Back to GetFilings.com
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, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number 333-07429
Remington Products Company, L.L.C.
-------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1451076
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
60 Main Street, Bridgeport, Connecticut 06604
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 367-4400
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
11% Series B Senior Subordinated Notes due 2006
-----------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x/ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x/]
PART I
ITEM 1. Business
General
Remington Products Company, L.L.C. (the "Company" or "Remington") is a
leading developer and marketer of men's and women's electrical personal care
appliances. The Company distributes men's and women's electric shavers and
accessories, women's personal care appliances, including hairsetters, hair
dryers and curling irons, men's electric grooming products and other small
electric consumer appliances.
The Company is a Delaware limited liability company that will continue in
existence until December 31, 2016 or dissolution prior thereto as determined
under the Company's LLC Agreement.
Description of Business
The Company distributes men's and women's electrical personal care
appliances through its three operating segments which are comprised of 1) the
United States segment, which sells product through mass-merchant retailers,
department stores and drug chains, 2) the U.S. Service Stores segment comprised
of more than 100 Company-owned and operated service stores, and 3) the
International segment, which sells product through an international network of
subsidiaries and distributors.
Products
On a worldwide basis, the Company's electrical personal care products are
relatively similar and consist of the following:
Electric Shavers. The Company's primary men's electric shaver line is the
MicroScreen(R) line of single, dual and triple foil shavers, each with the
MicroScreen(R) cutting system. In addition, the Company also has the
Intercept(R) line of premium shavers, with the intercept shaving system that
sandwiches a trimmer-style cutter between two foil heads, a line of men's
MicroFlex((TM)) rotary shavers and certain specialty shavers such as the
"Wet/Dry Sport" shaver. The women's electric shaver line primarily includes the
women's Smooth & Silky(R) wet/dry shaver and the women's wet/dry battery
operated shaver. The Company distributes electric shaver accessories consisting
of shaver replacement parts (primarily foils and cutters), preshave products and
cleaning agents. Electric shavers and shaver accessories accounted for
approximately 46%, 42% and 44% of the Company's total net sales for the years
ended December 31, 1998, 1997 and 1996, respectively.
Women's Personal Care Appliances. Women's personal care appliances consist
primarily of hairsetters, hair dryers, curling irons, hot air brushes and
make-up mirrors. The Company's hairsetter products include the Remington Express
Set(R) hairsetter, which heats in 90 seconds, the Smart Setter(R) hairsetter,
which incorporates a proprietary technology that indicates to users when optimum
heat levels have been reached by changing the color of the rollers, and the
Style Setter(R). Women's personal care appliances accounted for approximately
22%, 25% and 28% of the Company's total net sales for the years ended December
31, 1998, 1997 and 1996, respectively.
-2-
Men's Grooming Products. Men's grooming products consist of the Precision
(TM) lines of beard and mustache trimmers and nose hair and ear hair trimmers as
well as a line of home haircut kits. Total men's grooming products accounted for
approximately 10% of the Company's total net sales for the years ended December
31, 1998, 1997 and 1996.
Other Products. Remington distributes a line of home health appliances
including foot spas, facial steamers and other personal comfort items, as well
as other small appliances such as vacuums which are sold primarily outside the
United States.
Distribution
The Company's products are sold in the United States and internationally in
over 85 countries through mass merchandisers, catalog showrooms, drug store
chains and department stores in addition to the Company's 126 service stores.
In the United States, the Company sells products through mass-merchant
retailers such as Wal-Mart, K-Mart and Target, department stores such as Sears,
drug store chains including Walgreens, Eckerd and Rite Aid, and Remington's own
service stores. Throughout the United States, the Company's products are sold in
excess of 10,000 retail outlets.
On a worldwide basis, Wal-Mart accounted for approximately 19%, 15% and 16%
of the Company's net sales during the years ended December 31, 1998, 1997 and
1996, respectively. No other customer accounted for more than 10% of the
Company's net sales in the three year period ended December 31, 1998.
Service Stores
As of December 31, 1998, the Company owned and operated a chain of 126
service stores with 104 in the United States, 12 in the United Kingdom and 10 in
Australia. During 1998, the Company opened a net of 11 service stores in the
United States, two stores in the United Kingdom and one store in Australia. The
stores in the United States are in many of the major markets with concentrations
on the East Coast and in the major cities of the South and West. The majority of
the stores are located in shopping malls and outlet malls within large
metropolitan areas. The stores sell and service a variety of Remington and
non-Remington shavers and accessories, personal care appliances, knives,
scissors, travel appliances and other related products. The service stores also
oversee sales of replacement parts to approximately 300 independent authorized
shaver service dealers across the United States. In 1998, the Company's service
stores generated approximately 19% of the worldwide net sales.
Manufacturing Operations
During 1998, the Company ceased the assembly of foil shavers in Bridgeport
and moved the operation to Raymond Industrial Ltd. ("Raymond"), an existing
Remington partner-vendor in Asia. The shutdown of the assembly operation
resulted in the elimination of approximately 220 positions in the Bridgeport
-3-
facility. Remington continues to manufacture foil cutting systems at its
Bridgeport, Connecticut facility using proprietary cutting technology and a
series of specially designed machines.
Suppliers
The Company's finished goods inventories are manufactured for the Company
by third party suppliers primarily located in China, Japan and Austria. The
Company maintains ownership of tools and molds used by many of its suppliers.
The Company's two most significant suppliers, Izumi Products, Inc. ("Izumi") and
Raymond, accounted for approximately 40% of the Company's overall cost of sales
in 1998. These two suppliers' manufacturing facilities are located in China and
Japan. Remington has had a relationship with these suppliers for many years and
management considers its present relationships to be good.
Research and Product Development
The Company believes that research and development activities are an
important part of the Company's business and are essential to its long-term
prospects. Research and development efforts at Remington allow the Company to
maintain its unique manufacturing strength in cutting systems for shavers. The
Company is continuously pursuing new innovations for its line of shavers
including foil improvements and new cutting and trimmer configurations. The
Company also devotes resources to the development of new technology for other
products such as women's personal care products, including hairsetters, hair
dryers and curling irons, as well as for men's grooming products.
The Company has continued to increase its investment in research and
development activities in recent years. During 1998, 1997 and 1996, research and
development expenditures for the Company amounted to approximately $3.1, $2.8
and $2.1 million, respectively.
Patents and Trademarks
The Company owns approximately 180 patent and patent applications for both
design and utility that are maintained in approximately 40 countries. The
Company's patents cover electric shavers, cutting and trimming mechanisms and
women's personal care products such as hairsetters, hair dryers and curling
irons. In addition, the Company maintains over 300 different trade names in
approximately 100 countries covering a variety of products. These trade names
have resulted in the issuance of over 1,300 registered trademarks.
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 health 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
provided 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 mark in their respective areas of interest.
The Company retains the Remington trademark for nearly all products which it
believes can benefit from the use of the brand name in the Company's
distribution channels. The Company has aggressively enforced its ownership of
the Remington brand name.
-4-
Competition
The Company believes that the markets for all of its product lines are
highly competitive and that competition for retail sales to consumers is based
on several factors, including brand name recognition, value, quality, price and
availability. Primary competitive factors with respect to selling such products
to retailers are brand reputation, product categories offered, broad coverage
within each product category, support and service in addition to price.
Remington competes with established companies, several of which have
substantially greater resources than those of the Company. There are no
substantial regulatory barriers to entry for new competitors in the electric
personal appliance industry. However, suppliers that are able to maintain, or
increase, the amount of retail shelf space allocated to their respective
products may gain a competitive advantage. The Company believes that the
allocation of space by retailers is influenced by many factors, including brand
name recognition by consumers, product quality and prices, service levels
provided by the supplier and the supplier's ability to support promotions.
The rotary shaver market is significant outside the United States. The
future expansion of sales of the Company's rotary shavers outside the United
States will be affected by, among other factors, the outcome of ongoing legal
actions against Philips Electronics, N.V. ("Philips"). Philips holds patents and
trademarks outside the United States on certain of its shaver designs that
restrict the Company from entering these markets. The Company is currently
involved in litigation challenging such trademarks and patents in the United
Kingdom and Australia. Refer to Item 3. Legal Proceedings.
Employees
As of December 31, 1998, the Company employed approximately 970 people in
the United States and abroad of which approximately 220 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 are subject to federal, state and
local environmental laws and regulations. The Company believes it is in
substantial compliance with all such environmental laws which are applicable to
its operations. The Company has reported to the Connecticut Department of
Environmental Protection (the "CTDEP") that it has detected petroleum and
solvent compounds in soil and ground water samples taken from its Bridgeport
facility. Investigations have been conducted and the results and remediation
plan will be submitted to the CTDEP for approval. In addition to its ongoing
program of environmental compliance, the Company has provided reserves to cover
the anticipated costs of the remediation required at its Bridgeport facility to
be incurred over the next three to five years. The Company believes that any
required change to the reserves due to the inherent uncertainties as to the
ultimate costs for the remediation activities which are eventually undertaken
would not be material to the Company's financial position and results of
operations.
-5-
International Operations and Distribution
Remington's international operations generated approximately 39%, 43% and
39% of the Company's net sales in 1998, 1997 and 1996, respectively. The
Company's international network of subsidiaries and distributors currently
extends to over 85 countries worldwide. The Company markets products throughout
Europe, the Middle East, Africa, Asia and a portion of South America through its
subsidiary in the United Kingdom, and distributes products to Japan, Central
America and the remainder of South America from its United States headquarters.
The Company distributes its products through direct sales forces located in the
United Kingdom, Australia, Canada, Germany, France, New Zealand, South Africa,
Sweden, Ireland and Italy. In all other parts of the world the Company
distributes its products through strategic alliances with local distributors. As
in the United States market, the primary asset of the Company's international
operations is the Remington brand name.
The Company distributes products internationally through department stores,
catalog showrooms, mass merchandisers, drug stores, specialized shaver shops and
mail order distributors as well as the Company's service stores in the United
Kingdom and Australia. As in the United States, Remington has established direct
relationships with many of the leading international retailers.
Additional financial information relating to Remington's international
operations is set forth in Note 15 (Business Segment and Geographic Information)
of the "Notes to Consolidated Financial Statements" of the Company appearing
elsewhere herein.
ITEM 2. Properties
The following table sets forth information as of December 31, 1998
concerning the principal facilities of the Company.
Facility Function Square Feet
Bridgeport, CT Headquarters (Owned) 40,000
Bridgeport, CT Manufacturing (Owned) 167,000
In addition to these properties, Remington leases offices and warehouse
space in the United States, Canada, United Kingdom, Germany, France, Italy,
Australia, New Zealand, South Africa, Ireland, Sweden and Hong Kong, and 126
service stores, of which 104 are in the United States, 12 are in the United
Kingdom and 10 are in Australia.
-6-
ITEM 3. Legal Proceedings
The Company and Philips are engaged in litigation in the United Kingdom and
Australia relating to certain trademarks and designs issued to Philips relating
to Philips' triple head rotary shaver. In these proceedings, Philips alleged
infringement of its trademarks and designs by the Company and the Company
counter-claimed that Philips' trademark and design registrations are invalid.
The U.K. trial court found in favor of the Company and Philips has appealed that
decision. The trial in the Australian action was completed in September 1998 and
the Company is awaiting the decision of the trial judge. The costs of defending
the U.K. and Australian litigation are, in most circumstances, shared with
Izumi, the Company's supplier of rotary shavers. Izumi is also pursuing actions
against Philips in Sweden to contest the validity of certain of Philips'
trademarks. If such litigation is ultimately determined adversely to the Company
or Izumi, the Company's ability to sell rotary shavers in such countries could
be limited or prohibited. In 1998, the Company's net sales of rotary shavers in
Europe and Australia were not material.
