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1511296151111000000000001

Docket #0688 Date Filed: 11/11/2015

Case 15-11296-LSS Doc 688 Filed 11/11/15 of 3

Case 15-11296-LSS Doc 688-1 Filed 11/11/15 Page 1 of 8

1

Exhibit C

Colt – Financial Projections

(Unaudited)

($ in thousands)

Notes:

(1) Assumes tax reincorporation transaction. Illustratively assumes 40% tax rate

INCOME STATEMENTFiscal Year Ended December 31,

2016E 2017E 2018E 2019E

Total Net Sales $269,391 $302,964 $293,033 $354,385

Less: Cost of Goods Sold 214,173 233,561 223,511 261,927

Gross Profit $55,218 $69,403 $69,522 $92,458

Margin % 20.5% 22.9% 23.7% 26.1%

Less: SG&A $41,525 $43,138 $46,511 $49,946

EBIT $13,692 $26,265 $23,010 $42,512

Margin % 5.1% 8.7% 7.9% 12.0%

Other Expenses (Income) $154 $154 $154 $154

Interest / Fees 18,092 18,471 18,882 19,326

Foreign Taxes 444 705 959 1,415

Net Income ($4,998) $6,935 $3,016 $21,617

EBITDA Adjustments

EBIT $13,692 $26,265 $23,010 $42,512

Depreciation 6,308 5,827 6,149 6,886

Amortization 1,605 1,559 1,534 1,510

EBITDA $21,605 $33,652 $30,693 $50,907

Margin % 8.0% 11.1% 10.5% 14.4%

Sponsor Fees & Expenses 1,000 1,000 1,000 1,000

Adjusted EBITDA $22,605 $34,652 $31,693 $51,907

Margin % 8.4% 11.4% 10.8% 14.6%

Free Cash Flow

EBITDA $21,605 $33,652 $30,693 $50,907

Add: Net Deferral / (Payment) of Sponsor Fees 1,000 125 (750) (375)

Less: CapEx (9,243) (9,605) (9,745) (9,520)

Less: Changes in NWC (3,216) (634) 4,533 (7,727)

Less: Pension Plan Funding (1,200) (1,200) (1,200) (1,200)

Less: Foreign Taxes (444) (705) (959) (1,415)

Less: Other Expenses / (Income) (154) (154) (154) (154)

Less: Tax Related Distributions(1)

- (775) (1,217) (8,636)

Unlevered Free Cash Flow $8,348 $20,704 $21,202 $21,881


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BALANCE SHEETFiscal Year Ended December 31,

