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Rating Action:

MOODY'S CONFIRMS THE RATINGS OF REMINGTON ARMS COMPANY; OUTLOOK CHANGED TO STABLE FROM NEGATIVE

27 Jul 2001

Approximately $86.8 Million of Debt Securities Affected.

New York, July 27, 2001 -- Moody's Investor's Service confirmed the debt ratings of Remington Arms Company, Inc. and changed the outlook to stable from negative. The ratings on senior secured facilities are withdrawn following their replacement by an amended & restated credit amendment in April 2000. The following ratings are affected by this action:

$86.8 million 9 1/2% senior subordinated notes, due 2003 B3

Senior Implied Rating B1

Issuer Rating B2

The outlook change reflects the company's good operating margins & EBITA performance and its proven ability to reduce leverage and service debt.

The ratings are restrained by the company's participation in a highly competitive industry and its 42% revenue concentration to five key buyers, (in particular Wal-Mart, 20%). Such concentrations periodically expose it to working capital risks & pricing/margin pressure. The politically sensitive and highly regulated nature of its business and its dependence on reasonable levels of consumer confidence in general and the discretionary nature of its products specifically, also pose risks. Further, the company's history of periodic re-leveraging witnessed by its recent $49 million intra-period dividend and $6 million compensation payment in Q1 '00 (albeit conditioned upon waivers and governed by ongoing covenanting), illustrates its ongoing exposure to credit coverage pressure. Adjusted debt/total capital subsequent to these payments went from 49.9% to 63.1% from FY '99 to FY '00.

The ratings also reflect the company's strong market positions in all of its core products, (21% shotgun share (#2), 22% rifle share (#1), and 32% ammunition share (#1), 30% fishing line share (#2) for FY2000). Moody's notes further that while Remington has experienced some erosion in its firearms dollar volume share dominance, it has not done so at the expense of overall operating margins or cash flow generation. Instead, it has sustained its position as a high quality producer, demonstrating revenue, gross profit, and gross margin performance of $385, $403 and $388 million, $123, $129 and $132 million and 31.9, 32.2 and 34.1% for '98, '99 and '00 respectively. This, despite industry volume in rifles and shotguns trending from, 1.73, 1.42, and 1.24 million units and 1.50, 1.53, and 1.18 million units respectively while Remington's unit share went from 16.2, 17.9, and 20.1% and 22.3, 24.6 and 27.5% for these same periods and categories respectively. While the short term unit trends for rifles and shotguns are alarming in a three-year context, an inspection of unit sales statistics for the past ten years reveals more than one instance of material decline/increase followed by subsequent normalized unit volumes.

Summarizing, the main support of the company's stable outlook is based upon Remington's strong business and operational fundamentals in a mature, stable market with high barriers to entry. The outlook also takes into account Moody's expectation, barring significant external factors, that the company will maintain its dominant brand positions and strong EBITA margins for the foreseeable future. The multigenerational character of its customer base, which in some instances makes the purchasing of a first rifle a right of passage, adds further stability this business.

From FYE '96 through FYE '00, adjusted EBITA margins improved from 4.6% to 15.2% (adjusted EBITDA margins from 7.5% to 18.8%) of revenues, and adjusted EBITA increased from $17.9 to $59.0 million (adjusted EBITDA from $29.4 million to $73.0 million), funded debt decreased from $254.3 to $157.2 million and EBITA interest coverage went from 0.71x to 3.78x (EBITDA interest coverage from 1.17x to 4.68x). These improvements were facilitated by plant upgrades, improved manufacturing processes and diligent working capital management, as well as extensive value based product innovation programs over the past five years.

For fiscal 2000, 52% of revenues were derived from products introduced since 1996, (the result of $38 million in product R&D expenditures over the same period). Further, working capital turnover levels remained relatively stable during this same period, despite required dated terms forced by competitive factors and cyclical retail sales pressures for 'on demand' inventory levels from key buyers. Though short term revenue growth and operating margins have deteriorated in Q4 '00-Q2 '01 over the same period last year, due to weakened economic conditions and ammunition pricing pressures, Moody's expects performance to rebound as inventory supply chain and other margin issues abate and to the extent macroeconomic conditions improve in the near term. Moreover, the anticipated receipt of tax refund checks in the second half of '01 should benefit Remington and its peers given industry sensitivity to disposable income trends.

With executive offices in Madison, North Carolina, Remington Arms Company, Inc. designs, manufactures, and sells firearms, ammunition, and hunting and gun care accessories under the Remington name and fishing products under the Stren name. Remington has strong domestic market shares in each of its product categories, and is the only domestic company to manufacture both firearms and ammunition (accounting for, respectively, 47% and 42% of 2000 sales).

New York
Robert N. McCreary
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Russell S. Gorman
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

MOODY'S CONFIRMS THE RATINGS OF REMINGTON ARMS COMPANY; OUTLOOK CHANGED TO STABLE FROM NEGATIVE
No Related Data.
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