The Company is a party to other lawsuits and administrative proceedings that
arose in the ordinary course of business. Although the final results in 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.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
All of the Company's outstanding equity securities are privately held.
(b) Holders
As of March 15, 1999, there were two holders of the common equity securities
of the Company.
-7-
(c) Dividends
No cash distributions have been paid on the common and preferred equity of
the Company since the Closing Date. Prior to the reorganization of the Company
in May 1996, as discussed in Note 2 of the "Notes to the Financial Statements",
the Company operated as a general partnership and cash distributions were made
to the partners. In addition, the Company's long-term debt arrangements, which
are discussed in Note 7 of the "Notes to Consolidated Financial Statements",
significantly restrict the payment of dividends.
(d) Recent Sales of Unregistered Securities
None.
Item 6. Selected Financial Data
The following table summarizes selected financial information and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and
accompanying notes thereto appearing elsewhere herein (in thousands):
Successor Predecessor
------------------------------------------------ ------------------------------------------
Year Year 31 Weeks 21 Weeks Year Ended
Ended Ended Ended Ended December 31,
December 31, December 31, December 31, May 23, --------------------------
1998 1997 1996 1996 1995 1994
----------- -------------- ----------- ---------- ----------- ----------
Statement of Operations Data:
Net sales $ 268,357 $ 241,572 $ 185,286 $ 56,713 $ 255,323 $ 261,446
Operating income (loss) 6,016 (1) 14,146 12,508 (16,951) 26,516 21,228
Interest expense 20,499 19,318 12,164 2,228 7,604 6,414
Net income (loss) (15,337) (7,923) (3,172) (18,191) 17,240 14,725
Depreciation and amortization 5,169 4,767 2,379 2,005 4,938 4,243
Balance Sheet Data (at period end):
Working capital $ 68,294 $ 76,361 $ 77,860 N/A $ 47,223 $ 62,862
Total assets 195,727 205,245 214,823 N/A 170,922 160,543
Total debt 187,668 181,240 171,631 N/A 56,990 55,093
Cumulative Preferred Dividend (2) 22,336 12,932 4,576
- ----------------------------
(1) Includes non-recurring charges related to restructuring and reorganization
activities of $9.6 million.
(2) Dividend payments are subject to restrictions by the terms of the Company's
debt agreements.
-8-
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth the Company's consolidated statements of
operations, including net sales by its U. S., U.S. service stores, and
International operating segments, as well as the Company's consolidated results
of operations as a percentage of net sales for the years ended December 31,
1998, 1997 and 1996. To facilitate comparison of the operating results of the
periods set forth below, results of operations for the year ended December 31,
1996 were obtained by combining, without adjustment, the results of operations
of the predecessor company from January 1, 1996 to May 23, 1996 with those of
the Company for the period from May 24, 1996 to December 31, 1996. The
discussion should be read in connection with the Consolidated Financial
Statements and accompanying notes thereto appearing elsewhere herein.
Year Ended Year Ended Combined Year Ended
December 31, 1998 December 31, 1997 December 31, 1996
------------------------- ------------------------ ------------------------
Net Sales: $ % $ % $ %
------ ------ ------ ------ ------ -----
U.S. $122.5 45.6 $ 99.6 41.2 $113.2 46.7
U.S. service stores 42.4 15.8 38.6 16.0 33.7 13.9
International 103.5 38.6 103.4 42.8 95.1 39.4
------ ------ ------ ------ ------ -----
268.4 100.0 241.6 100.0 242.0 100.0
Cost of sales 159.2 (1) 59.3 141.3 58.5 152.7 63.1
------ ------ ------ ------ ------ -----
Gross profit 109.2 40.7 100.3 41.5 89.3 36.9
Selling, general and
administrative 94.4 35.2 84.3 34.9 91.9 37.9
Restructuring and
reorganization charge 6.8 2.5
Intangible amortization 2.0 0.7 1.9 0.8 1.9 0.8
------ ------ ------ ------ ------ ------
Operating income (loss) 6.0 2.3 14.1 5.8 (4.5) (1.8)
Interest expense 20.5 7.6 19.3 8.0 14.4 5.9
Other expense 0.4 0.2 0.5 0.2 0.3 0.1
------ ------ ------ ------ ------ -----
Income (loss) before
income taxes (14.9) (5.5) (5.7) (2.4) (19.2) (7.9)
Provision for income taxes 0.4 0.2 2.2 0.9 2.2 0.9
------- ------- ------- ------ ------- -----
Net income (loss) $(15.3) (5.7) $(7.9) (3.3) $(21.4) (8.8)
====== ======= ======= ======= ======= =====
(1) Includes a $2.8 million charge for inventory write-downs related to
restructuring and reorganization activities.
-9-
Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997
Net Sales. Net sales for the year ended December 31, 1998 were $268.4
million compared to $241.6 million for the previous year, an increase of 11.1%
primarily as a result of strong sales in the United States.
Net sales in the United States increased 23.0% from $99.6 million for the
year ended December 31, 1997 to $122.5 million in 1998. This increase was
primarily related to increased sales of men's and women's shavers. Demand
increased for men's shavers as a result of the introductions of the updated line
of the Microscreen(R)3 shaver and the Intercept(R) shaver line in the first
quarter of 1998 and the MicroFlex((TM)) rotary line in the fourth quarter. Sales
of women's shavers increased as a result of demand for the wet/dry Dual Foil
shaver, although this was not a new product. Additionally, sales of women's hair
dryers and men's grooming were positively impacted by the introduction of new
hair dryers and the new men's Precision((TM)) line of beard & mustache trimmers
in 1998.
Net sales by the Company's U.S. service stores increased 9.8% to $42.4
million in 1998 from $38.6 million in 1997. This increase was primarily
attributable to the opening of a net of 10 additional stores and one temporary
store for a total of 104 stores open during the holiday shopping season.
Additionally, same store sales increased 2.3% from 1997 to 1998.
Net sales for the international businesses on a combined basis remained
flat from 1997 to 1998. Increased sales in the United Kingdom were offset by
decreases in Australia and the international export business due to slowing
economies, particularly in Asia and negative currency impacts.
Gross Profit. Gross profit of $109.2 million in 1998, or 40.7% of net
sales, decreased as a percentage of sales from 41.5% in 1997. Excluding the $2.8
million non-recurring charge to 1998 cost of sales related to the restructuring
of the Company's Connecticut shaver assembly operations, the gross profit
percentage actually increased slightly to 41.7% of net sales. The gross profit
percentages in the United States increased by more than two percentage points in
1998, excluding the non-recurring charge. The increase was primarily due to a
combination of lower costs and improved product mix, as well as lower product
returns. The gross profit percentage for the International businesses declined
by almost three percentage points in 1998. The decline was primarily
attributable to decreases in Australia and the international export markets, due
to weak economies and negative currency impacts on cost of sales as inventory
purchases are made in U.S. dollars.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $94.4 million, or 35.2% of net sales for calendar year
1998 compared to $84.3 million, or 34.9% of net sales in 1997 as a result of
several factors. In 1998, the Company increased its investment in advertising
and promotion and continued to invest in marketing and new product development.
The Company continued to invest in its retail service stores and opened a net
total of 14 stores worldwide. Distribution expenses in 1998 increased as the
Company transitioned from its Connecticut warehouse to a third party warehouse
in California. Additionally, the Company increased its provision for bad debt,
due to the financial difficulties of one of the large U.S. mass merchandisers.
-10-
Restructuring and Reorganization Charge. In the second quarter of 1998, the
Company announced a plan to restructure its Connecticut shaver assembly and
warehousing operations ("the Plan"). The Plan consisted of relocating the shaver
assembly operations to an existing Remington partner-vendor located in Asia and
relocating the warehousing function to a third party provider in California.
Savings of approximately $6.0 million annually will accrue from these changes of
which $3.0 million was realized in 1998, with an additional $2.0 million
anticipated for 1999 and the full benefit being realized by the year 2000. The
Plan resulted in affecting the employment of approximately 235 employees located
at the Company's two Connecticut facilities, the majority of which were factory
employees. During 1998, the Company recorded total non-recurring charges of $9.6
million related to the Plan, of which $2.8 million was charged to cost of sales
for inventory write-downs associated with the Plan and $6.8 million was charged
to restructuring and reorganization. Included in the restructuring charge are
items such as severance and other employee costs, lease obligations and
write-offs of certain equipment and tooling.
Operating Income (Loss). Operating income decreased to $6.0 million, or 2.3%
of net sales in 1998 compared to $14.1 million or 5.8% in 1997. This decrease
was the direct result of the $9.6 million of non-recurring charges recorded in
1998 related to the restructuring and reorganization. Excluding the
non-recurring charges, operating income was $15.6 million, or 5.8% of net sales.
Interest Expense. Interest expense increased to $20.5 million in 1998
compared to $19.3 million in 1997 as a result of higher average borrowings in
1998.
Provision for Income Taxes. The provision for income taxes was $0.4 million
in 1998 compared to $2.2 million in 1997 and relates to the Company's foreign
operations.
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996
Net Sales. Net sales for the year ended December 31, 1997 were $241.6
million compared to $242.0 million for the previous year. International net
sales and U.S. service store sales demonstrated strong results for 1997 with
increases of 8.7% and 14.5%, respectively over the prior year. These results
were more than offset by a decline in net sales in the United States.
Net sales in the United States decreased 12.0% from $113.2 million for the
year ended December 31, 1996 to $99.6 million in 1997. This decrease was
primarily related to lower sales of certain men's and women's shavers. Men's
shaver sales were impacted by the effect of transitioning to the updated line of
Microscreen(R) shavers, competitive actions in rotary shavers as well as the
decision not to repeat certain promotional programs offered during 1996. The
introduction of the new line of MicroScreen(R) 2 shavers in the third quarter of
1997 helped sales of the mid-priced and largest line of Remington shavers come
in on line with the prior year, while the impact of the announced 1998
introduction of the new MicroScreen(R) 3 shavers resulted in lower transitional
sales of the older Triple Foil(TM) line of shavers in 1997. Women's shaver sales
were impacted by an overall decline in the market for women's shavers.
Additionally, domestic sales of women's personal care appliances were negatively
impacted by competitive actions in hairsetters and the cancellation of a new
line of curling irons.
Net sales through the Company's U.S. service stores increased 14.5% to $38.6
million in 1997 from $33.7 million in 1996. This increase is primarily
attributable to the opening of a net of 10 additional stores for a total of 93
stores open during the holiday shopping season. Additionally, same store sales
increased 4.3% from 1996 to 1997 as a result of a strong holiday selling season.
-11-
International net sales increased to $103.4 million in 1997 from $95.1
million in 1996 as a result of the United Kingdom and Australian operations. Net
sales in the United Kingdom increased as a result of strong demand, particularly
in the personal care product sales. Despite a negative currency impact, net
sales in Australia increased due to strong demand for new personal care products
and growth in retail service stores from three stores in 1996 to nine stores at
December 31, 1997.
Gross Profit. Gross profit increased to $100.3 million, or 41.5% of net
sales, in 1997 from $89.3 million or 36.9% of net sales in 1996. Approximately
2.0% of the gross profit margin percentage increase was due to inventory
valuation adjustments recorded in 1996, while the remaining increase was due to
slightly lower costs and improved product mix.
