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.

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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 multi-

generational 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

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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

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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.

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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)

U.S. Market

Position Selected Brands

Firearms

Long Guns ........................................................ #1 Remington, Marlin, Parker, H&R, Dakota Arms

Modern Sporting Rifles .................................... #1 Bushmaster, DPMS, Remington

Ammunition .......................................................... #3 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

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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, hand-

crafted 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 manufacturing-

based ―push system‖ to a customer-focused ―pull system‖ has also significantly reduced our use of third-party, non-

exclusive 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

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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.

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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.

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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 Date

Bushmaster April 2006

Remington May 2007

The Parker Gun May 2007

DPMS Firearms, LLC December 2007

The Marlin Firearms Company and its subsidiary H&R 1871, LLC January 2008

Dakota June 2009

S&K September 2009

AAC October 2009

Barnes December 2009

Mountain Khakis May 2010

Para USA, Inc. January 2012

TAPCO November 2012

LAR November 2012

Ultimate Firearms November 2012

Dublin Dog December 2012

TMRI December 2012

SMK March 2013

Storm Lake 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, 2013 2012 2011

Firearms $ 739.7 $ 550.9 $ 425.8

Ammunition 436.5 331.8 313.8

All Other 92.0 49.3 35.4

Totals $ 1,268.2 $ 931.9 $ 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 50th

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

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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.

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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.

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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

14

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.

15

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

16

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.

17

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

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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

19

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.

20

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 long-

term 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.

21

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;

22

• 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

23

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

24

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.

25

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;

26

• 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.

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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 Nature Segment Ownership

Manufacturing Facilities:

Ilion, New York Shotgun, rifle, and pistol manufacturing Firearms Owned

Lonoke, Arkansas Ammunition manufacturing Ammunition Owned

Lexington, Missouri Firearm component manufacturing Firearms Leased

Mayfield, Kentucky Rifle manufacturing Firearms Owned

Sturgis, South Dakota Rifle manufacturing Firearms Leased

Pineville, North Carolina Pistol manufacturing Firearms Leased

St. Cloud, Minnesota Rifle assembly Firearms Leased

Lawrenceville, Georgia Firearm accessory manufacturing All Other Leased

Mona, Utah Ammunition manufacturing Ammunition Leased

West Jordan, Utah Firearm component manufacturing Firearms Leased

Kalispell, Montana Firearm component manufacturing Firearms Leased

Lenoir City, Tennessee Firearm component manufacturing Firearms Owned

Ancillary Facilities:

Kennesaw, Georgia Firearm accessory warehouse and distribution All Other Leased

Memphis, Tennessee Warehouse and distribution All Other Leased

Charlotte, North Carolina Office All Other Leased

Elizabethtown, Kentucky Research and development All Other Owned

Stamford, Connecticut Office All Other Leased

Colchester, Essex, UK Office and warehouse Firearms 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.

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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.

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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 pre-

and 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-of-

court 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

30

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.

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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, 2013 7 2012 6 2011 2010 5 2009 4

(In millions)

Statement of Operations (years ended):

Net Sales 1 $ 1,268.2 $ 931.9 $ 775.0 $ 744.3 $ 848.7

Cost of Goods Sold 824.0 618.2 555.5 510.7 566.9

Gross Profit 444.2 313.7 219.5 233.6 281.8

Operating Expenses 310.8 256.7 164.3 191.5 169.7

Operating Income 133.4 57.0 55.2 42.1 112.1

Interest Expense 42.5 51.5 63.2 53.0 29.8

Income (Loss) before Taxes 90.9 5.5 (8.0) (10.9) 82.3

Net Income (Loss) Attributable to Controlling

Interest 59.7 7.4 (5.8) (6.7) 54.3

Cash Flows Data (years ended):

Net Cash provided by (used in):

Operating Activities $ 99.8 $ 11.2 $ 32.7 $ 34.1 $ 122.3

Investing Activities (70.4) (64.1) (14.1) (24.7) (58.8)

Financing Activities 160.8 95.2 (36.5) (14.9) (81.1)

Balance Sheet Data (as of):

Cash and Cash Equivalents $ 269.5 $ 79.1 $ 36.8 $ 54.7 $ 60.2

Working Capital 2 466.6 284.1 191.4 187.3 174.0

Total Assets 1,143.7 830.6 644.7 672.2 686.1

Long-Term Debt, net 814.1 645.9 491.9 505.1 276.7

Total Debt 3 823.5 653.9 493.8 508.6 276.7

Stockholders’ Equity (39.7) (117.4) (120.5) (97.4) (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.

32

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.

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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

34

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 self-

defense. 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.

35

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.

36

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 $ 739.7 58.3% $ 550.9 59.1% $ 188.8 34.3%

Ammunition 436.5 34.4 331.7 35.6 104.8 31.6

All Other 92.0 7.3 49.3 5.3 42.7 86.6

Total $ 1,268.2 100.0% $ 931.9 100.0% $ 336.3 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:

37

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 $ 486.4 65.8% $ 377.3 68.5% $ 109.1 28.9%

Ammunition 289.7 66.4 227.4 68.6 62.3 27.4

All Other 51.5 56.0 28.4 57.6 23.1 81.3

Other Corporate Items (3.6) * (14.9) * 11.3 75.8

Total $ 824.0 65.0% $ 618.2 66.3% $ 205.8 33.3%

Gross Profit

Firearms $ 253.3 34.2% $ 173.6 31.5% $ 79.7 45.9%

Ammunition 146.8 33.6 104.3 31.4 42.5 40.7

All Other 40.5 44.0 20.9 42.4 19.6 93.8

Other Corporate Items 3.6 * 14.9 * (11.3) (75.8)

Total $ 444.2 35.0% $ 313.7 33.7% $ 130.5 41.6%

__________

* Not applicable since there are no sales associated with these items.