ProjectedOpening B/S 2016E 2017E 2018E 2019E

Current Assets

Cash $20,822 $16,256 $24,047 $32,325 $41,304

Restricted Cash 7,019 7,019 7,019 7,019 7,019

Accounts Receivable, Net 23,231 19,728 18,122 14,539 16,978

Inventory, Net 45,223 49,621 53,795 52,221 61,427

Deferred Income Tax Benefit 155 155 155 155 155

Prepaids & Other Current Assets 5,324 4,324 4,324 4,324 4,324

Total Current Assets $101,774 $97,102 $107,462 $110,583 $131,207

Other Assets

Fixed Assets, Net $22,733 $25,668 $29,446 $33,042 $35,676

Goodwill 8,597 8,597 8,597 8,597 8,597

Trademarks 38,350 38,350 38,350 38,350 38,350

I. P. & Other Intangibles 8,515 6,910 5,351 3,817 2,308

Deferred Financing Fees 2,638 2,110 1,583 1,055 528

Deferred License Fee 572 572 572 572 572

Other Assets & Security Deposit 616 616 616 616 616

Total Other Assets $82,021 $82,824 $84,515 $86,049 $86,646

Total Assets $183,795 $179,926 $191,977 $196,632 $217,853

Fiscal Year Ended December 31,

ProjectedOpening B/S 2016E 2017E 2018E 2019E

Current Liabilities

Accounts Payable $17,655 $15,670 $16,756 $16,406 $18,604

Accrued Expenses 13,599 13,261 14,236 13,212 14,557

C. P. of Employee Ben Costs 1,544 1,544 1,544 1,544 1,544

Customer Advances & Deferred Income 8,589 8,589 8,589 8,589 8,589

Total Current Liabilities $41,388 $39,065 $41,125 $39,751 $43,295

Long Term Debt

Senior Loan Exit Facility $41,200 $41,200 $41,200 $41,200 $41,200

Term Loan Exit Facility 87,932 87,932 87,932 87,932 87,932

Third Lien Exit Facility 50,000 54,080 58,493 63,266 68,428

Fourth Lien Note to GUCs 7,000 7,571 8,189 8,857 9,580

Total Long Term Debt $186,132 $190,783 $195,814 $201,255 $207,140

Other Liabilities

Pension and retirement obligations $37,403 $36,203 $35,003 $33,803 $32,603

Long-term deferred tax liability 14,870 14,870 14,870 14,870 14,870

Other long-term liabilities 6,505 6,505 6,505 6,505 6,505

Total Other Long Term Liabilities $58,778 $57,578 $56,378 $55,167 $53,978

Total Liabilities $286,297 $287,426 $293,317 $296,173 $304,413

Equity

Total Member's Equity ($102,502) ($107,500) ($101,340) ($99,541) ($86,560)

Total Liabilities & Member's Equity $183,795 $179,926 $191,977 $196,632 $217,853


3

CASH FLOW STATEMENTFiscal Year Ended December 31,

2016E 2017E 2018E 2019E

Operating Activities

Net income (loss) ($4,998) $6,935 $3,016 $21,617

Adjustments

Depreciation and Amortization 8,440 7,914 8,211 8,923

PIK Accretion 4,651 5,031 5,441 5,885

Changes in operating assets and liabilities:

Accounts Receivable 3,504 1,605 3,583 (2,439)

Inventories (4,398) (4,174) 1,574 (9,206)

Prepaid expenses and other assets 1,000 - - -

Accounts payable and accrued expenses (2,323) 2,060 (1,374) 3,544

Accrued pension and retirement liabilities (1,200) (1,200) (1,200) (1,200)

Other Liabilities - - (11) 11

Net cash (used in) provided by operating activities $4,678 $18,171 $19,240 $27,135

Investing Activities

Purchases of property and equipment ($9,243) ($9,605) ($9,745) ($9,520)

Net cash used in investing activities ($9,243) ($9,605) ($9,745) ($9,520)

Financing Activities

Repayment of debt $- $- $- $-

Tax related distributions - (775) (1,217) (8,636)

Net cash used in financing activities $- ($775) ($1,217) ($8,636)

Change in cash and cash equivalents ($4,565) $7,791 $8,278 $8,979

Cash and cash equivalents, beginning of period 20,822 16,256 24,047 32,325

Cash and cash equivalents, end of period $16,256 $24,047 $32,325 $41,304


4

ASSUMPTIONS TO FINANCIAL PROJECTIONS

A. General Assumptions

i. The Financial Projections have been prepared for the years 2016 through 2019.

ii. The Financial Projections assume no public company costs as of the Effective Date.

iii. The Company exits bankruptcy at the end of December 2015. The Company will

adopt fresh start accounting post-exit, which will have a material impact on the

opening balance sheet. This impact is not reflected in the Financial Projections.

iv. The Company remains in the existing manufacturing facility through the projection

period.

v. The Company is successful in implementing its turnaround initiatives related to

margin improvement, supply chain management and product offering.

B. Key Revenue Assumptions

i. The Company currently operates in three key business segments of the firearms

industry: US Government (“USG”); International; and Commercial/Law

Enforcement (“Comm/LE”).

ii. USG assumptions:

a. The Company has historically allocated significant resources to procure and

deliver on large scale United States government contracts. These large-scale

contracts have a significant impact on plant utilization as well as blended gross

margins.

b. These projections assume that the Company continues to sell through the

existing backlog and concurrently pursues certain contracts that fit with the

overall strategy.

iii. International assumptions

a. 2016 revenue is driven from orders currently in backlog and from securing

specific opportunities that are currently in the pipeline.

b. 2017-2019 annual revenue increases at the current CPI rate of approximately

2.5%, based on a consistent sales mix from recurring customers and a robust

pipeline of new opportunities.

iv. Commercial/ Law Enforcement Assumptions

a. The commercial channel is Colt’s largest long-term growth opportunity given

Colt’s low market share and high level of brand recognition. These products

offer attractive gross margins and will be a key focus for management to drive

overall profitability.

b. The Company plans to expand its production capacity and efficiency to support

growth in market share in the commercial segment.

c. Based on current demand, revenue from existing rifle and hand gun products is

projected to achieve a compounded annual growth rate of 2.6% from 2015-

2019.


