been engineered to provide a solution for personal
carry or home defense.
Accessories / Other
We sell a wide variety of branded accessories, including gun care and cleaning products, folding and
collectible knives and specialty outdoor apparel. We believe we are one of the top brands in complete firearm care,
including cleaning chemicals, tools and kits. In order to better serve our consumers, we also offer them access to
these products through our online store.
In addition to offering a wide range of Remington branded accessories to the commercial market, we sell a
full line of accessory products to military, law enforcement and commercial markets through our AAC brand. We
design and market men’s and women’s clothing for the specialty outdoor apparel segment through 1816 and
Mountain Khakis. We are also committed to growing our accessories line through innovation with a pipeline of
products ranging from everyday apparel to accessories created to satisfy outdoor lifestyles. That commitment is
exemplified by our acquisition of TAPCO, a designer and marketer of American-made aftermarket accessories for
firearms, in late 2012. In March 2013, we acquired SMK, a leading participant in the UK airgun market, with the
strategy of expanding our European footprint by launching a full line of airguns and related accessories through its
U.S. distribution network beginning in 2014.
We also license our trademarks to carefully selected third parties that manufacture and market sporting and
outdoor products that complement our product lines. Currently, our trademarks are licensed for use on, among other
things, apparel, caps, gun cases, tree stands, wildlife feeders, dog equipment, safety and security products, gun safes,
and various other novelty goods. We strive to ensure that the quality, image and appeal of these licensed products
are consistent with our brands’ images and the high-quality nature of our products. We believe that these licenses
increase market recognition of our brands, enhance our ability to market our core products and generate attractive,
high margin income. Additionally, we believe there are significant additional opportunities for our licensed
products as consumer preference is continuing to move toward an outdoor lifestyle.
Competition
Product image, performance, quality and innovation are the primary competitive factors in the firearms
industry, with price and customer service also being important. Our shotgun products compete with products
offered by O.F. Mossberg & Sons, Inc., Winchester, Browning Arms Company and Fabbrica d’Armi Pietro
Beretta S.p.A. Our centerfire and rimfire rifles compete with products offered by Sturm, Ruger & Co., Inc., Savage
Arms, Inc. (a subsidiary of Alliant Techsystems), Browning Arms Company. Our MSR products compete with Colt
Defense, FN Herstal, Smith & Wesson, Rock River Arms, Stag Arms and Armalite.
11
In the ammunition market, we compete with the Winchester division of Olin Corporation and Federal
Cartridge Co., a subsidiary of Alliant Techsystems. Additionally, some imported ammunition brands compete in the
domestic market.
Manufacturing
We are one of the largest manufacturers of firearms in the United States. Approximately 60% of our
revenue in 2013 was derived from our two key firearms facilities in Ilion, New York and Mayfield, Kentucky and
our primary ammunition plant in Lonoke, Arkansas, which has achieved ISO 9001-2000 certification. In addition,
we manufacture firearms in Sturgis, South Dakota; St. Cloud, Minnesota; Pineville, North Carolina and Kalispell,
Montana and ammunition in Sturgis, South Dakota and Mona, Utah. Certain of these facilities also provide factory
repair services. We also have a firearm accessory manufacturing facility in Lawrenceville, Georgia and firearm
component manufacturing facilities in Lexington, Missouri; West Jordan, Utah and Lenoir City, Tennessee.
Seasonality
Although the sales of many of our products fall outside the September through December hunting season, a
portion of our sales are seasonal and concentrated toward the fall hunting season. As a result of the seasonal nature
of our sales and the payment terms under our billing practices, our historical working capital financing needs
generally have exceeded cash provided by operations during certain parts of the year. As a result, our working
capital financing needs tend to be greatest during the spring and summer months, decreasing during the fall and
reaching their lowest points during the winter.
Supply of Raw Materials
We have augmented and integrated our facilities and supply chain and have focused on improving our
operating efficiency. To manufacture our various firearms, ammunition and related products, we utilize numerous
raw materials, including steel, wood, lead, brass, powder and plastics, as well as parts purchased from independent
manufacturers. We have completed numerous lean manufacturing projects and six sigma efforts focused on supply
chain optimization.
For a number of our raw materials, we rely on a limited number of suppliers. For example, our brass strip,
lead and smokeless powder requirements in the United States and Canada are supplied by a few key vendors.
Where machining processes on certain of our firearms components are performed by a limited number of vendors,
we are actively pursuing in-house capabilities to mitigate supply chain dependency associated with our products.
See ―1A.—Risk Factors—Risks Related to Our Business—We are dependent on a number of key suppliers. Loss of
or damage to our relationships with these suppliers could have a material adverse effect on our business, financial
condition, results of operations or cash flow.‖
We have long-term relationships with most of our vendors and believe that all such relationships are good,
and do not currently anticipate any material shortages or disruptions in supply from these vendors.
The price and availability of production materials are affected by a wide variety of interrelated economic
and other factors, including alternative uses of materials and their components, changes in production capacity,
energy prices, commodity prices and governmental regulations. Specifically, some of our manufacturing sites have
experienced volatility in acquisition costs related to purchases of metals and other materials related to our business,
increased processing charges and increased energy costs. See ―7.—Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources‖ and ―7A.—Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Analysis
of Market Risk.‖
Service and Warranty
We have support service and repair facilities for our firearms products in order to meet the service needs of
our distributors, customers and consumers nationwide. We provide warranties for our new firearms products
manufactured in the United States to the original purchaser for defects in material and workmanship for periods of
one to five years, which commence on the registered date of purchase by the end consumer. Our imported firearms
products are warranted by our vendors for a period of one year commencing with the registered date of purchase by
the end consumer. We also provide limited warranties for our ammunition products. Warranty costs associated with
these programs were $5.7 million, $6.4 million and $5.2 million for each of the years ended December 31, 2013,
2012 and 2011, respectively.
12
Marketing and Distribution
We are a leading global manufacturer of firearms, ammunition and related products with a diverse portfolio
of category-defining brands including Remington, Marlin, Bushmaster, Barnes Bullets, AAC and DPMS. We sell
products to the commercial, law enforcement, international, government and military end-user markets.
We have shifted our business from a manufacturing-based ―push system,‖ in which product volumes and
mix are determined based on available capacity, to a customer-focused ―pull system,‖ in which customer preference
and consumer demand determine manufacturing decisions. We are able to determine what products customers
demand by mining our extensive and proprietary database of consumer data and we believe we are an industry
leader in capturing and analyzing point-of-sale statistics from key customers and distributors. Additionally, key
account managers have access to the full suite of our products, further leveraging our retail partners to assist in long
range sales planning.
We continue to grow our sales force and have transitioned to a two-tiered structure whereby dedicated key
account managers sell our full product offering to our top five retail and top 11 wholesale accounts, while our
internal field sales force calls on a network of approximately 750 distributors and dealers. We believe this sales
structure has led to better mix management and has provided the ability to leverage our flexible manufacturing
capacity to quickly respond to changes in consumer preferences and demands. This investment and effort has
significantly reduced our use of third-party, non-exclusive sales representatives.
We believe the combination of our strong brands, broad product assortment, leading market share and
ability to offer both firearms and ammunition has made us a key partner with domestic commercial retailers and
distributors. Unlike many of our competitors that sell their products exclusively to distributors, approximately 45%
of our commercial net sales in 2013 were made directly to major retail and sporting goods chains, such as Cabela’s,
Gander Mountain, Academy Sports + Outdoors, Wal-Mart, Bass Pro Shops and Dick’s Sporting Goods. We also
maintain strong relationships with major sporting goods distributors such as Sport South, Acusport, Jerry’s Sport
Center and Ellett Brothers, which collectively accounted for approximately 30% of our commercial net sales in
2013. In addition, we have strong relationships with dealers and shooting ranges and actively work to grow net sales
within these channels.
In addition to our significant commercial business, we also sell products to law enforcement, government
and military end-markets in the U.S. and internationally. These markets represented approximately 5% of net sales
for the year ended December 31, 2013. Our current customers include, among others, the Texas Department of
Public Safety, Los Angeles County Sheriff’s Department, Los Angeles Police Department, the California Highway
Patrol, FLETC, SOCOM, the U.S. Secret Service and important U.S. foreign allies.
We are increasing our presence in social media as consumers become more comfortable with technology
and the ease of access improves across all demographics. While broadcast and digital marketing are important, print
publications, press relations and print advertisements are a critical component of our marketing strategy.
Geographic Areas
Net sales from customers outside of the United States were $82.2 million, $72.4 million and $66.8 million
for each of the years ended December 31, 2013, 2012 and 2011, respectively. Net sales from customers in Canada
were $31.0 million, $28.5 million and $25.2 million for each of the years ended December 31, 2013, 2012 and 2011,
respectively. The carrying amounts of long-lived, tangible assets maintained outside of the United States were $0.6
million, $0.3 million and $0.3 million at December 31, 2013, 2012 and 2011, respectively.
Sales outside of the United States accounted for approximately 6%, 8% and 9% of our total net sales for the
years ended December 31, 2013, 2012 and 2011, respectively. Our sales personnel and manufacturers’ sales
representatives market to foreign distributors generally on a nonexclusive basis and for a one-year term.
Customer Concentration
Approximately 11%, 16% and 15% of our total net sales from all reportable business segments for the
years ended December 31, 2013, 2012 and 2011, respectively, consisted of sales made to one customer, Wal-Mart.
The loss of this customer or a substantial reduction in sales to this customer could adversely affect our financial
condition, results of operations or cash flows. No other single customer comprises more than 10% of total sales. No
material portion of our business is subject to renegotiation of profits or termination of contracts at the election of a
government or any other type of purchaser. See ―1A.—Risk Factors—Risks Relating to Our Business—A
13
substantial amount of our business comes from one ―national account‖ customer. Loss of business from this
customer could adversely affect our financial condition, results of operations or cash flows.‖
Research and Development
Our research and development team is focused on new product development and improving existing
products based on consumer needs and demands and in response to competition in the market. Research and
development expenditures for our continuing operations were approximately $16.6 million, $13.2 million and
$11.7 million in the years ended December 31, 2013, 2012 and 2011, respectively.
Patents, Trademarks and Copyrights
Our operations are dependent upon the Remington and Bushmaster trademarks and the Remington,
Bushmaster and DPMS logos. In addition, we also own, among others, the Marlin, H&R and Dakota trade names
and trademarks. Some of the other trademarks that we use, however, are nonetheless identified with and important
to the sale of our products. Our business is not dependent to a material degree on patents, copyrights or trade
secrets. We do not believe that the expiration of any of our patents will have a material adverse effect on our
financial condition or our results of operations. We likewise do not believe that any of our licenses of intellectual
property to third parties are material to our business, taken as a whole.
In June 2000, Remington formed RA Brands L.L.C. (―RA Brands‖), a Delaware limited liability company
and wholly-owned subsidiary of Remington, to which Remington transferred ownership of all of its patents,
trademarks and copyrights. RA Brands licenses such trademarks to Remington at an arm’s length royalty rate. In
July 2011, Remington contributed its interest in RA Brands to FGI Opco. In 2012, we acquired intellectual property
related to muzzle loading adapters for approximately $0.8 million. We believe that we have adequate policies and
procedures in place to protect our intellectual property.
Regulation
The manufacture, sale, purchase, possession, import, export, and use of firearms are subject to extensive
federal, state and local governmental regulations. The primary federal laws are the National Firearms Act of 1934
(―NFA‖), the Gun Control Act of 1968 (―GCA‖), the Arms Export Control Act of 1976 (―AECA‖) and the Internal
Revenue Code provisions applicable to the Firearms and Ammunition Excise Tax (―FAET‖), which have been
amended from time to time. The manufacture and import of firearms under NFA, GCA and the AECA are
administered and enforced by the Bureau of Alcohol, Tobacco, Firearms and Explosives through the Department of
Justice; permanent and temporary exports under the AECA are administered and enforced by the Directorate of
Defense Trade Controls through the Department of State and by the Bureau of Industry and Security through the
Department of Commerce; and the FAET is administered and enforced by the Alcohol and Tobacco Tax and Trade
Bureau through the Department of Treasury. We maintain valid federal licenses and registrations at our locations as
required by these agencies for the Company to import, export, manufacture and sell firearms and ammunition. The
NFA places various additional restrictions on certain firearms defined in that law and its regulations including fully
automatic firearms, short barreled rifles, short barreled shotguns, silencers and destructive devices. We do
manufacture or import limited products regulated under the NFA primarily for official government and law
enforcement end users. The GCA places certain restrictions on the interstate sale of firearms, among other things.
The AECA requires approved licenses or other authorizations to be in place prior to the import or export of certain
defense articles, firearms, ammunition and explosives. The FAET imposes a federal tax on the sale of or use by the
manufacturer, producer or importer of firearms and ammunition. There is no assurance that the administrative
branches responsible for approving import and export licenses, authorizations or transfers of NFA firearms or other
firearms to our customers will do so in all cases, and failure to obtain such approvals could adversely affect our
business. In addition, changes in the tax laws or rates could adversely affect our business.
In September 2004, the United States Congress declined to renew the Assault Weapons Ban
(―AWB‖) which generally prohibited the manufacture of certain firearms defined under that statute as ―assault
weapons‖ as well as the sale or possession of ―assault weapons‖ except for those that were manufactured prior to the
law’s enactment. Various states and local jurisdictions have adopted their own version of the AWB and some of
those apply to Bushmaster, DPMS and certain Remington sporting firearms products. We cannot guarantee that an
―assault weapons‖ ban similar to the AWB, or another version thereof, will not be re-enacted. Legislation of this
type, if enacted, could have a material adverse effect on our business.
14
On January 16, 2013, as a result of some high-profile crimes by individuals involving firearms, President
Obama announced 23 proposed executive actions intended to reduce violent acts by individuals. These proposed
actions include requiring background checks for all gun sales, ensuring information on dangerous individuals is
available to the background check system, helping to ensure that individuals get mental health treatment, giving law
enforcement additional tools to prevent and prosecute crime, encouraging gun owners to store guns safely, and
making schools safer with more school resource officers. On April 17, 2013, the U.S. Senate voted down an
amended version of the gun background check proposed by President Obama. No assurance can be given as to
whether some or all of these actions will be adopted, and if they are adopted, the effect they may have on our
business, results of operations and financial condition.
At the federal level, 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 firearms.
Should such a mandatory database be established, the cost to the Company and its customers could be significant,
depending on the type of firearms and ballistic information included in the database. Other bills have been
introduced in Congress in the past several years that would restrict or prohibit the manufacture, transfer, importation
or sale of certain calibers of handgun ammunition, impose a tax and import controls on bullets designed to penetrate
bullet-proof vests, impose a special occupational tax and registration requirements on manufacturers of handgun
ammunition, and increase the tax on handgun ammunition in certain calibers.
In addition to federal requirements, state and local laws and regulations may place additional restrictions on
firearms and ammunition manufacture, sale, purchase, possession and use. For example, two states have established
regulations requiring ―ballistic imaging‖ registries of ammunition fired from new handguns. Within the past few
years, at least four states introduced, or currently have, bills proposing requirements for ―bullet serialization‖ for
ammunition or ―microstamping‖ capabilities for certain firearms. Some of these bills would apply to ammunition
and firearms of the kind we produce. California passed semi-automatic pistol microstamping legislation that went
into effect in March 2013. Several other states require firearms to be sold with internal or external locking
mechanisms. Generally, there are numerous other bills proposed at both the state and local levels that could restrict
or otherwise prohibit the manufacture, sale, purchase, possession or use of firearms and ammunition. In summary,
there can be no assurance that the regulation of firearms and ammunition will not become more restrictive in the
future, and more restrictive legislation could have a material adverse effect on the business of the Company.
Several states enacted new gun laws in 2013 intended to reduce violent acts by individuals. No assurance
can be given as to the effect such legislation may have on our business, results of operations and financial condition.
Although numerous jurisdictions presently have mandatory waiting periods for the sale of handguns (and
some for the sale of long guns as well), there are currently few restrictive state or municipal regulations applicable to
handgun (or long gun) ammunition. Our firearms are covered under several recently enacted state regulations
requiring guns to be sold with internal or external locking mechanisms. Some states are considering mandating
certain design features on safety grounds, most of which would be applicable only to handguns. There can be no
assurance that the regulation of firearms and ammunition will not become more restrictive in the future, and more
restrictive legislation in this area could have a material adverse effect on the business of the Company.
Following legislation, we are no longer a defendant in any lawsuits brought by municipalities against
participants in the firearms industry. In addition, legislation has been enacted in approximately 34 states precluding
such actions. Similar federal legislation, entitled ―The Protection of Lawful Commerce in Arms Act‖ was signed
into law by President Bush on October 26, 2005, after being passed by the U.S. Senate in August 2005 and by the
House of Representatives in October 2005. However, the applicability of the law to various types of governmental
and private lawsuits has been challenged. Any court decision restricting the applicability of the law could adversely
impact the business of the Company.
We believe that existing federal and state regulation regarding firearms and ammunition has not had a
material adverse effect on our sales of these products to date. However, there can be no assurance that federal, state,
local or foreign regulation of firearms and/or ammunition will not become more restrictive in the future and that any
such development would not have a material adverse effect on our business either directly or by placing additional
burdens on those who distribute and sell our products or those consumers who purchase our products. In addition,
future incidents of violence by individuals involving firearms could increase pressure to adopt some or all of the
proposed regulations described above or spur additional regulatory proposals at the state and federal levels and call
for the adoption of such proposals. Any such development might have a material adverse effect on our business,
financial condition, results of operations or cash flows. See ―1A. —Risk Factors—Risks Relating to Our
Business—Our business is subject to extensive governmental legislation and regulation that may restrict our
15
operations, increase our costs of operations, or adversely affect the demand for our products by limiting the
availability and/or increasing the cost of our products.‖
Environmental Matters
Our operations are subject to a variety of federal, state and local environmental laws and regulations which
govern, among other things, the discharge of hazardous materials into the air and water, handling, treatment, storage
and disposal of such materials and remediation of contaminated soil and groundwater. We have programs in place
that monitor compliance with these requirements and we believe our operations are in material compliance with
them. In the normal course of our manufacturing operations, we are subject to occasional governmental proceedings
and orders pertaining to waste disposal, air emissions and water discharges into the environment. We believe that
we are in compliance with applicable environmental regulations in all material respects, and that the outcome of any
such proceedings and orders will not have a material adverse effect on our business.
Under the terms of a legacy asset purchase agreement from 1993 (―Purchase Agreement‖) with E.I. DuPont
Nemours & Company (―DuPont‖) relating to the Remington business (―Asset Purchase‖), DuPont agreed to retain
responsibility for certain pre-closing environmental liabilities. Remington also entered into an agreement with
DuPont with respect to cooperation and responsibility for specified environmental matters. See ―3.—Legal
Proceedings and Related Matters‖ and ―3. —Legal Proceedings and Related Matters—Certain Indemnities.‖ To
date, DuPont has honored its responsibilities under the Purchase Agreement, but no assurance can be given that it
will continue to do so in the future.
There are various pending proceedings associated with environmental liability for which DuPont and its
affiliates have accepted liability. Our obligations in these cases are not expected to be material.
Marlin has also conducted remediation activities at its former facilities. Costs for remediation are not
expected to be material.
Based on information known to us, we do not expect current environmental regulations or environmental
proceedings and claims to have a material adverse effect on our results of operations, financial condition or cash
flows. However, it is not possible to predict with certainty the impact of future environmental compliance
requirements or the cost of resolution of any future environmental proceedings and claims, in part because the scope
of the remedies that may be required is not certain, liability under some federal environmental laws is under certain
circumstances joint and several in nature, and environmental laws and regulations are subject to modification and
changes in interpretation. There can be no assurance that environmental regulation will not become more
burdensome in the future or that unknown conditions will not be discovered and that any such development would
not have a material adverse effect on our business. We do not anticipate incurring any material capital expenditures
for environmental control facilities for 2014.
Employees
As of December 31, 2013, we employed approximately 4,200 full-time employees, consisting of 3,800
regular employees and 400 temporary employees. Of the 4,200 employees, approximately 2,400 are engaged in
manufacturing and approximately 1,800 are engaged in sales, marketing, general administration and research and
development. An additional work force of temporary employees is engaged during peak production schedules at
certain of our manufacturing facilities.
As of December 31, 2013, approximately 1,200 employees were members of the United Mine Workers of
America (―UMWA‖) at our Ilion, New York manufacturing facility. The collective bargaining agreement with the
UMWA was renegotiated effective October 2012 and expires October of 2017. Employees at our other
manufacturing facilities are not represented by unions. There have been no significant interruptions or curtailments
of operations due to labor disputes since prior to 1968 and we believe that our relations with our employees are
satisfactory.
16
1A. RISK FACTORS
Risks Relating to Our Business
Our business is subject to extensive governmental legislation and regulation that may restrict our operations,
increase our costs of operations, or adversely affect the demand for our products by limiting the availability
and/or increasing the cost of our products.
The manufacture, sale, purchase, possession, import, export and use of firearms and ammunition are subject
to extensive federal, state and local and foreign governmental regulation. Future regulations may adversely affect
our operations by limiting the types of products that we can manufacture and/or sell, or imposing additional costs on
us or on our customers in connection with the manufacture and/or sale of our products. Such regulations may also
adversely affect demand for our products by imposing limitations that increase the costs of our products, making it
more difficult or cumbersome for our distributors or end users to transfer and own our products, or creating negative
consumer perceptions with respect to our products.
Current federal regulations include:
•
licensing requirements for the manufacture and/or sale of firearms and ammunition;
•
a national system of instant background checks for all purchases of firearms from federal license
holders, including purchases of our firearms products and purchases from license holders at gun
shows; and
•
a federal system of Department of State and Commerce Department licensing governing the
international sale, export and international distribution of firearms and ammunition.
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. Should such a
mandatory database be established, the cost to us, our distributors and our customers could be significant, depending
on the type of firearms and ballistic information included in the database. Bills have also been introduced in
Congress in the past several years that would affect the manufacture and sale of ammunition, including bills to
regulate the manufacture, importation and sale of armor-piercing bullets, to prohibit the manufacture, transfer or
importation of .25 caliber, .32 caliber and 9 mm handgun ammunition, and to increase or impose new taxes on the
sales of certain types of ammunition, as well as bills addressing the use of lead in ammunition. Certain of these bills
would apply to ammunition we produce, and accordingly, if enacted, could have a material adverse effect on our
business.
In September 2004, the United States Congress declined to renew the Federal Assault Weapons Ban of
1994 (―AWB‖), which generally prohibited the manufacture of certain firearms defined under that statute as ―assault
weapons‖ and the sale or possession of ―assault weapons.‖ Various states and local jurisdictions have adopted their
own version of the AWB, some of which apply to Bushmaster, DPMS and certain Remington sporting firearms
products. If a statute similar to AWB were to be re-enacted it could have a material adverse effect on our business.
On January 16, 2013, as a result of some high-profile crimes by individuals involving firearms, President
Obama announced 23 proposed executive actions intended to reduce violent acts by individuals. These proposed
actions include requiring background checks for all gun sales, ensuring information on dangerous individuals is
available to the background check system, helping to ensure that individuals get mental health treatment, giving law
enforcement additional tools to prevent and prosecute crime, encouraging gun owners to store guns safely, and
making schools safer with more school resource officers. On April 17, 2013, the U.S. Senate voted down an
amended version of the gun background check proposed by President Obama. No assurance can be given as to
whether these actions will be adopted, and if they are adopted, the effect they may have on our business, results of
operations and financial condition.
State and local laws and regulations may place additional restrictions on gun ownership and transfer as
described below.
•
There has been an increase in activity at the state level relating to more restrictive legislation intended
to reduce violent acts by individuals. The state of New York enacted a gun control act, the NY SAFE
17
ACT, in January 2013 that expands the state's ban on assault weapons, requires current owners of
assault weapons to register them with the police, requires background checks to buy ammunition, and
adds measures to keep guns away from the mentally ill. In addition, on March 20, 2013, Colorado
Governor John Hickenlooper signed new gun laws expanding background checks on gun purchases
and limiting the size of ammunition magazines.
•
Some other states have enacted, and others are considering enacting, legislation that restricts or
prohibits the ownership, use or sale of specified categories of firearms and ammunition. Many states
currently have mandatory waiting period laws in effect for the purchase of firearms, including rifles
and shotguns. Although there are few restrictive state or local regulations applicable to ammunition,
several jurisdictions are considering such restrictions on a variety of bases.
•
Some states have enacted regulations prohibiting the sale of firearms unless accompanied by an
internal and/or external locking device. In several states, this requirement is imposed on both handguns
and long guns. Some states are also considering mandating the inclusion of various design features on
safety grounds. Most of these regulations as currently contemplated would be applicable only to
handguns.
•
To date, two states have established registries of so-called ―ballistic images‖ of ammunition fired from
new guns. Although neither law mandates the inclusion of such ―imaging‖ data from long guns in their
registries, these or other states may do so in the future. Moreover, these laws do apply to our handgun
products. Proposed legislation in at least one other state would be applicable to our rifles and would
call for ―imaging‖ of both cartridges and projectiles.
We believe that existing federal and state legislation relating to the regulation of firearms and ammunition
has not had a material adverse effect on our sales of these products. However, the regulation of firearms and
ammunition may become more restrictive at any time in the future and any such development might have a material
adverse effect on our business, financial condition, results of operations or cash flows. In addition, future incidents
of violence by individuals involving guns could increase pressure to adopt some or all of the proposed regulations
described above or spur additional regulatory proposals at the state and federal levels and call for the adoption of
such proposals. Any such development might have a material adverse effect on our business, financial condition,
results of operations or cash flows. Finally, we may become subject to existing regulation as we enter into new
markets and develop and sell new products. Regulatory proposals, even if never enacted, may affect firearms or
ammunition sales as a result of consumer perceptions. See ―1.—Business—Regulation.‖
Although we are primarily a manufacturer of long guns and ammunition, the trends regarding firearms
regulation, as well as pending industry litigation, and the consumer perception of such developments, may adversely
affect sales of firearms, ammunition and other shooting-related products not relating to long guns by such means as
increasing costs of production and/or reducing the number of distribution outlets for our products.
Unfavorable publicity or public perception of the firearms industry could adversely impact our operating results
and reputation.
As a manufacturer of firearms and ammunition, our business is subject to risks associated with negative
public opinion. Recent incidents involving the firearms industry, including events of violence by individuals using
firearms, and the media coverage thereof, may adversely impact our reputation and, in the long run, the demand for
our products. Any negative publicity, whether or not tied to specific events, or an adverse outcome in litigation,
could adversely affect our business, financial condition, results of operations or cash flows and may expose us to
increased regulatory action.
Because of the nature of potential injuries relating to firearms and ammunition, certain negative public
perceptions of our products, and recent efforts to expand liability of manufacturers of firearms and ammunition,
product liability cases and claims, and insurance costs associated with such cases and claims, as well as related
class action claims alleging economic harm, may cause us to incur significant costs.
We are currently defending product liability litigation involving Remington brand firearms (including
firearms manufactured under the Marlin and H&R names) and our ammunition products (including ammunition
manufactured under the UMC and Peters names). As of December 31, 2013, approximately 44 individual bodily
injury cases or claims were pending, primarily alleging defective product design, defective manufacture and/or
18
failure to provide adequate warnings. Some of these cases seek punitive as well as compensatory damages. There
were no pending product liability cases involving our other brands. We also have several class action cases pending
relating to breach of warranty claims concerning certain of our firearms products where economic damages are
sought. In addition, to the extent our products are the subject of negative publicity related to alleged defects,
including by way of news stories, news articles or other forms of public or social media, related product liability
claims could increase.
The nature and extent of liability based on the manufacture and/or sale of allegedly defective products is
uncertain, particularly as to firearms and ammunition, and if we were to incur significant liability as a result of any
related claims, our resources may not be adequate to cover such claim and/or other pending and/or future product
liability and product related occurrences, cases or claims, in the aggregate, and such cases and claims which can
result in a material adverse effect upon our business, financial condition or results of operations. In addition,
insurance coverage for these risks is expensive and relatively difficult to obtain. Our insurance costs were
approximately $3.0 million and $2.4 million for the years ended December 31, 2013 and 2012, respectively. Any
inability to obtain insurance, any significant increases in the cost of insurance we obtain, or any losses in excess of
our insurance coverage could have a material adverse effect on our business, financial condition or results of
operations. DuPont has agreed to indemnify us for some of these losses, but no assurance can be given that they will
pay their obligations. See ―3.—Legal Proceedings.‖
Unfavorable market trends and regulatory concerns could adversely affect demand for our products and our
business.
We believe that a number of trends that currently exist may affect the hunting and shooting sports market:
•
the development of rural property in many locations has curtailed or eliminated access to private and
public lands previously available for hunting;
•
environmental issues, such as concern about lead in the environment, a component in our
manufacturing process; and
•
decreases in consumer confidence and levels of consumer discretionary spending.
These trends may have a material adverse effect on our business by impairing industry sales of firearms,
ammunition and other shooting-related products.
Government cuts in defense spending may have an adverse impact on our business.
On March 1, 2013, automatic spending cuts by the U.S. government included as part of the Budget Control
Act of 2011 (the ―BCA‖) became effective. Spending cuts under the BCA are evenly divided amongst defense
spending and domestic spending. For the year ended December 31, 2013, our net sales to law enforcement,
government and the military represented approximately 5% of our total net sales. We cannot at this time predict or
provide any assurances as to whether or not the spending cuts will remain in effect and, if they do, how they will
affect our business. To the extent the spending cuts remain in place, our sales to the U.S. law enforcement,
government and the military communities could be adversely affected, which in turn could have a material adverse
impact on our business, financial condition, results of operations or cash flows.
Our business is subject to economic and market factors beyond our control or ability to predict.
The sale of our 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 and shooting sports and related markets. As economic activity slows, consumer confidence and
discretionary spending by consumers decline. Competitive pressures arising from any significant or prolonged
economic downturn could have a material adverse impact on our financial condition and results of operations, and
such impact could be intensified by our leveraged condition.
19
Significant increases in commodity and energy prices could have a material impact on our financial condition,
results of operations or cash flows.
The manufacturing of our products is dependent upon the availability of raw materials such as lead, copper,
zinc, steel and brass. Increases in the prices of any of these raw materials as well as an increase in energy prices
could have a material impact on our financial condition. We can provide no assurance as to the future trends of these
conditions or to what extent future increases could be offset through customer price increases.
Our results of operations are affected by seasonal fluctuations in business, and, as a result, our customers’
inventory management practices have an effect on our business.
Many of our firearms products are purchased in anticipation of use during the fall hunting season. As a
result of the seasonal nature of our sales, our historical working capital financing needs generally have exceeded
cash provided by operations during certain parts of the year. Our working capital financing needs tend to be higher
during the spring and summer months, decreasing during the fall and reaching their lowest points during the winter.
In addition, we believe that, in the past, deteriorations in economic conditions have caused customers,
primarily dealers and chains, to defer purchases of our products until later in the core fall hunting seasons
(September through December) and to utilize lower inventory levels than during prior periods. This overall trend to
defer purchases continues to date, and there can be no assurance that such trends will not continue.
As a result of the seasonal nature of our sales and our customers’ inventory management practices, our
working capital financing needs may significantly exceed cash provided by operations during certain periods during
the year.
A substantial amount of our business comes from one “national account” customer. Loss of business from this
customer could adversely affect our financial condition, results of operations or cash flows.
Our dedicated sales force and key account managers market our products directly to national accounts
(consisting primarily of mass merchandisers) and to federal, state and local government agencies. Approximately
11%, 16% and 15% of our total sales for the years ended December 31, 2013, 2012 and 2011, respectively, were
attributable to one national account, Wal-Mart. Our sales to Wal-Mart are generally not governed by a written longterm agreement. In the event that Wal-Mart significantly reduces, terminates or incurs financial difficulty, its
purchases of firearms and/or ammunition from us, our financial condition, results of operations or cash flows, could
be adversely affected.
