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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the fiscal year ended December 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number 333-07429
Remington Products Company, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 06-1451076
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
60 Main Street, Bridgeport, Connecticut 06604
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 367-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of Each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
11% Series B Senior Subordinated Notes due 2006
(Title of Class)
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 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. [X]
PART I
ITEM 1. Business
General
Remington Products Company, L.L.C. (the "Company" or "Remington") is a
leading developer and marketer of electrical personal care appliances. The
Company designs and distributes electric shavers, personal care and wellness
appliances, electrical grooming products, and other small electrical consumer
appliances.
The Company is a Delaware limited liability company that will continue in
existence until December 31, 2016 or dissolution prior thereto as determined
under the Company's Amended and Restated Limited Liability Company Agreement
(the "LLC Agreement"). The Company was formed by Vestar Shaver Corp. and RPI
Corp. ("RPI") to acquire the operations of Remington Products Company and its
subsidiaries in May of 1996. Vestar Razor Corp. was formed in May of 1996 to
hold an interest in the Company. Vestar Shaver Corp. and Vestar Razor Corp.
(together, the "Vestar Members") are wholly owned by Vestar Equity Partners,
L.P. ("Vestar"), an institutional equity capital fund and affiliate of Vestar
Capital Partners ("Vestar Capital").
Description of Business
The Company distributes electrical personal care appliances through its
three operating segments which are comprised of 1) the North America segment,
which sells product through mass-merchant retailers, department stores and drug
store chains throughout the United States and Canada, 2) the International
segment, which sells product through an international network of subsidiaries
and distributors, and 3) the U.S. Service Stores segment consisting of
Company-owned and operated service stores throughout the United States.
Products
The Company's principal products consist of the following:
Electric Shavers. The Company's primary men's electric shaver line consists
of the MicroScreen(R) line of single, dual and triple foil shavers and the
MicroFlex((TM)) line of rotary shavers. In addition, the Company also has the
Intercept(R) line of premium shavers and certain specialty shavers such as the
"Wet/Dry Sport" shaver. The women's electric shaver category primarily includes
the women's Smooth & Silky(R) wet/dry shavers and the women's wet/dry battery
operated shaver. The Company distributes electric shaver accessories consisting
of shaver replacement parts (primarily foils and cutters), preshave products and
cleaning agents. Electric shavers and shaver accessories accounted for
approximately 37%, 39% and 36% of the Company's net sales for the years ended
December 31, 1999, 1998 and 1997, respectively.
Personal Care and Wellness Appliances. Personal care and wellness
appliances primarily consist of haircare products and Remington's Spa Therapy
Collection(TM). The hair care products consist of hair dryers, hairsetters,
curling irons, hot air brushes and lighted mirrors. The hair dryer category
includes the Company's Vortex(TM) hair dryers with a patented airflow system,
and a line of Pro Air(TM) chrome dryers. The Company's hairsetter products
include the Remington Express Set(R) hairsetter, the Smart Setter(R) hairsetter,
which incorporates proprietary technologies of color change and wax core, and
the Style Setter(R). The Spa Therapy Collection(TM) includes paraffin wax hand
spas, foot spas, massaging bath pillows, facial steamers and manicure kits.
Personal care and wellness appliances accounted for approximately 30%, 28% and
33% of the Company's net sales for the years ended December 31, 1999, 1998 and
1997, respectively.
Grooming Products. Grooming products consist of the Precision (TM) line,
including beard and mustache trimmers, nose hair and ear hair trimmers, and the
new personal groomers, which offer a selection of grooming accessories. In
addition, the Company sells a line of home haircut kits. Total grooming products
accounted for approximately 11%, 10% and 9% of the Company's net sales for the
years ended December 31, 1999, 1998 and 1997, respectively.
Other Products. Remington sells a variety of Remington and non-Remington
brand electrical personal care appliances through the Company's service stores,
and also distributes other small appliances such as vacuums.
Distribution
The Company's products are sold in the United States and internationally in
over 85 countries through mass merchandisers, catalog showrooms, drug store
chains and department stores in addition to the Company's 118 service stores.
In the United States, the Company sells products through mass-merchant
retailers such as Wal-Mart, K-Mart and Target, department stores such as Sears,
drug store chains including Walgreens, Rite Aid and Eckerd, and Remington's own
service stores. Throughout the United States, the Company's products are sold in
excess of 10,000 retail outlets. In addition, the Company markets and
distributes its products through television direct to consumer retailing with
QVC and the Home Shopping Network and internet retailers such as drugstore.com
as well as the Company's own website, remington-products.com.
On a worldwide basis, Wal-Mart accounted for approximately 19%, 19% and 15%
of the Company's net sales during the years ended December 31, 1999, 1998 and
1997, respectively. No other customer accounted for more than 10% of the
Company's net sales in the three year period ended December 31, 1999.
U.S. Service Stores
As of December 31, 1999, the Company owned and operated a chain of 94
service stores in the United States. During 1999, the Company opened eight new
service stores and closed a total of 18
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stores of which ten were shaver shops located within the California based Fedco
chain which went out of business in August 1999. The stores are in many of the
major markets with the majority of the stores located in shopping malls and
outlet malls. The stores sell and service a variety of Remington and
non-Remington shavers, personal care appliances and other related products. The
service stores also oversee sales of replacement parts to approximately 300
independent authorized shaver service dealers across the United States. In 1999,
1998 and 1997 the Company's U.S. service stores segment generated approximately
14%, 16% and 16%, respectively, of the Company's net sales.
Suppliers
All of the Company's finished goods inventories are manufactured for the
Company by third party suppliers primarily located in China, Japan and Austria.
The Company maintains ownership of tools and molds used by many of its
suppliers. The Company's two most significant suppliers, Izumi Products, Inc.
("Izumi") and Raymond Industrial Ltd. ("Raymond"), accounted for approximately
40% of the Company's overall cost of sales in 1999. Remington has had a
relationship with these suppliers for many years and management considers its
present relationships to be good.
During 1998, the Company ceased the assembly of foil shavers in Bridgeport,
Connecticut and moved the operation to Raymond. The shutdown of the assembly
operation resulted in the elimination of approximately 220 positions in the
Bridgeport facility. Remington continues to manufacture foil cutting systems in
Bridgeport using proprietary cutting technology and a series of specially
designed machines.
Research and Product Development
The Company believes that research and development activities are an
important part of the Company's business and are essential to its long-term
prospects. Research and development efforts at Remington allow the Company to
maintain its unique manufacturing strength in cutting systems for shavers. The
Company is continuously pursuing new innovations for its line of shavers
including foil improvements and new cutting and trimmer configurations. The
Company also devotes resources to the development of new technology for personal
care, grooming and wellness products.
During 1999, 1998 and 1997, research and development expenditures by the
Company amounted to approximately $4.0, $4.3 and $3.4 million, respectively.
Patents and Trademarks
The Company owns approximately 180 patent and patent applications for both
design and utility that are maintained in approximately 40 countries. The
Company's patents primarily cover electric shavers, cutting and trimming
mechanisms and personal care appliances. In addition, the Company maintains over
1,300 different trademarks around the world, which are utilized in connection
with a variety of products.
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As a result of the common origins of the Company and Remington Arms
Company, Inc. ("Remington Arms"), the Remington mark is owned by each company
with respect to its principal products as well as associated products. Thus, the
Company owns the Remington mark for shavers, shaver accessories, grooming
products and personal care products, while Remington Arms owns the mark for
firearms, sporting goods and products for industrial use, including industrial
hand tools. The terms of a 1986 agreement between the Company and Remington Arms
provides for their respective rights to use the Remington trademark on products,
which are not considered "principal products of interest" for either company. A
separate company, Remington Licensing Corporation, owns the Remington trademark
in the U.S. with respect to any overlapping uses and the Company and Remington
Arms are each licensed to use the trademarks owned by Remington Licensing
Corporation in their respective areas of interest. The Company retains the
Remington trademark for nearly all products, which it believes can benefit from
the use of the brand name in the Company's distribution channels. The Company
has aggressively enforced its ownership of the "Remington" brand name and will
continue to do so in the future.
Competition
The markets for all of its product lines are highly competitive.
Competition for retail sales to consumers is based on several factors, including
brand name recognition, value, quality, price and availability. Primary
competitive factors with respect to selling such products to retailers are brand
reputation, product categories offered, broad coverage within each product
category, support and service in addition to price.
Remington competes with established companies, such as Philips Electronics,
N.V. ("Philips"), several of which have substantially greater resources than
those of the Company. There are no substantial regulatory barriers to entry for
new competitors in the electric personal appliance industry. However, suppliers
that are able to maintain, or increase, the amount of retail shelf space
allocated to their respective products may gain a competitive advantage. The
Company believes that the allocation of space by retailers is influenced by many
factors, including brand name recognition by consumers, product quality and
prices, service levels provided by the supplier and the supplier's ability to
support promotions.
The rotary shaver market is significant outside the United States. The
future expansion of sales of the Company's rotary shavers outside the United
States will be affected by, among other factors, the outcome of ongoing legal
actions between the Company and Philips with respect to trademarks and designs
registered by Philips outside the United States. See Item 3. Legal Proceedings.
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Employees
As of March 1, 2000, the Company employed approximately 850 people
worldwide of which approximately 125 were employed part-time in the Company's
service stores. None of the Company's employees are represented by a union.
Remington believes relations with its employees are good.
Environmental Matters
The Company's manufacturing operations in Bridgeport, Connecticut are
subject to federal, state and local environmental laws and regulations. The
Company believes it is in substantial compliance with all such environmental
laws, which are applicable to its operations. The Company has reported to the
Connecticut Department of Environmental Protection (the "CTDEP") that it has
detected petroleum and solvent compounds in soil and ground water samples taken
from its Bridgeport facility. The general remedial strategies have been selected
and those strategies, which require CTDEP approval, have been submitted for
approval. All other strategies do not require approval for implementation. In
addition to its ongoing program of environmental compliance, the Company has
provided reserves to cover the anticipated costs of the remediation required at
its Bridgeport facility to be incurred over the next three to five years. The
Company believes that any required change to the reserves due to the inherent
uncertainties as to the ultimate costs for the remediation activities which are
eventually undertaken would not be material to the Company's financial position
and results of operations.
International Operations and Distribution
Remington's international segment generated approximately 36%, 36% and 39%
of the Company's net sales in 1999, 1998 and 1997, respectively. The Company's
international network of subsidiaries and distributors currently extends to over
85 countries worldwide. The Company distributes its products through direct
sales forces located in the United Kingdom, Australia, Germany, France, New
Zealand, South Africa, Sweden, Ireland and Italy. In all other parts of the
world the Company distributes its products through strategic alliances with
local distributors.
The Company distributes products internationally through department stores,
catalog showrooms, mass merchandisers, drug stores, specialized shaver shops and
mail order distributors as well as the Company's 12 service stores in the United
Kingdom and 12 service stores in Australia.
Additional financial information relating to Remington's international
operations is set forth in Note 14 (Business Segment and Geographic Information)
of the "Notes to Consolidated Financial Statements" of the Company appearing
elsewhere herein.
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ITEM 2. Properties
The following table sets forth information as of March 1, 2000 concerning
the principal facilities of the Company.
Facility Function Square Feet
Bridgeport, CT Headquarters (Owned) 40,000
Bridgeport, CT Manufacturing (Owned) 167,000
In addition to these properties, Remington leases offices and warehouse
space in the United States, Canada, United Kingdom, Germany, France, Italy,
Australia, New Zealand, South Africa, Ireland, Sweden and Hong Kong, and 118
service stores, of which 94 are in the United States, 12 are in the United
Kingdom and 12 are in Australia. Leases for service stores generally extend up
to five years and typically include renewal options. The majority of the leases
contain escalation clauses, which provide for increases to recover future
increases in certain operating costs. Certain leases require additional payments
based on sales volume.
ITEM 3. Legal Proceedings
On December 5, 1995, Philips filed suit in the High Court of Justice in the
United Kingdom against Remington in a suit captioned Philips Electronic NV and
Remington Consumer Products Limited. The suit alleged infringement by the
Company in connection with the sale in the United Kingdom of its RR 55 rotary
shaver of: (a) Philips U.K. Registered Design 1,058,245 (the "Registered
Design"); (b) Philips U.K. Registered Trademark No. 1,254,208 (the "Registered
Trademark"); and (c) Philips "well-known" Trademark under Article 6 of the Paris
Convention. In the litigation, Philips sought injunctive relief, delivery up or
destruction of the allegedly infringing articles, damages or lost profits, and
other relief. The Company counterclaimed for revocation of each of the
Registered Design and the Registered Trademark. On December 17, 1997, the High
Court held that: (a) the Registered Design was not infringed; (b) the Registered
Trademark was not infringed and was invalid, with the court ordering that the
registration of the Registered Trademark be revoked; and (c) the three-headed
shape of the Philips shaver did not constitute a "famous mark" within the terms
of the Paris Convention.
Philips appealed the decision of the High Court with respect to the
Trademark and "famous mark" issues to the Court of Appeal of the United Kingdom.
On May 5, 1999, the Court of Appeal, in a "provisional view," upheld the
decision of the High Court that there was no infringement by Remington of the
Registered Trademark and that the Registered Trademark was invalid. The Court of
Appeal held that the issue between the parties raised difficult questions of
construction of the Trademark Directive of the European Community (the
"Directive") and referred seven questions relating to the construction of the
Directive to the European Court of Justice for its opinion. The opinion of the
European Court of Justice is expected in the fourth quarter of 2000 or early
2001. This opinion will be forwarded to the Court of Appeal of the U.K., which
will in turn bring its provisional judgment of May 5, 1999 into line with that
opinion. The
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Company has been advised by counsel that the European Court of Justice is likely
to follow the provisional view of the Court of Appeal, however no assurance can
be given in this regard.