Selling, General and Administrative. Selling, general and administrative
expenses decreased to $84.3 million in 1997, or 34.9% of net sales, from $91.9
million, or 37.9% of net sales in 1996. The 1996 expenses included $10.9 million
in non-recurring charges related to the May 1996 reorganization and a $1.3
million charge related to the bankruptcy of the Company's largest customer in
Canada. After considering the effect of these charges in 1996, expenses in 1997
increased over 1996, as a result of a 25% increase in advertising expenses and
investments the Company has made in marketing and new product development.
Operating Income (Loss). Operating income increased to $14.1 million in
1997, or 5.8% of net sales, from an operating loss of $(4.5) million in 1996, or
(1.8)% of net sales.
Interest Expense. Interest expense increased to $19.3 million in 1997 from
$14.4 million in 1996. This increase is primarily attributable to a full year of
interest charged on senior subordinated notes in 1997 in connection with the May
1996 reorganization, as well as increased average borrowings on revolving credit
facilities.
Provision for Income Taxes. The provision for income taxes was $2.2 million
in 1997 and in 1996 and relates to the Company's foreign operations.
Liquidity and Capital Resources
For the year ended December 31, 1998, the Company used approximately $3.1
million in cash for operating activities, compared to $8.0 million in 1997. The
increase in cash flow in 1998 is the result of lower disbursements, primarily
inventory, somewhat offset by lower collections on receivables.
The Company's operations are not capital intensive. During 1998 and 1997,
the Company purchased property, plant and equipment, including tooling for new
products, of $3.9 million and $5.1 million, respectively. Capital expenditures
for 1999 are anticipated to be approximately $4.3 million.
During 1998, the Company repaid aggregate scheduled principal amounts on
term loans of $1.4 million, and increased its net borrowings under revolving
credit agreements by $7.6 million.
-12-
The Company's primary sources of liquidity are funds generated from
operations and borrowings available pursuant to the Senior Credit Agreement. The
Senior Credit Agreement provides for $70 million in Revolving Credit Facilities
and $10 million in Term Loans. The Term Loans are repayable quarterly through
March 31, 2002. Borrowings under the Revolving Credit Facilities mature on June
30, 2002. The Company believes that cash generated from operations and borrowing
resources will be adequate to permit the Company to meet both its debt service
requirements and capital requirements for the next twelve months, although no
assurance can be given in this regard.
Market Risk Disclosure
The Company is exposed to market risks, which include changes in interest
rates as well as changes in currency exchange rates as measured against the U.S.
dollar. The Company attempts to reduce these risks by utilizing financial
instruments, primarily foreign currency forward contracts. The Company uses
derivative financial instruments only for risk management purposes and does not
use them for speculation or for trading. The Company has elected to disclose its
interest rate risk and foreign currency risk utilizing a sensitivity analysis
approach based on hypothetical changes in foreign exchange rates and interest
rates. Certain items such as lease contracts and obligations for pension were
not included in the analysis.
Interest Rate Risk. The Company's debt portfolio is comprised of fixed rate
debt consisting primarily of $130 million of Senior Subordinated Notes and
approximately $57 million of variable rate debt, primarily borrowings under the
Senior Credit Agreement. For further details, refer to Note 7 (Debt), of the
"Notes to Consolidated Financial Statements" appearing elsewhere herein.
The Company is exposed to interest risk as a result of its fixed rate notes
and its variable rate debt and any cash holdings. Interest rate changes would
result in gains or losses in the market value of the Company's fixed rate debt
due to differences between the current market interest rates and the rates
governing these instruments. With respect to the Company's financial instruments
referred to above, at December 31, 1998, a ten percent change in interest rates
would have no material effect on fair values, cash-flows or earnings of the
Company.
Foreign Currency Risk. Foreign currency risk is managed by the use of
foreign currency forward contracts. The use of these contracts allows the
Company to manage its exposure to exchange rate fluctuations because the gains
or losses incurred on the derivative instruments will offset in whole, or in
part, losses or gains on the underlying foreign currency exposure. The Company's
principal currency exposures are in the British pounds, Australian and Canadian
dollars and German marks.
Foreign currency contracts are sensitive to changes in foreign exchange
rates. Due primarily to the relatively short maturities of these contracts, a
ten percent change in the foreign currency exchange rates against the U.S.
dollar, with all other variables held constant, would have no material effect on
the fair value of these foreign currency financial instruments as of December
31, 1998.
-13-
Seasonality
Sales of the Company's products are highly seasonal, with a large percentage
of net sales occurring during the Christmas selling season. The Company
typically derives more than 40% of its annual net sales in the fourth quarter of
each year. As a result of this seasonality, the Company's inventory and working
capital needs fluctuate substantially during the year. In addition, Christmas
orders from retailers are often made late in the year, making forecasting of
production schedules and inventory purchases difficult. Any adverse change in
the Company's results of operations in the fourth quarter would have a material
adverse effect on the Company's financial condition and results of operations.
Inflation
In recent years, inflation has not had a material impact upon the results of
the Company's operations.
Year 2000 Compliance
The Year 2000 date issue arises from the fact that many computer programs
use only two digits to identify a year in a date field. The Company's key
financial and operational systems have been reviewed, and the majority of the
systems did not require modifications. With the exception of one minor
communication program, all required modifications have been completed and the
systems have been tested and are properly functioning. The modification required
to the communication program will be completed by the end of the first quarter
of 1999. Costs incurred to date are not material due to the nature of the
modifications required and the fact that these modifications did not involve
hiring outside consultants. Management does not expect that any remaining costs
to be incurred will have a material adverse impact on the Company's financial
position, results of operations or cash flows.
The Company could be adversely impacted by the Year 2000 date issue if
suppliers, customers and other businesses, as well as government agencies in the
U.S. and elsewhere, do not address this issue successfully. The Company has
contacted its major suppliers, customers and financial institutions and has
received written assurances of Year 2000 compliance from all of its major
suppliers. Based upon the Company's assessment of each supplier's progress to
adequately address the Year 2000 issue, the Company expects to develop a
supplier action list and contingency plan by June 1999. However, no assurance
can be provided as to the effect or timely implementation of such action list or
contingency plans, or that suppliers will effectively address their Year 2000
issues to enable them to continue providing the Company with products and
services.
EURO Conversion
On January 1, 1999, eleven of fifteen member countries of the European
Union entered a three-year transition phase during which one common legal
currency (the "euro") was introduced. Beginning in January 2002, new
euro-denominated bills and coins will be issued, and local currencies will be
removed from circulation. Although the Company's international businesses
-14-
affected by the euro-conversion comprise less than 5% of the Company's net sales
for the year ended December 31, 1998, the Company has established various plans
to address the issues raised by the euro currency conversion. These issues
include, among others, the need to adapt computer and financial systems and
business processes to accommodate euro-denominated transactions and the impact
of one common currency on pricing. Based on its evaluation to date, Management
believes that the introduction of the euro, including total costs for the
conversion, will not have a material adverse impact on the Company's financial
position, results of operations or cash flows. The Company will continue to
evaluate the impact of the euro introduction.
Forward Looking Statements
This Management's Discussion and Analysis may contain forward-looking statements
which include assumptions about future market conditions, operations and
results. These statements are based on current expectations and are subject to
risks and uncertainties. They are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Among the many factors that
could cause actual results to differ materially from any forward-looking
statements are the success of new product introductions and promotions, changes
in the competitive environment for the Company's product, changes in economic
conditions, foreign exchange risk and other factors discussed in prior
Securities and Exchange Commission filings by the Company. The Company assumes
no obligation to update these forward-looking statements or advise of changes in
the assumptions on which they were based.
ITEM 8. Financial Statements and Supplementary Data
The Company's financial statements and supplementary data are included
elsewhere herein as outlined on page F-1.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers.
The following table sets forth certain information (ages as of March
15, 1999) with respect to each executive officer of the Company and individuals
who are directors on the Remington Management Committee.
-15-
Name Age Positions and Offices
---------- --- ---------------------
Neil P. DeFeo 52 Chief Executive Officer, President and
Director
Alexander R. Castaldi 48 Executive Vice President and Chief
Financial Officer
Wilan van den Berg 37 Executive Vice President International
Lester C. Lee 38 Senior Vice President Sales and
Integrated Logistics
Ann Buivid 46 Vice President Worldwide Marketing and
Business Development
Lawrence D. Handler 53 President, Remington Service Stores
H. Graham Kimpton 63 Vice President, Remington Australia
and Asia
Allen S. Lipson 56 Vice President, Administration, General
Counsel and Secretary
Timothy G. Simmone 33 Vice President, Chief Technical Officer
Victor K. Kiam, II 72 Chairman and Director
Norman W. Alpert 40 Director
William B. Connell 58 Director
Victor K. Kiam, III 39 Director
Kevin A. Mundt 45 Director
Arthur J. Nagle 60 Director
Daniel S. O'Connell 44 Director
Robert L. Rosner 39 Director
Neil P. DeFeo has served as President, Chief Executive Officer and a
Director of the Company since January 1997. From 1993 to 1996, Mr. DeFeo was
Group Vice President, U.S. Operations for The Clorox Company. For 25 years prior
to 1993, Mr. DeFeo worked for Procter & Gamble in various executive positions,
including Vice President and Managing Director, Worldwide Strategic Planning,
Laundry and Cleaning Products. Mr. DeFeo is a director of Cluett American
Corporation, a Company in which Vestar or its affiliates has a significant
equity interest and Driscoll's Strawberry Association, Inc.
Alexander R. Castaldi has been the Executive Vice President and Chief
Financial Officer of the Company since November 1996. From 1995 to 1996, Mr
Castaldi was Vice President and Chief Financial Officer of Uniroyal Chemical and
from 1990 to 1995, he was Senior Vice President and Chief Financial Officer of
Kendall International, Inc.
Wilan van den Berg has been Executive Vice President International since
September 1998. From 1995 to 1998 he was President and Chief Executive Officer
of Payer Electric Shaver and from 1987 until 1995, he was with the Philips
International Domestic Appliances and Personal Care division of Philips
Electronics N.V.in various sales and marketing positions, including Sales and
Marketing Director for Philips France.
Lester C. Lee has been Senior Vice President Sales and Integrated Logistics
of the Company since July 1997. From 1995 until 1997, he was with Pacific Bell
Mobile Services, a Division of Pacific Telesis, most recently as Vice President
of Sales, and from 1989 until 1995, he was with Norelco Consumer Products
Company in various sales positions, including Director of Sales, Western
Division.
-16-
Ann Buivid has been Vice President Worldwide Marketing and New Business
Development since September 1998. From 1995 to 1998, Ms. Buivid was Vice
President, North American Marketing and New Business Development, for the
Household Products Group of Black & Decker Inc. and from 1993 to 1995, she was
Vice President of Marketing for the Beverages Category of Campbell Soup Company.
Lawrence D. Handler has been President, Remington Service Stores, since
June 1996 and was Vice President and Chief Financial Officer of the Service
Stores from January 1995 when he joined the Company until June 1996. From
January 1994 until December 1994, Mr. Handler was a private financial
consultant, specializing in retail operations and from May 1993 until December
1993 he was Vice President and Chief Financial Officer of Terrific Promotions,
Inc.
H. Graham Kimpton is Vice President, Remington Australia and Asia. Mr.
Kimpton joined the Company in April 1988 and has been managing the
Australian/New Zealand operation since that time.
Allen S. Lipson is Vice President, Administration, General Counsel and
Secretary of Remington since May 1996. Mr. Lipson has been the General Counsel
of the Company since October 1988.
