SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - For the quarter ended September 30, 2002.
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 registrant as specified in its charter)
06-1451076
Delaware 06-1451079
- -------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Nos.)
60 Main Street, Bridgeport, Connecticut 06604
- --------------------------------------- -----------
(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
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REMINGTON PRODUCTS COMPANY, L.L.C.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets -
September 30, 2002, December 31, 2001 and September 30, 2001 3
Consolidated Statements of Operations -
For the three and nine months ended September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows -
For the nine months ended September 30, 2002 and 2001 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
Item 4. Controls and Procedures 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Certifications 16
2
Remington Products Company, L.L.C.
Consolidated Balance Sheets
(unaudited, in thousands)
September 30, December 31, September 30,
2002 2001 2001
------------- ------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,068 $ 4,087 $ 5,423
Accounts receivable, less allowance for doubtful
accounts of $1,888 at September 2002, $1,674 at
December 2001 and $2,499 at September 2001 57,391 78,849 73,697
Inventories 92,464 75,216 127,519
Prepaid and other current assets 5,952 3,451 13,260
--------- --------- ---------
Total current assets 160,875 161,603 219,899
Property, plant and equipment, net 12,441 13,006 13,679
Goodwill, net 27,720 27,720 27,921
Other intangibles, net 24,514 24,866 25,148
Other assets 12,469 14,541 11,083
--------- --------- ---------
Total assets $238,019 $241,736 $297,730
========= ========= =========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable $ 32,701 $ 30,006 $ 39,137
Short-term borrowings 2,567 4,075 3,890
Current portion of long-term debt 223 322 244
Accrued liabilities 32,192 39,754 23,302
--------- --------- ---------
Total current liabilities 67,683 74,157 66,573
Long-term debt 211,620 208,645 265,888
Other liabilities 725 1,302 1,104
Members'deficit:
Members' deficit (34,958) (36,186) (29,863)
Accumulated other comprehensive income (loss) (7,051) (6,182) (5,972)
--------- --------- ---------
Total members' deficit (42,009) (42,368) (35,835)
--------- --------- ---------
Total liabilities and members' deficit $238,019 $241,736 $297,730
========= ========= =========
See notes to unaudited consolidated financial statements.
3
Remington Products Company, L.L.C.
Consolidated Statements of Operations
(unaudited, in thousands)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $79,203 $78,243 $203,008 $188,608
Cost of sales 45,334 47,032 119,423 119,097
-------- -------- --------- ---------
Gross profit 33,869 31,211 83,585 69,511
Selling, general and administrative expenses 22,497 23,156 65,401 70,996
Amortization of intangibles 116 478 352 1,453
-------- -------- --------- ---------
Operating income (loss) 11,256 7,577 17,832 (2,938)
Interest expense, net 6,074 6,859 17,970 19,002
Other expense (income) 211 (911) (460) 188
-------- -------- --------- ---------
Income (loss) before income taxes 4,971 1,629 322 (22,128)
Benefit for income taxes (561) (173) (906) (5,070)
-------- -------- --------- ---------
Net income (loss) $ 5,532 $ 1,802 $ 1,228 $(17,058)
======== ======== ========= =========
Net income (loss) applicable to common units $ 1,705 $(1,598) $ (9,922) $(26,964)
======== ======== ========= =========
See notes to unaudited consolidated financial statements.
4
Remington Products Company, L.L.C.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
Nine Months Ended
September 30,
--------------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income (loss) $ 1,228 $(17,058)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation 2,078 2,842
Amortization of intangibles 352 1,453
Amortization of deferred financing fees 1,639 1,721
Deferred income taxes (82) (5,521)
Foreign currency forward (gain) loss, net (18) 504
--------- ---------
5,197 (16,059)
Changes in assets and liabilities:
Accounts receivable 23,925 13,465
Inventories (15,500) (61,428)
Accounts payable 2,375 15,115
Accrued liabilities (9,716) (8,347)
Other, net (3,752) (3,553)
--------- ---------
Cash provided by (used in) operating activities 2,529 (60,807)
--------- ---------
Cash flows used in investing activities:
Capital expenditures (1,425) (3,809)
--------- ---------
Cash flows from financing activities:
Proceeds from sale of Senior Subordinated Notes - 50,000
Repayments under term loan facilities - (18,869)
Repayments under credit facilities (29,913) (79,257)
Borrowings under credit facilities 29,818 115,773
Debt issuance costs and other, net (259) (7,604)
--------- ---------
Cash provided by (used in) financing activities (354) 60,043
--------- ---------
Effect of exchange rate changes on cash 231 (346)
--------- ---------
Increase (decrease) in cash 981 (4,919)
Cash, beginning of period 4,087 10,342
--------- ---------
Cash, end of period $ 5,068 $ 5,423
========= =========
Supplemental cash flow information:
Interest paid $ 11,586 $ 11,805
Income taxes paid (refunded), net $ (839) $ 373
See notes to unaudited consolidated financial statements.