On February 15, 2000, Philips commenced a second action against Remington
in the High Court of Justice of the United Kingdom in a suit captioned)
Koninklijke Philips Electronics NV and Remington Consumer Products Limited. The
second suit alleges that the Remington Microflex R850 shaver infringes Philips'
U.K. Registered Trademark No. 1,533,452 in Class 8. Philips seeks injunctive
relief, delivery up or destruction of the allegedly infringing articles,
damages, and other relief. This second case differs from the first action
described above only in that it involves a registered trademark which differs
from the Registered Trademark at issue in the prior action in a very minor way.
The Company believes that the issues are the same in both actions and the
outcome of the second action will ultimately be determined based on the outcome
of the first action. The Company intends to file an answer and counterclaim in
the second action.
On August 15, 1997, Philips filed suit in the Australian Federal Court, New
South Wales District Registry, in a suit captioned Philips Electronics N.V. et
al. and Remington Products Australia PTY Limited. The suit alleged that, in
selling its RR 55 rotary shaver in Australia, the Company: (a) infringed Philips
trademark; (b) infringed registered designs of Philips; (c) engaged in
misleading and deceptive conduct; and (d) committed the tort of "passing off."
The Company counterclaimed and sought a declaration from the Court that Philips'
pending trademark application was not registerable and an Order directing that
the pending trademark application be removed from the appropriate Register and
that the two registered designs in issue be removed from the appropriate
Register. On June 18, 1999, the Australian Federal Court held that: (a) there
was no trademark infringement; (b) there was no obvious or fraudulent imitation
of either of Philips registered designs; (c) there was no misleading or
deceptive conduct by Remington; and (d) Remington had not engaged in "passing
off." In response to Remington's cross-claim, the Court declined to declare that
the Philips pending trademark registration was invalid or to require that
Philips registered design or pending trademark registration be removed from the
appropriate Registers.
Philips appealed all of the findings of the Australian Federal Court, which
appeal was heard on February 28 and 29, and March 1, 2000. Judgment is expected
in the third quarter of 2000.
The costs of pursuing the litigation in the U.K. and Australia are, in most
circumstances, shared with Izumi, the Company's supplier of rotary shavers.
Izumi is also pursuing an action in Sweden against Philips over similar issues
to those being litigated in the U.K. and Australian actions.
The Company has commenced opposition proceedings with respect to Philips'
efforts to register the shape of the head assembly of its triple-head rotary
shaver in the United Kingdom and Ireland. The determination of the U.K.
opposition proceeding has been stayed pending the finalization of the
provisional judgment of the U.K. Court of Appeal.
If the foregoing litigations in the U.K., Australia and Sweden are
ultimately determined adversely to the Company and Izumi, respectively, the
Company's ability to sell its rotary shaver products in those countries could be
limited or prohibited. In 1999, the Company's sales of rotary
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shavers in the U.K. and Australia were not material.
The Company is a party to other lawsuits and administrative proceedings,
which arise in the ordinary course of business. Although the final results of
such suits and proceedings cannot be predicted, the Company presently believes
that any liability that may ultimately result will not have a material adverse
effect on the Company's financial position and results of operations.
ITEM 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote of securities holders during the fourth
quarter of 1999.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
The Company's capital structure consists of common units (the "Common
Units"), which represent the common equity of the Company, and preferred
members' equity (the "Preferred Equity", together, the "Equity"). There is no
established public trading market for the Equity.
(b) Holders
As of March 1, 2000, there were two beneficial owners of the Equity.
(c) Dividends
No cash distributions have been paid with respect to the Equity since its
inception in May 1996. In addition, the Company's long-term debt arrangements,
which are discussed in Note 6 of the "Notes to Consolidated Financial
Statements", significantly restrict the payment of dividends.
(d) Recent Sales of Unregistered Securities
None.
ITEM 6. Selected Financial Data
The following table summarizes selected financial information and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and
accompanying notes thereto appearing elsewhere herein (in thousands):
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Successor Predecessor(1)
------------------------------------------------------------- -------------------------
Year Year Year 31 Weeks 21 Weeks Year
Ended Ended Ended Ended Ended Ended
December 31, December 31, December 31, December 31, May 23, December 31,
1999 1998 1997 1996 1996 1995
------------ ------------ ------------ ------------ ------- ------------
Statement of Operations Data:
Net sales $ 318,766 $ 268,357 $ 241,572 $ 185,286 $ 56,713 $ 255,323
Operating income (loss) 29,120 6,016(2) 14,146 12,508 (16,951) 26,516
Interest expense 21,723 20,499 19,318 12,164 2,228 7,604
Net income (loss) (4) 6,035 (15,337) (7,923) (3,172) (18,191) 17,240
Depreciation and amortization 5,555 5,169 4,767 2,379 2,005 4,938
Balance Sheet Data (at period end):
Working capital $ 85,053 $ 68,294 $ 76,361 $ 77,860 N/A $ 47,223
Total assets 223,990 195,727 205,245 214,823 N/A 170,922
Total debt 195,841 187,668 181,240 171,631 N/A 56,990
Cumulative Preferred Dividend (3) 32,921 22,336 12,932 4,576
- ----------
(1) Represents financial data of RPC, the "predecessor" company, prior to May
23, 1996.
(2) Includes non-recurring charges related to restructuring and reorganization
activities of $9.6 million.
(3) Dividend payments are subject to restrictions by the terms of the Company's
debt agreements. See Note 6 of the "Notes to Consolidated Financial
Statements."
(4) Due to the fact that the Company is a limited liability company ("L.L.C.")
federal income taxes on net earnings of the Company are payable directly by
the members pursuant to the Internal Revenue Code. Accordingly, no
provision has been made for federal income taxes for the Company. However,
certain state and local jurisdictions do not recognize L.L.C. status for
taxing purposes and require taxes to be paid on net earnings. Furthermore,
earnings of certain foreign operations are taxable under local statutes.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the Company's consolidated statements of
operations, including net sales by its North American, U.S. service stores, and
International operating segments, as well as the Company's consolidated results
of operations expressed as a percentage of net sales for the years ended
December 31, 1999, 1998 and 1997. The discussion should be read in connection
with the Consolidated Financial Statements and accompanying notes thereto
appearing elsewhere herein.
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1999 1998 1997
-------------------- ------------------------ ---------------------
Net Sales: $ % $ % $ %
------ ------ ------ ------ ------ ------
North America $158.3 49.7 $130.4 48.6 $107.8 44.6
International 116.1 36.4 95.6 35.6 95.2 39.4
U.S. service stores 44.4 13.9 42.4 15.8 38.6 16.0
------ ------ ------ ------ ------ ------
318.8 100.0 268.4 100.0 241.6 100.0
Cost of sales 176.3 55.3 159.2(1) 59.3 141.3 58.5
------ ------ ------ ------ ------ ------
Gross profit 142.5 44.7 109.2 40.7 100.3 41.5
Selling, general and
administrative 111.4 34.9 94.4 35.2 84.3 34.9
Restructuring and
reorganization charge -- -- 6.8 2.5 -- --
Intangible amortization 2.0 0.6 2.0 0.7 1.9 0.8
------ ------ ------ ------ ------ ------
Operating income 29.1 9.2 6.0 2.3 14.1 5.8
Interest expense 21.7 6.8 20.5 7.6 19.3 8.0
Other expense 0.2 0.1 0.4 0.2 0.5 0.2
------ ------ ------ ------ ------ ------
Income (loss) before
income taxes 7.2 2.3 (14.9) (5.5) (5.7) (2.4)
Provision for income taxes 1.2 0.4 0.4 0.2 2.2 0.9
------ ------ ------ ------ ------ ------
Net income (loss) $ 6.0 1.9% $(15.3) (5.7)% $ (7.9) (3.3)%
====== ====== ====== ====== ====== ======
(1) Includes a $2.8 million charge for inventory write-downs related to
restructuring and reorganization activities.
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998
Net Sales. Net sales for the year ended December 31, 1999 increased 19% to
$318.8 million compared to $268.4 million for the year ended December 31, 1998.
Each operating segment experienced sales increases with sales growth occurring
throughout the major product lines. Increases in shavers and accessories was
largely due to the introduction of new products. The grooming category increased
due to new product introductions in 1998 of the men's Precision(TM) line of
beard and mustache trimmers as well as the introduction of the personal groomer
in 1999. Personal care sales increased on the strength of new hair dryers, and
sales of wellness products increased on new product introductions, such as the
paraffin wax hand spa.
Net sales in North America were $158.3 million for the year ended December
31, 1999, an increase of 21% over the prior year. This increase is due to the
introduction of new products in the United States and Canada.
Net sales for the international business increased 21% to $116.1 million in
1999 compared to $95.6 million in 1998. Increases were noted in all major
countries, particularly the United Kingdom, Australia and Germany. Net sales in
1999 were negatively impacted by unfavorable exchange rates compared to 1998 by
approximately $2.4 million, primarily in the U.K. and Germany
Net sales by the Company's U.S. service stores were $44.4 million for the
year ended December 31, 1999 compared to $42.4 million in 1998, despite a
decrease in the number of stores. During 1999, the Company closed a net of ten
stores, bringing the total number of U.S. stores to 94 at December 31, 1999.
Among the stores closed were ten service stores located within the California
based Fedco chain
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which were closed in August 1999 in conjunction with the sale of the Fedco
chain. Same store sales increased 4% from 1998 to 1999. Same store sales are
defined as all stores operating for twelve months in 1999 and in 1998 except the
ten Fedco stores which includes the first eight months of 1999 and the
comparable eight months of 1998.
Gross Profit. Gross profit increased to $142.5 million, or 44.7% of net
sales for the year ended 1999, from $109.2 million, or 40.7% of net sales for
the year ended 1998. Included in 1998 cost of sales is a $2.8 million
non-recurring charge related to the restructuring of the Company's Connecticut
shaver assembly operations. Excluding this charge, 1998 gross profit percentage
would have been 41.7%. The percentage increase over 1998 is due to cost savings
from the 1998 move of the subassembly operations from Bridgeport, CT to a third
party supplier located in China. In addition, changes in product mix to higher
margin products also contributed to the increase.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $111.4 million for the year ended December 31, 1999,
compared to $94.4 million for the year ended December 31, 1998, as investments
in advertising, promotion and product development continued and as distribution
increased primarily as a result of higher volume. Selling, general and
administrative expenses, as a percentage of net sales, decreased to 34.9% in
1999 compared to 35.2% in 1998.
Operating Income. Operating income for the year ended December 31, 1999
increased to $29.1 million compared to $15.6 million (excluding $9.6 million of
non-recurring charges related to the 1998 restructure) for the year ended
December 31, 1998. The increased sales in 1999 over 1998 of $50.4 million
coupled with the increased gross profit percentage achieved were the primary
reasons for the increase.
Interest Expense. Interest expense increased to $21.7 million in 1999
compared to $20.5 million in 1998 as a result of higher average borrowings in
1999.
Provision for Income Taxes. The provision for income taxes was $1.2 million
in 1999 compared to $0.4 million in 1998 and relates to the Company's foreign
operations. The increase is due to the increased profitability over the prior
year.
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Net Sales. Net sales for the year ended December 31, 1998 were $268.4
million compared to $241.6 million for the previous year, an increase of 11.1%
primarily as a result of strong sales in the United States.
Net sales in North America increased 21.0% from $107.8 million for the year
ended December 31, 1997 to $130.4 million in 1998. This increase was primarily
related to increased sales of men's and women's shavers. Demand increased for
men's shavers as a result of the introductions of the updated line of the
Microscreen(R)3 shaver and the Intercept(R) shaver line in the first quarter of
1998 and the MicroFlex((TM)) rotary line in the fourth quarter. Sales of women's
shavers increased as a result of demand for the wet/dry Dual Foil shaver,
although this was not a new product. Additionally, sales of hair dryers and
grooming products were positively impacted by the introduction of new hair
dryers and the new Precision((TM)) line of beard & mustache trimmers in 1998.
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Net sales for the international businesses on a combined basis remained
flat from 1997 to 1998. Increased sales in the United Kingdom were offset by
decreases in Australia and the international export business due to slowing
economies, particularly in Asia and negative currency impacts.
Net sales by the Company's U.S. service stores increased 9.8% to $42.4
million in 1998 from $38.6 million in 1997. This increase was primarily
attributable to the opening of a net of 10 additional stores and one temporary
store for a total of 104 stores open during the holiday shopping season.
Additionally, same store sales increased 2.3% from 1997 to 1998.
Gross Profit. Gross profit of $109.2 million in 1998, or 40.7% of net
sales, decreased as a percentage of sales from 41.5% in 1997. Excluding the $2.8
million non-recurring charge to 1998 cost of sales related to the restructuring
of the Company's Connecticut shaver assembly operations, the gross profit
percentage actually increased slightly to 41.7% of net sales. The gross profit
percentages in the United States increased by more than two percentage points in
1998, excluding the non-recurring charge. The increase was primarily due to a
combination of lower costs and improved product mix, as well as lower product
returns. The gross profit percentage for the international businesses declined
by almost three percentage points in 1998. The decline was primarily
attributable to decreases in Australia and the international export markets, due
to weak economies and negative currency impacts on cost of sales as inventory
purchases are made in U.S. dollars.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $94.4 million, or 35.2% of net sales for calendar year
1998 compared to $84.3 million, or 34.9% of net sales in 1997 as a result of
several factors. In 1998, the Company increased its investment in advertising
and promotion and continued to invest in marketing and new product development.
