Freedom Group, the parent of Remington Arms, earned $1.7 million in the third quarter ended Sept. 30, against a loss of $600,000 a year ago. Revenues were down 4.6 percent to $198.0 million from $207.6 million.

The company also owns Barnes Bullets, E-RPC, RA Brands, Outdoor Services, Advanced Armament Corp., a 75 percent interest in Mountain Khakis, an 84 percent interest in EOTAC, and a 27.13 percent interest in INTC USA.

Net sales


  • Firearms: Net sales for the three months ended Sept. 30, were $105.6 million, an increase of $1.0 million, or 1.0 percent, as compared to the three months ended Sept. 30, 2010, primarily due to increased sales of centerfire rifles of $7.7 million, handguns of $2.2 million, rimfire rifles of $2.2 million, and other firearm products of $0.9 million. The increases were the result of increased demand in the market place for centerfire products, as well as volumes associated with our new handgun introduction. These increases were primarily offset by decreased sales of shotguns of $7.3 million, primarily due to production timing, as well as higher consumer discounts of approximately $4.7 million.
    Ammunition: Net sales were $82.3 million, a decrease of $13.0 million, or 13.6 percent, as compared to the three months ended Sept. 30, 2010, primarily due to decreased sales of premium centerfire ammunition of $4.2 million, components and other products of $4.0 million, shotshell ammunition of $3.6 million, and rimfire ammunition of $1.2 million. The decreases were primarily the result of consumers purchasing value products in lieu of premium products, as well as production timing of certain shotshell ammunition.
  • All Other: Net sales were $10.1 million in all other businesses, an increase of $2.4 million, or 31.2 percent, as compared to the prior year period due to higher sales volumes in our accessories and apparel businesses.

Cost of Goods Sold and Gross Profit

Total gross profit reached $155.6 million, or 27.6 percent of sales, down from $179.0 million, or 31.9 percent.



  • Firearms: Gross profit for the three months ended Sept. 30, 2011 was $30.8 million, an increase of $1.1 million, or 3.7 percent, as compared to the prior-year period. Gross margin was 29.2 percent for the three months ended Sept. 30, and 28.4 percent for the three months ended September 30, 2010. The increase in gross profit was primarily due to lower costs associated with transitioning and restructuring than what we incurred in the three months ended Sept. 30, 2010 of $3.0 million, as well as favorable pricing on certain product lines of $1.1 million. The increase in gross profit was partially offset by higher consumer discounts of approximately $2.8 million, and higher pension costs of $100,000.
  • Ammunition: Gross profit for the three months ended Sept. 30 was $20.1 million, a decrease of $8.1 million, or 28.7 percent, as compared to the prior-year period. Gross margin was 24.4 percent for the three months ended Sept. 30, 2011 and 29.6 percent for the three months ended Sept. 30, 2010. The decrease in gross profit was primarily related to an unfavorable sales mix of $5.9 million as a result of a softening in sales of certain premium ammunition products, higher material and other costs of $6.9 million, lower hedging gains of $0.9 million resulting from higher acquisition costs of contracts and higher strike prices, higher pension costs of $0.2 million, partially offset by favorable pricing of $3.2 million and lower discounts of $2.6 million.
  • All Other: Gross profit was $4.3 million, an increase of $1.5 million, or 53.6 percent, as compared to the prior-year period and was primarily related to increased sales demand in our higher margin accessories and apparel businesses.

Operating Expenses

Total operating expenses for the three months ended Sept. 30 were $36.7 million, a decrease of $9.0 million, or 19.7 percent, as compared to the prior-year period.


Selling, general and administrative expenses decreased $8.4 million, or 21.4 percent, primarily due to a decrease in salaries, benefits, incentive compensation and travel expense of $5.6 million, a decrease in marketing and selling expenses of $0.9 million, a decrease in charitable contributions expense of $800,000, a decrease in commissions expense of $500,000 and a decrease in legal expense of $400,000, as the company continued to focus on cost saving opportunities in order to be a more efficient organization.

 

Research and development expenses decreased $600,000, or 16.7 percent, as compared to the prior-year period, primarily due to higher expenses in the third quarter of 2010 as the company prepared for more significant product offerings for defense competitions and its new commercial launches that were not experienced in the third quarter of 2011.

 

Other expenses increased $700,000 as compared to the prior-year period, primarily due to a $1.9 million loss on extinguishment of debt as a result of the redemption of $27.5 million of our outstanding Opco Notes in July 2011, partially offset by decreased amortization on definite-lived intangible assets of $500,000, as well as decreased bank fees and lower losses on the disposal of assets.



  • Firearms: Adjusted EBITDA in our firearms segment increased $1.2 million, or 7.0 percent, for the three months ended September 30, 2011, primarily due to increased sales of our higher margin centerfire products and handguns.
  • Ammunition: Adjusted EBITDA in our ammunition segment decreased $6.1 million, or 33.3 percent, for the three months ended September 30, 2011, primarily due to an unfavorable sales mix as the result of a softening in sales of certain premium ammunition products, as well as higher material costs.
  • All Other: Adjusted EBITDA in all other businesses increased $0.8 million, or 34.8 percent, for the three months ended September 30, 2011, primarily due to higher sales volume.

Interest Expense

Interest expense was $16.3 million and $15.6 million for the three months ended September 30, 2011 and 2010, respectively. The $700,000 increase in interest expense over the prior year period was primarily due to $1.5 million of higher interest expense related to the PIK Notes, partially offset by $500,000 of lower interest related to the Opco Notes and $300,000 of lower debt acquisition costs expense. The increase in the PIK Notes interest expense was due to an additional 200 basis points of interest accrued during the third quarter of 2011 as a result of LTM Adjusted EBITDA falling below $115.0 million at the end of the first quarter of 2011. The decrease in the Opco Notes interest expense was the result of the redemption of $27.5 million of our outstanding Opco Notes in July 2011. Interest expense on the ABL Revolver was less than $100,000 for the three months ended Sept. 30, relatively flat compared to the three months ended Sept. 30, 2010.