5
Remington Products Company, L.L.C.
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
The accompanying financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission and according to generally accepted accounting principles in
the United States of America, and reflect all adjustments, consisting only of
normal recurring accruals, which in the opinion of management are necessary for
a fair statement of the results of the interim periods presented. Results of
interim periods may not be indicative of results to be expected for the entire
year. These financial statements do not include all disclosures associated with
annual financial statements and, accordingly, should be read in conjunction with
the notes contained in the Company's audited consolidated financial statements
for the year ended December 31, 2001. Certain prior year amounts have been
reclassified to conform with current year presentation.
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.
Remington Capital Corp. is a wholly-owned subsidiary of Remington Products
Company, L.L.C. and has no significant operations of its own.
2. Recent Accounting Pronouncements
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. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. It is the Company's preliminary assessment that the impact,
if any, of the adoption of SFAS No. 143 will not have a material impact on its
consolidated financial position, results of operations or cash flows.
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). The Company adopted this
consensus on January 1, 2002. In accordance with the consensus the Company has
reclassified, for all periods presented, certain payments to its customers as a
reduction of sales; primarily the cost of cooperative advertising with its trade
customers. Prior to the adoption of this consensus the Company classified these
payments as selling, general and administrative expenses in its Consolidated
Statement of Operations. Because adoption of EITF 01-9 resulted solely in
reclassification within the Consolidated Statement of Operations, there has been
no impact on the Company's financial condition, operating income or net income
for any of the periods presented.
In June 2002, SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities was issued. This statement provides guidance on the
recognition and measurement of liabilities associated with disposal activities.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. The adoption of this statement will not have a material
impact on the Company's consolidated financial position, results of operations
or cash flows.
6
3. Inventories
Inventories were comprised of the following (in thousands):
September 30, December 31, September 30,
2002 2001 2001
------------- ------------ -------------
Finished goods $88,826 $71,308 $123,228
Work in process and raw materials 3,638 3,908 4,291
------- ------- --------
$92,464 $75,216 $127,519
======= ======= ========
4. Goodwill and Other Intangibles
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002. In accordance with SFAS No. 142, beginning on January
1, 2002, the Company's goodwill and tradenames, which have been deemed to have
indefinite lives, are no longer being amortized and are subject to annual
impairment tests. Application by the Company of the nonamortization provision of
SFAS No. 142 resulted in an increase in operating income of approximately $0.4
million in the third quarter of 2002 and $1.1 million for the first nine months
of 2002. The full year impact is expected to result in an increase in operating
income of approximately $1.5 million. Had the Company applied SFAS No. 142 on
January 1, 2001, operating income would have increased by approximately $0.4
million in the third quarter of 2002 and $1.1 million for the first nine months
of 2001. The Company's reporting units are also its reportable segments and all
of the Company's goodwill is associated with the North American segment. As of
June 30, 2002 the Company performed the first of the required annual impairment
tests of goodwill and tradenames and no transitional impairment was present.
There can be no assurance that future impairment tests will not result in a
charge to earnings.
