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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from                      to                     

Commission file number: 333-104141

REMINGTON ARMS COMPANY, INC.

(Exact name of registrant as specified in its charter)

870 Remington Drive

P.O. Box 700

Madison, North Carolina 27025-0700

(Address of principal executive offices)

(Zip Code)

(336) 548-8700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [Not applicable] 

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)

Yes ¨ No x

As of March 23, 2004, the registrant had outstanding 1,000 shares of Class A Common Stock, par value $.01 per share and 0 shares of Class B Common Stock, par value $.01 per share.

PART I

Item 1. BUSINESS 

References in this report to “we,” “us,” “our,” and words of similar import mean the collective reference to Remington Arms Company, Inc. and its subsidiaries, unless the context otherwise requires. References in this report to “Remington” are to Remington Arms Company, Inc., and references to “Holding” are to Remington’s parent RACI Holding, Inc.

Company Overview 

        Founded in 1816, we design, manufacture and market a comprehensive line of primarily sporting goods products for the global hunting and shooting sports marketplace under the Remington^® brand name. Our 188-year history gives us a long-established reputation in the marketplace for our products. We believe that Remington is a powerful brand in the broader U.S. sporting goods and outdoor recreation markets and that our products are recognized by sportsmen worldwide for their superior value, performance and durability.

        Our product lines consist primarily of firearms (shotguns and rifles) and ammunition, as well as hunting and gun care accessories, clay targets, surveillance technology products for the law enforcement and security communities, and powdered metal products. In 2003, we held a leadership position in each of our major markets, with the #1 U.S. market share position in shotguns, rifles and ammunition, according to the National Sporting Goods Association “NSGA”, and the Sports Marketing Research Group, (“SMRG”). In 2003, we estimate that 94% of our domestic net sales came from product categories where we held the #1 U.S. market share position. We are the only major U.S. manufacturer of both firearms and ammunition.

        For the year ended December 31, 2004, we had consolidated net sales of $393.0 million and a net loss of $4.0 million, including a $15.2 million tax expense associated with establishing a valuation allowance against certain deferred tax assets offset in part by a $13.6 million gain on our sale of our fishing line business. See Notes 3 and 18 to the audited consolidated financial statements for additional disclosures relating to the sale of the fishing line business and the valuation allowance on the deferred tax assets, respectively.

        The accompanying audited consolidated financial statements of Remington Arms Company, Inc. (“Remington”) include the accounts of its wholly owned subsidiaries, RA Brands, L.L.C. (“RA Brands”) and RA Factors, Inc. (“RA Factors,” and collectively referred to with Remington and RA Brands as the “Company”), as well as reflecting the impact of the Company’s unconsolidated 50% joint venture interest in Remington ELSAG Law Enforcement Systems, LLC (“RELES”). RA Brands primarily exists to own, protect and comply with the legal requirements applicable to our patents, trademarks, and copyrights (as discussed below), and RA Factors primarily exists to factor our accounts receivables. The accounts of the Company’s parent, RACI Holding, Inc. (“Holding”), which owns 100% of the issued and outstanding common stock of Remington, are not presented herein. Significant transactions between the Company and Holding and the related balances are reflected in the consolidated financial statements and related disclosures.

        A revision to the classification of licensing income from selling, general, and administrative expense to other income was made to financial information from prior periods to conform with the current presentation format. The change in classification did not have a material impact on the previously reported financial condition, results of operations or cash flows of the Company (See Note 4 to the accompanying audited consolidated financial statements for licensing income amounts). In addition, as a result of the sale of specified assets of the fishing line business on February 9, 2004, the results of these operations have been included in discontinued operations and results from prior periods have been reclassified accordingly (See Note 3 to the accompanying audited consolidated financial statements).

Recent Business Developments

        In June 2004, we delivered our first sales of the Spartan Gunworks product line, an opening price point line of shotguns.

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        On July 19, 2004, we entered into a ten year exclusive distribution rights agreement with a technology products manufacturer for certain security products within the United States, certain of its territories, and Canada, that required the payment of $0.5 million. We expect to sell these security products to the federal agency and law enforcement markets. We incurred a total of approximately $0.8 million (including the above mentioned $0.5 million) of expenses associated with the initial launching of these products during 2004 for distribution, selling, marketing, administrative, and transaction costs, and have included the related financial results in the newly formed Technology Products operating segment, which is combined with the All Other reporting segment. There were no sales or gross profit associated with this agreement in 2004.

        On August 4, 2004, we entered into a joint venture agreement with ELSAG, Inc., an unaffiliated third party, to form Remington ELSAG Law Enforcement Systems, LLC (“RELES”).  RELES will sell and service a license plate reading technology that is expected to be sold to state and local law enforcement agencies along with certain federal agencies. The venture gives us a 50% ownership interest.  The agreement calls for each member to provide 50% of required capital investments and receive 50% of distributions, with a maximum contribution amount of $1.5 million by each party.  In addition, we will provide certain administrative support functions, while ELSAG, Inc. will provide product technology support. On October 15, 2004, we made our initial contribution to the venture of approximately $0.3 million. As of February 28, 2005, we have made a total of $0.5 million of cumulative contributions to RELES. There were no sales or gross profit associated with this joint venture in 2004.

Sale of Fishing Line Business

        On February 6, 2004, we entered into an Asset Purchase Agreement (the “Stren Asset Purchase Agreement”) with Pure Fishing, Inc. and its wholly-owned subsidiaries Pure Fishing I, LLC and Pure Fishing II, LLC (collectively, the “Purchasers”), pursuant to which we sold to the Purchasers certain specific assets relating to our fishing line business, effective as of February 9, 2004. The assets sold consisted of specified machinery, equipment, inventory, purchase orders and other contracts, trademarks, tradenames and other intellectual property, records, claims, and goodwill, in each case relating to our fishing line business, which had been a part of our All Other reporting segment.

        The purchase price paid to us, based on the fair market value of the assets sold, was $44.0 million in cash, $1.0 million of which was placed into escrow as security for certain post-closing obligations to procure certain materials for the Purchasers. As a result of the sale of our fishing line business, we applied the $43.0 million in cash proceeds to pay down the then outstanding balance under Remington’s senior secured revolving credit facility (the “Credit Facility”) on February 9, 2004, and the $1.0 million in cash proceeds released from escrow were used to pay down our then outstanding Credit Facility balance on May 12, 2004. We have made required tax payments resulting from the sale during 2004. Our after tax proceeds from the sale were approximately $29.0 million. Pursuant to the Stren Asset Purchase Agreement, we agreed not to compete with the Purchasers in the fishing line business for a period of five years, and also agreed to provide the Purchasers with certain transitional services and other services and rights relating to the sale of our fishing line business which were completed as of the end of 2004. The indenture for the Company’s $200.0 million aggregate principal amount 10.5% Senior Notes due 2011 (the “Notes”) required us to apply the net cash proceeds of the Stren sale in properties and assets that replace the properties and assets that were the subject of the sale or in properties and assets that will be used in the businesses of the Company or its Subsidiaries, in each case within 365 days after the date of the sale (February 9, 2005). Any uninvested amount was required to be used to permanently repay our senior debt in accordance with the terms of the indenture for the Notes and the Credit Facility agreement. The divestiture of the fishing line business was consistent with Remington’s focus on its core businesses of hunting and shooting sports, as well as the law enforcement and military markets. Management believes that the Stren transaction provides Remington with flexibility to pursue a number of strategic alternatives in these markets.

        On February 8, 2005, in connection with the passage of the one year requirement to invest in productive assets, we entered into a fourth amendment under the Credit Facility primarily to permanently

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Reduce our commitments under the Credit Agreement from $125.0 million to $101.0 million and to amend the availability requirements. See Note 12 to the accompanying audited financial statements for additional details regarding the fourth amendment.

Financial Information about Segments and Geographic Areas 

        We evaluate our business as three separate reporting segments:

        The following table sets forth our net sales, adjusted for the sale of our fishing line business, for each of our aggregated reporting segments for the periods shown:

        See Note 22 to the accompanying audited consolidated financial statements of Remington, appearing elsewhere in the report. There are no material assets owned by the Company outside of our country of domicile.

NARRATIVE DESCRIPTION OF BUSINESS BY SEGMENT 

Overview  

        According to the American Sports Data, Inc. (“ASDI”) Superstudy of Sports Participation for the year 2003, approximately 31 million people in the United States enjoy hunting and shooting sports. We believe that the hunting and shooting sports industry is stable and mature. According to the National Sporting Goods Association (“NSGA”), total U.S. consumer expenditures for the shooting sports industry in 2003 were approximately $1.9 billion, comprised of expenditures on shotguns of approximately $480 million, rifles of approximately $550 million, and ammunition of approximately $820 million.

Firearms    

        According to the NSGA, we had the #1 market share position in units in the U.S. retail market for both rifles and shotguns in 2003. Based on unit sales volume, our U.S. market share was approximately 22% and 29% in rifles and shotguns, respectively, with our nearest competitor holding a U.S. market share of approximately 17% and 15% in rifles and shotguns, respectively.

Products 

        Our firearms product offerings include a comprehensive line of sporting shotguns and rifles, as well as firearms for the government, military, and law enforcement markets, marketed predominantly under the Remington and Spartan Gunworks^™ brand names. Our goal has been to market a broad assortment of general-purpose firearms together with more specialized products that embody Remington’s emphasis on value, performance and design.

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        Our most popular shotguns are the Model 870^™ pump-action shotgun, and the Model 1100^™ and Model 11-87^™ auto-loading shotguns. Remington shotguns are offered in versions that are marketed to both novices and experienced gun owners. Specialty shotguns focus on the deer, turkey and other specialized hunting markets, recreational and competitive clay target shooting, and various law enforcement and military applications. We also offer opening price point shotgun models under the Spartan Gunworks brand name, versions of which in 2004 were over/under, side-by-side, and single shot shotguns. Retail list prices for our most popular shotguns range up to $900.

        Our most popular rifles are the Model 700^™, Model Seven^™, and Model 710^™ centerfire rifles and the Model 597^™ and Model 504^™ rimfire rifles. To appeal to a broad range of gun owners, we manufacture these rifles in a wide variety of chamberings, configurations and finishes. Retail list prices for our most popular rifles range up to $900.

Product Introductions

        We focus our product development efforts on introducing new products that satisfy the need for specialized, high-performance firearms. In 2004, we introduced the Model 504^™ bolt action rimfire rifle, the Model 700^™ CDL, a classic styled line extension of our famous Model 700^™ line and a number of rifle and shotgun niche products to address growing specialty end use markets. Also in 2004, we introduced the Spartan Gunworks product line, our new opening price point line of shotguns, as well as the Model 870 Modular Combat Shotgun (MCS). Our new shotgun offerings include the 11-87 Sportsman, a line extension of our 11-87 family of autoloaders, positioned to compete more effectively in high volume, specialty end use markets. In 2005 to date, we have introduced a high performance Model 700, the XCR (Xtreme Conditions Rifle), which is designed to provide durability and corrosion resistance in harsh environments. Another 700 line extension includes the 700 SPS (Special Purpose Synthetic), which we have positioned with value added features to increase penetration in general markets. Our new shotgun offerings include the 11-87 Sportsman, a line extension of our 11-87 family of autoloaders, positioned to compete more effectively in high volume, specialty end use markets. Also in 2005, our new Spartan Gunworks line has been expanded to include a differentiated offering of products, including rifles and additional shotgun models.