We have experienced a significant increase in demand for certain of our firearms and ammunition products
since the fourth quarter of 2012. There can be no assurance that this increased demand for these products will
continue.
Demand for firearms and ammunition has increased significantly since the fourth quarter of 2012, which
we believe has been due in part to increased consumer concern relating to more restrictive governmental regulation
on the federal, state and local levels. While we view this increase in demand as a significant long-term opportunity
to expand our customer base and strengthen our customer relationships, there can be no assurance that this increased
demand will continue or that demand will not decrease in the near or long-term. Any decrease in market demand for
our products could have a material adverse effect on our business, financial condition, results of operations or cash
flows. In particular, our operating results for the fiscal year 2014 may differ from prior years as this surge in demand
declines. As a result, we may experience a decline in sales and/or net income as compared to prior fiscal years and
these declines may be material.
We are dependent on a number of key suppliers. Loss of or damage to our relationships with these suppliers
could have a material adverse effect on our business, financial condition, results of operations or cash flows.
To manufacture our various products, we use many raw materials, including steel, zinc, lead, brass, copper,
plastics and wood, as well as manufactured parts purchased from independent manufacturers. An extended
interruption in the supply of these or other raw materials or in the supply of suitable substitute materials would
disrupt our operations, which could have a material adverse effect on our business, financial condition and results of
operations. Furthermore, we may incur additional costs in sourcing raw materials from alternative producers.
20
For a number of our raw materials, we rely on just a few suppliers and, in some instances, we have sole
supplier relationships. Alternative sources, many of which are foreign, exist for each of these materials. We do not,
however, currently have significant supply relationships with any of these alternative sources and, therefore the
materials may be more expensive. We cannot estimate with any certainty the length of time that would be required
to establish alternative supply relationships, or whether the quantity or quality of materials that could be so obtained
would be sufficient.
In addition, we rely on a limited number of vendors to perform machining processes on key rifle
components. Any disruption of the operations of one of our key vendors could materially impact our ability to obtain
certain rifle components. In the event that we lose one of our principal vendors, we may not be able to find an
alternative vendor in a timely manner, and as a result, our ability to produce rifles could be materially and adversely
affected.
We may not be able to compete successfully within our highly competitive markets, which could adversely affect
our business, financial condition, results of operations or cash flows.
The markets in which we operate are highly competitive. Product image, performance, quality, price and
innovation are the primary competitive factors in the firearms industry. Product differentiation exists to a much
lesser extent in the ammunition industry, where price is the primary competitive factor. Reductions in price by our
competitors in the ammunition industry could cause us to reduce prices or otherwise alter terms of sale as a
competitive measure, which could adversely affect our business, financial condition, results of operations or cash
flows.
Our competitors vary by product line. Some of our competitors are subsidiaries of large corporations with
substantially greater financial resources than us. Although we believe that we compete effectively with all of our
present competitors, we may not continue to do so, and our ability to compete could be adversely affected by our
significant amount of debt. See ―1.—Business—Competition.‖
An increase in revenues to government, law enforcement and military sales channels could result in increased
volatility and uncertainty to the timing of our sales revenues.
Government, law enforcement and military sales channels are typically in the form of contract sales
arrangements. We sell certain firearms and ammunition products to these channels. An increasing percentage of our
sales revenues could therefore be subject to contract negotiations. This trend could cause sales revenue amounts to
be increasingly volatile and uncertain with respect to the timing of orders.
We intend to evaluate acquisitions, joint ventures and other strategic initiatives, any of which could distract our
management or otherwise have a material adverse effect on our business, financial condition, results of
operations or cash flows.
Our future success may depend on opportunities to buy or obtain rights to other businesses or technologies
that could complement, enhance or expand our current business or products or that might otherwise offer us growth
opportunities. In particular, we intend to evaluate potential mergers, acquisitions, joint venture investments, strategic
initiatives, alliances, vertical integration opportunities and divestitures. However, we may not experience the
anticipated benefits of these transactions. In addition, we may be unable to effectively integrate any acquired
businesses into our organization, and may not succeed in managing such acquired businesses or the larger company
that results from such acquisitions. If we attempt to engage in these transactions, we expose ourselves to various
inherent risks, including:
•
accurately assessing the value, future growth potential, strengths, weaknesses, contingent and other
liabilities and potential profitability of acquisition candidates;
•
unanticipated expenses and potential delays related to integration of the operations, technology, and
other resources of the acquired companies;
•
the potential loss of key personnel of an acquired or combined business;
•
our ability to achieve projected operating synergies;
21
•
difficulties successfully integrating, operating, maintaining and managing newly-acquired operations
or employees;
•
difficulties maintaining uniform standards, controls, procedures and policies throughout our business;
•
unanticipated changes in business and economic conditions affecting an acquired business;
•
the possibility we could incur impairment charges if an acquired business performs below
expectations;
•
the potential strain on our financial and managerial controls and reporting systems and procedures;
•
exposure to legal claims for activities of the acquired business prior to acquisition; and
•
the diversion of management’s attention from our existing business to integrate the operations and
personnel of the acquired or combined business or implement the strategic initiative.
If any of the foregoing risks materializes, our results of operations and the results of the proposed
transactions would likely differ from our expectations and market expectations, and our stock price could,
accordingly, decline. In addition, we may not be able to complete desirable transactions for reasons including a
failure to secure financing or due to restrictions in agreements with third parties.
Environmental litigation and regulations may restrict or increase the cost of our operations and/or impair our
financial condition.
We are subject to a variety of federal, state and local environmental laws and regulations which govern,
among other things, the discharge of hazardous materials into the air and water, the handling, treatment, storage and
disposal of such materials, as well as remediation of contaminated soil and groundwater. We have programs in place
that monitor compliance with those requirements and believe that our operations are in material compliance with
them. In the normal course of our manufacturing operations, we are subject to governmental proceedings and orders
pertaining to waste disposal, air emissions and water discharges into the environment.
Based on information known to us, we do not expect current environmental regulations or environmental
proceedings and claims to have a material adverse effect on our financial condition, results of operations or cash
flows. However, it is not possible to predict with certainty the impact on us of future environmental compliance
requirements or of the cost of resolution of future environmental proceedings and claims, in part because the scope
of the remedies that may be required is not certain, liability under federal environmental laws is, under certain
circumstances, joint and several in nature, and environmental laws and regulations are subject to modifications and
changes in interpretation. Environmental regulations may become more burdensome in the future and any such
development, or discovery of unknown conditions, may require us to make material expenditures or otherwise
materially adversely affect the way we operate our business, as well as have a material adverse effect on our
financial condition, results of operations or cash flows.
We depend on others to indemnify us for certain losses related to environmental liabilities, but we have no
assurance that they will meet their obligations.
DuPont has agreed to indemnify us for certain environmental liabilities under the terms of a legacy asset
purchase agreement from 1993 with DuPont related to the Remington business, but there is no assurance that they
will continue to provide indemnification. We may be subject to substantial liabilities if DuPont does not fulfill its
obligations, which could have a material adverse effect on our business, financial condition, results of operations or
cash flows. See ―1.—Business—Legal Proceedings.‖
In addition, under the agreements pursuant to which we acquired certain of our other properties, we are
entitled to indemnification from the seller for certain environmental liabilities. However, the ability to collect on any
of these indemnification claims is subject to the financial condition of the seller of the property at the time a claim
arises. The seller might also dispute its obligation to indemnify us. Failure to collect on any such indemnification
22
claim for any reason could have a material impact on our business, financial condition, results of operations or cash
flows. See ―1.—Business—Environmental Matters.‖
Worse-than-assumed economic and demographic experience for our postretirement benefit plans (e.g., discount
rates, investment returns, and health care cost trends) could negatively impact our financial condition, results of
operations or cash flows.
We sponsor plans to provide postretirement pension and health care for certain of our retired employees.
The measurement of our obligations, costs and liabilities associated with these benefits requires that we estimate the
present values of projected future payments to all participants. We use many assumptions in calculating these
estimates, including discount rates, investment returns on designated plan assets, health care cost trends, and
demographic experience (e.g., mortality and retirement rates). To the extent that actual results are less favorable than
our assumptions there could be a substantial adverse impact on our financial condition, results of operations or cash
flows.
Our future pension costs and required level of contributions could be unfavorably impacted by changes in
actuarial assumptions and future market performance of plan assets, which could adversely affect our financial
condition, results of operations or cash flows.
We have defined benefit pension obligations. The funding position of our pension plans is impacted by the
performance of the financial markets, particularly the equity markets, and the discount rates used to calculate our
pension obligations for funding and expense purposes. Historical fluctuations in the financial markets have
negatively impacted the value of the assets in our pension plans. In addition, lower bond yields may reduce our
discount rates resulting in increased pension contributions and expense.
Funding obligations are determined under government regulations and are measured each year based on the
value of assets and liabilities on a specific date. If the financial markets do not provide the long-term returns that are
expected under the governmental funding calculations, we could be required to make larger contributions. The
equity markets can be very volatile, and therefore our estimate of future contribution requirements can change
dramatically in relatively short periods of time. Similarly, changes in interest rates can impact our contribution
requirements. In a low interest rate environment, the likelihood of higher contributions in the future increases. Under
the Employee Retirement Income Security Act of 1974, as amended (―ERISA‖), the Pension Benefit Guaranty
Corporation (―PBGC‖) has the authority to petition a court to terminate an underfunded tax-qualified defined benefit
pension plan under limited circumstances. In the event our tax-qualified defined benefit pension plans were
terminated by the PBGC, we could be liable to the PBGC for the entire amount of the underfunding, as calculated by
the PBGC based on its own assumptions (which might result in a larger obligation than that based on the
assumptions we have used to fund such plans). Finally, to the extent that any of our facilities’ closures results in a
cessation of operations event under ERISA, we may be required to post collateral or security in respect of its
associated or attributable unfunded liabilities.
A disruption to certain of our production and distribution facilities and headquarters could have a material
adverse effect on our financial condition, results of operations or cash flows.
The following facilities are critical to our success: Ilion, New York, Lonoke, Arkansas, Mayfield,
Kentucky, Memphis, Tennessee, St. Cloud, Minnesota and Madison, North Carolina. These facilities house our
principal production, research, development, engineering, design, shipping and headquarters functions. Any event
that causes a disruption to the operation of any of these facilities for even a relatively short period of time may have
a material adverse effect on our ability to produce and ship products and to provide service to our customers.
A significant disruption in our computer systems or a cyber security breach could adversely affect our operations.
We rely extensively on our computer systems to manage our ordering, pricing, inventory replenishment,
and other processes. Our systems are subject to damage or interruption from various sources, including power
outages, computer and telecommunications failures, computer viruses, cyber security breaches, vandalism, severe
weather conditions, catastrophic events and human error, and our disaster recovery planning cannot account for all
eventualities. If our systems are damaged, fail to function properly or otherwise become unavailable, we may incur
substantial costs to repair or replace them, and we may experience loss of critical data and interruptions or delays in
our ability to perform critical functions, which could adversely affect our business and operating results. Any
compromise of our data security could also result in a violation of applicable privacy and other laws, significant
23
legal and financial exposure, damage to our reputation, loss or misuse of the information, and a loss of confidence in
our data security measures, which could harm our business.
Resources devoted to research and development may not yield new products that achieve commercial success.
We devote significant resources toward research and development. The research and development process
is expensive, prolonged and entails considerable uncertainty. Development of a new firearms product typically takes
between two and three years. Because of the complexities and uncertainties associated with research and
development, products that we are currently developing may not complete the development process or obtain the
regulatory approvals required for us to market such products successfully. In addition, the development of new
products may take longer and cost more to develop and may be less successful than we currently anticipate.
We cannot ensure that any of our products currently in our development pipeline will be commercially
successful.
Our success depends on sustaining the strength of our brands.
The willingness of consumers to purchase our products depends in part upon our ability to offer attractive
brand value propositions. This in turn depends in part on consumers attributing a higher value to our products than
alternatives. If the difference in the value attributed to our products as compared to those of our competitors
narrows, or if there is a perception of such a narrowing, consumers may choose not to buy our products. If we fail to
promote and maintain the brand equity of our products, consumer perception of our products’ quality may be
diminished and our financial condition, results of operations or cash flows could be materially adversely affected.
We may also, from time to time, be the subject of new articles or stories that portray our brands in a negative light or
we may face other types of negative publicity related to our brands and products. Unfortunately, any type of adverse
publicity related to our brands may negatively affect our brand equity, regardless of whether the characterizations
are valid.
Our inability to protect our intellectual property or obtain the right to use intellectual property from third parties
could impair our competitive advantage, reduce our revenue, and increase our costs.
Our success and ability to compete depend in part on our ability to protect our intellectual property. We
rely on a combination of patents, copyrights, trade secrets, trademarks, confidentiality agreements and other
contractual provisions to protect our intellectual property, but these measures may provide only limited protection.
Our failure to enforce and protect our intellectual property rights or obtain the right to use necessary intellectual
property from third parties could reduce our sales and/or increase our costs. In addition, the laws of some foreign
countries do not protect proprietary rights as strictly as do the laws of the United States.
Even if we attempt to protect our intellectual property, patents may not be issued for the patent applications
that we have filed or may file in the future. Our issued patents may be challenged, invalidated, or circumvented, and
claims of our patents may not be of sufficient scope or strength, or issued in the proper geographic regions, to
provide meaningful protection. We have registered certain of our trademarks in the United States and other
countries. We may be unable to enforce existing trademarks or obtain new registrations of principle or other
trademarks in key markets. Failure to obtain or enforce such registrations could compromise our ability to protect
fully our trademarks and brands and could increase the risk of challenge from third parties to our use of our
trademarks and brands.
Labor disputes may cause work stoppages, strikes and disruptions.
The workforce at our Ilion, New York manufacturing facility is unionized and covered by a collective
bargaining agreement, which expires in October of 2017. Any labor disputes at this facility, including work
stoppages, strikes and disruptions, could have a material adverse impact on our business. In addition, from time to
time, we face union organizing activities at our other facilities. Although none of these activities have resulted in
employees at these facilities being represented by or joining unions, to the extent that were to occur, our labor costs
could increase significantly.
24
We have a substantial amount of indebtedness, which could have a material adverse effect on our financial
health and on our ability to obtain financing in the future and to react to changes in our business.
We have substantial indebtedness. As of December 31, 2013, we had $823.5 million of total indebtedness.
In addition, subject to restrictions in our debt instruments, we may incur additional indebtedness in the future. If new
debt is added to our current debt levels, the related risks that we now face could increase. Further, borrowings under
our Term Loan B and ABL Revolver bear interest at variable rates. Both debt instruments use LIBOR as their base
rate with minimum floors. If LIBOR rates increase above our debt instruments’ floor, our interest expense would
increase and we would have to devote more cash from our operations toward satisfying the additional interest.
Our significant amount of debt could limit our ability to satisfy our obligations, limit our ability to operate
our business and impair our competitive position. For example, it could:
•
make it more difficult for us to satisfy our obligations under the 2020 Notes, Term Loan B, or the ABL
Revolver;
•
increase our vulnerability to adverse economic and general industry conditions, including interest rate
fluctuations, because a portion of our borrowings are and will continue to be at variable rates of
interest;
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our debt,
which would reduce the availability of our cash flow from operations to fund working capital, capital
expenditures or other general corporate purposes;
•
limit our flexibility in planning for, or reacting to, changes in our business and industry;
•
place us at a disadvantage compared to competitors that may have proportionately less debt;
•
limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive
covenants in our debt agreements; and
•
increase our cost of borrowing.
In addition, we cannot assure you that we will be able to refinance any of our debt or that we will be able to
refinance our debt on commercially reasonable terms. If we were unable to make payments or refinance our debt or
obtain new financing under these circumstances, we would have to consider other options, such as:
•
sales of assets;
•
sales of equity; or
•
negotiations with our lenders to restructure the applicable debt.
Our debt instruments may restrict, or market or business conditions may limit, our ability to effectuate
some of our options.
Our debt instruments may restrict our current and future operations.
The indenture governing the 2020 Notes and the credit agreements governing the ABL Revolver and the
Term Loan B impose significant operating and financial restrictions on us and our subsidiaries. These restrictions
limit our ability and the ability of our subsidiaries to, among other things:
•
incur or guarantee additional debt, incur liens, or issue disqualified or preferred stock;
•
declare or make distributions to our stockholders, repurchase equity or prepay subordinated debt;
•
make loans and certain investments;
25
•
enter into transactions with affiliates;
•
enter into mergers, acquisitions and other business combinations;
•
consolidate or sell all or substantially all of our assets;
•
amend or modify our governing documents;
•
create liens;
•
engage in businesses other than our business as currently conducted; and
•
allow certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other
payments to us.
In addition to the covenants listed above, the ABL Revolver requires us, under certain circumstances, to
meet a specified financial ratio. Any of these restrictions could limit our ability to plan for or react to market
conditions or meet extraordinary capital needs and could otherwise restrict corporate activities. Our ability to
comply with these covenants may be affected by events beyond our control, and an adverse development affecting
our business could require us to seek waivers or amendments of covenants, alternative or additional sources of
financing or reductions in expenditures. We cannot assure you that these waivers, amendments or alternative or
additional financings could be obtained, or if obtained, would be on terms acceptable to us.
Further, upon the occurrence of specific kinds of change of control events, the indenture governing the
2020 Notes requires us to make an offer to repurchase the 2020 Notes at a purchase price of 101% of par plus
accrued and unpaid interest. Our Term Loan B and ABL Revolver provide that a change of control event is an event
of default under such facilities, which entitles the lenders to accelerate the maturity of such facilities. These
covenants may affect our ability to enter into certain strategic transactions.
A breach of any of the covenants or restrictions contained in any of our existing or future financing
agreements, including our inability to comply with the financial covenant in the ABL Revolver, could result in an
event of default under those agreements. A default may allow the lenders under our financing agreements, if the
agreements so provide, to discontinue lending, to accelerate the related debt as well as any other debt to which a
cross acceleration or cross default provision applies, and to declare all borrowings outstanding under our financing
arrangements to be due and payable. In addition, the lenders could terminate any commitments they had made to
supply us with further funds. If the lenders require immediate repayments, we may not be able to repay them in full.
Substantially all of our assets are pledged as collateral under the 2020 Notes, the Term Loan B and the ABL
Revolver.
As of December 31, 2013, there was $250.0 million, $569.9 million and zero of senior secured
indebtedness outstanding under the 2020 Notes, the Term Loan B and the ABL Revolver, respectively. Substantially
all of our assets are pledged as collateral for these borrowings. As of December 31, 2013, the ABL Revolver
permitted additional borrowings of up to a maximum of $129.8 million (including the minimum excess availability
condition) under the borrowing base as of that date. Furthermore, all of our wholly-owned domestic subsidiaries
(other than Outdoor Services, LLC), with the exception of FGI Opco and FGI Finance, the co-issuers of the 2020
Notes, are guarantors of our obligations under the 2020 Notes and Term Loan B and are either borrowers or
guarantors under the ABL Revolver. Substantially all of our assets are pledged as collateral for these guarantees. If
we are unable to repay all secured borrowings when due, whether at maturity or if declared due and payable
following a default, the trustee or the lenders, as applicable, would have the right to proceed against the collateral
pledged to the indebtedness and may sell the assets pledged as collateral in order to repay those borrowings, which
could have a material adverse effect on our business, financial condition, results of operations or cash flows.
26
2. PROPERTIES
We are headquartered in Madison, North Carolina in a 43,000 square foot facility that we own and an
11,500 square foot facility that we lease. These facilities are utilized for management offices as well as certain sales,
marketing, human resources, information technology, finance, treasury, and customer and consumer service
functions. We believe that these facilities are appropriately utilized and suitable for the activities conducted therein
and are included with our All Other category.
The following table sets forth selected information regarding our principal manufacturing and ancillary
facilities:
Location
Manufacturing Facilities:
Ilion, New York
Lonoke, Arkansas
Lexington, Missouri
Mayfield, Kentucky
Sturgis, South Dakota
Pineville, North Carolina
St. Cloud, Minnesota
Lawrenceville, Georgia
Mona, Utah
West Jordan, Utah
Kalispell, Montana
Lenoir City, Tennessee
Ancillary Facilities:
Kennesaw, Georgia
Memphis, Tennessee
Charlotte, North Carolina
Elizabethtown, Kentucky
Stamford, Connecticut
Colchester, Essex, UK
Nature
Segment
Shotgun, rifle, and pistol manufacturing
Ammunition manufacturing
Firearm component manufacturing
Rifle manufacturing
Rifle manufacturing
Pistol manufacturing
Rifle assembly
Firearm accessory manufacturing
Ammunition manufacturing
Firearm component manufacturing
Firearm component manufacturing
Firearm component manufacturing
Firearm accessory warehouse and distribution
Warehouse and distribution
Office
Research and development
Office
Office and warehouse
Ownership
Firearms
Ammunition
Firearms
Firearms
Firearms
Firearms
Firearms
All Other
Ammunition
Firearms
Firearms
Firearms
Owned
Owned
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
All Other
All Other
All Other
All Other
All Other
Firearms
Leased
Leased
Leased
Owned
Leased
Leased
We believe that the above facilities that we are currently utilizing are suitable for the manufacturing
conducted therein and have capacities appropriate to meet existing production requirements. The Ilion, Lonoke,
Mayfield and Mona facilities each contain enclosed ranges for firearms and ammunition testing.
Creditors under the Term Loan B have a first-priority lien against the real property we own as identified in
the chart above and in our Madison, North Carolina headquarters.
27
3. LEGAL PROCEEDINGS
Certain Indemnities
As of the closing of the Asset Purchase in December 1993 under the Purchase Agreement, Remington
assumed:
•
a number of specified liabilities, including certain trade payables and contractual obligations of DuPont
and its affiliates;
•
limited financial responsibility for specified product liability claims relating to disclosed occurrences
arising prior to the Asset Purchase;
•
limited financial responsibility for environmental claims relating to the operation of the Remington
business prior to the Asset Purchase; and
•
liabilities for product liability claims relating to occurrences after the Asset Purchase, except for claims
involving products discontinued at the time of closing.
All other liabilities relating to or arising out of the operation of the Remington business prior to the Asset
Purchase from DuPont are excluded liabilities (―Excluded Liabilities‖), which DuPont and its affiliates retained.
DuPont and its affiliates are required to indemnify us in respect of the Excluded Liabilities, which include, among
other liabilities:
•
liability in excess of our limited financial responsibility for environmental claims and disclosed
product liability claims relating to pre-closing occurrences;
•
liability for product liability litigation related to discontinued products; and
•
certain tax liabilities, employee and retiree compensation and benefit liabilities and intercompany
accounts payable which do not represent trade accounts payable.
DuPont and its affiliates’ overall liability in respect of their representations, covenants and the Excluded
Liabilities under the Purchase Agreement, excluding environmental liabilities and product liability matters relating
to events occurring prior to the purchase but not disclosed, or relating to discontinued products, is limited to
$324.8 million. With a few exceptions, DuPont and its affiliates’ representations under the Purchase Agreement
have expired. We made claims for indemnification involving product liability issues prior to such expiration. See
―—Product Related Litigation.‖
In addition, DuPont and its affiliates agreed in 1996 to indemnify Remington against a portion of certain
product liability costs involving various shotguns manufactured prior to 1995 and arising from occurrences on or
prior to November 30, 1999. These indemnification obligations of DuPont and its affiliates relating to product
liability and environmental matters (subject to a limited exception) are not subject to any survival period limitation,
deductible or other dollar threshold or cap. We and DuPont and its affiliates are also party to separate agreements
setting forth agreed procedures for the management and disposition of environmental and product liability claims
and proceedings relating to the operation or ownership of the Remington business prior to the Asset Purchase, and
are currently engaged in the joint defense of certain product liability claims and proceedings. See ―—Product
Related Litigation.‖
Additionally, as part of our recent acquisitions, the Company has received customary product liability,
environmental, and legal indemnifications.
Product Related Litigation
We maintain insurance coverage for product liability claims subject to certain self-insured retentions on a
per-occurrence basis for personal injury or property damage with respect to Remington (relating to occurrences
arising after the Asset Purchase), Marlin, Bushmaster, DPMS and our other brands and products. We believe that
our current product liability insurance coverage for personal injury and property damage is adequate for our needs.
28
Based in part on the nature of our products, there can be no assurance that we will be able to obtain adequate product
liability insurance coverage upon the expiration of the current policy. Our current product liability insurance policy
expires December 1, 2014.
As a result of contractual arrangements, we manage the joint defense of product liability litigation
involving Remington brand firearms and our ammunition products for both Remington and DuPont and its affiliates.
As of December 31, 2013, approximately 44 individual bodily injury cases and claims were pending relating to
firearms and our ammunitions products, primarily alleging defective product design, defective manufacture and/or
failure to provide adequate warnings; some of these cases seek punitive as well as compensatory damages. We have
previously disposed of a number of other cases involving post-Asset Purchase occurrences involving Remington
brand firearms and our ammunition products by settlement. The 44 pending individual cases and claims involve preand post-Asset Purchase occurrences for which we or DuPont bear responsibility under the Purchase Agreement.
The relief sought in individual product liability cases includes compensatory and, in some cases, punitive
damages. Certain of the claims and cases seek unspecified compensatory and/or punitive damages. In others,
compensatory damages sought may range from less than $50,000 to in excess of $1 million and punitive damages
sought may exceed $1 million.
Of the individual post-Asset Purchase bodily injury cases and claims pending as of December 31, 2013,
plaintiffs and claimants seek either compensatory and/or punitive damages in unspecified amounts or in amounts
within these general ranges. In our experience, initial demands do not generally bear a reasonable relationship to the
facts and circumstances of a particular matter, and in any event, are typically reduced significantly as a case
proceeds. We believe that our accruals for product liability cases and claims, as described below, are a better
quantitative measure of the cost of product liability cases and claims.
In addition, we have three class action cases pending relating to breach of warranty claims concerning
certain of our firearms products where economic damages are being claimed. Two of such cases involve claims of
economic harm to gun owners due to an alleged defect. From late 2012 through 2013, five class actions alleging
economic harm were filed in four states (Florida, Missouri (two filings), Washington and Montana). The classes
identified in these class action suits have not yet been certified by the applicable courts. The Company believes all
of these cases are without merit and is vigorously defending them. The Company agreed to participate in out-ofcourt mediation with respect to all of these cases to explore whether a satisfactory resolution may be achieved.
Three of the cases were voluntarily dismissed without prejudice pending the outcome of the mediation.
At December 31, 2013, our accrual for product liability and other product related cases and claims was
approximately $16.1 million. The amount of our accrual for these liability cases and claims is based upon estimates
developed as follows. We establish reserves for anticipated defense and disposition costs for those pending cases
and claims for which we are financially responsible. Based on those estimates and an actuarial analysis of actual
defense and disposition costs incurred by us with respect to product liability cases and claims in recent years, we
determine the estimated defense and disposition costs for unasserted product liability cases and claims. We combine
the estimated defense and disposition costs for both pending cases and threatened but unasserted claims to determine
the amount of our accrual for product liability and product related cases and claims. It is reasonably possible
additional experience could result in further increases or decreases in the period in which such information is made
available. We believe that our accruals for losses relating to such cases and claims are adequate. Our accruals for
losses relating to product liability and product related cases and claims include accruals for all probable losses the
amount of which can be reasonably estimated. Based on the relevant circumstances (including, with respect to
Remington-based claims, the current availability of insurance for personal injury and property damage with respect
to cases and claims involving occurrences arising after the Asset Purchase, our accruals for the uninsured costs of
such cases and claims and DuPont’s agreement to be responsible for a portion of certain post-Asset Purchase
product liability costs, as well as the type of firearms products that we make), we do not believe with respect to
product liability and product related cases and claims that any probable loss exceeding amounts already recognized
through our accruals has been incurred.
Because our assumption of financial responsibility for certain Remington product liability cases and claims
involving pre-Asset Purchase occurrences was limited to an amount that has now been fully paid, with DuPont and
its affiliates retaining liability in excess of that amount and indemnifying us in respect of such liabilities, and
because of our accruals with respect to such cases and claims, we believe that Remington product liability cases and
claims involving occurrences arising prior to the Asset Purchase are not likely to have a material adverse effect upon
our financial condition, results of operations or cash flows, nor do we believe at this time that there is an estimated
29
range of reasonably possible additional losses. Moreover, although it is difficult to forecast the outcome of litigation,
we do not believe, in light of relevant circumstances (including with respect to Remington-based claims, the current
availability of insurance for personal injury and property damage with respect to cases and claims involving
occurrences arising after the Asset Purchase, our accruals for the uninsured costs of such cases and claims and the
agreement of DuPont and its affiliates to be responsible for a portion of certain post-Asset Purchase product liability
costs, as well as the type of firearms products that we make), that the outcome of all pending product liability cases
and class action cases and claims will be likely to have a material adverse effect upon our financial condition, results
of operations or cash flows. Nonetheless, in part because the nature and extent of liability based on the manufacture
and/or sale of allegedly defective products (particularly as to firearms and ammunition) is uncertain, there can be no
assurance that our resources will be adequate to cover pending and future product liability or class action cases or
claims, in the aggregate, or that a material adverse effect upon our financial condition, results of operations or cash
flows will not result there from. Because of the nature of our products, we anticipate that we will continue to be
involved in product liability and product related litigation in the future. Because of the potential nature of injuries
relating to firearms and ammunition, certain public perceptions of our products, and recent efforts to expand liability
of manufacturers of firearms and ammunition, product liability cases and claims, as well as class action cases and
claims, and insurance costs associated with such cases and claims, may cause us to incur material costs.
Other Litigation
We are involved in lawsuits, claims, investigations and proceedings, including commercial, environmental,
trade mark, trade dress and employment matters, which arise in the ordinary course of business. We do not expect
that the ultimate costs to resolve these matters will have a material adverse effect on our financial position, results of
operations or cash flows.
30
6.
SELECTED FINANCIAL DATA
The selected financial data below were derived from the audited consolidated financial statements of
Remington Outdoor Company and should be read in conjunction with ―Management’s Discussion and Analysis of
Financial Condition and Results of Operations‖ and the financial statements and notes contained in ―Financial
Statements and Supplementary Data‖ of this report.
December 31,
(In millions)
Statement of Operations (years ended):
Net Sales 1
Cost of Goods Sold
Gross Profit
Operating Expenses
Operating Income
Interest Expense
Income (Loss) before Taxes
Net Income (Loss) Attributable to Controlling
Interest
Cash Flows Data (years ended):
Net Cash provided by (used in):
Operating Activities
Investing Activities
Financing Activities
Balance Sheet Data (as of):
Cash and Cash Equivalents
Working Capital 2
Total Assets
Long-Term Debt, net
Total Debt 3
Stockholders’ Equity
2013 7
2012 6
2011
2010 5
2009 4
$ 1,268.2
824.0
444.2
310.8
133.4
42.5
90.9
$ 931.9
618.2
313.7
256.7
57.0
51.5
5.5
$ 775.0
555.5
219.5
164.3
55.2
63.2
(8.0)
$ 744.3
510.7
233.6
191.5
42.1
53.0
(10.9)
$ 848.7
566.9
281.8
169.7
112.1
29.8
82.3
59.7
7.4
(5.8)
(6.7)
54.3
$
99.8
(70.4)
160.8
$
11.2
(64.1)
95.2
$
32.7
(14.1)
(36.5)
$
34.1
(24.7)
(14.9)
$ 122.3
(58.8)
(81.1)
$
269.5
466.6
1,143.7
814.1
823.5
(39.7)
$
79.1
284.1
830.6
645.9
653.9
(117.4)
$
36.8
191.4
644.7
491.9
493.8
(120.5)
$
54.7
187.3
672.2
505.1
508.6
(97.4)
$
60.2
174.0
686.1
276.7
276.7
(72.1)
1
Presented net of federal excise taxes. Federal excise taxes were $107.5 million, $78.7 million, $63.4
million, $61.0 million and $70.2 million for the years ended December 31, 2013, 2012, 2011, 2010 and 2009,
respectively.
