Re: | Colt Defense LLC and Colt Finance Corp. Amendment No. 1 to Registration Statement on Form S-4 Filed February 11, 2011 File No. 333-171547 |
I. | Please refer to comment three in our letter dated February 1, 2011. Please file the supplemental letter on the EDGAR system. |
II. | We have read your response to comment eight in our letter dated February 1, 2011. Please expand your discussion of the status of your contracts and sales of the M4 carbine and related products to provide specific, quantified information to enable an investor to see through the eyes of management and understand the potential impact of the expired contract and other events on future operations, expected trends, and differences between reported historical operating results and expectations for the future. It appears, at a minimum, a quantification of the amount of sales of the M4 carbine under the expired contracts, through foreign military sales, and through other contract vehicles during the reporting periods would be necessary to facilitate such an understanding. |
I. | Please provide us with a comprehensive discussion of your Industrial Cooperation Agreements, explaining the material terms, conditions, and quantitative information necessary for an understanding of your obligations, including: |
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IV. | We reissue comment 12 in our letter dated February 1, 2011. Please revise to provide information pursuant to Item 401(e) of Regulation S-K. Briefly discuss the specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director for the registrant at the time that the disclosure is made, in light of your business and structure. |
V. | We note your response to comment 13 in our letter dated February 1, 2011. In your next amendment, please update the Item 402 information to include compensation information for your last completed fiscal year. See Item 402(a)(3) of Regulation S-K. Please also file any employment agreement with Mr. Flaherty as an exhibit to the registration statement. See Item 601(b)(10)(iii)(A) of Regulation S-K. |
VI. | We reissue comment 16 in our letter dated February 1, 2011. Please revise to state that you will issue the new notes promptly after expiration rather than after acceptance. See Securities Exchange Act of 1934 Rule 14e-1(c). |
VII. | We reissue comment 21 in our dated February 1, 2011. Please remove the disclaimer in the first sentence of the third paragraph of this subsection. |
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VIII. | Please update your financial statements pursuant to Rule 3-12 of Regulation S-X. |
IX. | Please tell us the amount of the warranty reserve as of December 31, 2008, 2009, and September 30, 2010, associated with the specific warranty issue and the amount relieved in the fourth quarter of 2010. Given the insignificant amount of warranty repairs in the three years presented, it is not clear from your response how your estimate of warranty expense is based on past experience. |
December 31, | October 3, | |||||||||||||||
2010 | 2009 | 2008 | 2009 | |||||||||||||
Total warranty reserve |
$ | 116 | $ | 527 | $ | 572 | $ | 192 | ||||||||
Warranty reserve associated with Rapid Mat |
| (433 | ) | (456 | ) | (78 | ) | |||||||||
(discontinued operations) |
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Warranty reserve continuing operations |
$ | 116 | $ | 94 | $ | 116 | $ | 114 | ||||||||
The table presented above shows the composition of our warranty reserve between one specific claim at Rapid Mat and the accrual we estimate for the remaining portion our business. | |||
The specific warranty accrual for Rapid Mat was based on a dispute with a customer, whereby management believed that a potential shipment of an entire replacement product order would be required due to a unique product defect. The estimated cost of such product was $456, later revised to $433. The related defect was identified by the customer after a period of use and although the product provided the intended functionality, it was not fully consistent with the specifications. During the dispute period various forms of replacement or settlement methods were discussed. During 2010, the customer agreed that a replacement of the entire product was not required and as such the Company reduced the related accrual to the revised estimated settlement amount as of October 3, 2010. In the Companys 2010 fourth quarter, the dispute was settled and no additional accrual was required. | |||
Excluding the above specific Rapid-Mat warranty claim, the company has historically experienced a relatively low level of warranty costs during the contractual warranty provision. However, the Company does still incur post sale warranty costs which the company accrues for at the time of sale. The provisions for estimated expenses related to product warranties are based on our twelve-month |
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historical sales taking into consideration the nature, frequency and average cost of historical warranty claims. In addition for our warranty accrual, we consider our current production environment, specific and identifiable warranty events (or lack thereof) and managements judgment to determine managements estimate for the warranty provision. | |||
As of December 31, 2010, we had a total warranty reserve of $116 or less than 1% of our annual revenues. This reserve level has been relatively consistent in each of the periods presented as the remaining reserve in the table above. Given our revenues, our historical experience related to warranty cost and the materiality of our reserve balance, we believe our reserves estimates are reasonably stated. |
X. | We have read your response to comment 23 in our letter dated February 1, 2011. Please amend your filing to disclose cash paid for interest and income taxes during the interim periods. Refer to ASC 230-10-50-2. Rule 10-01(a)(5) discusses the omission of footnote disclosure that substantially duplicates disclosure in the latest annual financial statements. However, it does not appear the requested disclosure would represent such duplication. For example, the cash paid for interest could be useful disclosure for investors, given the issuance of the senior notes and repayment of existing debt in November 2009. |
XI. | We note that you have a number of exhibits that you plan to file by amendment, including the legal opinions, employment agreements and letter of transmittal. Please file these exhibits with your next amendment. |
Sincerely, |
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/s/ Gerald R. Dinkel | ||||
Gerald R. Dinkel | ||||
Chief Executive Officer and Manager | ||||
cc: | Jeffrey Grody Cynthia McNickle William J. Miller, Esq. (Via facsimile 212/378-2500) Cahill Gordon & Reindel llp 80 Pine Street New York, New York 10005 |
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