Timothy G. Simmone was appointed Vice President, Chief Technical Officer of
the Company in June 1997. From 1988 until 1997, he was with The Stanley Works
Corporation in various engineering position, most recently as Vice President,
Product Development of the Stanley Fastening Systems Division.
Victor K. Kiam, II has served as Chairman since 1979 and served as Chief
Executive Officer of the Company from 1979 to 1996. Mr. Kiam is the Chairman of
RPI Inc., Chairman of the Board of Ronson P.L.C. and a director of Citadel
Technology and News Communication.
Norman W. Alpert has been a Director of Remington since May 1996. Mr. Alpert
is a Managing Director of Vestar Capital Partners and was a founding partner of
Vestar at its inception in 1988. Mr. Alpert is Chairman of the Board of
Directors of International AirParts Corporation, Aearo Corporation and Advanced
Organics, Inc., and a director of Russell-Stanley Corporation, Cluett American
Corporation and Siegel & Gale, all companies in which Vestar or its affiliates
have a significant equity interest.
William B. Connell has been a Director of Remington since 1990. Mr. Connell
is currently Chairman of EBD Holdings, Inc., a private venture capital group.
Mr. Connell previously served as Vice Chairman of Whittle Communications, L.P.
from 1992 to 1994 and served as its President and Chief Operating Officer from
1990 to 1992. In addition to Remington, Mr. Connell is currently a director of
Baldwin Piano & Organ Company, Dolphin Software, Inc. and EDB Holdings, Inc.
Victor K. Kiam, III has been a Director of Remington since 1992. Mr Kiam has
been Executive Vice President of RPI Corporation since 1996 and was with the
Company from 1986 until 1996 in a variety of positions in manufacturing, sales
and marketing, including Vice President Corporate Development. He is the son of
Victor K. Kiam, II.
-17-
Kevin A. Mundt has been a Director of Remington since July 1996. Mr. Mundt
is Vice President, Group Business Head of Mercer Management Consulting since
1997 and was co-founder and Managing Director of Corporate Decisions, Inc. since
its inception in 1983 until its merger with Mercer Management Consulting in
1997. Mr. Mundt is a director of Russell-Stanley Corporation and Advanced
Organics, Inc., companies in which Vestar or its affiliates have a significant
equity interest and in Telephone Data Systems, Inc.
Arthur J. Nagle has been a Director of Remington since May 1996. Mr. Nagle
is a Managing Director of Vestar Capital Partners and was a founding partner of
Vestar at its inception in 1988. Mr. Nagle is a director of Aearo Corporation
and Russell-Stanley Corporation, companies in which Vestar or its affiliates
have a significant equity interest.
Daniel S. O'Connell has been a Director of Remington since May 1996. Mr.
O'Connell is founder and the Chief Executive Officer of Vestar Capital Partners.
Mr. O'Connell is a director of Advanced Organics, Inc., Aearo Corporation,
Clark-Schwebel, Inc., Pinnacle Automation, Inc., Reid Plastics Holdings, Inc.,
Sun Apparel, Inc. and Russell-Stanley Corporation, all companies in which Vestar
or its affiliates have a significant equity interest.
Robert L. Rosner has been a Director of Remington since May 1996. Mr.
Rosner is a Managing Director of Vestar Capital Partners and was a founding
partner of Vestar at its inception in 1988. Mr. Rosner serves as Chairman of the
Board of Directors of Russell-Stanley Corporation, a company in which Vestar or
its affiliates have a significant equity interest.
ITEM 11. Executive Compensation
Compensation of Executive Officers
The following Summary Compensation Table includes individual compensation
information during each of the three years ended December 31, 1998 for Company's
Chief Executive Officer and each of the next four most highly compensated
executive officers of the Company who were serving as executive officers of the
Company at the end of 1998 (collectively, the "Named Executive Officers") for
services rendered in all capacities to the Company.
Annual Compensation (1) All Other
Name and Principal Position Year Salary ($)(2) Bonus ($)(3) Compensation ($)
- --------------------------- ---- -------------- ------------ -----------------
Neil P. DeFeo, President, CEO and 1998 $400,000 $300,000 $ 2,569(5)
Director(4) 1997 392,000 200,000 214,048(5)
Alexander R. Castaldi, Executive VP 1998 265,000 172,250 3,348(7)
and CFO(6) 1997 265,000 132,000 3,189(7)
1996 25,500
Lester C. Lee, Sr. VP Sales and 1998 205,000 104,612 3,265(7)
Integrated Logistics(8) 1997 96,981 79,229 71,621(9)
Allen S. Lipson, VP, Administration 1998 196,000 88,200 4,488(11)
General Counsel & Secretary 1997 195,400 78,400 4,413(11)
1996 188,900 425,123(10) 5,521(11)
Lawrence D. Handler, President, 1998 160,000 64,800 2,717(7)
Remington Service Stores 1997 154,100 65,500 2,745(7)
1996 133,200 76,065(12) 1,394(7)
-18-
- -----------------------
(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) Mr. DeFeo became President and CEO in January 1997.
(5) The amounts shown include Company matching contributions to the Company's
401(k) Plan of $2,492 and $2,415 for 1998 and 1997 and $211,633 of
relocation and travel expenses for 1997.
(6) Mr. Castaldi became Executive Vice President and CFO in November 1996.
(7) The amounts shown include Company matching contributions to the Company's
401(k) Plan.
(8) Mr. Lee became Senior Vice President Sales and Integrated Logistics in July
1997.
(9) The amounts shown include relocation and travel expenses for 1997.
(10) A special bonus paid in conjunction with the reorganization of the Company
which occurred in May 1996.
(11) The amounts shown include Company matching contributions to the Company's
401 (k) Plan of $ 3,106, $2,631 and $3,738 for 1998, 1997 and 1996, and
disability insurance premium payments of $1,782 for 1998, 1997 and 1996.
(12) Includes a special bonus of $39,315 paid in conjunction with the
reorganization of the Company which occurred in May 1996.
Compensation of Directors
Messrs. William B. Connell and Kevin A. Mundt, Directors of the Company,
each receive annual compensation of $20,000 payable quarterly for services in
such capacity. No other Director of the Company receives any compensation for
services in such capacity. Each of the Directors of Remington are reimbursed for
out-of-pocket expenses incurred in connection with attending meetings.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Management Committee of Remington is
comprised of Messrs. Arthur J. Nagle, Robert L. Rosner and Victor K. Kiam, III.
None of these individuals, other than Mr. Kiam, was an officer of or employed by
the Company. Mr. Kiam was employed by the Company prior to the Reorganization.
Other Arrangements
The Company has an employment agreement with Mr. DeFeo which provides for
his continued employment as President and Chief Executive Officer through the
year 2000, unless earlier terminated. The agreement provides for a base salary
of not less than $300,000, plus a deferral of an additional $100,000, and an
annual bonus not less than $200,000 in the event the Company achieves 100% of
the criteria established by the Management Committee for such year. The
agreement provides for Mr. DeFeo to receive 18 months of salary continuation
plus the annual bonus he would have been entitled to if his employment is
involuntarily terminated other than for "cause " or if he resigns for "good
reason", or 12 months of salary continuation plus annual bonus in the event the
agreement is not renewed by the Company. The Company is required to provide Mr.
DeFeo with a letter of credit equal to the severance benefit payable to Mr.
DeFeo until such time as the Company's earnings (before interest, taxes,
depreciation and amortization) exceeds $26 million. The Company is also required
to provide Mr. DeFeo with term life insurance in the amount of not less than
$500,000.
-19-
The Company has entered into agreements with Messrs. Castaldi, Lee, Lipson
and Handler whereby such employees would be entitled to salary continuation for
a specified period if their employment was involuntarily terminated other than
for "cause" during the term of the agreement and, for Mr. Castaldi, if he
resigns for "good reason". Messrs. Castaldi and Lipson are each entitled to 12
months of salary continuation and Messrs. Lee and Handler are each entitled to 6
months of salary continuation.
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 33% of their annual salary, and such amounts are placed into a
deferral account. The participants may select various mutual funds in which all
or a part of their deferral accounts shall be deemed to be invested.
Distributions from a participant's deferral accounts will be paid in a lump sum
or in equal annual installments over a period of up to 15 years beginning upon
their termination of employment, death or retirement. All amounts deferred by
the participants in the Plan are paid to a Deferred Compensation Plan Trust to
be held in order to fund the Company's obligations under the Deferred
Compensation Plan. The assets of the trust, however, are subject to the claims
of the creditors of the Company in the event the Company is Insolvent, as such
term is defined in the trust agreement.
Bonus Plan
The Company has an annual bonus plan (the "Bonus Plan") which is designed
to motivate each employee participant. Approximately 140 employees in the United
States and 125 employees in the international operations participate in the
Bonus Plan. Under the Bonus Plan, each participating employee is assigned a
target bonus award, representing up to 75% of his or her annual base salary that
will be paid if predetermined performance goals are achieved. Performance goals
for the various areas of the Company are established annually by the
Compensation Committee of the Company.
Phantom Equity Program
The Company has a Phantom Equity Program under which a maximum of 21% of the
value of the Company's Common Units and Preferred Equity (together, the
"Equity") can be awarded to selected officers and other key employees of the
Company and its affiliates. The Phantom Equity Program is comprised of time
based (consisting of 12 1/2% of the Equity), performance based (6 1/2%) and
super performance (2%) based awards. All awards grant to the recipient a
specified percentage of the Equity (the "applicable percentage").
A time based award vests in five equal annual installments, upon the sale of
the Company or upon an initial public offering of the Company's stock ("IPO"),
whichever comes first. If the individual's employment with the Company is
terminated for any reason other than death or disability within three years of
the date of grant of the award, the award is automatically terminated. The
amount received under the award and how it is paid is based upon the event which
gave rise to the payment. If the payment is due to a Company sale, the
-20-
individual will receive the applicable percentage of the net amount available
for distribution for the outstanding Equity payable, at the Company's option, in
a lump sum upon the closing of the sale or in the same manner as the selling
shareholders. If the payment is due to an IPO, the payment is an amount equal to
the applicable percentage of the Equity implied in the public offering payable,
at the option of the Company, either entirely in cash or 40% in cash and the
remainder in Company stock. If the payment is due to termination of employment,
the participant receives the applicable percentage of the fair market value of
the Equity, determined by the Management Committee payable, at the Company's
option, in up to five equal annual installments or upon an IPO or Company sale.
The performance and super performance based awards are similar to the time
based awards except that performance based award vests in stages as the Company
achieves specified performance targets while the super performance based award
vests entirely upon the achievement of a single target. Payment of the awards
does not occur until and is dependent upon the achievement of both a performance
criteria and an event criteria. The event criteria is a Company sale or when
Vestar's ownership falls below 10% of the Common Units. The performance criteria
for the performance based award vests in segments as the Company achieves
specified performance targets while there is only one target for the super
performance based award. Any performance or super performance based award which
is not fully vested by December 31, 2002 is automatically terminated.
The Phantom Equity Program and all awards are subject to readjustment in the
event of a reorganization of the Company required in connection with a
refinancing, and the applicable percentages are subject to readjustment to take
into consideration new issuances of Common Units or Preferred Capital.