2
Working capital is defined as current assets less current liabilities.
3
Consists of short-term and long-term debt, current portion of long-term debt and capital lease obligations.
4
In 2009, we issued $275.0 million in aggregate principal of our Opco Notes and used the proceeds to
refinance our previously outstanding indebtedness and contribute $53.4 million to our pension plans. We also
consummated acquisitions of certain assets and liabilities of Dakota in June 2009 for $1.8 million, S&K in
September 2009 for $3.8 million, AAC in October 2009 for $11.0 million, and Barnes in December 2009 for
$25.8 million, which may affect the comparability of this period to others in this table.
5
In May 2010, we issued $225.0 million in aggregate principal of our PIK Notes and used the proceeds to
redeem $220.5 million of our outstanding preferred stock. On May 28, 2010, we contributed $6.0 million to
form a joint venture, Mountain Khakis. We maintain a 75% ownership interest in Mountain Khakis, which
may affect the comparability of this period to others in this table.
6
In January 2012, we acquired certain assets and assumed certain liabilities of Para USA, Inc. for $5.0
million. In April 2012, we issued $250.0 million in aggregate principal amount of our 2020 Notes and entered
into a $330.0 million Term Loan B to refinance our existing debt (including the Opco Notes and the PIK
Notes. The refinancing resulted in a $54.3 million loss from the extinguishment of debt. In August 2012, we
utilized the accordion feature on the Term Loan B and entered into a $75.0 million term loan, of which $30.8
million was used to repurchase all of our outstanding preferred stock. During the last two months of 2012, we
acquired the assets and assumed certain liabilities of TAPCO, LAR, and TMRI for $14.1 million, $10.0
million and $7.4 million, respectively, which may affect the comparability of this period to others in this
table.
31
7
In March 2013, we acquired certain assets and assumed certain liabilities of SMK for $6.4 million. In
August 2013, we acquired certain assets and assumed certain liabilities of Storm Lake for $5.5 million. In
December 2013, we entered into a second incremental term loan and borrowed an additional $175.0 million
under our Term Loan B.
32
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion of our results of operations and financial condition together with
the “Selected Financial Data” and the audited and historical consolidated financial statements and related notes
included elsewhere in this annual report. This discussion contains forward-looking statements and involves
numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of this
annual report. Actual results may differ materially from those contained in any forward-looking statements. Certain
monetary amounts, percentages and other figures included in this annual report have been subject to rounding
adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the
figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable,
when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Management’s Discussion and Analysis of Financial Condition and Results of Operations is separated into the
following sections:








Company Overview
Current Sales Demand
Recent Company Developments
EBITDA Measurements
Results of Operations
Liquidity and Capital Resources
Critical Accounting Policies and Estimates
Recent Accounting Pronouncements
Company Overview
We are one of the leading firearms, ammunition and related products companies in the world. We are
America’s oldest and largest manufacturer of firearms and ammunition with our Remington brand dating back to
1816. We are the leading major U.S. manufacturer of both firearms and ammunition, which provides a significant
competitive advantage and supports our market leadership position. Our 12 manufacturing facilities and
approximately 4,200 employees represent the largest domestic manufacturing presence in the firearms and related
industries. This scale enables us to deliver our products throughout the United States and internationally to over 60
countries.
We have a strong management team that is aligned to capture market share and to execute against our
strategic opportunities. Management is focused on product innovation, manufacturing efficiency and high quality
product standards. We continue to look for opportunities to improve quality and efficiencies in our manufacturing
facilities as we strive to extend our leadership as a branded lifestyle company in an increasingly demanding global
marketplace. Accordingly, we have continued efforts to innovate new products, improve our production, sales and
inventory processes, optimize margins, increase throughput and capacity at our facilities and enact other continuous
improvement projects.
In addition, we are committed to enhancing our core businesses and positioning ourselves to take advantage
of growth opportunities and improve our business by identifying and pursuing strategic add-on acquisitions or
investments that expand and enhance our portfolio of brands, products and intellectual property. We seek to acquire
highly complementary businesses that fill gaps in our brand, product, supply chain and intellectual property
portfolio, extend our channel relationships, or otherwise grow or improve our total business.
We consistently introduce new and innovative products. In 2013, we introduced the Remington Model 783
bolt-action centerfire rifle and we continue to grow and expand in the autoloading shotgun category with the
introduction of the Versa Max Sportsman series. Additionally, 2013 marked the 50th anniversary of the Remington
Model 1100, one of the most popular shotguns of all time. To memorialize this historic milestone, we introduced a
Limited Edition 50th anniversary model.
We also have a variety of new ammunition products, including our Hypersonic Steel Shotshell product,
HyperSonic Bonded Rifle ammunition, Hog Hammer Rifle ammunition and Ultimate Defense P&R ammunition
combination packs as well as HTP P&R and target products focusing on our consumers’ demands. In addition, the
33
Barnes VOR-TX Rifle ammunition line continues to grow. Barnes also successfully introduced a new TAC-XPD
Defense ammunition line that has been engineered to provide the optimized solution for personal carry or home
defense.
We are engaged in selective efforts to promote certain products through marketing and promotional
activities. Recognizing the great importance of social media in our industry, we began publishing our online
magazine designed for hunters and shooters – Remington Country eZine. The online magazine is a quarterly
publication available at no charge to subscribers and can be accessed at www.remington.com.
Current Sales Demand
Our industry is continuing to experience strong demand for firearms and ammunition products. In late
2013, we began to see sales returning to more normalized levels in some categories, although demand is still above
historical levels. The increase in demand has resulted in sales growth of over 30% in each of our firearms and
ammunition segments during the year ended December 31, 2013 as compared to the year ended December 31, 2012.
The year over year sales growth is not necessarily indicative of the increase in demand due to sales demand being
greater than our current production capacity in many categories. As such, we continue to improve capacity with lean
initiative, added shifts and additional capital investment.
Consumer concern over more restrictive governmental regulation on the federal, state and local levels has
contributed to this increase in demand, although we believe numerous factors have contributed to continuous
positive trends across all our products and product lines. For instance, our industry is experiencing increased interest
in recreational and shooting sports, an increasing number of female shooters and a greater focus on home and selfdefense. Our industry is also experiencing a renewed interest in the outdoors, which is driving increased
participation in hunting and target shooting.
We have a significant installed customer base that is generating steady and continuous growth of firearms,
ammunition, parts and accessories sales, which we believe will be positively impacted by the trends discussed
above. Over the long term, we believe that the current increase in firearms demand will have sustained benefits for
our industry, including increasing the overall installed base of firearms, expanding the popularity of shooting sport
categories, as well as providing an opportunity to cultivate new, and renew existing, long-term customer
relationships across our portfolio of products and brands. No assurance can be given that this increase in demand
will be sustainable, and demand for our products may decrease for any number of reasons.
Recent Company Developments
Changes in Officers
Ronald E. Kolka was named Chief Financial Officer of the Company on August 6, 2013. Mr. Kolka has
served as acting Chief Financial Officer of the Company since January 5, 2012. In addition, Mr. Kolka was
appointed to serve as a director of the Company on February 11, 2013. Mr. Kolka served as the Chief Financial
Officer for Cerberus Operations and Advisory Company LLC from December 2009 until being named acting Chief
Financial Officer of the Company. Prior to joining Cerberus, Mr. Kolka served as Chief Financial Officer for
Chrysler Motors LLC.
E. Scott Blackwell resigned as President of the Company on March 24, 2014.
Incremental Term Loan
On December 17, 2013, we entered into a second incremental term loan (the ―Incremental Term Loan‖)
and borrowed an additional $175.0 million under the senior secured credit facility we initially entered into in April
2012. Approximately $150.0 million of the additional borrowings will be used to repurchase shares from certain
shareholders. The residual funding from the Incremental Term Loan will be used for general corporate purposes and
to pay related fees and expenses.
Acquisitions
On February 17, 2014, we announced that we have agreed to acquire a facility in Huntsville, Alabama in
order to increase capacity and expand research and development capabilities.
34
On August 16, 2013, through our subsidiary, TMRI, we acquired certain assets and assumed certain
liabilities of Storm Lake for approximately $5.5 million (the ―Storm Lake Acquisition‖) including cash, fees and
escrow payments. Storm Lake, headquartered in Lenoir City, Tennessee, manufactures and markets performance
pistol barrels.
On March 28, 2013, through our newly formed subsidiary, Remington UK, we acquired certain assets and
assumed certain liabilities of SMK for approximately $6.4 million (the ―SMK Acquisition‖). SMK, headquartered in
the United Kingdom, imports and distributes airguns.
New and Proposed Legislation
On January 16, 2013, as a result of significant incidents of some high-profile crimes by individuals
involving firearms, President Obama announced 23 proposed executive actions intended to reduce violent acts by
individuals. These proposed actions included requiring background checks for all gun sales, ensuring information on
dangerous individuals is available to the background check system, helping to ensure that individuals receive mental
health treatment, giving law enforcement additional tools to prevent and prosecute crime, encouraging gun owners
to store guns safely, and making schools safer with more school resource officers. On April 17, 2013, the U.S.
Senate voted down an amended version of the gun background check proposed by President Obama. No assurance
can be given as to whether some or all of these actions will be adopted, and if they are adopted, the effect they may
have on our business, results of operations and financial condition.
In addition to proposals at the federal level, we have seen increased activity at the state level that could
restrict or otherwise prohibit the manufacture, sale, purchase, possession or use of firearms and ammunition. Several
states enacted new laws in 2013. No assurance can be given as to the effect such legislation may have on our
business, results of operations and financial conditions.
Future incidents of violence by individuals involving firearms could increase pressure to adopt some or all
of the proposed regulations described above or spur additional regulatory proposals at the state and federal levels
and call for the adoption of such proposals. Any such development might have a material adverse effect on our
business, financial condition, results of operations or cash flows.
EBITDA Measurements
We use the term Adjusted EBITDA throughout this section. Adjusted EBITDA is not a measure of
performance defined in accordance with Generally Accepted Accounting Principles (―GAAP‖). We use Adjusted
EBITDA as a supplement to our GAAP results in evaluating certain aspects of our business. We believe that
Adjusted EBITDA is useful to investors in evaluating our performance because such measures are commonly used
financial metrics for measuring and comparing the operating performance of companies in our industry. We believe
that the disclosure of Adjusted EBITDA offers an additional financial metric that, when coupled with the GAAP
results and the reconciliation to GAAP results, provide a more complete understanding of our results of operations
and the factors and trends affecting our business.
Adjusted EBITDA should not be considered as an alternative to net income (loss), as an indicator of our
performance, as an alternative to net cash provided by operating activities, as a measure of liquidity, or as an
alternative to any other measure prescribed by GAAP. We believe that Adjusted EBITDA may make an evaluation
of our operating performance more consistent because such measures primarily remove items that do not reflect our
core operations. There are, however, limitations to using non-GAAP measures such as:
(i)
other companies in our industry may define Adjusted EBITDA differently than we do and, as a
result, such measures may not be comparable to similarly titled measures used by other companies
in our industry; and
(ii)
such measures exclude financial information that some may consider important in evaluating our
performance.
We compensate for these limitations by providing disclosure of the differences between our Adjusted
EBITDA calculations and GAAP results, including providing a reconciliation of GAAP results to Adjusted
EBITDA, to enable investors to perform their own analysis of our operating results. See ―–Results of Operations–
Adjusted EBITDA‖ for a reconciliation of Net Income to Adjusted EBITDA.
35
Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income
generated by our business or discretionary cash available to us to invest in the growth of our business. Our
management compensates for these limitations by relying primarily on our GAAP results and using Adjusted
EBITDA as a supplemental financial metric for evaluation of our operating performance. See our consolidated
statements of operations and consolidated statements of cash flows in our consolidated financial statements included
elsewhere in this annual report.
Results of Operations
Years Ended December 31, 2013 and 2012
Net Sales
The following table compares net sales by reporting segment for each of the periods presented:
Years Ended December 31,
2013
Percent of
Total
2012
Percent of
Total
Increase
(Decrease)
Percentage
Change
(in millions except percentages)
Firearms
Ammunition
All Other
Total
$
739.7
436.5
92.0
$ 1,268.2
58.3%
34.4
7.3
100.0%
$ 550.9
331.7
49.3
$ 931.9
59.1%
35.6
5.3
100.0%
$ 188.8
104.8
42.7
$ 336.3
34.3%
31.6
86.6
36.1%
Firearms
Net sales for the year ended December 31, 2013 were $739.7 million, an increase of $188.8 million, or
34.3%, as compared to the year ended December 31, 2012. All of our firearms categories have experienced sales
increases led by a $124.1 million increase in centerfire rifle sales. In addition, shotgun sales increased $23.9 million,
while handgun sales increased $19.6 million, and sales of other firearms products increased $21.2 million. While
concern about more restrictive government legislation contributed to some of the increased sales volumes, we
continue to experience increases across all firearms platforms due to increased usage in recreational and shooting
sports and home defense. We have focused our attention to try to meet the increased demand with our capacity
improvements over the prior year.
Ammunition
Net sales for the year ended December 31, 2013 were $436.5 million, an increase of $104.8 million, or
31.6%, as compared to the year ended December 31, 2012. Sales of centerfire ammunition increased $42.7 million,
while sales of shotshell ammunition increased $28.2 million. In addition, sales of rimfire ammunition increased
$16.4 million, while sales in our other product lines increased $17.5 million. These increases were the result of
increased market demand due to concern about more restrictive government legislation and increased usage in
recreational and shooting sports and home defense, supported by improved factory production.
All Other
Net sales were $92.0 million in our All Other businesses for the year ended December 31, 2013, an increase
of $42.7 million, or 86.6%, as compared to the prior-year period. Primary changes within the All Other businesses
consisted of increased sales of $38.6 million in our various accessories businesses, due in part to recent acquisitions,
as well as increased sales of $4.1 million in our apparel businesses.
Cost of Goods Sold and Gross Profit
Our cost of goods sold includes all costs of material, labor, and overhead associated with product
manufacturing, except for transfer costs from our plants to our distribution center which are included in selling,
general, and administrative expense. Accordingly, our gross margins may not be comparable to those of other
entities. The table below compares cost of goods sold and gross profit by reporting segment for each of the periods
presented:
36
Years Ended December 31,
2013
Percentage
of Net Sales
2012
Percentage
of Net Sales
Increase
(Decrease)
Percentage
Change
(in millions except percentages)
Cost of Goods Sold
Firearms
Ammunition
All Other
Other Corporate Items
Total
$ 486.4
289.7
51.5
(3.6)
$ 824.0
65.8%
66.4
56.0
*
65.0%
$ 377.3
227.4
28.4
(14.9)
$ 618.2
Gross Profit
Firearms
$ 253.3
34.2%
$ 173.6
Ammunition
146.8
33.6
104.3
All Other
40.5
44.0
20.9
Other Corporate Items
3.6
*
14.9
Total
$ 444.2
35.0%
$ 313.7
__________
* Not applicable since there are no sales associated with these items.
68.5%
68.6
57.6
*
66.3%
31.5%
31.4
42.4
*
33.7%
$
109.1
62.3
23.1
11.3
205.8
28.9%
27.4
81.3
75.8
33.3%
79.7
42.5
19.6
(11.3)
$ 130.5
45.9%
40.7
93.8
(75.8)
41.6%
$
$
Firearms
Gross profit for the year ended December 31, 2013 was $253.3 million, an increase of $79.7 million, or
45.9%, as compared to the year ended December 31, 2012. Gross margin was 34.2% for the year ended December
31, 2013 and 31.5% for the year ended December 31, 2012. The increase in gross profit was primarily due to higher
sales volumes across our product lines of $68.7 million, favorable pricing of $3.6 million, a favorable sales mix in
certain product lines of $3.4 million, and lower manufacturing and other costs of $4.0 million.
Ammunition
Gross profit for the year ended December 31, 2013 was $146.8 million, an increase of $42.5 million, or
40.7%, as compared to the year ended December 31, 2012. Gross margin was 33.6% for the year ended December
31, 2013 and 31.4% for the year ended December 31, 2012. The increase in gross profit was primarily related to
higher sales volumes across our product lines of $37.8 million, favorable pricing of $5.1 million and favorable
hedging gains of $3.7 million, partially offset by an unfavorable sales mix in certain product lines of $3.3 million
and higher manufacturing and other costs of $0.8 million.
All Other
Gross profit for the year ended December 31, 2013 was $40.5 million, an increase of $19.6 million, or
93.8%, as compared to the year ended December 31, 2012. Gross margin was 44.0% for the year ended December
31, 2013 and 42.4% for the year ended December 31, 2012. The increase in gross margin percent was primarily due
to increased demand in our higher margin accessories and apparel businesses, as well as the impact of our newly
acquired accessories businesses.
Other Corporate Items
Other Corporate Items consist primarily of pension income and expense, certain inventory accounting
adjustments, and inventory reserves that are not allocated to our revenue generating segments. Retiree benefit
expense resulted in income since January 1, 2012 due to changing our policy to amortize actuarial gains and losses
over the participants’ average remaining life expectancy and employ the corridor approach for all of our retirement
plans. We chose not to allocate the impact of the accounting policy change to segments beginning in the first quarter
of 2012. In addition, we did not allocate certain inventory accounting adjustments and inventory reserves to our
revenue generating segments beginning in the second quarter of 2012.
37
Operating Expenses
Operating expenses consist of selling, general and administrative expenses, research and development
expenses and other expenses.
The following table sets forth certain information regarding operating expenses for each of the periods
presented:
Years Ended December 31,
2013
(unaudited, in millions except percentages)
Selling, general, and
administrative expenses
$ 230.2
Research and development
expenses
16.6
Impairment expense
0.6
Loss on debt extinguishment
Other expense
63.4
Total
$ 310.8
Percentage
of Net Sales
2012
Percentage
of Net Sales
Increase
(Decrease)
Percentage
Change
18.2%
$ 182.4
19.6%
$
47.8
26.2%
1.3
5.0
24.5%
13.2
54.3
6.8
$ 256.7
1.4
5.8
0.7
27.5%
3.4
0.6
(54.3)
56.6
$ 54.1
25.8
100.0
(100.0)
*
21.1%
__________
* Not Meaningful
Total operating expenses for the year ended December 31, 2013 were $310.8 million, an increase of $54.1
million, or 21.1%, as compared to the year ended December 31, 2012. Our operating expenses have increased
primarily due to growth from acquisitions, from our investment in quality, lean and support functions and increased
variable costs associated with improvements in our sales revenue.
Selling, general and administrative expenses increased $47.8 million as compared to the prior-year period,
or 26.2%. The primary components of this increase included higher costs associated with variable selling, marketing
and incentive compensation expense of $17.9 million, an increase in salaries, benefits and travel expense of $14.2
million, increased distribution expense of $4.9 million, increased legal expense of $8.6 million and increased other
general and administrative expenses of $2.2 million.
Research and development expenses increased $3.4 million as compared to the prior-year period, or 25.8%,
primarily due to increased prototype work.
Impairment expense of $0.6 million consisted of the further write down of assets held for sale which were
subsequently sold in November 2013.
Loss on extinguishment of debt decreased $54.3 million, primarily due to the loss on extinguishment of
debt as a result of the 2012 Refinancings.
Other expense increased $56.6 million, primarily due to $36.3 million in higher stock compensation
expense and related tax gross up, the write off of $16.9 million in costs related to the Company sale process that
were previously capitalized and $5.0 million in higher amortization expense.
Other expense of $63.4 million was comprised of a $9.3 million restricted stock issuance, a $27.2 million
tax gross up related to the stock issuance, $16.9 million related to the write off of costs related to the Company sale
process, $11.9 million of amortization expense related to our intangible assets, a $1.3 million charge for the write off
of debt issuance costs, $0.8 million of bank charges, a $0.4 million of loss on disposal of fixed assets, partially offset
by $1.3 million of licensing income, a $1.2 million write off of the 17 HMR accrual, $1.2 million of income for
product services, and $0.7 million of other miscellaneous income.
38
Adjusted EBITDA
The following table illustrates the calculation of Adjusted EBITDA by reconciling Net Income to Adjusted
EBITDA:
Years Ended December 31,
2013
2012
Increase
(Decrease)
Percentage
Change
(unaudited, in millions except percentages)
Net Income (Loss)
Adjustments:
Loss on extinguishment of debt
Depreciation
Interest
Income tax expense (benefit)
Amortization of intangibles
Other non-cash (income) expense
Impairment charges
Nonrecurring charges
Adjusted EBITDA1
* Not meaningful
$
59.6
18.5
42.5
31.3
11.9
10.2
0.6
61.8
$ 236.4
$
7.3
54.3
16.3
51.5
(1.8)
6.9
(1.8)
23.8
$ 156.5
$
52.3
716.4%
(54.3)
2.2
(9.0)
33.1
5.0
12.0
0.6
38.0
$ 79.9
(100.0)
13.5
(17.5)
*
72.5
666.7
100.0
159.7
51.1%
1
In 2013, we changed the calculation of Adjusted EBITDA by starting with Net Income (Loss) rather than Net Income (Loss)
Attributable to Controlling Interest and by using 100% of add backs for Mountain Khakis rather than 75%. All periods reported
have been restated to reflect these changes.
Other non-cash expense of $10.2 million for the year ended December 31, 2013 consisted primarily of $9.3
million of stock compensation expense, a $1.3 million write off of debt issuance costs, a $0.4 million loss on
disposal of assets, partially offset by $(0.8) million of pension expense (income). Other non-cash (income) expense
of $(1.8) million for the year ended December 31, 2012 consisted of $(2.2) million of pension expense (income),
partially offset by $0.2 million of stock compensation expense and a $0.2 million loss on disposal of assets.
Nonrecurring charges of $61.8 million for the year ended December 31, 2013 consisted of a $28.3 million
tax gross up on a restricted stock issuance (consisting of $27.2 million of income tax and $1.1 million of social
security tax), $16.9 million related to the Company sale process, $9.0 million in litigation and lawsuit matters, $4.5
million of restructuring and process improvement costs, $4.1 million of employee related expenses, $1.7 million
related to acquisition due diligence and project fees, $0.9 million of relocation fees, $0.8 million of bank fees,
partially offset by ($3.2) million in purchase accounting adjustments and a ($1.2) million reversal for the 17 HMR
safety warning campaign.
Nonrecurring charges of $23.8 million for the year ended December 31, 2012 consisted of $7.6 million
related to acquisition due diligence and project fees, $2.8 million of purchase accounting adjustments, $2.1 million
of employee related expenses, $2.0 million of management fees, $1.9 million of relocation fees, $1.9 million of
restructuring and process improvement costs, $0.9 million for the military products division ramp up costs, $0.8
million of bank fees, $0.8 million for the 17 HMR safety warning campaign, and $3.0 million of other nonrecurring
charges. The product safety warning campaign is focused on the recall of the Remington branded 17 HMR
ammunition for purposes of adding appropriate product warnings and, since there is not a source of other
ammunition, the replacement of the Remington Model 597 17 HMR semi-automatic rifles with other Remington
firearms.
Interest Expense
Interest expense was $42.5 million and $51.5 million for the years ended December 31, 2013 and 2012,
respectively. The $9.0 million decrease in interest expense over the prior year period was primarily due to the debt
refinanced in 2012 at lower interest rates, resulting in a net decrease in interest expense of $3.3 million and higher
interest income on our interest rate swap of $5.0 million. Lower debt acquisition costs of $0.5 million and lower
other interest expense of $0.2 million also contributed to the decrease in interest expense.
39
Income Tax Provision
Our effective tax rate on continuing operations for the years ended December 31, 2013 and 2012 was
34.4% and (32.7)% respectively. The difference between the actual effective tax rate and the federal statutory rate
of 35% is principally due to state income taxes, permanent differences, the utilization of available tax credits and
loss attributable to owners of noncontrolling interest as of December 31, 2013 and 2012. The effective tax rate for
the year ended December 31, 2013 was additionally impacted by recognition of previously unrecognized tax
benefits due to the expiration of various statutes of limitation and settlements with tax authorities and the release of a
valuation allowance associated with certain state tax credits.
We are subject to ongoing audits by federal and various state tax authorities. Depending on the outcome of
these audits, we may be required to pay additional taxes. However, we do not believe that any additional taxes and
related interest or penalties would have a material impact on our financial position, results of operations, or cash
flows.
Years Ended December 31, 2012 and 2011
Net Sales
The following table compares net sales by reporting segment for each of the periods presented:
Years Ended December 31,
2012
Percent of
Total
2011
Percent of
Total
Increase
(Decrease)
Percentage
Change
(in millions except percentages)
Firearms
Ammunition
All Other
Total
$ 550.9
331.7
49.3
$ 931.9
59.1%
35.6
5.3
100.0%
$ 425.8
313.8
35.4
$ 775.0
54.9%
40.5
4.6
100.0%
$ 125.1
17.9
13.9
$ 156.9
29.4%
5.7
39.3
20.2%
Firearms
Net sales for the year ended December 31, 2012 were $550.9 million, an increase of $125.1 million, or
29.4%, as compared to the year ended December 31, 2011. Centerfire rifle sales increased $90.0 million, while
handgun sales increased $15.5 million. In addition, shotgun sales increased $17.6 million, while sales of rimfire
rifles and other firearms products increased $2.0 million. These increases were primarily due to increased interest in
recreational and shooting sports and home defense, increased demand for modern sporting products, volumes
associated with our new handgun introductions, the acquisition of Para USA, Inc., and new shotgun product
offerings, along with high demand associated with the concern of more restrictive government legislation.
Ammunition
Net sales for the year ended December 31, 2012 were $331.7 million, an increase of $17.9 million, or 5.7%,
as compared to the year ended December 31, 2011. Sales of centerfire ammunition increased $19.5 million, while
sales of rimfire ammunition increased $6.8 million. These increases were the result of increased market demand
supported by improved factory production. These increases were partially offset by decreased sales of shotshell
ammunition of $7.1 million and decreased sales in our other product lines of $1.3 million, as the Company
continued its initiative to rationalize unprofitable SKUs.
All Other
Net sales were $49.3 million in our All Other businesses for the year ended December 31, 2012, an increase
of $13.9 million, or 39.3%, as compared to the prior-year period. Primary changes within the All Other businesses
consisted of increased sales of $12.6 million in our various accessories businesses, due in part to recent acquisitions,
as well as increased sales of $1.3 million in our apparel businesses.
40
Cost of Goods Sold and Gross Profit
Our cost of goods sold includes all costs of material, labor, and overhead associated with product
manufacturing, except for transfer costs from our plants to our distribution center which are included in selling,
general, and administrative expense. These transfer costs totaled $1.8 million and $1.1 million for the years ended
December 31, 2012 and 2011, respectively. Accordingly, our gross margins may not be comparable to those of other
entities. The table below compares cost of goods sold and gross profit by reporting segment for each of the periods
presented:
Years Ended December 31,
2012
Percent of
Net Sales
2011
Percent of
Net Sales
Increase
(Decrease)
Percentage
Change
(in millions except percentages)
Cost of Goods Sold
Firearms
Ammunition
All Other
Other Corporate Items
Total
$ 377.3
227.4
28.4
(14.9)
$ 618.2
68.5%
68.6
57.6
*
66.3%
$ 306.0
229.4
20.1
$ 555.5
Gross Profit
Firearms
$ 173.6
31.5%
$ 119.8
Ammunition
104.3
31.4
84.4
All Other
20.9
42.4
15.3
Other Corporate Items
14.9
*
Total
$ 313.7
33.7%
$ 219.5
__________
* Not applicable since there are no sales associated with these items.
71.9%
73.1
56.8
71.7%
$
71.3
(2.0)
8.3
(14.9)
$ 62.7
23.3%
(0.9)
41.3
*
11.3%
28.1%
26.9
43.2
28.3%
$
44.9%
23.6
36.6
*
42.9%
$
53.8
19.9
5.6
14.9
94.2
Firearms
Gross profit for the year ended December 31, 2012 was $173.6 million, an increase of $53.8 million, or
44.9%, as compared to the year ended December 31, 2011. Gross margin was 31.5% for the year ended December
31, 2012 and 28.1% for the year ended December 31, 2011. The increase in gross profit was primarily due to higher
sales volumes and favorable sales mix across all product lines of approximately $45.2 million, and favorable pricing
on certain product lines of $9.1 million, offset by higher other costs of $0.5 million.
Ammunition
Gross profit for the year ended December 31, 2012 was $104.3 million, an increase of $19.9 million, or
23.6%, as compared to the year ended December 31, 2011. Gross margin was 31.4% for the year ended December
31, 2012 and 26.9% for the year ended December 31, 2011. The increase in gross profit was primarily related to
favorable pricing of $10.2 million, higher sales volumes and favorable sales mix in certain product lines of $10.0
million, and lower other costs of $3.5 million. These increases were partially offset by lower hedging gains of $3.8
million.
All Other
Gross profit for the year ended December 31, 2012 was $20.9 million, an increase of $5.6 million, or
36.6%, as compared to the year ended December 31, 2011. Gross margin was 42.4% for the year ended December
31, 2012 and 43.2% for the year ended December 31, 2011. The decrease in gross margin percent was primarily due
to an unfavorable sales mix, partially offset by increased demand in our accessories and apparel businesses, as well
as the impact of our newly acquired accessories businesses.
Other Corporate Items
Other Corporate Items consist primarily of pension income that is not allocated to our revenue generating
segments. Retiree benefit expense resulted in income for the year ended December 31, 2012 due to changing our
41
policy to amortize actuarial gains and losses over the participants’ average remaining life expectancy and employ
the corridor approach for all of our retirement plans. We chose not to allocate the impact of the accounting policy
change to segments in order to maintain comparability with the prior year. In addition, in the current year,
management did not allocate certain inventory accounting adjustments and inventory reserves to our revenue
generating segments.
Operating Expenses
Operating expenses consist of selling, general and administrative expenses, research and development
expenses and other expenses.
The following table sets forth certain information regarding operating expenses for each of the periods
presented:
Years Ended December 31,
2012
2011
$ 182.4
13.2
54.3
6.8
$ 256.7
$ 136.7
11.7
2.5
7.9
5.5
$ 164.3
Increase
(Decrease)
Percentage
Change
(in millions except percentages)
Selling, general and administrative expenses
Research and development expenses
Loss on extinguishment of debt
Impairment charges
Other expense
Total
__________
* Not Meaningful
$
$
45.7
1.5
51.8
(7.9)
1.3
92.4
33.4%
12.8
*
(100.0)
23.6
56.2%
Total operating expenses for the year ended December 31, 2012 were $256.7 million, an increase of $92.4
million, or 56.2%, as compared to the year ended December 31, 2011.
Selling, general and administrative expenses increased $45.7 million as compared to the prior-year period,
or 33.4%. The primary components comprising this $45.7 million increase included higher costs related to incentive
compensation expense of $21.3 million, salaries, benefits and relocation expenses of $9.8 million, legal fees of $4.6
million, charitable contributions of $3.5 million, travel expense of $2.1 million, distribution expense of $1.8 million,
variable selling and marketing expenses of $1.7 million and commission expense of $0.7 million.
Research and development expenses increased $1.5 million as compared to the prior-year period, or 12.8%,
primarily due to increased prototype work.
Loss on extinguishment of debt increased $51.8 million as compared to the prior-year period, primarily due
to a $54.3 million loss on extinguishment of debt as a result of the 2012 Refinancings, compared to a $2.5 million
loss on extinguishment of debt in the prior-year period resulting from the refinancing of our old ABL and the
redemption of $27.5 million of our previously outstanding Opco Notes.