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.

38

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

Percentage

of Net Sales 2012

Percentage

of Net Sales

Increase

(Decrease)

Percentage

Change

(unaudited, in millions except percentages)

Selling, general, and

administrative expenses $ 230.2 18.2% $ 182.4 19.6% $ 47.8 26.2%

Research and development

expenses 16.6 1.3 13.2 1.4 3.4 25.8

Impairment expense 0.6 - - - 0.6 100.0

Loss on debt extinguishment - - 54.3 5.8 (54.3) (100.0)

Other expense 63.4 5.0 6.8 0.7 56.6 *

Total $ 310.8 24.5% $ 256.7 27.5% $ 54.1 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.

39

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) $ 59.6 $ 7.3 $ 52.3 716.4%

Adjustments:

Loss on extinguishment of debt - 54.3 (54.3) (100.0)

Depreciation 18.5 16.3 2.2 13.5

Interest 42.5 51.5 (9.0) (17.5)

Income tax expense (benefit) 31.3 (1.8) 33.1 *

Amortization of intangibles 11.9 6.9 5.0 72.5

Other non-cash (income) expense 10.2 (1.8) 12.0 666.7

Impairment charges 0.6 - 0.6 100.0

Nonrecurring charges 61.8 23.8 38.0 159.7

Adjusted EBITDA1

$ 236.4 $ 156.5 $ 79.9 51.1%

* Not meaningful

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.

40

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 $ 550.9 59.1% $ 425.8 54.9% $ 125.1 29.4%

Ammunition 331.7 35.6 313.8 40.5 17.9 5.7

All Other 49.3 5.3 35.4 4.6 13.9 39.3

Total $ 931.9 100.0% $ 775.0 100.0% $ 156.9 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.

41

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 $ 377.3 68.5% $ 306.0 71.9% $ 71.3 23.3%

Ammunition 227.4 68.6 229.4 73.1 (2.0) (0.9)

All Other 28.4 57.6 20.1 56.8 8.3 41.3

Other Corporate Items (14.9) * - - (14.9) *

Total $ 618.2 66.3% $ 555.5 71.7% $ 62.7 11.3%

Gross Profit

Firearms $ 173.6 31.5% $ 119.8 28.1% $ 53.8 44.9%

Ammunition 104.3 31.4 84.4 26.9 19.9 23.6

All Other 20.9 42.4 15.3 43.2 5.6 36.6

Other Corporate Items 14.9 * - - 14.9 *

Total $ 313.7 33.7% $ 219.5 28.3% $ 94.2 42.9%

__________

* Not applicable since there are no sales associated with these items.

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

42

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

Increase

(Decrease)

Percentage

Change

(in millions except percentages)

Selling, general and administrative expenses $ 182.4 $ 136.7 $ 45.7 33.4%

Research and development expenses 13.2 11.7 1.5 12.8

Loss on extinguishment of debt 54.3 2.5 51.8 *

Impairment charges - 7.9 (7.9) (100.0)

Other expense 6.8 5.5 1.3 23.6

Total $ 256.7 $ 164.3 $ 92.4 56.2%

__________

* Not Meaningful

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.

43

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) $ 7.3 $ (6.0) $ 13.3 221.7%

Adjustments:

Loss on extinguishment of debt 54.3 2.5 51.8 *

Depreciation 16.3 16.0 0.3 1.9

Interest 51.5 63.2 (11.7) (18.5)

Income tax expense(benefit) (1.8) (1.3) (0.5) 38.5

Amortization of intangibles 6.9 6.8 0.1 1.5

Other non-cash (income) expense (1.8) 6.6 (8.4) (127.3)

Impairment charges - 7.9 (7.9) (100.0)

Nonrecurring charges 23.8 24.7 (0.9) (3.6)

Adjusted EBITDA1

$ 156.5 $ 120.4 $ 36.1 30.0%

* Not meaningful

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.

44

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.

45

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.

46

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.

47

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:

Payments Due by Period

Total

Amounts

Committed

Less

Than

1 Year

1 – 3

Years

3 – 5

Years

Over 5

Years

(dollars in millions)

Contractual Obligations:

2020 Notes 1 $250.0 $— $— $— $250.0

Term Loan B2 573.7 5.8 11.6 11.6 544.7

ABL Revolver — — — — —

Short Term Debt 3.5 3.5 — — —

Expected Interest Payments on 2020 Notes1

128.0 19.7 39.4 39.4 29.5

Expected Interest Payments on ABL Revolver — — — — —

Required Pension Contributions 17.0 0.3 7.4 7.3 2.0

Capital Lease Obligations 0.1 0.1 — — —

Operating Lease Obligations 12.4 3.5 4.0 1.7 3.2

Other Long-term Purchase Obligations 3 30.0 20.9 8.8 0.3 —

Total Contractual Cash Obligations 4 $1,014.7 $53.8 $71.2 $60.3 $829.4

Other Commercial Commitments:

Standby Letters of Credit $12.8 $12.8 — — —

Total Commercial Commitments $12.8 $12.8 — — —

1

Represents debt incurred in connection with the $250.0 million aggregate principal amount of

the 2020 Notes.