Goodwill and other intangible assets were comprised of the following (in
thousands):
September 30, December 31, September 30,
2002 2001 2001
------------- ------------ -------------
Amortized Intangible Assets:
Patents Carrying Amount $4,670 $ 4,670 $ 4,670
Patents Acumulated Amortization 2,975 2,623 2,507
------ ------- -------
Patents, Net $1,695 $ 2,047 $ 2,163
====== ======= =======
Unamortized Intangible Assets:
Goodwill $27,720 $27,720 $27,921
Tradenames 22,819 22,819 22,985
------- ------- -------
$50,539 $50,539 $50,906
======= ======= =======
7
Estimated amortization expense for the year ended December 31,
2002 $468
2003 468
2004 468
2005 468
2006 175
2007 -
------
$2,047
======
5. Income Taxes
Federal income taxes on net income 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 income. Furthermore, income of certain foreign
operations is taxable under local statutes. In jurisdictions where partnership
status is not recognized or foreign corporate subsidiaries exist, deferred taxes
on income are provided for as temporary differences between the financial and
tax basis of assets and liabilities.
6. Commitments and Contingencies
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, would not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
7. Comprehensive Income (loss)
Comprehensive income (loss) consists of the following (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ----------------------
2002 2001 2002 2001
-------- ------- ------- -------
Net income (loss) $5,532 $ 1,802 $ 1,228 $(17,058)
Other comprehensive income:
Foreign currency translation adjustments (79) 407 828 (1,536)
Net unrealized hedging gain (loss) (520) (1,328) (1,697) 367
------- ------- ------- ---------
Comprehensive income (loss) $4,933 $ 881 $ 359 $(18,227)
======= ======= ======= =========
8
8. 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 to similar customers through an international network of
subsidiaries and distributors and 3) the U.S. Service Stores segment, consisting
of Company-owned and operated service stores located throughout the United
States.
Information by segment and geographical location is as follows (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------- -------------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net Sales
North America $47,111 $45,414 $123,753 $113,200
International 25,142 24,865 58,626 52,456
U.S. Service Stores 6,950 7,964 20,629 22,952
-------- -------- --------- ---------
Total $79,203 $78,243 $203,008 $188,608
======== ======== ========= =========
Operating income (loss)
North America $10,012 $8,153 $ 19,473 $ 14,482
International 2,024 1,117 1,227 (12,709)
U.S. Service Stores 49 92 (438) (414)
Depreciation and amortization (829) (1,785) (2,430) (4,297)
-------- -------- --------- ---------
Total $11,256 $ 7,577 $ 17,832 $ (2,938)
======== ======== ========= =========
Capital Expenditures
North America $ 289 $ 564 $ 1,261 $ 2,272
International 72 239 152 806
U.S. Service Stores 2 74 12 731
-------- -------- --------- ---------
Total $ 363 $ 877 $ 1,425 $ 3,809
======== ======== ========= =========
September 30, December 31, September 30,
2002 2001 2001
------------- ------------ -------------
Segment Assets
North America $169,747 $159,665 $199,397
International 60,399 73,158 88,851
U.S. Service Stores 7,873 8,913 9,482
-------- -------- --------
Total $238,019 $241,736 $297,730
======== ======== ========
9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company 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 distributes its products through three operating segments which are
comprised of 1) the North American segment, which sells products through
mass-merchant retailers, department stores and drugstore chains throughout the
United States and Canada, 2) the International segment, which sells products to
similar customers through an international network of subsidiaries and
distributors, and 3) the U.S. Service Stores segment consisting of Company-owned
and operated service stores located throughout the United States.
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 approximately 45% of its annual net sales in the
fourth quarter of each year while the first quarter of each year is generally
the Company's weakest quarter. As a result of this seasonality, the Company's
inventory and working capital needs fluctuate substantially during the year.
Results of Operations
The following table sets forth the Company's unaudited consolidated
statements of operations, including net sales and operating income (loss) by its
North American, International and U.S. Service Stores operating segments for the
three and nine months ended September 30, 2002 and 2001 (in millions except for
percentages). In accordance with new accounting profession guidelines, net sales
for both periods reflect reductions for certain costs which have been
reclassified, primarily the cost of cooperative advertising with trade customers
which were previously included in selling, general and administrative expenses.