5

d. New product lines developed by the Company are projected to generate

approximately $265mm in sales over 2016-2019. The table below highlights the

required investment and estimated sales for 2016 to 2019, for the commercial

new product offerings:

New Products Summary ($000’s) 2016-2019

Product Projected

Investment

Estimated Sales

New Product A $0 $74,749

New Product B 3,150 60,000

New Product C 1,100 52,500

New Product D 4,250 55,000

New Product E 5,600 22,500

New Product F 6,500 0

Grand Total $20,600 $264,749

v. Colt Canada Assumptions

a. Assumes modest growth across all channels with no material next generation

program sales

C. Cost of Goods Sold Assumptions

i. Direct material and direct labor expenses are based on standards set by the

Company effective April 2015.

ii. Assumes standard overhead costs are fully absorbed and flexed with

increased/decreased labor. With few exceptions, the fixed component of overhead

expense increases by 2.0% per year based on current CPI.

iii. Gross margin on new products manufactured in West Hartford is adjusted for an

incremental fixed cost burden, which is higher in the first two years of production

due to new product learning curve.

iv. Adjustments for Scrap, Material Variances, Amortization, etc. are projected based

on the levels experienced in 2015.

v. 2016 includes $2.0mm in other manufacturing costs to account for additional

expenses as the Company makes changes to its operating and supply chain platform

and ramps up its production.

D. SG&A Assumptions

i. Engineering department includes the one-time G&A component of the new product

costs (excluding capex), as well as growth in headcount to support new product

development.

ii. Sales & Marketing department includes the ramp up of expenses for advertising,

publicity and promotions as a percentage of commercial sales and will also require

additional personnel to support commercial marketing efforts.


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iii. Commissions are based on the existing rates as a percentage of sales for customers

in the Commercial and International segments.

iv. Administrative

a. Reflects normal course operations, simpler capital structure and non-SEC

registrant status. While there are no expected increases in headcount, the

projections do include additional corporate bonuses based on improved

performance.

b. Includes one-time costs related to IT initiatives as well as recurring spend

for increased IT budget.

E. Tax Assumptions

i. The Company is projected to pay foreign taxes which are predominantly Canadian.

ii. The Company is projected to make tax-related distributions as necessary.

F. Balance Sheet and Cash Flow Assumptions

i. Assumes carryforward of historical cost. The Company will adopt fresh start

accounting for subsequent periods which will have material impact on the opening

balance sheet. This impact is not reflected in the Financial Projections.

ii. Opening balance sheet cash is based on projections for the 4th

quarter 2015 which

assumes payment of all bankruptcy administrative costs and pre-petition expenses

associated with assumed liabilities.

iii. Accounts Receivable is based on percentage of sales and assumed collection cycle

by segment. USG and Commercial collections are based on a 10 day collection

cycle, while International is based on a 45 day collection cycle.

iv. Inventory: beginning balance based on the Company’s 2015 projection:

a. Raw Materials is calculated as a percentage of COGS based on historical

trends.

b. WIP is adjusted based on assumed improvements to inventory

management, procurement efficiencies and labor improvements resulting

in reduced WIP inventory balances as percentage of COGS.

c. Due to the quick turnover, relative to the USG and Commercial business,

USG and Commercial FG inventory levels are based on historical levels of

FG as percentage of COGS relative to same month COGS. However, the

first 6 months of 2016 also reflects a buildup of Commercial FG

inventory, from approximately 10 days to 30 days. This represents a

defined effort to support the broader commercial business in the sales

projections.

d. International FG inventory as percentage of COGS is higher (relative to

USG and Commercial) and is calculated using forward looking COGS

levels and adjusting for the increased inventory levels to account for the

“build-up” required for large international orders.

v. Accounts Payable is based on DPO of 40 days

vi. Capex:

a. IT Capex is approximately $500k and $300k in 2016 and 2017,

respectively, and then drops to a nominal amount in years 2018 and 2019.


7

b. Spending on new product lines has been budgeted, by product, over the

period of one year prior to the anticipated launch date.

c. New Equipment spending of $3.0mm per year to continuously improve

the Company’s equipment and systems to shift to a more technologically

driven manufacturing process.

d. Maintenance spend of $1.5mm per year is both preventative and reactive

as machines and equipment age.

e. Capex spending is depreciable after 6 months (7 year straight line

method).

G. Key Capital Structure Assumptions

i. The Company is projected to exit with approximately $186.1mm of total debt,

$129.1mm of which would be cash-pay starting at the Effective Date bearing a 10%

interest rate.

ii. The Company will raise new capital, through a rights offering, in the form of a

Third Lien Facility with a 8% PIK interest and 5-year maturity.

iii. Senior Notes/General Unsecured Claims that do not elect to participate in the rights

offering will receive either cash (up to $3.0mm) or a Fourth Lien Note (up to

$7.0mm). The Fourth Lien Note will bear 8% PIK interest and a 5.5-year maturity.