Seasonality

        We produce a broad range of firearms products. Several models of our shotguns are intended for target shooting, and some models are intended for government, military, and law enforcement applications; sales of which occur outside the core fall hunting season (September through December). The majority of our firearms products, however, are manufactured for hunting use. Because our firearms products are generally used during the fall hunting season, many of firearms products are sold pursuant to a “dating plan” which allows the purchasing distributor to buy the products commencing at the beginning of our dating plan year in December, and pay for them on extended terms. Discounts are offered for early payment under this plan. In the first quarter of each dating plan year, we receive orders from our customers, which are designated as firm orders, although we may permit adjustments in outstanding unfilled orders. We also follow industry practice in canceling most firearms orders from our distributors that remain unfilled at the end of each sales year. For further discussion of seasonality and related matters, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Purchasing Patterns; Seasonality”.

Competition 

        Product image, performance, quality and innovation are the primary competitive factors in the firearms industry, with price and customer service also being factors. Our shotgun products compete with products offered by O. F. Mossberg & Sons, Inc., USRAC (which produces Winchester firearms), Browning, and Beretta. Our rifles compete with products offered by Marlin Firearms Co., Sturm, Ruger & Co., Inc., USRAC, Savage Arms, Inc. and Browning. We believe that we compete effectively with all of our present competitors. However, there can be no assurance that we will continue to do so, and our ability to compete could be adversely affected by our leveraged condition.

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Manufacturing

        Our facility in Ilion, New York manufactures shotguns, rifles, powdered metal parts, extra barrels, and gun parts, and also houses a portion of our gunsmith repair services and our custom gun shop. Our facility in Mayfield, Kentucky manufactures rimfire and centerfire rifles. To manufacture our various firearm models, we utilize a combination of parts manufactured from raw materials at the Ilion and Mayfield facilities and components purchased from independent manufacturers. Quality control processes are employed throughout the production process, utilizing specifically tailored testing procedures and analyses. We believe that our firearm manufacturing safety record is among the best in the U.S. metal manufacturing industry.

Supply of Raw Materials 

        To manufacture our various products, we utilize numerous raw materials, including steel, wood, and plastics, as well as manufactured parts purchased from independent manufacturers. For a number of our raw materials, we rely on a limited number of suppliers. For example, a major portion of our requirements for shotgun barrel blanks and wood stocks are each currently being met by a limited number of vendors. We also import the Spartan Gunworks product line from a single foreign vendor. Generally, we have had satisfactory, long-term relationships with these suppliers. We have written purchase agreements with the majority of our suppliers. Any disruption in our relationships with any of these vendors or reductions in the production of the material supplied could, in each case, adversely affect our ability to obtain an adequate supply of the material and could impose additional operational costs associated with sourcing raw materials from new suppliers. We believe that we have a good relationship with each of these vendors and do not currently anticipate any material shortages or disruptions in supply from these vendors. Alternative sources exist from which we could obtain such raw materials. Nonetheless, we do not currently have significant supply relationships with any of these alternative sources and cannot estimate with any certainty the length of time that would be required to establish such a supply relationship, or the sufficiency of the quantity or quality of materials that could be so obtained.

        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, our manufacturing sites experienced cost increases related to steel purchases and energy prices (particularly in utility costs). These increases were directly related to supply shortages due to foreign markets demand for domestic scrap and increases in energy costs. Industry competition and the timing of price increases by suppliers limits to some extent our ability and the ability of other industry participants to pass raw material cost increases on to customers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financial Instruments” and “Quantitative and Qualitative Disclosures about Market Risk.”  

Service and Warranty 

        We support service and repair facilities for all of our firearms products in order to meet the service needs of our distributors, customers and consumers nationwide. New Remington firearms products purchased in North America, with the exception of our Spartan Gunworks product line which is warranted by its third party vendor, are warranted to the original purchaser to be free from defects in material and workmanship for a period of two years from the registered date of purchase. Warranty expense was $2.8 million, $2.8 million, and $3.2 million in 2004, 2003, and 2002, respectively.

Ammunition    

        According to the SMRG, we had the #1 market share position in the U.S. ammunition market in 2003. Based on sales volume, our market share was approximately 33%, with our nearest competitor holding a market share of approximately 27%.

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Products 

        Our ammunition product offerings include a comprehensive line of sporting ammunition and ammunition reloading components, as well as ammunition for the government, military, and law enforcement markets, which are marketed predominantly under the Remington brand name, as well as the UMC^® brand name. In general, Remington branded products compete in both the middle and high performance categories, while the UMC brand competes in the promotionally priced ammunition category.

        We market an extensive line of products that include everything from high volume, promotionally priced, ammunition products to premium, high performance products that meet the needs of the most discriminating hunters and shooters. Those products include, among other things, shotgun shells, centerfire ammunition for use in rifles and handguns, and ..22 caliber rimfire ammunition. We also produce and market sporting ammunition components used by smaller ammunition manufacturers, as well as by individual consumers engaged in the practice of reloading centerfire cases or shotgun shells.

        Our most popular ammunition products include Core-Lokt centerfire rifle ammunition, the brand share leader in the category, Premier STS and Nitro 27 target loads, which management believes are widely viewed as the performance leader in trap, skeet and sporting clays shooting by virtue of their combination of superior first firing performance and reloadability. Recent ammunition product introductions have focused on developing exclusive or proprietary technology with application to performance oriented hunting segments.

Product Introductions

        We focus our product development efforts on introducing new products that satisfy the need for specialized, high-performance ammunition. In 2004, we introduced a new line of Managed Recoil ammunition in both centerfire rifle and shotshell configurations which reduce recoil for deer hunters. We expanded our Premier Accutip offering to include a line of ammunition specific to varmint hunters. Both our Nitro Steel and Sportsman Steel waterfowl loads were upgraded to include new High Velocity specifications providing hunters with higher energy payloads and long range performance improvement. We also expanded our BuckHammer Deer slug line to include both 12 gauge Magnum and 20 gauge offerings. Finally we expanded our retail presence through the introduction of a comprehensive line of Remington branded prepackaged centerfire ammunition components for consumers who reload their own ammunition.

Competition

        Price, service, quality and product innovation are the primary competitive factors in the ammunition industry. In the ammunition market, we compete with the Winchester division of Olin Corporation, and the Federal Cartridge Co. and CCI units of Alliant Techsystems, Inc. Additionally, many imported ammunition brands compete in the domestic market focusing primarily on price to maintain access and drive sales. We believe that we compete effectively with all of our present competitors. However, there can be no assurance that we will continue to do so, and our ability to compete could be adversely affected by our leveraged condition.

Seasonality

        Seasonality in the ammunition segment revolves primarily upon hunting seasons for certain of our hunting and shooting sports products, while other products, like shotshell target loads and pistol and revolver ammunition, do not experience much seasonality. We offer extended payment terms on select ammunition categories primarily as a competitive measure. For further discussion of seasonality and related matters, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Purchasing Patterns; Seasonality”.

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Manufacturing  

        Our facility in Lonoke, Arkansas manufactures ammunition and ammunition components. Primer mixture manufactured on site is combined with parts and raw materials to produce ammunition. Some parts are manufactured on site, while other components are purchased from independent manufacturers. Throughout the various processes, our technicians continuously monitor and test the velocity, pressure and accuracy levels of the ammunition. We believe that our ammunition manufacturing safety record is among the best in the U.S. ammunition industry.  

Supply of Raw Materials 

        To manufacture our various products, we utilize numerous raw materials, including steel, lead, brass, powder and plastics. For a number of our raw materials, we rely on a limited number of suppliers. For example, our brass strip requirements are being serviced primarily by two vendors, our requirements for smokeless powder are primarily met by three suppliers, who are the only sources of smokeless powder in the United States and Canada, and our requirements for lead are being serviced primarily by two vendors. Generally, we have had satisfactory, long-term relationships with our suppliers. We have written purchase agreements with the majority of our suppliers. Any disruption in our relationships with any of these vendors or reductions in the production of the material supplied could, in each case, adversely affect our ability to obtain an adequate supply of the material and could impose additional operational costs associated with sourcing raw materials from new suppliers. We believe that we have a good relationship with each of these vendors and do not currently anticipate any material shortages or disruptions in supply from these vendors. Alternative sources exist from which we could obtain such raw materials. Nonetheless, we do not currently have significant supply relationships with any of these alternative sources and cannot estimate with any certainty the length of time that would be required to establish such a supply relationship, or the sufficiency of the quantity or quality of materials that could be so obtained.

        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, our manufacturing sites experienced cost increases related to purchases of base metals related to our business and increased energy costs. These increases were directly related to supply shortages due to foreign markets demand for domestic scrap and increases in energy costs. Industry competition and the timing of price increases by suppliers limits to some extent our ability and the ability of other industry participants to pass raw material cost increases on to customers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financial Instruments” and “Quantitative and Qualitative Disclosures about Market Risk“.

All Other Product Lines  

    Accessories. We market hunting and shooting accessories (including safety and security products, parts, gun care and cleaning products, clips, food consumables, and folding and collectible knives). We have licensed the Remington mark to certain third parties that manufacture and market sporting and outdoor products that complement our product line. Currently, the Remington mark is licensed for use on, among other things, sporting and outdoor apparel, caps, gun cases, tree stands, wildlife feeders, sporting dog equipment, air guns, game decoys & calls, and various other nostalgia/novelty goods. We strive to ensure that the quality, image and appeal of these licensed products are consistent with the high-quality image of our core products. These licenses generally grant an exclusive right to sell a specific product category, with the standard term being three years, with a three year renewal based on performance. We believe that these licenses increase the market recognition of the Remington trademark and enhance our ability to market core products and that licensing facilitates new cross-marketing promotional opportunities and generates income. Some of our licensing efforts are carried out under terms established in the Trademark Settlement Agreement described below in “—Other Corporate Information—Patents, Trademarks, and Copyrights.”

        Powdered Metal Products. We market commercial powdered metal parts for the automotive, sporting goods, office equipment, and hardware industries. These items are manufactured at our Ilion, New York facility.

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        Clay Targets. We produce a complete line of clay targets for use in trap, skeet and sporting clays shooting activities, marketed under the STS^™ brand name. Targets are manufactured from a mixture of limestone and petroleum pitch. Our clay targets are manufactured at two facilities located at Ada, Oklahoma and Findlay, Ohio.

        Technology Products. We have entered into an agreement to distribute surveillance security products to the federal agency and law enforcement markets. These items are manufactured by another party, and we are the exclusive distributor for them in the United States, certain of its territories, and Canada.

Unconsolidated Joint Venture

        Remington ELSAG Law Enforcement Systems, LLC (RELES). We are 50% joint venture partners in an entity that sells and services license plate reading technology to state and local law enforcement agencies, as well as certain federal agencies.

OTHER CORPORATE INFORMATION

Backlog Information

        As of February 28, 2005, the backlog of unfilled total orders was approximately $75.8 million compared to $88.7 million as of February 29, 2004.