The Company continued to invest in its retail service stores and opened a net
total of 14 stores worldwide. Distribution expenses in 1998 increased as the
Company transitioned from its Connecticut warehouse to a third party warehouse
in California. Additionally, the Company increased its provision for bad debt,
due to the financial difficulties of one of the large U.S. mass merchandisers.
Restructuring and Reorganization Charge. In the second quarter of 1998, the
Company announced a plan to restructure its Connecticut shaver assembly and
warehousing operations ("the Plan"). The Plan consisted of relocating the shaver
assembly operations to an existing Remington third party supplier located in
China and relocating the warehousing function to a third party provider in
California. Savings of approximately $6.0 million annually will accrue from
these changes of which $3.0 million was realized in 1998, with an additional
$2.0 million anticipated for 1999 and the full benefit being realized by the
year 2000. The Plan resulted in affecting the employment of approximately 235
employees located at the Company's two Connecticut facilities, the majority of
which were factory employees. During 1998, the Company recorded total
non-recurring charges of $9.6 million related to the Plan, of which $2.8 million
was charged to cost of sales for inventory write-downs associated with the Plan
and $6.8 million was charged to restructuring and reorganization. Included in
the restructuring charge are items such as severance and other employee costs,
lease obligations and write-offs of certain equipment and tooling.
-13-
Operating Income. Operating income decreased to $6.0 million, or 2.3% of
net sales in 1998 compared to $14.1 million or 5.8% in 1997. This decrease was
the direct result of the $9.6 million of non-recurring charges recorded in 1998
related to the restructuring and reorganization. Excluding the non-recurring
charges, operating income was $15.6 million, or 5.8% of net sales.
Interest Expense. Interest expense increased to $20.5 million in 1998
compared to $19.3 million in 1997 as a result of higher average borrowings in
1998.
Provision for Income Taxes. The provision for income taxes was $0.4 million
in 1998 compared to $2.2 million in 1997 and relates to the Company's foreign
operations.
Liquidity and Capital Resources
For the year ended December 31, 1999, the Company provided approximately
$2.0 million in cash from operating activities, compared to cash used of $3.1
million in 1998. The increase in cash flow in 1999 is the result of increased
profitability and the timing of cash disbursements, which was partially offset
by the higher receivable and inventory levels necessary as a result of the
Company's growth.
The Company's operations are not capital intensive. During 1999 and 1998,
the Company's capital expenditures, including tooling for new products, amounted
to $3.5 million and $3.9 million, respectively. Capital expenditures for 2000
are anticipated to be approximately $3.8 million.
During 1999, the Company's total borrowings increased by $8.0 million. Cash
increased by $5.6 million over 1998, thereby increasing net borrowings by $2.4
million, excluding currency impacts.
The Company's primary sources of liquidity are funds generated from
operations and borrowings available pursuant to the Senior Credit Agreement. The
Senior Credit Agreement provides for $70 million in Revolving Credit Facilities,
$10 million in Term Loans and $15 million in Supplemental Loans. The Term Loans
are repayable quarterly through March 31, 2002. Borrowings under the
Supplemental Loans and the Revolving Credit Facilities mature on June 30, 2001
and 2002, respectively. The Company believes that cash generated from operations
and borrowing resources will be adequate to permit the Company to meet both its
debt service requirements and capital requirements for the next twelve months,
although no assurance can be given in this regard.
Market Risk Disclosure
The Company is exposed to market risks, which include changes in interest
rates as well as changes in currency exchange rates as measured against the U.S.
dollar. The Company attempts to reduce the currency exchange risks by utilizing
financial instruments, primarily foreign currency forward contracts. The Company
uses derivative financial instruments only for risk management purposes and does
not use them for speculation or for trading. The Company has elected to disclose
its interest rate risk and foreign currency risk, as outlined below, utilizing a
sensitivity analysis approach based on
-14-
hypothetical changes in foreign exchange rates and interest rates. Certain items
such as lease contracts and obligations for pension were not included in the
analysis.
Interest Rate Risk. The Company's debt portfolio is comprised of fixed rate
debt primarily consisting of $130 million of Senior Subordinated Notes and
approximately $66 million of variable rate debt primarily borrowings under the
Senior Credit Agreement. For further details, refer to Note 6, of the "Notes to
Consolidated Financial Statements" of the Company appearing elsewhere herein.
The Company is exposed to interest rate risk as a result of its fixed rate
notes and its variable rate debt and any cash holdings. Interest rate changes
would result in gains or losses in the market value of the Company's fixed rate
debt due to differences between the current market interest rates and the rates
governing these instruments. With respect to the Company's financial instruments
referred to above, a ten percent change in interest rates would have no material
effect on fair values, cash flows or earnings of the Company in either 1999 or
1998.
Foreign Currency Risk. Foreign currency risk is managed by the use of
foreign currency forward contracts. The use of these contracts allows the
Company to manage its exposure to exchange rate fluctuations because the gains
or losses incurred on the derivative instruments will offset in whole, or in
part, losses or gains on the underlying foreign currency exposure. The Company's
principal currency exposures are in British pounds, Australian and Canadian
dollars and German marks.
Foreign currency contracts are sensitive to changes in foreign exchange
rates. Due primarily to the relatively short maturities of these contracts, a
ten percent change in the foreign currency exchange rates against the U.S.
dollar, with all other variables held constant, would have no material effect on
the fair value of these foreign currency financial instruments in either 1999 or
1998.
Seasonality
Sales of the Company's products are highly seasonal, with a large
percentage of net sales occurring during the Christmas selling season. The
Company typically derives more than 40% of its annual net sales in the fourth
quarter of each year. As a result of this seasonality, the Company's inventory
and working capital needs fluctuate substantially during the year. In addition,
Christmas orders from retailers are often made late in the year, making
forecasting of production schedules and inventory purchases difficult. Any
adverse change in the Company's results of operations in the fourth quarter
would have a material adverse effect on the Company's financial condition and
results of operations.
Inflation
In recent years, inflation has not had a material impact upon the results
of the Company's operations.
Year 2000 Compliance
The Year 2000 date problem arises from the fact that many computer programs
use only two digits to identify a year in a date field. The Company's key
financial and operational systems were reviewed in 1999, and the majority of the
systems did not require modifications. All required modifications have been
completed and the costs incurred were not material. In addition, the Company
contacted its major customers and financial institutions and received assurances
of Year 2000 compliance from a number of those contacted.
-15-
As of March 1, 2000, the Company, its suppliers and customers have not
experienced any significant business disruption as a result of the Year 2000
problem. Although Year 2000 problems may not become evident until long after
January 1, 2000, based on the Company's Year 2000 readiness process and
experience to date, the Company does not expect any significant Year 2000
related business disruptions in the future.
EURO Conversion
On January 1, 1999, eleven of fifteen member countries of the European
Union entered a three year transition phase during which one common legal
currency (the "euro") was introduced. Beginning in January 2002, new
euro-denominated bills and coins will be issued, and local currencies will be
removed from circulation. Although the Company's international businesses
affected by the euro conversion comprise approximately 6% of the Company's net
sales for the year ended December 31, 1999, the Company has addressed the issues
raised by the euro currency conversion. These issues include, among others, the
need to adapt computer and financial systems and business processes to
accommodate euro-denominated transactions and the impact of one common currency
on pricing. Management believes the introduction of the euro has had no
significant impact to date on financial position, results of operations and cash
flows and is not expected to have a significant impact in the future. Management
will continue to monitor this impact.
Forward Looking Statements
This Management's Discussion and Analysis may contain forward-looking
statements which include assumptions about future market conditions, operations
and results. These statements are based on current expectations and are subject
to risks and uncertainties. They are made pursuant to safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Among the many factors
that could cause actual results to differ materially from any forward-looking
statements are the success of new product introductions and promotions, changes
in the competitive environment for the Company's product, changes in economic
conditions, foreign exchange risk, outcome of litigation, and other factors
discussed in prior Securities and Exchange Commission filings by the Company.
The Company assumes no obligation to update these forward-looking statements or
advise of changes in the assumptions on which they were based.
ITEM 8. Financial Statements and Supplementary Data
The Company's financial statements and supplementary data are included
elsewhere herein as outlined on page F-1.
-16-
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers.
The following table sets forth certain information as of March 1, 2000 with
respect to each executive officer of the Company and individuals who are
directors on the Remington Management Committee.
Name Age Positions and Offices
- ---- --- ---------------------
Neil P. DeFeo 53 Chief Executive Officer, President and Director
Joel K. Bedol 48 Vice President, General Counsel and Secretary
Wilan van den Berg 38 Executive Vice President International
Ann T. Buivid 47 President, U.S. Personal Care and Wellness Division
Alexander R. Castaldi 49 Executive Vice President, Chief Financial and
Administrative Officer
Lawrence D. Handler 54 President, Remington Service Stores
Lester C. Lee 40 President, U.S. Shaver and Grooming Division
Timothy G. Simmone 34 Vice President, Chief Technical Officer
Victor K. Kiam, II 73 Chairman and Director
Norman W. Alpert 41 Director
William B. Connell 59 Director
Victor K. Kiam, III 40 Director
Kevin A. Mundt 46 Director
Arthur J. Nagle 61 Director
Daniel S. O'Connell 45 Director
Robert L. Rosner 40 Director
Neil P. DeFeo has been Chief Executive Officer, President and a Director of
the Company since January 1997. From 1993 to 1996, Mr. DeFeo was Group Vice
President, U.S. Operations for The Clorox Company. For 25 years prior to 1993,
Mr. DeFeo worked for Procter & Gamble in various executive positions, including
Vice President and Managing Director, Worldwide Strategic Planning, Laundry and
Cleaning Products. Mr. DeFeo is a director of Cluett American Investment
Corporation, a Company in which Vestar or its affiliates has a significant
equity interest and Driscoll's Strawberry Association, Inc.
Joel K. Bedol was appointed Vice President, General Counsel and Secretary
of Remington in January 2000. From 1993 to 1999, Mr. Bedol was Executive Vice
President, General Counsel and Secretary for Nine West Group, Inc.
-17-
Wilan van den Berg has been Executive Vice President International since
September 1998. From 1995 to 1998 he was President and Chief Executive Officer
of Payer Electric Shaver and from 1987 until 1995, he was with the Philips
International Domestic Appliances and Personal Care division of Philips
Electronics N.V. in various sales and marketing positions, including Sales and
Marketing Director for Philips France.
Ann T. Buivid was appointed to President, U.S. Personal Care and Wellness
Division in January 2000. Ms. Buivid previously held the position of Vice
President Worldwide Marketing and New Business Development since September 1998.
From 1995 to 1998, Ms. Buivid was Vice President, North American Marketing and
New Business Development, for the Household Products Group of Black & Decker
Inc. and from 1993 to 1995, she was Vice President of Marketing for the
Beverages Category of Campbell Soup Company.
Alexander R. Castaldi was appointed to Executive Vice President, Chief
Financial and Administrative Officer of the Company in January 2000. Previously,
Mr. Castaldi held the title Executive Vice President and Chief Financial Officer
since November 1996. From 1995 to 1996, Mr Castaldi was Vice President and Chief
Financial Officer of Uniroyal Chemical and from 1990 to 1995, he was Senior Vice
President and Chief Financial Officer of Kendall International, Inc.
Lawrence D. Handler has been President, Remington Service Stores, since
June 1996 and was Vice President and Chief Financial Officer of the Service
Stores from January 1995 when he joined the Company until June 1996.
Lester C. Lee was appointed to President, U.S. Shavers and Grooming
Division in January 2000. Previously, Mr. Lee held the position of Senior Vice
President Sales and Integrated Logistics of the Company since July 1997. From
1995 until 1997, he was with Pacific Bell Mobile Services, a Division of Pacific
Telesis, most recently as Vice President of Sales, and from 1989 until 1995, he
was with Norelco Consumer Products Company in various sales positions, including
Director of Sales, Western Division.
Timothy G. Simmone has been Vice President, Chief Technical Officer of the
Company since June 1997. From 1988 until 1997, he was with The Stanley Works
Corporation in various engineering position, most recently as Vice President,
Product Development of the Stanley Fastening Systems Division.
Victor K. Kiam, II has served as Chairman since 1979 and served as Chief
Executive Officer of the Company from 1979 to 1996. Mr. Kiam is the Chairman of
RPI Corp., Chairman of the Board of Ronson P.L.C. and a director of CT Holdings,
Inc.
Norman W. Alpert has been a Director of Remington since May 1996. Mr.
Alpert is a Managing Director of Vestar Capital and was a founding partner at
its inception in 1988. Mr. Alpert is Chairman of the Board of Directors of Aearo
Corporation and Advanced Organics Holdings, Inc., and a director of
Russell-Stanley Holdings, Inc., Cluett American Investment Corporation and
Siegelgale Holdings, Inc., all companies in which Vestar or its affiliates have
a significant equity interest.
-18-
William B. Connell has been a Director of Remington since 1990. Mr. Connell
is currently Chairman of EBD Holdings, Inc., a private venture capital group.
Mr. Connell previously served as Vice Chairman of Whittle Communications, L.P.
from 1992 to 1994 and served as its President and Chief Operating Officer from
1990 to 1992. In addition to Remington, Mr. Connell is currently a director of
Dolphin Software, Inc., and Digital Discoveries, Inc.