There were no impairment charges for the year ended December 31, 2012. Impairment charges were $7.9
million for the year ended December 31, 2011. Refer to note 14 to the financial statements included in Item 8 of this
report for additional discussion of our impairment charges.
Other expense increased $1.3 million, primarily due to lower licensing income and increased amortization
expense. Other expense of $6.8 million consisted primarily of $6.9 million of amortization expense, $0.8 million of
bank charges, $0.2 million of stock compensation expense, $0.2 million of loss on disposal of fixed assets, $0.9
million of other miscellaneous expenses, partially offset by $2.1 million of licensing income.
42
Adjusted EBITDA
The following table illustrates the calculation of Adjusted EBITDA by reconciling Net Income to Adjusted
EBITDA:
Years Ended December 31,
2012
2011
Increase
(Decrease)
Percentage
Change
(unaudited, in millions except percentages)
Net Income (Loss)
Adjustments:
Loss on extinguishment of debt
Depreciation
Interest
Income tax expense(benefit)
Amortization of intangibles
Other non-cash (income) expense
Impairment charges
Nonrecurring charges
Adjusted EBITDA1
* Not meaningful
$
7.3
$ (6.0)
$
13.3
221.7%
54.3
16.3
51.5
(1.8)
6.9
(1.8)
23.8
$ 156.5
2.5
16.0
63.2
(1.3)
6.8
6.6
7.9
24.7
$ 120.4
51.8
0.3
(11.7)
(0.5)
0.1
(8.4)
(7.9)
(0.9)
$ 36.1
*
1.9
(18.5)
38.5
1.5
(127.3)
(100.0)
(3.6)
30.0%
1
In 2013, we changed the calculation of Adjusted EBITDA by starting with Net Income (Loss) rather than Net Income (Loss)
Attributable to Controlling Interest and by using 100% of add backs for Mountain Khakis rather than 75%. All periods reported
have been restated to reflect these changes.
Other non-cash (income) expense of $(1.8) million for the year ended December 31, 2012 consisted of
$(2.2) million of pension expense (income), offset by $0.2 million of stock compensation expense and a $0.2 million
loss on disposal of assets. Other non-cash expense of $6.6 million for the year ended December 31, 2011 consisted
of $7.0 million of pension expense, $0.6 million of stock compensation expense, a $0.6 million loss on disposal of
assets and $(1.6) million in other non-cash expense (income). Pension expense resulted in income for the year ended
December 31, 2012 due to changing our policy to amortize actuarial gains and losses over the participants’ average
remaining life expectancy and employ the corridor approach for all of our retirement plans.
Nonrecurring charges of $23.8 million for the year ended December 31, 2012 consisted of $7.6 million
related to acquisition due diligence and project fees, $2.8 million of purchase accounting adjustments, $2.1 million
of employee related expenses, $2.0 million of management fees, $1.9 million of relocation fees, $1.9 million of
restructuring and process improvement costs, $0.9 million for the military products division ramp up costs, $0.8
million of bank fees, $0.8 million for a 17 HMR safety warning campaign, and $3.0 million of other nonrecurring
charges. The product safety warning campaign is focused on the recall of the Remington branded 17 HMR
ammunition for purposes of adding appropriate product warnings and, since there is not a source of other
ammunition, the replacement of the Remington Model 597 17 HMR semi-automatic rifles with other Remington
firearms.
Nonrecurring charges of $24.7 million for the year ended December 31, 2011 consisted of $18.4 million of
restructuring and process improvement costs, $3.3 million for the military products division ramp up costs, $1.2
million of bank fees, $0.4 million of relocation fees, $0.3 million of employee related expenses, $0.2 million of due
diligence and project fees, and $0.9 million in other nonrecurring charges.
Interest Expense
Interest expense was $51.5 million and $63.2 million for the years ended December 31, 2012 and 2011,
respectively. The $11.7 million decrease in interest expense over the prior year period was primarily related to a
$40.0 million decrease in interest expense as a result of the debt that was refinanced in the 2012 Refinancings, as
well as $1.9 million in lower debt acquisition costs. These decreases were partially offset by $28.4 million in interest
expense related to the new debt incurred at more favorable rates in the 2012 Refinancings, as well as $2.5 million in
interest expense related to an interest rate swap entered into in 2012.
43
Income Tax Provision
Our effective tax rate on continuing operations for the years ended December 31, 2012 and 2011 was
(32.7)% and 16.3% respectively. The difference between the actual effective tax rate and the federal statutory rate
of 35% is principally due to state income taxes, permanent differences, the utilization of available tax credits and
loss attributable to owners of noncontrolling interest as of December 31, 2012 and 2011. The effective tax rate for
the year ended December 31, 2012 was additionally impacted by recognition of previously unrecognized tax
benefits due to the expiration of various statutes of limitation and settlements with tax authorities and the release of a
valuation allowance associated with certain state tax credits.
We are subject to ongoing audits by federal and various state tax authorities. Depending on the outcome of
these audits, we may be required to pay additional taxes. However, we do not believe that any additional taxes and
related interest or penalties would have a material impact on our financial position, results of operations, or cash
flows.
Liquidity and Capital Resources
Sources and Uses of Liquidity
We generally expect to fund expenditures for operations, administrative expenses, capital expenditures and
debt service obligations with internally generated funds from operations, and to satisfy working capital needs from
time to time with borrowings under our ABL Revolver. We believe that we will be able to meet our debt service
obligations and fund our short-term and long-term operating requirements in the future with cash flow from
operations and borrowings under the ABL Revolver, although no assurance can be given in this regard.
We continue to focus on managing our working capital by monitoring inventory, accounts receivable and
accounts payable key performance indicators while recognizing that changes to our sales volumes and timing can
impact our working capital strategies. Rather than issue stock, we have typically used debt financing as a means of
raising capital and we use our debt financing to either meet noncurrent obligations or to lower our cost of capital.
In December 2013, FGI Opco entered into an Incremental Term Loan and borrowed an additional $175.0
million under the Term Loan B, as discussed under note 8 of ―8. — Financial Statements and Supplementary Data‖.
The additional borrowing will be used to repurchase some of our outstanding common stock and enhance liquidity
for general corporate purposes. We were in compliance with our debt covenants at December 31, 2013 and had
access to $129.8 million in borrowings under our ABL Revolver and $12.8 million in unused lines of credit.
With our acquisition of SMK, we have operations that are domiciled outside of the United States. Earnings
from our foreign subsidiary are considered to be indefinitely reinvested in foreign jurisdictions. Approximately $0.3
million of our cash and cash equivalents were held by our foreign subsidiary. Since a modest portion of our cash is
domiciled outside the United States, we do not intend, nor foresee a need to repatriate these funds to fund our
domestic activities. We expect existing domestic cash and cash equivalents, cash flows from domestic operations
and borrowings from domestic lenders to be adequate to fund our domestic operations. We also expect existing
foreign cash and cash equivalents and cash flows from foreign operations to be sufficient to fund our foreign
operations.
Based on our recent financing activities and availability to additional borrowings under our Term Loan B,
ABL Revolver and letters of credit we believe the cash we generate internally from our operating activities provides
us with an adequate financial pool that allows us to meet our short-term and strategic goals. Based on these factors,
we believe our liquidity position is adequate to meet our financial commitments and manage our business.
44
2013 Cash Flows and Working Capital
Cash Flows from Operating Activities
Net cash provided by operating activities was $99.8 million for the year ended December 31, 2013
compared to net cash provided by operating activities of $11.2 million for the year ended December 31, 2012. The
significant changes comprising the $88.6 million increase in net cash provided by operating activities for the year
ended December 31, 2013 compared to the prior-year period resulted primarily from:
• other liabilities increasing by $50.3 million for the year ended December 31, 2013 compared to a decrease
of $18.7 million for the year ended December 31, 2012, or a net increase in cash provided of $69.0 million.
This was primarily due to increases in certain accruals associated with our improved performance such as
marketing, excise taxes and employee compensation when compared to the prior year period; and
• receivables decreasing by $27.2 million for the year ended December 31, 2013 compared to an increase of
$19.1 million for the year ended December 31, 2012, or a net increase in cash provided of $46.3 million.
Receivables have increased due to sales returning to more normalized levels and improved customer
payment terms associated with current year sales programs.
Cash Flows from Investing Activities
Net cash used in investing activities of $70.4 million for the year ended December 31, 2013 was primarily
related to payments made for our acquisitions, net of cash acquired, totaling $13.0 million, and the purchase of
property, plant and equipment of $59.2 million. We also received approximately $1.8 million in proceeds from the
retirement of fixed assets, including $1.6 million from the sale of the North Haven facility.
Cash Flows from Financing Activities
Net cash provided by financing activities of $160.8 million for the year ended December 31, 2013 was
primarily due to borrowings from the Incremental Term Loan. We received $174.1 million of proceeds from the
Incremental Term Loan, net of a $0.9 million discount. We paid $4.0 million in fees related to the Incremental Term
Loan and $0.5 million in fees related to the 2012 Refinancings. We reduced the outstanding principal of our Term
Loan B by $4.5 million and made payments of $4.3 million toward other short-term debt arrangements.
2012 Cash Flows and Working Capital
Cash Flows from Operating Activities
Net cash provided by operating activities was $11.2 million for the year ended December 31, 2012
compared to net cash provided by operating activities of $32.7 million for the year ended December 31, 2011. The
significant changes comprising the $21.5 million decrease in net cash provided by operating activities for the year
ended December 31, 2012 compared to the prior-year period resulted primarily from:
• inventories increasing by $53.6 million over the year ended December 31, 2012 compared to an increase of
$16.8 million over the year ended December 31, 2011, or a net increase in cash used of $36.8 million.
Inventories have increased due to increased production and increasing safety stock of raw materials to
ensure sufficient raw materials to meet the increased production levels and sufficient finished product to
meet the current demand for firearms and ammunition sales, as well as an increase as a result of the impact
of our recent acquisitions;
• other liabilities decreasing by $18.7 million over the year ended December 31, 2012 compared to an
increase of $18.2 million over the year ended December 31, 2011, or a net increase in cash used of $36.9
million. This was primarily due to approximately $38.5 million of additional interest disbursements related
to the 2012 Refinancings; and
• The increase in cash outflows from operating activities was offset primarily by accounts payable increasing
by $26.2 million over the year ended December 31, 2012 compared to a decrease of $2.4 million over the
year ended December 31, 2011, or a net increase in cash provided of $28.6 million. Accounts Payable has
increased during the current year due to increased sales demand and production and the rate of increase is
commensurate with increases in our inventory levels.
45
Cash Flows from Investing Activities
Net cash used in investing activities of $64.1 million for the year ended December 31, 2012 was primarily
related to payments made for our various acquisitions in 2012, net of cash acquired, totaling $35.4 million, and the
purchase of property, plant and equipment of $28.1 million, the purchase of intellectual property of $0.8 million,
partially offset by proceeds from the sale of property, plant and equipment of $0.2 million.
Cash Flows from Financing Activities
Net cash provided by financing activities was $95.2 million for the year ended December 31, 2012 and was
primarily related to the 2012 Refinancings. We received $651.3 million related to the 2012 Refinancings, consisting
of $250.0 million in proceeds from the issuance of the 2020 Notes and $326.7 million in borrowings under the Term
Loan B, and an additional $74.6 million in borrowing under the Incremental Term Loan B. The $330.0 million Term
Loan B and $75.0 million Incremental Term Loan contain provisions that require us to pay the lenders a closing fee
in the amount of 1% and 0.5%, respectively, of the loans’ principal amount on the loans’ issuance dates. The closing
fees were withheld by the lenders from the proceeds we received.
We paid $504.8 million in principal payments on debt, consisting of $500.6 million for the Opco Notes and
PIK Notes’ principal, and $4.2 million toward other outstanding debt and capital leases. We disbursed $27.9 million
to redeem all of our previously outstanding preferred stock. In addition, we paid approximately $24.0 million in
costs and other fees that were directly related to the 2012 Refinancings, which were capitalized and will be
amortized over the applicable debt instrument’s maturity.
As part of the 2012 Refinancings, we also paid $38.5 million of accrued and unpaid interest on the Opco
Notes and PIK Notes. The $38.5 million includes $27.4 million of accumulated interest from our PIK Notes. During
the two years our PIK Notes were outstanding, we elected to pay half of the semi-annual interest payments in cash
and increase the PIK Notes’ face value for the other half. These elections increased the PIK Notes’ carrying value on
our balance sheet; however, they are not considered a repayment of borrowings in our statement of cash flows. The
$38.5 million of interest paid is included in the Change of Operating Assets and Liabilities and is treated as a cash
outflow from operating activities in our consolidated statement of cash flows.
Debt
As of December 31, 2013, we had outstanding indebtedness of approximately $823.5 million, which
consisted of the following:
•
$250.0 million of outstanding 7.875% Senior Secured Notes due 2020;
•
$569.9 million outstanding under our Term Loan B including new borrowings of $175.0 million under our
Incremental Term Loan; and
•
$3.6 million of capital lease obligations and other debt.
As of December 31, 2013, there was no indebtedness outstanding under the ABL Revolver and
approximately $129.8 million in borrowings were available. Standby letters of credit outstanding as of December
31, 2013 were $12.8 million. Refer to note 8 under ―8. — Financial Statements and Supplementary Data‖ for a
complete discussion of our indebtedness at December 31, 2013.
Capital and Operating Leases and Other Long-Term Obligations
We maintain capital leases mainly for computer equipment. We have several operating leases, including a
lease for our Memphis warehouse that expires in June 2016, our Madison annex office that expires in August 2014,
and leases for several of our manufacturing facilities that expire on various dates through 2018. We also maintain
contracts including, among other things, a services contract with our third party warehouse provider. We also have
various pension plan obligations, although we do not expect substantial future contributions at this time.
46
Capital Expenditures
Gross capital expenditures for the years ended December 31, 2013 and 2012 were $59.2 million and
$28.1 million, respectively, consisting primarily of capital expenditures both for new equipment related to the
manufacture of firearms and ammunition, as well as capital maintenance of existing facilities. We expect total
capital expenditures for 2014 to be in the range of $70.0 million to $80.0 million, of which approximately
$20.0 million is expected to be related to capital maintenance projects and the remainder related to capital
expenditures for new assets in order to improve production and produce new products.
Off-Balance Sheet Arrangements
As of December 31, 2013, our only off balance sheet arrangements consisted of our obligations in respect
of standby letters of credit of $12.8 million.
Contractual Obligations and Commercial Commitments
We have various purchase commitments for services incidental to the ordinary conduct of business,
including, among other things, a services contract with our third-party warehouse provider. We do not believe such
commitments are at prices in excess of current market prices. Included in those purchase commitments are purchase
contracts with certain raw materials suppliers, for periods ranging from one to five years, some of which contain
firm commitments to purchase minimum specified quantities. However, such contracts had no material impact on
our financial condition, results of operations, or cash flows during the reporting periods presented herein.
We support service and repair facilities for all of our firearm products in order to meet the service needs of
our distributors, customers and consumers nationwide. We provide consumer warranties against manufacturing
defects in all firearm products we manufacture in the United States. Estimated future warranty costs are accrued at
the time of sale and are primarily based upon historical experience. Product modifications or corrections are
voluntary steps taken by us to assure proper usage or performance of a product by consumers. The cost associated
with product modifications and/or corrections are recognized in accordance with FASB ASC 450 ―Contingencies‖,
and charged to operations. The cost of these programs is not expected to have a material adverse impact on our
operations, liquidity or cash flows.
The following represents our contractual obligations and other commercial commitments as of December
31, 2013:
Total
Amounts
Committed
Contractual Obligations:
2020 Notes 1
Term Loan B2
ABL Revolver
Short Term Debt
Expected Interest Payments on 2020 Notes1
Expected Interest Payments on ABL Revolver
Required Pension Contributions
Capital Lease Obligations
Operating Lease Obligations
Other Long-term Purchase Obligations 3
Total Contractual Cash Obligations 4
Other Commercial Commitments:
Standby Letters of Credit
Total Commercial Commitments
1
Payments Due by Period
Less
Than
1–3
3–5
1 Year
Years
Years
(dollars in millions)
Over 5
Years
$250.0
573.7
—
3.5
128.0
—
17.0
0.1
12.4
30.0
$1,014.7
$—
5.8
—
3.5
19.7
—
0.3
0.1
3.5
20.9
$53.8
$—
11.6
—
—
39.4
—
7.4
—
4.0
8.8
$71.2
$—
11.6
—
—
39.4
—
7.3
—
1.7
0.3
$60.3
$250.0
544.7
—
—
29.5
—
2.0
—
3.2
—
$829.4
$12.8
$12.8
$12.8
$12.8
—
—
—
—
—
—
Represents debt incurred in connection with the $250.0 million aggregate principal amount of
the 2020 Notes.
47
2
Represents debt incurred in connection with the $580.0 million face value of the Term Loan B
(including the Incremental Term Loans). The contractual cash obligations table excludes the
interest payable on the Term Loan B as the amounts are uncertain, due to its variable interest rate.
Borrowings under the Term Loan B bear interest at an annual rate of either the LIBOR rate (with a
floor of 1.25%) plus a spread or the base rate (with a floor of 2.25%) plus a spread. Interest
payments are due on the last business day of March, June, September and December. At
December 31, 2013, the weighted average interest rate on the Term Loan B was 5.5%. Assuming
interest rates remained consistent with the weighted average rate on December 31, 2013 and the
effect of our interest rate swaps, we would expect interest payments on our Term Loan B to be
approximately $30.0 million within the next year, $59.0 million within 1-3 years, and $58.0
million within 3-5 years.
3
Other Long-Term Purchase Obligations includes minimum obligations due under various
contracts, including a services contract with our third-party warehouse provider, and minimum
purchases associated with certain materials necessary for the manufacturing process.
4
The contractual cash obligations above exclude: (i) income taxes that may be paid in future
years; (ii) any impact for likely future reversal of net deferred income tax liabilities when reversal
occurs; (iii) income tax liabilities of approximately $4.6 million as of December 31, 2013 for
unrecognized tax benefits due to uncertainty on the timing of related payments, if any; (iv) capital
expenditures that may be made although not under contract as of December 31, 2013 (cash paid
for capital expenditures was approximately $59.2 million in the year ended December 31, 2013);
and (v) interest payments on interest rate swaps due to the uncertainty and timing of payments.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition, results of operations, and cash flows are based upon
our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of
these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to inventories, supplies, accounts receivable, warranties, long-lived
assets, product liability, revenue recognition (inclusive of cash discounts, rebates, and sales returns), advertising and
promotional costs, self-insurance, pension and post-retirement benefits, deferred tax assets, and goodwill. We base
our estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. As noted below, in some cases, our estimates are also
based in part on the assistance of independent advisors. Actual results may differ from these estimates under
different assumptions or conditions.
Management has addressed and reviewed our critical accounting policies and considers them appropriate.
We believe the following critical policies utilize significant judgments and estimates used in the preparation of our
consolidated financial statements:
Revenue Recognition
Sales, net of an estimate for discounts, returns and allowances, and related cost of sales are recorded at
which time risk of loss and title transfer to the customer. We continually evaluate our sales terms against criteria
outlined in SEC Staff Accounting Bulletin 104, Revenue Recognition. We follow the industry practice of selling a
limited amount of select firearms pursuant to a ―dating‖ plan, allowing the customer to purchase these products
commencing in December (the start of our dating plan year) and to pay for them on extended terms. Historically, use
of the dating plan has had the effect of shifting some firearms sales from the second and third quarters to the first
and fourth quarters. As a competitive measure, we offer extended terms on select ammunition purchases. However,
use of the dating plans also results in deferral of collection of accounts receivable until the latter part of the year.
Customers do not have the right to return unsold product. Management uses historical trend information as well as
other economic data to estimate future discounts, returns, rebates and allowances.
48
Allowance for Doubtful Accounts
We maintain an allowance for doubtful receivables for estimated losses resulting from the inability of our
trade customers to make required payments. We provide an allowance for specific customer accounts where
collection is doubtful and also provide an allowance for customer deductions based on historical collection and
write-off experience. Additional allowances would be required if the financial conditions of our customers
deteriorated.
Inventories
Our inventories are valued at the lower of cost or market. We evaluate the quantities of inventory held
against past and future demand and market conditions to determine excess or slow moving inventory. For those
product classes of inventory identified, we estimate their market value based on current and projected selling prices.
If the projected market value is less than cost, we provide an allowance to reflect the lower value of that inventory.
This methodology recognizes projected inventory losses at the time such losses are evident rather than at the time
goods are actually sold.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is determined
on a straight-line basis over the estimated useful life of the individual asset by major asset class as follows:
Buildings
Building and leasehold improvements
Machinery and equipment
Furniture and fixtures
Trailers and automotive equipment
Computer equipment
20 to 43 years
1 to 15 years
7 to 15 years
7 to 10 years
3 to 5 years
1 to 3 years
In accordance with FASB ASC 360 ―Property, Plant, and Equipment‖, management assesses property,
plant and equipment for impairment whenever facts and circumstances indicate that the carrying amount may not be
fully recoverable. Maintenance and repairs are charged to operations; replacements and betterments are capitalized.
Computer hardware and software, lighting and postage equipment under capital leases are amortized over the term
of the lease. The cost and related accumulated depreciation applicable to assets sold or retired are removed from the
accounts and the gain or loss on disposition is recognized in operations, included in the other income and expenses.
Interest is capitalized in connection with the construction of major projects. The capitalized interest is
recorded as part of the asset to which it relates and is amortized over the asset’s useful life. There was no capitalized
interest during the year ended December 31, 2013.
We recognized $0.6 million of impairment charges during the first quarter of 2013 related to a facility in
North Haven, Connecticut. While there were no impairment charges recognized in 2012, we did recognize $1.3
million of impairment charges related to the same facility during 2011. In 2010, when we placed the facility for sale,
we reduced the carrying value of these assets based on soliciting bids from prospective buyers. At that time, we
believed the facility’s fair value was priced for its best and highest use as a production facility and used recent sales
within the local real estate market as well as our commercial real estate broker’s recommended asking price to arrive
at its estimated fair value. In subsequent periods, we further reduced the property’s carrying value to reflect our
revised assumption that its best and highest use would be for commercial development. This facility was
subsequently sold in the fourth quarter 2013. Refer to notes 5 and 14 of ―8. — Financial Statements and
Supplementary Data‖ for additional discussion of assets that were held for sale and determination of their fair value
prior to their sale.
Goodwill, Goodwill Impairment, and Intangible Assets
We adopted the provisions of FASB ASC 350 ―Intangibles-Goodwill and Other‖ for goodwill and
intangible assets. We test goodwill and other indefinite-lived intangible assets for impairment annually and at any
time events or circumstances indicate that intangible assets might be impaired prior to our annual impairment test.
At October 1 each year, we perform our impairment test on goodwill and other indefinite-lived intangible assets.
49
Goodwill impairment testing is performed at the reporting unit, which is at a level below our operating segments,
and consists of a two-step process. In the first step, the fair value of a reporting unit is compared to its carrying
amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, then the second
step of the test process is performed in order to determine the amount of impairment loss. The second step compares
the implied fair value of the reporting unit’s goodwill to the carrying amount of that goodwill. If the carrying
amount of goodwill exceeds its implied value, an impairment loss is recognized for the amount of that excess.
Impairment testing on indefinite-lived intangible assets compares the asset’s fair value against its carrying amount.
If the carrying amount exceeds its fair value, an impairment loss is recognized for the amount of that excess.
During 2013 and 2012, there were no events or circumstances indicating the carrying amounts of our
goodwill, indefinite-lived, and definite-lived intangible assets were impaired or nonrecoverable. We did not
recognize any impairment charges in 2013 or 2012 as a result of our annual testing for goodwill and indefinite-lived
intangible asset impairments. In 2011, we recognized $6.6 million of impairment charges. We reduced Mountain
Khakis’ goodwill and trade names by $1.4 million and $1.1 million, respectively, from their original carrying values
of $1.4 million and $2.2 million, respectively. In addition, we reduced Bushmaster’s trade names by $3.7 million
from their original carrying value of $19.2 million. We also reduced Barnes’ trade names by $0.4 million from their
original carrying value of $2.2 million.
2013 Impairment Testing
The impairment testing of goodwill estimates the fair values of our reporting units from an equallyweighted combination of two valuation approaches: the income approach and market approach. The income
approach estimates fair value based on income streams a reporting unit can expect to generate over its useful life.
Those income streams are discounted at a rate appropriate to the risk profile of the reporting unit from the
perspective of a market participant, referred to as the discount cash flow method. Under the market approach, the
fair value of a reporting unit reflects the purchase price of comparable companies. The guideline public company
method compares the reporting unit to public companies that are in the same industry whose stock is actively traded
on organized exchanges.
The discounted cash flow method relies primarily on internally provided assumptions such as projected
revenues, operating margins, growth rates, and discount rates. These internally generated assumptions were based on
actual, historical results, forecasted trends applicable to those reporting units, and discount rates which are used to
provide the present value of a reporting unit’s cash flows. The guideline public company method used inputs from
comparable publicly-traded companies that were more observable, such as market capitalization, weighted average
costs of capital, revenue multiples, as well as general observable inputs such as the 30-year Treasury Bond yield
used to determine the risk-free rate. After the fair values under both methods were determined for each reporting
unit, equal weight was applied from both methods to estimate the reporting units’ fair value. After completion of the
first step of the goodwill impairment test, it was concluded that each reporting units’ fair value significantly
exceeded their carrying amount thereby indicating no impairment of goodwill.
The fair value of our trademarks was determined using the discounted cash flow method and relied on
assumptions such as revenue growth rates and discount rates to estimate their fair values. As of December 31, 2013,
there was no indication that our indefinite-lived intangible assets were deemed impaired.
Refer to notes 6 and 14 of ―8. — Financial Statements and Supplementary Data‖ for additional discussion
of goodwill and intangible asset impairment charges.
Reserves for Product Liability
We provide for estimated defense and settlement costs related to product liabilities when it becomes
probable that a liability has been incurred and reasonable estimates of such costs are available. Estimates for
accruals for product liability matters are based on historical patterns of the number of occurrences, costs incurred
and a range of potential outcomes. We also utilize the assistance of independent advisors to assist in analyzing the
adequacy of such reserves. Due to the inherently unpredictable nature of litigation, actual results will likely differ
from estimates and those differences could be material.
50
Employee Benefit Plans
We have defined benefit plans and post-retirement benefit plans that cover certain of our salaried and
hourly paid employees. As a result of amendments to our defined benefit plans, future accrued benefits for all
employees were frozen as of January 1, 2008. As of January 1, 2011, future accrued benefits for eligible participants
in our other postemployment benefit (―OPEB‖) plans were also frozen.
We derive pension benefit expense from an actuarial calculation based on the defined benefit plans’
provisions and management’s assumptions regarding discount rate and expected long-term rate of return on assets.
Management determines the expected long-term rate of return on plan assets based upon historical actual asset
returns and the expectations of asset returns over the expected period to fund participant benefits based on the
current investment mix of our plans. The discount rate is based on the yield of high quality fixed income
investments expected to be available in the future when cash flows are paid. In addition, management also consults
with independent actuaries in determining these assumptions. Our OPEB plans are unfunded but their discount rates
are computed in a similar manner as those for our pension plans.
Effective January 1, 2012, we changed our policy to amortize actuarial gains and losses over the
participants’ average remaining life expectancy and employ the corridor approach for all of our retirement plans. We
believe that implementing the corridor approach and amortizing actuarial gains and losses over the participants’
average remaining life expectancy is preferable because recognition of gains and losses will occur over the same
period that the average benefit obligations are satisfied, gains and losses will be treated similarly as other
components of pension costs and our assumptions will be uniform as all of our retirement plans have similar
participant populations and attributes. The change in assumptions resulted in a change in estimate affected by a
change in accounting principle and was made on a prospective basis as of January 1, 2012.
Reserves for Workers’ Compensation Liability
We provide for estimated medical and indemnity compensation costs related to workers’ compensation
liabilities when it becomes probable that a liability has been incurred and reasonable estimates of such costs are
available. Estimates for accruals for workers compensation liability matters are based on historical patterns of the
number of occurrences, costs incurred and a range of potential outcomes. We also utilize the assistance of
independent advisors to assist in analyzing the adequacy of such reserves.
Income Taxes
Income tax expense is based on pretax financial accounting income. We recognize deferred tax assets and
liabilities for the future tax consequences attributable to differences between financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are
expected to be recovered or settled. A valuation allowance is recorded when it is more likely than not that the
deferred tax asset will not be recognized. Due to significant estimates utilized in establishing the valuation
allowance and the potential for changes in facts and circumstances, it is reasonably possible that we will be required
to record a valuation allowance in future reporting periods. Such a charge could have a material adverse effect on
our results of operations, financial condition and capital position. The Company’s continuing practice is to recognize
interest and/or penalties related to income tax matters within income tax expense.
Fair Value Measurements
Under current accounting guidance, fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants at the measurement date (that is, an exit price). The exit price is based on
the amount that the holder of the asset or liability would receive or need to pay in an actual transaction (or in a
hypothetical transaction if an actual transaction does not exist) at the measurement date. In some circumstances, the
entry and exit price may be the same; however, they are conceptually different. Fair value is generally determined
based on quoted market prices in active markets for identical assets or liabilities. If quoted market prices are not
available, we use valuation techniques that place greater reliance on observable inputs and less reliance on
unobservable inputs. In measuring fair value, we may make adjustments for risks and uncertainties, if a market
participant would include such an adjustment in its pricing.
51
Refer to note 14 of ―8. — Financial Statements and Supplementary Data‖ for additional discussion of fair
value measurements.
Recent Accounting Pronouncements
See note 2 of ―8.— Financial Statements and Supplementary Data‖ for disclosure of recent accounting
pronouncements.
Related Party Transactions
See ―13.— Certain Relationships and Related Transactions, and Director Independence‖, appearing
elsewhere in this annual report.
52
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risks our financial instruments are exposed to are fluctuations in commodity prices,
interest rates and foreign currency exchange rates. These risks are monitored as part of our risk management control
system, and we have established policies and procedures governing our management of market risks. Negotiating
favorable prices of raw materials, matching raw material purchases with our short and long-term forecasts, and
engaging in hedge activities with derivative instruments are some strategies we use to manage these market risks.
Our activity with derivative instruments is used exclusively as a risk management tool.
Commodity Price Risk
We negotiate with our suppliers to obtain the most favorable prices for our raw materials. We also enter
into derivative financial instruments for those commodities that experience greater price volatility. We typically
enter into commodity option and swap contracts for our anticipated purchases of copper and lead. At December 31,
2013, our commodity derivative instruments had a notional amount of 46.2 million pounds and will settle over the
next 19 months. The fair values of these open commodity contracts resulted in a $0.6 million liability. Assuming a
hypothetical 10% increase in copper and lead commodity prices which are currently hedged at December 31, 2013,
our cost for those related purchases would result in a $9.3 million loss. Due to the increase in the related hedging
instruments’ fair values, the hypothetical cost would be mitigated by $6.8 million.
Interest Rate Risk
Our Term Loan B and ABL Revolver bear interest at variable rates using LIBOR and Alternate Base Rate
interest rates and are susceptible to interest rate fluctuations. We occasionally enter into interest rate swap
agreements to manage this risk. Approximately $569.9 million of our total outstanding debt at December 31, 2013
bears interest at variable rates. Assuming no changes in the monthly average variable-rate debt levels of
$415.9 million for the year ended December 31, 2013, we estimate that a hypothetical change of 100 basis points in
the LIBOR and Alternate Base Rate interest rates would not have impacted interest expense for the year ended
December 31, 2013.