Customer Concentration

        Approximately 16% of our total 2004 sales consisted of sales made to one customer, Wal-Mart. National accounts generally provide convenient access for hunting and shooting consumers to our products but carry a more limited array of products and are more seasonal in sales. Our sales to Wal-Mart are not governed by written contracts. Although we believe our relationship with Wal-Mart is good, 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 governmental purchaser.

        Foreign sales were approximately 5% for 2004, 6% in 2003, and 5% in 2002 of our total net sales. Our sales personnel and manufacturer’s sales representatives market to foreign distributors generally on a nonexclusive basis and for a one-year term.

Marketing and Distribution 

        Our products are distributed throughout the United States and in over 55 other countries. In the United States, Remington products are distributed primarily through a network of wholesalers and retailers who purchase the product directly from us for resale to gun dealers and end users, respectively. The end users include sportsmen, hunters, target shooters, gun collectors, and members of law enforcement and other government organizations.

        Our products are marketed and sold primarily through manufacturer’s sales representatives. In 2004, approximately 70% of our sales consisted of sales made through our five manufacturer’s sales representative groups, who market and sell principally to wholesalers, dealers and regional chains. These sales representatives are prohibited from selling competing goods from other manufacturers and are paid variable commissions based on the type of products that are sold. The customers to which the sales representatives market and sell our products are authorized to carry specified types of Remington products for a non-exclusive one-year term, though not all carry the full range of products. These customers generally carry broader lines of merchandise than do the mass merchants and are less seasonal in sales.

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        Our in-house sales force primarily markets our product lines directly to national accounts (consisting primarily of mass merchandisers) and to federal, state and local government agencies.

Patents, Trademarks, and Copyrights 

        Our operations are not dependent upon any single trademark other than the Remington word mark and the Remington logo mark. Some of the other trademarks that we use, however, are nonetheless identified with and important to the sale of our products. Generally, registered trademarks have perpetual life, provided that they are renewed on a timely basis and continue to be properly used as trademarks. 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 do not believe that any of our licenses to third-party intellectual property are material to our business, taken as a whole.

        In June 2000, we formed RA Brands, L.L.C., 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, L.L.C. owns all of the above-referenced trademarks and licenses them to Remington at an arm’s length royalty rate. We believe that we have adequate policies and procedures in place to protect our intellectual property.

        While we own the Remington marks (and registrations thereof) for use in our firearms and ammunition product lines and certain related products associated with hunting, wildlife and the outdoors, Rayovac Corporation, with its September 2003 purchase of Remington Products Company, L.L.C., and DESA Industries, Inc., which was purchased by HIG DESA Acquisition, L.L.C., all unrelated companies, claim rights to the mark with respect to certain other product areas, particularly personal care products (including electric razors) and lawn and garden products.

        Pursuant to a Trademark Settlement Agreement, dated December 5, 1986, between us and Remington Products, we agreed with Remington Products as follows:

Research and Development 

        We maintain an ongoing research and development program, with approximately 40 employees engaged in these efforts at our Elizabethtown, Kentucky facility as of February 28, 2005. New products and improvements to existing products are developed based upon the perceived needs and demands of consumers, as well as successful products introduced to the market by our competitors. Our research and development program involves an in-house team of engineers and technicians working with operations personnel using tools such as computer-assisted design. Research and plant technical staff then collaborate to produce an experimental prototype, ensuring that products and manufacturing processes are concurrently designed. Following a successful prototype, a pilot run is commenced to ensure that plant personnel and equipment can manufacture the product efficiently. We continue to introduce new products employing

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innovations in design, manufacturing and safety in both firearms and ammunition, as outlined in the Product Introductions sections above.

        Research and development expenditures for our continuing operations for the years ended December 31, 2004, 2003, and 2002 amounted to approximately $6.1 million in each year.

Regulation 

        The manufacture, sale and purchase of firearms are subject to extensive federal, state and local governmental regulation. The basic federal laws are the National Firearms Act and the Federal Firearms Act, which were originally enacted in the 1930s and which have been amended from time to time. Federal laws generally prohibit the private ownership of fully automatic weapons and place certain restrictions on the interstate sale of firearms unless certain licenses are obtained. We do not manufacture fully automatic weapons. We possess valid federal licenses for all of our owned and leased sites to manufacture and/or sell firearms and ammunition.

        In September 2004, the United States Congress failed to renew a federal law with a ten-year term 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, prior to the law’s enactment, were legally in the owner’s possession. The now-expired law expressly exempted approximately 650 models of firearms that are generally used by hunters and sporting enthusiasts. None of our current firearms products are considered to be “assault weapons” under that federal law or existing state law. Another federal law, enacted in 1993 and extended in 1998, the so-called “Brady Bill”, mandates a national system of instant background checks for all firearms purchases from federally-licensed firearms retail dealers. Legislation has been proposed to further extend this system to sales made by non-retail sellers at gun shows.

        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 Remington and its customers could be significant, depending on the type of firearms and ballistic information included in the database. To date, only two states have established such registries, and neither state includes such “imaging” data from long guns, although there can be no assurance that these (or other states) will not require the inclusion of such imaging in the future. Proposed legislation in at least one other state would be applicable to Remington rifles, and would call for “imaging” of both cartridges and projectiles. In addition, bills have been introduced in Congress in the past several years that would affect the manufacture and sale of handgun ammunition, including bills to regulate the manufacture, importation and sale of any projectile that is capable of penetrating body armor, to impose a tax and import controls on bullets designed to penetrate bullet-proof vests, to prohibit the manufacture, transfer or importation of .25 caliber, .32 caliber and 9mm handgun ammunition, to increase the tax on handgun ammunition, to impose a special occupational tax and registration requirements on manufacturers of handgun ammunition, and to drastically increase the tax on certain handgun ammunition, such as 9mm, .25 caliber, and .32 caliber bullets. Some of these bills would apply to ammunition of the kind we produce, and accordingly, if enacted, could have a material adverse effect on our business. We believe that existing regulations applicable to ammunition have not had such an effect.

        State and local laws and regulations may place additional restrictions on gun ownership and transfer, which vary significantly from jurisdiction to jurisdiction. Some states have recently enacted, and others are considering, legislation restricting or prohibiting the ownership, use or sale of certain categories of firearms and/or ammunition. 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 regulations applicable to handgun ammunition. However, Remington 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. We believe that hunter safety issues may affect sales of firearms, ammunition and other shooting-related products. In the northeastern United States, for example, some communities

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permit deer hunters to use only shotguns (which have a shorter average range than rifles) to minimize the possibility of shooting accidents in more densely populated areas.

        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 whether directly or by placing additional burdens on those who distribute and sell 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 to the air and water, handling, treatment, storage and disposal of such materials, as well as remediation of contaminated soil and groundwater. We have in place programs that monitor compliance with these requirements and 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 the Asset Purchase Agreement (the “Purchase Agreement”) pursuant to which certain assets of E.I. DuPont Nemours & Company (“DuPont”) and its affiliates (collectively, the “Sellers”) were acquired in 1993 (the “Acquisition”) to constitute Remington in its present form, DuPont agreed to retain responsibility for pre-closing environmental liabilities. In connection with the Acquisition, Remington also entered into an agreement with Dupont with respect to cooperation and responsibility for specified environmental matters. See “—Certain Indemnities.”

        There are various pending proceedings associated with environmental liability naming the Company for which the Sellers have accepted liability. Our obligation on these cases is not significant for disclosure purposes.

        During 2003 and 2004, Remington and DuPont completed a remediation project at the Lonoke, Arkansas facility addressing some fourteen Solid Waste Management Units. Upon completion of the final remediation report in January 2005, Remington was awarded a “Ready for Reuse” certificate from the EPA and the Arkansas Department of Environmental Quality.

        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 of 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.

Employees 

        As of February 28, 2005, we employed approximately 2,400 full-time employees of whom nearly 2,150 were engaged in manufacturing, approximately 200 in sales and general administration and approximately 50 in research and development. An additional work force of temporary employees is engaged during peak production schedules at certain of our manufacturing facilities.

        The United Mine Workers of America (“UMWA”) represents approximately 900 hourly employees at our plant in Ilion, New York. The collective bargaining agreement with UMWA was renegotiated effective October 2002 with the contract expiring in September 2007. We also have a labor agreement with Local 2021 of the United Automobile, Aircraft and Agricultural Implement Workers of America, U.A.W., which represents less than 10 hourly employees at our plant in Findlay, Ohio, which agreement is terminable by either party on notice. Employees at our Lonoke, Arkansas, Mayfield, Kentucky and Ada

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Oklahoma 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.

Available Information

        Our internet address is www.remington.com. We make available, free of charge, on our internet website the latest annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 15(d) of the Exchange Act as soon as reasonably practicable after filing with the Securities and Exchange Commission (“SEC”) via a link on our website to our page in the SEC electronic filing database.

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Item 2. PROPERTIES

        Our manufacturing operations are currently conducted at five owned facilities. The following table sets forth selected information regarding each of these facilities:

        We believe that these facilities are suitable for the manufacturing conducted therein and have capacities appropriate to meet existing production requirements. The Ilion, Lonoke and Mayfield facilities each contain enclosed ranges for testing firearms and ammunition.

        Our headquarters and related operations are conducted in an office building that we own in Madison, North Carolina.

        Research and development is conducted at a facility that we own in Elizabethtown, Kentucky.

        All of the real property owned by us has been mortgaged to secure our obligations under our credit agreement.

        We also lease a facility from and contract for distribution services with our major third party contractors.

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Item 3. LEGAL PROCEEDINGS

        Under the terms of the asset Purchase Agreement, the Sellers retained liability for, and are required to indemnify us against:  

        These indemnification obligations of the Sellers are not subject to any survival period limitation. We have no current information on the extent, if any, to which the Sellers have insured these indemnification obligations. Except for certain cases and claims relating to shotguns as described below, and except for all cases and claims relating to products discontinued prior to the Acquisition, we generally bear financial responsibility for the costs of product liability cases and claims relating to occurrences after the Acquisition and are required to indemnify the Sellers against such cases and claims. See “—Certain Indemnities”.

        The main types of legal proceedings include:

Product Liability Litigation 

        Since December 1, 1993, we have maintained insurance coverage for product liability claims subject to certain self-insured retentions on a per-occurrence basis for personal injury or property damage relating to occurrences arising after the Acquisition. We believe that our current product liability insurance coverage for personal injury and property damage is adequate for our needs. Our current product liability insurance policy runs from December 1, 2004 through November 30, 2005 and provides for a self-insured retention of $0.5 million per occurrence up to the first $2.0 million in claims, with a self-insured retention of $0.8 million per occurrence thereafter. The current policy has a batch clause endorsement, which in general provides that if a batch of our products were to be defective, our liability for product liability expenses and damages related to the entire batch would be capped at the amount of self-insured retention for a single occurrence. The policy excludes from coverage any pollution-related liability. Based in part on the nature of our products, and the continued impact on the insurance market of the events of September 11, 2001, there can be no assurance that we will be able to obtain adequate product liability insurance coverage upon the expiration of the current policy. Certain of our current excess insurance coverage expressly excludes actions brought by municipalities as described below.

