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, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number 333-07429
333-07429-01
Remington Products Company, L.L.C.
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Remington Capital Corp.
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(Exact name of registrants as specified in their charter)
06-1451076
Delaware 06-1451079
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Nos)
60 Main Street, Bridgeport, Connecticut 06604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 367-4400
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
None
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(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. and its wholly-owned subsidiaries (the
"Company" or "Remington") is a leading consumer products company focusing on the
development and marketing of personal care products. The Company designs and
distributes electric shavers and accessories, grooming products, hair care
appliances, wellness products and other small electrical consumer products.
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 ("RPC") 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").
Forward Looking Statements
This annual report on Form 10-K 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 products, changes in economic
conditions, foreign exchange risk, outcome of litigation, and other factors
discussed herein and 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.
Description of Business
The Company distributes its products through three operating segments which
are comprised of 1) the North American 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. Additional financial information relating
to Remington's three operating segments is set forth in Note 13 (Business
Segment and Geographic Information) of the "Notes to the Consolidated Financial
Statements" of the Company appearing elsewhere herein.
Products
The Company's principal personal care products consist of the following
product categories:
Shaver and Grooming Products. The Company distributes a complete line of
shaver and grooming products, including men's and women's shavers, beard and
mustache trimmers, nose and ear trimmers, haircut kits and related accessories.
The Company's primary men's electric shavers consist of the MicroScreen(R) line
of single, dual and triple foil shavers as well as the MicroFlex(R) line of
rotary shavers marketed in North America and the Fast Track(R) line of rotary
shavers marketed internationally. The women's electric shaver category includes
a full line of women's Smooth & Silky(R) wet/dry shavers as well as epilators.
The Company distributes electric shaver accessories consisting of shaver
replacement parts (primarily foils and cutters), preshave products and cleaning
agents. Grooming products consist of the Precision(R) line, including beard and
mustache trimmers, nose hair and ear hair trimmers, and personal groomers, which
offer a selection of grooming accessories, as well as a line of home haircut
kits. Shaver and grooming products accounted for approximately 58%, 52% and 48%
of the Company's net sales for the years ended December 31, 2001, 2000 and 1999,
respectively.
Hair Care and Wellness. The hair care products consist of hair dryers,
hairsetters, curling irons, hair crimpers and straighteners, hot air brushes and
lighted mirrors. The hair dryer category includes the Company's Vortex(R) hair
dryer, and Pro Air(R) chrome dryers. The Company's hairsetter products include
the Remington Twisters(R), Express Set(R) hairsetter and the Smart Setter(R)
hairsetter, all of which incorporate proprietary technologies of color change
and wax core. Wellness products consist primarily of Remington's paraffin wax
hand spas and foot spas. Hair care and wellness products accounted for
approximately 29%, 31% and 30% of the Company's net sales for the years ended
December 31, 2001, 2000 and 1999, respectively.
Other Products. Remington sells a variety of Remington and non-Remington
brand personal care products through the Company's service stores, and also
distributes other small appliances, such as vacuums and electric irons, in
certain markets.
Distribution
The Company's products are sold in the United States and internationally in
many countries through mass merchandisers, catalog showrooms, drug store chains
and department stores, in addition to the Company's 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,
Federated and Kohls, 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 through in excess of 20,000 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 30%, 25% and 22%
of the Company's net sales during the years ended December 31, 2001, 2000 and
1999, respectively. No other customer accounted for more than 10% of the
Company's net sales in the three year period ended December 31, 2001.
U.S. Service Stores
As of March 1, 2002, the Company owned and operated a chain of 77 service
stores in the United States. During 2001 there were an average of 88 stores open
compared to an average of 93 stores in 2000 and 99 stores in 1999. The stores
are primarily located in shopping malls and outlet malls and sell and service a
variety of Remington and non-Remington shavers, personal care and other
products. The service stores also oversee sales of replacement parts to
approximately 300 independent authorized shaver service dealers across the
United States. In 2001, 2000 and 1999 the Company's U.S. Service Stores segment
generated approximately 10%, 12% and 14%, 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 and Japan. The
Company maintains ownership of tools and molds used by many of its suppliers.
The Company's most significant suppliers, Izumi Products, Inc., Raymond
Industrial Ltd., and Specialife Industries, Ltd., accounted for approximately
46% of the Company's overall cost of sales in 2001. Remington has had a
relationship with its suppliers for many years and management considers its
present relationships to be good.
The Company continues to manufacture certain foil cutting systems and
accessories in Bridgeport, Connecticut using proprietary cutting technology and
a series of specially designed machines. These systems are then shipped to third
party suppliers for inclusion in the finished product.
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 technologies for its
other products.
During 2001, 2000 and 1999, research and development expenditures by the
Company amounted to approximately $4.3, $4.2 and $4.0 million, respectively.
Patents and Trademarks
The Company owns over 400 patent and patent applications in various
countries for both design and utility. The Company's patents primarily cover
electric shavers, cutting and trimming mechanisms and hair care and wellness
products. In addition, the Company maintains over 1,400 different trademarks
around the world which are utilized in connection with its products.
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.
Competition
The Company operates in highly competitive markets. 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 producers of foil and rotary shavers,
such as Koninklijke Philips Electronics, N.V. ("Philips") and The Gillette
Company, including its Braun Division, in the U.S. and International electric
shaver and grooming markets. The Company's major competitors in the hair care
and wellness markets are Conair, Helen of Troy and Homedics. There are no
substantial regulatory barriers to entry for new competitors in the personal
care products industry. However, companies that are able to maintain or increase
the amount of retail shelf space allocated to their respective products may gain
a competitive advantage.
The rotary shaver market is significant outside the United States. The
continued 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.
Employees
As of March 1, 2002, the Company employed approximately 800 people
worldwide of which approximately 100 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. In addition, as part of routine
reporting requirements in connection with past property transfers, the Company
has reported to the Connecticut Department of Environmental Protection (the
"CTDEP") that it has detected petroleum, metals and solvent compounds in soil
and ground water samples taken from its Bridgeport facility. The general
remedial strategies have been selected by the Company and those strategies which
require CTDEP approvals 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 accruals of approximately $0.7
million to cover the anticipated costs of the remediation. 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 or results
of operations.
International Operations and Distribution
Remington's international segment generated approximately 27%, 31% and 36%
of the Company's net sales in 2001, 2000 and 1999, 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, Germany, Italy, France, Ireland,
Australia and New Zealand. In all other parts of the world the Company
distributes its products through 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 through the Company's 11 service stores in
the United Kingdom. In June 2000, the Company sold its 12 service stores in
Australia.
Additional financial information relating to Remington's international
operations is set forth in Note 13 (Business Segment and Geographic Information)
of the "Notes to Consolidated Financial Statements" of the Company appearing
elsewhere herein.
Risk Factors
In connection with a review of this Annual Report on Form 10-K, the
following risk factors should be considered carefully.
Debt. Remington has a significant amount of indebtedness. As of December
31, 2001 the Company had outstanding indebtedness of approximately $213 million.
Remington's substantial indebtedness could have important consequences. For
example, it could:
- - make it more difficult for the Company to meet its obligations to
creditors, including holders of its Senior Subordinated Notes, who could
then require the Company to do such things as restructure its indebtedness,
sell assets, or raise additional debt or equity capital;
- - limit the Company's ability to borrow additional amounts for working
capital, capital expenditures, acquisitions, debt service requirements,
execution of the Company's growth strategy, research and development costs
or other purposes;
- - require the Company to dedicate a substantial portion of its cash flow to
pay principal and interest on its debt, which will reduce the funds
available for working capital, capital expenditures, acquisitions and other
general corporate purposes;
- - limit the Company's flexibility in planning for and reacting to changes in
its business and in the industry in which the Company operates that could
make it more vulnerable to adverse changes in general economic, industry
and competitive conditions and adverse changes in government regulation;
and
- - place the Company at a disadvantage compared to its competitors that have
less debt.
Any of the above listed factors could have a material adverse affect
Remington's business and results of operations and its ability to meet its
obligations.
The credit agreement governing the Company's revolving credit facility
restricts management's discretion in operating the Company's business. In
addition, the credit agreement requires the Company to maintain specified
financial ratios and tests, among other obligations. In addition, the credit
agreement governing the Company's revolving credit facility restricts, among
other things, the Company's:
- - ability to incur additional indebtedness;
- - ability to make acquisitions; and
- - ability to make capital expenditures.
Market Uncertainties. The markets in which Remington competes are highly
competitive. The Company competes with large and established national and
multinational companies, as well as smaller companies, in all of its product
lines. Some of these competitors have, and new competitors may have,
substantially greater resources than Remington has. Consequently, it cannot be
assured that Remington will be able to compete effectively in the future.
Manufacturing Uncertainties. The Company depends on comparatively few
suppliers. The vast majority of finished goods are manufactured by suppliers
located in China and Japan. The Company's three most significant suppliers of
finished goods in 2001 accounted for approximately 46% of the total cost of
sales, with the largest supplier comprising approximately 25% of the total cost
of sales. Any adverse change in any of the following could have a material
adverse effect on Remington's business:
- - relationships with these suppliers;
- - the financial condition of these suppliers;
- - the ability to import outsourced products; or
- - these suppliers' ability to manufacture and deliver outsourced products on
a timely basis.
Although the Company has long-established relationships with many of its
suppliers, it does not have long-term contracts with any of its suppliers. It
cannot be assured that the Company could quickly or effectively replace any of
its suppliers if the need arose, and it cannot be assured that the Company could
retrieve tooling and molds possessed by any of its suppliers. Remington's
dependence on these few suppliers could also adversely affect its ability to
react quickly and effectively to changes in the market for its products. In
addition, international manufacturing is subject to significant risks,
including:
- - labor unrest;
- - political instability;
- - restrictions on transfer of funds;
- - domestic and international customs and tariffs;
- - unexpected changes in regulatory environments; and
- - potentially adverse tax consequences.
It cannot be assured that Remington's business will not be adversely
affected by the aforementioned risks, each of which could have an adverse effect
on its ability to increase or maintain its international importing activities
and/or on its results of operations.
Remington depends on a single manufacturing facility for certain essential
parts of its products. Remington manufactures the majority its foil cutting
systems, using specially designed machines and proprietary cutting technology,
at its sole company-owned manufacturing facility in Bridgeport, Connecticut.
This manufacturing facility is subject to the normal hazards that could result
in any material damage to any such facility. Damage to this facility, or
prolonged interruption in the operations of this facility for repairs or other
reasons, would have a material adverse effect on Remington's financial position
and its results of operations.
Product Introductions. The Company cannot be certain that its product
innovations and marketing successes will continue. The Company believes that its
future success will depend, in part, upon its ability to continue making
innovations in its existing products and to develop, manufacture and market new
products. The Company cannot assure that it will be successful in the
introduction, marketing and manufacture of any new products or product
innovations. Furthermore, there can be no assurance that the Company will be
able to develop and introduce new products or improvements to its existing
products which satisfy customer needs or achieve market acceptance. The failure
to develop products and introduce them successfully in a timely manner could
adversely affect Remington's financial condition and its results of operations.
Customer Concentration. A small number of major customers account for a
significant percentage of Remington's total net sales, and a decrease in orders
from these major customers would cause the Company's net sales and profitability
to decline.
Net sales to the Company's five largest customers accounted for
approximately 49% of its total net sales in 2001. Wal-Mart accounted for
approximately 30% of its net sales worldwide during 2001. No other customer
accounted for more than 10% of the Company's worldwide net sales in 2001.
Although the Company has long-established relationships with many of its
customers, it does not have long-term contracts with any of its customers. A
decrease in business from any of the Company's major customers could have a
material adverse effect on the Company's financial condition and results of
operations.