Foreign Currency Exchange Risk
While most of our sales are domestic and denominated in U.S. Dollars, we frequently receive international
orders with proceeds denominated in foreign currencies. Since we are exposed to foreign currency fluctuations, we
occasionally enter into foreign currency swap agreements to mitigate this risk. At December 31, 2013, our foreign
currency derivative instruments had a notional amount of $43.8 million and will settle over the next 12 months. The
fair values of our foreign currency swaps at December 31, 2013 were comparable to the notional amount. Assuming
a hypothetical unfavorable 10% change in foreign currency exchange rates which are currently hedged at December
31, 2013, we would incur a $4.0 million loss. Due to the increase in the related hedging instruments’ fair values, the
hypothetical cost would be mitigated by $4.0 million.
53
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Remington Outdoor Company, Inc.:
We have audited the accompanying consolidated balance sheets of Remington Outdoor Company, Inc. (also known
as Freedom Group, Inc.) (a Delaware corporation) and subsidiaries (collectively, the ―Company‖) as of December
31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss),
stockholders’ equity (deficit), mezzanine equity and accumulated comprehensive income (loss) and cash flows for
each of the three years in the period ended December 31, 2013. Our audits of the basic consolidated financial
statements included the financial statement schedule listed in the index appearing under Item 8. These financial
statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the
Company’s internal control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Remington Outdoor Company, Inc. and subsidiaries as of December 31, 2013 and 2012, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ GRANT THORNTON LLP
Charlotte, NC
March 31, 2014
54
The accompanying notes are an integral part of these consolidated financial statements.
55
The accompanying notes are an integral part of these consolidated financial statements.
56
The accompanying notes are an integral part of these consolidated financial statements.
57
The accompanying notes are an integral part of these consolidated financial statements.
58
The accompanying notes are an integral part of these consolidated financial statements.
59
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
1. Basis of Presentation
The accompanying audited consolidated financial statements include those of Remington Outdoor
Company, Inc. (―Remington Outdoor Company,‖ ―Remington Outdoor,‖ or the ―Company‖, also known as
―Freedom Group, Inc.‖ or ―Freedom Group‖) and its subsidiaries. Remington Outdoor owns 100% of FGI Holding
Company, LLC (―FGI Holding‖), which in turn owns 100% of FGI Operating Company, LLC (―FGI Opco‖). FGI
Opco includes the financial results of Remington Arms Company, LLC (―Remington‖), Barnes Bullets, LLC
(―Barnes‖), RA Brands, L.L.C. and Outdoor Services, LLC. FGI Opco also owns 100% of FGI Finance, Inc. (―FGI
Finance‖). Remington, in turn, owns Advanced Armament Corp., LLC (―AAC‖), Para USA, LLC (―Para‖), a 99%
interest in TMRI, Inc. (―TMRI‖), Remington Outdoor (UK) Ltd. (―Remington UK‖), Great Outdoors Holdco, LLC
(―Great Outdoors‖), a 75% interest in Mountain Khakis, LLC (―Mountain Khakis‖), and an 84% interest in EOTAC,
LLC (―EOTAC‖). On October 19, 2012, the Company changed its legal name from Freedom Group, Inc. to
Remington Outdoor Company, Inc. The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Beginning with the current fiscal year, the Company adopted a calendar year/5-4-4 based fiscal month
reporting period. Prior to the new change, the Company’s fiscal cycle operated on a calendar year/calendar month
format. Under the new fiscal cycle, each reporting quarter contains 13 weeks of operations and ends on the last
Sunday of the quarter, except for the last quarter which will end on December 31. The change in fiscal month
reporting does not affect the presentation of financial information made on an annual basis.
2. Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits with banks and highly liquid investments with
remaining maturities, when purchased, of three months or less and treasury reserve funds.
Accounts Receivable
Accounts receivable are recognized at their net realized value. The Company reviews the credit history and
financial condition of its customer, prior to the extension of credit. An allowance for doubtful accounts is
established based upon factors surrounding the credit risk of specific customers, historical trends and other
information. Allowances for doubtful accounts were $1.2 and $0.7 at December 31, 2013 and 2012, respectively.
Inventories
The Company’s inventories are stated at the lower of cost or market and are determined by the first-in,
first-out (―FIFO‖) method. Inventory costs associated with Semi-Finished Products and Finished Products include
material, labor, and overhead, while costs associated with Raw Materials include material and inbound freight costs.
The Company provides inventory allowances for any excess and obsolete inventories and periodically writes
inventory amounts down to market when costs exceed market value.
Supplies Inventory
The cost of supplies is determined by the average cost method adjusted to the lower of cost or market and is
recognized in the other current asset caption on the consolidated balance sheet.
60
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Service and Warranty
The Company supports service and repairs for all of its firearm products, with the exception of its
internationally sourced product lines that are serviced and repaired by the Company’s third party vendor, in order to
meet the service needs of its distributors, customers and consumers worldwide.
The Company provides consumer warranties against manufacturing defects in all firearm products
manufactured in the United States. Estimated future warranty costs are accrued at the time of sale, using the
percentage of actual historical repairs to shipments for the same period, and are included in other accrued liabilities.
Product modifications or corrections are voluntary steps taken by the Company to assure proper usage or
performance of a product by consumers. The cost associated with product modifications and/or corrections is
recognized in accordance with the Financial Accounting Standards Board (―FASB‖) Accounting Standards
Codification (―ASC‖) 450 ―Contingencies‖ and charged to operations. Refer to note 7.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation, with the exception of
acquisitions in which the acquired property, plant and equipment is stated at fair value as of the acquisition date less
accumulated depreciation. Depreciation is determined on a straight-line basis over the estimated lives of the assets.
The estimated useful lives range from 1 to 43 years for buildings and improvements, and range from 1 to 15 years
for machinery and equipment. Depreciation expense is included in the Company’s Cost of Goods Sold, Research
and Development expense, and Selling, General, and Administrative expense. Amortization of assets under capital
leases are combined with depreciation expense and classification of depreciation expense is based on the nature and
activity of the assets.
Maintenance and repairs are charged to operations, and replacements and betterments are capitalized.
Computer hardware and software costs under capital leases are amortized over the term of the lease. The cost and
related accumulated depreciation applicable to assets sold or retired are removed from the accounts and the gain or
loss on disposition is recognized in operations, included in the other income, net line item on the consolidated
statement of operations. Refer to note 5 for property, plant, and equipment.
In accordance with FASB ASC 360 ―Property, Plant, and Equipment‖, the Company periodically reviews
long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate.
Significant judgments and estimates are involved in determining the useful lives of long-lived assets, determining
what reporting units exist, and assessing when events or circumstances would require an interim impairment
analysis of tangible, long-lived assets to be performed. Changes in the organization or management reporting
structure, as well as other events and circumstances, including technological advances, increased competition, and
changing economic or market conditions, could result in (a) shorter estimated useful lives, (b) additional reporting
units, which may require alternative methods of estimating fair values or greater disaggregation or aggregation in
our analysis by reporting unit, and/or (c) other changes in previous assumptions or estimates. In turn, this could have
an additional impact on the Company’s consolidated financial statements through accelerated depreciation and/or
impairment charges. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded
carrying value for the asset. If impairment is indicated, the asset is written down to its estimated fair value based on
a discounted cash flow analysis.
During the year ended December 31, 2013, the Company incurred $0.6 of impairment charges related to its
assets held for sale. The Company recognized $1.3 of impairment charges during the year ended December 31, 2011
related to its assets held for sale. All of the buildings and equipment that had impairment charges applied to them
were reclassified as held for sale at the time of the initial assessment. No impairment charges were recognized
during the year ended December 31, 2012. Refer to notes 5 and 14 regarding assets held for sale and long-lived asset
impairments incurred in 2013 and 2011.
61
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Goodwill, Goodwill Impairment and Intangible Assets
The values of goodwill and intangible assets resulting from acquisitions were initially determined by and
were the responsibility of management who considered in part the work performed by an independent third party
valuation firm. Management assesses goodwill and definite lived identifiable intangible assets for impairment
whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. Factors the
Company considers important, which could trigger an impairment of such assets, include the following:
•
significant underperformance relative to historical or projected future operating results;
•
significant changes in the manner of or use of the acquired assets or the strategy for our overall
business; and
•
significant negative industry or economic trends.
Future adverse changes in these or other unforeseeable factors could result in an impairment charge that
would materially impact future results of operations and financial position in the reporting period identified.
Each year, the Company tests for impairment of goodwill. The Company adopted the provisions of new
accounting guidance which allows it to qualitatively analyze any of its reporting units to determine whether further
goodwill impairment testing is necessary. For goodwill reporting units that indicate the need for quantitative testing,
the Company uses a two step approach. In the first step, the Company estimates the fair values of its reporting units
using a combination of the present value of future cash flows approach and the market approach, subject to a
comparison for reasonableness to its market capitalization at the date of valuation. If the carrying amount exceeds
the fair value, the second step of the goodwill impairment test is performed to measure the amount of the
impairment loss, if any. In the second step the implied fair value of the goodwill is estimated as the fair value of the
reporting unit used in the first step less the fair values of all other net tangible and intangible assets of the reporting
unit. If the carrying amount of the goodwill exceeds its implied fair market value, an impairment loss is recognized
in an amount equal to that excess, not to exceed the carrying amount of the goodwill.
In addition, goodwill of a reporting unit is tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying
value. For other intangible assets, the impairment test consists of a comparison of the fair value of the intangible
assets to their respective carrying amount. The Company uses a discount rate equal to its average cost of funds to
discount the expected future cash flows.
During 2013, the Company performed qualitative analysis on some of its reporting units and concluded that
no additional impairment testing was necessary for those reporting units. For reporting units in which quantitative
analysis was performed, it was concluded after step one that each reporting unit’s fair value significantly exceeded
their carrying amount, thereby indicating no impairment of goodwill.
No impairment charges related to goodwill and other intangible assets were recognized in 2013 or 2012.
During the year ended December 31, 2011, the Company recognized $6.6 of impairment charges related to goodwill
and other intangible assets.
Derivative Instruments
The Company frequently uses derivative instruments to mitigate potentially adverse effects from market
risks associated with commodity prices and interest rates. All derivative instruments are carried on the Company’s
consolidated balance sheet at their fair values. Typically, changes in the fair values of derivatives designated as cash
flow hedges are recorded in accumulated other comprehensive income until the hedged item affects earnings at
which time those changes in fair value will be reclassified into earnings. Changes in the fair value of derivative
instruments not designated or qualifying as hedging instruments are reflected in the Company’s consolidated
62
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
statement of operations. At December 31, 2013, the Company’s derivative instruments that mitigated adverse market
effects of commodity prices were designated as cash flow hedges and those instruments that mitigated adverse
effects from interest rates were deemed economic hedges because they did not qualify for hedge accounting. Refer
to note 17.
Product Liability
The Company provides for estimated defense and settlement costs related to product liabilities when it
becomes probable that a liability has been incurred and reasonable estimates of such costs are available in
accordance with FASB ASC 450 ―Contingencies‖. The Company maintains insurance coverage for product liability
claims, subject to certain policy limits and to certain self-insured retentions for personal injury or property damage.
The current product liability insurance policy expires on December 1, 2014. Product liabilities are recorded at the
Company’s best estimate of the most probable exposure in accordance with FASB ASC 450, including
consideration of historical payment experience and the self-insured retention limits. The Company did not receive
any recoveries from its product liability insurance for the years ended December 31, 2013 and 2012. The Company’s
estimate of its discounted liability for product liability cases and claims outstanding at December 31, 2013 and 2012
was $16.1 and $16.4, respectively. Associated with product liability cases, the Company has also recorded a
receivable in Other Assets of $1.6 and $1.5, respectively, at December 31, 2013 and 2012 for the estimated
liabilities expected to be recovered through insurance coverage. The Company disbursed $3.7, $2.6, and $2.1 during
the years ended December 31, 2013, 2012, and 2011, respectively, for defense and settlement costs.
At December 31, 2013, the accrued product liability is determined by discounting the present value of
estimated future payments using a 4.75% discount rate. The aggregate undiscounted product liability, net of
estimated recoveries from insurance, at December 31, 2013 was $20.7. Expected payments for each of the five
succeeding years and aggregate amount thereafter are:
Year
2014
2015
2016
2017
2018
Thereafter
Total
Amount
$
4.2
4.2
3.5
2.6
2.0
4.2
$
20.7
Workers’ Compensation
The Company’s estimate of its discounted liability for workers’ compensation claims outstanding at
December 31, 2013 and 2012 was $16.7 and $13.2, respectively. Associated with workers compensation claims, the
Company has also recorded a receivable in Other Assets of $8.7 and $5.2, respectively, at December 31, 2013 and
2012 for the estimated liabilities expected to be recovered through insurance coverage.
As of December 31, 2013, the accrued workers’ compensation liability is determined by discounting the
present value of estimated future payments using a 4.75% discount rate. The aggregate undiscounted workers’
compensation liability, net of estimated recoveries from insurance, at December 31, 2013 was $9.4.
63
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Expected payments for each of the five succeeding years and aggregate amount thereafter are:
Year
2014
2015
2016
2017
2018
Thereafter
Total
Amount
$
1.9
1.7
1.4
1.1
0.9
2.4
$
9.4
Revenue Recognition
Sales, net of estimates for discounts, returns, rebates, allowances and excise taxes, along with related cost
of sales are recorded in income when risk of loss and title transfers to the customer. Sales are presented net of
Federal Excise Taxes of $107.5, $78.7 and $63.4 for the years ended December 31, 2013, 2012, and 2011,
respectively.
Cost of Goods Sold
Cost of Goods Sold includes material, labor, and overhead costs associated with product manufacturing,
including depreciation, purchasing and receiving, inspection, warehousing, and internal transfer costs, except for
transfer costs from our plants to our distribution center which are included in Selling, General and Administrative
Expense.
Selling, General, and Administrative Expense
Selling, General and Administrative expense includes, among other items, administrative salaries, benefits,
commissions, outbound shipping, advertising, product liability, insurance, and professional fees.
Shipping and Handling Costs
Outbound shipping costs to customers are expensed as incurred and included in Selling, General, and
Administrative expense. Outbound shipping costs include costs of shipping products from our distribution center or
from our manufacturing facilities to customers. Also included in outbound shipping expense are costs of the
warehouse such as contract laborers in the warehouse, rent, and equipment charges for the warehouse. Outbound
shipping costs totaled $23.3, $18.5, and $16.7 for the years ended December 31, 2013, 2012, and 2011, respectively.
Advertising and Promotions
Advertising and promotional costs including print ads, commercials, catalogs, brochures and cooperative
advertising are expensed the first time the advertising occurs. The Company’s co-op program is structured so that
certain dealers and chain accounts are eligible for reimbursement of certain types of advertisements on qualifying
product purchases. The Company does not pay slotting fees, offer buydown programs, or make other payments to
resellers. Advertising and promotional costs totaled $27.1, $18.8 and $17.7 for the years ended December 31, 2013,
2012, and 2011, respectively.
Self-Insurance
The majority of Remington Outdoor is self-insured for elements of its employee benefit plans including,
among others, medical, workers’ compensation and elements of its property and liability insurance programs, but
limits its liability through stop-loss insurance and annual plan maximum coverage limits. Self-insurance liabilities
are based on claims filed and estimates for claims incurred but not yet reported.
64
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Stock-Based Compensation Options and Restricted Stock/Restricted Units
Stock-based compensation awards, which are associated with the Company’s common stock, have been
considered equity awards under FASB ASC 718 ―Stock Compensation‖. FASB ASC 718 requires the Company to
measure the cost of all employee stock-based compensation awards that are expected to be exercised based on the
grant-date fair value of those awards and to record that cost as compensation expense over the period during which
the employee is required to perform service in exchange for the award (generally over the vesting period of the
award). Exercised stock-based compensation awards are exchanged for shares held in the Company’s treasury if
available prior to issuing new shares.
The Company accounts for restricted common unit/share awards in accordance FASB ASC 718. The fair
value of the restricted common unit/share awards at their grant date, which was determined using a total enterprise
valuation, is recognized as compensation expense over the vesting period for the awards.
Translation and Foreign Currency Transactions
The Company operates using the U.S. Dollar as its functional currency. Assets and liabilities of foreign
subsidiaries that use the local currency as their functional currency are translated into U.S. Dollars prior to their
consolidation using the foreign currency exchange rate at the balance sheet date. Changes in the carrying values of
these assets and liabilities attributable to fluctuations in the corresponding foreign currency exchange rates are
recognized in the foreign currency translation component of accumulated other comprehensive income. Refer to
note 19.
The Company conducts the majority of its business transactions in U.S. Dollars, but occasionally enters
into transactions that are denominated in foreign currencies. Transactions that are denominated in a currency other
than the U.S. Dollar are subject to changes in exchange rates with the resulting gains and losses recorded within net
income. There were no significant gains or losses recognized from transactions denominated in foreign currencies
during the years ended December 31, 2013, 2012, and 2011.
Research and Development Costs
Internal research and development costs including salaries, administrative expenses, building operating
costs and depreciation of our research and development facilities and equipment, and related project expenses are
expensed as incurred. Research and development costs totaled $16.6, $13.2, and $11.7 for the years ended
December 31, 2013, 2012, and 2011, respectively.
Licensing Income
The Company licenses certain of its brands and trademarks. The income from such licensing was $1.3,
$2.1, and $2.9, respectively, for the years ended December 31, 2013, 2012, and 2011, respectively, which is
reflected in Other Expense.
Interest Expense
The Company includes the amortization of debt issuance costs and debt discounts and premiums as interest
expense on its consolidated statement of operations.
65
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Estimated amortization of debt issuance costs and debt discounts that will be included interest expense over
the five calendar years and beyond are as follows:
Year
2014
2015
2016
2017
2018
Thereafter
Total
Amount
$
4.7
5.0
5.3
5.2
5.3
3.3
$
28.8
Debt Issuance Costs
Debt issuance costs are reported as noncurrent deferred charges on the consolidated balance sheet and
amortized over the life of the related debt agreements or amendments primarily using the effective interest method.
Amortization of deferred financing costs was $3.1, $3.6 and $5.5 during the years ending December 31, 2013, 2012,
and 2011, respectively.
During the year ended December 31, 2013, the Company utilized the accordion feature and borrowed an
additional $175.0 under its Term Loan B (―Incremental Term Loan‖). The Incremental Term Loan amended the preexisting Term Loan B agreement that resulted in a modification of an existing debt agreement. The Company
performed an analysis of the holders of the Term Loan B before and after the transaction and determined that the
terms of the Incremental Term Loan were not substantially different from the terms of the original Term Loan B
agreement. Fees between the Company and holders of the Term Loan B totaled $4.9 and will be amortized over its
remaining maturity. The Company also incurred $1.9 of third-party fees and capitalized $0.6 of those fees based on
the percentage increase of holders who increased their participation levels in the Incremental Term Loan. The
remaining $1.3 of third-party fees were expensed and included in Other Expense on the Company’s consolidated
statement of operations.
During the years ended December 31, 2012 and 2011, $19.0 and $1.6, respectively, of previously
capitalized debt issuance costs were expensed and included as losses from the extinguishment of debt.
Debt Discounts and Premiums
Debt discounts and premiums are reported as a direct reduction from, or addition to, the face amount of the
debt instrument on the Company’s consolidated balance sheet and are amortized over the life of the related debt
agreement using the effective interest method. Amortization of debt discounts and premiums was $0.5, $0.5, and
$0.7 during the years ending December 31, 2013, 2012, and 2011, respectively.
The Company received $174.1 of the proceeds from the Incremental Term Loan, net of a $0.9 issuance fee
that represented a discount. During the year ended December 31, 2012, $3.0 of net debt discounts and premiums
were expensed and included as a loss from the extinguishment of debt on the consolidated statement of operations
when the Company refinanced its debt. Refer to note 8.
Restructuring Initiatives
In 2011, the Company realigned its corporate structure and incurred costs of $3.2 for severance
and other employee related benefits. Disbursements of $2.2 and $1.0 were made during 2011 and 2012, and there
were no additional costs or disbursements made in 2013 for the realignment.
66
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
In 2010, the Company decided to close its firearms manufacturing facilities in North Haven, Connecticut
and Windham, Maine. In 2011, the Company recognized $4.3 of operating costs and $1.3 of impairment charges and
disbursed $5.9 for their closure and integration into previously existing facilities. There were no charges or
disbursements made in 2012 for these restructuring activities. In the first quarter of 2013, the Company recognized
an additional impairment charge of $0.6 for the North Haven facility, which was subsequently sold in the fourth
quarter of 2013. The Company also funded $10.1 to the North Haven facility’s related defined benefits pension plan
as the closure was deemed a cessation of operations event under ERISA guidelines. Refer to note 14 for additional
information on impairment charges and note 13 for funding of the defined benefit plan.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740 ―Income Taxes‖. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those
temporary differences are expected to be recovered or settled. A valuation allowance is recorded when it is more
likely than not that the deferred tax asset will not be recognized.
The Company adopted amendments to FASB ASC 740 ―Income Taxes‖ related to accounting for
uncertainty in income taxes, on January 1, 2007. The amendments to FASB ASC 740 require a company to evaluate
whether the tax position taken by a company will more likely than not be sustained upon examination by the
appropriate taxing authority. It also provides guidance on how a company should measure the amount of benefit that
the company is to recognize in its financial statements as well as guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and transition. The Company’s reassessment of our tax
positions in accordance with the amendments to FASB ASC 740 did not have a material impact on our results of
operations, financial condition or liquidity. The Company’s continuing practice is to recognize interest and/or
penalties related to income tax matters in income tax expense.
The Company files its income taxes in a consolidated tax return. Current and deferred tax expense is
allocated to the members based on an adjusted separate return methodology.
Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles
(―GAAP‖) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reported period. The Company is subject to management’s estimates
and assumptions, the most significant of which include reserves for product liability claims, medical claims,
workers’ compensation claims, warranty claims, employee benefit plans, inventory obsolescence, allowance for
doubtful accounts, impairment of long-lived assets and product safety warnings. Actual amounts may differ from
those estimates and such differences could be material.
New and Recently Adopted Accounting Pronouncements
The Company has adopted the following accounting pronouncements since January 1, 2013:
In February 2013, the Financial Accounting Standards Board (―FASB‖) issued Accounting Standards
Update (―ASU‖) 2013-02 ―Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,‖
which clarified the reclassification requirements of ASU 2012-12. Under FASB ASU 2013-02, significant items
reclassified out of Accumulated Other Comprehensive Income (―AOCI‖) may be presented on the face of the
financial statements, or in the accompanying footnotes. Significant reclassified items will be presented by the
respective line items of net income only if those reclassified items are required to be reclassified to net income in
their entirety in the same reporting period. Those significant items that are not required to be reclassified to net
67
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
income in their entirety in the same period, such as pension and other post-retirement benefit period costs, can be
cross-referenced to other disclosures in the accompanying footnotes. Since the new accounting guidance affects the
presentation and disclosure requirements of AOCI, adoption of this standard did not impact the Company’s results
of operations, financial condition or equity. Refer to note 19 for additional information on the Company’s AOCI.
The FASB issued ASU 2013-01 ―Clarifying the Scope of Disclosures about Offsetting Assets and
Liabilities,‖ which augments the requirements of ASU 2011-11, ―Disclosures About Offsetting Assets and
Liabilities.‖ Under both Updates, entities are required to disclose additional information about their derivatives
instruments, repurchase agreements, and securities borrowing and lending transactions that are either offset in their
statements of financial position or are subject to enforceable master netting agreements. Both standards were
adopted since they became effective for interim and annual reporting periods beginning on January 1, 2013. The
new standards required additional disclosures, but its adoption did not affect the Company’s results of operations,
financial condition, or equity. Refer to note 14 for additional information on the Company’s derivative instruments
and enforceable master netting agreements.
In July 2012, the FASB issued ASU 2012-02 ―Testing Indefinite-Lived Intangible Assets for Impairment‖.
The new Update allows entities to first perform a qualitative assessment to determine whether events and
circumstances indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. If it is
determined that an indefinite-lived intangible asset is impaired, then the entity must compare the intangible asset’s
fair value to its carrying amount and record an impairment charge if that intangible asset’s carrying amount exceeds
its fair value. The intent of the new standard is to reduce the cost and complexity of impairment tests, so adoption of
the new standard did not impact the Company’s results of operations, financial condition, or equity.
3. Business Combinations
As discussed below, the Company has made various acquisitions. These acquisitions are being accounted
for as business combinations using the acquisition method, in accordance with Financial Accounting Standards
Board Accounting Standards Codification (―FASB ASC‖), 805 ―Business Combinations‖ whereby the final
purchase price (including assumed liabilities) is allocated and pushed down to the assets acquired based on their
estimated fair market values at the date of the acquisition.
Para
On January 30, 2012, the Company acquired certain assets and assumed certain liabilities of Para USA, Inc.
for approximately $5.0 (the ―Para Acquisition‖), including cash, fees, debt repayments and escrow payments. The
Para Acquisition was funded with cash from operating activities and its operations are consolidated with Remington.
Para manufactures and sells 1911 style handguns. Para’s high capacity frame and light double action (LDA™)
trigger systems are part of the innovation that Para has brought to the well-known 1911 design.
The American Parts Company, Inc. (“TAPCO”)
On November 2, 2012, the Company, through its Remington subsidiary, acquired certain assets and
assumed certain liabilities of TAPCO for approximately $14.1 (the ―TAPCO Acquisition‖) including cash, fees, a
working capital adjustment, and escrow payments. The TAPCO Acquisition was funded with cash from operating
activities and its operations are consolidated with Remington. TAPCO is a designer and marketer of Americanmade aftermarket accessories and replacement parts for handguns, rifles, shotguns, modern sporting rifles and other
tactical firearms.
LAR Manufacturing, Inc. (“LAR”)
On November 12, 2012, the Company, through its Remington subsidiary, acquired certain assets and
assumed certain liabilities of LAR for approximately $10.0 (the ―LAR Acquisition‖) including cash, fees and escrow
payments. The LAR Acquisition was funded with cash from operating activities and its operations are consolidated
with Remington. LAR manufactures parts for firearms.
68
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
TMRI
On December 31, 2012, the Company, through its Remington subsidiary, acquired the convertible preferred
stock of TMRI for approximately $7.4 (the ―TMRI Acquisition‖) including cash, fees and escrow payments. The
TMRI Acquisition was funded with cash from operating activities and its operations are consolidated with
Remington. On February 5, 2013, the Company exercised its right to convert the preferred stock to voting common
stock. The Company has a 99.1% ownership interest in TMRI. TMRI manufactures and sells firearm components.
Tech Group (UK) Ltd. (“SMK”)
On March 28, 2013, the Company, through its subsidiary, Remington UK, acquired certain assets and
assumed certain liabilities of SMK for approximately $6.4 (the ―SMK Acquisition‖) including cash, fees and escrow
payments. The SMK Acquisition was funded with cash from operating activities and its operations are consolidated
with Remington. SMK, based in the United Kingdom, imports and distributes airguns.
The results of operations for SMK are included in the Company’s consolidated financial statements
beginning on its acquisition date. The Company’s consolidated financial statements include $5.0 of revenues and a
$(1.0) operating loss related to the SMK Acquisition for the year ended December 31, 2013.
Storm Lake, Inc. (“Storm Lake”)
On August 16, 2013, the Company, through its subsidiary, TMRI, acquired certain assets and assumed
certain liabilities of Storm Lake for approximately $5.5 (the ―Storm Lake Acquisition‖) including cash, fees and
escrow payments. Storm Lake manufactures and markets pistol barrels.
The results of operations for Storm Lake are included in the Company’s consolidated financial statements
beginning on its acquisition date. The Company’s consolidated financial statements include $0.9 of revenues and
$0.1 in operating income related to the Storm Lake Acquisition for the year ended December 31, 2013.
Purchase Price Allocations
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in
accordance with FASB ASC 805 ―Business Combinations‖:
Cash
Accounts Receivable
Inventory
Other Current Assets
Property, Plant, and Equipment
Goodwill
Identifiable Intangible Assets
Other Long-Term Assets
Total Assets Acquired
Current Liabilities
Other Non-Current Liabilities
Total Liabilities Assumed
Total Assets Acquired Less Liabilities
Assumed
Estimated Acquisition Cost
Storm Lake1,2
$
0.2
0.1
0.7
4.5
$ 5.5
$
$
-
$
$
5.5
5.5
SMK1
$
0.5
1.9
0.2
2.3
1.7
$ 6.6
TMRI3
$ 0.2
1.2
0.9
0.2
1.5
3.8
1.5
$ 9.3
LAR1
$
0.6
1.3
2.0
3.9
2.7
$ 10.5
TAPCO1,3
$
1.2
2.7
1.7
1.4
7.4
$ 14.4
Para1
$ 0.1
0.1
2.4
0.2
1.9
1.4
3.0
$ 9.1
$
$
$
0.2
0.3
$ 0.5
$
$
10.0
$ 10.0
14.1
$ 14.1
$
0.2
0.2
$
6.4
6.4
69
0.9
1.0
$ 1.9
$
7.4
7.4
$
0.3
0.3
$
4.1
4.1
$
5.0
5.0
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
1
Goodwill is expected to be deductible for tax purposes.
2
Purchase price allocation is preliminary and subject to valuations which are not yet complete.
3
The purchase price associated with the TAPCO Acquisition increased $1.1 for working capital
adjustments.
Pro Forma Financial Information
The following pro forma results of operations assume that the acquisitions occurred as of January 1, 2011,
adjusted for the impact of certain items, such as the elimination of intercompany sales and cost of sales,
amortization, depreciation and the related income tax effects. Income taxes are provided at the estimated statutory
rate. This pro forma information should not be relied upon as necessarily being indicative of historical results that
would have been obtained if the acquisitions had actually occurred on that date, nor of the results that may be
obtained in the future.
For the Years Ended December 31,
Net Sales
Operating Income
Net Income (Loss)
$
2013
1,271.3
134.1
60.1
$
2012
962.2
62.6
14.4
$
2011
800.9
49.9
(10.7)
4. Inventories, Net
The Company’s inventories consisted of the following components at December 31:
Raw Materials
Semi-Finished Products
Finished Products
Total
$
$
2013
91.4
48.7
127.8
267.9
2012
$
86.8
41.3
73.8
$
201.9
5. Property, Plant and Equipment, Net
At December 31, Property, Plant and Equipment consist of the following:
December 31, 2013
$
13.3
49.1
194.5
1.8
25.9
$
284.6
(102.1)
$
182.5
Land
Building and Improvements
Machinery and Equipment
Equipment Leased Under Capital Leases
Construction in Progress
Subtotal
Less: Accumulated Depreciation
Total
December 31, 2012
$
13.3
44.5
143.4
1.8
15.4
$
218.4
(84.3)
$
134.1
Depreciation expense for the years ended December 31, 2013, 2012, and 2011, was $18.5, $16.3 and $16.0,
respectively. Accumulated depreciation on assets leased under capital leases was $0.7 at December 31, 2013 and
2012.
70
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
The above data excludes $2.2 of building and equipment classified as assets held for sale at December 31,
2012. The building and equipment was subsequently sold in 2013 for $1.6. Refer to note 14 for additional
information regarding long-term, tangible assets held for sale.
6. Intangible Assets
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2013 and 2012 by
reporting segment are as follows:
Goodwill by Segment:
Firearms
Ammunition
All Other
Total Goodwill
December 31,
2013
$
$
58.8
23.9
1.9
84.6
Adjustments 1
$
$
5.0
(5.6)
(0.6)
December 31,
2012
$
$
53.8
23.9
7.5
85.2
Adjustments 2
$
$
11.5
7.0
18.5
December 31,
2011
$
$
1
Goodwill in the Company’s Firearms segment increased by $4.5 and $2.5 with the acquisitions
of Storm Lake and SMK, respectively, and decreased $0.8, and $1.2 due to purchase accounting
adjustments related to the 2012 acquisitions of TMRI and LAR, respectively. All Other segment
goodwill decreased by $5.6 resulting from the acquisition of TAPCO.