        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 the Sellers. As of December 31, 2004, 17 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. We have previously disposed of a number of other cases involving post-Acquisition occurrences by settlement. Of the individual cases and claims pending as of December 31, 2004, five involve matters for which the Sellers retained liability and are required to indemnify us. The remaining 12 pending cases involve post-Acquisition occurrences for which we bear responsibility under the Purchase Agreement; the Sellers have some responsibility for the costs of approximately one of these cases involving certain shotguns.

        The relief sought in individual cases includes compensatory and, sometimes, punitive damages. Not all complaints or demand letters expressly state the amount of damages sought. As a general matter, when specific amounts are provided, compensatory damages sought range from less than $75,000 to more than $10 million, while demands for punitive damages may range from less than $500,000, to as much as $100

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millin of the 12 individual post-Acquisition claims pending as of December 31, 2004, claimants purport to seek approximately $23.5 million in compensatory and an unspecified amount of punitive damages. 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 superior quantitative measure of the cost to it of product liability cases and claims.

        At December 31, 2004, our accrual for product liability cases and claims was $13.4 million. The amount of our accrual for product liability cases and claims is based upon estimates developed as follows. We establish reserves for anticipated defense and disposition costs to us of 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 and unasserted cases and claims to determine the amount of our 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. We believe that our accruals for losses relating to such cases and claims are adequate. Our 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 Acquisition, our accruals for the uninsured costs of such cases and claims and the Sellers’ agreement to be responsible for a portion of certain post-Acquisition shotgun-related product liability costs, as well as the type of firearms products that we make), we do not believe with respect to product liability cases and claims that any reasonably possible loss exceeding amounts already recognized through our accruals has been incurred.

        Because our assumption of financial responsibility for certain product liability cases and claims involving pre-Acquisition occurrences was limited to an amount that has now been fully paid, with the Sellers retaining liability in excess of that amount and indemnifying us in respect of such liabilities, and because of our accruals with respect to such cases and claims, we believe that product liability cases and claims involving occurrences arising prior to the Acquisition are not likely to have a material adverse effect upon our financial condition, results of operations or cash flows. Moreover, although it is difficult to forecast the outcome of litigation, we do not believe, in light of relevant circumstances (including the current availability of insurance for personal injury and property damage with respect to cases and claims involving occurrences arising after the Acquisition, our accruals for the uninsured costs of such cases and claims and the Sellers’ agreement to be responsible for a portion of certain post-Acquisition shotgun-related product liability costs, as well as the type of firearms products that we make), that the outcome of all pending post-Acquisition product liability 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 occurrences, 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 therefrom. Because of the nature of our products, we anticipate that we will continue to be involved in product liability 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, and insurance costs associated with such cases and claims, may cause us to incur material costs.

       Municipal Litigation

        In addition to these individual cases, as a manufacturer of shotguns and rifles, Remington was named in only three of the actions brought by approximately 30 municipalities, primarily against manufacturers, distributors and sellers of handguns: (i) City of Boston, et al. v. Smith & Wesson, et al., No. 99-2590 (Suffolk Super Ct.); (ii) City of St. Louis, Missouri v. Henry Cernicek, et al., No. 992-01209 (Cir. Ct. St. Louis) & 00 Civil 1895 (U.S. Dist. Ct E.D. Missouri); and (iii) City of New York, et al. v. B.L. Jennings, Inc., et al., 00 Civil 3641 (JBW) (U.S. Dist. Ct. E.D.N.Y.).

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As a general matter, these lawsuits name several dozens of firearm industry participants as defendants, and claim that the defendants’ distribution practices allegedly permitted their products to enter a secondary market, from which guns can be obtained by unauthorized users; that defendants fail to include adequate safety devices in their firearms to prevent unauthorized use and accidental misuse; and that defendants’ conduct has created a public nuisance. Plaintiffs generally seek injunctive relief and money damages (consisting of the cost of providing certain city services and lost tax and other revenues), and in some cases, punitive damages, as well.

        Two of these cases (City of Boston and City of St. Louis) have been dismissed against all defendants, while the third has been limited to claims against handgun manufacturers (City of New York).

          To date, 15 municipal lawsuits have been dismissed and are no longer subject to appeal. Three more dismissals, including that involving local California governments, are on appeal. The remaining lawsuits are in various stages of motion practice and discovery. A majority of states have enacted some limitation on the ability of local governments to file such lawsuits against firearms manufacturers. In addition, similar legislation limiting such lawsuits on a federal level has been proposed in both houses of Congress. At the federal level, in April 2004, the House of Representatives approved legislation that would limit lawsuits against firearms manufacturers based on the criminal or unlawful acts of third parties. However, similar legislation pending in the Senate was recently defeated. New versions of those bills were introduced in February 2005.

        In 2000 and 2001, Remington received and replied to civil investigative demands and subpoenae duces tecum from the State of Connecticut and the Federal Trade Commission (“FTC”). Remington, which makes only long guns, does not compete with Smith & Wesson, which makes handguns. The materials provided to these authorities were returned to Remington within the past year, and it is the Company’s understanding that the investigations have ended without any action being taken.

        In recognition of and support of certain legal and legislative initiatives, the shooting sports industry established the Hunting and Shooting Sports Heritage Fund of which the Company is a member. Contributions expensed in 2004, 2003, and 2002 were $0.5 million, zero, and $0.8 million, respectively.

Certain Indemnities 

        As of the closing of the Acquisition in December 1993 under the Purchase Agreement, we assumed:  

        All other liabilities relating to or arising out of the operation of the business prior to the Acquisition are excluded liabilities (the “Excluded Liabilities”), which the Sellers retained. The Sellers are required to indemnify Remington and its affiliates in respect of the Excluded Liabilities, which include, among other liabilities:

        The Sellers’ overall liability in respect of their representations, covenants and the Excluded Liabilities under the Purchase Agreement, excluding environmental liabilities and product liability matters

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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, the Sellers’ representations under the Purchase Agreement have expired. We made claims for indemnification involving product liability issues prior to such expiration. See “—Legal Proceedings”.

        In addition, the Sellers agreed in 1996 to indemnify us 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 the Sellers 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 the Sellers 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 business prior to the Acquisition, and are currently engaged in the joint defense of certain product liability claims and proceedings. See “—Legal Proceedings”.

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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Company’s shareholders during the fourth quarter of 2004.

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information. There is no established public trading market for either Holding's or Remington's common stock.

    Holders.        As of February 28, 2005, there were 31 holders of the outstanding common stock of Holding. The only holder of Remington’s common stock is Holding.

    Dividends.        Holding did not pay any dividends during 2003 or 2004. In February 2003, Holding repurchased 722,981 of the outstanding shares of common stock of Holding, in an aggregate amount of $163.7 million, with consideration consisting of $130.8 million in cash and $32.9 million aggregated principal amount of senior notes of Holding (the “Holding Notes”). The Clayton & Dubilier Private Equity Fund IV Limited Partnership (“C&D Fund IV”) holds all of the Holding Notes, which as of December 31, 2004 have a carrying value of $35.0 million. In connection with funding the repurchase of Holding’s common stock, Remington paid a $100.0 million dividend to Holding. The dividends paid to Holding were used to repurchase common stock (see description above). Remington also paid dividends to Holding in an aggregate amount of $3.3 million during 2003 to fund interest payments on the Holding Notes. In 2004, Remington paid dividends to Holding in an aggregate amount of $2.2 million to fund interest payments on the Holding Notes.

        As Holding has no separate operations, its ability to pay dividends or interest on the Holding Notes is dependent upon the extent to which it receives dividends or other funds from Remington or additional capital from shareholders. The declaration and payment of future dividends by either Remington or Holding, if any, will be at the sole discretion of the Board of Directors of the respective company, subject to the restrictions set forth in the Credit Agreement, dated as of January 24, 2003, as amended through February 8, 2005, among Remington, Wachovia Bank, N.A., Fleet Capital Corporation, National City Commercial Finance, Inc. and certain other lenders (the “Credit Agreement”), governing the Credit Facility,and the indenture (the “Indenture”) for the Notes, which currently limit the payment of cash dividends to shareholders, as well as restrictions, if any, imposed by other indebtedness outstanding from time to time.

        See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” and Note 12 to our consolidated financial statements for the year ended December 31, 2004 appearing elsewhere in this report.

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        The following table sets forth certain selected financial information derived from our consolidated financial statements as audited by our independent registered public accounting firm, PricewaterhouseCoopers LLP, for each of the years in the five-year period ended December 31, 2004. On February 9, 2004, we completed the sale of our fishing line business, and reclassified the results as discontinued operations for all periods presented. The table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes and other financial information included elsewhere in this report.

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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion and analysis should be read in conjunction with the “Selected Financial Data” and our consolidated financial statements and related notes and the other financial information appearing elsewhere in this report.

Management's Discussion and Analysis of Financial Condition and Results of Operations is separated into the following sections:

Executive Overview 

        The following discussion and analysis discusses the financial condition and results of operations of Remington and its subsidiaries, RA Brands, L.L.C. and RA Factors, Inc. on a consolidated basis, unless otherwise indicated. It also includes discussion and analysis on Remington’s unconsolidated joint venture, Remington ELSAG Law Enforcement Systems, L.L.C., to the extent it is deemed significant.

        We were organized in our present form in connection with the acquisition of our current business from DuPont in 1993. Remington and Holding are Delaware corporations organized at the direction of CD&R for the purposes of making the Acquisition. Holding has no operations and its only significant asset is its investment in Remington. Holding also has $32.9 million aggregate principal amount of senior notes due to CD&R which were created during the recapitalization of Holding in February 2003, which as of year end are outstanding at a value of $35.0 million, inclusive of accrued interest. C&D Fund IV holds all of the Holding Notes. RA Brands, L.L.C. and RA Factors, Inc. are wholly owned subsidiaries of Remington. RA Brands, L.L.C. acts as a holding company for our intellectual property and other intangible assets, and RA Factors, Inc. acts as a factoring subsidiary for our receivables.

         We evaluate our business primarily on Adjusted EBITDA (as defined in Note 22 to our audited consolidated financial statements included in this report, to which we refer you) results from two core segments, firearms and ammunition, with support from our other operating segments, primarily Accessories and Clay Targets. As part of this evaluation, we focus on managing inventory and payables through, among other things, production management and expense control. These segments allow us to focus our strategies and initiatives on growth opportunities primarily focused on the hunting and shooting sports marketplace.

        We are committed to refining our core businesses and positioning ourselves to take advantage of opportunities to strategically grow the company. As we regularly evaluate our overall business, we look for new products in the hunting, shooting, accessories, law enforcement, government, and military areas that compliment our core strategies, which may include direct product sourcing, licensing, acquisition or other business ventures.

        Finally, in order to be well positioned for growth, we recognize the need to protect our competitive position with the introduction of new and innovative, high quality products to support our customers and consumers.

        We commenced certain growth initiatives during 2004. These growth initiatives include the following:

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        In connection with our growth initiatives, including those in our core businesses, we expensed approximately $2.8 million during the year ended December 31, 2004.