The following table contains information with respect to grants of phantom
awards to each of the Named Executive Officers in 1998:
Assumed Annual
Rate of Stock
Individual Grants Appreciation for Award Term(4)
-------------------------------------------------------------------------- -----------------------------
Number of Securities Exercise or
Underlying % of Total Base Price Expiration
Name Awards Granted (1) Awards Granted (2) ($/SH) (3) Date 5%($) 10%($)
- --------------------- ----------------- ----------------- ----------- ---------- ------ ------
Neil P. DeFeo 4.00 (5) 33.2 N/A 12/31/2009 N/A N/A
2.00 (6) 33.5 N/A 12/31/2002 N/A N/A
Alexander R. Castaldi 1.30 (5) 10.8 N/A 12/31/2009 N/A N/A
0.50 (6) 8.4 N/A 12/31/2002 N/A N/A
0.22 (7) 13.1 N/A 12/31/2002 N/A N/A
Lester C. Lee 0.90 (5) 7.5 N/A 12/31/2009 N/A N/A
0.35 (6) 5.9 N/A 12/31/2002 N/A N/A
0.16 (7) 9.6 N/A 12/31/2002 N/A N/A
Allen S. Lipson 0.90 (5) 7.5 N/A 12/31/2009 N/A N/A
0.35 (6) 5.9 N/A 12/31/2002 N/A N/A
0.16 (7) 9.6 N/A 12/31/2002 N/A N/A
Lawrence D. Handler 0.35 (5) 2.9 N/A 12/31/2009 N/A N/A
0.20 (6) 3.4 N/A 12/31/2002 N/A N/A
0.09 (7) 5.4 N/A 12/31/2002 N/A N/A
-21-
- ------------------------------------
(1) Indicates the applicable percentage of the Company's Equity underlying each
award granted.
(2) Indicates the % of total time, performance and super performance based
awards granted as of December 31, 1998.
(3) There is no exercise price and as of the time of the grant, there was no
market price for the Company's Equity.
(4) 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.
(5) Grant of Time Based award.
(6) Performance Based award.
(7) Super Performance Based award.
401(k) Plan
The Company maintains a savings plan (the "Savings Plan") qualified under
Sections 401 (a) and 401(k) of the Internal Revenue Code. Generally, all
employees of the Company in the United States who have completed three months of
service are eligible to participate in the Savings Plan. For each employee who
elects to participate in the Savings Plan and makes a contribution thereto, the
Company makes a matching contribution of 40% of the first 5% of annual
compensation contributed. Effective March 15, 1999, the Company amended its
matching contribution from 40% to 50% of the first 5% of annual compensation
contributed. The maximum contribution for any participant for any year is 15% of
such participant's eligible compensation.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is certain information regarding the ownership of the
Preferred Equity and Common Units of Remington by each person known by Remington
to beneficially own 5.0% or more of the outstanding interests of either the
Preferred Equity or Common Units, each Director and Named Executive Officer and
all Directors and executive officers as a group as of March 15, 1999. Except as
indicated below, the address for each of the persons listed below is c/o
Remington Products Company, L.L.C., 60 Main Street, Bridgeport, Connecticut,
06604.
Name Preferred Equity Common Units
-------------------------- Capital (1) % Number %
----------- ----- ------ ----
Vestar Equity Partners (2)(3)................................$30,000,000 48.4% 34,400 50%
245 Park Avenue, 41st Floor
New York, New York 10167
RPI Corp. (3)................................................32,000,000 51.6% 34,400 50%
555 Madison Avenue, 23rd Floor
New York, New York 10022
Victor K. Kiam, II (3)(4)................................32,000,000 51.6% 34,400 50%
Norman W. Alpert (5)...................................30,000,000 48.4% 34,400 50%
Arthur J. Nagle (5)..........................................30,000,000 48.4% 34,400 50%
Daniel S. O'Connell (5)......................................30,000,000 48.4% 34,400 50%
Robert L. Rosner (5).........................................30,000,000 48.4% 34,400 50%
Directors and executive officers as a group
5 persons).............................................$62,000,000 100.0% 68,800 100%
-22-
- -----------------------
(1) Amounts, in dollars, represent the capital contribution to the Preferred
Equity beneficially owned by each person and entity set forth below. The
Preferred Equity has not been denominated in units or other shares.
(2) Vestar's interest in the Company is owned by the Vestar Members, which are
controlled by Vestar. The Vestar Members have assigned a portion of their
interests in the Company to certain coinvestors, although such co-investors
will not directly hold any Common Units. The general partner of Vestar is
Vestar Associates L.P., a limited partnership whose general partner is
Vestar Associates Corporation ("VAC"). In such capacity, VAC exercises sole
voting and investment power with respect to all of the equity interests
held of record by the Vestar Members. Messrs. Alpert, Nagle, O'Connell, and
Rosner, who are Directors of Remington, are affiliated with Vestar in the
capacities described under Item 10 Directors and Executive Officers, and
are stockholders of VAC. Individually, no stockholder, director or officer
of VAC is deemed to have or share such voting or investment power within
the meaning of Rule 13d-3 under the Exchange Act. Accordingly, no part of
the Preferred Equity or Common Units is beneficially owned by Messrs.
Alpert, Nagle, O'Connell or Rosner or any other stockholder, director or
officer of VAC.
(3) The Vestar Members and RPI have entered into the LLC Agreement which gives
Vestar effective control over the management of the Company.
(4) Mr. Kiam's interest in the Company is owned by RPI. The shareholders of RPI
are Mr. Kiam and two Kiam family trusts. Mr. Kiam is a trustee of each of
these trusts. Mr. Kiam disclaims beneficial ownership of the shares of
Remington owned by RPI. The address of Mr. Kiam is 11097 Isle Brook Court,
West Palm Beach, Florida, 33414.
(5) Messrs. Alpert, Nagle, O'Connell and Rosner are affiliated with Vestar in
the capacities described in Item 10 Directors and Executive Officers.
Ownership of Remington equity interests for these individuals includes the
$30,000,000 of Preferred Equity and 34,440 Common Units included in the
above table beneficially owned by Vestar through the Vestar Members, of
which such persons disclaim beneficial ownership. Each such person's
business address is c/o Vestar Equity Partners, L.P., 245 Park Avenue, 41st
Floor, New York, New York 10167.
ITEM 13. Certain Relationships and Related Transactions
Pursuant to a management agreement (the "Management Agreement") entered
into in connection with the reorganization of the Company in 1996, Vestar
Capital Partners ("Vestar Capital") receives an annual advisory fee equal to the
greater of $500,000 or 1.5% of EBITDA (as defined in such agreement) of the
Company on a consolidated basis for rendering advisory and consulting services
in relation to strategic financial planning and other affairs of the Company.
Vestar Capital will also be paid reasonable and customary investment banking
fees in connection with an initial public offering, sale of the Company and
other financings. The Management Agreement will be in effect until May 23, 2006,
provided that the Management Agreement will terminate on the earlier to occur
of: (i) a qualified public offering or (ii) the first date that Vestar Capital
owns less than 25% of the number of the Company's Common Units owned by Vestar
Capital on May 23, 1996, and provided further that Vestar Capital may terminate
the Management Agreement at any time. Vestar Capital owns, indirectly through
Vestar Corp., 50% of the Common Units of the Company and possesses the right to
designate five of the nine individuals who comprise the Management Committee of
the Company.
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 aggregate annual fee equal to the sum of:
(i) the greater of $500,000 or 1.5% of EBITDA (as defined in such agreement) of
the Company on a consolidated basis and (ii) $250,000 in 1997 and 1998 if the
Company's net revenues or EBITDA (as defined in such agreement) exceed certain
targets in such years, for rendering advisory and consulting services in
relation to strategic financial planning, product development and evaluation of
mergers, acquisitions and divestitures. The Consulting Agreement will be in
effect until May 23, 2006, provided that the Consulting Agreement will terminate
on the earlier to occur of: (i) a qualified public offering or (ii) the first
date that RPI owns less than 25% of the number of the Company's Common Units
owned by RPI on the May 23, 1996, and provided further that Vestar Capital may
-23-
terminate the Consulting Agreement at any time (but only to the extent that
Vestar Capital also terminates similar provisions of the Management Agreement).
RPI, an entity controlled by the Kiams, owns 50% of the Common Units of the
Company and possesses the right to designate two of the nine individuals who
comprise the Management Committee of the Company.
Pursuant to a Non-Competition Agreement (the "Non-Competition Agreement")
dated May 23, 1996, between the Company, Vestar Corp. and Victor K. Kiam, II and
Victor K. Kiam, III (the "Kiams"), the Kiams may not compete with, solicit any
customers of, own, manage or operate any business in competition with or perform
any action substantially detrimental to the Company's businesses. The provisions
of the Non-Competition Agreement will apply during the period the Kiams have a
Significant Interest (as defined in the Non-Competition Agreement) in the
Company and thereafter for: (i) five years, with respect to electric shavers,
shaver accessories and men's grooming products, and (ii) three years, with
respect to women's personal care appliances, home health appliances, travel
appliances, environmental products, dental products and small kitchen
appliances. The Non-Competition Agreement allows the Kiams to continue to market
certain competing travel appliance products developed by an affiliate of the
Kiams.
In connection with the adoption of the Phantom Equity Program and the
issuance of Phantom Equity Agreements in January 1998, the Company repurchased
from Messrs. Lipson and Kimpton all shares of Common Units they had purchased
from the Company in May 1996 in connection with the reorganization of the
Company at the same price they had originally paid for such units. The Company
paid for the repurchased Common Units by issuing promissory notes for the full
purchase price, payable within 60 days following the termination of employment
for reasons other than cause (as defined in the promissory note) or upon the
payment of any phantom equity award to such individuals. The phantom equity
agreements with each of these individuals provided that any payment under the
promissory note would reduce, dollar for dollar, the applicable phantom equity
payment. The promissory note issued to Mr. Lipson was for $150,000, together
with interest of 6 1/2% and the non-interest bearing note issued to Mr. Kimpton
was for $46,000.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
2. Financial Statement Schedule
3. Exhibits
-24-
3.1 Amended and Restated Limited Liability Company Agreement dated
as of May 16, 1996, by and among Vestar Shaver Corp. (formerly
Vestar/Remington Corp.) ("Vestar Corp. I"), Vestar Razor Corp.
("Vestar Corp. II" and, together with Vestar Corp. I, the
"Vestar Members"), RPI Corp. (formerly known as Remington
Products, Inc.)("RPI"), and certain members of senior
management of the Company. Incorporated herein by reference to
Exhibit 3.1 in Registration Statement on Form S-4(File Number
333- 07429).
3.2 Certificate of Formation of Remington Products Company, L.L.C.
("Remington"). Incorporated by reference to Exhibit 3.2 in
Registration Statement on Form S-4(File Number 333-07429).
4.1 Indenture dated as of May 23, 1996 between Remington, Remington
Capital Corp. ("Capital") and The Bank of New York, as trustee.
Incorporated by reference to Exhibit 4.1 in Registration
Statement on Form S-4(File Number 333-07429).
4.2 Form of 11% Series B Senior Subordinated Notes. Incorporated by
reference to Exhibit 4.2 in Registration Statement on Form
S-4(File Number 333-07429).
4.3 Purchase Agreement dated May 16, 1996 between Remington,
Capital and Bear, Sterns & Co. Inc. Incorporated by reference
to Exhibit 4.3 in Registration Statement on Form S-4(File
Number 333-07429).
4.4 Registration Rights Agreement dated as of May 23, 1996 between
Remington, Capital and Bear Sterns & Co. Inc. Incorporated by
reference to Exhibit 4.4 in Registration Statement on Form
S-4(File Number 333-07429).
10.1 Credit and Guarantee Agreement dated as of May 23, 1996 among
Remington, certain of its subsidiaries, various lending
institutions, Fleet National Bank and Banque Nationale de
Paris, as co-documentation agents, and Chemical Bank, as
administrative agent (the "Credit and Guarantee Agreement").