10
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- -------------------------------------
2002 2001 2002 2001
-------------- --------------- ---------------- -----------------
$ % $ % $ % $ %
----- ----- ----- ----- ------ ----- ------ -----
Net Sales:
North America $47.1 59.5 $45.3 58.0 $123.8 61.0 113.1 60.0
International 25.1 31.7 24.9 31.8 58.6 28.9 52.5 27.8
U.S. Service Stores 7.0 8.8 8.0 10.2 20.6 10.1 23.0 12.2
------ ------ ------ ------ ------ ------ ------- ------
79.2 100.0 78.2 100.0 203.0 100.0 188.6 100.0
Cost of sales 45.3 57.2 47.0 60.1 119.4 58.8 119.1 63.1
------ ------ ------ ------ ------ ------ ------- ------
Gross profit 33.9 42.8 31.2 39.9 83.6 41.2 69.5 36.9
Selling, general and
administrative expenses 22.5 28.4 23.1 29.6 65.4 32.2 70.9 37.6
Amortization of intangibles 0.1 0.1 0.5 0.6 0.4 0.2 1.5 0.8
------ ------ ------ ------ ------ ------ ------- ------
Operating income (loss):
North America 10.1 12.8 8.2 10.5 19.4 9.6 14.5 7.7
International 2.0 2.5 1.1 1.4 1.2 0.6 (12.7) (6.7)
U.S. Service Stores 0.0 0.0 0.1 0.1 ( 0.4) (0.2) (0.4) (0.2)
Depreciation and amortization (0.8) (1.0) (1.8) (2.3) (2.4) (1.2) (4.3) (2.3)
------ ------ ------ ------ ------ ------ ------- ------
Total operating income (loss) 11.3 14.3 7.6 9.7 17.8 8.8 (2.9) (1.5)
Interest expense, net 6.1 7.7 6.9 8.8 18.0 8.9 19.0 10.1
Other expense (income) 0.2 0.3 (0.9) (1.1) (0.5) (0.2) 0.2 0.1
------ ------ ------ ------ ------ ------ ------- ------
Income (loss) before income
taxes 5.0 6.3 1.6 2.0 0.3 0.1 (22.1) (11.7)
Benefit for income taxes (0.5) (0.6) (0.2) (0.3) (0.9) (0.5) (5.0) (2.6)
------ ------ ------ ------ ------ ------ ------- ------
Net income (loss) $ 5.5 6.9 $ 1.8 2.3 $ 1.2 0.6 $(17.1) (9.1)
====== ====== ====== ====== ====== ====== ======= ======
Third Quarter Ended September 30, 2002 Versus September 30, 2001
Net Sales. Net sales for the quarter ended September 30, 2002 were $79.2
million, an increase of 1% compared to $78.2 million for the quarter ended
September 30, 2001. Higher net sales in the North American segment and positive
currency impacts in the International segment were partially offset by decreases
in the Company's U.S. Service Stores segment. Excluding the positive currency
impact on the International segment, net sales on a worldwide basis decreased 1%
in the third quarter of 2002 compared to the third quarter of 2001.
North American net sales were $47.1 million in the third quarter of 2002,
an increase of 4% compared to $45.3 million in the third quarter of 2001.
Increased sales of shaver and grooming products resulting from new product
introductions occurring within the last year and increased distribution,
primarily at existing customers, were partially offset by lower sales of
wellness and haircare products during the quarter. The Company has de-emphasized
its wellness product line, eliminating fad products, while continuing to offer
only certain more established products.
Net sales in the International segment increased 1% to $25.1 million in the
third quarter of 2002 compared with $24.9 million in the third quarter of 2001.
Excluding the positive impact of currencies versus the prior year, third quarter
net sales in the International segment actually decreased 7% as lower wellness
sales were partially offset by higher shaver and grooming sales.
U.S. Service Stores net sales were $7.0 million in the third quarter of
2002, a 13% decrease from $8.0 million in the third quarter of 2001. The lower
sales were attributable to an average of 12 fewer stores operating during the
third quarter of 2002 and a weak specialty retail environment. Same store sales
decreased 5.3% versus the same period a year ago.
11
Gross Profit. Gross profit was $33.9 million, or 42.8% of net sales in the
third quarter of 2002 compared to $31.2 million, or 39.9% of net sales in the
third quarter of 2001. The increase in percentage over the prior year is the
result of higher North American and International sales of shaver and grooming
products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $22.5 million or 28.4% of net sales in the third
quarter of 2002, compared to $23.1 million or 29.6% of net sales in 2001. The
lower expenses in the third quarter of 2002 were primarily the result of savings
in distribution and product development costs resulting from process
improvements in these areas. Partially offsetting these savings were higher
advertising expenditures.