        The sale of firearms and ammunition 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 firearms, ammunition, and related markets. As economic activity gains momentum, confidence and discretionary spending by consumers has historically improved. See further discussion in “Business Outlook” below.

        Management believes that we have successfully maintained the strength of our brand and our market-leading positions in our primary product categories, and that we remain poised to take advantage of any significant improvement in the demand environment. We have engaged in selective efforts to stimulate demand for our products, through targeted new product introductions and promotions in selected product categories.

        Although we believe that regulation of firearms and ammunition, and consumer concerns about such regulation, have not had a material adverse influence on the market for our firearms and ammunition products for the periods presented herein, there can be no assurance that the regulation of firearms and ammunition will not become more restrictive in the future or that any such development would not adversely affect these markets.

        Our revenues are derived primarily from sales of firearms and ammunition products. Firearms and ammunition accounted for approximately 94% of our sales in each of 2004 and 2003, and 93% of our sales in 2002. We are the only domestic manufacturer of both firearms and ammunition. Our other product lines include firearm-related accessories, security products primarily for the law enforcement and federal agency markets, and the manufacture and marketing of clay targets and powdered metal products. Our sales are generally seasonal due to the need to meet customer requirements for hunting/shooting sports products during the core fall hunting season (September through December), although certain segments of our business, including certain models of our shotguns and several types of ammunition intended for target shooting and pistol and revolver, as well as certain governmental, military and law enforcement products, are not seasonal. During 2004 and as discussed during our previous quarterly filings, we have seen our seasonality compress to later in the fall hunting seasons. Sales in the third quarter are generally higher than sales in other quarters and in the current year sales in the fourth quarter, including those on extended terms, were also higher than historical levels. See further discussion in “Seasonality” below.

Recent Developments and Highlights 

        On February 9, 2004, we sold specified assets related to our fishing line business, including fixed assets, inventories, and intellectual property for $44.0 million in cash. As a result of the sale, the results of those operations have been included in discontinued operations and prior periods have been reclassified to conform to the current year presentation. Management believes that the Stren transaction provides Remington with significant flexibility to pursue a number of strategic alternatives. Associated with these strategic alternatives include the previously mentioned growth initiatives. See further discussion above in the “Executive Overview” section.

        A number of current trends are potentially significant to the hunting and shooting sports market.  

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        Although we believe that these trends have not had a material adverse effect on our business in the past, there can be no assurance that they will not do so in the future, or that industry sales (or the number of retail outlets available for such sales) of firearms, ammunition and other shooting-related products will not decline.

Business Outlook

General Economy

        The general economic environment is uncertain, as a result of mixed levels of consumer spending, low levels of wage growth, inflationary pressures from higher energy and fuel costs, and an uncertain geopolitical environment; with the resulting negative impact on consumer confidence. We also note that since the beginning of 2004, the Federal Reserve has adopted a monetary policy that includes raising the short term rate of interest. Management notes that a rising interest rate environment could have a potentially adverse impact on consumer spending. Our business is also affected by the general environment of rising commodity prices such as lead, zinc and steel that have been experienced since the beginning of 2004. Specifically, the spot prices for lead and copper, which we primarily hedge through commodity contracts, increased by approximately 34% and 38%, respectively, for the period from December 31, 2003 to December 31, 2004. See “Quantitative and Qualitative Disclosures About Market Risk.” The volatile nature of the current economic and geopolitical environment makes it difficult to forecast whether any of these trends will continue, and we can provide no assurance that these trends will not continue.

Industry

        The consumer products environment appears to be uncertain based upon the previously mentioned mixed consumer spending, low levels of wage growth, inflationary pressures from higher energy costs, and a trend of lower than expected same-store retail sales growth. Further, management notes that the retail and consumer products industries in which we participate (mainly, firearms and ammunition) continue to experience two specific trends – market polarization and condensed seasonality. The market polarization appears to primarily be a function of demand from higher end retailers and consumers being relatively inelastic with respect to weaker economic conditions while lower end retailers and consumers are generally selling and buying, respectively, opening price point products. The condensed seasonality appears to primarily be a function of a pronounced customer effort to aggressively manage inventory turns. Management believes that such conditions have caused customers (dealers, chains and wholesalers) to defer purchases of our products and to utilize lower inventory levels than during prior periods.

Remington

        Our current business environment is uncertain and has been affected by market polarization, condensed seasonality, increased commodity costs, and mixed consumer spending levels. Management does not have any reason to believe that these trends and uncertainties are permanent characteristics of the markets for our products or the general economy, and believes that positive changes in these trends and an improvement in general economic conditions may result in increased demand for the Company’s products or otherwise improve the Company’s results of operations or cash flows. However, management continues to evaluate these trends and uncertainties and cannot assure that they will improve or that any such improvement will increase demand for the Company’s products or otherwise positively impact the Company’s results of operations or cash flows.

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        Management’s near-term strategy in light of the environment noted above has been to contain costs, manage inventory levels to meet customer needs and to preserve liquidity, while pursuing growth initiatives in markets we believe show potential future profitable growth. Our efforts to pursue growth initiatives resulted in the three previously mentioned actions: 1) Spartan Gunworks by Remington, 2) the exclusive distribution agreement, and 3) the joint venture agreement. Our growth initiatives also included investments in our Accessories and government, military, and law enforcement divisions. We have also engaged in selective efforts to stimulate demand for our products, through targeted product introductions and promotions in selected product categories. Management believes that we have successfully maintained the strength of our brand and our market-leading positions in our primary product categories, and that we remain poised to take advantage of any significant improvement in the demand environment.

Seasonality

        We produce and market a broad range of firearms and ammunition products. Several models of our shotguns and several types of ammunition are intended for target shooting and pistol and revolver, as well as government, military, and law enforcement applications, sales of which generally occur outside the core fall hunting season (September through December). The majority of our firearms and ammunition products, however, are manufactured for hunting use. As a result, the majority of the sales of our products are seasonal and concentrated toward the fall hunting season. We follow the industry practice of selling firearms pursuant to a “dating” plan allowing the customer to buy the products commencing at the beginning of our dating plan periods and pay for them on extended terms. As a competitive measure, we also offer extended payment terms on select ammunition categories. Cash discounts for firearms and ammunition amounting to $6.8 million, $5.8 million, and $6.7 million were given in 2004, 2003, and 2002, respectively. We believe that these dating plans have partially offset the seasonality of the Company’s business.

        As a result of the seasonal nature of our sales and the extended payment terms under our dating plan billing practices, our working capital financing needs generally have significantly exceeded cash provided by operations during certain parts of the year, until certain of our extended accounts receivable are collected in the third quarter. As a result, our working capital financing needs tend to be greatest during the late winter and early summer months, decreasing during the fall and reaching their lowest points during the early winter. During 2004 and as discussed during our previous quarterly filings, we have seen our seasonality compress to later in the fall hunting seasons. Sales in the third quarter are generally higher than sales in other quarters and in the current year sales in the fourth quarter, including those on extended terms, were also higher than historical levels.

Liquidity and Capital Resources 

Overview 

        We have historically funded expenditures for operations, administrative expenses, capital expenditures, debt service obligations and dividend payments with internally generated funds from operations, and satisfied working capital needs from time to time with borrowings under our Credit Facility. We believe that we will be able to meet our debt service obligations, fund our operating requirements, and make dividend payments in the future with cash flow from operations and borrowings under our Credit Facility prior to the maturity of the Credit Facility in 2008, although no assurance can be given in this regard. We continue to focus on managing inventory levels to keep them in line with sales projections and management of accounts payable.

Liquidity

         As of December 31, 2004, we had outstanding approximately $203.5 million of indebtedness, consisting of approximately $200.0 million aggregate principal amount of the notes, $1.8 million in borrowings under the Credit Facility, $0.8 million in capital lease obligations and a $0.9 million note payable to Holding. As of December 31, 2004, we also had aggregate letters of credit outstanding of $4.9 million.

        Our Credit Facility, as amended, provides for aggregate borrowings of up to $101.0 million, subject to borrowing base and other limitations, under a revolving credit facility through January 23, 2008. As of December 31, 2004 approximately $44.4 million in additional borrowings were available as determined pursuant to the Credit Facility, as amended through February 9, 2004. At present, the principal sources of liquidity for our business and operating needs continue to be internally generated funds from operations and borrowings under the Credit Facility. We believe that we will be able to meet our debt service obligations and fund our operating requirements with cash flow from operations and borrowings under the Credit Facility, although no assurance can be given in this regard. We also evaluate on a regular basis whether or not we will be able to pay prospective dividends to Holding (which are primarily used by Holding to pay interest on the Holding Notes), subject to the restrictions and covenants imposed upon us by our Credit Facility and the indenture for the Notes. See “Dividend

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Policy.” In addition, we continue to focus on managing working capital through, among other things, inventory management, cash management, and expense control.

        As a result of plan performance and Internal Revenue Service Code and Regulations, we will be required to make contributions of approximately $7.1 million to plan assets under our defined benefit pension plan which will be made in installments throughout 2005. We made contributions of approximately $6.4 million to plan assets under our defined-benefits pension plan during 2004.

        In addition, as previously mentioned, we incurred a total of $0.8 million in expenses in 2004 associated with the exclusive distribution agreement signed in July 2004, as well as $0.3 million expenses in 2004 associated with the joint venture agreement signed in August 2004. Combined with our growth initiatives in our Accessories, Government/Law Enforcement/Military, and Spartan Gunworks, our total growth initiatives expenses incurred in 2004 was $2.8 million.

        As a result of the sale of our fishing line business on February 9, 2004, we applied $43.0 million in initial cash proceeds upon the closing of such sale, and on May 12, 2004, we applied an additional $1.0 million in proceeds released from escrow, in each case against our outstanding Credit Facility balances at those times. We made necessary tax payments related to the sale consistent with our normal quarterly schedule. The gain that was recorded in 2004 on the sale of discontinued operations was approximately $13.6 million, net of income taxes. The gain of approximately $13.6 million reflects the release of the $1.0 million escrow amount and adjustments to the estimates of costs associated with the sale based on remaining obligations with respect to the sale as of December 31, 2004. Our after-tax proceeds on the transaction were approximately $29.0 million. A portion of these proceeds was not reinvested within one year, resulting in our fourth amendment to the Credit Facility on February 8, 2005, as explained below. See “Credit Facility.”

        As previously discussed, our continuing efforts to strategically grow the company may result in direct product sourcing, licensing, acquisitions or other business ventures, financing for which may be available under our Credit Facility as a result of the sale of the fishing line business, to the extent permitted under the indenture for our Notes. See growth initiatives discussion in the “Executive Overview” section.

10½% Senior Notes due 2011

        The Notes were initially issued on January 24, 2003 in an aggregate principal amount of $200.0 million. The Notes are senior unsecured obligations of Remington guaranteed by each of Remington’s existing domestic subsidiaries. The indenture for the Notes contains restrictive covenants that, among other things, limit the incurrence of debt by Remington and its subsidiaries, the payment of dividends to Holding, the use of proceeds of specified asset sales and transactions with affiliates.