Incorporated by reference to Exhibit 10.1 in Registration
Statement on Form S-4(File Number 333-07429).
10.2 First Amendment and Waiver Number 1, dated as of December 27,
1996, to the Credit and Guarantee Agreement. Incorporated by
reference to Exhibit 10.1 in the Company's Current Report on
Form 8-K dated December 24, 1996.
10.3 Second Amendment, dated as of March 30, 1997 to the Credit and
Guarantee Agreement. Incorporated by reference to Exhibit 10.1
in the Company's Quarterly Report on Form 10-Q for the quarter
ended March 29, 1997.
-25-
10.4 Third Amendment, dated as of May 16, 1997 to the Credit and
Guarantee Agreement. Incorporated by reference to Exhibit 10.1
in the Company's Quarterly Report on Form 10-Q for the quarter
ended June 28, 1997.
10.5 Fourth Amendment, dated as of March 20, 1998 to the Credit and
Guarantee Agreement. Incorporated by reference to Exhibit 10.5
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
10.6 Fifth Amendment, dated as of March 11,1999 to the Credit and
Guarantee Agreement.
10.7 Company Security Agreement dated as of May 23, 1996 made by
Remington in favor of the Agent. Incorporated by reference to
Exhibit 10.2 in Registration Statement on Form S-4(File Number
333-07429).
10.8 Form of Subsidiaries Security Agreement dated as of May 23,
1996 made by each of Capital, Remington Corporation, L.L.C.
("IP Subsidiary") and Remington Rand Corporation ("Rand") in
favor of the Agent. Incorporated by reference to Exhibit 10.3
in Registration Statement on Form S-4(File Number 333-07429).
10.9 Conditional Assignment of and Security Interest in Patent
Rights (United States) dated as of May 23, 1996 made by IP
Subsidiary in favor of the Agent. Incorporated by reference to
Exhibit 10.4 in Registration Statement on Form S-4(File Number
333- 07429).
10.10 Conditional Assignment of and Security Interest in Patent
Rights (United Kingdom) dated as of May 23, 1996 made by IP
Subsidiary in favor of the Agent. Incorporated by reference to
Exhibit 10.5 in Registration Statement on Form S-4(File Number
333- 07429).
10.11 Conditional Assignment of and Security Interest in Trademark
Rights (United States) dated as of May 23, 1996 made by IP
Subsidiary in favor of the Agent. Incorporated by reference to
Exhibit 10.6 in Registration Statement on Form S-4(File Number
333- 07429).
10.12 Conditional Assignment of and Security Interest in Trademark
Rights (United Kingdom) dated as of May 23, 1996 made by IP
Subsidiary in favor of the Agent. Incorporated by reference to
Exhibit 10.7 in Registration Statement on Form S-4(File Number
333-07429).
-26-
10.13 Members Limited Recourse Pledge Agreement dated as of May 23,
1996 made by Remington in favor of the Agent. Incorporated by
reference to Exhibit 10.8 in Registration Statement on Form
S-4(File Number 333-07429).
10.14 Company Pledge Agreement dated as of May 23, 1996 made by
Remington in favor of the Agent. Incorporated by reference to
Exhibit 10.9 in Registration Statement on Form S-4(File Number
333-07429).
10.15 Subsidiaries Pledge Agreement dated as of May 23, 1996 made by
Rand in favor of the Agent. Incorporated by reference to
Exhibit 10.10 in Registration Statement on Form S-4(File Number
333-07429).
10.16 Subsidiaries Guarantee dated as of May 23, 1996 made by
Capital, IP subsidiary and Rand in favor of the Agent.
Incorporated by reference to Exhibit 10.11 in Registration
Statement on Form S-4(File Number 333-07429).
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
10.22 Employment Agreement made as of January 8, 1997 between the
Company and Neil P. DeFeo. Incorporated by reference to Exhibit
10.2 in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1997.
10.23 Form of Executive Severance Agreement dated as of May 23, 1996
by and between Remington and Allen S. Lipson is incorporated
herein by reference to Registration Statement on Form S-4(File
Number 333-07429).
10.24 Executive Severance Agreement dated as of November 25, 1996
between Remington and Alexander R. Castaldi. Incorporated by
reference to Exhibit 10.20 in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
-27-
10.25 Letter Agreement dated June 6, 1997 between the Company and
Lester Lee.
10.26 Form of Severance Agreement. Incorporated by reference to
Exhibit 10.24 in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.27 Form of Time Based Phantom Equity Agreement with participants
in the Phantom Equity Program. Incorporated by reference to
Exhibit 10.25 in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
10.28 Form of Performance Based Phantom Equity Agreement with
participants in the Phantom Equity Program. Incorporated by
reference to Exhibit 10.26 in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.29 Form of Super Performance Based Phantom Equity Agreement with
participants in the Phantom Equity Program. Incorporated by
reference to Exhibit 10.27 in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
10.30 Promissory Note dated January 14, 1998 from Remington to Allen
S. Lipson for $150,000. Incorporated by reference to Exhibit
10.28 in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.31 License Agreement made May 23, 1996 by and between IP
Subsidiary and Act II Jewelry, Inc. Incorporated by reference
to Exhibit 10.23 in Registration Statement on Form S-4 (File
Number 333-07429).
10.32 License Agreement made May 23, 1996 by and between IP
Subsidiary and VKK Equities Corporation. Incorporated by
reference to Exhibit 10.24 in Registration Statement on Form
S-4 (File Number 333-07429).
10.33 Tradename Agreement made May 23, 1996 by and between IP
Subsidiary and Remington Apparel Company, Inc. Incorporated by
reference to Exhibit 10.25 in Registration Statement on Form
S-4 (File Number 333-07429).
10.34 License Agreement dated as of May 23, 1996 by and between
Remington and IP Subsidiary . Incorporated by reference to
Exhibit 10.26 in Registration Statement on Form S-4 (File
Number 333-07429).
21 Subsidiaries of Remington.
24. Powers of Attorney.
27 Financial Data Schedule.
-28-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REMINGTON PRODUCTS COMPANY, L.L.C.
By: /s/ Kris J. Kelley
Kris J. Kelley, Vice President and Controller
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on March 31, 1999.
* *
- -------------------------------------- -------------------------------------
Neil F. DeFeo, Chief Executive Officer, Alexander R. Castaldi, Executive Vice
President and Director President and Chief Financial Officer
/s/Kris J. Kelley *
- -------------------------------------- -------------------------------------
Kris J. Kelley, Vice President and Victor K. Kiam II, Chairman and Director
Controller
* *
- -------------------------------------- --------------------------------------
Victor K. Kiam III, Director Norman W. Alpert, Director
* *
- -------------------------------------- --------------------------------------
Arthur J. Nagle, Director Daniel S. O'Connell, Director
* *
- -------------------------------------- --------------------------------------
Robert L. Rosner, Director William B. Connell, Director
*
- --------------------------------------
Kevin A. Mundt, Director
*By /s/ by Allen S. Lipson
----------------------------------------
Allen S. Lipson, as Attorney-in-Fact
-29-
INDEX TO FINANCIAL STATEMENTS
Pages
Financial Statements -----
- --------------------
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997 F-3
Consolidated Statements of Operations for each of the years in the three-year
period ended December 31, 1998 F-4
Consolidated Statements of Members' Deficit/Partners' Capital for each of the
years in the three-year period ended December 31, 1998 F-5
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31,1998 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 31,1998 S-1
Certain schedules are omitted because they are not applicable or the
required information is provided in the Financial Statements or related notes
thereto.
F-1
Independent Auditors' Report
To the Management Committee of
REMINGTON PRODUCTS COMPANY, L.L.C.:
We have audited the accompanying consolidated balance sheets of Remington
Products Company, L.L.C. and subsidiaries (the "Company") as of December 31,
1998 and 1997, and the related consolidated statements of operations, members'
deficit/partners' capital, and cash flows for the years ended December 31, 1998
and 1997 and for the thirty-one week period ended December 31, 1996 and for
Remington Products Company and subsidiaries (the "Predecessor") for the
twenty-one week period ended May 23, 1996. 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 schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1998 and 1997 and the thirty-one week
period ended December 31, 1996 and of the Predecessor for the twenty-one week
period ended May 23, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the consolidated financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects, the information set forth
therein.
DELOITTE & TOUCHE L.L.P.
Stamford, Connecticut
March 11, 1999
F-2
Remington Products Company, L.L.C.,
Consolidated Balance Sheets
(in thousands)
December 31, December 31,
1998 1997
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,249 $ 5,408
Accounts receivable, less allowance for doubtful accounts
of $2,749 in 1998 and $734 in 1997 59 ,998 53,052
Inventories 50,163 60,507
Prepaid and other assets 1,879 1,525
----------- ------------
Total current assets 116,289 120,492
Property, plant and equipment, net 13,135 16,033
Intangibles, net 58,573 60,538
Other assets 7,730 8,182
----------- ------------
Total assets $195,727 $205,245
=========== ============
LIABILITIES AND MEMBERS' DEFICIT Current liabilities:
Accounts payable $ 15,981 $ 13,359
Short-term borrowings 5,192 1,300
Current portion of long-term debt 1,842 1,417
Accrued liabilities 24,980 28,055
----------- ------------
Total current liabilities 47,995 44,131
Long-term debt 180,634 178,523
Other liabilities 1,839 869
Commitments and contingencies
Members' deficit:
Members' deficit (31,473) (15,894)
Accumulated other comprehensive income (3,268) (2,384)
----------- -----------
Total members' deficit (34,741) (18,278)
----------- -----------
Total liabilities and members' deficit $ 195,727 $ 205,245
=========== ===========
See notes to consolidated financial statements.
F-3
Remington Products Company, L.L.C.
Consolidated Statements of Operations
(in thousands)
Year Year Year Ended December 31, 1996
Ended Ended ----------------------------
December 31, December 31, 31 Weeks 21 Weeks
1998 1997 Ended Ended
December 31 May 23
------------- ------------ ------------ -----------
(Predecessor)
Net sales $ 268,357 $ 241,572 $185,286 $ 56,713
Cost of sales 159,175 141,296 117,723 35,102
---------- ---------- ---------- ----------
Gross profit 109,182 100,276 67,563 21,611
Selling, general and administrative 94,415 84,194 53,860 37,912
Restructuring and reorganization charge 6,806 - - -
Amortization of intangibles 1,945 1,936 1,195 650
---------- ---------- ---------- ----------
Operating income (loss) 6,016 14,146 12,508 (16,951)
Interest expense 20,499 19,318 12,164 2,228
Other expense (income) 472 526 498 (115)
---------- ---------- ------------ ----------
Income (loss) before income taxes (14,955) (5,698) (154) (19,064)
Provision (benefit) for income taxes 382 2,225 3,018 (873)
---------- ---------- --------- ----------
Net income (loss) $ (15,337) $ (7,923) $ (3,172) $ (18,191)
========== ========== ========= ==========
Net loss applicable to common units $ (24,741) $ (16,279) $ (7,748)
========== ========== =========
See notes to consolidated financial statements.
F-4
Remington Products Company, L.L.C.