On January 22, 2002, Kmart, one of the Company's largest U.S. customers,
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. While the
outcome of the bankruptcy case can not be predicted, the Company continues to
ship product to Kmart and is hopeful that the customer will successfully
reorganize and emerge from bankruptcy in early 2003, as announced. However, if
the customer is unsuccessful in reorganizing, there could be a short-term
material adverse effect to the Company's operating results. It is the Company's
belief that continued consumer demand for its products would ultimately be
absorbed by the Company's other customers, although there can be no assurance of
this. Kmart accounted for 7%, 7% and 6% of the Company's net sales for the
fiscal years ended December 31, 2001, 2000 and 1999, respectively.
Currency Risk. The Company is subject to foreign currency fluctuations as a
result of its foreign manufacturing and sales activities. In 2001, 30% of the
Company's net sales were made outside the United States. The U.S. dollar value
of the Company's sales varies with currency exchange rate fluctuations. Changes
in currency exchange rates could have an adverse effect on results of operations
and the Company's ability to meet interest and principal obligations on its
debt. The Company's results of operations are affected by changes in exchange
rates. The Company's foreign subsidiaries sell products in local currency. While
many of the Company's selling and distribution costs are also denominated in
these currencies, a large portion of product costs are U.S. dollar denominated.
The Company takes precautions against these fluctuations by entering into
foreign exchange forward contracts, which, in effect, lock in U.S. dollar
exchange rates for products which the Company's foreign subsidiaries purchase.
However, there can be no assurance that significant changes in currency exchange
rates will not have an adverse impact on the Company's business or results of
operations and, in fact, such an adverse impact was realized in the fiscal year
ended December 31, 2001.
Managing Growth. The Company may be unsuccessful in managing the growth of
its business or integrating acquisitions. As part of the Company's long-term
strategy, it seeks to acquire other brands and consumer product companies that
can benefit from the Remington brand name and its manufacturing, sourcing,
operations and distribution infrastructure. Although the Company is not
currently a party to any agreement with respect to any pending acquisition which
it believes is probable and material to its business, it has engaged in and
continues to engage in evaluations and discussions with respect to potential
acquisitions. It cannot be assured that the Company will be able to either
identify and acquire attractive acquisition candidates at prices and on terms
favorable to it or succeed at effectively and profitably managing the
integration of an acquired business.
Reliance on Key Personnel. The loss of the services of any members of the
Company's senior management team could adversely affect its business. The
Company is dependent on the continued services of its senior management team.
The loss of any key personnel could have an adverse effect on the Company's
business. The Company does not maintain key-person insurance for any of its
officers, employees or directors.
Litigation. The Company is engaged in a number of active litigations. In
addition to litigation arising in the ordinary course of business, the Company
is involved in a series of legal disputes with Philips. In each of several
related actions which are pending in the United Kingdom, Philips has alleged
that the sale of Remington's rotary shavers infringe upon registered trademarks
owned by it. Accordingly, Philips is seeking damages and injunctions relating to
the rotary shavers which Remington sells in the United Kingdom. Remington is
defending these actions vigorously and has filed counterclaims alleging the
invalidity of Philip's trademarks. The Company has filed preemptive claims
against Philips in each of France and Italy seeking to nullify rotary shaver
trademarks held by Philips in these countries. In response to Remington's claims
and the sale by Remington of its rotary shavers, Philips has filed counterclaims
alleging trademark infringement by Remington. It cannot be assured that the
consequences of any adverse findings against Remington in these litigations will
not have an adverse effect on the Company's financial position or results of
operations.
ITEM 2. Properties
The following table sets forth information as of March 1, 2002 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/or warehouse
space in the United States, Canada, the United Kingdom, Germany, France, Italy,
Ireland, Australia, New Zealand, Hong Kong and China. Remington also leases
retail space for its 88 service stores, of which 77 are in the United States and
11 are in the United Kingdom. Leases for service stores generally extend up to
five years. The majority of the leases contain escalation clauses, which provide
for increases in rent to enable the lessor to recover future increases in
certain operating costs. Certain leases require additional payments based on
sales volume.
ITEM 3. Legal Proceedings
The Company is involved in a number of international litigations against
Philips which relate to the trademarks owned by Philips with respect to the
shape of the head portion of its three headed rotary shaver. It is essential to
the Company's efforts to continue to sell rotary shavers in countries where such
trademark rights exist that it be successful in these litigations. Following is
a summary of these litigations.
Koninklijke Philips Electronics NV v. Remington Consumer Products Limited (U.K.)
This action involves a claim by Philips that Remington's sale of rotary
shavers in the United Kingdom infringed its design patent and trademark. Philips
is seeking an injunction and damages on all rotary shavers sold by Remington.
Remington is vigorously defending the action. Pursuant to the judgment after
trial, the court found that Remington did not infringe Philips' design patent or
trademark and that Philips' trademark was invalid. Philips appealed the judgment
with respect to the trademark issue and 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 issues between the
parties raised difficult questions of construction of the Trademark Directive of
the European Community and referred seven questions relating to the construction
of this Directive to the European Court of Justice for its opinion. Oral
argument before the European Court of Justice occurred on November 29, 2000.
On January 23, 2001, the Advocate General to the European Court of Justice
delivered his opinion in the case to the court, to the effect that the Trademark
Directive must be interpreted to mean that, if the essential features of a shape
serve the achievement of a technical result, the shape cannot be the subject of
a valid trademark registration. In so doing, the Advocate General supported the
position advanced by Remington in the case. The Advocate General also noted in
his opinion that this interpretation is not effected by the possibility that
alternative rotary shaver head designs may exist that could achieve the rotary
shaving function. The opinion of the European Court of Justice is presently
expected some time in 2002 although no assurance can be given in this regard.
This opinion will be forwarded to the Court of Appeal which will, in turn, bring
its provisional judgment of May 5, 1999 into line with that opinion.
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. This
second suit alleges that the sale of Remington's rotary shavers infringes
Philips' registered trademark. Philips seeks injunctive relief, mandatory
delivery 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 in minor respects from the
registered trademark at issue in the first action. 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 second
suit has been stayed by agreement of the parties pending the determination of
the European Court of Justice in the first action.
Remington Consumer Products Limited v. Koninklijke Philips Electronics NV
(France)
This action involves a preemptive claim filed by Remington against Philips
in the Paris First Instance Court on May 17, 2000, seeking the nullification of
Philips rotary shaver head trademarks in France. On or about October 4, 2000,
Philips filed a Writ of Summons with the Paris Lower Civil Court asserting
trademark infringement against Remington and seeking an injunction and damages
with respect to all rotary shavers sold by Remington. Remington is vigorously
defending the action.
On or about October 26, 2000, Philips filed a second Writ of Summons in the
Paris Lower Civil Court seeking a preliminary injunction to prohibit Remington
from selling its rotary shavers. The hearing in this matter occurred on November
15, 2000 and, on December 4, 2000, the Court issued its order denying Philips'
request for an injunction. On December 22, 2000, Philips filed a Writ of Summons
with the Paris Court of Appeal seeking the injunction referred to above. The
hearing in this matter occurred on January 10, 2001 and, on February 7, 2001,
the Court of Appeal affirmed the denial of Philips' request for an injunction. A
trial on the merits in the principal action is expected to occur later in 2002.
Remington Consumer Products Limited v. Koninklijke Philips Electronics NV
(Italy)
This action involves a preemptive claim filed by Remington against Philips
in the Tribunal of the City of Milan on May 15, 2000, seeking the nullification
of Philips' rotary shaver head trademarks in Italy and a declaration that the
sale of Remington's rotary shavers does not constitute trademark infringement or
unfair competition on the part of Remington. On or about November 15, 2000,
Philips filed a Writ of Summons with the Court asserting infringement against
Remington and seeking an injunction and damages with respect to all rotary
shavers sold by Remington. Remington is vigorously defending the action. A
hearing on the matter was held on March 6, 2001 at which time Philips withdrew
the suit.
At the present time, the Company cannot assess the damages that it would incur
in the event it were to lose one or more of the pending litigations with
Philips, although it does believe that such a loss or losses would not have a
material adverse effect on its consolidated financial position or results of
operations. Pursuant to the terms of an agreement with Izumi Products Company
dated April 1, 1996, as amended, all expenses and losses, including any
potential damages, arising from or in connection with this litigation will be
shared equally with Izumi.
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 or 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 2001.
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, with the Common Units, the
"Equity". There is no established public trading market for the Equity.
(b) Holders
As of March 1, 2002, there were two beneficial owners of the Equity.
(c) Dividends
Pursuant to the Amended and Restated Limited Liability Company Agreement,
the Company is required to make cash distributions to the members in order to
reimburse them for tax liabilities incurred on earnings of the Company. A cash
dividend of $104 thousand was paid to Vestar affiliated entities in 2001. No
other 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 Consolidated Financial Statements
and accompanying notes thereto appearing elsewhere herein (in thousands):
Year Ended December 31,
----------------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- --------- --------
Statement of Operations Data:
Net sales $393,577 $365,149 $318,766 $268,357 $241,572
Operating income 1,903 38,255 29,120 6,016 14,146
Interest expense 26,435 24,774 21,723 20,499 19,318
Net income (loss) (1) (23,381) 12,737 6,035 (15,337) (7,923)
Depreciation and amortization 5,834 5,753 5,555 5,169 4,767
Balance Sheet Data (at period end):
Working capital $87,446 $106,039 $85,053 $68,294 $76,361
Total assets 241,736 242,487 223,990 195,727 205,245
Total debt 213,042 203,266 195,841 187,668 181,240
Cumulative Preferred Dividend (2) 58,243 44,835 32,921 22,336 12,932
- ----------------------------------
(1) 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.
(2) Dividend payments are subject to restrictions by the terms of the Company's
debt agreements. See Note 6 of the "Notes to Consolidate Financial
Statements."
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
For the year ended December 31, 2001, the Company reported net sales and
operating income of $393.6 million and $1.9 million, respectively, compared to
$365.1 million and $38.3 million, respectively, in the prior year. Higher sales
versus year ago were attributable to the strength of the Company's North
American business, particularly its shaver and grooming line. Offsetting higher
operating income from the higher sales were the following factors: (1) Fourth
quarter charges of $9.9 million related primarily to obsolete products; (2)
$13.0 million in unexpected costs recognized in the second quarter of 2001
primarily related to the Company's U.K. subsidiary; (3) Higher customer returns
provisions, and higher distribution and other costs, and (4) Other one-time
fourth quarter charges of $3.5 million for customer credit and other costs.
Of the $9.9 million of costs recognized in the fourth quarter of 2001,
inventory charges and other related costs amounted to $7.7 million to recognize
the estimated market value of certain products primarily within the haircare and
wellness line that have become obsolete. Tooling and component write-offs for
discontinued products amounted to $1.1 million. Further, the Company incurred
$0.6 million of severance costs and $0.5 million of costs associated with
consolidating two adjacent office buildings in the U.K. into one.
Of the $13.0 million of unexpected second quarter costs, $11.0 million
related to the Company's business in the U.K. This $11.0 million was comprised
of $5.9 million associated with logistics operations, $2.7 million of inventory
write-downs, $1.5 million of higher trade promotion costs and $0.9 million of
other costs. Logistics costs in the U.K. business were impacted by unnecessary
complexities in that business, including the proliferation of stock keeping
units ("sku's") and the support required of the U.K. distribution facility for
the Company's operations in Continental Europe. In order to address this
situation, the Company in the third quarter of 2001 completed its transition to
new third party distribution centers in the U.K. and, to support the Company's
business in Continental Europe, in Germany. The second quarter of 2001 was
impacted further by a $1.0 million charge to inventory to reflect product
discontinuations in North America. An additional $1.0 million of severance costs
was recognized by the Company in the second quarter in connection with the
initiative undertaken by it in the second quarter to simplify product offerings,
as described below. Of the $13.0 million of unexpected costs recorded in the
second quarter, $9.2 million negatively impacted gross profit and the balance of
$3.8 million impacted selling, general and administrative costs.