Operating Income. Operating income in the third quarter of 2002 improved to
$11.3 million compared to $7.6 million in the third quarter of 2001. The
increase was the result of higher sales and margins, lower selling, general and
administrative expenses and lower intangible amortization as a result of the
discontinuance of goodwill and tradename amortization in accordance with SFAS
No. 142, Goodwill and Other Intangible Assets.
Net Interest Expense. Net interest expense decreased to $6.1 million for
the third quarter of 2002 compared to interest expense of $6.9 million in the
third quarter of 2001. The decline in interest expense is primarily the result
of lower average borrowings during the third quarter of 2002.
Other (Income) Expense. Other expense was $0.2 million for the third
quarter of 2002 compared to income of $0.9 million in the third quarter of 2001.
The change from year to year is due to fluctuations in foreign currency rates
during the three month periods and the resulting recognition of an unrealized
currency loss in 2002 and gain in 2001 on U.S. dollar denominated obligations of
the Company's International segment.
Income Tax Benefit. The net benefit for income taxes was $0.5 million for
the third quarter of 2002 compared to a $0.2 million net benefit in the third
quarter of 2001. The current year benefit is due to a reduction in the U.K.
deferred tax asset valuation allowance as a result of unanticipated tax refunds
relating to prior years.
Nine Months Ended September 30, 2002 Versus September 30, 2001
Net Sales. Net sales for the nine months ended September 30, 2002 were
$203.0 million, an increase of 8% compared to $188.6 million for the nine months
ended September 30, 2001. The increase in sales was driven by the North American
and International segments and was partially offset by a decrease in sales in
the U.S. Service Stores segment. Excluding the positive impact of foreign
currency on the Company's International segment, worldwide net sales increased
6% over the comparable period of the prior year.
Net sales in North America were $123.8 million for the first nine months of
2002, an increase of 10% compared to $113.1 million for the first nine months of
2001. The increase in sales was the result of increased distribution, primarily
at existing customers, and new product introductions within the last year.
Shaver and grooming sales exceeded prior year levels while higher haircare sales
were offset by lower wellness sales.
International net sales were $58.6 million for the first nine months of
2002, an increase of 12% compared to $52.5 million for the first nine months of
2001. Excluding the positive impact of currencies versus the prior year, net
sales in the International segment for the first nine months of 2002 were 7%
higher than in the same period of the prior year. This increase was due almost
entirely to the correction of certain logistics and other issues that negatively
impacted the U.K. during the second quarter of 2001.
Net sales in the U.S. Service Stores decreased 10% to $20.6 million for the
first nine months of 2002, compared to $23.0 million for the first nine months
of 2001. The primary cause of the decrease was the operation of 11 fewer stores
on average during the first nine months of 2002 compared to the first nine
months of 2001. In addition, same store sales were down 2.6% year on year as a
result of a weak specialty retail environment.
12
Gross Profit. Gross profit was $83.6 million, or 41.2% of net sales for the
first nine months of 2002 compared to $69.5 million, or 36.9% of net sales for
the first nine months of 2001. The increase in gross profit was due primarily to
the impact on the prior year of $10.7 million of unexpected costs, recognized
principally in the U.K., during the second quarter of 2001. In addition, the
positive impact of an increase in sales volumes and margin percentages for
shaver and grooming products were partially offset by the negative margin impact
of the sale of certain discontinued haircare and wellness products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $65.4 million or 32.2% of net sales for the first
nine months of 2002, compared to $70.9 million or 37.6% of net sales in 2001.
The decline is due primarily to savings realized in distribution and product
development costs as a result of process improvements in these two areas.
Operating Income. Operating income for the nine months ended September 30,
2002 was $17.8 million compared to a loss of $2.9 million during the same period
of the prior year. The negative impact on the prior year of $13.0 million in
unexpected costs and the positive impact on the current year of higher sales and
margins and lower selling, general and administrative expenses were the primary
reasons for the improvement in operating income. Also impacting the improved
operating income for the period was lower intangible amortization as a result of
the discontinuance of goodwill and tradename amortization in accordance with
SFAS No. 142, Goodwill and Other Intangible Assets.