48

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.

49

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 20 to 43 years

Building and leasehold improvements 1 to 15 years

Machinery and equipment 7 to 15 years

Furniture and fixtures 7 to 10 years

Trailers and automotive equipment 3 to 5 years

Computer equipment 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.

50

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 equally-

weighted 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.

51

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.

52

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.

53

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.

54

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

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

The accompanying notes are an integral part of these consolidated financial statements.

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)

60

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.

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)

61

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.

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)

62

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

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)

63

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 Amount

2014 $ 4.2

2015 4.2

2016 3.5

2017 2.6

2018 2.0

Thereafter 4.2

Total $ 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.

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)

64

Expected payments for each of the five succeeding years and aggregate amount thereafter are:

Year Amount

2014 $ 1.9

2015 1.7

2016 1.4

2017 1.1

2018 0.9

Thereafter 2.4

Total $ 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.

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)

65

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.

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)

66

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 Amount

2014 $ 4.7

2015 5.0

2016 5.3

2017 5.2

2018 5.3

Thereafter 3.3

Total $ 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 pre-

existing 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.

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)

67

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

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)

68

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 American-

made 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.

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)

69

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‖:

Storm Lake1,2 SMK1 TMRI3 LAR1 TAPCO1,3 Para1

Cash $ - $ - $ 0.2 $ - $ - $ 0.1

Accounts Receivable 0.2 0.5 1.2 0.6 1.2 0.1

Inventory 0.1 1.9 0.9 1.3 2.7 2.4

Other Current Assets - - 0.2 - - 0.2

Property, Plant, and Equipment 0.7 0.2 1.5 2.0 1.7 1.9

Goodwill 4.5 2.3 3.8 3.9 1.4 1.4

Identifiable Intangible Assets - 1.7 1.5 2.7 7.4 3.0

Other Long-Term Assets - - - - - -

Total Assets Acquired $ 5.5 $ 6.6 $ 9.3 $ 10.5 $ 14.4 $ 9.1

Current Liabilities $ - $ 0.2 $ 0.9 $ 0.2 $ 0.3 $ 4.1

Other Non-Current Liabilities - - 1.0 0.3 - -

Total Liabilities Assumed $ - $ 0.2 $ 1.9 $ 0.5 $ 0.3 $ 4.1

Total Assets Acquired Less Liabilities Assumed $ 5.5 6.4 7.4 10.0 14.1 5.0

Estimated Acquisition Cost $ 5.5 $ 6.4 $ 7.4 $ 10.0 $ 14.1 $ 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)

70

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, 2013 2012 2011

Net Sales $ 1,271.3 $ 962.2 $ 800.9

Operating Income 134.1 62.6 49.9

Net Income (Loss) 60.1 14.4 (10.7)

4. Inventories, Net

The Company’s inventories consisted of the following components at December 31:

2013 2012

Raw Materials

$ 91.4 $ 86.8

Semi-Finished Products 48.7 41.3

Finished Products 127.8 73.8

Total $ 267.9 $ 201.9

5. Property, Plant and Equipment, Net

At December 31, Property, Plant and Equipment consist of the following:

December 31, 2013 December 31, 2012

Land $ 13.3 $ 13.3

Building and Improvements 49.1 44.5

Machinery and Equipment 194.5 143.4

Equipment Leased Under Capital Leases 1.8 1.8

Construction in Progress 25.9 15.4

Subtotal $ 284.6 $ 218.4

Less: Accumulated Depreciation (102.1) (84.3)

Total $ 182.5 $ 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.

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)

71

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:

December 31,

2013 Adjustments 1

December 31,

2012 Adjustments 2

December 31,

2011

Firearms $ 58.8 $ 5.0 $ 53.8 $ 11.5 $ 42.3

Ammunition 23.9 - 23.9 - 23.9

All Other 1.9 (5.6) 7.5 7.0 0.5

Total Goodwill $ 84.6 $ (0.6) $ 85.2 $ 18.5 $ 66.7

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.

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)

72

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:

December 31,

2013 Adjustment 1

December 31,

2012 Adjustment

December 31,

2011

Trademarks, net $ 72.0 $ 1.4 $ 70.6 $ 0.8 $ 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

December 31,

2012

Adjustment/

Amortization

December 31,

2011

Customer Relationships, gross 1 $ 59.3 $ 11.5 $ 47.8 $ - $ 47.8

Accumulated amortization (25.6) (8.3) (17.3) (3.1) (14.2)

Customer Relationships, net $ 33.7 $ 3.2 $ 30.5 $ (3.1) $ 33.6

License Agreements, gross $ 8.5 $ - $ 8.5 $ - $ 8.5

Accumulated amortization (8.0) (1.2) (6.8) (1.3) (5.5)

License Agreements, net $ 0.5 $ (1.2) $ 1.7 $ (1.3) $ 3.0

Developed Technology, gross 2 $ 14.3 $ - $ 14.3 $ 1.1 $ 13.2

Accumulated amortization (11.9) (2.0) (9.9) (2.0) (7.9)

Developed Technology, net $ 2.4 $ (2.0) $ 4.4 $ (0.9) $ 5.3

Other, gross 3 $ 4.4 $ 0.3 $ 4.1 $ - $ 4.1

Accumulated amortization (3.7) (0.4) (3.3) (0.5) (2.8)