Provisions for sales returns were higher, due primarily to disappointing
results from certain of the Company's promotional programs occasioned by the
impact of a general economic and retail slowdown during the critical holiday
period. Higher distribution costs were incurred primarily because of a shift in
product mix to heavier and bulkier haircare and wellness items and to continuing
transition costs of moving to new distribution centers in the U.S. the U.K. and
Germany. Other factors impacting gross margin were lower pricing with respect to
haircare and wellness products in order to meet competitive activity and the
weak holiday retail environment, and the impact on cost of sales of a stronger
dollar.
The Company has undertaken changes designed to improve and simplify its
product development process by centralizing new product development in the U.S.
This will reduce complexity through the simplification and unification of
worldwide product offerings and help achieve logistics improvements. Further, as
mentioned above, numerous products within the haircare and wellness category
became obsolete and certain other related new product development programs were
ceased or combined into global programs. This change is reducing duplication of
efforts and costs and allows each geography to focus on marketing and sales
efforts, while the majority of product development efforts are managed globally.
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, 2001, 2000 and 1999 (in millions except for percentages). The
discussion should be read in connection with the Consolidated Financial
Statements and accompanying notes thereto appearing elsewhere herein.
2001 2000 1999
----------------- --------------------- -------------------
Net Sales: $ % $ % $ %
------ ------ ------ ------ ------ -----
North America $246.8 62.7 $207.6 56.9 $158.3 49.7
International 108.1 27.5 114.8 31.4 116.1 36.4
U.S. Service Stores 38.7 9.8 42.7 11.7 44.4 13.9
------- ------ ------ ----- ----- -----
393.6 100.0 365.1 100.0 318.8 100.0
Cost of sales 243.2 61.8 201.7 55.3 176.3 55.3
------- ------ ------ ----- ----- -----
Gross profit 150.4 38.2 163.4 44.7 142.5 44.7
Selling, general and
administrative expenses 146.6 37.2 123.1 33.7 111.4 34.9
Intangible amortization 1.9 0.5 2.0 0.5 2.0 0.6
------- ------ ------ ----- ----- -----
Operating income 1.9 0.5 38.3 10.5 29.1 9.2
Interest expense 26.4 6.7 24.8 6.8 21.7 6.8
Other expense 2.0 0.5 0.4 0.1 0.2 0.1
------- ------ ------ ----- ----- -----
Income (loss) before
income taxes (26.5) (6.7) 13.1 3.6 7.2 2.3
Provision (benefit)for
income tax (3.1) (0.8) 0.4 0.1 1.2 0.4
------- ------ ------ ----- ----- -----
Net income (loss) $(23.4) (5.9%) $ 12.7 3.5% $ 6.0 1.9%
======= ====== ====== ===== ===== =====
Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000
Net Sales. Net sales for the year ended December 31, 2001 increased 8% to
$393.6 million compared to $365.1 million for the year ended December 31, 2000.
The sales increase was driven by stronger sales in the Company's North American
segment predominately in its shaver and grooming category. This increase was
partially offset by decreased sales in the International and U.S. Service Stores
segments.
Net sales in North America increased 19% to $246.8 million for the year
ended December 31, 2001, compared to net sales in the prior year of $207.6
million. Shaver and grooming sales continued their strong growth as a result of
increased distribution at new and existing customers and new product
introductions during the last two years. The haircare and wellness category also
experienced sales growth in 2001 primarily as a result of the introduction of
new products. The net sales increase in each of these product lines was in part
offset by higher provisions for sales returns and, in the case of haircare and
wellness products, by lower pricing, all of which resulted from a weaker than
expected holiday retail environment and competitive issues.
Net sales for the International business decreased 6% to $108.1 million in
2001 compared to $114.8 million in 2000. Most of this decline was due to the
negative impact of foreign currency. The balance of the decline was due
primarily to the combination of weaker sales in the U.K., due in part to
logistics difficulties and lower sales in Australia resulting from a weaker
economic environment and the sale of the Australian Service Stores in the third
quarter of 2000, partially offset by sales increases in continental Europe.
Net sales in the Company's U.S. Service Stores segment decreased 9% to
$38.7 million for the year ended December 31, 2001 compared to $42.7 million in
2000. A weaker retail environment, together with an average of five fewer stores
during 2001, were the primary factors for the decrease. As a result of this
weaker environment, same store sales, defined as all stores operating for twelve
months in 2001 and in 2000, decreased 5% from 2000 to 2001. The number of stores
has declined over the last couple of years as the leases on underperforming
stores have not been renewed and as the Company pursues a strategy of limiting
the opening of new stores in favor of investing in its other businesses.
Gross Profit. Gross profit was $150.4 million, or 38.2% of net sales for
the year ended December 31, 2001 compared to $163.4 million, or 44.7% of net
sales for the year ended December 31, 2000. The positive margin impact of
increased shaver and grooming sales in North America was more than offset by
fourth quarter charges of $ 8.8 million primarily associated with obsolete
haircare and wellness products and $9.2 million of the second quarter unexpected
costs referred to above. The gross margin was further impacted by higher
provisions for sales returns, as well as the lower pricing in the haircare and
wellness category resulting from a weaker holiday retail environment and
competitive issues. Also impacting gross profit was the negative impact of
foreign currency on product costs in the International segment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $146.6 million or 37.2% of net sales for
the year ended December 31, 2001, compared to $123.1 million or 33.7% of net
sales for the year ended December 31, 2000. Included in selling, general and
administrative expenses in 2001 are $4.6 million of fourth quarter charges
primarily associated with customer credit, office consolidation and other
charges, and $3.8 million of the unexpected costs recorded in the second
quarter. In addition, higher distribution costs related to heavier and bulkier
wellness products and the moving and consolidation of distribution centers in
the U.S. and Europe also impacted the increase over the prior year.
Operating Income. Operating income for the year ended December 31, 2001 was
$1.9 million, or 0.5% of net sales, compared to $38.3 million or 10.5% in 2000.
Despite an increase in net sales, the lower gross profit and higher selling,
general and administrative expenses, as discussed above, resulted in the
significant decline in operating income.
Interest Expense. Interest expense increased to $26.4 million in 2001
compared to $24.8 million in 2000. The increase was the result of higher average
borrowings in 2001 versus 2000 and was partially offset by lower interest rates
and lower amortization of deferred financing costs.
Other Expense. Other expense was $2.0 million in 2001 compared to $0.4
million in 2000. The higher expense is due primarily to unrealized currency
losses incurred by the International segment.
Income Taxes. The net benefit for income taxes was $3.1 million in 2001
compared to a net provision of $0.4 million in 2000. The net benefit in 2001
relates primarily to pretax losses generated by the Company's U.K. operations.
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Net Sales. Net sales for the year ended December 31, 2000 were $365.1 million,
an increase of 15% compared to $318.8 million for the year ended December 31,
1999. This increase is attributable to the North American operations which
experienced continued strong growth. Net sales in the International business
decreased over the prior year as a result of negative currency impacts and the
U.S. Service Stores segment decreased as a result of fewer stores. Before the
negative impact of foreign currency translation, consolidated net sales
increased 18% over the prior year.
Net Sales in North America for the year ended December 31, 2000 increased
31% to $207.6 million compared to $158.3 million for the year ended December 31,
1999 as major product lines experienced strong growth. Shaver and grooming sales
increased primarily as a result of new product introductions in both the men's
and women's shaver lines, the continued strong performance of the Precision(R)
line of beard and mustache trimmers and the 1999 introduction of the personal
groomer. The hair care category experienced significant increases in hair dryer
sales which were primarily driven by a continued demand for the Vortex(R)
hairdryer, while the increased sales of wellness products were led by a strong
demand for the newly introduced models of paraffin wax hand spas.
International net sales were $114.8 million for the year ended December 31,
2000, a decrease of 1% compared to $116.1 million for the year ended December
31, 1999. Excluding the $12.1 million negative impact of foreign currency
translations, net sales in the International business actually increased 9%
primarily as a result of growth in the Company's European markets, particularly
the United Kingdom, Germany, Italy and Ireland. This growth is reflected in all
major product categories as a result of new product introductions and increased
distribution.
Net sales through the Company's U.S. Service Stores decreased 4% to $42.7
million for the year ended December 31, 2000 compared to $44.4 million for the
year ended December 31, 1999. The decrease was due to an average of six fewer
stores open during the year ended December 31, 2000. Same store sales, defined
as all stores operating for twelve months in 2000 and in 1999, increased 3.6%
from 1999 to 2000.
Gross Profit. Gross profit was $163.4 million or 44.7% of net sales for the
year ended December 31, 2000 compared to $142.5 million or 44.7% of net sales
for the year ended December 31, 1999. The gross profit percentage in North
America increased in 2000 primarily due to an improved product mix and the
impact of the Company's continuous cost reduction efforts. This increase was
offset by a decrease in the International percentage which was caused primarily
by the strengthening of the U.S. dollar against foreign currencies as purchases
are made in U.S. dollars. The gross profit percentage in the Company's U.S.
Service Stores for the year ended 2000 remained consistent with 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $123.1 million for the year ended December
31, 2000 compared with $111.4 million for the year ended December 31, 1999.
Despite an increased investment in advertising and promotion, total selling,
general and administrative expenses decreased as a percentage of sales from
34.9% in 1999 to 33.7% in 2000 primarily as a result of the higher sales in
2000.
Operating Income. Operating income for the year 2000 increased to $38.3
million or 10.5% of net sales compared to $29.1 million or 9.2% of net sales in
1999. The increase in operating income is attributable to the increased sales
and lower selling, general and administrative expenses as a percentage of sales.
Interest Expense. Interest expense was $24.8 million for the year ended
December 31, 2000 compared to $21.7 million for the year ended December 31,
1999. The increase is due to higher average borrowings and higher interest rates
during 2000, as well as higher amortization of deferred financing fees.
Provision for Income Taxes. The net expense for income taxes was $0.4
million for the year 2000 compared to a net expense of $1.2 million in 1999. The
decrease is due to lower pretax earnings in the International segment and the
recognition of certain foreign tax refunds related to prior years.
Liquidity and Capital Resources
For the year ended December 31, 2001, the Company used approximately $4.3
million in cash for operating activities, compared to $3.9 million in 2000. The
increased usage of cash for operations in 2001 is the result of a net loss of
$23.4 million in 2001, compared to net income of $12.7 million in 2000,
partially offset by lower working capital levels at the end of 2001.
The Company's operations are not capital intensive. During 2001 and 2000,
the Company's capital expenditures, including tooling for new products, amounted
to $4.3 million and $4.4 million, respectively. Capital expenditures for 2002
are anticipated to be approximately $6.0 million, including investments in
computer system upgrades.
During 2001, the Company's total borrowings, excluding currency impacts,
increased by $11.0 million and cash decreased by $5.8 million excluding currency
impacts, thereby increasing net borrowings by $16.8 million. The increase in net
borrowings is the result of $4.3 million in cash used by operations, $4.3
million used in capital expenditures and financing costs of $8.1 million
incurred in connection with the Company's sale and registration of $50.0 million
in Senior Subordinated Notes and the refinancing of its revolving credit
facility.