The acquisition of SMK and subsequent purchase accounting adjustments resulted in $2.3 of
initially capitalized goodwill. Fluctuations in foreign currency exchange rates led to an additional
$0.2 increase in goodwill. These purchase accounting adjustments resulted in a $0.2 increase in
amortization expense and a $0.3 increase in cost of sales.
Goodwill in the Firearms segment attributable to TMRI decreased due to adjustments resulting
from purchase accounting by $0.8. The purchase accounting adjustments resulted in a $0.5
increase in fixed assets, $1.4 increase in definite-lived intangible assets, $0.1 increase in current
deferred tax assets, $1.0 increase in noncurrent deferred tax liabilities, and a $0.2 decrease in
inventory. These adjustments increased amortization expense by $1.3, depreciation expense by
$0.2, and reduced cost of sales by $0.2.
Goodwill in the Firearms segment attributable to LAR decreased by $1.2 due to adjustments
resulting from purchase accounting. The purchase accounting adjustments resulted in a $0.9
increase in fixed assets, $2.7 increase in definite-lived intangible assets, $0.3 increase in
noncurrent lease obligations, and a $2.1 decrease in inventory. These adjustments increased
amortization expense by $2.7, reduced cost of sales by $2.1, and reduced rent expense by $0.1.
Goodwill in the All Other segment decreased $5.6 due to an increase in the acquisition price and
purchase accounting adjustments stemming from the acquisition of TAPCO. The amount of
consideration paid for TAPCO resulted in a $1.1 increase of goodwill. Subsequent purchase
accounting adjustments were made which reduced goodwill attributable to TAPCO by $6.7. The
purchase accounting adjustments resulted in a $1.4 increase in fixed assets, $0.8 increase in
trademarks, $6.6 increase in definite-lived intangible assets, and a $2.1 decrease in inventory.
Purchase accounting adjustments related to the TAPCO acquisition increased amortization
expense by $1.1, depreciation expense by $0.2, and reduced cost of sales by $2.6.
71
42.3
23.9
0.5
66.7
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
2
As part of the application of purchase accounting for the acquisitions of Para USA, Inc., TAPCO,
LAR, Dublin Dog, and Montana, $18.5 of goodwill was capitalized during 2012. Goodwill in the
Firearms segment increased $1.4 from the Para Acquisition; $5.1 from the LAR Acquisition; and
$4.6 from the Montana Acquisition. Goodwill in the All Other segments increased $6.9 from the
TAPCO Acquisition and $0.4 from the Dublin Dog Acquisition. Refer to note 3 for additional
information on the Para, TAPCO, LAR, Dublin Dog, and Montana Acquisitions. In addition to the
amounts capitalized through the Company’s acquisitions during 2012, $0.4 of goodwill was
reclassified from the Company’s All Other segments to its Firearms segment.
Intangible Assets Other Than Goodwill
Indefinite-Lived Intangible Assets
The Company’s other intangible assets consists of both indefinite and definite-lived intangible assets. The
following table summarizes information related to the carrying amount of the Company’s indefinite-lived intangible
assets:
Indefinite-Lived Intangible Assets:
Trademarks, net
December 31,
2013
$
72.0
Adjustment 1
$
1.4
December 31,
2012
$
70.6
Adjustment
$
0.8
December 31,
2011
$
67.9
1
As a result of the application of purchase accounting in 2013, trademarks attributable to TAPCO
increased by $0.8 and trademarks attributable to SMK increased by $0.6. In 2012, the Company
acquired individual assets in consideration for approximately $0.8 apart from the business
acquisitions disclosed in note 3.
Definite-Lived Intangible Assets
The following table summarizes information related to the gross carrying amounts, accumulated
amortization, and net carrying amounts of the Company’s definite-lived intangible assets:
Definite-Lived Intangible Assets:
December 31,
2013
Adjustment/
Amortization
Customer Relationships, gross 1
Accumulated amortization
Customer Relationships, net
$
59.3
(25.6)
$
33.7
$
License Agreements, gross
Accumulated amortization
License Agreements, net
$
8.5
(8.0)
0.5
$
Developed Technology, gross 2
Accumulated amortization
Developed Technology, net
$
14.3
(11.9)
$
2.4
$
Other, gross 3
Accumulated amortization
Other, net
$
4.4
(3.7)
0.7
$
86.5
(49.2)
$
37.3
$
Total Definite-Lived Intangibles, gross
Total accumulated amortization 4
Total Definite-Lived Intangible Assets, net
$
$
$
47.8
(17.3)
$
30.5
$
(1.2)
(1.2)
$
8.5
(6.8)
1.7
$
(2.0)
(2.0)
$
14.3
(9.9)
4.4
$
0.3
(0.4)
(0.1)
$
4.1
(3.3)
0.8
$
11.8
(11.9)
$ (0.1)
$
74.7
(37.3)
$
37.4
$
$
$
$
1
Adjustment/
Amortization
11.5
(8.3)
3.2
$
$
December 31,
2012
$
$
$
$
$
$
$
$
December 31,
2011
(3.1)
(3.1)
$
47.8
(14.2)
$
33.6
(1.3)
(1.3)
$
1.1
(2.0)
(0.9)
$
(0.5)
(0.5)
$
1.1
(6.9)
(5.8)
$
$
$
$
13.2
(7.9)
5.3
4.1
(2.8)
1.3
73.6
(30.4)
$
43.2
Customer relationships increased $11.5 due to purchase accounting adjustments for the
acquisitions of LAR, TAPCO, TMRI, and SMK. The increase attributable to LAR, TAPCO,
TMRI, and SMK was $2.7, $6.5, $1.3, and $1.0, respectively. The $11.5 increase in customer
72
8.5
(5.5)
3.0
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
relationships will be amortized over an estimated weighted average economic useful life of 5.0
years.
2
Developed technology increased $1.1 in 2012 due to purchase accounting of the Para
Acquisition and is being amortized over an estimated economic useful life of 5.0 years.
3
Non-compete agreements increased $0.1 for each of the SMK, TMRI and TAPCO acquisitions.
The total $0.3 increase in non-compete agreements will be amortized over an estimated weighted
average economic useful life of 3.6 years.
4
Amortization expense was $11.9, $6.9, and $6.8 for the years ended December 31, 2013, 2012,
and 2011, respectively.
Estimated annual amortization for definite-lived intangible assets over the next five calendar years and
beyond is as follows:
Year
2014
2015
2016
2017
2018
Thereafter
Total
Amortization Expense
$
5.7
5.0
4.3
3.6
3.3
15.4
$
37.3
2011 Impairment Charges
During the year ended December 31, 2011, the Company recognized $6.6 of impairment charges related to
its intangible assets. The impairments resulted from the Company’s annual impairment test, as $0.4 of Barnes’ trade
names, $3.7 of Bushmaster’s trade names, $1.1 of Mountain Khakis’ trade names, and all of Mountain Khakis’ $1.4
of goodwill were written down. The revised carrying values of Barnes’, Bushmaster’s, and Mountain Khakis’ trade
names were $1.8, $15.5, and $1.1, respectively. Softer than expected demand over certain premium, highperformance items during the year, led to reduced projected growth rates which were used to determine the fair
value of Barnes’, Bushmaster’s, and Mountain Khakis’ trade names. Refer to note 14.
7. Accrued Liabilities
Other Accrued Liabilities consisted of the following:
December 31, 2013
$
28.2
21.5
37.1
52.1
$
138.9
Marketing
Excise Tax
Incentive Compensation
Other 1
Total
73
December 31, 2012
$
21.8
21.6
6.4
37.9
$
87.7
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
1
The Company has a provision for potential future warranty claims in its accrued liabilities.
Changes within the Company’s warranty accrual for each of the past two years are presented in the
following table:
December 31, 2013
$
4.0
6.8
(5.7)
$
5.1
Beginning Warranty Accrual
Warranty Expense
Acquisitions
Disbursements and Other Adjustments
Ending Warranty Accrual
December 31, 2012
$
2.6
7.1
0.7
(6.4)
$
4.0
8. Debt
Long-term debt consisted of the following:
As of December 31,
Seven Year Term Loan B (the ―Term Loan B‖)
7.875% Senior Secured Notes due 2020 (the ―2020 Notes‖)
Other Debt 1
Subtotal
Less: Current Portion
Total
2013
569.9
250.0
3.6
$
823.5
(9.4)
$
814.1
$
2012
399.8
250.0
4.1
$
653.9
(8.0)
$
645.9
$
1
Other Debt consists of borrowings under revolving credit facilities, outstanding notes issued by
Mountain Khakis (which were paid in full in May 2013), short-term financings for insurance
premiums, and capital lease obligations.
2013 Incremental Issuance of Term Loan B
On December 17, 2013, FGI Opco entered into a second incremental term loan (the ―Incremental Term
Loan‖) and borrowed an additional $175.0 under its Term Loan B. The additional borrowings will be used by FGI
Opco (i) to distribute $150.0 to FGI Holding which will in turn distribute such funds to the Company to permit the
Company to repurchase its common shares from certain shareholders, (ii) for general corporate purposes, and (iii) to
pay related fees and expenses. The amendment effectuating the Incremental Term Loan also (i) permitted a onetime
distribution by FGI Opco to FGI Holding to allow for the share repurchase described above, (ii) provided for a
prepayment premium equal to 101% of the amount of the Term Loan B repaid within 12 months of the Incremental
Term Loan and (iii) delayed the Excess Cash Flow Period and FGI Opco’s use of Cumulative Retained Excess Cash
Flow (each as defined in the Term Loan B) until delivery of financial statements for the year ended December 31,
2014.
2012 Debt Refinancing
In April 2012, the Company’s wholly-owned subsidiaries, FGI Opco and FGI Finance (the ―Issuers‖),
issued $250.0 in aggregate principal amount of 7.875% Senior Secured Notes due 2020 (the ―2020 Notes‖). FGI
Opco also contemporaneously entered into a seven-year $330.0 senior secured Term Loan B Facility (the ―Term
Loan B‖) and a five-year $150.0 Asset-Based Revolving Credit Facility (the ―ABL Revolver‖, together with the
Term Loan B, the ―Credit Facilities‖). In August 2012, FGI Opco initially utilized the accordion feature of its Term
Loan B and entered into a $75.0 term loan to its existing Term Loan B. The issuance of the 2020 Notes, borrowings
under the Credit Facilities and related repayments of outstanding indebtedness are referred to collectively as the
―2012 Refinancings‖. The Company used the proceeds of the 2020 Notes, Term Loan B and borrowings under the
ABL Revolver to redeem its previously outstanding debt instruments and Series A preferred stock (refer to note 9)
and enhance liquidity. The 2012 Refinancings resulted in a $54.3 loss that was recognized in earnings during the
year ended December 31, 2012. The Company capitalized $24.5 of costs directly related to the 2012 Refinancings.
74
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
2011 Debt Related Activities
In 2011, the Company amended its previously maintained senior secured asset-based revolving credit
facility by reducing the maximum credit line from $180.0 to $150.0. The amendment reduced the applicable interest
rate fees for the unused line. During 2011, the Company also paid $29.7 to redeem $27.5 in principal amount of its
previously outstanding senior secured notes. These actions resulted in a $2.5 loss for the extinguishment of debt that
was recognized in earnings during the year ended December 31, 2011.
7.875% Senior Secured Notes due 2020
The 2020 Notes are guaranteed by Remington Outdoor, FGI Holding and each of FGI Opco’s whollyowned domestic restricted subsidiaries that are borrowers or guarantors under the ABL Revolver and Term Loan B
(collectively, the ―Guarantors‖). Interest is payable on the 2020 Notes semi-annually on May 1 and November 1 of
each year.
The Issuers may redeem some or all of the 2020 Notes at any time prior to May 1, 2015 at a price equal to
100% of the principal amount thereof, accrued and unpaid interest plus the make-whole premium. The make-whole
premium is the greater of (1) 1.0% of the then outstanding principal amount of the 2020 Notes or (2) the excess of
the present value of the redemption price of the 2020 Notes on May 1, 2015 plus all required interest payments due
on the 2020 Notes through May 1, 2015 (excluding accrued but unpaid interest), computed using the discount rate
equal to the Treasury Rate as of such redemption date plus 50 basis points over the then outstanding principal
amount of the 2020 Notes. In addition, the 2020 Notes will be redeemable in whole or in part including accrued and
unpaid interest at the redemption prices set forth below beginning on May 1 of each of the noted years:
Period Redemption Price
2015
2016
2017
2018 and thereafter
105.906%
103.938%
101.969%
100.000%
The Issuers may also redeem up to 35% of the outstanding 2020 Notes on or prior to May 1, 2015 with the
proceeds of certain equity offerings at the redemption price of 107.875%.
The 2020 Notes and guarantees, with the exception of Remington Outdoor’s guarantee, which is unsecured,
are secured by a third-priority lien on substantially all existing and future assets of FGI Holding, the Issuers and the
subsidiary guarantors that secure the ABL Revolver and the Term Loan B, other than real property which is only
secured by the Term Loan B. The collateral consists of substantially all of the Guarantors’ (other than Remington
Outdoor’s) tangible and intangible assets, other than real property and certain other exceptions. The indenture
governing the 2020 Notes contains covenants which include, among others, limitations on restricted payments;
incurrence of indebtedness; issuance of disqualified stock and preferred stock; merger, consolidation or sale of all or
substantially all assets; transactions with affiliates; and dividend and other payments. The 2020 Notes also include
customary events of default.
Term Loan B
The Term Loan B agreement was entered into by FGI Opco as the borrower and is guaranteed by FGI
Holding and each of FGI Opco’s wholly-owned direct and indirect domestic subsidiaries, excluding Outdoor
Services. FGI Opco may designate, at its discretion, from time to time, certain subsidiaries that are not guarantors.
The Term Loan B has a first priority lien on all of FGI Opco and the Guarantors’ tangible and intangible assets,
including 100% of the subsidiaries’ capital stock, but excluding accounts receivable, inventory and certain general
intangibles, including intellectual property (the ―ABL Priority Collateral‖). The Term Loan B will have a second
priority lien on all ABL Priority Collateral.
75
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Borrowings under the Term Loan B bear interest at an annual rate of either (a) the LIBOR rate (with a floor
of 1.25%) plus a spread or (b) the base rate (with a floor of 2.25%) plus a spread. The Term Loan B has annual
amortization payments due each year in an amount equal to 1% of the original principal balance thereof, with the
balance due at maturity. FGI Opco may at any time after the first anniversary of the Issue Date, without premium or
penalty, voluntarily prepay the Term Loan in whole or in part, and prior to the first anniversary of the Issue Date,
voluntarily prepay the Term Loan B in whole or in part subject, in certain circumstances to a payment of a 1%
premium of the amount prepaid. The Term Loan B also had an accordion feature that was subsequently exercised.
At December 31, 2013, the weighted average interest rate on the Term Loan B was 5.5%.
ABL Revolver
The ABL Revolver is a five-year $150.0 Asset-Based Revolving Credit Facility, including sub-limits for
letters of credit and swingline loans. Subject to certain terms and conditions, the borrowing limit under the ABL
Revolver may be increased to $255.0. FGI Holding and FGI Opco’s existing wholly-owned direct and indirect
domestic subsidiaries other than Outdoor Services are either a borrower or guarantor under the ABL Revolver. FGI
Opco may designate, at its discretion, from time to time, certain subsidiaries that are not borrowers or guarantors.
The ABL Revolver has a first lien claim on the ABL Priority Collateral, in addition to a second lien claim on the
Term Loan B collateral other than real property.
Borrowings under the ABL Revolver bear interest at an annual rate of either (a) the LIBOR rate plus a
spread or (b) the base rate plus a spread. The LIBOR and base rate spreads fluctuate based on the amount of
available borrowing capacity under the ABL Revolver as provided in the ABL Revolver. The ABL Revolver
includes an unused line fee of 0.375% that will be charged at an annual rate to be paid monthly in arrears. FGI Opco
will pay a fee on letters of credit equal to the applicable LIBOR margin and a fronting fee equal to 0.125% per
annum, in each case to be paid monthly in arrears.
The Credit Facilities contain customary covenants applicable to FGI Opco and its subsidiaries, other than
certain unrestricted subsidiaries. The Credit Facilities contain certain covenants, as well as restrictions on, among
other things, the ability of FGI Opco and its subsidiaries to: incur debt; incur liens; declare or make distributions to
stockholders; make loans and investments; repay debt; enter into mergers, acquisitions and other business
combinations; engage in asset sales; amend or modify governing documents; engage in businesses other than
business as currently conducted; and enter into transactions with affiliates. The Credit Facilities include customary
events of default, including cross-defaults to the 2020 Notes and other indebtedness.
At December 31, 2013 and 2012, there were no outstanding borrowings under the ABL Revolver.
Approximately $129.8 in additional borrowings, including the minimum availability requirement of $22.5, was
available at December 31, 2013.
The Company was in compliance with its debt covenants at December 31, 2013 and 2012, and outstanding
standby letters of credit were approximately $12.8 and $8.7, respectively.
Other Debt
In conjunction with its acquisition of Mountain Khakis, the Company assumed individual notes payable
that matured in May 2013. The carrying amounts of the notes were $1.2 at December 31, 2012. Short-Term
Borrowings contains an unsecured, fixed interest agreement for financing premiums on the Company’s insurance
policy. The interest rate under this annual agreement was 2.0% and matures in November 2014.
76
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Maturities of debt, including those for capital leases, for each of the next five years and thereafter are as
follows:
Amount 1
$
8.8
5.1
5.1
5.1
5.0
794.4
$
823.5
Year
2014
2015
2016
2017
2018
Thereafter
Total
1
Includes $3.8 of amortization for the discount on the Term Loan B and Incremental Term Loan.
9. Mezzanine Equity and Stockholders’ Equity
Preferred Stock
Preferred stock has a par value of $0.01 per share and consists of 200,000 shares authorized, with 190,000
designated as Series A preferred stock. The holders of Series A preferred stock are entitled to the following rights:
Voting rights: One vote per share to be voted together with holders of Common Stock as a single class.
Dividend Rights: Dividends may be declared and paid on the Series A preferred stock from funds lawfully
available at the discretion of the Remington Outdoor Board of Directors (the ―Board‖).
Redemption Rights: In the event of any liquidation, dissolution, or winding up of the Corporation, either
voluntary or involuntary, the holders of Series A preferred stock will be entitled to receive, prior and in
preference to any distributions of assets or funds to the holders of its common stock, an amount per share
equal to the sum of $10.53 for each outstanding share (the liquidation value). Also, the holders of Series A
preferred stock will receive an additional amount equal to 10% of the liquidation value, compounded
annually, prorated from the later of the original issue date of the Series A preferred stock or the most recent
anniversary of the issue date. Since all of the Series A preferred shares were reacquired during 2012, the
redemption value was zero for both December 31, 2013 and December 31, 2012.
Because redemption is considered outside the control of the Company, the Series A preferred stock was
classified as mezzanine equity in accordance with FASB ASC 480 ―Distinguishing Liabilities from Equity‖.
Common Stock
Common stock has a par value of $0.01 per share and consists of 200,000 shares authorized as of
December 31, 2013. The holders of common stock are entitled to the following rights:
Voting rights: One vote per share.
Dividend Rights: No dividends may be declared or paid on common stock so long as any Series A
preferred stock is outstanding. If no Series A preferred stock is outstanding, dividends may be
declared and paid on common stock from funds lawfully available; therefore as and when
determined by the Board of Directors.
Redemption Rights: The common stock is not redeemable.
77
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Changes in the Series A preferred stock and common stock for the years ended December 31,
2013, 2012, and 2011 are as follows:
Series A Preferred Stock
Shares of Preferred Stock at December 31, 2010
Issued
186,977
Held in
Treasury
(168,327)
Shares of Preferred Stock at December 31, 2011
186,977
(168,327)
18,650
-
(18,650)
(18,650)
Shares of Preferred Stock at December 31, 2012
186,977
(186,977)
-
Shares of Preferred Stock at December 31, 2013
186,977
(186,977)
-
Common Stock
Shares of Common Stock at December 31, 2010
Stock option exercises 2
Purchases 2
Issued
166,989
-
Held in
Treasury
(1,743)
2,542
(4,551)
Shares of Common Stock at December 31, 2011
Forfeitures
166,989
-
(3,752)
(475)
163,237
(475)
Shares of Common Stock at December 31, 2012
Issuances 3
166,989
4,558
(4,227)
4,227
162,762
8,785
Shares of Common Stock at December 31, 2013
171,547
-
171,547
Purchases 1
Outstanding
18,650
Outstanding
165,246
2,542
(4,551)
1
In August 2012, the Company repurchased all 18,650 shares of its outstanding Series A
preferred stock. The redemption amount of the preferred stock was $30.8, of which $27.9 was
disbursed to the preferred stockholders and $2.9 was paid for federal tax withholdings.
2
The Company purchased 4,551 shares of restricted common stock, 2,542 of those shares were
related to exercised stock options.
3
In 2013, the Company granted 8,785 shares of restricted common stock, 4,227 of which were
released from its treasury and 4,558 were newly issued shares.
Forfeitures of common stock represent unvested shares issued to participants covered by the Plan (as
defined below) who failed to meet the Plan’s vesting requirements. Under the Plan, unvested shares of common
stock are remitted back to the Company and may be included in future awards. Forfeitures, as well as non-retired
shares of previously acquired stock, are reissued to satisfy exercised stock options and new stock grants prior to the
issuance of new shares.
10. Net Income (Loss) Per Share
Net income (loss) per share is computed under the provisions of FASB ASC 260 ―Earnings Per Share‖.
Basic income (loss) per share is computed using net income (loss) and the weighted average number of common
shares outstanding. Diluted earnings per share reflect the weighted average number of common shares outstanding
plus any potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of shares
issuable upon the exercise of stock options (using the treasury stock method) and restricted shares that are
nonvested.
78
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth the computation of basic and diluted net loss per share for the periods
indicated (in millions, except share and per share amounts):
Years Ended December 31,
Numerator:
Net income (loss) attributable to controlling interest
Accretion of preferred stock
Net income (loss) applicable to common shareholders
Denominator:
Weighted average common shares outstanding (basic)
Weighted average common shares outstanding (diluted)
Income (loss) per common share:
Basic
Diluted
2013
$
$
2012
59.7
59.7
$
$
162,844
167,071
$ 366.33
$ 357.06
7.4
(1.9)
5.5
2011
$
$
(5.8)
(2.6)
(8.4)
161,381
163,930
161,167
161,167
34.24
33.71
$ (52.06)
$ (52.06)
$
$
The following table shows the common equivalent shares related to non-vested restricted stock and stock
options that were not included in the computation of diluted earnings per share as their effect would have been
antidilutive:
Years Ended December 31,
Common Share Equivalents of Potentially Dilutive Securities:
Restricted stock
Stock options
Total
2013
2012
-
803
803
2011
712
5,664
6,376
11. Stock Compensation Plans
Restricted Stock/Restricted Units
A summary of the restricted common unit/share activity for the year ended December 31, 2013 is as
follows:
Restricted Common
Units/Shares Outstanding
Balance January 1, 2013
Granted
Forfeited
Balance December 31, 2013
1,515
8,785
10,300
Weighted-Average
Grant Date
Fair Value
$
$
445.38
3,089.85
2,700.88
Units/Shares
Vested
1,515
2,972
4,487
Compensation expense was approximately $9.2, $0.1 and $0.3 for the years ended December 31, 2013,
2012, and 2011, respectively. For the year ended December 31, 2013, the Company also recognized $27.2 in income
tax gross ups related to the issuance of restricted shares. In addition, the Company expects to recognize
approximately $18.0 in remaining compensation cost for the non-vested restricted shares through 2017. The $9.2 in
compensation expense and the $27.2 in related tax gross ups are included in Other Expense on the consolidated
statement of operations.
Stock Options
On May 14, 2008, the Board adopted the American Heritage Arms, Inc. 2008 Stock Incentive Plan (the
―Plan‖). The Plan is designed to provide a means by which certain current employees, officers, non-employee
directors and other individual service providers may be given an opportunity to benefit from increases in the value
79
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
of Remington Outdoor common stock (the ―Common Stock‖), through the grant of awards. Remington Outdoor, by
means of the Plan, seeks to retain the services of such eligible persons and to provide incentives for such persons to
exert maximum efforts for the success of Remington Outdoor and its subsidiaries.
The awards under the Plan may be in the form of incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards and stock unit awards. The maximum aggregate number of shares of
Common Stock that may be issued under all awards granted to participants under the Plan is 24,247 shares,
including approximately 1,234 shares which are restricted shares and not stock options, subject to certain
adjustments as set forth in the Plan.
Also on May 14, 2008, the Board adopted the form of Nonqualified Stock Option Award Agreement (the
―Form Award Agreement‖). The Form Award Agreement outlines terms relating to stock option awards, including
(i) the exercise price per share of each option granted, which shall be the fair market value of a share of the Common
Stock on the date of grant (as defined in the Plan), (ii) the vesting schedule of the options granted, and
(iii) acceleration provisions upon the occurrence of a change in control, termination of employment without cause or
termination of employment for good reason.
Since all of the Company’s outstanding options had vested by March 2013, no additional compensation
expense is expected to be recognized. For the years ended December 31, 2013, 2012, and 2011, the Company
recognized $0.1, $0.2 and $0.3, respectively, in expense related to these options.
A summary of the stock option activity for the Plan for the year ended December 31, 2013 is as follows:
Number
of Awards
Awards outstanding, January 1, 2013
Granted
Forfeited
Awards outstanding, December 31, 2013
Awards vested, December 31, 2013
Shares available for grant, December 31, 2013
Weighted-Average
Exercise Price
5,445
5,445
5,445
13,047
$
$
$
389.05
389.05
389.05
The total intrinsic values of options exercised were zero, zero, and $1.8 for the years ended December 31,
2013, 2012, and 2011, respectively. The total intrinsic value of options that have vested and are exercisable for the
years ended December 31, 2013, 2012, and 2011 was $15.4, $1.1, and $3.1, respectively.
The following table summarizes information about stock options outstanding in connection with the Plan at
December 31, 2013:
Exercise Price
$255.00-$1,164.00
Number
of Shares
5,445
Awards Outstanding
Weighted-Average
Remaining
Weighted-Average
Contractual Life
Exercise Price
4.71
$
80
389.05
Awards Vested
Number
of Shares
5,445
Weighted-Average
Exercise Price
$
389.05
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
12. Income Taxes
The provision (benefit) for income taxes consists of the following components:
Years Ended December 31,
Federal:
Current
Deferred
Non-U.S.:
Current
Deferred
State:
Current
Deferred
Total
2013
$
$
2012
17.4
9.7
$
2011
1.5
(0.5)
$
(0.7)
(2.1)
-
-
-
4.4
(0.2)
31.3
0.5
(3.3)
(1.8)
1.0
0.5
(1.3)
$
$
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
deferred tax liabilities are presented below as of December 31:
Current
Deferred Tax Assets:
Accrued employee and retiree benefits
Product liabilities, deferred revenue and other liabilities
Receivables and inventory
Debt acquisition costs and debt discount amortization
Interest Rate Swaps
Charitable Contribution Carryforwards
Other comprehensive income (pension)
Other comprehensive income (hedging)
Federal tax credits
State tax credits
Net operating losses (federal and state)
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred Tax Liabilities:
Property, plant and equipment
Intangible assets
Other comprehensive income (hedging)
Total deferred tax liabilities
Net Deferred Tax Asset (Liability)
$
2013
Noncurrent
Current
6.9
9.7
11.2
0.9
0.4
0.1
0.1
$ 29.3
(0.3)
$ 29.0
$
(20.8)
6.8
0.5
(1.5)
33.2
3.8
0.1
$ 22.1
(0.3)
$ 21.8
$
$
$ (33.7)
(26.4)
(60.1)
$ (38.3)
$
$ 29.0
5.4
6.7
5.9
0.7
1.2
0.2
0.1
$ 20.1
(0.2)
$ 19.9
(2.0)
(2.0)
$ 17.9
2012
Noncurrent
$
$
$
$
$
(8.5)
6.0
0.3
40.9
2.4
0.3
41.4
(0.4)
41.0
(25.8)
(26.5)
(52.3)
(11.3)
In accordance with FASB ASC 740 ―Income Taxes‖, the Company has a valuation allowance against
deferred tax assets of $0.6, $0.6, and $2.2 as of December 31, 2013, 2012, and 2011, respectively.
At December 31, 2013, the Company had various losses, credit and other carryforwards available to reduce
future taxable income and tax thereon. The carryforwards as of December 31, 2013, as well as the related tax
benefits associated with the carryforwards, will expire as follows:
81
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Expiration1
US Federal loss
carryforwards
1 – 5 years
6 – 20 years
Beyond 20 years
Total
1
$
$
-
State loss
carryforwards
$
$
2.0
2.0
Tax credit and
other carryforwards
$
0.2
0.1
5.7
6.0
$
All amounts are gross.
The following is a reconciliation of the statutory federal income tax rate to the Company’s effective income tax
rates:
Years Ended December 31,
Federal statutory rate
Non-U.S. income taxed at other than 35%
State income taxes, net of federal benefits
Permanent differences, other
State tax credits, net of federal benefits
State net operating loss
Federal tax credits
Income taxed to owners of non-controlling interest
Increase to valuation allowance
Unrecognized tax benefits
Change in deferred tax asset rate
Other
Effective income tax rate for controlling interest
2013
35.0 %
2012
35.0 %
2011
35.0 %
3.1
(1.3)
(1.4)
0.3
(2.0)
0.7
34.4%
(7.2)
3.8
(3.0)
4.7
(2.9)
1.0
(29.9)
(31.7)
(2.5)
(32.7)%
0.6
(9.4)
4.2
(1.9)
15.9
(4.1)
(25.8)
(5.0)
7.8
(1.0)
16.3%
A reconciliation of the change in gross unrecognized tax benefits for the periods ended December 31 for
the respective years are as follows:
Gross Unrecognized Tax Benefits
Balance as of January 1,
Gross increases/(decreases) in unrecognized benefits taken during
prior period (predecessor)
Gross increases/(decreases) in unrecognized benefits taken during
current period
Gross decreases because of settlement
Gross decreases because of lapse in applicable statute of limitations
Balance as of December 31,
$
2013
3.2
$
2012
4.9
$
2011
4.0
0.3
(0.1)
0.6
0.9
(0.4)
$ 4.0
0.1
(0.3)
(1.4)
$
3.2
0.3
4.9
$
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The
Company recognized an immaterial amount of expense associated with interest and penalties for the years ended
December 31, 2013, 2012, and 2011. The Company had approximately $0.6 and $0.4 accrued for interest/penalties
at December 31, 2013 and 2012, respectively.
Of the amount of gross unrecognized tax benefits at the end of 2013, approximately $3.0 would, if
recognized, impact our effective tax rate, with the remaining amount comprised of unrecognized tax benefits related
to gross temporary differences. The Company expects to recognize approximately $1.5 of unrecognized tax benefits
over the next 12 months as a result of statutes of limitation closing.
The Company files a consolidated U.S. federal income tax return as well as separate and combined income
tax returns in numerous states. The 2010 tax year and subsequent years remain subject to IRS and other examination
by the major tax jurisdictions in which we file. The Company’s 2011 tax year federal income tax return is currently
under audit by the Internal Revenue Service. Depending on the outcome of audits by income tax authorities, the
82
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Company may be required to pay additional taxes. However, the Company does not believe that any additional taxes
and related interest or penalties would have a material impact on the Company’s financial position, results of
operations or cash flow.