        In addition, the Indenture permits repurchases of the Notes on the open market, subject to limitations that may be contained in the Credit Facility and the Indenture. As disclosed in the Company’s 8-K filing on February 11, 2005, the Company obtained the consent of the requisite lenders under the Credit Facility to one or more such purchases of Notes in an aggregate amount of up to $5.0 million on or before December 31, 2005, subject to compliance with specified conditions for the purchases.

Credit Facility 

        On February 8, 2005, in connection with the passage of the one year requirement to invest in productive assets, we entered into a fourth amendment under the Credit Facility primarily to permanently reduce our commitments under the Credit Agreement from $125.0 million to $101.0 million and to amend the availablity requirements. See Note 12 to the accomanying audited financial statements for additional details regarding the fourth amendment. As a result of the reduction in borrowing capacity, and in accordance with Emerging Issues Task Force No. 98–14 (“EITF 98–14”), we reduced our debt acquisition costs by $0.5 million upon signing of the fourth amendment to the Credit Facility in February 2005, the expense for which will be recorded in the Other Expense line item on the Company's Statement of Operations.

        Our Credit Facility, as amended, provides $101.0 million of revolving credit agreements under an asset-based senior secured revolving credit facility. Amounts available under the Credit Facility are subject to a borrowing base limitation based on certain percentages of eligible accounts receivable and eligible inventory and an amortizing balance related to eligible machinery and equipment in addition to a minimum availability requirement as described below. The Credit Facility also includes a letter of credit subfacility of up to $15.0 million.

        As a result of our financial performance the Credit Facility was amended on two separate occasions during 2003. These amendments limit our borrowing capacity by creating a minimum availability restriction through the earlier of (i) March 30,

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2006 and (ii) subject to meeting specified financial targets, such date as the Company may determine (such period, the “Availability Test Period”). In addition, during the Availability Test Period, the Company must maintain specified minimum rolling four quarter levels of Consolidated EBITDA (as defined in the Credit Facility).

        Pursuant to the foregoing amendments, key terms of the Credit Facility, as amended, now include the following:

        As of December 31, 2004 we were in compliance with our financial covenants under the Credit Facility, as amended, and expect to continue to be in compliance with such financial covenants. However, there can be no assurance that we will continue to be in compliance.

        The interest rate margin for the ABR and the Euro-Dollar loans at December 31, 2004 was 1.50% and 3.00%, respectively. The weighted average interest rate under the Company’s Credit Facility was 4.90% and 4.02% for the year to date periods ended December 31, 2004 and 2003, respectively.

Cash Flows and Working Capital 

        Net cash used in operating activities was $11.8 million and $7.3 million for the fiscal fiscal years ended December 31, 2004 and 2003, respectively. The $4.5 million increase in cash used in operating activities for the twelve months ended December

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31, 2004 compared to the same period ended December 31, 2003 resulted primarily from higher levels of accounts receivable and inventory, offset by changes in deferred taxes, higher accrued liabilities and retiree benefits. The sale of the fishing line business also affected net cash used in operating activities. Specifically, the reasons associated with these changes are summarized as follows:

        Net cash provided by investing activities for the fiscal year ended December 31, 2004 was $35.1 million and net cash used in investing activities in the fiscal year ended December 31, 2003 was $6.9 million. Net cash proceeds of $42.8 million received from the sale of our fishing line business in 2004, combined with $0.4 million of cash proceeds on sale of property, plant and equipment resulted in the increase, slightly offset by $7.8 million in cash capital expenditures and the $0.3 million investment in our unconsolidated joint venture. The $7.8 million and $6.8 million of cash capital expenditures for investing activities in the fiscal years ended 2004 and 2003, respectively, consisted of capital expenditures primarily used both for new equipment related to the manufacture of firearms and ammunition, as well as maintenance of existing facilities.

        Net cash used in financing activities for the fiscal year ended December 31, 2004 was $23.3 million and net cash provided by financing activities was $14.2 million during the fiscal year ended December 31, 2003. The $37.5 million decrease in cash provided by financing activities from the year ended December 31, 2004 compared to the year ended December 31, 2003 primarily resulted from approximately $43.8 million of lower borrowing needs under the Credit Facility, primarily due to the cash proceeds associated with the sale of our fishing line business in the current year, as well as debt issuance costs associated with our refinancing transaction in the prior year.

Dividend Policy

        The declaration and payment of dividends, if any, will be at the sole discretion of the Board of Directors of the respective company, subject to the restrictions set forth in the Credit Facility and the indenture for the Notes, which currently restrict the payment of dividends to shareholders. We expect to make future dividend payments to Holding based on available cash flows as and to the extent permitted by the Credit Facility and the indenture for the Notes. During the year ended December 31, 2004, the Board of Directors of the Company declared and the Company paid $2.2 million of dividends to Holding.

Capital Expenditures  

        Gross capital expenditures for the year ended December 31, 2004 were $9.5 million, consisting primarily of capital expenditures both for new equipment related to the manufacture of firearms and ammunition, as well as maintenance of existing facilities. We expect capital expenditures for 2005 to be in a range of $9.0 million to $11.0 million. Our Credit Facility allows for capital expenditures up to $21.1 million in 2005 including unused capacity carried over from previous years.

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   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 and commitments to our joint venture RELES. 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 seven 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.

        In recognition of and support of certain legal and legislative initiatives, the shooting sports industry established the Hunting and Shooting Sports Heritage Fund of which the Company is a member. Contributions expensed in 2004, 2003, and 2002 were $0.5 million, zero, and $0.8 million, respectively.

        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 sell worldwide, with the exception of the Spartan Gunworks product line which is warranted by its third party vendor. Estimated future warranty costs are accrued at the time of sale. 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 SFAS No. 5, Accounting for Contingencies, and charged to operations. The cost of these programs is not expected to have a material adverse impact on our operations, liquidity or capital resources.

        The following represents our contractual obligations and other commercial commitments as of December 31, 2004:

Results of Operations 

        The following table shows, for the periods indicated, the percentage relationships to net sales of selected financial data. Our management’s discussion and analysis of our results of operations compares results for the year ended December 31, 2004 to the year ended December 31, 2003 and the year ended December 31, 2003 to the year ended December 31, 2002.

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Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003

        Net Sales.    The following table compares net sales by reporting segment for each of the years ended December 31, 2004 and 2003:

Firearms

Management believes that the increase in net sales of $12.1 million for the year ended December 31, 2004 over the prior-year period resulted from:

Ammunition

Management believes the increase in net sales of $19.0 million for the year ended December 31, 2004 over the prior-year period is due primarily to:

All Other (including Accessories, Clay Targets, Powdered Metal Products, and Technology Products)

Management believes the increase in net sales of $1.2 million for the year ended December 31, 2004 over the prior-year period, predominantly in the Accessories line of business, of $1.1 million, is due primarily to:

        Cost of Goods Sold.The table below depicts the cost of goods sold by reporting segment for the years ended December 31, 2004 and 2003:

Firearms

Management believes the increase of $10.8 million for the year ended December 31, 2004 over the prior-year period is due primarily to:

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Ammunition

Management believes the increase of $21.0 million for the year ended December 31, 2004 over the prior-year period is due primarily to:

All Other (including Accessories, Clay Targets, Powdered Metal Products and Technology Products)

Management believes the increase of $0.5 million for the year ended December 31, 2004 over the prior-year period, predominantly in the Accessories business, which increased $0.8 million, is due primarily to:

Operating Expenses. Operating expenses consist of selling, general and administrative expense, research and development expense and other expense.

        The increase in selling, general, and administrative expense between the two year-to-date periods was primarily attributable to higher distribution and commissions costs associated with higher sales volumes, and higher costs associated with the previously mentioned growth initiatives, offset by lower product liability costs associated with favorable experience.

       The decrease in other expense was primarily due to $6.7 million of other unusual charges incurred in connection with the first quarter 2003 recapitalization transactions, offset by the previously mentioned $0.5 million associated with the exclusive distribution agreement payment. The $6.7 million of other unusual charges is comprised of $4.5 million related to the acceleration and subsequent cancellation of options to purchase common stock of Holding, $0.7 million of additional interest expense representing a call premium for early redemption of the Refinanced Notes, and $1.5 million expensed for the unamortized debt issuance costs related to our prior revolving credit facility.

       Interest Expense.     Interest expense for the year ended December 31, 2004 was $24.6 million, an increase of $1.6 million from the same period in 2003. Interest expense excludes $0.1 million and $1.8 million, for the years ended December 31, 2004 and 2003, respectively, which was reclassified to discontinued operations.

       The increase in interest expense during 2004 resulted primarily from higher expense on the Notes of $0.7 million associated with a full year outstanding in 2004 as compared to 2003 and higher expense of $0.1 million associated with higher interest rates compared to the interest expense on the Refinanced Notes in 2003. In addition, interest expense in connection with the Credit Facility was lower than in 2003, primarily due to lower overall average borrowings on the Credit Facility of $1.0 million due to the sale of the fishing line business, offset by $0.2 million associated with higher interest rates.

       Taxes.     Our effective tax rate relating to continuing operations is (39.5%), excluding the impact of recording the valuation allowance, which increased the rate to 351.5%, for the year ended December 31, 2004. The change to 351.5% from

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(39.5%)for the same period in 2003 is primarily attributable to the valuation allowance established on deferred tax assets referred to below. We have utilized a 42% effective tax rate in calculating the net gain on the sale of certain assets in the fishing line business. This rate differs from the continuing operations rate primarily due to permanent differences related to goodwill associated with the fishline business.

       We are currently subject to ongoing audits by 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 Remington's financial position, results of operations, or cash flows. We have reserved amounts which we believe will be sufficient for any adverse outcome. The timing of any such payment is uncertain.

       As of December 31, 2004, a valuation allowance of approximately $15.2 million has been established against deferred tax assets as a charge against earnings in accordance with the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS No. 109”). Realization of the deferred tax assets is largely dependent upon future profitable operations, if any, and the reversals of existing taxable temporary differences. As a result of pre-tax losses from continuing operations and future taxable income expected to arise primarily from the reversal of and creation of temporary differences for the foreseeable future, we determined that in accordance with SFAS No. 109, it is not appropriate to continue to recognize these deferred tax assets. Although there can be no assurance that such events will occur, the valuation allowance may be reversed in future periods to the extent that the related deferred income tax assets no longer require a valuation allowance under the provisions of SFAS No. 109.

       On October 22, 2004, President Bush signed the American Jobs Creation Act of 2004 (the "Jobs Act") into law. The Jobs Act includes provisions that, based on our level of profitability, may materially affect the Company's accounting for income taxes including a possible increase in its effective tax rate and changes in its deferred assets and liabilities. The Company is currently assessing the impact of the Jobs Act based on further clarification of the Jobs Act.

       Discontinued Operations. On February 6, 2004, we entered into the Stren Asset Purchase Agreement pursuant to which we sold to the Purchasers certain specific assets relating to our fishing line business, effective as of February 9, 2004. The fishing line business had been a part of the All Other reporting segment.

       The purchase price paid to us, based on the fair market value of the assets sold, was $44.0 million in cash. The assets sold had a net book value of approximately $17.9 million and we retained net working capital of $1.7 million of accounts receivable and accounts payable. The net gain that was recorded during the first quarter of 2004 on the disposal of discontinued operations is $13.6 million, net of income taxes.