On April 18, 2001, the Company completed the sale of $50.0 million of
Senior Subordinated Notes due 2006 (the "Series C Notes"). The net proceeds of
approximately $44.8 million were used to pay off the term loans and supplemental
loans and a portion of the outstanding revolving credit borrowings under the
Company's former senior credit facility.
On September 6, 2001, the Company filed a registration statement (the
"Exchange Offer") with the Securities and Exchange Commission for the purpose of
enabling holders of its $130.0 million 11% Series B Senior Subordinated Notes
issued on May 23, 1996 ("Series B Notes") and its Series C Notes to exchange
them for a like principal amount of 11% Series D Subordinated Notes ("Series D
Notes") registered under the Securities Act of 1933, as amended. The Exchange
Offer was completed on October 10, 2001, and the Company now has outstanding
approximately $15.0 million in principal amount of Series B Notes and
approximately $165.0 million in principal amount of Series D Notes. Additional
information with respect to the Company's Senior Subordinated Notes is included
in Note 6 to the "Notes to the Consolidated Financial Statements" of the Company
appearing elsewhere herein.
The Company's primary sources of liquidity are funds generated from
operations and borrowings under its new $110.0 million asset based revolving
credit facility (the "Facility") entered into on August 21, 2001. The initial
draw down under the Facility was used to repay all outstanding borrowings under
the Company's former $70.0 million senior credit facility. Borrowings under the
Facility are subject to a borrowing base of 85% of eligible receivables and 60%
of eligible inventories and mature on March 31, 2006. The borrowing base can be
increased by up to $10.0 million (the "Seasonal Overadvance") over the
applicable percentage of eligible receivables and inventories, (still limited to
the $110.0 million of total facilities) from March 15 through June 15 and August
1 through November 15.
On March 28, 2002, due to the significant decline in operating income, the
Company obtained waivers of certain financial covenants under the Facility as of
December 31, 2001 and the Facility was amended to remove the Seasonal
Overadvance, require the Company to maintain a minimum level of borrowing
availability under the Facility, adjust certain of the financial maintenance
tests and increase the applicable interest rates on the Facility. Additional
information with respect to this Facility is included in Note 6 to the "Notes to
the Consolidated Financial Statements" of the Company appearing elsewhere
herein. As of March 1, 2002, available borrowings under the Facility was
approximately $24 million.
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.
The following table summarizes the Company's contractual obligations as of
December 31, 2001:
Payments due by period (in millions)
--------------------------------------------------------------
Less than 1 to 3 4 to 5 After 5
1 year years years years Total
--------- ------ ------ ------- ------
Short Term Borrowings $4.1 $ 4.1
Senior Subordinated Notes 180.0 180.0
Revolving Credit Facility (1) 28.4 28.4
Capital Leases 0.3 0.3 0.6
Operating Leases 4.2 5.6 3.2 4.4 17.4
---- ---- ------ ---- ------
Total Contractual Obligations $8.6 $5.9 $211.6 $4.4 $230.5
==== ==== ====== ==== ======
(1) Represents the outstanding portion of the $110.0 million revolving credit
facility as of December 31, 2001.
Critical Accounting Policies
The Company's accounting policies are more fully described in Note 1 to the
"Notes to the Consolidated Financial Statements" of the Company appearing
elsewhere herein. As disclosed in Note 1, 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. Future
events and their effects cannot be determined with absolute certainty.
Therefore, the determination of estimates requires the exercise of judgment.
Actual results inevitably will differ from those estimates, and such differences
may be material to the Consolidated Financial Statements. The following
accounting policies affect the Company's more significant estimates used in the
preparation of its consolidated financial statements:
Accruals for sales returns, warranty reserves, bad debts and other
allowances are estimated at the time of sale based upon the Company's past
experience and other known factors. If future actual results differ from past
experience additional accruals may be required.
The Company's inventory is valued at the lower of cost or estimated market
value. The Company regularly reviews inventory quantities on hand and
writes-down inventory determined to be slow moving or obsolete based upon
expected future demand. If demand does not meet management's expectations,
additional inventory write-downs may be required.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standard Board issued SFAS No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 1, 2001. Under SFAS No. 142, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives. The Company will apply the provisions of SFAS No. 142
beginning on January 1, 2002. Application of the nonamortization provisions of
SFAS No. 142 is expected to result in an increase in net earnings of
approximately $1.5 million per year. During 2002, the Company will perform the
first of the required impairment tests of goodwill using the methodology
prescribed by SFAS No. 142. It is the Company's preliminary assessment that a
transitional impairment charge, if any, will not be material.
In August 2001, SFAS No. 143, Accounting for Asset Retirement Obligations,
was issued. This Statement establishes accounting standards for recognition and
measurement of a liability for an asset retirement obligation and the associated
asset retirement cost. In October 2001, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, was issued. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001 and SFAS No. 143 is effective
for fiscal years beginning after June 15, 2002. The Company has not yet assessed
what impact, if any, that the adoption of SFAS No. 144 and No. 143 will have on
its financial position and results of operations.
In November 2001, the Emerging Issues Task Force reached consensus on Issue
No. 01-9, Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products (EITF 01-9). In connection with the adoption
of this consensus on January 1, 2002, the Company will be required to classify
certain payments to its customers as a reduction of sales. The Company currently
classifies certain of these payments as selling, general and administrative
expenses in its Consolidated Statement of Operations. Upon adoption, prior
period amounts will be reclassified. Because adoption of EITF 01-9 will solely
result in reclassification within the Consolidated Statement of Operations,
there will be no impact on the Company's financial condition, operating income
or net earnings.
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 on average approximately 45% 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 for the year.
Inflation
In recent years, inflation has not had a material impact upon the results
of the Company's operations.
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 on January 1, 2002,
euro-denominated bills and coins were issued for cash transactions. For a period
of up to six months from this date, both legacy currencies and the euro will be
legal tender. On or before July 1, 2002, the participating countries will
withdraw all legacy currencies and use the euro exclusively.
The Company's international businesses affected by the euro conversion
comprise approximately 9% of the Company's net sales for the year ended December
31, 2001. The Company has addressed the issues raised by the euro currency
conversion, which included, among others, adapting 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks, which include changes in interest
rates as well as changes in foreign currency exchange rates as measured against
the U.S. dollar. The Company has an established foreign exchange risk management
policy and, in the normal course of business, uses derivative financial
instruments, primarily foreign currency forward contracts, to manage its foreign
currency risk. The Company uses these instruments only for risk management
purposes and does not use them for speculation or for trading.
The Company measures its interest rate risk and foreign currency risk, as
outlined below, utilizing a sensitivity analysis. The sensitivity analysis
measures the potential loss in fair values, cash flows, and earnings based on a
hypothetical 10% adverse change in interest rates and currency exchange rates.
The Company uses year-end market rates on its financial instruments to perform
the sensitivity analysis. Certain items such as lease contracts, insurance
contracts, and obligations for pension were not included in the analysis.
Interest Rate Risk. As of December 31, 2001 the Company's debt portfolio
was comprised of fixed rate debt consisting of $180.0 million of Senior
Subordinated Notes and $33.0 million of variable rate debt, primarily borrowings
under the Facility. For further details, refer to Note 6, of the "Notes to the
Consolidated Financial Statements" of the Company appearing elsewhere herein.
The Company's primary interest rate exposures relate to its fixed and
variable rate debt, and any cash holdings. For the purposes of the sensitivity
analysis, the potential loss in fair values is based on an immediate change in
the net present values of the Company's interest rate sensitive exposures
resulting from an immediate 10% adverse change in interest rates. The potential
loss in cash flows and earnings is based on the change in the net interest
expense over a one year period due to an immediate 10% adverse change in rates.
A hypothetical 10% adverse change in interest rates does not have a material
impact on the fair values, cash flows or earnings of the Company for either 2001
or 2000.
Foreign Currency Risk. Foreign currency risk is managed by the use of
foreign currency forward contracts. The Company's principal currency exposures
are in British pounds, euros and Australian and Canadian dollars.
The Company's primary currency rate exposures relate to its intercompany
debt, cash and foreign currency forward contracts. For the purposes of this
sensitivity analysis, the potential loss in fair values is based on an immediate
change in the U.S. dollar equivalent balances of the Company's currency
exposures due to a 10% adverse shift in currency exchange rates. The potential
loss in cash flows and earnings is based on the change in cash flow and earnings
over a one-year period resulting from an immediate 10% adverse change in
currency exchange rates. A hypothetical 10% adverse change in the currency
exchange rates does not have a material impact on the fair values, cash flows or
earnings of the Company for either 2001 or 2000.
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.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information as of March 1, 2001 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 55 Chairman, Chief Executive Officer, President and Director
Joel K. Bedol 50 Vice President, General Counsel and Secretary
Alexander R. Castaldi 51 Executive Vice President, Chief Financial and Administrative Officer
Lester C. Lee 42 President, Remington North America
Timothy G. Simmone 36 Senior Vice President, Chief Technical Officer
Norman W. Alpert 43 Director
Vernon A. Brunner 61 Director
William B. Connell 61 Director
Stephen P. Donovan, Jr. 61 Director
Victor K. Kiam, III 42 Director
Kevin A. Mundt 48 Director
Arthur J. Nagle 63 Director
Daniel S. O'Connell 47 Director
Robert L. Rosner 42 Director
Steven M. Silver 33 Director
Neil P. DeFeo was appointed Chairman of Remington in September 2001 and 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 of 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,
Driscoll's Strawberry Association, Inc. and Manhattan College.
Joel K. Bedol has been Vice President, General Counsel and Secretary of
Remington since January 2000. From 1992 to 1999, Mr. Bedol was Executive Vice
President, General Counsel and Secretary of Nine West Group Inc.
Alexander R. Castaldi has been Executive Vice President, Chief Financial
and Administrative Officer of the Company since January 2000. Mr. Castaldi held
the title Executive Vice President and Chief Financial Officer of Remington
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 held the
position of Senior Vice President and Chief Financial Officer of Kendall
International, Inc.
Lester C. Lee was appointed to President, Remington North America in
January 2002. Previously, Mr. Lee held the position of President, U.S. Shaver &
Grooming Division since January 2000 and was Senior Vice President Sales and
Integrated Logistics of the Company since July 1997. From 1995 until 1997, Mr.
Lee was employed by Pacific Bell Mobile Services, a Division of Pacific Telesis,
most recently as Vice President of Sales, and from 1989 until 1995, he was
employed by Norelco Consumer Products Company in various sales positions,
including Director of Sales, Western Division.
Timothy G. Simmone was appointed as Senior Vice President, Chief Technical
Officer, as of February 14, 2001. Prior to this time he held the position of
Vice President, Chief Technical Officer of the Company to which he was appointed
in June 1997. From 1988 until 1997, he was employed by The Stanley Works
Corporation in various engineering positions, most recently as Vice President,
Product Development of the Stanley Fastening Systems Division.
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 a director of Aearo Corporation, Advanced
Organics Holdings, Inc., Cluett American Investment Corporation, Siegelgale
Holdings, Inc., and MCG Capital Corp., all companies in which Vestar or its
affiliates have a significant equity interest.
Vernon A. Brunner has been a director of Remington since September 2001.
Mr. Brunner is currently the President of Brunner Marketing Solutions. Mr.
Brunner was employed with Walgreens for over 35 years where he held a wide range
of positions, most recently, Executive Vice President, Marketing from 1990 to
2001 and Director from 1999 to 2001. In addition to Remington, Mr. Brunner is
also a director of First Midwest Bancorp, Inc., and Natrol, Inc.
William B. Connell has been a Director of Remington since 1996 and served
as a director of Remington Products Company from 1990 to 1996. Mr. Connell is
currently Chairman of EDB 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., Information Resources, Inc., Aurora Foods, Inc., Sight
Resource Corp., and First Teacher.com.