Victor K. Kiam, III has been a Director of Remington since 1992. Mr Kiam
has been President of RPI Corp. since 1999 and previously served as Executive
Vice President of RPI Corp. since 1996. He was with the Company from 1986 until
1996 in a variety of positions in manufacturing, sales and marketing, including
Vice President Corporate Development. He is the son of Victor K. Kiam, II.
Kevin A. Mundt has been a Director of Remington since 1997. Mr. Mundt is
Vice President, Group Business Head of Mercer Management Consulting since 1997
and was co-founder and Managing Director of Corporate Decisions, Inc. since its
inception in 1983 until its merger with Mercer Management Consulting in 1997.
Mr. Mundt is a director of Russell-Stanley Holdings, Inc. and Advanced Organics
Holdings, Inc., companies in which Vestar or its affiliates have a significant
equity interest and in Telephone and Data Systems, Inc.
Arthur J. Nagle has been a Director of Remington since May 1996. Mr. Nagle
is a Managing Director of Vestar Capital and was a founding partner at its
inception in 1988. Mr. Nagle is a director of Advanced Organics Holdings, Inc.,
Aearo Corporation, Russell-Stanley Holdings, Inc., and Gleason Corporation,
companies in which Vestar or its affiliates have a significant equity interest.
Daniel S. O'Connell has been a Director of Remington since May 1996. Mr.
O'Connell is founder and the Chief Executive Officer of Vestar Capital. Mr.
O'Connell is a director of Aearo Corporation, Cluett American Investment
Corporation, Insight Communications Company, L.P., Russell-Stanley Holdings,
Inc., Sheridan Healthcare Inc., Siegelgale Holdings, Inc. and St. John Knits,
Inc., all companies in which Vestar or its affiliates have a significant equity
interest.
Robert L. Rosner has been a Director of Remington since May 1996. Mr.
Rosner is a Managing Director of Vestar Capital and was a founding partner at
its inception in 1988. Mr. Rosner serves as Chairman of the Board of Directors
of Russell-Stanley Holdings, Inc., and is a director of Sheridan Healthcare,
Inc., companies in which Vestar or its affiliates have a significant equity
interest.
ITEM 11. Executive Compensation
Compensation of Executive Officers
The following Summary Compensation Table includes individual compensation
information during each of the three years ended December 31, 1999 for Company's
Chief Executive Officer and each of the next four most highly compensated
executive officers of the Company who were serving as executive officers of the
Company at the end of 1999 (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Company. The officers respective
titles are those in effect
-19-
as of December 31, 1999.
Annual Compensation (1)
------------------------------- All Other
Name and Principal Position Year Salary ($)(2) Bonus ($)(3) Compensation ($)(4)
- --------------------------- ---- ------------- ------------ -------------------
Neil P. DeFeo, CEO, President, and 1999 $431,635 $652,500 $ 2,767
Director 1998 400,000 300,000 2,569
1997 392,000 200,000 214,048(5)
Alexander R. Castaldi, Executive VP 1999 283,077 370,500 3,868
and CFO 1998 265,000 172,250 3,348
1997 265,000 132,000 3,189
Wilan van den Berg, Executive VP 1999 250,000 162,296 152,642(6)
International 1998 68,750 35,000 30,800(7)
Lester C. Lee, Sr. VP Sales and 1999 218,557 168,399 4,753
Integrated Logistics 1998 205,000 104,612 3,265
1997 96,981 79,229 71,621(7)
Ann T. Buivid, VP Worldwide Marketing 1999 200,000 157,500 4,598
1998 64,615 34,162 308
- ----------
(1) Does not include value of perquisites and other personal benefits for any
named executive officer since the aggregate amount of such compensation is
the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the named executive.
(2) Includes compensation earned during the year but deferred pursuant to the
Company's Deferred Compensation Plan.
(3) Bonus amounts shown are those accrued for and paid in or after the end of
the year and include amounts deferred pursuant to the Company's Deferred
Compensation Plan.
(4) The amounts shown consist of Company matching contributions to the
Company's 401(k) Plan unless otherwise noted.
(5) Includes relocation expenses in the amount of $211,635 and Company matching
contributions under the 401(k) Plan in the amount of $2,413.
(6) The amount consists of relocation expenses, housing allowance and car
allowance in the amounts of $111,642, $25,000 and $16,000, respectively.
(7) The amounts shown are relocation expenses.
Compensation of Directors
Messrs. William B. Connell and Kevin A. Mundt, Directors of the Company,
each receive annual compensation of $20,000 payable quarterly for services in
such capacity. No other Director of the Company receives any compensation for
services in such capacity. Each of the Directors of Remington are reimbursed for
out-of-pocket expenses incurred in connection with attending meetings.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Management Committee of Remington is
comprised of Messrs. Arthur J. Nagle, Robert L. Rosner and Victor K. Kiam, III.
None of these individuals is an officer of or is employed by the Company.
Other Arrangements
The Company has an employment agreement with Mr. DeFeo which provides for
his continued employment as President and Chief Executive Officer through
January 2000, which agreement by its
-20-
terms has automatically renewed for a period of two years, unless earlier
terminated. The agreement provides for a base salary of not less than $300,000,
plus a deferral of an additional $100,000, and an annual bonus not less than
$200,000 in the event the Company achieves 100% of the criteria established by
the Management Committee for such year. The agreement provides for Mr. DeFeo to
receive 18 months of salary continuation plus the annual bonus he would have
been entitled to if his employment is involuntarily terminated other than for
"cause " or if he resigns for "good reason", or 12 months of salary continuation
plus annual bonus in the event the agreement is not renewed by the Company. The
Company is also required to provide Mr. DeFeo with term life insurance in the
amount of not less than $500,000.
The Company has entered into an Executive Severance Agreement with Mr.
Castaldi, which provides for the payment of severance benefits to Mr. Castaldi
in the event of: (i) the termination of his employment by the Company without
cause (or by reason of disability); (ii) Mr. Castaldi's resignation for Good
Reason; (iii) any reduction in Mr. Castaldi's base salary; or (iv) any failure
by the Company to provide Mr. Castaldi with benefits in which he participated at
the inception of the agreement. For purposes of the agreement, "Good Reason" is
defined as the assignment to Mr. Castaldi of duties materially and adversely
inconsistent with those in effect at the inception of the agreement or the
occurrence of a "Change of Control" of the Company (defined as the acquisition
by non-affiliated persons of greater than 60% of the Common Units of the Company
or the common stock of a corporation controlling, or serving as successor to,
the Company. In any such event, Mr. Castaldi is entitled to receive his base
salary for a period of 12 months (the "Severance Term") following the
termination of his employment, continuing medical benefits during the Severance
Term and, to the extent permissible under the terms of applicable plans,
continuing life insurance and long-term disability benefits. All medical and
insurance benefits will cease in the event that Mr. Castaldi becomes employed on
a full-time basis prior to the expiration of the Severance Term. Mr. Castaldi is
also entitled to receive bonus payments in certain circumstances in connection
with the termination of his employment and in the event of a termination of
employment following a Change of Control.
The Company has entered into an employment agreement with Mr. van den Berg,
which provides for his continued employment as Executive Vice President -
International of the Company through September 20, 2000, unless earlier
terminated. The agreement provides for a base salary of $250,000 and a bonus to
be determined in accordance with the bonus plan of Remington Consumer Products
Ltd., a wholly-owned subsidiary of the Company. The agreement also provides for
Mr. van den Berg to receive a housing allowance of $50,000 per year. In the
event of the termination of Mr. van den Berg's employment without cause, he is
entitled to receive salary continuation based upon his then current base salary
for a period of 12 months from the date of termination.
The Company has entered into agreements with Mr. Lee and Ms. Buivid whereby
such employees would be entitled to salary continuation for 6 months if their
employment was involuntarily terminated other than for "cause" during the term
of the agreement.
Deferred Compensation Plan
The Company has a Deferred Compensation Plan pursuant to which eligible
executive employees
-21-
(including the Named Executive Officers, except for Mr. van den Berg) may elect
to defer all or a portion of the bonus otherwise payable under the Company's
Bonus Plan and up to 33% of their annual salary, and such amounts are placed
into a deferral account. The participants may select various mutual funds in
which all or a part of their deferral accounts shall be deemed to be invested.
Distributions from a participant's deferral accounts will be paid in a lump sum
or in equal annual installments over a period of up to 15 years beginning upon
their termination of employment, death or retirement. All amounts deferred by
the participants in the Plan are paid to a Deferred Compensation Plan Trust to
be held in order to fund the Company's obligations under the Deferred
Compensation Plan. The assets of the trust, however, are subject to the claims
of the creditors of the Company in the event the Company is Insolvent, as such
term is defined in the trust agreement.
Bonus Plan
The Company has an annual bonus plan (the "Bonus Plan") which is designed
to motivate each employee participant. Approximately 240 employees in the United
States and 125 employees in the international operations will participate in the
Bonus Plan in the year 2000. Under the Bonus Plan, each participating employee
is assigned a target bonus award, representing up to 85% of his or her annual
base salary that will be paid if predetermined performance goals are achieved.
Performance goals for the various areas of the Company are established annually
by the Compensation Committee of the Company.
Phantom Equity Program
The Company has a Phantom Equity Program under which a maximum of 21% of
the value of the Company's Equity can be awarded to selected officers and other
key employees of the Company and its affiliates. The Phantom Equity Program is
comprised of time based (consisting of 12 1/2% of the Equity), performance based
(6 1/2%) and super performance (2%) based awards. All awards grant to the
recipient a specified percentage of the Equity (the "applicable percentage").
A time based award vests in five equal annual installments, upon the sale
of the Company or upon an initial public offering of the Company's stock
("IPO"), whichever comes first. If the individual's employment with the Company
is terminated for any reason other than death or disability within three years
of the date of grant of the award, the award is automatically terminated. The
amount received under the award and how it is paid is based upon the event which
gave rise to the payment. If the payment is due to a Company sale, the
individual will receive the applicable percentage of the net amount available
for distribution for the outstanding Equity payable, at the Company's option, in
a lump sum upon the closing of the sale or in the same manner as the selling
shareholders. If the payment is due to an IPO, the payment is an amount equal to
the applicable percentage of the Equity implied in the public offering payable,
at the option of the Company, either entirely in cash or 40% in cash and the
remainder in Company stock. If the payment is due to termination of employment,
the participant receives the applicable percentage of the fair market value of
the Equity, determined by the Management Committee of the Company, payable at
the Company's option, in up to five equal annual installments or upon an IPO or
Company sale.
The performance and super performance based awards are similar to the time
based awards except that performance based award vests in stages as the Company
achieves specified performance targets while the super performance based award
vests entirely upon the achievement of a single target.
-22-
Payment of the awards does not occur until and is dependent upon the achievement
of both a performance criteria and an event criteria. The event criteria is a
Company sale or when Vestar's ownership falls below 10% of the Common Units. The
performance criteria for the performance based award vests in segments as the
Company achieves specified performance targets while there is only one target
for the super performance based award. As of December 31, 1999, the Company
achieved the specified performance targets required for full vesting of the
performance based awards, subject to maintenance of a minimum performance target
for the next twelve months. Any performance based award which is not fully
vested by December 31, 2002 is automatically terminated.
The Phantom Equity Program and all awards are subject to readjustment in
the event of a reorganization of the Company required in connection with a
refinancing, and the applicable percentages are subject to readjustment to take
into consideration new issuances of Common Units or Preferred Equity.
During 1999 no phantom awards were issued to and no phantom awards were
exercised by the Named Executive Officers.
The following table contains information with respect to outstanding
phantom awards for each of the Named Executive Officers as of December 31, 1999:
Number of Securities Value of
Name Underlying Awards (1) Unexercised Awards (2)
---- --------------------- ----------------------
Neil P. DeFeo 4.00 (3) N/A
2.00 (4) N/A
Alexander R. Castaldi 1.30 (3) N/A
0.50 (4) N/A
0.22 (5) N/A
Wilan van den Berg 0.50(3) N/A
0.40(4) N/A
0.10(5) N/A
Lester C. Lee 0.90 (3) N/A
0.35 (4) N/A
0.16 (5) N/A
Ann T. Buivid 0.35 (3) N/A
0.20 (4) N/A
0.10 (5) N/A
- ----------
(1) Indicates the applicable percentage of the Company's Equity underlying the
awards.
(2) The Company's Equity is not registered under the Securities Act of 1933 and
is therefore not publicly traded. Accordingly, there is no market price for
the Company's Equity. Payments to holders of phantom equity awards are
dependent upon the realized value of the Equity upon a sale of the Company
or an IPO. See above for a complete description of the Phantom Equity
Program and the determination of payouts.
(3) Time based awards, which expire on December 31, 2009.
(4) Performance based awards, which expire on December 31, 2002
(5) Super performance based awards, which expire on December 31, 2002.
-23-
401(k) Plan
The Company maintains a savings plan (the "Savings Plan") qualified under
Sections 401 (a) and 401(k) of the Internal Revenue Code. Generally, all
employees of the Company in the United States who have completed three months of
service are eligible to participate in the Savings Plan. For each employee who
elects to participate in the Savings Plan and makes a contribution thereto, the
Company makes a matching contribution of 50% of the first 5% of annual
compensation contributed. Effective early 2000, the Company amended its matching
contribution to 50% of the first 6% of annual compensation contributed. The
maximum contribution for any participant for any year is 15% of such
participant's eligible compensation.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is certain information regarding the ownership of the
Preferred Equity and Common Units of Remington by each person known by Remington
to beneficially own 5.0% or more of the outstanding interests of either the
Preferred Equity or Common Units, each Director and Named Executive Officer and
all Directors and executive officers as a group as of March 1, 2000.