B-1

EXHIBIT D

Hypothetical Liquidation Analysis Summary (Unaudited)

(US$ in millions)

Calculation of Fees and Expenses

Book Value

Month Ended Aug. 15 Hypothetical Recovery Percentages Estimated Liquidation Value

(Except where noted) Low High Low High

Cash and Equivalents (Unrestricted) (12/31/15 Est.) (1) $0.0 100.0% 100.0% 0.0 0.0

Cash and Equivalents (Restricted for LCs) (12/31/15 Est.) (2) 7.0 0.0% 0.0% 0.0 0.0

Accounts Receivable, Gross (3)

US 10.6 65.0% 85.0% 6.9 9.0

Non-US 3.1 45.0% 65.0% 1.4 2.0

Inventories, Gross (4)

US

Finished Goods 9.6 95.0% 100.0% 9.1 9.6

Work in Process 40.8 10.0% 20.0% 4.1 8.2

Raw Materials 2.0 5.0% 10.0% 0.1 0.2

Non-US

Finished Goods 0.4 65.0% 75.0% 0.3 0.3

Work in Process 4.0 10.0% 20.0% 0.4 0.8

Raw Materials 2.7 5.0% 10.0% 0.1 0.3

Equipment (Gross Value) (5) 60.1 22.5% 23.7% 13.5 14.2

Real Estate (Gross Value) - Non-US (6) 2.1 88.9% 109.6% 1.9 2.3

Gross Estimated Liquidation Proceeds from A/R, Inventory and Fixed Assets $37.8 $46.9

Intellectual Property (7) 31.1 72.7

Gross Estimated Liquidation Proceeds $68.9 $119.7

Less: Fees and Expenses (8) (3.1) (5.6)

Net Estimated Liquidation Proceeds (9) $65.9 $114.1

Low High

Chapter 7 Trustee Fees and Expenses (10) $2.1 $3.6

Chapter 7 Professional Fees and Expenses (11) 0.5 1.0

Employee Expenses/Wind-down Costs (12) 0.5 1.0

Total Fees and Expenses $3.1 $5.6


B-2

Distribution Analysis

Notes:

Existing West Hartford lease with NPA Hartford expires January 2016 and may need to be extended to enable an

orderly liquidation.

The Committee has contended throughout these Chapter 11 Cases that the Debtors assets may include certain claims

and causes of action against the Sciens Group (See, Section IV.M of the Disclosure Statement for the views of the

Committee with respect to such claims). The Debtors, on the other hand, do not believe that such claims have merit,

and, as a result, have not included the potential value of such claims in its liquidation analysis (See, Section IV.M of the

Disclosure Statement for the views of the Debtors and Sciens with respect to such claims).

Low Liquidation Value High Liquidation Value Remaining Value (A/R, Inv, FA)

Gross Estimated Liquidation Proceeds from A/R, Inventory and Fixed Assets $37.8 $46.9

Less: Fees and Expenses Allocated (13) (1.7) (2.2)

Net Estimated Liquidation Proceeds from Cash, A/R, Inventory and Fixed Assets $36.1 $44.7

DIP Senior Loan Holder Claims (14) $46.5 $46.5

Recovery Amount from 1st Lien on A/R, Inventory and Fixed Assets 36.1 44.7

Recovery Amount from 2nd Lien on Intellectual Property 0.0 1.8

DIP Senior Loan Holder Recovery Amount $36.1 $46.5

% of Claims 77.7% 100.0%

Liquidation Proceeds Remaining from A/R, Inventory and Fixed Assets $0.0 $0.0

Gross Estimated Liquidation Proceeds from Intellectual Property $31.1 $72.7

Less: Fees and Expenses Allocated (13) (1.4) (3.4)

Net Estimated Liquidation Proceeds from Intellectual Property $29.7 $69.3

DIP Term Loan Holder Claims (15) $34.3 $34.3

Recovery Amount from 1st Lien on Intellectual Property 29.7 34.3

Recovery Amount from 2nd Lien on A/R, Inventory and Fixed Assets 0.0 0.0

DIP Term Loan Holder Recovery Amount $29.7 $34.3

% of Claims 86.6% 100.0%

Remaining Net Estimated Liquidation Proceeds $0.0 $33.2

Prepetition Term Loan Holder Claims (16) $64.4 $64.4

Prepetition Term Loan Holder Recovery Amount $0.0 $33.2

% of Claims 0.0% 51.6%

Administrative Claims (17) $17.2 $17.2

Administrative Recovery Amount $0.0 $0.0

% of Claims 0.0% 0.0%

Senior Notes Claims (18) $262.7 $262.7

Senior Notes Recovery Amount $0.0 $0.0

% of Claims 0.0% 0.0%

Other General Unsecured Claims (estimate) (19) $25.3 $63.9

(pari passu to Senior Notes Claims)