Stephen P. Donovan, Jr. has been a director of Remington since February
2001. Mr. Donovan was employed with the Procter and Gamble Company, for more
than 30 years holding a wide range of executive positions, most recently
President, Global Beverage and North America Food & Beverage.
Victor K. Kiam, III has been a Director of Remington since May 1996 and
served as a director of Remington Products Company from 1992 to 1996. Mr Kiam
has been President of RPI Corp. since 1999 and previously served as Executive
Vice President of RPI Corp. since 1996. He was employed by Remington Products
Company from 1986 until 1996 in a variety of positions in manufacturing, sales
and marketing, including Vice President Corporate Development In addition to
Remington, Mr. Kiam is currently Chairman of PIC Design and Cirrus Healthcare
Products.
Kevin A. Mundt has been a Director of Remington since 1997. Mr. Mundt has
been 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 Telephone and Data Systems, Inc. and Michael
Foods, 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, Gleason Corporation and Sheridan Healthcare, Inc., 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, Inc., Sunrise Medical, Inc.,
Siegelgale Holdings, Inc. and St. John Knits, Inc., 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 presently also serves as Managing Director of
Vestar Capital Partners Europe.
Steven M. Silver has been a Director of Remington since February 2001. Mr.
Silver is a Managing Director of Vestar Capital and has been employed in various
positions at Vestar Capital since 1995. Mr. Silver serves as a director of
Cluett American Investment Corporation, McHugh Software International, Inc. and
Sunrise Medical, 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 last three years for the 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 2001 (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company. The Named Executive Officers'
respective titles are those in effect as of December 31, 2001.
Annual Compensation(1) All Other
Name and Principal Position Year Salary ($)(2) Bonus ($)(3) Compensation($)(4)
- --------------------------- ---- ------------- ------------ --------------------
Neil P. DeFeo, CEO, President, and 2001 $600,000 $ - $5,100
Director 2000 596,828 953,800 5,250
1999 431,635 652,500 2,767
Alexander R. Castaldi, Executive VP 2001 347,307 - 3,583
and Chief Financial and 2000 324,231 351,488 4,601
Administrative Officer 1999 283,077 370,500 3,868
Lester C. Lee, President, U.S. Shaver and 2001 276,769 67,340 5,100
Grooming Division 2000 250,404 222,450 4,811
1999 218,557 168,399 4,753
Ann T. Buivid, President, U.S. Personal Care 2001 271,230 - 5,100
and Wellness Division(5) 2000 239,231 198,000 4,886
1999 200,000 157,500 4,598
Joel K. Bedol, Vice President 2001 240,169 - -
and General Counsel and Secretary 2000 214,615 186,300 15,000(6)
1999 - - -
- -----------------------
(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) Ms. Buivid's employment with the Company ceased on January 31, 2002.
(6) Amount represents sign-on bonus.
Compensation of Directors
Messrs. Vernon A. Brunner, William B. Connell, Stephen P. Donovan, Jr., and
Kevin A. Mundt, members of the Management Committee of the Company, each receive
annual compensation of $20,000 payable quarterly for services in such capacity.
Messrs. Brunner, Connell, Donovan and Mundt, each of whom also serve on the
Company's Audit Committee, receive an additional $1,000 for each Management
Committee and Audit Committee meeting attended. 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 their attendance at meetings. Messrs. Brunner, Connell, Donovan and Mundt
have also received awards pursuant to the Company's "Phantom Equity Plan", as
described below under the heading "Phantom Equity Program".
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Management Committee of Remington is
comprised of Messrs. Norman W. Alpert, Victor K. Kiam, III and Arthur J. Nagle.
Other Arrangements
The Company has an employment agreement with Mr. DeFeo which, as amended,
provides for his continued employment as President and Chief Executive Officer
through January 2002, which will automatically renew for a period of two years,
unless earlier terminated. The agreement provides for a base salary of not less
than $600,000, and an annual bonus not less than 95% of base salary 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 24
months of salary continuation plus the annual bonuses he would have been
entitled to if his employment is involuntarily terminated other than for "cause
" or if he resigns for "good reason" (which includes a "change of control" of
the Company), or 18 months of salary continuation plus 150% of his annual bonus
in the event the agreement is not renewed by the Company or he resigns for "good
reason" (by reason of a "change of control"). Change of control is defined in
this agreement as when Vestar's beneficial ownership falls below 50% of the
common equity interests in the Company, and Vestar no longer has the legal right
to control management of the Company, provided that such change of control is
not in connection with or after an initial public offering of the Company's
stock. The Company is also required to provide Mr. DeFeo with term life
insurance in the amount of not less than the sum of two times base salary plus
$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, and subject to the Change of Control Agreement
described below, Mr. Castaldi is entitled to receive his base salary for a
period of 12 months (the "Severance Term") following the termination of his
employment, either by the Company or Mr. Castaldi, 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 agreement with each of Mr. Lee and Mr.
Bedol whereby each would be entitled to salary continuation for 6 months if his
employment was involuntarily terminated other than for "cause" during the term
of the applicable agreement, subject to the Change of Control Agreement
described below.
The Company has entered into Change of Control Agreements with Messrs.
Castaldi, Lee, and Bedol pursuant to which they will be entitled to payments
under certain circumstances in the event of the termination of their employment
following a change of control of the Company (generally, a reduction of Vestar's
ownership which renders it unable to elect a majority of the board of directors
and significant changes in the composition of the board of directors of the
Company). The agreements continue in effect until December 31, 2002, and are
thereafter extended for additional one-year periods for as long as the Company
achieves annual earnings before interest, taxes, depreciation and amortization
of at least $50 million. In the event of a "change of control" of the Company
and subsequent termination of the employment of the executive within a period of
twelve months following the change of control either by the executive for "good
reason" or by the Company "without cause", the executive shall be entitled to an
amount calculated as two years of salary and one year of bonus (based on the
Company's existing bonus plan for the year in which the termination occurs),
together with a continuation of benefits for a two-year period. The executive
will be subject to a non-competition restriction during the two-year period
following the termination of employment. The Change of Control Agreements
supercede other severance programs, if any, that the executive may have with
respect to termination of employment following a change of control.
The Company has entered into an Offer of Compromise, Settlement and Release
Agreement (the "Severance Agreement") with Ms. Buivid, dated as of January 23,
2002, pursuant to which she will receive severance compensation from the
Company. The Severance Agreement provides for, among other things, continuing
salary payments of approximately twenty three thousand dollars per month for a
period of nine months and continuing eligibility for medical and other benefits
for the period that salary continuation benefits are being paid. The salary and
other benefits payable to Ms. Buivid will continue for up to an additional
three-month period in the event that she has not assumed employment at the end
of the initial nine-month period. The payments to Ms. Buivid will be offset by
seventy five percent (75%) of any salary, self-employment or similar income
earned by her during the initial nine month period of benefit payments. The
Severance Agreement also provides that all of Ms. Buivid's interest in the
Company's Phantom Equity Plan is cancelled. It further provides, however, that
at the time of the valuation of the Company's Phantom Equity in 2003, such value
will be multiplied by .41 percent and the amount so calculated will, at the
discretion of the Management Committee, either be paid to Ms. Buivid or will
thereafter be payable to her at the time an "event" occurs which would otherwise
require generally payments under the Company's Phantom Equity Program, as
described below. If an "event" should occur prior to the valuation of the
Company's Phantom Equity in 2003, the .41 percent interest referred to above
will be valued and paid to Ms. Buivid at that time.
Bonus Plan
The Company has an annual bonus plan (the "Bonus Plan") which is designed
to motivate each employee participant. Approximately 300 employees in the United
States and 200 employees in the international operations will participate in the
Bonus Plan in the year 2002. Under the Bonus Plan, each participating employee
is assigned a target bonus award, representing a percentage of the employee's
annual base salary that will be paid if predetermined performance goals are
achieved. The target bonus awards represent up to 95% of annual base salary if
the base performance goal is achieved, with additional amounts being payable to
the extent such base performance goal is exceeded. Performance goals for the
various divisions of the Company are established annually by the Compensation
Committee of the Company.
Deferred Compensation Plan
The Company has a Deferred Compensation Plan pursuant to which eligible
executive employees (including the Named Executive Officers) may elect to defer
all or a portion of the bonus otherwise payable under the Company's Bonus Plan
and up to 50% of their annual salary, and such amounts are placed into a
deferral account. For each employee who elects to participate in the Deferred
Compensation Plan and makes a contribution thereto, the Company makes a matching
contribution of 25% of an employee's contribution, up to a maximum contribution
by the employee of $300,000, subject to the achievement by the Company of its
performance goals for the fiscal year with respect to which the contribution was
made. 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
pursuant to the Deferred Compensation Plan are paid to a 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 certain circumstances.
Phantom Equity Program
The Company has a Phantom Equity Program under which a maximum of 22% 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, performance based and super performance 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 entire 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 to the outstanding Equity. This amount will be payable, at the
Company's option, in a lump sum upon the closing of the sale or in the same
manner as the selling members. 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 will receive 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 cash, 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. 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 criterion is either a Company sale or
Vestar's ownership falling below 10% of the Common Units. The Company has
achieved the specified performance targets required for full vesting of the
outstanding performance based awards. Any super performance based award which is
not fully vested by December 31, 2002 will be automatically terminated.
The Phantom Equity Program and all awards granted thereunder are subject to
readjustment in the event of a reorganization of the Company required in
connection with a refinancing, and the applicable percentages of such awards are
subject to readjustment to take into consideration new issuances of Common Units
or Preferred Equity.
During 2001 no additional phantom awards were issued to 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, 2001:
Amount of Equity Value of
Name Underlying Awards (1) Unexercised Awards (2)
- ---- --------------------- ----------------------
Neil P. DeFeo 5.00 (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
Lester C. Lee 0.90 (3) N/A
0.35 (4) N/A
0.16 (5) N/A
Ann T. Buivid(6) 0.55 N/A
0.20 N/A
0.10 N/A
Joel K. Bedol 0.24 (3) N/A
0.24 (4) N/A
0.12 (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 of which approximately
81% of the total 7.44 outstanding time based awards presented above have vested
as of March 1, 2002.
(4) Performance based awards which are fully vested.
(5) Super performance based awards which are not vested and expire on December
31, 2002.
(6) Ms. Buivid's employment with Remington ceased on January 31, 2002. Pursuant
to the provisions of the severance agreement between the Company and Ms. Buivid,
all of Ms. Buivid's phantom equity awards were cancelled.
Messrs. Brunner, Connell, Donovan and Mundt have each been granted awards
equal to 0.1% of the value of the Company's equity. Each such agreement provides
for a time based award that vests in three equal annual installments and is
otherwise on substantially the same terms as time based awards made to employees
of the Company generally.
401(k) Plan
The Company maintains a savings plan (the "Savings Plan") qualified under
Sections 401 (a) and 401(k) of the U.S. Internal Revenue Code. Generally, all
employees of the Company in the United States who have completed at least three
months of service with the Company 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 6% of annual compensation contributed. The maximum contribution for any
participant for any year is 15% of such participant's eligible compensation, not
to exceed $11,000.
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, 2001.
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
Ellen Kiam (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%
Steven M. Silver (5).....................................................30,000,000 48.4% 34,400 50%
Directors and executive officers as a group
(6 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 shares.