In September 2013, the Internal Revenue Service released final Tangible Property Regulations (the ―Final
Regulations‖). The Final Regulations provide guidance on applying Section 263(a) of the Internal Revenue Service
Tax Code to amounts paid to acquire, produce or improve tangible property, as well as rules for materials and
supplies (Code Section 162). The Final Regulations are generally effective for tax years beginning on or after
January 1, 2014, and may be adopted in earlier years. The Final Regulations will likely require the Company to
make additional tax accounting method changes as of January 1, 2014; however, the Company does not anticipate
the impact of these changes to be material to the Company’s financial position, results of operations, or cash flow.
The Company’s undistributed earnings from its foreign subsidiary are considered to be indefinitely
reinvested. These undistributed earnings would become taxable upon repatriation to the United States. The
unrecognized deferred tax liability related to the undistributed earnings is not material to the Company’s financial
position, results of operations, or cash flow.
13. Retiree Benefits
Defined Benefit Pension Plans:
The Company sponsors two defined benefit pension plans and a supplemental defined benefit pension plan
for certain of its employees. For disclosure purposes, the three defined benefit pension plans have been combined
and are collectively referred to as the ―Plans‖. Vested employees who retire will receive an annual benefit equal to a
specified amount per month per year of credited service, as defined by the Plans.
The following provides the changes in the Plans’ benefit obligations and the fair value of the Plans’ assets
as well as the Plans’ funded status:
Change in Benefit Obligation:
Benefit Obligation at Beginning of Period
Service Cost
Interest Cost
Actuarial Assumption Changes
Actuarial (Gain)/Loss
Benefits Paid
Benefit Obligation at End of Period
2013
291.6
0.1
10.2
(26.7)
(0.9)
(13.8)
$ 260.5
$
Change in Plan Assets:
Fair Value of Plan Assets at Beginning of Period
Actual Return on Plan Assets
Employer Contributions
Expenses
Benefits paid
Fair Value of Plan Assets at End of Period
Funded Status at End of Period
2013
228.5
4.2
10.7
(0.9)
(13.8)
$ 228.7
$ (31.8)
$
2012
275.7
0.1
11.0
17.2
1.2
(13.6)
$ 291.6
$
2012
221.1
17.9
3.2
(13.7)
$ 228.5
$ (63.1)
$
Pension amounts recognized in the consolidated financial statement of position are as follows:
As of December 31,
Noncurrent assets
Current liabilities
Noncurrent liabilities
$
83
2013
2.5
(0.3)
(34.0)
2012
$
(0.3)
(62.8)
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
The accrued benefit liability is recorded on the consolidated balance sheet in the ―Retiree Benefits, net of
Current Portion,‖ as well as in the ―Other Accrued Liabilities‖ line item as described in note 7.
Components of Net Periodic Benefit Cost
Net periodic benefit cost for the Plans consisted of the following:
For the Years Ended December 31,
Service Cost
Interest Cost
Return on Assets
Recognized Net Actuarial Loss
Net Periodic Pension (Benefit)/Cost
2013
0.1
10.2
(15.4)
3.6
$
(1.5)
$
2012
0.1
11.0
(17.2)
2.7
$
(3.4)
$
2011
0.2
12.3
(17.4)
11.5
$
6.6
$
The following table presents other changes in plan assets and benefit obligations recognized in other
comprehensive income (―AOCI‖) related to the Plans on a pretax basis:
Change in AOCI
Loss Balance in AOCI at Beginning of Period
Net Actuarial and Other (Gains) Losses
Net Losses Reclassified into Net Periodic Benefit Cost
Loss Balance in AOCI at End of Period
2013
106.6
(15.6)
(3.5)
$
87.5
$
2012
91.6
17.7
(2.7)
$ 106.6
$
The following table presents the Plans’ components that are recognized in AOCI on a pretax basis:
As of December 31,
Net Actuarial Losses 1
Loss Balance in AOCI at End of Period
2013
$ 87.5
$ 87.5
$
$
2012
106.6
106.6
1
Approximately $2.5 of the Plans’ net actuarial losses residing in AOCI are expected to be
recognized as components of net periodic benefit cost during 2014.
Assumptions
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
For the Years Ended December 31,
Discount Rate
Expected Long-Term Return on Plan Assets
2013
3.59%
7.00%
2012
4.11%
8.00%
2011
5.20%
8.00%
The Plans have been previously amended to cease further benefit accruals for all of the Plans’ participants
and to discontinue offering eligibility to new employees. Weighted-average assumptions used to determine the
benefit obligation are as follows:
As of December 31,
Discount Rate
2013
4.50%
2012
3.59%
Pension benefit income or expense is determined using assumptions as of the beginning of the year, while
the funded status is determined using assumptions as of the end of the year. The assumptions are determined by
management and established at the respective balance sheet date using the following principles: (1) the expected
long-term rate of return on plan assets is established based upon historical actual asset returns and the expectations
of asset returns over the expected period to fund participant benefits based on the current investment mix of the
Plans; and (2) the discount rate is set based on the yield of high quality fixed income investments expected to be
84
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
available in the future when cash flows are paid, adjusted for company specific characteristics. In addition,
management considers advice from independent actuaries on each of these assumptions.
Plan Assets
Our investment strategy for the Plans’ assets is based on the long-term growth of principal while attempting
to mitigate overall risk to ensure that funds are available to pay benefit obligations. The Plans have adopted a
strategic asset allocation designed to meet the Plans’ long-term obligations. The Plans’ target asset allocation are
8.0% domestic equity funds, 4.0% international equity funds, 5.0% fixed income funds, 40.0% of alternative
investments, 40.0% in a Liability Driven Investment program, and 3.0% of cash and cash equivalents. Domestic
equity funds primarily include investments in large-cap and middle-cap companies located with the United States.
International equity funds primarily include large-cap, middle-cap, and small-cap companies located in developed
and emerging countries. Fixed income funds include corporate bonds and U.S. Treasuries. Alternative investments
include hedge funds that follow different strategies that are not currently subject to any direct regulation by the
Securities and Exchange Commission, the Financial Industry Regulatory Authority, or any other federal regulating
commissions. Allowable investment structures include mutual funds, separate accounts, commingled funds, and
collective trust funds. Prohibited investments are defined as commodities, private placements, and derivative
instruments used solely for leverage.
The following table presents the fair value of major categories of the Plans’ assets based on the level within
the fair value hierarchy:
Asset Category:
Cash
Domestic equity securities: 1
U.S. large-cap blend
U.S. middle-cap blend
U.S. small-cap blend
High Yield
International equity securities:
Emerging markets growth 2
International large-cap value 3
Domestic fixed income securities:
Corporate bonds 4
U.S. Treasuries 5
Real Estate 6
Private equity funds:
Equity hedge funds 8
Event driven funds 9
Relative value funds 10
Tactical trading funds 11
Manager receivable12
Multi-Strategy13
Total Fair Value of the Plans’ Assets
Fair value measurements at December 31, 2013 using:
Total
Level 1
Level 2
Level 3
$ 10.4
$
10.4
9.2
4.1
3.3
9.7
9.2
4.1
3.3
9.7
0.4
5.9
5.9
$
84.3
27.4
2.2
$
9.3
26.8
2.8
5.4
21.3
6.2
228.7
85
0.4
84.3
27.4
$
70.0
$
84.7
$
2.2
$
9.3
26.8
2.8
5.4
21.3
6.2
74.0
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Asset Category:
Cash
Domestic equity securities: 1
U.S. large-cap blend
U.S. middle-cap blend
U.S. small-cap blend
High Yield
International equity securities:
Emerging markets growth 2
International large-cap value 3
Domestic fixed income securities:
Corporate bonds 4
U.S. Treasuries 5
Real Estate 6
Private equity funds:
Equity hedge funds 8
Event driven funds 9
Relative value funds 10
Tactical trading funds 11
Manager receivable12
Total Fair Value of the Plans’ Assets
Fair value measurements at December 31, 2012 using:
Total
Level 1
Level 2
Level 3
$
8.1
$
8.1
7.2
3.0
1.4
6.1
7.2
3.0
1.4
6.1
1.6
4.4
4.4
$
82.9
31.5
2.2
20.7
37.0
12.1
7.6
2.7
$ 228.5
1.6
82.9
31.5
-
$
61.7
$
84.5
$
2.2
$
20.7
37.0
12.1
7.6
2.7
82.3
1
This category comprises equity funds that are professionally managed by independent
investment management companies. Securities within these funds are actively traded on U.S.
security exchanges.
2
These equity funds consist of index funds that are similar to international index funds that are
actively traded.
3
This category comprises equity funds that are professionally managed by independent
investment management companies. Securities within these funds are actively traded on
international security exchanges.
4
This category comprises investment grade bonds of U.S. issuers from multiple industries.
Maturities within these funds range between 1 to 20 years with bond ratings ranging from AAA to
ABB.
5
This category comprises U.S. Treasury Bills and Notes. Maturities within these funds range
between 3 months to 20 years.
6
This category is comprised of Real Estate Investment Trust (REIT) which seeks to pool capital
from investors to purchase and manage property.
7
This category is used to hedge US equities to protect against a large decline in equity markets.
Liquid option contracts are used to help offset unforeseen events that can occur in financial
markets that can cause adverse price movements in securities that we are invested in or similar
securities to what we are invested in.
8
This category comprises hedge funds that invest in both long and short positions in domestic
common stocks. These funds are professionally managed by independent investment management
86
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
companies who have the ability to switch from value to growth strategies. These funds invest in
large-cap, middle-cap, and small-cap companies.
9
This category comprises hedge funds that invest in both credit and debt related positions in
international common stocks which may not be actively traded on international security
exchanges. These funds are professionally managed by independent investment management
companies who have the ability to switch from debt focus to multi-strategy focus.
10
This category of funds invests in convertible arbitrage which seeks growth. These funds are
professionally managed by independent investment management companies by engaging in
mergers and acquisitions.
11
This category invests in strategies that speculate on the direction of market prices of currencies,
commodities, equities and or bonds. These funds are professionally managed by independent
investment management companies.
12
This category consists of funds that have been redeemed and are awaiting the receipt of cash.
13
This category invests in private alternative investment vehicles managed by professional money
managers.
The following table reconciles the beginning and ending balances of Plan assets for the years ended
December 31, 2013 and 2012 using significant unobservable inputs (Level 3) within the fair value hierarchy:
REIT
Balance as of December 31,
2011:
Actual return on plan assets
Related to assets still held at
Dec. 31, 2012
Related to assets sold during
the year:
Purchases, sales, and settlements
Transfers in or out of Level 3
Balance as of December 31, 2012:
Actual return on plan assets
Related to assets still held at
Dec. 31, 2013
Related to assets sold during
the year:
Purchases, sales, and settlements
Transfers in or out of Level 3
Balance as of December 31, 2013:
$
$
$
-
Equity
Hedge
Funds
Event
Driven
Funds
$
$
21.7
35.1
Relative
Value Funds
$
15.2
Tactical
Trading
Funds
$
8.5
Manager
Receivable
$
2.0
MultiStrategy
$
-
-
2.0
3.2
1.5
0.2
-
-
2.2
2.2
(3.0)
$ 20.7
(1.3)
$ 37.0
(4.6)
12.1
(1.1)
$
7.6
0.7
2.7
-
-
1.4
5.5
1.4
(0.2)
-
1.4
2.2
0.4
(13.2)
$ 9.3
0.2
(11.0)
(4.9)
$ 26.8
0.3
(11.0)
$
2.8
(2.0)
$
5.4
18.6
$ 21.3
(7.5)
12.3
$ 6.2
$
$
$
Anticipated Contributions
The Company expects to make aggregate cash contributions of approximately $0.3 to the Plans during the
year ending December 31, 2014.
As a result of the Company’s restructuring activities that are described in note 2, the Company notified the
Pension Benefit Guaranty Corporation (―PBGC‖) that the closure of the manufacturing facility in North Haven,
87
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Connecticut may be considered a cessation of operations event under ERISA Section 4062(e). The Company funded
$10.1 from available cash and cash equivalents during the first quarter of 2013.
The following table presents a summary of the estimated future benefit payments made from the Plans to
retirees over the next five years and thereafter as of December 31, 2013.
Year
2014
2015
2016
2017
2018
Thereafter
Total
Amount
$
15.1
15.5
15.9
16.4
16.6
86.4
$
165.9
Savings Plans:
The Company sponsors two defined contribution plans covering substantially all of its employees. A fourth
defined contribution plan is outsourced to a multi-employer plan. Each of the individual plans contains various
matching provisions ranging from 2% to 4% of base compensation. In addition, vesting of these matching
contributions ranges from immediate to six years. The Company’s matching expense to these plans was $4.3, $3.5,
and $1.9 for the years ended December 31, 2013, 2012, and 2011, respectively.
Other Postretirement Benefit Plans:
The Company sponsors two unfunded postretirement defined benefit plans which provide certain
employees and their eligible dependents and beneficiaries with retiree health and welfare benefits. The Marlin
defined benefit postretirement healthcare plan (the ―Marlin Postretirement Plan‖) covers certain employees who
have 17 years of service at retirement. The Marlin Postretirement Plan is a contributory plan for which certain of
Marlin retirees and their spouses are eligible. The Company’s contribution is limited to a specified amount per
month per retiree employee or retiree spouse, as defined by the Marlin Postretirement Plan.
The Remington defined benefit postretirement healthcare plan (the ―Remington Postretirement Plan‖ and,
along with the Marlin Post Retirement Plan, the ―Post Retirement Plans‖) covers certain eligible employees and their
spouses. The Remington Postretirement Plan provides retirees and their eligible spouses’ postretirement medical
benefits until age 65 and then provides a monthly supplement based on years of service as defined by the Remington
Postretirement Plan.
The following provides the changes in the unfunded postretirement benefit plans’ benefit obligations:
Change in Benefit Obligation:
Benefit Obligation at Beginning of Period
Service Cost
Interest Cost
Actuarial (Gain)/Loss
Benefits Paid
Benefit Obligation at End of Period
2013
12.9
0.2
0.5
(1.0)
(0.5)
$
12.1
$
88
2012
12.2
0.2
0.5
0.3
(0.3)
$
12.9
$
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Amounts of the postretirement benefit plans that are recognized in the consolidated financial statement of
position are as follows:
As of December 31,
Current liabilities
Noncurrent liabilities
Net Liability Recognized
2013
(0.9)
(11.2)
$ (12.1)
2012
(0.8)
(12.1)
$ (12.9)
$
$
1
The accrued postretirement benefit obligation is recorded on the consolidated balance sheet in
the ―Retiree Benefits, net of Current portion‖ line.
Components of Net Periodic Benefit Cost
Net periodic benefit cost for the postretirement benefit plans consisted of the following:
For the Years Ended December 31,
Service Cost
Interest Cost
Recognized Net Actuarial (Gains)
Net Periodic Pension (Benefit)/Cost
2013
0.2
0.5
$
0.7
2012
0.2
0.5
$
0.7
$
2011
0.1
0.5
(0.2)
$
0.4
$
$
The following table presents the changes in AOCI related to the postretirement benefit plans on a pretax
basis:
Change in AOCI
(Gain) Balance in AOCI at Beginning of Period
Net Losses (Gains)
Net Gains Recognized into Net Periodic Benefit Cost
(Gain)/Loss Balance in AOCI at End of Period
2013
$
$
2012
$
(0.3)
0.3
$
-
(1.0)
(1.0)
The following table presents the postretirement benefit plans’ components that are recognized in AOCI on
a pretax basis:
As of December 31,
Net Actuarial Losses 1
Prior Service (Credit) 1
Loss Balance in AOCI at End of Period
2013
$
$
2012
$
0.4
0.2
0.6
$
0.2
(0.2)
-
1
Approximately $(0.1) of the postretirement benefit plans’ (gains) and losses residing in AOCI
are expected to be recognized as components of net periodic benefit cost during 2014.
Assumptions
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
For the Years Ended December 31,
Discount Rate
2013
3.59%
2012
4.11%
2011
5.20%
Weighted-average assumptions used to determine the benefit obligation are as follows:
As of December 31,
Discount Rate
2013
4.50%
89
2012
3.59%
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
The assumed healthcare cost trend rates as of December 31 are as follows:
2013
9.00%
5.00%
2018
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
2012
9.00%
5.00%
2017
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care
plans. A one-percentage point change in assumed health care cost trend rates would have the following effects as of
December 31, 2013:
1 percentage
point increase
Healthcare cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
$
1 percentage
point decrease
0.7
0.4
$
0.7
0.4
Estimated Future Benefit Payments—Following is a summary, as of December 31, 2013, of the estimated
future benefit payments for our postretirement benefit plan in each of the next five years and in the aggregate for
five years thereafter.
Year
Amount
2014
2015
2016
2017
2018
2019 - 2023
Total
$
$
0.9
1.0
1.0
1.0
1.2
5.2
10.3
Change in Assumptions for 2012:
Effective January 1, 2012, the Company changed its policy to amortize actuarial gains and losses that
exceed 10% of either the projected benefit obligation or the market-related value of plan assets, whichever is greater
as of the beginning of the year, over the participants’ average remaining life expectancy for all of its defined benefit
pension and post retirement plans. The change in assumptions resulted in a change in estimate affected by a change
in accounting principle and was made on a prospective basis. Since more losses are expected to be deferred and
those accumulated losses in AOCI will now become amortized over a greater period, the change in assumptions is
expected to reduce future net periodic pension benefit costs.
14. Fair Value Measurements
FASB ASC 820 ―Fair Value Measurements and Disclosures‖ defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the measurement date (that is, an exit price). The
exit price is based on the amount that the holder of the asset or liability would receive or need to pay in an actual
transaction (or in a hypothetical transaction if an actual transaction does not exist) at the measurement date. In some
circumstances, the entry and exit price may be the same; however, they are conceptually different. The accounting
standards also establish a three-level hierarchy that prioritizes the inputs used in fair value measurements. The
hierarchy consists of three broad levels as follows:
Level 1 – Quoted market prices in active markets for identical assets or liabilities;
Level 2 – Observable inputs other than quoted prices within Level 1, such as quoted prices for similar
assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets
90
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
that are not active; or other inputs that are observable or can be corroborated by observable market data;
and
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to
the fair value of the assets or liabilities. These include certain pricing models, discounted cash flow
methodologies and similar techniques that use significant unobservable inputs.
Recurring Fair Value Measurements
The fair values of the Company’s derivative contracts are determined using standard valuation models and
observable market inputs which are classified as Level 2 inputs. Inputs used in the valuation models include spot and
future prices, interest rates, forward rates, and discount rates that are based on London Inter Bank Offered Rate
(―LIBOR‖) and U.S. Treasury rates. Refer to note 17.
The following table presents those assets and liabilities that are measured at fair value on a recurring basis as of
December 31, 2013 and 2012:
As of December 31, 2013:
Assets:
Commodity Derivative Contracts
Interest Rate Derivative Contracts
Total Assets
Liabilities:
Commodity Derivative Contracts
Interest Rate Derivative Contracts
Total Liabilities
As of December 31, 2012:
Assets:
Commodity Derivative Contracts
Total Assets
Liabilities:
Commodity Derivative Contracts
Interest Rate Derivative Contracts
Total Liabilities
Level 1
Level 2
Level 3
$
-
$
2.1
3.9
6.0
$
$
$
2.7
2.4
5.1
$
$
-
$
$
-
$
$
$
-
$
$
$
$
$
$
1
Netting
Adjustments 1
-
$
$
$
-
6.1
6.1
$
$
-
0.3
2.6
2.9
$
-
$
$
(2.1)
(2.4)
(4.5)
$
Net Fair
Value
$
$
(2.1)
(2.4)
(4.5)
$
$
0.6
0.6
$
$
(0.3)
(0.3)
$
$
5.8
5.8
$
(0.3)
(0.3)
$
2.6
2.6
$
$
$
All of the Company’s derivative instruments are currently subject to master netting agreements
which allow gain and loss positions with the same counterparty to be netted together when settled.
Netting of payments for derivative instruments are allowable if the aggregate amount of
transactions payable by one party exceeds the aggregate amount of transactions that are receivable
by that party and if paid in the same currency. In the event of default, an early termination penalty
payable to the non-defaulting party can be reduced by amounts payable to the defaulting party if
the non-defaulting party so chooses. The fair values of all derivative instruments are presented on
a net basis on the consolidated balance sheet.
91
1.5
1.5
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Nonrecurring Fair Value Measurements
During 2012, the Company did not have any assets measured at fair value on a nonrecurring basis.
However, the following table presents assets that were measured at fair value on a nonrecurring basis for the year
ended December 31, 2013:
Year Ended December 31, 2013
Property, Plant, and Equipment 1
Level 1
Level 2
Level 3
$
$
$
-
-
-
Impairment
Charge
$
0.6
1
During 2013, the Company recognized a $0.6 impairment charge related to the building and real
property held for sale in North Haven, Connecticut. The facility was sold in November 2013 for
$1.6. The former facility was classified as held for sale since December 2010 when its initial fair
value was estimated to be $3.5. In 2011, the Company estimated the idle facility’s fair value was
$2.2 after it was decided that the facility’s best and highest use would be in commercial
development. Its fair value was estimated using recent transaction prices from the local
commercial real estate market as its unobservable inputs.
2011 Impairment Charges
In 2011, the Company recognized $7.9 of impairment charges from its fixed and intangible assets. Assets
held for sale were reduced by $1.3 after it was decided that the idle facility’s best and highest use would be in
commercial development. Goodwill in the All Other reporting segment was reduced by $1.4 and trade names were
reduced by $5.2 in all reporting segments.
Fair Values of Other Financial Instruments
Fair value measurements, hierarchy levels, valuation techniques, and unobservable input disclosures for the
Company’s pension plans’ assets are disclosed in note 13. Although the Company makes contributions to its pension
plans, it does not maintain control of the plans’ assets as each plan is its own reporting entity. However, actual
returns on the plans’ assets have a direct effect on the Company’s net periodic benefit cost and recognized amounts
on its consolidated balance sheet.
Due to their liquid nature, the carrying values of cash and cash equivalents, accounts receivable, accounts
payable, income taxes payable, and other accrued liabilities are considered representative of their fair values. The
estimated fair value of the Company’s debt was $839.9 and $658.9 as of December 31, 2013 and 2012, respectively.
The carrying value of the Company’s debt was $823.5 and $653.9 as of December 31, 2013 and 2012, respectively.
The fair value of the Company’s fixed rate notes was measured using the active quoted trading price of its notes at
December 31, 2013 and 2012, which are considered Level 2 inputs.
15. Related Party Transactions
The Company paid Meritage Capital Advisors, LLC (―Meritage‖) fees totaling $0.6, $5.6, and $0.3 in
2013, 2012, and 2011, respectively, in connection with transaction advisory services, including the issuance of the
Company’s 2020 Notes in 2012. A member of the Remington Outdoor Board is a managing director of Meritage.
The Company paid Cerberus Operations and Advisory Company, LLC, an affiliate of Cerberus Capital
Management, L.P. (―Cerberus‖), fees totaling $1.8, $3.9, and $0.1 in 2013, 2012, and 2011, respectively, for
consulting services provided in connection with improving operations, as well as approximately $2.0 in 2012 in
management fees for advice and support concerning overall strategic planning, business development, financial
structuring activities, and general corporate activities. The Company also paid Cerberus $27.9 in 2012 for the
redemption of preferred stock.
92
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
The Company paid other fees for relocation services totaling approximately $1.0, $0.5, and $0.3, in 2013,
2012, and 2011, respectively, to an entity affiliated through common ownership.
The Company purchased certain products totaling approximately $9.8, $3.3 and $1.2 from other entities
affiliated through common ownership in 2013, 2012, and 2011, respectively.
The Company paid approximately $0.4, $0.5, and $0.5 in 2013, 2012, and 2011, respectively in connection
with certain operating leases to an entity where the owner is an employee of the Company.
16. Commitments and Contingencies
Purchase Commitments
The Company has various purchase commitments, approximating $20.9, $8.1, $0.7, $0.2 and $0.1 for 2014,
2015, 2016, 2017, and 2018, respectively, for services incidental to the ordinary conduct of business, including,
among other things, a services contract with its third party warehouse provider. Such commitments are not at prices
in excess of current market prices. Included in the purchase commitment amounts are the Company’s purchase
contracts with certain raw materials suppliers, for periods ranging from one to seven years, some of which contain
firm commitments to purchase minimum specified quantities.
Product Related Litigation
Remington entered into an Asset Purchase Agreement (the ―1993 Purchase Agreement‖) with E.I. DuPont
Nemours & Company (―DuPont‖) and its affiliates (collectively, the ―1993 Sellers‖) in 1993 (the ―1993 Asset
Purchase‖). As a result of this agreement and other contractual arrangements, the Company manages the joint
defense of product liability litigation involving Remington brand firearms and the Company’s ammunition products
for both Remington and the 1993 Sellers. As of December 31, 2012, approximately 44 individual bodily injury cases
and claims were pending, primarily alleging defective product design, defective manufacture and/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-1993 Asset Purchase occurrences by settlement. The
44 pending cases involve post-1993 Asset Purchase occurrences for which the Company bears responsibility under
the 1993 Purchase Agreement.
The relief sought in individual cases includes compensatory and, sometimes, punitive damages. Certain of
the claims and cases seek unspecified compensatory and/or punitive damages. In others, compensatory damages
sought may range from less than $0.1 to in excess of $1.0 and punitive damages sought may exceed $1.0. Of the
individual post-1993 Asset Purchase bodily injury cases and claims pending as of December 31, 2013, the plaintiffs
and claimants seek either compensatory and/or punitive damages in unspecified amounts or in amounts within these
general ranges. In the Company’s experience, initial demands do not generally bear a reasonable relationship to the
facts and circumstances of a particular matter, and in any event, are typically reduced significantly as a case
proceeds. The Company believes that its accruals for product liability cases and claims, as described below, are a
reasonable quantitative measure of the cost to it of product liability cases and claims.
At December 31, 2013 and 2012, the Company’s accrual for product liability cases and claims was $16.1
and $16.4, respectively. The amount of the Company’s accrual for product liability cases and claims is based upon
estimates developed as follows. The Company establishes reserves for anticipated defense and disposition costs of
those pending cases and claims for which it is financially responsible. Based on those estimates and an actuarial
analysis of actual defense and disposition costs incurred by the Company with respect to product liability cases and
claims in recent years, the Company determines the estimated defense and disposition costs for unasserted product
liability cases and claims. The Company combines the estimated defense and disposition costs for both pending
cases and threatened, but unasserted claims to determine the amount of the Company’s accrual for product liability
cases and claims. It is reasonably possible additional experience could result in further increases or decreases in the
period in which such information is made available. The Company believes that its accruals for losses relating to
93
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
such cases and claims are adequate. The Company’s accruals for losses relating to product liability cases and claims
include accruals for all probable losses the amount of which can be reasonably estimated. Based on the 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 1993 Asset Purchase, the Company’s accruals for the
uninsured costs of such cases and claims and the 1993 Sellers’ agreement to be responsible for a portion of certain
post-1993 Asset Purchase shotgun-related product liability costs, as well as the type of firearms products that the
Company makes), the Company does not believe with respect to product liability cases and claims that any probable
loss exceeding amounts already recognized through the Company’s accruals has been incurred.
Litigation Outlook
The Company is involved in lawsuits, claims, investigations and proceedings, including commercial,
environmental and employment matters, which arise in the ordinary course of business. Currently, we have three
class action cases pending relating to breach of warranty claims concerning certain of our firearms products where
economic damages are being claimed. Two of such cases involve claims of economic harm to gun owners due to an
alleged defect. From late 2012 through 2013, five class actions alleging economic harm were filed in four states
(Florida, Missouri (two filings), Washington and Montana). The classes identified in these class action suits have
not yet been certified by the applicable courts. The Company believes all of these cases are without merit and is
vigorously defending them. The Company is currently involved in out-of-court mediation with respect to all of these
cases to explore whether a satisfactory settlement may be achieved. Three of the cases were voluntarily dismissed
without prejudice pending the outcome of the mediation.
In addition, two former employees filed suit against Remington in the federal court for the Southern
District of New York in 2012 alleging breach of their employment agreements and failure to pay earn-outs due to
one of the employees under an Asset Purchase Agreement and a Goodwill Agreement totaling $8.0. On January 13,
2014, the district court entered its decision finding in favor of these employees. It awarded the $8.0 in earn-outs,
back pay, attorneys’ fees and pre-judgment interest. The parties are presently filing post-trial motions with the
Court, which has not yet entered final judgment, regarding the exact nature of the relief to be provided to the former
employees. Remington plans to appeal to the United States Court of Appeals for the Second Circuit once final
judgment is entered by the district court.
Environmental
The Company does not expect current environmental regulations to have a material adverse effect on its
financial condition, results of operations or cash flows. However, the Company’s liability for future environmental
remediation costs is subject to considerable uncertainty due to the complex, ongoing and evolving process of
identifying the necessity for, and generating cost estimates for, remedial work. Furthermore, there can be no
assurance that environmental regulations will not become more restrictive in the future. We are conducting
remediation activities at a former facility in New Haven, Connecticut. Costs for remediation are not expected to be
material.
Leases
Future minimum lease payments under noncancellable operating leases having initial or remaining terms in
excess of one year are presented in the following table:
Years Ending December 31,
2014
2015
2016
2017
2018
Thereafter
Total minimum operating lease payments
Operating Lease Payments
$
3.5
2.4
1.6
1.0
0.7
3.2
$
12.4
94
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Operating lease expense for the periods ended December 31, 2013, 2012, and 2011 were $4.9, $3.1, and
$2.5, respectively. The present value of future minimum lease payments under capital lease arrangements was $0.1
as of December 31, 2013 and will be satisfied over the next year.
17. Derivatives
The Company’s activities are exposed to several market risks which could have an adverse effect on its
earnings and financial performance. As part of the Company’s risk management program, these market risks are
continually monitored and managed and the Company frequently utilizes derivative instruments to mitigate the
effects of those market risks. Commodity options and swap contracts are used to minimize price risk associated with
the purchase of raw materials used in its manufacturing. Interest rate swaps are used to minimize interest rate risk
associated with the Company’s variable-rate debt. Foreign currency swaps are used to mitigate foreign currency
exchange rate risks associated with sales and procurement activities that are denominated in currencies other than
the U.S Dollar. Commodity options and swap contracts are agreements to buy and sell a quantity of commodities at
predetermined prices on predetermined future dates. An interest rate swap is an agreement between two parties to
exchange streams of future interest cash flows based on a specified principal amount. A foreign currency swap is an
agreement between two parties to exchange two currencies on a specified date at a specified exchange rate. The
Company does not enter into derivative instruments for trading or speculative purposes.
On the date that the Company enters into derivative contracts, it designates and documents all relationships
between the derivative instrument and the hedged item, as well as its risk management objective and strategy. All
derivative instruments are recognized at their fair value on the Company’s consolidated balance sheet in the
applicable line items: prepaid expenses and miscellaneous receivables; other assets; accounts payable; accrued
expenses; and other long-term liabilities. For those derivative instruments subject to master netting agreements
where netting of payments is allowable, the fair values of derivative transactions are presented on a net basis in the
consolidated balance sheet. For those derivative instruments subject to master netting agreements where netting of
payments is not allowable or that are not subject to master netting agreements, the fair values of derivative
transactions are presented on a gross basis in the consolidated balance sheet. The fair value amounts recognized for
derivative instruments are offset against the fair value amounts recognized for the right to reclaim cash collateral or
the obligation to return cash collateral.
Treatment of gains and losses resulting from changes in the fair values of derivative instruments is
dependent upon the instruments’ designation and qualification as hedging instruments. The effective portion of
changes in the fair values of derivative instruments that qualify as cash flow hedges are recorded in AOCI and are
reclassified into the same line item of the consolidated statement of operations as the hedged item is recorded during
the same period the hedged item affects earnings. The ineffective portion of changes in the fair values of derivatives
qualifying as cash flow hedges is immediately recognized into earnings. For those derivatives that were not
designated or that did not qualify as hedging instruments, their changes in fair values are immediately recognized
into earnings within the same line item of the consolidated statement of operations as the hedged item is recorded.