Other General Unsecured Claims Recovery Amount $0.0 $0.0

% of Claims 0.0% 0.0%


B-3

NOTES TO LIQUIDATION ANALYSIS

No. Item Notes 1 Cash and Equivalents

(Unrestricted)

100% realization expected on the book value for unrestricted cash and liquid investments with

maturities of three months or less on Colt’s balance sheet estimated as of 12/31/2015. Based

on projected operating losses, unrestricted cash balance is estimated to be $0mm on the

Effective Date

2 Cash and Equivalents

(Restricted for LCs)

Represents letters of credit covered by restricted cash on Colt’s balance sheet as of

12/31/2015. Estimated recoveries are based on management estimates

3 Accounts Receivable,

Gross

Estimated proceeds realizable from short-term and long-term accounts receivable are based

on management's assessment of the ability of the Debtors to collect on their accounts, taking

into consideration the credit quality and aging of the accounts. The Liquidation Analysis for

accounts receivable is based on estimated recoveries of aging receivables using a declining

scale of recoveries. These estimates take into account the inevitable difficulty in collecting

receivables and any concessions that might be required to facilitate the collection of certain

accounts receivable

4 Inventory, Gross Estimated inventory recoveries are based on the stage of production and geography per

management estimates

5 Equipment Equipment includes production equipment, production support, material handling, titled

vehicles, test & measurement and general plant support. The hypothetical recovery rates

across all equipment classes was based on recovery rates for gross book values (recovery rates

based on Hilco appraisal dated September 26, 2013)

6 Real Estate Estimated recoveries on real estate assets are based on management’s assessment of recovery

rates for gross book values (recovery rates based on CBRE appraisal dated November 20,

2013)

7 Intellectual Property Intellectual Property includes the sum of trademarks, intellectual property and other

intangibles. The recovery values are based on the Hilco appraisal dated December 1, 2014

8 Fees and Expenses All fees and expenses associated with Chapter 7 liquidation process

9 Net Estimated

Liquidation Proceeds

Net proceeds available from the Chapter 7 liquidation process that would be applied to satisfy

the claims of the Current Asset Credit Facility, Term Loan and Senior Unsecured Noteholders

10 Chapter 7 Trustee

Fees and Expenses

Compensation for the Chapter 7 trustee will be limited to fee guidelines in section 326(a) of

the Bankruptcy Code. The Debtors’ management has assumed trustee fees of 3% of the gross

proceeds (excluding cash) in the liquidation

11 Chapter 7

Professional Fees and

Expenses

Represents compensation for the Chapter 7 trustee's counsel and other legal, financial and

professional services during the Chapter 7 case

12 Employee

Expenses/Wind-

down Costs

Wind-down costs are based on management’s best estimates of the costs associated with an

orderly liquidation. Corporate payroll and operating costs during liquidation are based on the

assumption that certain functions would be required during the liquidation process in order for

an orderly wind-down of the business and the plants. Costs would include costs associated

with shutting down the production lines as well as salaries of certain operating and

maintenance employees, severance and bonus pay that would be incurred during a Chapter 7

liquidation

13 Fees and Expenses

Allocated

All fees and expenses are allocated on a pro rata basis of the gross proceeds (excluding cash)

14 DIP Senior Loan

Holder Claims

Represents the sum of the DIP Senior Loan ($9.77mm), the rolled up Current Asset Credit

Facility ($35.0mm) and legal counsel estimated fees ($1.75mm)

15 DIP Term Loan

Holder Claims

Represents the sum of the DIP Term Loan ($13.39mm), the accreted value of the rolled up

Senior Secured Term Loan through December 31, 2015 ($20.5mm) and legal counsel

estimated fees ($0.5mm)

16 Prepetition Term

Loan Holder Claims

Represents the sum of the accreted value of the outstanding Prepetition Term Loan through

December 31, 2015 ($54.0mm) and $10.3mm of make whole payment/ repayment fee

through December 2015

17 Administrative

Claims

Represents the sum of all the Administrative Expense Claims filed with respect to the case (as

defined in the Plan of Reorganization) estimated to be $17.2mm

18 Senior Notes Claims Represents the principal value of 2017 Senior Unsecured Notes of $250mm and accrued

interest of $12.7mm

19 Other General

Unsecured Claims

Represents estimates related to claims, pension, retiree medical, severance, environmental

remediation and other real estate costs that would be borne by the estate


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