(2) Vestar Equity Partners' interest in the Company is owned by Vestar
Razor Corp. and Vestar Shaver Corp., which are controlled by Vestar Equity
Partners. Vestar Razor Corp. and Vestar Shaver Corp. have assigned a
portion of their interests in the Company to certain co-investors, although
such co-investors will not directly hold any Common Units. Mr. Connell
Holds an economic interest in one such co-investor. The general partner of
Vestar Equity Partners 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 Razor Corp. and
Vestar Shaver Corp. Messrs. Alpert, Nagle, O'Connell, Rosner and Silver,
who are Directors of Remington, are affiliated with Vestar Equity Partners
in the capacities described under Item 10, Directors and Executive
Officers, and are stockholders of VAC. Individually, no stockholder,
director or officer of VAC has or shares 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, Rosner or Silver or any other
stockholder, director or officer of VAC. Further, no part of any of such
Preferred Equity or Common Units is beneficially owned by any co-investor,
including Mr. Connell.
(3) Vestar Razor Corp. and Vestar Shaver Corp. and RPI have entered into
the LLC Agreement which gives Vestar Equity Partners effective control over
the management of the Company.
(4) Ellen Kiam serves as the personal representative of the estate of
Victor K. Kiam, II. Mr. Kiam's estate's interest in Remington is owned by
RPI. The shareholders of RPI are Mr. Kiam's estate, his children,
grandchildren and trusts for their benefit. The address of Ms. Kiam is 230
Burton Avenue, Palm Beach, FL 33480.
(5) Messrs. Alpert, Nagle, O'Connell, Rosner and Silver are affiliated with
Vestar in the capacities described in Item 10, Directors and Executive
Officers. Amounts reported for these individuals consist of the $30,000,000
of Preferred Equity and 34,440 Common Units beneficially owned by Vestar
Equity Partners through Vestar Razor Corp. and Vestar Shaver Corp., of
which such persons disclaim beneficial ownership of this equity. 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 Partners receive 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 Vestar Razor Corp. and Vestar Shaver
Corp. own less than 25% of the number of the Company's Common Units owned by
Vestar Equity Partners on May 23, 1996.
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 May 23, 1996, and provided further that Vestar Capital Partners may terminate
the Consulting Agreement at any time (but only to the extent that Vestar Capital
Partners also terminate similar provisions of the Management Agreement).
Pursuant to a Non-Competition Agreement (the "Non-Competition Agreement")
dated May 23, 1996, between the Company and Vestar Razor Corp. and Vestar Shaver
Corp., Victor K. Kiam, III, (Mr. Kiam) 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 Mr. Kiam has a
"Significant Interest" 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. "Significant Interest" is defined as serving as a consultant to the
Company pursuant to the Consulting Agreement, serving as a member of the
Management Committee of the Company, or beneficial ownership of more than 10% of
the outstanding Equity of the Company. The Non-Competition Agreement allows Mr.
Kiam to continue to market certain competing travel appliance products developed
by an affiliate of Mr. Kiam.
Pursuant to a reimbursement and indemnification agreement (the
"Indemnification Agreement") between the Company, Vestar and Mr. Kiam entered
into in June 1999 in connection with the Guarantee of the unsecured supplemental
loans to the Company under the former senior credit agreement, Vestar and Mr.
Kiam each received an annual guarantee fee of $100,000 from the Company. This
Agreement was terminated in April 2001, when the unsecured supplemental loans
under the guarantee were 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 Stearns & 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 Stearns & Co. Inc. Incorporated by
reference to Exhibit 4.4 in Registration Statement on Form S-4 (File
Number 333-07429).
4.5 Indenture dated as of April 18, 2001 between Remington Products
Company, L.L.C. ("Remington"), Remington Capital Corp. ("Capital") and
The Bank of New York, as trustee. Incorporated by reference to Exhibit
4.5 in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001.
4.6 Form of 11% Series D Senior Subordinated Notes. Incorporated by
reference to Exhibit 4.5 in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2001.
4.7 Purchase Agreement dated April 3, 2001 between Remington, Capital,
Bear Stearns & Co. Inc. and Fleet Securities, Inc. Incorporated by
reference to Exhibit 4.7 in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2001.
4.8 Registration Rights Agreement dated as of April 18, 2001 between
Remington, Capital, Bear Stearns & Co. Inc. and Fleet Securities, Inc.
Incorporated by reference to Exhibit 4.8 in the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001.
10.1 Credit and Guarantee Agreement dated August 21, 2001, among Remington
Products Company, L.L.C., certain of its subsidiaries, various lending
institutions, Fleet Capital Corporation as Administrative Agent, and
Congress Financial Corporation as Co- arranger. Incorporated by
reference to Exhibit 10.1 in the Company's Current Report on Form 8-K
dated August 31, 2001.
10.2 Amendment No. 1, dated as of September 30, 2001 to the Credit and
Guarantee Agreement by and among Remington Products Company, L.L.C.,
Fleet Securities, Congress Financial Corporation and Fleet Capital
Corporation. Incorporated by reference to Exhibit 10.1 in the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2001.
10.3 Waiver and Amendment No. 2, dated as of March 28, 2002 to the Credit
and Guarantee Agreement by and among Remington Products Company,
L.L.C., certain of its subsidiaries, Fleet Securities, Congress
Financial Corporation and Fleet Capital Corporation.
10.4 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).
10.5 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).
10.6 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).
10.7 Management Agreement dated as of May 23, 1996 between Remington and
Vestar Capital Partners. Incorporated by reference to Exhibit 10.15 in
Registration Statement on Form S-4 (File Number 333-07429).
10.8 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).
10.9 Employment Agreement made as of January 1, 2000 between the Company
and Neil P. DeFeo. Incorporated by reference to Exhibit 10 in the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.
10.10Executive 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.
10.11Letter 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.
10.12Letter Agreement dated June 17, 1997 between the Company and Tim
Simmone. Incorporated by reference to Exhibit 10.27 in the Company's
Annual Report on Form 10-K for the year ended December31, 1999.
10.13Letter Agreement dated January 3, 2000 between the Company and Joel
K. Bedol. Incorporated by reference to Exhibit 10.29 in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
10.14Form 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.
10.15Form 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.
10.16Form 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.
10.17Form 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.
10.18Form of Change in Control Agreement dated September 20, 2001 by and
between the Company and certain Executives.
10.19License 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 on Form S-4 (File Number 333-07429).
10.20License 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).
10.21Tradename 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).
10.22License 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.
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: April 1, 2002
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 indicated below on April 1, 2002.
* *
- ---------------------------------- -------------------------------------
Neil P. DeFeo, Chairman, Chief Alexander R. Castaldi, Executive Vice
Executive Officer, President President, Chief Financial and
and Director Administrative Officer
/s/Kris J. Kelley *
- -------------------------------------- -------------------------------------
Kris J. Kelley, Vice President and Norman W. Alpert, Director
Controller
* *
- -------------------------------------- -------------------------------------
Victor K. Kiam III, Director Daniel S. O'Connell, Director
* *
- -------------------------------------- -------------------------------------
Arthur J. Nagle, Director William B. Connell, Director
* *
- -------------------------------------- -------------------------------------
Robert L. Rosner, Director Steven M. Silver, Director
* *
- -------------------------------------- -------------------------------------
Kevin A. Mundt, Director Stephen P. Donovan, Jr., Director
*By /s/ by Kris J. Kelley *
----------------------------------- -------------------------------------
Kris J. Kelley, as Attorney-in-Fact Vernon A. Brunner, Director
INDEX TO FINANCIAL STATEMENTS
Pages
-----
Financial Statements
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000 F-3
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 2001 F-4
Consolidated Statements of Members' Deficit for each of the years in the
three-year period ended December 31, 2001 F-5
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2001 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, 2001 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.
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,
2001 and 2000, and the related consolidated statements of operations, members'
deficit, and cash flows for each of the three years in the period ended December
31, 2001. 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 auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. 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
March 22, 2002
(March 28, 2002 as to the Amended
Revolving Credit Facility described in Note 6)
Remington Products Company, L.L.C.
Consolidated Balance Sheets
(in thousands)
December 31,
---------------------
2001 2000
---- ----
ASSETS
Current assets:
Cash $4,087 $10,342
Accounts receivable 78,849 89,388
Inventories 75,216 66,854
Prepaid and other assets 3,451 3,388
------- -------
Total current assets 161,603 169,972
Property, plant and equipment, net 13,006 12,807
Intangibles, net 52,586 54,522
Other assets 14,541 5,186
-------- --------
Total assets $241,736 $242,487
======== ========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable $ 30,006 $ 23,886
Short-term borrowings 4,075 4,732
Current portion of long-term debt 322 3,373
Accrued liabilities 39,754 31,942
-------- --------
Total current liabilities 74,157 63,933
Long-term debt 208,645 195,161
Other liabilities 1,302 897
Commitments and contingencies
Members' deficit:
Members' deficit (36,186) (12,701)
Accumulated other comprehensive income (6,182) (4,803)
-------- --------
Total members' deficit (42,368) (17,504)
-------- --------
Total liabilities and members' deficit $241,736 $242,487
======== ========
See notes to consolidated financial statements.
Remington Products Company, L.L.C.
Consolidated Statements of Operations
(in thousands)
Year Ended December 31,
--------------------------------------------------
2001 2000 1999
---------- ---------- ---------
Net sales $ 393,577 $365,149 $318,766
Cost of sales 243,212 201,765 176,269
--------- -------- --------
Gross profit 150,365 163,384 142,497
Selling, general and administrative expenses 146,525 123,177 111,434
Amortization of intangibles 1,937 1,952 1,943
--------- -------- --------
Operating income 1,903 38,255 29,120
Interest expense 26,435 24,774 21,723
Other expense 1,945 345 127
--------- -------- --------
Income (loss) before income taxes (26,477) 13,136 7,270
Provision (benefit) for income taxes (3,096) 399 1,235
-------- -------- --------
Net income (loss) $(23,381) $ 12,737 $ 6,035
========= ======== ========
Net income (loss) applicable to common units $(36,789) $ 823 $(4,550)
========= ======= ========
See notes to consolidated financial statements.
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, 1999 $ 84,336 $6,880 $(73,921) $(48,768) $(3,268) $(34,741)
Preferred Dividend 10,585 (10,585) -
Comprehensive 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)
Preferred Dividend 11,914 (11,914)
Comprehensive income (loss):
Net income 12,737
Foreign currency translation (2,235)
Unrealized hedging loss (223)
Total comprehensive income 10,279
--------- ------ --------- --------- -------- ---------
Balance, December 31, 2000 $106,835 $6,880 $(73,921) $(52,495) $(4,803) $(17,504)
Preferred Dividend 13,408 (13,408) -
Comprehensive income (loss):
Net loss (23,381)
Foreign currency translation (1,546)
Unrealized hedging gain 167
Dividend distribution (104)
Total comprehensive loss (24,864)
-------- ------ --------- --------- -------- ---------
Balance, December 31, 2001 $120,243 $6,880 $(73,921) $(89,388) $(6,182) $(42,368)
======== ====== ========= ========= ======== =========
See notes to consolidated financial statements.