Preferred Equity Common Units
--------------------------- ----------------------------
Name Capital (1) % Number %
---- ----------- ------ ------ ----
Vestar Equity Partners L.P. (2)(3) $30,000,000 48.4% 34,400 50%
245 Park Avenue, 41st Floor
New York, New York 10167
RPI Corp. (3) 32,000,000 51.6% 34,400 50%
555 Madison Avenue, 23rd Floor
New York, New York 10022
Victor K. Kiam, II (3)(4) 32,000,000 51.6% 34,400 50%
Norman W. Alpert (5) 30,000,000 48.4% 34,400 50%
Arthur J. Nagle (5) 30,000,000 48.4% 34,400 50%
Daniel S. O'Connell (5) 30,000,000 48.4% 34,400 50%
Robert L. Rosner (5) 30,000,000 48.4% 34,400 50%
Directors and executive officers as a group
(5 persons) $62,000,000 100.0% 68,800 100%
- ----------
(1) Amounts, in dollars, represent the capital contribution to the Preferred
Equity beneficially owned by each person and entity set forth below. The
Preferred Equity has not been denominated in units or other shares.
(2) Vestar's interest in the Company is owned by the Vestar Members, which are
controlled by Vestar. The Vestar Members have assigned a portion of their
interests in the Company to certain coinvestors, although such co-investors
will not directly hold any Common Units. The general partner of Vestar is
Vestar Associates L.P., a limited partnership whose general partner is
Vestar Associates Corporation ("VAC"). In such capacity, VAC exercises sole
voting and investment power with respect to all of the equity interests
held of record by the Vestar Members. Messrs. Alpert, Nagle, O'Connell, and
Rosner, who are Directors of Remington, are affiliated with Vestar in the
capacities described under Item 10 Directors and Executive Officers, and
are stockholders of VAC. Individually, no stockholder, director or officer
of VAC is deemed to have or share such voting or investment power within
the meaning of Rule 13d-3 under the Exchange Act. Accordingly, no part of
the Preferred Equity or Common Units is beneficially owned by Messrs.
Alpert, Nagle, O'Connell or Rosner or any other stockholder, director or
officer of VAC.
(3) The Vestar Members and RPI have entered into the LLC Agreement which gives
Vestar effective control over the management of the Company.
(4) Mr. Kiam's interest in the Company is owned by RPI. The shareholders of RPI
are Mr. Kiam and two Kiam family trusts.
-24-
Mr. Kiam is a trustee of each of these trusts. Mr. Kiam disclaims
beneficial ownership of the shares of Remington owned by RPI. The address
of Mr. Kiam is 11097 Isle Brook Court, West Palm Beach, Florida, 33414.
(5) Messrs. Alpert, Nagle, O'Connell and Rosner are affiliated with Vestar in
the capacities described in Item 10 Directors and Executive Officers.
Ownership of Remington equity interests for these individuals includes the
$30,000,000 of Preferred Equity and 34,440 Common Units included in the
above table beneficially owned by Vestar through the Vestar Members, of
which such persons disclaim beneficial ownership. Each such person's
business address is c/o Vestar Equity Partners, L.P., 245 Park Avenue, 41st
Floor, New York, New York 10167.
ITEM 13. Certain Relationships and Related Transactions
Pursuant to a management agreement (the "Management Agreement") entered
into in connection with the reorganization of the Company in 1996, Vestar
Capital, receives an annual advisory fee equal to the greater of $500,000 or
1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated
basis for rendering advisory and consulting services in relation to strategic
financial planning and other affairs of the Company. Vestar Capital will also be
paid reasonable and customary investment banking fees in connection with an
initial public offering, sale of the Company and other financings. The
Management Agreement will be in effect until May 23, 2006, provided that the
Management Agreement will terminate on the earlier to occur of: (i) a qualified
public offering or (ii) the first date that the Vestar Members own less than 25%
of the number of the Company's Common Units owned by the Vestar Members on May
23, 1996, and provided further that Vestar Capital may terminate the Management
Agreement at any time.
Pursuant to a consulting and transitional services agreement (the
"Consulting Agreement") entered into in connection with the reorganization of
the Company in 1996, RPI receives an annual fee equal to the greater of $500,000
or 1.5% of EBITDA (as defined in such agreement) of the Company on a
consolidated basis for rendering advisory and consulting services in relation to
strategic financial planning, product development and evaluation of mergers,
acquisitions and divestitures. The Consulting Agreement will be in effect until
May 23, 2006, provided that the Consulting Agreement will terminate on the
earlier to occur of: (i) a qualified public offering or (ii) the first date that
RPI owns less than 25% of the number of the Company's Common Units owned by RPI
on the May 23, 1996, and provided further that Vestar Capital may terminate the
Consulting Agreement at any time (but only to the extent that Vestar Capital
also terminates similar provisions of the Management Agreement).
Pursuant to a Non-Competition Agreement (the "Non-Competition Agreement")
dated May 23, 1996, between the Company, the Vestar Members and Victor K. Kiam,
II and Victor K. Kiam, III (the "Kiams"), the Kiams may not compete with,
solicit any customers of, own, manage or operate any business in competition
with or perform any action substantially detrimental to the Company's
businesses. The provisions of the Non-Competition Agreement will apply during
the period the Kiams have a Significant Interest (as defined in the
Non-Competition Agreement) in the Company and thereafter for: (i) five years,
with respect to electric shavers, shaver accessories and grooming products, and
(ii) three years, with respect to personal care appliances, home health
appliances, travel appliances, environmental products, dental products and small
kitchen appliances. The Non-Competition Agreement allows the Kiams to continue
to market certain competing travel appliance products developed by an affiliate
of the Kiams.
Pursuant to a reimbursement and indemnification agreement (the
"Indemnification Agreement")
-25-
between the Company, Vestar and the Kiams entered into in June 1999 in
connection with the Guarantee of the unsecured supplemental loans to the Company
under the Senior Credit Agreement (the "Guarantee"), Vestar and Victor Kiam, II,
each receive an annual guarantee fee of $100,000 from the Company. The
Indemnification Agreement will be in effect until the date the unsecured
supplemental loans and all other amounts guaranteed by the Guarantee are paid in
full.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
2. Financial Statement Schedule
3. Exhibits
3.1 Amended and Restated Limited Liability Company Agreement
dated as of May 16, 1996, by and among Vestar Shaver Corp.
(formerly Vestar/Remington Corp.) ("Vestar Corp. I"),
Vestar Razor Corp. ("Vestar Corp. II" and, together with
Vestar Corp. I, the "Vestar Members"), RPI Corp. (formerly
known as Remington Products, Inc.)("RPI"), and certain
members of senior management of the Company. Incorporated
herein by reference to Exhibit 3.1 in Registration
Statement on Form S-4(File Number 333-07429).
3.2 Certificate of Formation of Remington Products Company,
L.L.C. ("Remington"). Incorporated by reference to Exhibit
3.2 in Registration Statement on Form S-4(File Number
333-07429).
4.1 Indenture dated as of May 23, 1996 between Remington,
Remington Capital Corp. ("Capital") and The Bank of New
York, as trustee. Incorporated by reference to Exhibit 4.1
in Registration Statement on Form S-4(File Number
333-07429).
4.2 Form of 11% Series B Senior Subordinated Notes.
Incorporated by reference to Exhibit 4.2 in Registration
Statement on Form S-4(File Number 333-07429).
4.3 Purchase Agreement dated May 16, 1996 between Remington,
Capital and Bear, Sterns & Co. Inc. Incorporated by
reference to Exhibit 4.3 in Registration Statement on Form
S-4(File Number 333-07429).
4.4 Registration Rights Agreement dated as of May 23, 1996
between Remington, Capital and Bear Sterns & Co. Inc.
Incorporated by reference to Exhibit 4.4 in Registration
Statement on Form S-4(File Number 333-07429).
10.1 Credit and Guarantee Agreement dated as of May 23, 1996
among Remington, certain
-26-
of its subsidiaries, various lending institutions, Fleet
National Bank and Banque Nationale de Paris, as
co-documentation agents, and Chemical Bank, as
administrative agent (the "Credit and Guarantee
Agreement"). Incorporated by reference to Exhibit 10.1 in
Registration Statement on Form S-4(File Number 333-07429).
10.2 First Amendment and Waiver Number 1, dated as of December
27, 1996, to the Credit and Guarantee Agreement.
Incorporated by reference to Exhibit 10.1 in the Company's
Current Report on Form 8-K dated December 24, 1996.
10.3 Second Amendment, dated as of March 30, 1997 to the Credit
and Guarantee Agreement. Incorporated by reference to
Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1997.
10.4 Third Amendment, dated as of May 16, 1997 to the Credit and
Guarantee Agreement. Incorporated by reference to Exhibit
10.1 in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997.
10.5 Fourth Amendment, dated as of March 20, 1998 to the Credit
and Guarantee Agreement. Incorporated by reference to
Exhibit 10.5 in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
10.6 Fifth Amendment, dated as of March 11, 1999 to the Credit
and Guarantee Agreement. Incorporated by reference to
Exhibit 10.6 in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
10.7 Sixth Amendment dated as of June 9, 1999 to the Credit and
Guarantee Agreement. Incorporated by reference to Exhibit
10.1 in the Company's Current Report on Form 8-K dated June
11, 1999.
10.8 Company Security Agreement dated as of May 23, 1996 made by
Remington in favor of the Agent. Incorporated by reference
to Exhibit 10.2 in Registration Statement on Form S-4(File
Number 333-07429).
10.9 Form of Subsidiaries Security Agreement dated as of May 23,
1996 made by each of Capital, Remington Corporation, L.L.C.
("IP Subsidiary") and Remington Rand Corporation ("Rand")
in favor of the Agent. Incorporated by reference to Exhibit
10.3 in Registration Statement on Form S-4(File Number
333-07429).
10.10 Conditional Assignment of and Security Interest in Patent
Rights (United States) dated as of May 23, 1996 made by IP
Subsidiary in favor of the Agent. Incorporated by reference
to Exhibit 10.4 in Registration Statement on Form S-4(File
Number 333-07429).
10.11 Conditional Assignment of and Security Interest in Patent
Rights (United Kingdom)
-27-
dated as of May 23, 1996 made by IP Subsidiary in favor of
the Agent. Incorporated by reference to Exhibit 10.5 in
Registration Statement on Form S-4(File Number 333-07429).
10.12 Conditional Assignment of and Security Interest in
Trademark Rights (United States) dated as of May 23, 1996
made by IP Subsidiary in favor of the Agent. Incorporated
by reference to Exhibit 10.6 in Registration Statement on
Form S-4(File Number 333-07429).
10.13 Conditional Assignment of and Security Interest in
Trademark Rights (United Kingdom) dated as of May 23, 1996
made by IP Subsidiary in favor of the Agent. Incorporated
by reference to Exhibit 10.7 in Registration Statement on
Form S-4(File Number 333-07429).
10.14 Members Limited Recourse Pledge Agreement dated as of May
23, 1996 made by Remington in favor of the Agent.
Incorporated by reference to Exhibit 10.8 in Registration
Statement on Form S-4(File Number 333-07429).
10.15 Company Pledge Agreement dated as of May 23, 1996 made by
Remington in favor of the Agent. Incorporated by reference
to Exhibit 10.9 in Registration Statement on Form S-4(File
Number 333-07429).
10.16 Subsidiaries Pledge Agreement dated as of May 23, 1996 made
by Rand in favor of the Agent. Incorporated by reference to
Exhibit 10.10 in Registration Statement on Form S-4(File
Number 333-07429).
10.17 Subsidiaries Guarantee dated as of May 23, 1996 made by
Capital, IP subsidiary and Rand in favor of the Agent.
Incorporated by reference to Exhibit 10.11 in Registration
Statement on Form S-4(File Number 333-07429).
10.18 Purchase Agreement dated as of May 1, 1996 by and among
Vestar Corp I., Remington, Remsen, Isaac Perlmutter, RPI
and Victor K. Kiam, II. Incorporated by reference to
Exhibit 10.12 in Registration Statement on Form S-4(File
Number 333-07429).
10.19 Agreement and Plan of Merger dated as of May 23, 1996
between Remington Products Company and Remington.
Incorporated by reference to Exhibit 10.13 in Registration
Statement on Form S-4(File Number 333-07429).
10.20 Securityholders Agreement dated as of May 16, 1996 among
the Vestar Members, Vestar Equity Partners, L.P.
("Vestar"), RPI, Victor K. Kiam, II and the other parties
signatory thereto. Incorporated by reference to Exhibit
10.14 in Registration Statement on Form S-4(File Number
333-07429).
10.21 Management Agreement dated as of May 23, 1996 between
Remington and Vestar
-28-
Capital Partners. Incorporated by reference to Exhibit
10.15 in Registration Statement on Form S-4(File Number
333-07429).
10.22 Consulting and Transitional Services Agreement dated as of
May 23, 1996 between Remington and RPI. Incorporated by
reference to Exhibit 10.16 in Registration Statement on
Form S-4(File Number 333-07429).
10.23 Employment Agreement made as of January 8, 1997 between the
Company and Neil P. DeFeo. Incorporated by reference to
Exhibit 10.2 in the Company's Quarterly Report on Form 10-Q
for the quarter ended March 29, 1997.