Net Interest Expense. Net interest expense decreased to $18.0 million for
the first nine months of 2002 compared to interest expense of $19.0 million for
the first nine months of 2001. The decline was the result of lower average
borrowings during the current year period. Partially offsetting this decline
were slightly higher average interest rates during the current period resulting
from the sale of $50 million of additional 11% senior subordinated notes in
April 2001, the net proceeds of which were used to repay existing lower rate
term loans and revolving credit borrowings.
Other (Income) Expense. Other income was $0.5 million for the first nine
months of 2002 compared to an expense of $0.2 million in same period of 2001.
The change from year to year is due to the impact of fluctuations in foreign
currency rates on U.S. dollar denominated obligations of the Company's
International segment and the resulting recognition of unrealized currency gains
and losses in 2002 and 2001, respectively.
Income Tax Benefit. The net benefit for income taxes during the first nine
months of 2002 was $0.9 million compared with a $5.0 million benefit in 2001.
The decline in benefit was primarily the result of a lower pre-tax loss for 2002
in the Company's International segment, primarily in the Company's UK
operations.
Liquidity and Capital Resources
Net cash provided by operating activities for the first nine months of 2002
was $2.5 million versus a use of cash of $60.8 million during the first nine
months of 2001. Process improvements in the area of logistics and the
simplification of product offerings have reduced inventory levels by $35.0
million compared to the prior year. This reduction, along with a significant
improvement in earnings and reduction in receivables, were the primary reasons
for the improvement in cash flows from operations.
The Company's operations are not capital intensive. The Company's capital
expenditures for the first nine months of 2002 declined to $1.4 million from
$3.8 million during the first nine months of 2001 primarily as a result of a
lower investment in tooling stemming from an effort to simplify the product
offerings of the Company. Total capital expenditures for 2002 are now
anticipated to be approximately $3 million.
13
The Company's primary sources of liquidity are funds generated from
operations and borrowings under its $110.0 million asset based revolving credit
facility (the "Facility"). Borrowings under the Facility are subject to a
borrowing base of 85% of eligible receivables and 60% of eligible inventories
and are used to provide for ongoing working capital and general corporate
purposes. Subject to compliance with certain covenant requirements under the
Facility and other factors, the Company may, from time to time, repurchase a
portion of its 11% Senior Subordinated Notes. The Facility matures on March 31,
2006.
As of September 30, 2002, the Company was in compliance with all covenants
under the Facility and availability under the Facility was $52.4 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.
Critical Accounting Policies
As disclosed in Note 1 to the "Notes to the Consolidated Financial
Statements", 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, which were
disclosed in the Company's report on Form 10-K and for which there has been no
change in their application as of September 30, 2002, 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.
Forward Looking Statements
This Management's Discussion and Analysis may contain forward-looking
statements which include assumptions about future market conditions, operations
and results. These statements are based on current expectations and are subject
to risks and uncertainties. They are made pursuant to safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Among the many factors
that could cause actual results to differ materially from any forward-looking
statements are the success of new product introductions and promotions, changes
in the competitive environment for the Company's products, changes in economic
conditions, foreign exchange risk, outcome of litigation and other factors
discussed in prior Securities and Exchange Commission filings by the Company.
The Company assumes no obligation to update these forward-looking statements or
advise of changes in the assumptions on which they were based.
14
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
There are no material changes to the disclosure on this matter made in the
Company's report on Form 10-K for the year ended December 31, 2001.
ITEM 4. Controls and Procedures
Within 90 days prior to the filing date of this Quarterly Report the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO) performed an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation the CEO and CFO
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation.
PART II OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
During the quarter ended September 30, 2002, the Registrant did not file
any reports on Form 8-K.
15
SIGNATURE
Pursuant to the requirements 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: November 14, 2002
CERTIFICATIONS
I, Neil P. DeFeo, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Remington Products
Company, L.L.C.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared; b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and c) presented in
this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and b) any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
16
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Neil P. DeFeo
----------------------------------------
Neil P. DeFeo, Chairman, Chief Executive
Officer and President
I, Alexander R. Castaldi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Remington Products
Company, L.L.C.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)
designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared; b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and c) presented in
this quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and b) any fraud, whether or not material, that
involves management or other employees who have a significant role in
the registrant's internal controls; and
17
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Alexander R. Castaldi
-------------------------------------
Alexander R. Castaldi, Executive Vice
President, Chief Financial and
Administrative Officer
18