Other, net $ 0.7 $ (0.1) $ 0.8 $ (0.5) $ 1.3

Total Definite-Lived Intangibles, gross $ 86.5 $ 11.8 $ 74.7 $ 1.1 $ 73.6

Total accumulated amortization 4 (49.2) (11.9) (37.3) (6.9) (30.4)

Total Definite-Lived Intangible Assets, net $ 37.3 $ (0.1) $ 37.4 $ (5.8) $ 43.2

1

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

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)

73

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 Amortization Expense

2014 $ 5.7

2015 5.0

2016 4.3

2017 3.6

2018 3.3

Thereafter 15.4

Total $ 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, high-

performance 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 December 31, 2012

Marketing

$ 28.2 $ 21.8

Excise Tax 21.5 21.6

Incentive Compensation 37.1 6.4

Other 1 52.1 37.9

Total $ 138.9 $ 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)

74

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 December 31, 2012

Beginning Warranty Accrual $ 4.0 $ 2.6

Warranty Expense 6.8 7.1

Acquisitions - 0.7

Disbursements and Other Adjustments (5.7) (6.4)

Ending Warranty Accrual $ 5.1 $ 4.0

8. Debt

Long-term debt consisted of the following:

As of December 31, 2013 2012

Seven Year Term Loan B (the ―Term Loan B‖) $ 569.9 $ 399.8

7.875% Senior Secured Notes due 2020 (the ―2020 Notes‖) 250.0 250.0

Other Debt 1 3.6 4.1

Subtotal $ 823.5 $ 653.9

Less: Current Portion (9.4) (8.0)

Total $ 814.1 $ 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.

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)

75

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 wholly-

owned 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 105.906%

2016 103.938%

2017 101.969%

2018 and thereafter 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.

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)

76

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.

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)

77

Maturities of debt, including those for capital leases, for each of the next five years and thereafter are as

follows:

Year Amount 1

2014 $ 8.8

2015 5.1

2016 5.1

2017 5.1

2018 5.0

Thereafter 794.4

Total $ 823.5

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.

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)

78

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 Issued

Held in

Treasury Outstanding

Shares of Preferred Stock at December 31, 2010 186,977 (168,327) 18,650

Shares of Preferred Stock at December 31, 2011 186,977 (168,327) 18,650

Purchases 1

- (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 Issued

Held in

Treasury Outstanding

Shares of Common Stock at December 31, 2010 166,989 (1,743) 165,246

Stock option exercises 2

- 2,542 2,542

Purchases 2

- (4,551) (4,551)

Shares of Common Stock at December 31, 2011 166,989 (3,752) 163,237

Forfeitures - (475) (475)

Shares of Common Stock at December 31, 2012 166,989 (4,227) 162,762

Issuances 3 4,558 4,227 8,785

Shares of Common Stock at December 31, 2013 171,547 - 171,547

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.

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)

79

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, 2013 2012 2011

Numerator:

Net income (loss) attributable to controlling interest $ 59.7 $ 7.4 $ (5.8)

Accretion of preferred stock - (1.9) (2.6)

Net income (loss) applicable to common shareholders $ 59.7 $ 5.5 $ (8.4)

Denominator:

Weighted average common shares outstanding (basic) 162,844 161,381 161,167

Weighted average common shares outstanding (diluted) 167,071 163,930 161,167

Income (loss) per common share:

Basic $ 366.33 $ 34.24 $ (52.06)

Diluted $ 357.06 $ 33.71 $ (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, 2013 2012 2011

Common Share Equivalents of Potentially Dilutive Securities:

Restricted stock - - 712

Stock options - 803 5,664

Total - 803 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

Weighted-Average

Grant Date

Fair Value

Units/Shares

Vested

Balance January 1, 2013 1,515 $ 445.38 1,515

Granted 8,785 3,089.85 2,972

Forfeited - -

Balance December 31, 2013 10,300 $ 2,700.88 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

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)

80

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

Weighted-Average

Exercise Price

Awards outstanding, January 1, 2013 5,445 $ 389.05

Granted - -

Forfeited - -

Awards outstanding, December 31, 2013 5,445 $ 389.05

Awards vested, December 31, 2013 5,445 $ 389.05

Shares available for grant, December 31, 2013 13,047

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:

Awards Outstanding Awards Vested

Exercise Price

Number

of Shares

Weighted-Average

Remaining

Contractual Life

Weighted-Average

Exercise Price

Number

of Shares

Weighted-Average

Exercise Price

$255.00-$1,164.00 5,445 4.71 $ 389.05 5,445 $ 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)

81

12. Income Taxes

The provision (benefit) for income taxes consists of the following components:

Years Ended December 31, 2013 2012 2011

Federal:

Current $ 17.4 $ 1.5 $ (0.7)

Deferred 9.7 (0.5) (2.1)

Non-U.S.:

Current - - -

Deferred - - -

State:

Current 4.4 0.5 1.0

Deferred (0.2) (3.3) 0.5

Total $ 31.3 $ (1.8) $ (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:

2013 2012

Current Noncurrent Current Noncurrent

Deferred Tax Assets:

Accrued employee and retiree benefits $ 6.9 $ (20.8) $ 5.4 $ (8.5)

Product liabilities, deferred revenue and other liabilities 9.7 6.8 6.7 6.0

Receivables and inventory 11.2 - 5.9 -

Debt acquisition costs and debt discount amortization - 0.5 - -

Interest Rate Swaps 0.9 (1.5) 0.7 0.3

Charitable Contribution Carryforwards - - 1.2 -

Other comprehensive income (pension) - 33.2 - 40.9

Other comprehensive income (hedging) 0.4 - - -

Federal tax credits - - - -

State tax credits 0.1 3.8 0.2 2.4

Net operating losses (federal and state) 0.1 0.1 0.1 0.3

Total deferred tax assets $ 29.3 $ 22.1 $ 20.1 $ 41.4

Valuation allowance (0.3) (0.3) (0.2) (0.4)