10.24 Executive Severance Agreement dated as of November 25, 1996
between Remington and Alexander R. Castaldi. Incorporated
by reference to Exhibit 10.20 in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
10.25 Letter Agreement dated June 6, 1997 between the Company and
Lester Lee. Incorporated by reference to Exhibit 10.25 in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
10.26 Employment Agreement made as of September 21, 1998 between
the Company and Wilan van den Berg.
10.27 Letter Agreement dated June 17, 1997 between the Company
and Tim Simmone.
10.28 Letter Agreement dated August 7, 1998 between the Company
and Ann T. Buivid.
10.29 Letter Agreement dated January 3, 2000 between the Company
and Joel K. Bedol.
10.30 Form of Severance Agreement. Incorporated by reference to
Exhibit 10.24 in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
10.31 Form of Time Based Phantom Equity Agreement with
participants in the Phantom Equity Program. Incorporated by
reference to Exhibit 10.25 in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
10.32 Form of Performance Based Phantom Equity Agreement with
participants in the Phantom Equity Program. Incorporated by
reference to Exhibit 10.26 in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997.
10.33 Form of Super Performance Based Phantom Equity Agreement
with participants in the Phantom Equity Program.
Incorporated by reference to Exhibit 10.27 in the Company's
Annual Report on Form 10-K for the year ended December 31,
1997.
10.34 License Agreement made May 23, 1996 by and between IP
Subsidiary and Act II Jewelry, Inc. Incorporated by
reference to Exhibit 10.23 in Registration Statement
-29-
on Form S-4 (File Number 333-07429).
10.35 License Agreement made May 23, 1996 by and between IP
Subsidiary and VKK Equities Corporation. Incorporated by
reference to Exhibit 10.24 in Registration Statement on
Form S-4 (File Number 333-07429).
10.36 Tradename Agreement made May 23, 1996 by and between IP
Subsidiary and Remington Apparel Company, Inc. Incorporated
by reference to Exhibit 10.25 in Registration Statement on
Form S-4 (File Number 333-07429).
10.37 License Agreement dated as of May 23, 1996 by and between
Remington and IP Subsidiary . Incorporated by reference to
Exhibit 10.26 in Registration Statement on Form S-4 (File
Number 333-07429).
21 Subsidiaries of Remington.
24 Powers of Attorney.
27 Financial Data Schedule.
-30-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REMINGTON PRODUCTS COMPANY, L.L.C.
By: /s/ Kris J. Kelley
---------------------------------------------
Kris J. Kelley, Vice President and Controller
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on March 30, 2000.
* *
- --------------------------------------- -------------------------------------
Neil F. DeFeo, Chief Executive Officer, Alexander R. Castaldi, Executive Vice
President and Director President, Chief Financial and
Administrative Officer
/s/ Kris J. Kelley *
- --------------------------------------- -------------------------------------
Kris J. Kelley, Vice President and Victor K. Kiam II, Chairman and
Controller Director
* *
- --------------------------------------- -------------------------------------
Victor K. Kiam III, Director Norman W. Alpert, Director
* *
- --------------------------------------- -------------------------------------
Arthur J. Nagle, Director Daniel S. O'Connell, Director
* *
- --------------------------------------- -------------------------------------
Robert L. Rosner, Director William B. Connell, Director
* *
- --------------------------------------- -------------------------------------
Kevin A. Mundt, Director
*By /s/ by Joel K. Bedol
------------------------------------
Joel K. Bedol, as Attorney-in-Fact
-31-
INDEX TO FINANCIAL STATEMENTS
Pages
-----
Financial Statements
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 1999 F-4
Consolidated Statements of Members' Deficit for each of the years in the three-
year period ended December 31, 1999 F-5
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31,1999 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for each of the years in
the three-year period ended December 31,1999 S-1
Certain schedules are omitted because they are not applicable or the
required information is provided in the Financial Statements or related notes
thereto.
F-1
Independent Auditors' Report
To the Management Committee of
REMINGTON PRODUCTS COMPANY, L.L.C.:
We have audited the accompanying consolidated balance sheets of Remington
Products Company, L.L.C. and subsidiaries (the "Company") as of December 31,
1999 and 1998, and the related consolidated statements of operations, members'
deficit, and cash flows for each of the three years in the period ended December
31, 1999. Our audits also included the consolidated financial statement schedule
listed in the index to the consolidated financial statements. The consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles. Also, in our opinion,
the consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
DELOITTE & TOUCHE L.L.P.
Stamford, Connecticut
February 16, 2000
F-2
Remington Products Company, L.L.C.
Consolidated Balance Sheets
(in thousands)
December 31,
-------------------------
1999 1998
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 9,866 $ 4,249
Accounts receivable, less allowance for doubtful accounts
of $2,335 in 1999 and $2,749 in 1998 78,503 59,998
Inventories 55,456 50,163
Prepaid and other assets 4,051 1,879
--------- ---------
Total current assets 147,876 116,289
Property, plant and equipment, net 12,718 13,135
Intangibles, net 56,641 58,573
Other assets 6,755 7,730
--------- ---------
Total assets $ 223,990 $ 195,727
========= =========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable $ 23,643 $ 15,981
Short-term borrowings 5,790 5,192
Current portion of long-term debt 2,323 1,842
Accrued liabilities 31,067 24,980
--------- ---------
Total current liabilities 62,823 47,995
Long-term debt 187,728 180,634
Other liabilities 1,222 1,839
Commitments and contingencies
Members' deficit:
Members' deficit (25,438) (31,473)
Accumulated other comprehensive income (2,345) (3,268)
--------- ---------
Total members' deficit (27,783) (34,741)
--------- ---------
Total liabilities and members' deficit $ 223,990 $ 195,727
========= =========
See notes to consolidated financial statements.
F-3
Remington Products Company, L.L.C.
Consolidated Statements of Operations
(in thousands)
Year Ended December 31,
-----------------------------------------
1999 1998 1997
--------- --------- ---------
Net sales $ 318,766 $ 268,357 $ 241,572
Cost of sales 176,269 159,175 141,296
--------- --------- ---------
Gross profit 142,497 109,182 100,276
Selling, general and administrative 111,434 94,415 84,194
Restructuring and reorganization charge -- 6,806 --
Amortization of intangibles 1,943 1,945 1,936
--------- --------- ---------
Operating income 29,120 6,016 14,146
Interest expense 21,723 20,499 19,318
Other expense 127 472 526
--------- --------- ---------
Income (loss) before income taxes 7,270 (14,955) (5,698)
Provision for income taxes 1,235 382 2,225
--------- --------- ---------
Net income (loss) $ 6,035 $ (15,337) $ (7,923)
========= ========= =========
Net loss applicable to common units $ (4,550) $ (24,741) $ (16,279)
========= ========= =========
See notes to consolidated financial statements.
F-4
Remington Products Company, L.L.C.
Consolidated Statements of Members' Deficit
(in thousands)
Accumulated
Other Total
Preferred Common Other Accumulated Comprehensive Members'
Equity Units Capital Deficit Income Deficit
--------- -------- -------- ----------- ------------- ---------
Balance, January 1, 1997 $ 66,576 $ 7,742 $(73,921) $ (7,748) $ (356) $ (7,707)
Repurchase of common units (620) (620)
Preferred dividend 8,356 (8,356) --
Comprehensive income (loss):
Net loss (7,923)
Foreign currency translation (2,028)
Total comprehensive income (loss) (9,951)
-------- -------- -------- -------- -------- --------
Balance, December 31, 1997 74,932 7,122 (73,921) (24,027) (2,384) (18,278)
Preferred Dividend 9,404 (9,404) --
Repurchase of common units (242) (242)
Comprehensive income (loss):
Net loss (15,337)
Foreign currency translation (708)
Cumulative effect of adoption of SFAS 133 (105)
Unrealized hedging loss (71)
Total comprehensive income (loss) (16,221)
-------- -------- -------- -------- -------- --------
Balance, December 31, 1998 84,336 6,880 (73,921) (48,768) (3,268) (34,741)
Preferred Dividend 10,585 (10,585) --
Comprehensve income:
Net income 6,035
Foreign currency translation 864
Unrealized hedging gain 59
Total comprehensive income 6,958
-------- -------- -------- -------- -------- --------
Balance, December 31, 1999 $ 94,921 $ 6,880 $(73,921) $(53,318) $ (2,345) $(27,783)
======== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
F-5
Remington Products Company, L.L.C.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 6,035 $(15,337) $ (7,923)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 3,612 3,224 2,831
Amortization of intangibles 1,943 1,945 1,936
Amortization of deferred financing fees 1,388 1,110 1,072
Restructuring and reorganization charge -- 6,806 --
Inventory write-down -- 2,760 --
Deferred income taxes (144) (26) (44)
Foreign currency forward (gains) losses 174 (35) 115
-------- -------- --------
13,008 447 (2,013)
Changes in assets and liabilities:
Accounts receivable (18,505) (6,946) 1,210
Inventories (5,293) 7,584 3,278
Accounts payable 7,662 2,622 (3,055)
Accrued liabilities 5,355 (5,518) (5,267)
Other, net (238) (1,295) (2,133)
-------- -------- --------
Cash provided by (used in) operating activities 1,989 (3,106) (7,980)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (3,518) (3,879) (5,078)
Proceeds from working capital adjustment -- -- 2,500
Other -- -- 204
-------- -------- --------
Cash used in investing activities (3,518) (3,879) (2,374)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) under term loan facilities 13,689 (1,426) (965)
Net borrowings (repayments) under credit facilities (5,674) 7,632 10,938
Equity repurchases -- (242) (620)
Debt issuance costs and other, net (842) (221) (251)
-------- -------- --------
Cash provided by financing activities 7,173 5,743 9,102
Effect of exchange rate changes on cash (27) 83 (539)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 5,617 (1,159) (1,791)
Cash and cash equivalents, beginning of year 4,249 5,408 7,199
-------- -------- --------
Cash and cash equivalents, end of year $ 9,866 $ 4,249 $ 5,408
======== ======== ========
Supplemental cash flow information:
Interest paid $ 20,302 $ 19,144 $ 18,756
Income taxes paid, net $ 248 $ 2,331 $ 2,493
See notes to consolidated financial statements.
F-6
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Remington Products Company, L.L.C. and its wholly owned subsidiaries, (the
"Company") develop and market electrical personal care appliances. The Company
distributes on a worldwide basis electrical shavers and accessories, personal
care appliances, including hair dryers and hairsetters, electrical grooming
products, wellness products such as paraffin hand spas and foot spas, and other
small electrical consumer appliances. The Company's products are sold worldwide
primarily through mass merchandisers, catalog showrooms, drug store chains and
department stores in addition to the Company's own service stores.
Organization:
Remington Products Company, L.L.C., a Delaware limited liability company,
was formed by Vestar Shaver Corp. and RPI Corp. ("RPI") to acquire the
operations of Remington Products Company and its subsidiaries in May of 1996.
Vestar Razor Corp. was formed in May of 1996 to hold an interest in the Company.
Vestar Shaver Corp. and Vestar Razor Corp. (together, the "Vestar Members") are
wholly owned by Vestar Equity Partners, L.P ("Vestar"), an institutional equity
capital fund and affiliate of Vestar Capital Partners ("Vestar Capital").
Basis of Presentation:
The consolidated financial statements include the accounts of Remington
Products Company, L.L.C. and subsidiaries. All significant intercompany accounts
and transactions are eliminated in consolidation. Certain prior year amounts
have been reclassified to conform with the current year presentation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Estimates are used for, but not limited to the establishment of the
allowance for doubtful accounts, reserves for sales returns and allowances,
product warranty costs, taxes and contingencies.
Cash and Cash Equivalents:
All highly liquid debt instruments purchased with a maturity of three
months from their date of acquisition or less are considered cash equivalents.
Inventories:
The majority of the Company's inventories are valued at the lower of cost
or market utilizing the first-in, first-out (FIFO) method. Domestic manufactured
inventories, which represent approximately 8% of the consolidated inventories as
of December 31, 1999 and 16% at December 31, 1998, are stated at cost determined
by the last-in, first-out (LIFO) method. As of December 31, 1999 and 1998, the
excess of current replacement cost over LIFO cost of inventories was not
significant. During 1998, the Company recorded non-recurring charges of $2.8
million for certain inventory write-downs associated with the Company's
restructuring and reorganization plan.
Property, Plant and Equipment:
Property, plant and equipment is recorded primarily at cost. Depreciation
is provided for principally on a straight-line basis over the estimated useful
lives of the assets, which range from 3 to 20 years. Leasehold improvements are
amortized over the lesser of the lease term or the estimated useful lives of the
improvements. During 1998, the Company recorded non-recurring charges of $3.5
million for write-downs on certain equipment and tooling associated with the
Company's restructuring and reorganization plan.
Intangibles:
Patents are being amortized on a straight-line basis over a period of ten
years. All other intangibles are amortized on a straight-line basis over 40
years. Costs associated with obtaining financing arrangements are included in
other assets and are being amortized over the term of the related borrowings.
F-7
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Long Lived Assets:
Impaired losses are recorded on long lived assets when indicators of
impairment are present and the anticipated undiscounted operating cash flows
generated by those assets are less than the assets' carrying value.
Research and Development:
Research and development costs related to both present and future products
are expensed as incurred. Such costs totaled $4.0 million, $4.3 million and $3.4
million for the years ended December 31, 1999, 1998 and 1997, respectively.