Remington Products Company, L.L.C.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
------------------------------------------------
2001 2000 1999
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $(23,381) $ 12,737 $ 6,035
Adjustment to reconcile net income (loss) to net cash
provided by (used in)operating activities:
Depreciation 3,897 3,801 3,612
Amortization of intangibles 1,937 1,952 1,943
Amortization of deferred financing fees 2,242 2,790 1,388
Provision for bad debt 4,232 878 534
Inventory write-down 9,518 1,309 2,350
Deferred income taxes (3,289) 428 (144)
Other 785 223 (59)
--------- --------- --------
(4,059) 24,118 15,659
Changes in assets and liabilities:
Accounts receivable 4,015 (15,578) (19,039)
Inventories (19,413) (15,740) (7,643)
Accounts payable 6,209 506 7,662
Accrued liabilities 7,791 2,151 5,355
Other, net 1,179 660 (5)
--------- --------- --------
Cash provided by (used in) operating activities (4,278) (3,883) 1,989
--------- --------- --------
Cash flows from investing activities:
Capital expenditures (4,322) (4,414) (3,518)
Cash flows from financing activities:
Proceeds from sale of Senior Subordinated Notes 50,000 - -
Repayments under term loan facilities (18,869) (1,918) (1,311)
Borrowings under term loan facilities - - 15,000
Repayments under credit facilities (157,111) (49,497) (47,254)
Borrowings under credit facilities 136,968 61,989 41,580
Debt issuance costs and other, net (8,215) (1,107) (842)
--------- --------- --------
Cash provided by financing activities 2,773 9,467 7,173
Effect of exchange rate changes on cash (428) (694) (27)
--------- --------- --------
Increase (decrease) in cash (6,255) 476 5,617
Cash, beginning of year 10,342 9,866 4,249
--------- --------- --------
Cash, end of year $ 4,087 $ 10,342 $ 9,866
========= ========= ========
Supplemental cash flow information:
Interest paid $ 23,710 $ 21,810 $20,302
Income taxes paid (refunded), net $ 547 $ (17) $ 248
See notes to consolidated financial statements.
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 personal care products. The Company distributes on
a worldwide basis electrical shavers and accessories, grooming products, hair
care appliances, including hair dryers and hairsetters, wellness products such
as paraffin wax hand spas and foot spas, and other small electrical consumer
products. 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").
Remington Capital Corp. is a wholly owned subsidiary of Remington Products
Company, L.L.C. and has no significant operations of its own.
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 will 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,
reserves for obsolete inventories, product warranty costs, taxes and
contingencies.
Cash:
Cash consists of bank balances and cash on hand.
Allowance for Doubtful Accounts:
The allowance for doubtful accounts at December 31, totaled $1,674 thousand
in 2001 and $2,864 thousand in 2000. On January 22, 2002 one of the Company's
largest customers filed for bankruptcy under Chapter 11 of the Bankruptcy Code.
This event had no material impact on the Company's earnings or cash flows.
Inventories:
The Company's inventories are valued at the lower of cost or market. The
majority of inventory is finished goods and is accounted for utilizing the
first-in, first-out (FIFO) method. Domestic manufactured inventories, which
represent approximately 4% of the consolidated inventories as of December 31,
2001 and 6% at December 31, 2000, are stated at cost determined by the last-in,
first-out (LIFO) method. As of December 31, 2001 and 2000, the excess of current
replacement cost over LIFO cost of inventories was not significant.
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.
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.
Deferred Financing Costs:
Costs associated with obtaining financing arrangements are included in
other assets and are being amortized over the term of the related borrowings.
Deferred financing costs and accumulated amortization totalled $19.7 million and
$8.9 million, respectively at December 31, 2001 and $12.1 million and $7.2
million, respectively at December 31, 2000.
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.
Revenue Recognition:
Revenue from product sales is recognized when the goods are shipped and
title passes to the customer.
Research and Development:
Research and development costs related to both present and future products
are expensed as incurred. Such costs totaled $4.3 million, $4.2 million and $4.0
million for the years ended December 31, 2001, 2000 and 1999, respectively.
Shipping and Handling Costs:
Shipping and handling costs represent costs associated with shipping
products to customers and handling finished goods. Included in selling, general
and administrative expenses are shipping and handling costs of $25.2 million in
2001, $16.7 million in 2000 and $14.6 million in 1999.
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:
The Company recognizes 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 hedges the foreign subsidiaries forecasted purchases of inventory
denominated in currencies different than 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, 2001 and 2000, other than forward foreign exchange
contracts, the Company was not party to any other derivatives as defined by SFAS
No. 133.
At December 31, 2001, the Company had unrealized losses of $0.2 million,
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 2002. For
the three years ended December 31, 2001, 2000 and 1999 the losses classified in
cost of sales related to the ineffective portion of the Company's outstanding
hedge contracts were immaterial.
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 are recognized in earnings
and totaled net losses of $1.7 million, $0.9 million and $0.5 million for the
years ended December 31, 2001, 2000 and 1999, respectively.
Recent Accounting Pronouncements:
In July 2001, the Financial Accounting Standards Board issued SFAS No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 1, 2001. Under SFAS No. 142, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests. Other intangible assets will continue to be amortized over
their useful lives. The Company will apply the provisions of SFAS No. 142
beginning on January 1, 2002. Application of the nonamortization provisions of
SFAS No. 142 is expected to result in an increase in net earnings of
approximately $1.5 million per year. During 2002, the Company will perform the
first of the required impairment tests of goodwill using the methodology
prescribed by SFAS No. 142. It is the Company's preliminary assessment that a
transitional impairment charge, if any, will not be material.
In August 2001, SFAS No. 143, Accounting for Asset Retirement Obligations,
was issued. This Statement establishes accounting standards for recognition and
measurement of a liability for an asset retirement obligation and the associated
asset retirement cost. In October 2001, SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, was issued. SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001 and SFAS No. 143 is effective
for fiscal years beginning after June 15, 2002. The Company has not yet assessed
what impact, if any, that the adoption of SFAS No. 144 and No. 143 will have on
its financial position and results of operations.
In November 2001, the Emerging Issues Task Force reached consensus on Issue
No. 01-9, Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products (EITF 01-9). Upon adoption of this consensus
on January 1, 2002, the Company will be required to classify certain payments to
its customers as a reduction of sales. The Company currently classifies certain
of these payments as selling, general and administrative expenses in its
Consolidated Statement of Operations. Upon adoption, prior period amounts will
be reclassified. Because adoption of EITF 01-9 will solely result in
reclassification within the Consolidated Statement of Operations, there will be
no impact on the Company's financial condition, operating income or net
earnings.
2. Inventories
Inventories were comprised of the following as of December 31, 2001 and
2000 (in thousands):
2001 2000
------- -------
Finished goods $71,308 $63,673
Work in process and raw materials 3,908 3,181
------- -------
$75,216 $66,854
======= =======
3. Property, Plant and Equipment
Property, plant and equipment as of December 31, 2001 and 2000 consisted of
(in thousands):
2001 2000
------- -------
Land and buildings $ 2,790 $ 2,517
Leasehold improvements 5,230 4,573
Machinery, equipment and tooling 11,440 9,867
Furniture, fixtures and other 7,804 7,233
-------- --------
27,264 24,190
Less accumulated depreciation (14,258) (11,383)
-------- --------
$13,006 $12,807
======== ========
4. Intangibles
Intangibles were comprised of the following (net of accumulated
amortization of $10,873 and $8,936 thousand) as of December 31, 2001 and 2000,
respectively (in thousands):
2001 2000
-------- --------
Goodwill $27,720 $28,529
Tradenames 22,819 23,482
Patents 2,047 2,511
------- -------
$52,586 $54,522
======= =======
5. Accrued Liabilities
Accrued liabilities were comprised of the following as of December 31, 2001
and 2000 (in thousands):
2001 2000
-------- ---------
Advertising and promotion expenses $18,233 $10,980
Compensation and benefits 4,369 7,635
Distribution expense 3,399 1,145
Interest 3,200 2,263
Income and other taxes payable 3,048 2,868
Other 7,505 7,051
------- -------
$39,754 $31,942
======= =======
6. Debt
Long-term debt at December 31, 2001 and 2000 consisted of (in thousands):
2001 2000
-------- --------
Senior Subordinated Notes $180,000 $130,000
Revolving Credit Facilities 28,373 48,721
Term and Supplemental Loans - 18,978
Capital Leases 594 835
--------- ---------
208,967 198,534
Less current portion (322) (3,373)
--------- ---------
$208,645 $195,161
========= =========
11% Senior Subordinated Notes:
On April 18, 2001, the Company completed the sale of $50.0 million of 11%
Series C Senior Subordinated Notes due 2006 (the "Series C Notes"). The net
proceeds of approximately $44.8 million, after issuance costs, were used to
repay existing term loans and supplemental loans and a portion of the
outstanding revolving credit borrowings under the Company's former senior credit
facility.
On September 6, 2001, the Company filed a registration statement (the
"Exchange Offer") with the Securities and Exchange Commission for the purpose of
enabling holders of its $130.0 million 11% Series B Senior Subordinated Notes
issued on May 23, 1996 ("Series B Notes") and its Series C Notes to exchange
them for a like principal amount of 11% Series D Senior Subordinated Notes
("Series D Notes") registered under the Securities Act of 1933, as amended. The
Exchange Offer was completed on October 10, 2001, and the Company now has
outstanding approximately $15.0 million in principal amount of Series B Notes
and approximately $165.0 million in principal amount of Series D Notes.
The Series B Notes and Series D Notes (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.
The Senior Subordinated Note indenture contains a number of operating
covenants which impose restrictions with respect to certain business matters,
including the amount and terms under which the Company can obtain additional
financing in the future. In addition, the Senior Subordinated Note indenture
limits the amount of dividends that the Company is permitted to pay. As of
December 31, 2001, the Company was in compliance with its debt covenants under
the Senior Subordinated Note indenture.
Revolving Credit Facility:
The Company entered into a new $110.0 million asset based revolving credit
facility (the "Facility") on August 21, 2001. The initial drawdown under the
Facility was used to repay all outstanding borrowings under the Company's former
$70.0 million senior credit facility.
The Facility provides for $70.0 million in revolving credit to the Company
and $40.0 million in revolving credit to certain of its subsidiaries. Borrowings
under the facility are subject to a borrowing base of 85% of eligible
receivables and 60% of eligible inventories. The borrowing base can be increased
by up to $10.0 million (the "Seasonal Overadvance") over the applicable
percentage of eligible receivables and inventories, (still limited to the $110.0
million of total facilities) from March 15 through June 15 and August 1 through
November 15. The Facility expires on March 31, 2006.
Interest rates per annum applicable to the Facility are based, at the
Company's option, upon a Eurodollar rate ("LIBOR") plus 3.0% or the greater of
(i) prime rate plus 1.75% and (ii) the federal funds rate plus 2.00%; provided,
however, that the interest rates are subject to adjustment based on certain
levels of financial performance. Interest is payable quarterly in arrears,
including a commitment fee of 0.375% per annum on the average daily unused
portion of the Facility. The obligations under the Facility are secured by
essentially all of the tangible and intangible assets and properties of the
Company and its subsidiaries.
On March 28, 2002 certain of the financial covenant requirements under the
Facility as of December 31, 2001 were waived, the Facility was amended and the
Seasonal Overadvance was removed. Interest rates per annum applicable to the
Facility were increased by 0.25% and are now based, at the Company's option,
upon a Eurodollar rate ("LIBOR") plus 3.25% or the greater of (i) prime rate
plus 2.0% and (ii) the federal funds rate plus 2.25%; provided, however, that
the interest rates are subject to adjustment based on certain levels of
financial performance.
The Facility, as amended, requires the Company to be in compliance with
certain covenants, the most restrictive of which is a minimum availability
covenant which requires the Company to maintain a minimum availability under the
Facility of $7.0 million between February and April, $5.0 million between May
and September and $9.0 million at all other times. The Facility requires the
Company to maintain certain financial maintenance tests, the more restrictive of
which require the Company to maintain leverage and fixed charge coverage ratios
as defined. The Facility also contains a number of operating covenants which
impose restrictions with respect to certain business matters, including the
amount and terms under which the Company can obtain additional financing in the
future. In addition, the Facility limits the amount of dividends that the
Company is permitted to pay.
Short Term Borrowings:
Short Term Borrowings consist of local revolving credit lines at some of
the Company's foreign subsidiaries and totaled approximately $4.1 million and
$4.7 million as of December 31, 2001 and 2000, 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 6.3% in 2001 and 7.1% in 2000.