Net deferred tax assets $ 29.0 $ 21.8 $ 19.9 $ 41.0

Deferred Tax Liabilities:

Property, plant and equipment $ - $ (33.7) $ - $ (25.8)

Intangible assets - (26.4) - (26.5)

Other comprehensive income (hedging) - - (2.0) -

Total deferred tax liabilities - (60.1) (2.0) (52.3)

Net Deferred Tax Asset (Liability) $ 29.0 $ (38.3) $ 17.9 $ (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:

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)

82

Expiration1 US Federal loss

carryforwards

State loss

carryforwards

Tax credit and

other carryforwards

1 – 5 years $ - $ - $ 0.2

6 – 20 years - 2.0 0.1

Beyond 20 years - - 5.7

Total $ - $ 2.0 $ 6.0 1All 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, 2013 2012

2011

Federal statutory rate 35.0 % 35.0 % 35.0 %

Non-U.S. income taxed at other than 35%

State income taxes, net of federal benefits

3.1 (7.2) 0.6

Permanent differences, other (1.3) 3.8 (9.4)

State tax credits, net of federal benefits (1.4) (3.0) 4.2

State net operating loss 0.3 4.7 (1.9)

Federal tax credits (2.0) (2.9) 15.9

Income taxed to owners of non-controlling interest - 1.0 (4.1)

Increase to valuation allowance - (29.9) (25.8)

Unrecognized tax benefits 0.7 (31.7) (5.0)

Change in deferred tax asset rate - - 7.8

Other - (2.5) (1.0)

Effective income tax rate for controlling interest 34.4% (32.7)% 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 2013 2012 2011

Balance as of January 1, $ 3.2 $ 4.9 $ 4.0

Gross increases/(decreases) in unrecognized benefits taken during

prior period (predecessor) 0.3 (0.1) 0.6

Gross increases/(decreases) in unrecognized benefits taken during

current period 0.9 0.1 0.3

Gross decreases because of settlement - (0.3) -

Gross decreases because of lapse in applicable statute of limitations (0.4) (1.4) -

Balance as of December 31, $ 4.0 $ 3.2 $ 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

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)

83

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: 2013 2012

Benefit Obligation at Beginning of Period $ 291.6 $ 275.7

Service Cost 0.1 0.1

Interest Cost 10.2 11.0

Actuarial Assumption Changes (26.7) 17.2

Actuarial (Gain)/Loss (0.9) 1.2

Benefits Paid (13.8) (13.6)

Benefit Obligation at End of Period $ 260.5 $ 291.6

Change in Plan Assets: 2013 2012

Fair Value of Plan Assets at Beginning of Period $ 228.5 $ 221.1

Actual Return on Plan Assets 4.2 17.9

Employer Contributions 10.7 3.2

Expenses (0.9) -

Benefits paid (13.8) (13.7)

Fair Value of Plan Assets at End of Period $ 228.7 $ 228.5

Funded Status at End of Period $ (31.8) $ (63.1)

Pension amounts recognized in the consolidated financial statement of position are as follows:

As of December 31, 2013 2012

Noncurrent assets $ 2.5 $ -

Current liabilities (0.3) (0.3)

Noncurrent liabilities (34.0) (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)

84

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, 2013 2012 2011

Service Cost $ 0.1 $ 0.1 $ 0.2

Interest Cost 10.2 11.0 12.3

Return on Assets (15.4) (17.2) (17.4)

Recognized Net Actuarial Loss 3.6 2.7 11.5

Net Periodic Pension (Benefit)/Cost $ (1.5) $ (3.4) $ 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 2013 2012

Loss Balance in AOCI at Beginning of Period $ 106.6 $ 91.6

Net Actuarial and Other (Gains) Losses (15.6) 17.7

Net Losses Reclassified into Net Periodic Benefit Cost (3.5) (2.7)

Loss Balance in AOCI at End of Period $ 87.5 $ 106.6

The following table presents the Plans’ components that are recognized in AOCI on a pretax basis:

As of December 31, 2013 2012

Net Actuarial Losses 1

$ 87.5 $ 106.6

Loss Balance in AOCI at End of Period $ 87.5 $ 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, 2013 2012 2011

Discount Rate 3.59% 4.11% 5.20%

Expected Long-Term Return on Plan Assets 7.00% 8.00% 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, 2013 2012

Discount Rate 4.50% 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

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)

85

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:

Fair value measurements at December 31, 2013 using:

Asset Category: Total Level 1 Level 2 Level 3

Cash $ 10.4 $ 10.4

Domestic equity securities: 1

U.S. large-cap blend 9.2 9.2

U.S. middle-cap blend 4.1 4.1

U.S. small-cap blend 3.3 3.3

High Yield 9.7 9.7

International equity securities:

Emerging markets growth 2 0.4 $ 0.4

International large-cap value 3 5.9 5.9

Domestic fixed income securities:

Corporate bonds 4 84.3 84.3

U.S. Treasuries 5 27.4 27.4

Real Estate 6 2.2 $ 2.2

Private equity funds:

Equity hedge funds 8 9.3 9.3

Event driven funds 9 26.8 26.8

Relative value funds 10

2.8 2.8

Tactical trading funds 11

5.4 5.4

Manager receivable12

21.3 21.3

Multi-Strategy13

6.2 6.2

Total Fair Value of the Plans’ Assets $ 228.7 $ 70.0 $ 84.7 $ 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)

86

Fair value measurements at December 31, 2012 using:

Asset Category: Total Level 1 Level 2 Level 3

Cash $ 8.1 $ 8.1

Domestic equity securities: 1

U.S. large-cap blend 7.2 7.2

U.S. middle-cap blend 3.0 3.0

U.S. small-cap blend 1.4 1.4

High Yield 6.1 6.1

International equity securities:

Emerging markets growth 2 1.6 $ 1.6

International large-cap value 3 4.4 4.4

Domestic fixed income securities:

Corporate bonds 4 82.9 82.9

U.S. Treasuries 5 31.5 31.5

Real Estate 6 2.2 - $ 2.2

Private equity funds:

Equity hedge funds 8 20.7 20.7

Event driven funds 9 37.0 37.0

Relative value funds 10

12.1 12.1

Tactical trading funds 11

7.6 7.6

Manager receivable12

2.7 2.7

Total Fair Value of the Plans’ Assets $ 228.5 $ 61.7 $ 84.5 $ 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

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)

87

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

Equity

Hedge

Funds

Event

Driven

Funds

Relative

Value Funds

Tactical

Trading

Funds

Manager

Receivable

Multi-

Strategy

Balance as of December 31,

2011:

$ - $ 21.7 $ 35.1 $ 15.2 $ 8.5 $ 2.0 $ -

Actual return on plan assets

Related to assets still held at

Dec. 31, 2012 - 2.0 3.2 1.5 0.2 - -

Related to assets sold during

the year: - - - - - - -

Purchases, sales, and settlements - - - - - 0.7 -

Transfers in or out of Level 3 2.2 (3.0) (1.3) (4.6) (1.1) - -

Balance as of December 31, 2012: $ 2.2 $ 20.7 $ 37.0 $ 12.1 $ 7.6 $ 2.7 $ -

Actual return on plan assets

Related to assets still held at

Dec. 31, 2013 - 1.4 5.5 1.4 (0.2) - 1.4

Related to assets sold during

the year: - 0.4 0.2 0.3 - - -

Purchases, sales, and settlements - (13.2) (11.0) (11.0) (2.0) 18.6 (7.5)

Transfers in or out of Level 3 - - (4.9) - - - 12.3

Balance as of December 31, 2013: $ 2.2 $ 9.3 $ 26.8 $ 2.8 $ 5.4 $ 21.3 $ 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,

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)

88

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 Amount

2014 $ 15.1

2015 15.5

2016 15.9

2017 16.4

2018 16.6

Thereafter 86.4

Total $ 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: 2013 2012

Benefit Obligation at Beginning of Period $ 12.9 $ 12.2

Service Cost 0.2 0.2

Interest Cost 0.5 0.5

Actuarial (Gain)/Loss (1.0) 0.3

Benefits Paid (0.5) (0.3)

Benefit Obligation at End of Period $ 12.1 $ 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)

89

Amounts of the postretirement benefit plans that are recognized in the consolidated financial statement of

position are as follows:

As of December 31, 2013 2012

Current liabilities $ (0.9) $ (0.8)

Noncurrent liabilities (11.2) (12.1)

Net Liability Recognized $ (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, 2013 2012 2011

Service Cost $ 0.2 $ 0.2 $ 0.1

Interest Cost 0.5 0.5 0.5

Recognized Net Actuarial (Gains) - - (0.2)

Net Periodic Pension (Benefit)/Cost $ 0.7 $ 0.7 $ 0.4

The following table presents the changes in AOCI related to the postretirement benefit plans on a pretax

basis:

Change in AOCI 2013 2012

(Gain) Balance in AOCI at Beginning of Period $ - $ (0.3)

Net Losses (Gains) (1.0) 0.3

Net Gains Recognized into Net Periodic Benefit Cost - -

(Gain)/Loss Balance in AOCI at End of Period $ (1.0) $ -

The following table presents the postretirement benefit plans’ components that are recognized in AOCI on

a pretax basis:

As of December 31, 2013 2012

Net Actuarial Losses 1

$ 0.4 $ 0.2

Prior Service (Credit) 1

0.2 (0.2)

Loss Balance in AOCI at End of Period $ 0.6 $ -

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, 2013 2012 2011

Discount Rate 3.59% 4.11% 5.20%

Weighted-average assumptions used to determine the benefit obligation are as follows:

As of December 31, 2013 2012

Discount Rate 4.50% 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)

90

The assumed healthcare cost trend rates as of December 31 are as follows:

2013 2012

Healthcare cost trend rate assumed for next year 9.00% 9.00%

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.00% 5.00%

Year that the rate reaches the ultimate trend rate 2018 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

1 percentage

point decrease

Healthcare cost trend rate assumed for next year $ 0.7 $ 0.7

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 0.4 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 $ 0.9

2015 1.0

2016 1.0

2017 1.0

2018 1.2

2019 - 2023 5.2

Total $ 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

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)

91

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:

Level 1 Level 2 Level 3

Netting

Adjustments 1 Net Fair

Value

As of December 31, 2013:

Assets:

Commodity Derivative Contracts $ - $ 2.1 $ - $ (2.1) $ -

Interest Rate Derivative Contracts - 3.9 - (2.4) 1.5

Total Assets $ - $ 6.0 $ - $ (4.5) $ 1.5

Liabilities:

Commodity Derivative Contracts $ - $ 2.7 $ - $ (2.1) $ 0.6

Interest Rate Derivative Contracts - 2.4 - (2.4) -

Total Liabilities $ - $ 5.1 $ - $ (4.5) $ 0.6

As of December 31, 2012:

Assets:

Commodity Derivative Contracts $ - $ 6.1 $ - $ (0.3) $ 5.8

Total Assets $ - $ 6.1 $ - $ (0.3) $ 5.8

Liabilities:

Commodity Derivative Contracts $ - $ 0.3 $ - $ (0.3) $ -

Interest Rate Derivative Contracts - 2.6 - - 2.6

Total Liabilities $ - $ 2.9 $ - $ (0.3) $ 2.6

1 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.