Income Taxes:
U.S. Federal income taxes on net earnings of the Company are payable
directly by the members. In jurisdictions where partnership status is not
recognized or foreign corporate subsidiaries exist, the Company provides for
income taxes currently payable as well as for those deferred because of
temporary differences between the financial and tax basis of assets and
liabilities.
Hedging Activity:
Effective July 1, 1998, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires the Company
to recognize all derivatives at fair value. Depending on the nature of the
underlying exposure being hedged, changes in the fair value of derivatives are
recognized either in the statement of operations or other comprehensive income
("OCI"). The ineffective portion of the change in fair value of the derivative
is recognized in earnings.
In accordance with the Company's foreign exchange risk management policy,
the Company's foreign subsidiaries hedge the forecasted purchases of inventory
denominated in currencies different then the subsidiary's functional currency.
The derivative contracts related to these hedges primarily consist of forward
foreign exchange contracts, which are designated as cash flow hedges. These
forward contracts generally have maturities not exceeding twelve months. For
cash flow hedges, the fair value changes of the derivative instruments related
to the effective portion of the hedges are initially recorded as a component of
OCI. Unrealized gains and losses on cash flow hedges accumulate in OCI and are
reclassified into earnings in the periods in which earnings are impacted by the
variability of the cash flows of the hedged item. For forecasted purchases of
inventory, amounts are reclassified when the hedged inventory is reflected in
cost of goods sold. As of December 31, 1999, other than forward foreign exchange
contracts, the Company was not party to any other derivatives as defined by SFAS
No. 133.
At December 31, 1999, the Company had unrealized losses of $117 thousand,
net of tax, classified in OCI for its outstanding hedge contracts related to
forecasted inventory purchases. A significant portion of this amount is expected
to be reclassified to cost of goods sold in the first six months of 2000. As of
December 31, 1999, the losses classified in other income (expense) related to
the ineffective portion of the Company's outstanding hedge contracts were
immaterial. The cumulative effect of a change in accounting principle due to
adoption of SFAS No. 133 as of July 1, 1998 had an immaterial impact on earnings
and a $105 thousand impact to OCI.
Prior to the adoption of SFAS No. 133, the Company accounted for its
forward foreign exchange contracts at mark to market through earnings, unless
the contracts were effectively hedging firm commitments, for which unrealized
gains and losses were deferred and recognized as an adjustment of the hedged
item.
Translation of Foreign Currencies:
Assets and liabilities of the Company's foreign subsidiaries are translated
at the exchange rate in effect at each balance sheet date. Statement of
operations accounts are translated at the average exchange rate for the period.
Translation adjustments arising from the use of differing exchange rates from
period to period are included in the cumulative translation adjustment account
in OCI. Foreign currency transaction gains and losses, including gains and
losses on forward contracts, are recognized in earnings and totaled net losses
of $0.5 million, $0.7 million and $0.7 million for the years ended December 31,
1999, 1998 and 1997, respectively.
2. Inventories
Inventories were comprised of the following as of December 31, 1999 and
1998 (in thousands):
F-8
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
1999 1998
------- -------
Finished goods $53,351 $46,454
Work in process and raw materials 2,105 3,709
------- -------
$55,456 $50,163
======= =======
3. Property, Plant and Equipment
Property, plant and equipment as of December 31, 1999 and 1998 consisted of
(in thousands):
1999 1998
-------- --------
Land and buildings $ 2,517 $ 2,517
Leasehold improvements 4,615 4,058
Machinery, equipment and tooling 9,705 8,234
Furniture, fixtures and other 4,872 4,523
-------- --------
21,709 19,332
Less accumulated depreciation (8,991) (6,197)
-------- --------
$ 12,718 $ 13,135
======== ========
4. Intangibles
Intangibles were comprised of the following (net of accumulated
amortization of $7,020 and $5,074 thousand) as of December 31, 1999 and 1998,
respectively (in thousands):
1999 1998
------- -------
Goodwill $29,509 $30,309
Tradenames 24,145 24,809
Patents 2,987 3,455
------- -------
$56,641 $58,573
======= =======
5. Accrued Liabilities
Accrued liabilities were comprised of the following as of December 31, 1999
and 1998 (in thousands):
1999 1998
------- -------
Advertising and promotion expenses $ 8,263 $ 7,229
Compensation and benefits 7,391 4,900
Income and other taxes payable 4,377 2,377
Interest 2,089 2,056
Restructure and reorganization -- 2,196
Distribution expense 3,295 399
Other 5,652 5,823
------- -------
$31,067 $24,980
======= =======
6. Debt
Long-term debt at December 31, 1999 and 1998 consisted of (in thousands):
F-9
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
1999 1998
--------- ---------
Senior Subordinated Notes $ 130,000 $ 130,000
Revolving Credit Facilities 37,718 43,895
Term and Supplemental Loans 21,207 7,611
Capital Leases and Other 1,126 970
--------- ---------
190,051 182,476
Less current portion (2,323) (1,842)
--------- ---------
$ 187,728 $ 180,634
========= =========
11% Senior Subordinated Notes:
The 11% Series B Senior Subordinated Notes due 2006 (the "Senior
Subordinated Notes") are general unsecured obligations of the Company which
mature on May 15, 2006. Interest accrues at the rate of 11% per annum and is
payable semi-annually in arrears. The Senior Subordinated Notes are redeemable,
in whole or in part, at the option of the Company at any time on or after May
15, 2001 at a redemption price ranging from 105.5% to 100.0% of the principal
amount then outstanding plus accrued and unpaid interest, depending when
redeemed, and any applicable damages.
Senior Credit Agreement:
The Senior Credit Agreement, which expires on June 30, 2002, provides for a
term loan of $5.0 million to the Company and $5.0 million to the Company's U.K.
subsidiary (the "Term Loans") and a revolving credit facility of $50.0 million
to the Company and $20.0 million to the Company's U.K. subsidiary (the
"Revolving Credit Facilities"). In June 1999, the Company amended the Senior
Credit Agreement to allow for supplemental term loan borrowings totalling $15.0
million (the "Supplemental Loans"). These loans are comprised of $7.5 million in
second secured loans (the "Secured Supplemental Loans") and $7.5 million in
unsecured loans which are guaranteed by the Company's controlling shareholder
(the "Unsecured Supplemental Loans"). This additional financing was used to
reduce the Company's outstanding borrowings under the Revolving Credit Facility.
The Revolving Credit Facilities are subject to a borrowing base of 85% of
eligible accounts receivable and 60% of eligible inventory for the applicable
borrower. In addition, the borrowing base can be increased as needed by $10
million over the applicable percentage of eligible receivables and inventories,
(still limited to the $70 million total facilities) from March 16 through
December 15 of 2000 and March 16 through June 29 of 2001. As of December 31,
1999, availability under the Revolving Credit Facilities was approximately $18.5
million. The availability has been reduced by approximately $0.8 million in
short-term commercial and stand-by letters of credit outstanding as of December
31, 1999. The Term Loans under the Senior Credit Agreement are payable in
quarterly installments. Aggregate scheduled installments remaining over the next
three years ending December 31, 2002 are $1.9, $3.2 and $1.1 million,
respectively. The Supplemental Loans are payable on June 30, 2001. The
obligations under the Senior Credit Agreement, excluding the Unsecured
Supplemental Loans, are guaranteed by each of the Company's domestic
subsidiaries and secured by their assets and properties and pledge of the common
equity interests.
Interest rates per annum applicable to the loans under the Senior Credit
Agreement, excluding the Supplemental Loans, are based, at the Company's option,
upon (a) in the case of the Company, a Eurodollar rate ("LIBOR") plus 2.75% or
the greater of (i) prime rate plus 1.5% and (ii) the federal funds rate plus 2%
and (b) in the case of loans to the Company's U.K. subsidiary, a EuroSterling
Rate plus 2.75% or the Sterling Base Rate plus 2.75%; provided, however, the
interest rates are subject to reduction if certain requirements of financial
performance are met. Interest on the Secured Supplemental Loans is based, at the
Company's option, on LIBOR plus 6% or the greater of (i) the prime rate plus
4.75% and (ii) the federal funds rate plus 5.25%. Interest on the Unsecured
Supplemental Loans is based, at the Company's option, on LIBOR plus 1% or the
greater of (i) the prime rate and (ii) the federal funds rate plus 0.5%.
Interest is payable quarterly in arrears, including a commitment fee of 0.5% on
the average daily unused portion of the Revolving Credit Facilities.
F-10
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Debt Covenants:
The Senior Credit Agreement requires the Company to meet certain financial
tests, the more restrictive of which require the Company to maintain certain
interest coverage and leverage ratios, as defined. The Senior Subordinated Note
indenture and the Senior Credit Agreement also contain a number of operating
covenants which limit the discretion of Management with respect to certain
business matters, including the amount and terms under which the Company can
obtain additional financing in the future. In addition, these agreements limit
the amount of dividends that the Company is permitted to pay. As of December 31,
1999, the Company was in compliance with its debt covenants.
Short Term Borrowings:
Short Term Borrowings consist of local revolving credit lines at some of
the Company's foreign subsidiaries and totaled approximately $5.8 million and
$5.2 million as of December 31, 1999 and 1998, respectively. These facilities
are collateralized by assets of the subsidiaries or are guaranteed by the
Company. The weighted average interest rate under these facilities was
approximately 5.9% in 1999 and 5.7% in 1998.
7. Membership Equity
The Vestar Members and RPI (collectively the "Members") have entered into
an Amended and Restated Limited Liability Company Agreement (the "LLC
Agreement"), which governs the relative rights and duties of the Members. The
ownership interests of the Members in the Company consist of preferred members'
equity (the "Preferred Equity") and common units (the "Common Units", together ,
the "Equity"). The Common Units represent the common equity of the Company. As
of December 31, 1999, the Company's Common Units were owned 50% by the Vestar
Members and 50% by RPI, however, in accordance with the LLC Agreement, Vestar
effectively controls the Management Committee and the affairs and policies of
the Company. The Preferred Equity is entitled to a preferred dividend of 12% per
annum, compounded quarterly, and to an aggregate liquidation preference of $62
million (net of any prior repayments of Preferred Equity) plus any accrued but
unpaid preferred dividends. As of December 31, 1999 the aggregate unpaid
Preferred Equity, including accrued dividends of $32.9 million, totaled $94.9
million of which the Vestar Members own 48.4% and RPI owns 51.6%.
In January 1998, the Company repurchased any remaining outstanding common
units owned by certain officers of the Company, cancelled all outstanding
related options and adopted a new Phantom Equity Program. Under this program a
maximum of 21% of the value of the Company's Equity can be awarded to selected
officers and other key employees of the Company. The Phantom Equity Program is
comprised of time based (consisting of 12 1/2% of the Equity), performance based
(6 1/2%) and super performance (2%) based awards. All awards grant to the
recipient a specified percentage of the Equity (the "applicable percentage").
A time based award vests in five equal annual installments, upon the sale
of the Company or upon an initial public offering of the Company's stock,
whichever comes first. The performance and super performance based awards are
similar to the time based awards except that performance based award vests in
stages as the Company achieves specified performance targets while the super
performance based award vests entirely upon the achievement of a single target.
As of December 31, 1999, the Company achieved the specified performance target
required for full vesting of the performance based awards, subject to
maintenance of a minimum performance target for the next twelve months. Payment
of the performance based awards does not occur until and is dependent upon the
achievement of both a performance criteria and an event criteria. The event
criteria is a Company sale or when Vestar's ownership falls below 10% of the
Common Units. Any performance based award which is not fully vested by December
31, 2002 is automatically terminated.
The Phantom Equity Program and all awards are subject to readjustment in
the event of a reorganization of the Company required in connection with a
refinancing, and the applicable percentages are subject to readjustment to take
into consideration new issuances of Equity.
8. Restructure and Reorganization Charge
In the second quarter of 1998, the Company announced a plan to restructure
its Connecticut shaver assembly and warehousing operations ("the Plan"). The
Plan consisted of relocating the shaver assembly operations to an existing
Remington third party supplier located in China and relocating the warehousing
function to a third party provider in
F-11
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
California. The Plan resulted in affecting the employment of approximately 235
employees located at the Company's two Connecticut facilities, the majority of
which were factory employees. During 1998, the Company recorded total
non-recurring charges of $9.6 million related to the Plan, of which $6.8 million
was charged to restructuring and reorganization and $2.8 million was charged to
cost of sales related to inventory write-downs associated with the Plan.
The Company substantially completed the relocation of the Connecticut
shaver assembly to Asia, and the relocation of the Connecticut warehousing
facility to a third party in California in the fourth quarter of 1998. In
December 1998, the Company terminated substantially all of the affected
employees, and approximately $0.5 million of severance and other benefit costs
were charged against the restructuring reserve. The remaining amounts were paid
out in 1999. In the fourth quarter of 1998, the Company terminated its lease
obligations with respect to certain equipment and machinery utilized in the
factory and warehouse, however, the Company continued to pay non-cancelable
lease obligations for its Connecticut warehouse facility until they expired in
1999. As of December 31, 1999, all restructuring costs have been completed and
no future liabilities exist. Total cash outlays for restructuring activities in
1999 and 1998 were $2.2 and $1.1 million, respectively.
9. Income Taxes
U.S. Federal income taxes on net earnings of the Company are payable
directly by the members pursuant to the Internal Revenue Code. Accordingly, no
provision has been made for U.S. Federal income taxes for the Company. However,
certain state and local jurisdictions do not recognize partnership status for
taxing purposes and require taxes be paid on net earnings. Furthermore, earnings
of certain foreign operations are taxable under local statutes. Foreign pretax
earnings/(losses) were $4,264, $(1,613), and $6,023 thousand for the years ended
December 31, 1999, 1998 and 1997, respectively.