       The following represents a summary of key components of income from discontinued operations:

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Year Ended December 31, 2003 as Compared to Year Ended December 31, 2002

        Net Sales.    The following table compares sales by reporting segment for each of the years ended December 31, 2003 and 2002:

        Management believes that the decline in consolidated sales was attributable to several factors primarily including but not limited to general economic weakness combined with soft consumer demand across most product categories, customer inventory reductions, and harsh weather on the East Coast of the U.S. during the first half of 2003.

        The decrease in Firearms net sales from 2002 to 2003 is primarily due to lower sales volumes in centerfire rifles and shotguns, slightly offset by an increase in sales volumes of rimfire rifles and price increases of $1.5 million.

        The decrease in Ammunition net sales from 2002 to 2003 is primarily attributable to lower sales volumes in all ammunition categories.

        The decrease in net sales in the All Other segment, including accessories, targets, and powdered metal products, from 2002 to 2003 is primarily attributable to lower overall sales volumes in all product lines, especially accessories (primarily gun safes and gun parts).

         Cost of Goods Sold.    The table below depicts the cost of goods sold by reporting segment for the years ended December 31, 2003 and 2002:

        The decrease in cost of goods sold for firearms from 2002 to 2003 is primarily due to lower overall sales volumes of centerfire rifles and shotguns. As a percentage of sales, the increase in cost of goods sold is primarily due to lower sales volumes of high margin products, combined with higher pension and post retirement employee benefits expenses, recognition of unfavorable manufacturing variances of $1.8 million caused by manufacturing inefficiencies, and unplanned shutdown expenses of $2.8 million, partially offset by lower inventory reserves and a reduction of scrap costs at our Ilion, New York firearms plant of $1.7 million. The shutdowns were taken in 2003 in an effort to manage inventory levels and working capital.

        The decrease in cost of goods sold for ammunition from 2002 to 2003 is due to lower overall sales volumes of ammunition. As a percentage of sales, the increase in the cost of goods sold is primarily due to lower sales volumes of high margin products, higher pension and post retirement employee benefits expenses, combined with unplanned shutdown expenses of $1.0 million at our Lonoke, Arkansas ammunition plant and a reduction in favorable manufacturing variances of $3.9 million, (which includes approximately $1.3 million less of favorable variances due to increased commodity pricing as compared to 2002,) and inefficiencies caused by lower production levels. The shutdowns were taken in 2003 in an effort to manage inventory levels and working capital.

        The decrease in the cost of goods sold for the all other segment from 2002 to 2003 is primarily due to lower sales volumes of accessories (primarily gun safes and gun parts). As a percentage of sales, the increase in the cost of goods sold is

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         primarily due to lower sales volumes of higher margin accessories products and inefficiencies in the manufacture of powdered metal products.

        Operating Expenses.    Operating expenses consist of selling, general and administrative expense, research and development expense and other expense.

        The increase in selling, general, and administrative expenses between the two periods was primarily attributable to increased expenditures for product liability of $3.6 million and higher marketing expenses combined with a reduction in licensing income of $0.6 million, offset by lower incentive compensation expense of $3.9 million. Research and development expenses were $6.1 million in 2003, unchanged from 2002 and are related to testing and development of existing and new products.

        The increase in other expenses was primarily due to other unusual charges incurred in connection with the first quarter 2003 recapitalization transactions, which includes $4.5 million related to the acceleration and subsequent cancellation of options to purchase common stock of Holding, $0.7 million of additional interest expense representing a call premium for early redemption of the Refinanced Notes, and $1.5 million expensed for unamortized debt issuance costs related to the Old Credit Facility, partially offset by the special payment of $1.8 million that occurred in 2002.

        Interest Expense.     Interest expense in 2003 was $24.8 million, an increase of $12.5 million, or 101.6%, from $12.3 million in 2002. Interest expense includes $1.8 million in both 2003 and 2002 that was reclassified to discontinued operations. The increase in interest expense was primarily the result of $10.1 million resulting from higher overall borrowings and $1.9 million related to higher interest rates on the Notes as compared to the Refinanced Notes.

        Taxes.     The Company's effective tax rate is (39.5%). The Company has finalized its examination by the Internal Revenue Service for tax years 2000 and 2001 and the outcome of the examination did not have a significant impact on the financial position, results of operations or cash flows of the Company.

Recent Accounting Pronouncements

        In May 2004, the FASB issued Financial Staff Position (FSP) SFAS No. 106-2 "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" (the "Act"), which is effective as of the first interim period beginning after June 15, 2004. On December 8, 2003, President Bush signed the Act into law, which introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to that provided under the Act. FSP SFAS No. 106-2 supersedes FSP FAS 106-1, and clarifies accounting guidance for the Act's subsidy provisions given to health care plan sponsors who provide specified levels of postretirement healthcare benefits. We have adopted the Act and the Act had no material impact on our consolidated financial condition and consolidated results of operations.

        In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 ("SFAS 151"). This Statement clarifies the types of costs that should be expensed rather than capitalized as inventory. SFAS 151 clarifies the circumstances under which fixed overhead costs associated with operating facilities involved in inventory processing should be capitalized. The provisions of SFAS 151 are effective for fiscal years beginning after June 15, 2005 and we expect to adopt this standard in fiscal 2006. We have not determined the impact, if any, that this statement will have on our consolidated financial statements.

        In November 2004, the FASB issued Financial Staff Position (FSP) SFAS No. 109-1 "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" ("FSP 109-1"). FSP 109-1 requires that any tax deductions received from the Jobs Act associated with "qualified production activities income" should be treated as a special deduction in the Company's SFAS 109

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calculation. The Jobs Act and its related deductions are not effective for the Company until fiscal 2005. We have adopted FSP 109-1 as of December 31, 2004.

        In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 ("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, Accounting for Nonmonetary Transactions ("APB 29"), and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005 and we will adopt this standard in fiscal 2006. We have not determined the impact, if any, that this statement will have on our consolidated financial statements.

        In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R, Share-Based Payment ("SFAS 123R"). This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. This statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005 and we will adopt the standard in the third quarter of 2005. We have not determined the impact, if any, that this statement will have on our consolidated financial statements.

Critical Accounting Policies and Estimates

        Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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 findings 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 when goods are shipped, at which time risk of loss and title transfers to the customer. We continually evaluate our sales terms against criteria outlined in SEC Staff Accounting Bulletin 104, Revenue Recognition, which supercedes SAB 101, Revenue Recognition in Financial Statements. We follow the industry practice of selling 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. Discounts are offered for early payment under this plan. We believe that allowing extended payment terms for early orders helps to level out the demand for these otherwise seasonal products throughout the year. Historically, use of the dating plan has had the effect of shifting some firearms sales from the second and third quarters to the first quarter. We believe that the dating plan helps facilitate a more efficient manufacturing schedule. As a competitive measure, we also offer extended terms on select ammunition purchases. However, use of the dating plans also results in significant 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.

        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 units of

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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 lives of the assets. The estimated useful lives are principally 20 to 40 years for buildings and improvements, and 5 to 15 years for machinery and equipment. In accordance with Statement of Financial Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long—Lived Assets (“SFAS 144”), management assesses property, plant and equipment for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, management projects undiscounted future cash flows resulting from the use of the asset over the remaining life of the asset. If these projected cash flows are less than the carrying amount of the asset, an impairment loss is recognized, resulting in a write–down of property, plant and equipment with a corresponding charge to operating income. Any impairment loss is measured based upon the difference between the carrying amount of the asset and the present value of future cash flows. The Company uses a discount rate equal to its average cost of funds to discount the expected future cash flows.

        Maintenance and repairs are charged to operations; 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 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.

         Goodwill, Goodwill Impairmant, Intangible Assets and Debt Issuance Costs. Prior to January 1, 2002, intangibles consisting primarily of goodwill, trade names and trademarks, were amortized on a straight–line basis over their estimated useful lives of 40 years. The Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) on January 1, 2002 and has accounted for its goodwill, intangible assets, and debt issuances costs pursuant to SFAS 142 since that time. Accordingly, management assesses goodwill for impairment whenever facts and circumstances indicate that the carrying amount may not be fully recoverable. To analyze recoverability, management projects undiscounted future cash flows resulting from the use of the asset associated with the identified reporting unit. If these projected cash flows are less than the carrying amount of the goodwill, an impairment loss is recognized, resulting in a write–down of goodwill with a corresponding charge to operating income. The impairment loss is measured based upon the difference between the carrying amount of the goodwill and the present value of future cash flows. The Company uses a discount rate equal to its average cost of funds to discount the expected future cash flows. Debt issuance costs are amortized over the life of the related debt or amendment.

        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 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.

        Warranty accrual.     We provide consumer warranties against manufacturing defects in all firearm products we sell in North America. Estimated future warranty costs are accrued at the time of sale, using the percentage of actual historical repairs to shipments for the same period, which is included in other accrued liabilities. Product modifications or corrections are voluntary steps taken 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 Statement of Financial Accounting Standard No. 5, Accounting for Contingencies, and charged to operations.

        Employee Benefit Plans.     We have defined benefit plans that cover a significant portion of our salaried and hourly paid employees. For the year ended December 31, 2004, we had $12.0 million of net pension benefit expense derived from our defined benefit plans. We derive pension benefit expense from an actuarial calculation based on the defined benefit plans' provisions and management's assumptions regarding discount rate, rate of increase in compensation levels 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. We note that in 2004 we had returns on Plan assets of approximately 8% as compared to an assumption of 8%. Management sets the discount rate based on the yield of high quality fixed income investments expected to be available in the future when cash flows are paid. The rate of increase in compensation levels is established based on management's expectations of current and foreseeable future increases in compensation. In addition,

management also consults with independent actuaries in determining these assumptions. At year end December 31, 2004, we had an additional minimum liability with respect to our defined benefit plans. See Note 11 for more information on our employee benefit plans.

        Self-Insurance.     We are self-insured for elements of our employee benefit plans including, among others, medical, workers' compensation and elements of our property and liability insurance programs, but limit our 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.

        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 independent advisors to assist in analyzing the adequacy of such reserves.

        Income Taxes.     Income tax expense is based on pretax financial accounting income. The Company recognizes deferred tax assets and liabilites based on the difference between the financial reporting and tax bases of assets and liabilities, applying tax rates applicable to the year in which the differences are expected to reverse, in conjunction with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”). A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be realized. Because the Company files its income taxes in a consolidated tax return with Holding, the cash taxes paid or received supplemental cash flow disclosure reflects the total impact of any cash taxes paid or received on behalf of Holding.

        Unconsolidated Joint Venture.     Our unconsolidated joint venture is accounted for under the equity method of accounting in accordance with Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock ("APB 18"). Equity method accounting was determined based upon the provisions of FASB Interpretation No. 46R, Consolidation of Variable Interest Entities (revised December 2003) - an interpretation of ARB No. 51 ("FIN 46R"), as the joint venture is a variable interest entity for which the Company was not the primary beneficiary. Accordingly, the Company recognizes an investment on its statement of financial position at the carrying value of the Company's cumulative cash contributions to the joint venture, adjusted for the Company's cumulative equity in earnings (loss) (recorded in the "Other Noncurrent Assets" line), and the Company's 50% share of the joint venture's equity in earnings (loss), or operating results, are recorded net of tax in the statement of operations (recorded in the "Equity in Earnings (Loss) from Unconsolidated Joint Venture, net of tax" line).