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)

92

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 Level 1 Level 2 Level 3

Impairment

Charge

Property, Plant, and Equipment 1 $ - $ - $ - $ 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.

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)

93

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

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)

94

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, Operating Lease Payments

2014 $ 3.5

2015 2.4

2016 1.6

2017 1.0

2018 0.7

Thereafter 3.2

Total minimum operating lease payments $ 12.4

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)

95

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.

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)

96

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 Balance Sheet Location December 31, 2013 December 31, 2012

Assets

Commodity Contracts Prepaid Expenses and Misc. Receivables $ 1.4 $ 5.7

Commodity Contracts Other Assets 0.7 0.4

Total Assets 1 $ 2.1 $ 6.1

Liabilities

Commodity Contracts Accounts Payable $ 2.7 $ 0.2

Commodity Contracts Other Long-Term Liabilities - 0.1

Total Liabilities 1 $ 2.7 $ 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)

97

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:

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 Balance Sheet Location December 31, 2013 December 31, 2012

Assets Interest Rate Swaps Other Assets $ 3.9 $ -

Total Assets 1 $ 3.9 $ -

Liabilities

Interest Rate Swaps Accrued Expenses $ 2.4 $ 1.9

Interest Rate Swaps Other Long-Term Liabilities - 0.7

Total Liabilities 1 $ 2.4 $ 2.6

Derivatives Designated as

Cash Flow Hedges

Gain (Loss)

Recognized in OCI

Location of Gain or (Loss)

Reclassified from AOCI

into Income (Effective

Portion)

Gain (Loss)

Reclassified from

AOCI into Earnings

(Effective Portion)

Gain (Loss) Recognized

in Earnings

(Ineffective Portion and

Amounts Excluded from

Effectiveness Testing)

Year Ended December 31, 2013

Commodity Contracts $ (4.4) Cost of Sales $ (0.3) $ (0.2)

Foreign Currency Swaps - Net Sales - -

Total 1 $ (4.4) $ (0.3) $ (0.2)

Year Ended December 31, 2012 Commodity Contracts $ 2.9 Cost of Sales $ (2.7) $ -

Total 1 $ 2.9 $ (2.7) $ -

Year Ended December 31, 2011 Commodity Contracts $ (4.3) Cost of Sales $ (0.5) $ -

Total 1 $ (4.3) $ (0.5) $ -

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)

98

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 Location of Gain Recognized in Earnings

Loss (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, 2013 2012 2011

Net sales from external customers:

Firearms $ 739.7 $ 550.9 $ 425.8

Ammunition 436.5 331.7 313.8

All Other 92.0 49.3 35.4

Total net sales from external customers $ 1,268.2 $ 931.9 $ 775.0

Net sales between segments:

Firearms $ 1.0 $ 0.3 $ 0.1

Ammunition 0.9 0.4 -

All Other 4.3 1.4 0.6

Eliminations (6.2) (2.1) (0.7)

Total net sales between segments $ - $ - $ -

For the Years Ended December 31, 2013 2012 2011

Gross profit:

Firearms $ 253.3 $ 173.6 $ 119.8

Ammunition 146.8 104.3 84.4

All Other 40.5 20.9 15.3

Other Corporate Items

3.6 14.9 -

Consolidated gross profit $ 444.2 $ 313.7 $ 219.5

Operating expenses 310.8 202.4 161.8

Loss on extinguishment of debt - 54.3 2.5

Interest expense 42.5 51.5 63.2

Income (loss) before income taxes and noncontrolling interests $ 90.9 $ 5.5 $ (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)

99

Gross Capital Expenditures For the Years Ended December 31, 2013 2012 2011

Firearms $ 33.9 $ 9.6 $ 6.5

Ammunition 17.0 9.1 4.6

All Other 8.3 9.4 2.3

Total Gross Capital Expenditures $ 59.2 $ 28.1 $ 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, 2013 2012

Net adjustments to pension and other benefit liabilities $ (53.3) $ (65.7)

Foreign currency translation adjustments 0.3 -

Net accumulated derivative gains (losses) (0.7) 3.2

Accumulated other comprehensive income (loss) $ (53.7) $ (62.5)

Each component of OCI and their related tax effects for the years ended December 31, 2013, 2012, and

2011, is as follows:

Before Tax Income Tax Net of Tax

Year Ended December 31, 2013

Pension and other benefit liabilities: 1

Net actuarial and other gains (losses) 2

$ 16.6 $ (6.4) $ 10.2

Net (gains) losses reclassified into earnings 2

3.5 (1.3) 2.2

Net pension and other benefit gains (losses) 2

$ 20.1 $ (7.7) $ 12.4

Foreign currency translation adjustments 3

$ 0.3 $ - $ 0.3

Net derivatives: 4

Net unrealized gains (losses) recognized in OCI (7.2) 2.8 (4.4)