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, 2001, 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 cumulative preferred dividend
of 12% per annum, compounded quarterly, and to an aggregate liquidation
preference of $62.0 million (net of any prior repayments of Preferred Equity)
plus any accrued but unpaid preferred dividends. As of December 31, 2001 the
aggregate unpaid Preferred Equity, including accrued dividends of $58.2 million,
totaled $120.2 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, as
amended, a maximum of 22% 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, performance based and super performance
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.
The Company has achieved the specified performance target required for full
vesting of the outstanding performance based awards, but has not as yet achieved
the specific performance target for full vesting of the outstanding super
performance based award. Payment of vested awards is dependent upon the
achievement of both a performance criteria and an event criteria, except in the
discretion of the Management Committee in the event of death or disability or
termination of employment without cause. The event criteria is a Company sale,
IPO, or when Vestar's ownership falls below 10% of the Common Units. Any super
performance based award which is not fully vested by December 31, 2002 will be
automatically terminated.
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
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. Income Taxes
The Company is recognized as a partnership for Federal income tax purposes.
As such, 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 Federal income taxes for the Company. However,
certain state and local jurisdictions do not recognize partnership status for
taxing purposes and require taxes to be paid on net earnings. Furthermore,
earnings of certain foreign operations are taxable under local statutes.
Pretax earnings/(losses) for years ended December 31, are as follows (in
thousands):
2001 2000 1999
---------- --------- ---------
U.S. operations $ (3,503) $11,765 $ 3,006
Non-U.S. operations (22,974) 1,371 4,264
--------- ------- -------
Total $(26,477) $13,136 $ 7,270
========= ======= =======
The provision for income taxes consists of the following for the years ended
December 31 (in thousands):
2001 2000 1999
---------- --------- ---------
Current:
Foreign $ 151 $ (55) $ 1,371
State and local 42 26 8
Deferred:
Foreign (3,289) 428 (144)
--------- -------- --------
Total $ (3,096) $ 399 $ 1,235
========= ======== ========
Reconciliation of income taxes computed at the U.S. Federal statutory income tax
rate to the provision for income taxes (in thousands):
Income taxes computed at statutory U.S.
Federal income tax rate $ (9,270) $ 4,734 $ 2,545
Partnership status for U.S. federal income
tax purposes 1,344 (4,254) (1,052)
State and local income taxes 42 26 8
Foreign tax refunds - (924) -
Establishment/(reversal) of valuation allowance 3,998 (16) (674)
Adjustment for foreign income tax rates 790 833 408
--------- -------- --------
Provision for income taxes $ (3,096) $ 399 $ 1,235
========= ======== ========
The components of the Company's deferred tax assets and liabilities included
on the balance sheet at December 31 are as follows (in thousands):
2001 2000
-------- --------
Depreciation and other $ 530 $ (2)
Foreign tax loss carryforwards 7,897 1,158
------- ------
8,427 1,156
Less valuation allowance (5,161) (1,163)
------- -------
Total deferred tax assets (liabilities), net $3,266 $ (7)
======= =======
The valuation allowance relates primarily to the foreign tax loss
carryforwards. The valuation allowance has been recorded against the portion of
the foreign tax loss carryforwards for which, based on the available evidence,
it is more likely than not that a tax benefit will not be realized.
Approximately $1.4 million of the $25.2 million in foreign tax loss
carryforwards expire between 2003 through 2006, while the remaining $23.8
million has no expiration date.
9. 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
--------- --------
2002 $ 4,217 $370
2003 3,232 263
2004 2,346 18
2005 1,924 -
2006 and thereafter 5,649 -
------- ----
Total minimum lease payments $17,368 651
=======
Less: amount representing interest 57
----
Present value of minimum lease payments $594
====
Rent expense was $7,022, $7,004 and $7,342 thousand for the years ended
December 31, 2001, 2000 and 1999.
The majority of the leases contain escalation clauses which provide for
increases to recover future increases in certain operating costs and certain
leases require additional payments based on sales volume. 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.
10. Employee Benefit Plans
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, 2001
and 2000 are as follows (in thousands):
Change in Benefit Obligation:
2001 2000
-------- --------
Benefit obligation at beginning of year $ 6,893 $6,678
Service cost 362 385
Interest cost 355 363
Actuarial (gain) loss - 1,338
Benefits paid (679) (1,369)
Currency exchange rate effects (171) (502)
------- -------
Benefit obligations at end of year 6,760 6,893
------- -------
Change in Plan Assets:
Fair value of plan assets at beginning of year 6,560 8,327
Actual return on plan assets (837) (256)
Employer contributions 360 384
Participant contributions 114 116
Benefits paid (679) (1,369)
Currency exchange rate effects (177) (642)
------- -------
Fair value of plan assets at end of year 5,341 6,560
------- -------
Funded Status (1,419) (333)
Unrecognized net actuarial (gain) loss 2,016 772
------- -------
Prepaid benefit cost $ 597 $ 439
======= =======
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% 3.25%
Year Ended December 31,
------------------------------
2001 2000 1999
------ ------ ------
Components of Net Periodic Benefit Cost:
Service cost $ 253 $259 $293
Interest cost 380 370 395
Expected return on plan assets (312) (426) (631)
----- ----- -----
Net periodic benefit cost $ 321 $203 $ 57
===== ===== =====
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 in the United States. The Plan is subject to the
provisions of ERISA. 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 6% of
their total salary. The Company's matching contributions were $0.4 million for
the year ended December 31, 2001 and $0.3 million for each of the years ended
December 31, 2000 and 1999.
Deferred Compensation Plan. The Company has a Deferred Compensation Plan
pursuant to which eligible executive employees may elect to defer all or a
portion of the bonus otherwise payable under the Company's annual bonus plan and
up to 50% of their annual salary, and such amounts are placed into a deferral
account. For each employee who elects to participate in the Deferred
Compensation Plan and makes a contribution thereto, the Company makes a matching
contribution of 25% of an employee's contribution, up to a maximum contribution
by the employee of $300 thousand, subject to the achievement by the Company of
its performance goals for the fiscal year with respect to which the contribution
was made. The participants may select various mutual funds in which all or a
part of their deferral accounts will be deemed to be invested. Distributions
from a participant's deferral account 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 pursuant to the Deferred Compensation Plan are paid to a 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 certain circumstances.
11. 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, 2001 of long-term fixed rate debt was approximately $137.7
million and $180.0 million, respectively. The fair value and book value at
December 31, 2000 of long-term fixed rate debt was approximately $102.2 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, 2001, the Company had an uncollateralized receivable with Wal-Mart
which represented approximately 21% of the Company's accounts receivable
balance. During calendar 2001, sales to Wal-Mart represented approximately 30%
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, 2001, forward contracts to sell approximately 15.2 million
UK Pounds Sterling, 6.7 million Canadian dollars, 6.1 million Australian dollars
and 6.3 million euros were outstanding, all of which mature in 2002. At December
31, 2000, forward contracts to sell 11.6 million UK Pounds Sterling, 5.0 million
Australian dollars and 0.8 million euros were outstanding and matured at various
dates in 2001. 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
third-party suppliers located primarily in China and Japan. The Company's most
significant suppliers, Izumi Industrial Inc., Raymond Industrial Ltd., and
Specialife Industries, Ltd., accounted for approximately 46% of the Company's
overall cost of sales in 2001. 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 these suppliers,
the Company's ability to import outsourced products or these suppliers' ability
to manufacture and deliver outsourced products on a timely basis would have a
material adverse effect on the Company.
12. 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 receives an annual advisory 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 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.
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
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 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 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 Mr. Kiam entered
into in June 1999 in connection with the guarantee of the unsecured supplemental
loans to the Company under the former senior credit agreement, Vestar and Mr.
Kiam, each received an annual guarantee fee of $100 thousand from the Company.
This Agreement was terminated in April 2001, when the unsecured supplemental
loans under the Guarantee were paid in full.
13. Business Segment and Geographical Information
The Company distributes its products 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 Stores 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. 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 Ended December 31,
----------------------------------------------
2001 2000 1999
-------- -------- --------
Net Sales:
North America $246,816 $207,610 $158,333
International 108,094 114,794 116,044
U.S. Service Stores 38,667 42,745 44,389
--------- --------- ---------
Total $393,577 $365,149 $318,766
========= ========= =========
Operating Income:
North America $ 21,309 $ 32,278 $ 20,318
International (15,319) 8,533 10,888
U.S. Service Stores 1,747 3,197 3,469
Depreciation and amortization (5,834) (5,753) (5,555)
--------- --------- ---------
Total $ 1,903 $ 38,255 $ 29,120
========= ========= =========
Segment Assets:
North America $159,665 $146,828 $129,011
International 73,158 86,746 84,906
U.S. Service Stores 8,913 8,913 10,073
--------- --------- ---------
Total $241,736 $242,487 $223,990
========= ========= =========
Capital Expenditures:
North America $ 2,598 $ 3,136 $ 1,705
International 889 714 1,091
U.S. Service Stores 835 564 722
--------- --------- ---------
Total $ 4,322 $ 4,414 $ 3,518
========= ========= =========
Net sales in the United Kingdom represented approximately 14%, 17% and 19%
of the Company's net sales during the years ended December 31, 2001, 2000 and
1999, respectively. No other country contributed more than 10% of net sales.
The Company's largest customer, Wal-Mart, accounted for approximately 30%,
25% and 22% of the Company's net sales during the years ended December 31, 2001,
2000 and 1999, respectively, and is serviced primarily by the North American
segment. No other customer accounted for more than 10% of the Company's net
sales during the years ended December 31, 2001, 2000 and 1999.
14. Quarterly Financial Information (unaudited, in thousands)
Three Months Ended
----------------------------------------------------------------
2001 March 31 June 30 September 30 December 31 Total Year
- ---------------------- ---------- ---------- ------------ ----------- ----------
Net sales $54,493 $65,952 $84,163 $188,969 $393,577
Gross profit 23,473 21,428 35,766 69,698 150,365
Operating income 827 (11,340) 7,575 4,841 1,903
Income (loss) before income taxes (5,570) (18,187) 1,629 (4,349) (26,477)
Net income (loss) (4,941) (13,919) 1,802 (6,323) (23,381)
Net income (loss) applicable to
common units (8,146) (17,220) (1,598) (9,825) (36,789)
2000
- ----------------------
Net sales $48,639 $69,234 $83,973 $163,303 $365,149
Gross profit 21,407 30,725 37,397 73,855 163,384
Operating income 330 6,536 10,865 20,524 38,255
Income (loss) before income taxes (5,555) 669 4,674 13,348 13,136
Net income (loss) (5,297) 1,599 4,483 11,952 12,737
Net income (loss) applicable to
common units (8,145) (1,334) 1,462 8,840 823
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
---------- ---------- ---------- ----------
Allowance for doubtful accounts:
Year ended December 31, 2001 $2,864 4,232 (5,422) $ 1,674
Year ended December 31, 2000 $2,335 878 (349) $ 2,864
Year ended December 31, 1999 $2,749 534 (948) $ 2,335
Allowance for cash discounts and returns:
Year ended December 31, 2001 $10,206 38,671 (28,807) $20,070
Year ended December 31, 2000 $10,166 19,525 (19,485) $10,206
Year ended December 31, 1999 $ 7,655 22,690 (20,179) $10,166
Inventory reserves:
Year ended December 31, 2001 $ 1,172 9,518 (3,286) $ 7,404
Year ended December 31, 2000 $ 1,639 1,309 (1,776) $ 1,172
Year ended December 31, 1999 $ 2,071 2,350 (2,782) $ 1,639
S-1