Consolidated Statements of Members' Deficit/Partners' Capital
(in thousands)
Total
Accumulated Partners'
Other Capital/
Preferred Common Other Accumulated Comprehensive Members'
Equity Units Capital Deficit Income Deficit
---------- -------- --------- ----------- ------------ ----------
PREDECESSOR
Balance, December 31, 1995 $ 76,736 $ (791) $ 75,945
Comprehensive income (loss):
Net loss (18,191)
Foreign currency translation (217)
Elimination of cumulative translation 1,008
Total comprehensive income (loss) (17,400)
Effects of recapitalization:
Issuance of equity units $ 62,000 $ 7,742 69,742
Excess of fair value over predecessor basis (73,921) (73,921)
Cancellation of predecessor partners' capital (58,545) (58,545)
--------- ------- ----------- ------------- ---------
Balance, May 23, 1996 $ 62,000 $ 7,742 $ (73,921) $ - $ (4,179)
========= ======== =========== ============== ==========
SUCCESSOR
Balance, May 24, 1996 $ 62,000 $ 7,742 $ (73,921) $ (4,179)
Preferred dividend 4,576 $ (4,576) -
Comprehensive income (loss):
Net loss (3,172)
Foreign currency translation $ (356)
Total comprehensive income (loss) (3,528)
-------- -------- ----------- ---------- ------------ ----------
Balance, December 31, 1996 66,576 7,742 (73,921) (7,748) (356) (7,707)
Repurchase of common units (620) (620)
Preferred dividend 8,356 (8,356) -
Comprehensive income (loss):
Net loss (7,923)
Foreign currency translation (2,028)
Total comprehensive income (loss) (9,951)
-------- --------- ----------- ---------- ----------- -----------
Balance, December 31, 1997 $ 74,932 $ 7,122 $ (73,921) $ (24,027) $ (2,384) $ (18,278)
Preferred Dividend 9,404 (9,404) -
Repurchase of common units (242) (242)
Comprehensive income (loss):
Net loss (15,337)
Foreign currency translation (708)
Cumulative effect of adoption of SFAS 133 (105)
Unrealized hedging loss (71)
Total comprehensive income (loss) (16,221)
-------- --------- ------------ ---------- ------------ -----------
Balance, December 31, 1998 $ 84,336 $ 6,880 $ (73,921) $ (48,768) $ (3,268) $ (34,741)
======== ======== ============ ========== ============ ===========
See notes to consolidated financial statements.
F-5
Remington Products Company, L.L.C.
Consolidated Statements of Cash Flows
(in thousands)
Year Year Year Ended December 31,1996
Ended Ended ----------------------------
December 31, December 31, 31 Weeks 21 Weeks
1998 1997 December 31 May 23
---------- ------------ ------------ ------------
(Predecessor)
Cash flows from operating activities:
Net income (loss) $ (15,337) $ (7,923) $ (3,172) $ (18,191)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 3,224 2,831 1,184 1,355
Amortization of intangibles 1,945 1,936 1,195 650
Amortization of deferred financing fees 1,110 1,072 1,260 262
Restructuring and reorganization charge 6,806 - - -
Inventory write-down 2,760 - - -
Deferred income taxes (26) (44) 1,251 (561)
Foreign currency forward losses (35) 115 1,501 -
---------- --------- --------- ---------
447 (2,013) 3,219 (16,485)
Changes in assets and liabilities:
Accounts receivable (6,946) 1,210 (27,291) 41,043
Inventories 7,584 3,278 (2,546) (8,339)
Accounts payable 2,622 (3,055) 5,392 1,187
Accrued liabilities (5,518) (5,267) 10,731 (933)
Other, net (1,295) (2,133) ( 70) (158)
--------- --------- ----------- --------
Cash provided by (used in) operating
activities (3,106) (7,980 ) (10,565) 16,315
--------- --------- ---------- --------
Cash flows from investing activities:
Capital expenditures (3,879) (5,078) (2,399) (1,310)
Payment for purchase of Company, net - - (139,750) -
Proceeds from working capital adjustment - 2,500 - -
Other - 204 (181) -
---------- --------- ---------- --------
Cash used in investing activities (3,879) (2,374) (142,330) (1,310)
---------- --------- ---------- --------
Cash flows from financing activities:
Proceeds from sale of senior subordinated notes - - 129,026 -
Net repayments under term loan facilities (1,426) (965) (3,463) (3,600)
Net borrowings (repayments) under credit facilities 7,632 10,938 1,564 (12,353)
Equity investments (repurchases) (242) (620) 34,302 -
Debt issuance costs - - (9,075) -
Other, net (221) (251) 1,595 -
---------- ---------- ---------- --------
Cash provided by (used in) financing activities 5,743 9,102 153,949 (15,953)
Effect of exchange rate changes on cash 83 (539) 503 (214)
---------- ---------- ---------- --------
Increase (decrease) in cash and cash equivalents (1,159) (1,791) 1,557 (1,162)
Cash and cash equivalents, beginning of period 5,408 7,199 5,642 6,804
---------- ---------- ---------- --------
Cash and cash equivalents, end of period $ 4,249 $ 5,408 $ 7,199 $ 5,642
========== ========== ========== ========
Supplemental cash flow information:
Interest paid $ 19,144 $ 18,756 $ 9,121 $ 1,874
Income taxes paid $ 2,331 $ 2,493 $ 1,563 $ 440
See notes to consolidated financial statements.
F-6
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Remington Products Company, L.L.C. and its wholly owned subsidiaries, (the
"Company") develop and market electrical personal care appliances. The Company
distributes on a worldwide basis men's and women's electrical shavers and
accessories, women's personal care appliances, including hairsetters, hair
dryers and curling irons, men's electrical grooming products, travel products
and other small electrical consumer appliances. The Company's products are sold
worldwide through mass merchandisers, catalog showrooms, drugstore 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. ("Vestar Corp. I) and RPI Corp. ("RPI") to
acquire (the "Reorganization") the operations of Remington Products Company and
its subsidiaries ("RPC"). In May 1996, Vestar Razor Corp. ("Vestar Corp. II")
was formed to hold an interest in the Company, Vestar Corp. I and Vestar Corp.
II (together, the "Vestar Members") are wholly owned by Vestar Equity Partners,
L.P.
Basis of Presentation:
The consolidated balance sheets as of December 31, 1998 and 1997 include the
accounts of Remington Products Company, L.L.C. and Subsidiaries, the "Successor"
company following the change in ownership on May 23, 1996 (the "Closing Date")
(see Note 2) and the consolidated results of operations and cash flows include
the accounts for the successor company for the years ended December 31, 1998 and
1997 the period from May 24, 1996 to December 31, 1996. The financial statements
also include the results of operations and cash flows of RPC, the "Predecessor"
company, prior to the Closing Date. All significant intercompany accounts and
transactions are eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates. Estimates are used for, but not limited to the establishment of the
allowance for doubtful account, reserves for sales returns and allowances,
product warranty costs, taxes and contingencies.
Cash and Cash Equivalents:
All highly liquid debt instruments purchased with a maturity of three months
from their date of acquisition or less are considered cash equivalents.
Inventories:
The inventories of foreign subsidiaries and purchased product for resale by
the merchandising and service store operations are valued at the lower of cost
or market utilizing the first-in, first-out (FIFO) method. Domestic manufactured
inventories, which represent approximately 16% of the consolidated inventories
as of December 31, 1998 and 15% at 1997, are stated at the lower of cost or
market, with cost determined by the last-in, first-out (LIFO) method. As of
December 31, 1998 and 1997, the excess of current replacement cost over LIFO
cost of inventories was not significant. During 1998, the Company recorded
non-recurring charges of $2.8 million for certain inventory write-downs
associated with the Company's restructuring and reorganization plan.
Property, Plant and Equipment:
Property, plant and equipment is recorded primarily at cost. In conjunction
with the Reorganization (See Note 2), property, plant and equipment was restated
to reflect fair value excluding the ownership percentage retained by RPI.
Depreciation is provided for principally on a straight-line basis over the
estimated useful lives of the assets, which range from 3 to 20 years. Leasehold
improvements are amortized over the lesser of the lease term or the estimated
useful lives of the improvements. During 1998, the Company recorded
non-recurring charges of $3.5 million for write-downs on certain equipment and
tooling associated with the restructuring and reorganization.
F-7
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Intangibles:
Patents are being amortized on a straight-line basis over a period of ten
years. All other intangibles are amortized on a straight-line basis over 40
years. Costs associated with obtaining financing arrangements are included in
other assets and are being amortized over the term of the related borrowings.
Long Lived Assets:
Impaired losses are recorded on long lived assets when indicators of
impairment are present and the anticipated undiscounted operating cash flow
generated by those assets are less than the assets' carrying value.
Research and Development:
Research and development costs related to both present and future products
are expensed as incurred. Such costs totaled $3.1 million for the year ended
December 31, 1998; $2.8 million for the year ended December 31, 1997; $1.3
million for the thirty-one weeks ended December 31, 1996; and $0.8 million for
the twenty-one weeks ended May 23, 1996.
Income Taxes:
Federal income taxes on net earnings of the Company are payable directly by
the partners. In jurisdictions where partnership status is not recognized or
foreign corporate subsidiaries exist, the Company provides for income taxes
currently payable as well as for those deferred because of temporary differences
between the financial and tax basis of assets and liabilities.
Hedging Activity:
Effective July 1, 1998, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires the Company
to recognize all derivatives at fair value. Depending on the nature of the
underlying exposure being hedged, changes in the fair value of derivatives are
recognized either in the statement of operations or other comprehensive income
(OCI). The ineffective portion of the change in fair value of the derivative is
recognized in earnings.
In accordance with the Company's foreign exchange risk management policy,
the Company's foreign subsidiaries hedge the forecasted purchases of inventory
denominated in currencies different then the subsidiary's functional currency.
The derivative contracts related to these hedges primarily consist of forward
foreign exchange contracts, which are designated as cash flow hedges. These
forward contracts generally have maturities not exceeding 12 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 other
comprehensive income. 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, 1998, other than forward
foreign exchange contracts, the Company was not party to any other derivatives
as defined by SFAS No. 133.
At December 31, 1998, the Company had unrealized losses of $176 thousand,
net of tax, classified in OCI for its outstanding hedge contracts related to
forecasted inventory purchases. A significant portion of this amount is expected
to be reclassified to cost of goods sold in the first six months of 1999. As of
December 31, 1998, the losses classified in other income (expense) related to
the ineffective portion of the Company's outstanding hedge contracts were
immaterial. The cumulative effect of a change in accounting principle due to
adoption of SFAS No. 133 as of July 1, 1998 had an immaterial impact on earnings
and a $105 thousand impact to OCI. Reclassifications from OCI during the six
month period ended December 31, 1998 (since the adoption date) were not
significant.
Prior to the adoption of SFAS No. 133, the Company accounted for its forward
foreign exchange contracts at mark to market through earnings, unless the
contracts were effectively hedging firm commitments, for which unrealized gains
and losses were deferred and recognized as an adjustment of the hedged item.
F-8
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
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 members' deficit or total partners' capital. Foreign currency transaction
gains and losses, including gains and losses on forward contracts are recognized
in earnings and totaled $(0.7) million for both of the years ended December 31,
1998 and 1997; $(0.7) million for the thirty-one weeks ended December 31, 1996
and $(0.1) million for the twenty-one weeks ended May 23, 1996.
Reclassifications:
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2. Reorganization
RPC was a general partnership, jointly owned and controlled by RPI and
Remsen Partners ("Remsen"). As a result of the Reorganization of RPC, the
following transactions occurred: (i) RPC made cash payments to Remsen and RPI
totalling $135.4 million (less the amount of certain excluded obligations and
net of a working capital adjustment), (ii) the Vestar Members purchased Remsen's
interest in RPC for $33.4 million in cash; (iii) certain members of senior
management of RPC (the "Management Investors") acquired an equity interest in
the Company, for $1.12 million (including a cash purchase of $0.86 million and
assuming exercise of certain management options with an aggregate exercise price
of $0.26 million), (iv) RPI retained an equity investment in the Company with an
implied value of $35.4 million, and (v) RPC merged with and into the Company. In
addition, $41.3 million of existing indebtedness of RPC was refinanced.