Cash flows from derivative instruments are classified in the same category as cash flows from the hedged item in the
consolidated statement of cash flows.
All of the Company’s derivative instruments are currently subject to master netting agreements and
payments for the derivative contracts are allowed to be netted. Netting of payments for derivative instruments are
allowable if the aggregate amount of transactions payable by one party exceeds the aggregate amount of transactions
that are receivable by that party and if paid in the same currency. In the event of default, an early termination penalty
payable to the non-defaulting party can be reduced by amounts payable to the defaulting party if the non-defaulting
party so chooses. The fair values of all derivative instruments are presented on a net basis on the consolidated
balance sheet. Refer to note 14 for the net fair value presentation of the Company’s derivative instruments as
presented on the consolidated balance sheet.
95
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Cash Flow Hedges
Commodity Contracts
The Company enters into copper and lead commodity swap and option contracts to mitigate price
fluctuations on future commodity purchases. Both commodity option and swap contracts qualify for and have been
designated as cash flow hedges and changes in the fair values of these contracts are recorded in AOCI until sales of
ammunition that included previously hedged purchases of copper and lead have been recognized. Approximately
$1.2 of the net commodity contracts’ loss (net of taxes) included in AOCI is expected to be reclassified into earnings
over the next twelve months.
The Company has not had any outstanding commodity option contracts since May 2012. In 2011 and 2012,
some of the outstanding option contracts were sold prior to the original settlement date, which resulted in a loss that
was deferred in AOCI. This loss was reclassified into earnings three months beyond the original settlement dates,
which was when the previously hedged notional volume was expected to be recognized as cost of sales. During the
year ended December 31, 2013, the remaining $0.5 loss on commodity options contracts was reclassified into
earnings.
At December 31, 2013, the fair values of the Company’s outstanding swap contracts were $(0.6) and
hedged firm commitments of an aggregate notional amount of 46.2 million pounds of copper and lead. The
commodity swap contracts outstanding at December 31, 2013 will settle over the next 19 months. At December 31,
2012, the fair values of the Company’s outstanding swap contracts were $5.8 and hedged firm commitments of an
aggregate notional amount of 44.5 million pounds of copper and lead and will settle by December 2014.
Foreign Currency Swaps
The Company enters into foreign currency swaps to hedge certain portions of forecasted cash flows
denominated in foreign currencies. When the U.S. Dollar appreciates against the foreign currencies, the decline in
foreign currency cash flows is partially offset by gains in the fair values of foreign currency swaps. When the U.S.
Dollar depreciates against the foreign currencies, the increase in foreign currency cash flows is partially offset by
losses in the fair values of derivative instruments. All of the Company’s foreign currency swaps qualify for and have
been designated as cash flow hedges. Changes in the fair values of these contracts are recognized in AOCI until the
corresponding foreign denominated receivables/payables are collected/remitted. All of the foreign currency swaps’
gain that is included in AOCI is expected to be reclassified into earnings over the next twelve months.
At December 31, 2013, the fair values of the Company’s foreign currency swaps were approximately zero
and the total notional amount was $43.8. The Company’s foreign currency swaps will settle over the next 12
months. The Company did not participate in foreign currency derivative contracts at December 31, 2012.
The following table presents the fair value of the Company’s derivative instruments that were designated as
cash flow hedges on a gross basis without the effect of master netting agreements at the following dates:
Derivatives Designated as Cash
Flow Hedges
Assets
Commodity Contracts
Commodity Contracts
Total Assets 1
Liabilities
Commodity Contracts
Commodity Contracts
Total Liabilities 1
Balance Sheet Location
December 31, 2013
Prepaid Expenses and Misc. Receivables
Other Assets
$
$
Accounts Payable
Other Long-Term Liabilities
$
$
96
December 31, 2012
1.4
0.7
2.1
$
2.7
2.7
$
$
$
5.7
0.4
6.1
0.2
0.1
0.3
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
1
For information on the effect master netting agreements have on the Company’s derivative
instruments qualifying as cash flow hedges and their estimated fair values, refer to note 14.
The following table presents the impact changes in fair values of derivatives designated as cash flow
hedges had on earnings and AOCI, net of taxes, for the indicated periods:
Derivatives Designated as
Cash Flow Hedges
Gain (Loss)
Recognized in OCI
Location of Gain or (Loss)
Reclassified from AOCI
into Income (Effective
Portion)
Year Ended December 31, 2013
Commodity Contracts
$
Foreign Currency Swaps
Total 1
$
(4.4)
(4.4)
Cost of Sales
Net Sales
Year Ended December 31, 2012
Commodity Contracts
$
Total 1
$
2.9
2.9
Year Ended December 31, 2011
Commodity Contracts
$
Total 1
$
(4.3)
(4.3)
Gain (Loss)
Reclassified from
AOCI into Earnings
(Effective Portion)
$
Gain (Loss) Recognized
in Earnings
(Ineffective Portion and
Amounts Excluded from
Effectiveness Testing)
$
$
(0.3)
(0.3)
$
(0.2)
(0.2)
Cost of Sales
$
$
(2.7)
(2.7)
$
$
-
Cost of Sales
$
$
(0.5)
(0.5)
$
$
-
1
For information on the tax effects and pre-tax net gains and losses on derivative instruments
reflected in OCI, refer to note 19.
Economic Hedges
Interest Rate Swap
The Company uses interest rate swaps to manage its exposure to interest rate volatility by swapping a
portion of its floating rate debt into fixed-rate debt. These interest rate swaps effectively allow the Company to pay a
fixed rate of interest. In April 2012, the Company refinanced its debt in part with a floating rate term loan. In order
to minimize the effects volatility in LIBOR benchmark interest rates could have on its earnings, the Company
entered into an interest rate swap agreement in July 2012. Changes in the fair value of the interest rate swaps are
immediately recognized in earnings as the derivatives did not qualify for hedge accounting.
The interest rate swaps settle on the 19th day of each month commencing on April 19, 2013 and concluding
with the April 19, 2018 settlement. The notional amount of the interest rate swaps was $275.0 on the April 2013
commencement date and will decrease annually to $150.0 by its settlement date.
The following table presents the fair value of the Company’s derivative instruments that were not
designated as hedging instruments on a gross basis without the effect of master netting agreements at the following
dates:
Derivatives Not Designated as
Hedging Instruments
Assets
Interest Rate Swaps
Total Assets 1
Liabilities
Interest Rate Swaps
Interest Rate Swaps
Total Liabilities 1
Balance Sheet Location
December 31, 2013
December 31, 2012
Other Assets
$
$
3.9
3.9
$
$
-
Accrued Expenses
Other Long-Term Liabilities
$
2.4
2.4
$
1.9
0.7
2.6
$
97
$
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
1
For information on the effect master netting agreements have on the Company’s economic
hedges and their estimated fair values, refer to note 14.
The following table presents the pre-tax effect that changes in the fair values of derivatives not designated
as hedging instruments had on earnings for the indicated periods:
Derivatives Not Designated
as Hedging Instruments
Loss (Gain) Recognized
in Earnings
Location of Gain Recognized in Earnings
Year Ended December 31, 2013
Interest Rate Swaps
Interest Expense
$
(2.5)
Year Ended December 31, 2012
Interest Rate Swaps
Interest Expense
$
2.3
Year Ended December 31, 2011
N/A
N/A
$
-
18. Segment Information
The Company’s business is classified into two reportable segments: Firearms, which designs,
manufactures, imports and markets primarily sporting shotguns, rifles, handguns and modular firearms; and
Ammunition, which designs, manufactures and markets sporting ammunition and ammunition reloading
components. The remaining operating segments, which include accessories, silencers, other gun-related products,
licensed products and lifestyle products, including apparel and pet accessories, are aggregated into the All Other
category. Other corporate items include amounts not allocated to the individual segments.
For the Years Ended December 31,
Net sales from external customers:
Firearms
Ammunition
All Other
Total net sales from external customers
2013
$
$
Net sales between segments:
Firearms
Ammunition
All Other
Eliminations
Total net sales between segments
$
$
For the Years Ended December 31,
Gross profit:
Firearms
Ammunition
All Other
Other Corporate Items
Consolidated gross profit
Operating expenses
Loss on extinguishment of debt
Interest expense
Income (loss) before income taxes and noncontrolling interests
98
2012
739.7
436.5
92.0
1,268.2
$
1.0
0.9
4.3
(6.2)
-
$
$
$
2013
$
$
$
253.3
146.8
40.5
3.6
444.2
310.8
42.5
90.9
2011
550.9
331.7
49.3
931.9
$
0.3
0.4
1.4
(2.1)
-
$
$
$
2012
$
$
$
173.6
104.3
20.9
14.9
313.7
202.4
54.3
51.5
5.5
425.8
313.8
35.4
775.0
0.1
0.6
(0.7)
-
2011
$
119.8
84.4
15.3
$ 219.5
161.8
2.5
63.2
$ (8.0)
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Gross Capital Expenditures For the Years Ended December 31,
Firearms
Ammunition
All Other
Total Gross Capital Expenditures
2013
33.9
17.0
8.3
$
59.2
$
2012
9.6
9.1
9.4
$
28.1
2011
6.5
4.6
2.3
$
13.4
$
$
For the years ended December 31, 2013, 2012, and 2011, sales from the Company’s largest customer were
approximately 11%, 16%, and 15%, respectively, of consolidated net sales. Net Sales from customers outside of the
United States were $82.2, $72.4, and $66.8 for the years ended December 31, 2013, 2012, and 2011, respectively.
Geographic Information
Sales outside of the United States accounted for approximately 6.5% in 2013, 7.8% in 2012, and 8.6% in
2011 of total net sales. There were $31.0, $28.5, and $25.2 of net sales to Canada in 2013, 2012, and 2011,
respectively. The Company’s sales personnel and manufacturer’s sales representatives market to foreign distributors
generally on a nonexclusive basis and for a one-year term. As of December 31, 2013, 2012, and 2011, long-lived,
tangible assets with a carrying value of $0.6, $0.3, and $0.3, respectively, were maintained outside of the United
States.
19. Other Comprehensive Income (Loss)
AOCI on the Company’s consolidated balance sheet is attributable to the parent company. There was no
other comprehensive income attributable to noncontrolling interests in the Company’s less-than-wholly-owned
subsidiaries in the periods presented. AOCI consisted of the following items:
Year Ended December 31,
Net adjustments to pension and other benefit liabilities
Foreign currency translation adjustments
Net accumulated derivative gains (losses)
Accumulated other comprehensive income (loss)
2013
(53.3)
0.3
(0.7)
$
(53.7)
$
2012
(65.7)
3.2
$
(62.5)
$
Each component of OCI and their related tax effects for the years ended December 31, 2013, 2012, and
2011, is as follows:
Year Ended December 31, 2013
Pension and other benefit liabilities: 1
Net actuarial and other gains (losses) 2
Net (gains) losses reclassified into earnings 2
Net pension and other benefit gains (losses) 2
Foreign currency translation adjustments 3
Net derivatives: 4
Net unrealized gains (losses) recognized in OCI
Net (gains) losses reclassified into earnings
Net derivative gains (losses) 2
Other comprehensive income (loss) 2
Year Ended December 31, 2012
Pension and other benefit liabilities: 1
Net actuarial and other gains (losses) 2
Net (gains) losses reclassified into earnings 2
Net pension and other benefit gains (losses) 2
Before Tax
Income Tax
Net of Tax
$
$
$
$
$
16.6
3.5
20.1
0.3
$
$
(7.2)
0.8
(6.4)
14.0
$
$
99
(18.0)
2.7
(15.3)
$
$
(6.4)
(1.3)
(7.7)
-
$
$
2.8
(0.3)
2.5
(5.2)
$
$
7.0
(0.9)
6.1
$
$
10.2
2.2
12.4
0.3
$
$
(4.4)
0.5
(3.9)
8.8
$
$
(11.0)
1.8
(9.2)
REMINGTON OUTDOOR COMPANY, INC. AND SUBSIDIARIES
(Also known as Freedom Group, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Net derivatives: 4
Net unrealized gains (losses) recognized in OCI
Net (gains) losses reclassified into earnings
Net derivative gains (losses) 2
Other comprehensive income (loss) 2
$
$
Year Ended December 31, 2011
Pension and other benefit liabilities: 1
Net actuarial and other gains (losses) 2
Net (gains) losses reclassified into earnings 2
Net pension and other benefit gains (losses) 2
Net derivatives: 4
Net unrealized gains (losses) recognized in OCI
Net (gains) losses reclassified into earnings
Net derivative gains (losses) 2
Other comprehensive income (loss) 2
$
4.7
4.4
9.1
(6.2)
$
(23.7)
11.3
(12.4)
$
$
(7.0)
0.7
(6.3)
(18.7)
$
$
$
(1.8)
(1.7)
(3.5)
2.6
$
9.3
(4.3)
5.0
$
$
2.7
(0.2)
2.5
7.5
2.9
2.7
5.6
(3.6)
$
$
$
$
(14.4)
7.0
(7.4)
$
$
(4.3)
0.5
(3.8)
(11.2)
1
Gains and losses from the Company’s pension and other postemployment benefit plans that are
reclassified from AOCI are not completely recognized in earnings within the same reporting
period. For information on the changes in AOCI items related to pension and other
postemployment benefit plans, refer to note 13.
2
Amounts net of tax appear on the Consolidated Statements of Comprehensive Income (Loss).
3
U.S. income taxes are not accrued on foreign currency translation adjustments. For additional
information, refer to note 12.
4
Net derivative gains and losses that are reclassified out of AOCI are recognized in their entirety
in Cost of Sales on the Company’s condensed consolidated statement of operations in the same
reporting period. For additional information on the Company’s derivative instruments that are
designated as cash flow hedges refer to note 17.
20. Subsequent Events
On February 17, 2014, the Company announced that it has agreed to acquire a facility in Huntsville,
Alabama in order to increase capacity and expand research and development capabilities.
Subsequent events have been evaluated through March 31, 2014 which is the date the financial statements
were available to be issued.
21. Quarterly Financial Data
Year Ended December 31, 2013 (unaudited)
Net Sales
Gross Profit
Net (Loss) Income Attributable to Controlling Interest
First
$ 320.2
110.6
$ 26.8
Second
$ 353.2
128.3
$ 36.3
Third
$ 347.1
122.2
$ 31.2
Fourth
$ 247.7
83.1
$ (34.6)
Year Ended December 31, 2012 (unaudited)
Net Sales
Gross Profit
Net (Loss) Income Attributable to Controlling Interest
First
$ 205.6
70.3
$
6.3
Second
$ 233.8
80.1
$ (21.9)
Third
$ 237.9
82.2
$ 16.1
Fourth
$ 254.6
81.1
$
6.9
100
Schedule II
REMINGTON OUTDOOR COMPANY, INC.
Valuation and Qualifying Accounts
Years Ended December 31, 2013, 2012, and 2011 (in millions)
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Deductions
to Reserve
Balance at
End of
Year
Year ended December 31, 2013
Allowance for doubtful accounts
Valuation Allowance for Deferred Tax Assets
$
(0.7)
(0.6)
$
(0.7)
-
$
0.2
-
$
(1.2)
(0.6)
Year ended December 31, 2012
Allowance for Doubtful Accounts
Valuation Allowance for Deferred Tax Assets
$
(0.8)
(2.2)
$
1.6
$
0.1
-
$
(0.7)
(0.6)
Year ended December 31, 2011
Allowance for Doubtful Accounts
Valuation Allowance for Deferred Tax Assets
$
(0.4)
(0.2)
$
(0.2)
(2.0)
$
(0.2)
-
$
(0.8)
(2.2)
101
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth information regarding our board of directors and executive officers.
Name
George Kollitides II(a)(c)(e)
Walter McLallen IV(a)(b)(e)
Bobby R. Brown(b)
General Michael W. Hagee (Ret.)(a)(d)
General George A. Joulwan (Ret.)(c)(d)
James J. Pike(a)(c)
George J. Zahringer III (d)(e)
James P. Campbell
General Michael P.C. Carns (Ret.)(b)
Scott Wille(b)(c)
Ronald E. Kolka
Kevin Miniard
Melissa Cofield
Jonathan K. Sprole
Anthony L. Moore
Jeffrey B. Costantin
Age
Position
44 Executive Chairman of the Board, Chief Executive
Officer
48 Director, Vice Chairman of the Board
81 Director
69 Director
74 Director
71 Director, Vice Chairman of the Board
60 Director
56 Lead Director
76 Director
33 Director
53 Director, Chief Financial Officer
40 Chief Operating Officer
46 Chief Human Resources Officer
58 General Counsel
50 Chief Product Development & Supply Chain Officer
54 Chief Information Officer
(a) Member, Executive Committee
(b) Member, Audit Committee
(c) Member, Compensation Committee
(d) Member, Compliance Committee
(e) Member, Investments & Benefits Committee
None of our officers or directors has any family relationship with any other director or other officer.
―Family relationship‖ for this purpose means any relationship by blood, marriage or adoption, not more remote than
first cousin.
The business experience during the past five years of each of the directors and executive officers listed
above is as follows:
George Kollitides II has served as Executive Chairman of the Board and Chief Executive Officer since
April 2012. From March 2012 until April 2012, Mr. Kollitides served as Chairman of the Board and Acting Chief
Executive Officer. Mr. Kollitides has served as a director of the Company since 2007 and had been employed with
Cerberus Capital Management (―CCM‖) since prior to 2009 as a Managing Director. Mr. Kollitides also serves on
the board of directors of Tier 1 Group and Pacific Resources.
Walter McLallen has served as a director of the Company since 2007 and as Vice Chairman of the Board
since August 2010. From September 2009 until August 2010, he served as our Chairman of the Board.
Mr. McLallen has served as a Managing Director of Meritage Capital Advisors, LLC since prior to 2009.
Mr. McLallen also serves on the board of directors of Tier 1 Group and Alpha Media Group.
Bobby R. Brown has served as a director of the Company and Remington since 2006. Mr. Brown also
serves on the board of directors of Delta Trust and Bank and Patriot Coal Company, Inc. In addition, Mr. Brown
serves on the compensation committee and loan committee of Delta Trust and Bank and the executive committee,
compensation committee and finance committee of Patriot Coal Company, Inc.
General Michael W. Hagee (Ret.) has served as a director of the Company since 2007. General Hagee
retired from the 33rd Commandant of the Marine Corps prior to 2009. General Hagee (Ret.) has served as President
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and CEO of the Admiral Nimitz Foundation since December 2009. General Hagee (Ret.) also serves on the board of
directors of Silicon Graphics International Corp.
General George A. Joulwan (Ret.) has served as a director of the Company since 2007. General Joulwan
served as President of One Team, Inc. since prior to 2009. He has been retired from the United States Army since
prior to 2008. General Joulwan (Ret.) also serves on the board of directors of Accenture, Alion Science and
Technology, EBSI, General Dynamics and IAP Worldwide Services.
James J. Pike has served as a director of the Company since 2007. Mr. Pike has served as Chief Executive
Officer of CTA Acoustics, Inc. and as Managing Director of Cerberus since prior to 2009. Mr. Pike also serves on
board of directors of Alamo/National Car Rental and the board of directors of Ducks Unlimited, Inc.
George J. Zahringer III has served as a director of the Company since 2007. Mr. Zahringer has served as
Managing Director at Deutsche Bank Securities Inc. prior to 2009. Mr. Zahringer also serves on the board of
directors for NewPage Corporation.
James P. Campbell has served as Lead Director of the Company since April 2012. Mr. Campbell has
served as President, CEO and Corporate Senior Vice President of General Electric Appliances and Lighting since
prior to 2009. Mr. Campbell also serves on the board of YP Holdings LLC.
General Michael P.C. Carns (Ret.) has served as a director of the Company since October 2012. General
Carns retired from the United States Air Force prior to 2009. General Carns is a member of the board of directors of
IAP Worldwide Services, Inc.; Digital Globe, Inc.; and Armed Forces Services Corporation.
Scott Wille was named a director on February 5, 2014. Mr. Wille has served as Senior Vice President of
CCM since March 2011 and had previously served in elevating roles at CCM since prior to 2009. Mr. Wille also
serves on the boards of Keane Group Holdings, LLC and New Albertsons, Inc.
Ronald E. Kolka was named Chief Financial Officer on August 6, 2013. Mr. Kolka had served as acting
Chief Financial Officer of the Company since January 2012. In addition, Mr. Kolka was appointed to serve as a
director of the Company on February 11, 2013. Prior to being seconded to the Company, Mr. Kolka served as the
Chief Financial Officer for Cerberus Operations and Advisory Company LLC since December 2009. In addition,
Mr. Kolka served as Chief Financial Officer for Chrysler Motors LLC since prior to 2009. Mr. Kolka also serves on
the boards of Blue Linx Holding, Inc. and Tower Automotive International.
Kevin Miniard has served as Chief Operating Officer of the Company since July 2012. Mr. Miniard served
as Chief Manufacturing Officer of the Company from April 2012 until being named Chief Operating Officer. Mr.
Miniard served as Senior Vice President of the Global Operation Advanced Surgical Device Division at Smith &
Nephew Medical from 2009 until joining the Company.
Melissa Cofield has served as Chief Human Resources Officer for the Company and Remington since July
2009. Prior to July 2009, she served as Vice President of Human Resources for the Company and Remington.
Jonathan K. Sprole has served as General Counsel of the Company since August 2012. From August 2011
until joining the Company, Mr. Sprole worked as General Counsel of Versa Capital Management. From prior to
2009 until August 2011, Mr. Sprole served as a consultant for SRM Business Consulting.
Anthony L. Moore has served as Chief Product Development & Supply Chain Officer of the Company since
July 2012. Mr. Moore served as Senior Vice President Supply Chain from April 2012 until July 2012. From prior to
2009 until joining the Company, Mr. Moore served as Vice President – Global Supply Chain, Operations for Cooper
Industries.
Jeffrey B. Costantin has served as Chief Information Officer since March 2012. Mr. Costantin formed JBC
Group in July 2011 and served as a senior consultant from July 2011 until March 2012. From prior to 2009 until
July 2011, Mr. Costantin served as Chief Information Officer of the Company.
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Board Committees
Audit Committee. The audit committee of the board of directors consists of four members. The committee
assists the board in its oversight responsibilities relating to the integrity of our financial statements, the
qualifications, independence and performance of our independent auditors, the performance of our internal audit
function and the compliance of our company with any reporting and regulatory requirements we may be subject to.
Our board of directors will determine which member of our audit committee qualifies as an ―audit committee
financial expert‖ under SEC rules and regulations.
Compensation Committee. The compensation committee of the board of directors consists of four
members. The compensation committee of the board of directors is authorized to review our compensation and
benefits plans to ensure they meet our corporate objectives, approve the compensation structure of our executive
officers and evaluate our executive officers’ performance and advise on salary, bonus and other incentive and equity
compensation.
Special Committee. A special committee of the board of directors was formed on March 16, 2013, and is
comprised of three members, Bobby R. Brown, General Michael W. Hagee (Ret.), and General George A. Joulwan
(Ret.). The purpose of the special committee is to oversee the sale of the Company in order to ensure that it is
carried out in an open and fair manner to protect the interests of the shareholders. The special committee was
disbanded by the Board on August 14, 2013.
Board Office
Office of the Chairman. The Office of the Chairman is comprised of George Kollitides, who serves as
Executive Chairman of the Board, and Walter McLallen and James J. Pike, who each serve as a Vice Chairman of
the Board.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the compensation committee or board of directors of
any other entity that has an executive officer serving as a member of our board of directors or compensation
committee.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that applies to all of our employees, officers and
directors, including those officers responsible for financial reporting. The code of business conduct and ethics will
be available on our website at www.freedom-group.com. We expect that any amendments to the code, or any
waivers of its requirements, will be disclosed on our website.
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12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Shares of common stock of Remington Outdoor Company are held by various entities and individuals.
Each share of the Company’s common stock is entitled to one vote. The following table sets forth the beneficial
owners as of December 31, 2013, of the shares of common stock of the Company by each director, each executive
officer, by all directors and executive officers as a group and by each person who owns beneficially more than five
percent of the outstanding shares of common stock of the Company. The number of shares shown in the table is as
of the latest practicable date. Some directors and officers received shares of common stock and options to purchase
common stock based on service to a separate entity affiliated through common ownership.
The amounts and percentages of common stock beneficially owned are reported on the basis of SEC
regulations governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person
is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power
to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or to
direct the disposition of such security. Unless otherwise indicated below, each beneficial owner named in the table
below has sole voting and sole investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
Series A Preferred
Common
Number of Percent of Number of
Percent of
Shares
Class
Shares
Class
2,651 (1)
1.6%
3,796 (2)
2.2%
190 (3)
*
191 (4)
*
191 (5)
*
323 (6)
*
190 (7)
*
76 (8)
*
30 (9)
*
394 (10)
*
1,898 (11)
1.2%
304 (12)
*
380 (13)
*
152 (14)
*
152 (15)
*
475 (16)
*
11,393
6.7%
Name of Beneficial Owner
George Kollitides II
Walter McLallen IV
Bobby Brown
General Michael Hagee (Ret.)
General George Joulwan (Ret.)
James J. Pike
George J. Zahringer III
James P. Campbell
General Michael P.C. Carns (Ret.)
Scott Wille
Ronald E. Kolka
E. Scott Blackwell
Kevin Miniard
Melissa Cofield
Jonathan K. Sprole
Anthony L. Moore
John M. Dwyer, Jr.
Directors and executive officers as a group (16 Persons)
5% Stockholders
Cerberus Capital Management, L.P.
Stephen Feinberg
-
-
158,476 (17)
158,476 (17)
* Less than 1%.
(1) Represents 2,651 shares of restricted common stock directly held by Mr. Kollitides (including
227 shares which will vest within 60 days of March 31, 2014) and an additional 3,408 of unvested
shares, for a total of 6,059 shares of restricted common stock.
(2) Represents 2,771 shares of restricted common stock directly held by Mr. McLallen and 1,025
options that are currently exercisable.
(3)
Represents 190 options that are currently exercisable.
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93.3%
93.3%
(4) Represents 96 shares of restricted common stock directly held by General Hagee and 95
options that are currently exercisable.
(5) Represents 96 shares of restricted common stock directly held by General Joulwan and 95
options that are currently exercisable.
(6) Represents 133 shares of restricted common stock directly held by Mr. Pike (including 12
shares which will vest within 60 days of March 31, 2014) an additional 170 of unvested shares, for a
total of 303 shares of restricted common stock; and 190 options that are currently exercisable.
(7) Represents 190 options that are currently exercisable.
(8) Represents 76 shares of restricted common stock directly held by Mr. Campbell (including 15
shares which will vest within 60 days of March 31, 2014) and an additional 227 of unvested shares, for
a total of 303 shares of restricted common stock.
(9) Represents 30 shares of restricted stock directly held by General Carns (including 6 shares
which will vest within 60 days of March 31, 2014) and an additional 91 of unvested shares, for a total
of 121 shares of restricted common stock.
(10) Represents 394 shares of restricted stock directly held by Mr. Kolka (including 54 shares
which will vest within 60 days of March 31, 2014) and an additional 817 of unvested shares, for a total
of 1,211 shares of restricted common stock.
(11) Represents 802 shares of restricted common stock directly held by Mr. Blackwell and 1,096
options that are currently exercisable. Mr. Blackwell resigned on March 24, 2014. Mr. Blackwell has
90 days from his resignation date to exercise his options.
(12) Represents 304 shares of restricted common stock directly held by Mr. Miniard (including 61
shares which will vest within 60 days of March 31, 2014) and an additional 907 of unvested shares, for
a total of 1,211 shares of restricted common stock.
(13) Represents 380 options that are currently exercisable.
(14) Represents 152 shares of restricted common stock directly held by Mr. Sprole (including 30
shares which will vest within 60 days of March 31, 2014) and an additional 454 of unvested shares, for
a total of 606 shares of restricted common stock.
(15) Represents 152 shares of restricted common stock directly held by Mr. Moore (including 30
shares which will vest within 60 days of March 31, 2014) and an additional of 454 unvested shares, for
a total of 606 shares of restricted common stock.
(16) Represents 475 options that are currently exercisable. Mr. Dwyer resigned on December 31,
2013. Mr. Dwyer has 90 days from his resignation date to exercise his options.
(17) The Company is controlled by Cerberus, which owns 158,476 shares of the common stock.
Stephen Feinberg exercises voting and investment authority over our securities owned by the affiliates
of Cerberus. Thus, pursuant to Rule 13d-3 under the Exchange Act, Stephen Feinberg is deemed to
beneficially own any shares of our common stock owned by Cerberus. The address for each of
Cerberus and Mr. Feinberg is c/o Cerberus Capital Management, L.P., 875 Third Avenue, New York,
New York 10022.
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13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
We paid Meritage fees totaling approximately $0.6 million for the year ended December 31, 2013. The fees
paid were in connection with transaction advisory services and amounts paid under a consulting agreement.
We paid Cerberus Operations and Advisory Company, LLC, an affiliate of CCM, fees totaling $1.8 million
in 2013 for consulting services provided in connection with improving operations.
We paid other fees for relocation services to an entity affiliated through common ownership totaling
approximately $1.0 million for the year ended December 31, 2013.
We purchased certain products totaling approximately $9.8 million for the year ended December 31, 2013
from another entity affiliated through common ownership.
We paid approximately $0.4 million for the year ended December 31, 2013 in connection with a building
lease to an entity owned by an employee of the Company.
Review and Approval of Related Party Transactions
We review all relationships and transactions in which we and our Board, executive officers or any
beneficial owner of greater than five percent of our common shares or their immediate family members are
participants to determine whether such persons have a direct or indirect material interest. Our legal staff is primarily
responsible for the development and implementation of processes and controls to obtain information from our
directors and executive officers with respect to related person transactions and for then determining, based on the
facts and circumstances, whether we or a related person has a direct or indirect material interest in the transaction.
In addition, we and our Board follow the requirements set forth in the transactions with affiliates covenant
contained in the indenture governing our 2020 Notes and the credit agreements governing the Term Loan B and the
ABL Revolver. In summary, these agreements provide that we will not, and we will not permit any of our restricted
subsidiaries to, directly or indirectly, enter into or amend any transaction or series of transactions, contract,
agreement, understanding, loan, advance or guarantee with or for the benefit of, any affiliate (as defined in the
agreements) involving aggregate consideration in excess of specified thresholds, unless we determine that the terms
of such transaction are not materially less favorable to such company than those that could have been obtained in a
comparable transaction by such company with an unrelated person and that the terms of such transaction are
substantially as favorable to such company as it would obtain in a comparable arm’s-length transaction with a
person that is not an affiliate, subject to certain exceptions specified in such agreements.
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14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
Our audit fees paid to Grant Thornton LLP, our principal accountant, were $0.8 million, $0.8 million, and
$0.4 million in 2013, 2012, and 2011, respectively, for professional services rendered in connection with the annual
audits and quarterly reviews of the financial statements.
Audit-Related Fees
We paid no audit-related fees to Grant Thornton LLP, our principal accountant, in 2013, 2012, or 2011.
Tax Fees
Our tax-related fees to Grant Thornton LLP, our principal accountant, were less than $0.1 million in each
of 2013, 2012, and 2011, primarily with respect to professional services rendered in federal and state tax review
services.
All Other Fees
In 2013, 2012, and 2011 we paid Grant Thornton LLP less than $0.1 million during each of the respective
years for professional services rendered with respect to our pension and savings plans and debt offerings services.
Audit Fee Approval
The percentage of fees paid to Grant Thornton LLP for audit fees, audit-related fees, tax fees and all
other fees that were approved by the Company' s Audit Committee was 100% in 2013, 2012, and 2011.
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