The provision for income taxes consists of the following for the years
ended December 31 (in thousands):
1999 1998 1997
------- ------- -------
Current:
Foreign $ 1,371 $ 329 $ 2,254
State and local 8 79 15
Deferred Foreign (144) (26) (44)
------- ------- -------
Total $ 1,235 $ 382 $ 2,225
======= ======= =======
Reconciliation of income taxes computed at the U.S. Federal statutory income tax
rate to the income taxes as reported:
Income taxes computed at statutory U.S.
Federal income tax rate $ 2,545 $(5,234) $(1,994)
Partnership status for U.S. federal
income tax purposes (1,052) 4,670 4,102
State and local income taxes 8 79 15
Adjustment for foreign income tax rates (266) 867 102
------- ------- -------
Income taxes as reported $ 1,235 $ 382 $ 2,225
======= ======= =======
The components of the Company's deferred tax assets included on the balance
sheet at December 31 are as follows (in thousands):
1999 1998 1997
------ ------ ------
Depreciation and other $ 171 $ 171 $ 145
Foreign tax loss carryforwards 1,323 1,853 1,012
------ ------ ------
1,494 2,024 1,157
F-12
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Less valuation allowance (1,179) (1,853) (1,012)
------- ------- -------
Total deferred tax assets, net $ 315 $ 171 $ 145
======= ======= =======
The valuation allowance relates to the foreign tax loss carryforwards, the
majority of which have been fully reserved due to the uncertain nature of their
ultimate realization based upon past performance. Approximately $0.6 million of
the $2.9 million in foreign tax loss carryforwards expire between 2003 through
2005, while the remaining $2.3 million has no expiration date.
10. Commitments and Contingencies
The Company is liable under the terms of noncancelable leases of real
estate and equipment for minimum annual rent payments as follows (in thousands):
Operating Capital
Leases Leases
--------- -------
2000 $ 8,382 $ 507
2001 5,201 292
2002 1,993 262
2003 1,236 100
2004 189 13
2005 and thereafter -- --
------- -------
Total minimum lease payments $17,001 1,174
=======
Less: amount representing interest 290
-------
Present value of minimum lease payments $ 884
=======
Rent expense was $7,342, $7,077 and $6,014 thousand for the years ended December
31, 1999, 1998 and 1997.
The majority of the leases contain escalation clauses which provide for
increases to recover future increases in certain operating costs. The future
minimum rental payments shown above include base rentals with known escalations.
Lease agreements may include renewal options and usually require that the
Company pay for utilities, taxes, insurance and maintenance expenses.
The Company is involved in legal and administrative proceedings and claims
of various types. While any litigation contains an element of uncertainty,
management believes that the outcome of each such proceeding or claim which is
pending or known to be threatened, or all of them combined, will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
11. Employee Savings Plan
UK Pension Plan. The Company's UK subsidiary has a contributory defined
benefit pension plan which covers substantially all of the UK subsidiary's
employees. Pension benefits are based upon length of service and compensation
under a final compensation averaging formula. The Company's funding policy is to
make contributions consistent with statutory requirements. The plan's assets are
primarily invested in equity instruments.
Information regarding the Company's pension plan as of December 31, 1999 and
1998 are as follows (in thousands):
F-13
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Change in Benefit Obligation:
1999 1998
------- -------
Benefit obligation at beginning of year $ 6,902 $ 6,222
Service cost 468 513
Interest cost 398 461
Amendments (278) 259
Actuarial gain (429) (387)
Benefits paid (196) (204)
Currency exchange rate effects (187) 38
------- -------
Benefit obligations at end of year 6,678 6,902
------- -------
Change in Plan Assets:
Fair value of plan assets at beginning of year 6,909 5,996
Actual return on plan assets 1,375 697
Employer contributions 319 287
Participant contributions 110 96
Benefits paid (196) (204)
Currency exchange rate effects (190) 37
------- -------
Fair value of plan assets at end of year 8,327 6,909
------- -------
Funded Status 1,649 7
Unrecognized net actuarial (gain) loss (1,534) 75
------- -------
Prepaid benefit cost $ 115 $ 82
======= =======
Amounts recognized in the balance sheet are comprised of the prepaid
benefit costs as noted above.
Weighted average assumptions:
Discounted rate 6.0% 6.0%
Expected return on plan assets 7.0% 7.0%
Rate of compensation increase 3.25% 3.5%
Health care cost trend rate, current year -- --
Year Ended December 31,
1999 1998 1997
----- ----- -----
Components of Net Periodic Benefit Cost:
Service cost $ 293 $ 359 $ 387
Interest cost 395 461 410
Expected return on plan assets (631) (529) (526)
----- ----- -----
Net periodic benefit cost $ 57 $ 291 $ 271
===== ===== =====
Employee Savings Plan. The Company has a savings accumulation plan (the
"Plan") under Section 401(k) of the Internal Revenue Code covering substantially
all regular employees. The Plan is subject to the provisions of ERISA and has
been updated for subsequent amendments. The Plan allows for employees to defer
up to the lesser of 15% of their annual earnings or within limitations on a
pre-tax basis through voluntary contributions to the plan. The Plan provides for
contributions in an amount equal to 50% of their employees' contributions up to
a maximum of 5% of their total salary. The Company's matching contributions were
$276, $267 and $237 thousand for the years ended December 31, 1999, 1998 and
1997, respectively.
F-14
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Effective in early 2000, the Company amended its matching contribution to
50% of the first 6% of total salary contributed.
12. Financial Instruments, Credit Risk and Other
Fair Value of Financial Instruments:
The carrying amounts for cash and cash equivalents, accounts receivable,
short-term borrowings, accounts payable and accrued liabilities approximate fair
value due to the short maturities of these instruments. The fair value and book
value at December 31, 1999 of long-term fixed rate debt was approximately $100.1
million and $130.0 million, respectively. The fair value and book value at
December 31, 1998 of long-term fixed rate debt was approximately $97.5 million
and $130.0 million, respectively.
Concentration of Credit Risk:
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and accounts
receivable. The Company places its cash with high credit quality institutions.
At times such amounts may be in excess of the FDIC insurance limits. As of
December 31, 1999, the Company had an uncollateralized receivable with one
mass-merchant retailer which represented approximately 14 % of the Company's
accounts receivable balance. During calendar 1999, sales to this customer
represented approximately 19% of the Company's net sales. The Company performs
ongoing credit evaluations of its customers' financial condition but does not
require collateral to support customer receivables. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
Foreign Currency Exposure Management:
The Company is exposed to foreign currency risk primarily to the extent
that its foreign subsidiaries purchase inventory in U.S. dollars. The Company
has entered into foreign currency forward contracts to mitigate the effect of
fluctuating foreign currencies. The Company uses derivative financial
instruments only for risk management purposes and does not use them for
speculation or trading.
At December 31, 1999, forward contracts to sell approximately 6.0 million
UK Pounds Sterling and 4.7 million Australian dollars were outstanding, all of
which mature in 2000. At December 31, 1998, forward contracts to sell 4.4
million UK Pounds Sterling, 6.3 million Australian dollars and 0.6 million
German marks were outstanding and matured at various dates in 1999. The
accounting for hedges is discussed separately under Hedging Activity within
Footnote 1.
Other:
The Company's finished goods are manufactured for the Company by certain
third-party suppliers located in China, Japan and Austria. Although the Company
considers its present relationships with these suppliers to be good, any adverse
change in the relationships with these suppliers, the financial condition of
such suppliers, the Company's ability to import outsourced products or the
suppliers' ability to manufacture and deliver outsourced products on a timely
basis would have a material adverse effect on the Company.
13. Related Party Transactions
Pursuant to a management agreement (the "Management Agreement") entered
into in connection with the reorganization of the Company in 1996, Vestar
Capital will receive an annual advisory fee equal to the greater of $500
thousand and 1.5% of EBITDA (as defined in such agreement) of the Company on a
consolidated basis for rendering advisory and consulting services in relation to
strategic financial planning and other affairs of the Company. Vestar Capital
will also be paid reasonable and customary investment banking fees in connection
with an initial public offering, sale of the Company and other financing. The
Management Agreement will be in effect until May 23, 2006, provided that the
Management Agreement will terminate on the earlier to occur of: (i) a qualified
public offering or (ii) the first date that the Vestar Members own less than 25%
of the number of the Company's Common Units owned by the Vestar Members on May
23, 1996, and provided further that Vestar Capital may terminate the Management
Agreement at any time.
F-15
Pursuant to a consulting and transitional services agreement (the "Consulting
Agreement") entered into by the Company as of the closing Date, RPI will receive
an annual fee equal to the greater of $500 thousand or 1.5% of EBITDA (as
defined in such agreement) of the Company on a consolidated basis for rendering
advisory and consulting services in relation to strategic financial panning,
product development and evaluation of mergers, acquisitions and divestitures.
The Consulting Agreement will be in effect until May 23, 2006, provided that the
Consulting Agreement will terminate on the earlier to occur of: (i) a qualified
public offering or (ii) the first date that RPI owns less than 25% of the number
of the Company's Common Units owned by RPI on May 23, 1996, and provided further
that Vestar Capital may terminate the Consulting Agreement at any time (but only
to the extent that Vestar Capital also terminates similar provisions of the
Management Agreement).
Pursuant to a reimbursement and indemnification agreement (the
"Indemnification Agreement") between the Company, Vestar and the Kiams entered
into in June 1999 in connection with the Guarantee of the Unsecured Supplemental
Loans to the Company under the Senior Credit Agreement (the "Guarantee"), Vestar
and Victor Kiam, II, each receive an annual guarantee fee of $100,000 from the
Company. The Indemnification Agreement will be in effect until the date the
Unsecured Supplemental Loans and all other amounts guaranteed by the Guarantee
are paid in full.
14. Business Segment and Geographical Information
The Company distributes electrical personal care appliances through its
three operating segments, which are comprised of 1) the North America segment,
which sells product primarily through mass-merchant retailers, department stores
and drug store chains throughout the United States and Canada, 2) the
International segment, which sells product through an international network of
subsidiaries and distributors and 3) the U.S. Service Store segment, consisting
of Company-owned and operated service stores throughout the United States.
The Operating segments reported below are the segments of the Company for
which separate financial information is available that is evaluated on a regular
basis by the Company's senior management in deciding how to allocate resources
to an individual segment and in assessing performance of the segment. The
segment's performance is evaluated based on segment operating income, which is
defined as earnings before interest, taxes, depreciation and amortization and
any unusual charges. All corporate related costs and assets, such as intangibles
and deferred financing fees, are included in the North America segment and are
not allocated to the other segments' operating income or assets, respectively.
Segment net sales are evaluated excluding intersegment sales, which are not
material.
Information by segment and geographical location is as follows (in thousands):
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ ------------
Net Sales:
North America $ 158,333 $ 130,316 $ 107,781
International 116,044 95,611 95,201
U.S. Service Stores 44,389 42,430 38,590
--------- --------- ---------
Total $ 318,766 $ 268,357 $ 241,572
========= ========= =========
Operating Income:
North America $ 20,318 $ 11,766 $ 7,603
International 10,888 5,372 7,869
U.S. Service Stores 3,469 3,613 3,441
Depreciation and amortization (5,555) (5,169) (4,767)
Restructuring and reorganization charge -- (6,806) --
Inventory write-down -- (2,760) --
--------- --------- ---------
Total $ 29,120 $ 6,016 $ 14,146
========= ========= =========
Segment Assets:
North America $ 129,011 $ 122,073 $ 125,016
International 84,906 62,264 69,064
U.S. Service Stores 10,073 11,390 11,165
--------- --------- ---------
Total $ 223,990 $ 195,727 $ 205,245
========= ========= =========
Capital Expenditures:
North America $ 1,705 $ 1,743 $ 2,875
International 1,091 969 952
U.S. Service Stores 722 1,167 1,251
--------- --------- ---------
Total $ 3,518 $ 3,879 $ 5,078
========= ========= =========
F-16
Net sales in the United Kingdom represented approximately 19%, 19% and 20%
of the Company's net sales during the years ended December 31, 1999, 1998 and
1997, respectively. No other country contributed more than 10% of net sales.
The Company's largest customer, Wal-Mart, accounted for approximately 19%,
19% and 15% of the Company's net sales during the years ended December 31, 1999,
1998 and 1997, respectively, and is serviced primarily by the North America
segment. No other customer accounted for more than 10% of the Company's net
sales during the years ended December 31, 1999, 1998 and 1997.
F-17
REMINGTON PRODUCTS COMPANY, L.L.C.
Schedule II--Valuation & Qualifying Accounts
(in thousands)
Additions
Balance at Charged to Balance at
Beginning Costs and End
of Year Expenses Deductions of Year
Year Ended December 31, 1999
Allowance for doubtful accounts $ 2,749 $ 534 $ (948) $ 2,335
Allowance for cash discounts and returns 7,655 22,690 (20,179) 10,166
Year Ended December 31, 1998
Allowance for doubtful accounts $ 734 $ 2,242 $ (227) $ 2,749
Allowance for cash discounts and returns 8,925 15,299 (16,569) 7,655
Year Ended December 31, 1997
Allowance for doubtful accounts $ 1,340 $ 188 $ (794) $ 734
Allowance for cash discounts and returns 9,419 16,007 (16,501) 8,925
S-1