Net (gains) losses reclassified into earnings 0.8 (0.3) 0.5

Net derivative gains (losses) 2

$ (6.4) $ 2.5 $ (3.9)

Other comprehensive income (loss) 2

$ 14.0 $ (5.2) $ 8.8

Year Ended December 31, 2012

Pension and other benefit liabilities: 1

Net actuarial and other gains (losses) 2

$ (18.0) $ 7.0 $ (11.0)

Net (gains) losses reclassified into earnings 2

2.7 (0.9) 1.8

Net pension and other benefit gains (losses) 2

$ (15.3) $ 6.1 $ (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)

100

Net derivatives: 4

Net unrealized gains (losses) recognized in OCI 4.7 (1.8) 2.9

Net (gains) losses reclassified into earnings 4.4 (1.7) 2.7

Net derivative gains (losses) 2

$ 9.1 $ (3.5) $ 5.6

Other comprehensive income (loss) 2

$ (6.2) $ 2.6 $ (3.6)

Year Ended December 31, 2011

Pension and other benefit liabilities: 1

Net actuarial and other gains (losses) 2

$ (23.7) $ 9.3 $ (14.4)

Net (gains) losses reclassified into earnings 2

11.3 (4.3) 7.0

Net pension and other benefit gains (losses) 2

$ (12.4) $ 5.0 $ (7.4)

Net derivatives: 4

Net unrealized gains (losses) recognized in OCI (7.0) 2.7 (4.3)

Net (gains) losses reclassified into earnings 0.7 (0.2) 0.5

Net derivative gains (losses) 2

$ (6.3) $ 2.5 $ (3.8)

Other comprehensive income (loss) 2

$ (18.7) $ 7.5 $ (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) First Second Third Fourth

Net Sales $ 320.2 $ 353.2 $ 347.1 $ 247.7

Gross Profit 110.6 128.3 122.2 83.1

Net (Loss) Income Attributable to Controlling Interest $ 26.8 $ 36.3 $ 31.2 $ (34.6)

Year Ended December 31, 2012 (unaudited) First Second Third Fourth

Net Sales $ 205.6 $ 233.8 $ 237.9 $ 254.6

Gross Profit 70.3 80.1 82.2 81.1

Net (Loss) Income Attributable to Controlling Interest $ 6.3 $ (21.9) $ 16.1 $ 6.9

101

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 $ (0.7) $ (0.7) $ 0.2 $ (1.2)

Valuation Allowance for Deferred Tax Assets (0.6) - - (0.6)

Year ended December 31, 2012

Allowance for Doubtful Accounts $ (0.8) $ - $ 0.1 $ (0.7)

Valuation Allowance for Deferred Tax Assets (2.2) 1.6 - (0.6)

Year ended December 31, 2011

Allowance for Doubtful Accounts $ (0.4) $ (0.2) $ (0.2) $ (0.8)

Valuation Allowance for Deferred Tax Assets (0.2) (2.0) - (2.2)

102

9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE

None.

103

10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth information regarding our board of directors and executive officers.

Name Age Position

George Kollitides II(a)(c)(e) 44 Executive Chairman of the Board, Chief Executive

Officer

Walter McLallen IV(a)(b)(e) 48 Director, Vice Chairman of the Board

Bobby R. Brown(b) 81 Director

General Michael W. Hagee (Ret.)(a)(d) 69 Director

General George A. Joulwan (Ret.)(c)(d) 74 Director

James J. Pike(a)(c) 71 Director, Vice Chairman of the Board

George J. Zahringer III (d)(e) 60 Director

James P. Campbell 56 Lead Director

General Michael P.C. Carns (Ret.)(b) 76 Director

Scott Wille(b)(c) 33 Director

Ronald E. Kolka 53 Director, Chief Financial Officer

Kevin Miniard 40 Chief Operating Officer

Melissa Cofield 46 Chief Human Resources Officer

Jonathan K. Sprole 58 General Counsel

Anthony L. Moore 50 Chief Product Development & Supply Chain Officer

Jeffrey B. Costantin 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

104

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.

105

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.

106

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

Name of Beneficial Owner

Number of

Shares

Percent of

Class

Number of

Shares

Percent of

Class George Kollitides II - - 2,651 (1) 1.6%

Walter McLallen IV - - 3,796 (2) 2.2%

Bobby Brown - - 190 (3) *

General Michael Hagee (Ret.) - - 191 (4) *

General George Joulwan (Ret.) - - 191 (5) *

James J. Pike - - 323 (6) *

George J. Zahringer III - - 190 (7) *

James P. Campbell - - 76 (8) *

General Michael P.C. Carns (Ret.) - - 30 (9) *

Scott Wille - - - -

Ronald E. Kolka - - 394 (10) *

E. Scott Blackwell - - 1,898 (11) 1.2%

Kevin Miniard - - 304 (12) *

Melissa Cofield - - 380 (13) *

Jonathan K. Sprole - - 152 (14) *

Anthony L. Moore - - 152 (15) *

John M. Dwyer, Jr. - - 475 (16) *

Directors and executive officers as a group (16 Persons) - - 11,393 6.7%

5% Stockholders

Cerberus Capital Management, L.P. - - 158,476 (17) 93.3%

Stephen Feinberg - - 158,476 (17) 93.3%

* 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.

107

(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.

108

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.