Information Concerning Forward-Looking Statements

        The statements contained in this report (other than our consolidated financial statements and other statements of historical fact) are forward-looking statements, including, without limitation (i) the statement in "Business--Market Trends" that we believe that hunting safety issues may affect sales of firearms, ammunition and other shooting-related products; (ii) the statement in "Business--Regulation" that we believe that the current trend, or the consumer perception thereof, toward firearms regulatory proposals and municipal handgun litigation could adversely affect the firearms and ammunition market; (iii) the statement in "Business--Supply of Raw Materials" that we believe we have a good relationship with our vendors and do not currently anticipate material shortages or disruptions in supply from these vendors; (iv) the statement in "Business-- Supply of Raw Materials" that we believe we have a good relationship with our stamped parts supplier and do not currently anticipate any material shortages or disruption in supply of these stamped parts; (v) the statement in "Business--Environmental Matters" concerning our belief that current environmental regulations or the outcome of any governmental proceedings and orders pertaining to environmental compliance will not have a material adverse effect on our business; (vi) other statements as to management's or our expectations and beliefs presented in "Business;" (vii) the statement in "--Recent Developments and highlights" that current and continuing trends are not expected to have a material adverse effect upon our financial condition, results of operations or cash flows, (viii) the statement in "--Liquidity and Capital Resources--Capital Expenditures" that we anticipate year 2005 capital expenditures of $9.0 million to $11.0 million; (ix) the statements in "--Liquidity and Capital Resources--Overview" concerning our belief that it will be able to meet its debt service obligations and fund its operating requirements with cash flow from operations and revolving credit borrowings prior to the maturity of the Working Capital Facility and; (x) the statements in "--Product Liability" concerning (a) our belief that product liability cases and claims involving occurrences arising prior to the Acquisition are not likely to have a material adverse effect upon our financial condition or results or operations, (b) our belief that the outcome of all pending product liability cases and claims will not have a material adverse effect upon our financial condition or result of operations and (c) management's estimates concerning our claims relating to occurrences arising during 2004, 2003 and 2002 and the time period during which the amount of our self insured retention will be paid out; (xi) the statement in "Quantitative and Qualitative Disclosures About

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Market Risk" that we believe that a significant changes in commodity pricing could have a material adverse impact on our consolidated financial position, results of operations, future earnings, fair value or cash flows (xii) other statements as to management's or our expectations and beliefs presented in this "Management's Discussion and Analysis of Financial Condition and Results of Operations;" (xiii) the statements in "Legal Proceedings" concerning (a) our belief that the Company's current product liability insurance coverage for personal injury and property damage is adequate for its needs, (b) our belief that although we anticipate that we will continue to be involved in product liability cases and claims in the future, the outcome of all pending product liability cases and claims will not be likely to have a material adverse effect upon our financial conditions or results of operations and (c) our anticipation that we, as well as other manufacturers of firearm or ammunition products, will continue to be involved in product liability cases and claims in the future and (xiv) other statements as to management's or our expectations and beliefs presented in "Legal Proceedings."

        Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects upon us. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on us will be those anticipated by management. The following important factors, and those important factors described elsewhere in this report (including, without limitation, those discussed in "Business--Firearms", "--Ammunition", "--Marketing and Distribution," "--Patents and Trademarks" and "--Environmental Matters" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Executive Overview," "--Taxes," "--Liquidity and Capital Resources," "--Product Liability," and "Legal Proceedings"), or in our other Securities and Exchange Commission filings, 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.

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        While we periodically reassess material trends and uncertainties affecting the operations and financial condition in connection with its preparation of Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our quarterly and annual reports we do not intend to review or revise any particular forward-looking statement referenced in this report in light of future events.

Product Liability

        For information concerning product liability cases and claims involving us, see "Business--Legal Proceedings". Because our assumption of financial responsibility for certain product liability cases and claims involving pre-Acquisition occurrences was limited to an amount that has now been fully paid, with the Sellers retaining liability in excess of that amount and indemnifying us in respect thereof, and because of the passage of time, we believe that product liability cases and claims involving occurrences arising prior to the Acquisition are not likely to have a material adverse effect upon our financial condition, results of operations, or cash flows. See "Business--Certain Indemnities".

        While it is difficult to forecast the outcome of litigation, we do not believe, in light of relevant circumstances (including the current availability of insurance for personal injury and property damage with respect to cases and claims involving occurrences arising after the Acquisition, our accruals for the uninsured costs of such cases and claims and the Sellers' agreement to bear partial responsibility for certain post-Acquisition shotgun-related product liability costs, as well as the type of firearms products we make), that the outcome of all pending product liability cases and claims will be likely to have a material adverse effect upon our financial condition, results of operations, or cash flows. However, in part because of the uncertainty as to the nature and extent of manufacturer responsibility for product liability allegations, especially as to firearms, as well as the potential nature of firearms-related injuries, there can be no assurance that our resources will be adequate to cover both pending and future product liability occurrences, cases or claims, in the aggregate, or that such a material adverse effect will not result therefrom. Because of the nature of our products, we anticipate that we will continue to be involved in product liability cases and claims in the future.

        Since December 1, 1993, we have maintained insurance coverage for product liability claims for personal injury or property damage relating to occurrences after the Acquisition, subject to certain self-insured retentions on a per-occurrence basis. The current insurance policy extends through November 30, 2005. Certain of our current excess insurance coverage expressly excludes actions brought by municipalities as described in "Business--Legal Proceedings". We paid $2.8 million, $3.2 million, and $4.4 million in legal fees and settlements in connection with product liability cases and claims in the years ended December 31, 2004, 2003 and 2002, respectively, excluding insurance costs. At December 31, 2004, our accrual for product liability cases and claims was $13.4 million. The amount of our accrual for product liability cases and claims is based upon estimates developed as follows. We establish reserves for anticipated defense and disposition costs to us of 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 and unasserted cases and claims to determine the amount of our accrual for product liability cases and claims. It is reasonably possible that future claims experience could result in further increases or decreases in the reporting period in which such information becomes available. We believe that our accruals for losses relating to such cases and claims are adequate. Our 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 Acquisition, our accruals for the uninsured costs of such cases and claims and the Sellers' agreement to be responsible for a portion of certain post-Acquisition shotgun-related product liability costs,

as well as the type of firearms products that we make), we do not believe with respect to product liability cases and claims that any reasonably possible loss exceeding amounts already recognized through our accruals has been incurred.

        Because our assumption of financial responsibility for certain product liability cases and claims involving pre-Acquisition occurrences was limited to an amount that has now been fully paid, with the Sellers retaining liability in excess of that amount and indemnifying us in respect of such liabilities, and because of our accruals with respect to such cases and claims, we believe that product liability cases and claims involving occurrences arising prior to the Acquisition are not likely to have a material adverse effect upon our financial condition, results of operations, or cash flows. Moreover, although it is difficult to forecast the outcome of litigation, we do not believe, in light of relevant circumstances (including the current availability of insurance for personal injury and property damage with respect to cases and claims involving occurrences arising after the Acquisition, our accruals for the uninsured costs of such cases and claims and the Sellers' agreement to be responsible for a portion of certain post-Acquisition shotgun-related product liability costs, as well as the type of firearms products that we make), that the outcome of all pending post-Acquisition product liability 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 occurrences, 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 therefrom. Because of the nature of our products, we anticipate that we will continue to be involved in product liability 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, and insurance costs associated with such cases and claims, may cause us to incur significant costs.

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to market risk in the normal course of our business operations due to our purchases of certain commodities and our ongoing investing and financing activities. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. We have established policies and procedures governing our management of market risks and the use of financial instruments to manage exposure to such risks.

        Certain of our financial instruments are subject to interest rate risk. As of December 31, 2004, we had long-term borrowings of $202.9 million ($230.0 million at December 31, 2003 and $100.1 million at December 31, 2002) of which $1.8 million ($28.3 million at December 31, 2003 and $11.0 million at December 31, 2002) was issued at variable rates. Assuming no changes in the $19.2 million of monthly average variable-rate debt levels from year-end 2004, we estimate that a hypothetical change of 100 basis points in the LIBOR and ABR interest rates from year-end 2003 would impact interest expense by $0.2 million on an annualized pretax basis. We were not a party to any interest rate cap or other protection arrangements with respect to our variable rate indebtedness as of December 31, 2004, 2003, or 2002.

        The estimated value of our debt at December 31, 2004 was $187.5 million compared to a carrying value of $203.5 million. The estimated value and carrying value of our debt at December 31, 2003 was $240.5 million and $230.5 million, respectively. All fixed rate indebtedness was valued based on current market quotes. All variable rate indebtedness is assumed at market.

        We use commodity options contracts to hedge against the risk of increased prices for lead and copper to be used in the manufacture of our products. The amounts of premiums paid for commodity contracts outstanding at December 31, 2004, 2003, and 2002 were $1.1 million, $0.7 million, and $0.6 million, respectively. At December 31, 2004, 2003 and 2002, the market value of our outstanding contracts relating to firm commitments and anticipated purchases up to one year from the respective date was $3.3 million, $2.8 million, and $0.2 million, respectively, as determined with the assistance of a third party. Assuming a hypothetical 10% increase in lead and copper commodity prices which are currently hedged, we would experience an approximate $3.1 million ($1.9 million at December 31, 2003) increase in our cost of related inventory purchased, which would be partially offset by an approximate $1.7 million ($1.5 million at December 31, 2003) increase in the value of related hedging instruments. The increase in exposure as compared to the prior year can be associated with higher premiums paid, higher overall strike prices on the Company's hedging contracts, and changes in percentage hedged due to fluctuating production levels. With the volatility of pricing the Company has experienced, we believe that significant changes in commodity pricing could have a future material impact on our consolidated financial position, results of operations, or cash flows of the Company.

        We also purchase steel supplies for use in the manufacture of certain firearms, ammunition, and accessory products. The price of steel has recently risen due to the increasing demand from China compounded by a weak US dollar and iron ore shortages. Assuming a hypothetical 10% increase in steel prices, we would experience an approximate $0.6 million (an approximate $0.6 million at December 31, 2003) increase in our cost of related inventory purchased.

        We believe that we do not have a material exposure to fluctuations in foreign currencies.

        We do not hold or issue financial instruments for speculative purposes.

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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
of Remington Arms Company, Inc. and Subsidiaries:

In our opinion, the consolidated financial statements listed in the index appearing in Item 15 (a) (1) present fairly, in all material respects, the financial position of Remington Arms Company, Inc. and its subsidiaries at December 31, 2004 and December 31, 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing in Item 15 (a) (2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. 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 of these statements 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. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 8 to the consolidated financial statements, the Company changed its accounting policy for goodwill amortization in 2002.

/s/ PricewaterhouseCoopers LLP
Greensboro, North Carolina
March 11, 2005

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

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

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