The Reorganization has been accounted for as a purchase transaction
effective as of the Closing Date, in accordance with Accounting Principles Board
Opinion No. 16, Business Combinations, and EITF Issue No. 88-16, Basis in
Leveraged Buyout Transactions, and accordingly, consolidated financial
statements for periods subsequent to the Closing Date reflect the purchase
price, including transaction costs, allocated to tangible and intangible assets
acquired and liabilities assumed, based on their estimated fair values as of the
Closing Date. The valuation of assets and liabilities acquired reflect carryover
basis for the percentage ownership retained by RPI.
The Reorganization reflected the following adjustments (in thousands):
Cash payments and distributions (1) $ 139,750
Implied fair value of equity interests issued to RPI (2) 35,440
---------
Total consideration and direct acquisition costs 175,190
Less RPC's historical cost of net assets acquired (3) (71,246)
---------
Excess of consideration paid over RPC's historical cost 103,944
Less excess of fair value over predecessor basis (4) (73,921)
---------
30,023
Debt issuance costs 9,075
---------
Net adjustment $ 39,098
=========
Allocation of net adjustment (5):
Inventories (865)
Prepaid and other current assets (1,752)
Property, plant and equipment, net (1,554)
Goodwill 11,387
Tradenames 26,534
Patents 4,670
Other assets (6) 8,463
Accrued liabilities (7,785)
---------
$ 39,098
=========
F-9
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
(1) Consists of cash payments to Remsen and RPI of $90,351 and $45,049 (net of
the final working capital adjustment), respectively, which were reduced by
$13,708 for certain excluded obligations, and $4,350 of direct acquisition
costs.
(2) The fair value of equity interests issued to RPI consists of Preferred
Equity with a liquidation preference of $32,000 and Common Units with a
fair value of $3,400, based on the cash paid by the Vestar members and
certain Management Investors for their respective equity interests. RPI's
predecessor basis in RPC was $8,208.
(3) Represents historical total partners' capital of RPC adjusted to reflect
$13,708 for certain excluded obligations.
(4) Represents adjustments to decrease the fair value of the interests retained
by RPI and certain Management Investors to reflect their carryover basis.
(5) Represents the adjustments required to record the allocation of the excess
of the consideration paid over RPC's historical basis in the net assets
acquired, adjusted to reflect their carryover basis. The acquired assets
are recorded 53.07% at fair value (for the common equity interest acquired
by the Vestar members and certain of the Management Investors) and 46.93%
at carryover basis (for the residual common equity interests retained by
RPI and certain of the Management Investors).
(6) Represents debt issuance costs of $9,075 net of a $612 write-off of
deferred financing costs related to existing debt being repaid.
3. Inventories
Inventories were comprised of the following as of December 31, 1998 and
1997 (in thousands):
1998 1997
------- -------
Finished goods $46,454 $55,099
Work in process and raw materials 3,709 5,408
------- -------
$50,163 $60,507
======= =======
4. Property, Plant and Equipment
Property, plant and equipment as of December 31, 1998 and 1997 consisted
of (in thousands):
1998 1997
------- --------
Land and buildings $ 2,517 $ 2,459
Leasehold improvements 4,058 3,308
Machinery, equipment and tooling 8,234 9,237
Furniture, fixtures and other 4,523 4,769
-------- ----------
19,332 19,773
Less accumulated depreciation (6,197) (3,740)
-------- ----------
$13,135 $ 16,033
======== ==========
F-10
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
5. Intangibles
Intangibles were comprised of the following (net of accumulated
amortization of $5,074 and $3,129 thousand) as of December 31, 1998 and 1997,
respectively (in thousands):
1998 1997
------- ---------
Goodwill $30,309 $ 31,142
Tradenames 24,809 25,473
Patents 3,455 3,923
-------- ---------
$ 58,573 $ 60,538
======== =========
6. Accrued Liabilities
Accrued liabilities were comprised of the following as of December 31,
1998 and 1997 (in thousands):
1998 1997
-------- ---------
Advertising and promotion expenses $ 7,229 $ 7,953
Compensation and benefits 4,900 4,182
Income and other taxes payable 2,377 3,790
Interest 2,056 1,900
Restructure and reorganization 2,196 -
Other 6,222 10,230
--------- ---------
$ 24,980 $ 28,055
========= =========
7. Debt
Long-term debt at December 31, 1998 and 1997 consisted of (in thousands):
1998 1997
--------- ---------
Senior Subordinated Notes $ 130,000 $ 130,000
Revolving Credit Facilities 43,895 40,523
Term Loans 7,611 9,008
Capital Leases 970 409
---------- ----------
182,476 179,940
Less current portion (1,842) (1,417)
---------- ----------
$ 180,634 $ 178,523
========== ==========
F-11
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
11% Senior Subordinated Notes:
The 11% Series B Senior Subordinated Notes due 2006 (the "Senior
Subordinated Notes") are general unsecured obligations of the Company which
mature on May 15, 2006. Interest accrues at the rate of 11% per annum and is
payable semi-annually in arrears. The Senior Subordinated Notes are redeemable,
in whole or in part, at the option of the Company at any time on or after May
15, 2001 at a redemption price ranging from 105.5% to 100.0% of the principal
amount then outstanding plus accrued and unpaid interest, depending when
redeemed, and any applicable damages. In addition, on or prior to May 15, 1999,
the Company may redeem up to 35% in aggregate principal amount of the Senior
Subordinated Notes at a redemption price of 111.0% of the principal amount plus
accrued and unpaid interest and any applicable damages with the net proceeds of
one or more offerings of capital stock subject to certain terms and conditions.
Senior Credit Agreement:
On the Closing Date, the Company entered into a credit agreement (the
"Senior Credit Agreement") with a syndicate of banks. The Senior Credit
Agreement, as amended, provides for a term loan of $5.0 million to the Company
and $5.0 million to the Company's U.K. subsidiary (the "Term Loans") and a
revolving credit facility of $50.0 million to the Company and $20.0 million to
the Company's U.K. subsidiary (the "Revolving Credit Facilities"). The Senior
Credit Agreement expires on June 30, 2002. The initial borrowings under the
Senior Credit Agreement, along with the proceeds of the Senior Subordinated
Notes, were used to repay the debt of the predecessor company.
As of December 31, 1998, the Revolving Credit Facilities are subject to a
borrowing base of 85% of eligible accounts receivable and 60% of eligible
inventory for the applicable borrower. In addition, the borrowing base can be
increased as needed by $10 million over the applicable percentage of eligible
receivables and inventories, (still limited to the $70 million total facilities)
through June 30, 1999. As of December 31, 1998, availability under the Revolving
Credit Facilities was approximately $9.5 million. The availability has been
reduced by approximately $1.3 million in short-term commercial and stand-by
letters of credit outstanding as of December 31, 1998. The Term Loans under the
Senior Credit Agreement are payable in quarterly installments. Aggregate
scheduled installments over the next four years ending December 31, 2002 are
$1.7, $1.8, $3.1 and $1.0 million, respectively. The obligations under the
Senior Credit Agreement are guaranteed by each of the Company's domestic
subsidiaries and secured by their assets and properties and pledge of the common
equity interests.
At the Company's option as of December 31, 1998, the interest rates per
annum applicable to the loans under the Senior Credit Agreement will be based
upon (a) in the case of the Company, a Eurodollar rate ("LIBOR") plus 2.25% or
the greater of (i) the prime rate plus 1.0% and (ii) the federal funds rate plus
1.5% and (b) in the case of loans to the Company's U.K. subsidiary, a
EuroSterling Rate (the "EuroSterling Rate") plus 2.25% or the Sterling Base Rate
plus 1.0%; provided, however, the interest rates are subject to reduction if
certain requirements of financial performance are met. In addition, the interest
rate on borrowings under the Revolving Credit Facilities will be increased by
one quarter percent during any period that any of the additional $10 million in
borrowing base is utilized. Interest is payable quarterly in arrears, including
a commitment fee of 0.5% on the average daily unused portion of the Revolving
Credit Facilities.
Debt Covenants:
The Senior Credit Agreement requires the Company to meet certain financial
tests, the more restrictive of which require the Company to maintain certain
interest coverage and leverage ratios, as defined. The Senior Subordinated Note
indenture and the Senior Credit Agreement also contain a number of operating
covenants which limit the discretion of Management with respect to certain
business matters, including the amount and terms under which the Company can
obtain additional financing in the future. In addition, these agreements limit
the amount of dividends that the Company is permitted to pay. As of December 31,
1998, the Company was in compliance with its debt covenants.
F-12
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Subsequent to December 31, 1998, the Company amended the Senior Credit
Agreement to adjust the financial covenants prospectively based upon a review of
expected future operating performance. As a result of the amendment, the
Revolving Credit Facilities' borrowing base can be increased as needed by $10
million over the applicable percentage of eligible receivables and inventories,
(limited to total eligible receivables and inventories) through November 30,
1999 and then reduced to $5 million for the period December 1, 1999 through June
30, 2000. In addition, the interest rate on loans under the Senior Credit
Agreement were increased by one half of one percent.
Short Term Borrowings:
Short Term Borrowings consist of local revolving credit lines at certain of
the Company's foreign subsidiaries. These facilities are collateralized by
assets of the subsidiaries or are guaranteed by the Company. The weighted
average interest rate under these facilities was approximately 5.7% in 1998 and
5.9% in 1997.
8. Membership Equity
The Vestar Members and RPI (collectively the "Members") have entered into
an Amended and Restated Limited Liability Company Agreement (the "LLC
Agreement"). The Company was organized as a limited liability company because
such an entity would (i) shield the Members from unlimited liability and (ii)
qualify as a pass-through entity for tax purposes. The LLC Agreement will govern
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").
The Common Units represent the common equity of the Company. The Preferred
Equity is entitled to a preferred dividend of 12% per annum, compounded
quarterly, and to an aggregate liquidation preference of $62 million (net of any
prior repayments of Preferred Equity) plus any accrued but unpaid preferred
dividends. As of December 31, 1998 the aggregate unpaid Preferred Equity
dividend amounted to $22.3 million.
As a result of the Reorganization, on the Closing Date, RPI had a $35.4
million equity interest in the Company ($32.0 million in Preferred Equity) and
the Vestar Members had a $33.4 million equity interest in the Company ($30.0
million in Preferred Equity). As of December 31, 1998, the Company's Common
Units were owned 50% by the Vestar Members and 50% by RPI. Vestar Corp. I
controls the Management Committee and the affairs and policies of the Company.
In January 1998, the Company repurchased the remaining outstanding common
units owned by the Management Investors and cancelled all outstanding related
options and adopted a new Phantom Equity Program. Under this program a maximum
of 21% of the value of the Company's Common Units and Preferred Equity
(together, the "Equity") can be awarded to selected officers and other key
employees of the Company . The Phantom Equity Program is comprised of time based
(consisting of 12 1/2% of the Equity), performance based (6 1/2%) and super
performance (2%) based awards. All awards grant to the recipient a specified
percentage of the Equity (the "applicable percentage").
A time based award vests in five equal annual installments, upon the sale
of the Company or upon an initial public offering of the Company's stock
("IPO"), 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. Payment of the performance based awards does not occur until and is
dependent upon the achievement of both a performance criteria and an event
criteria. The event criteria is a Company sale or when Vestar's ownership falls
below 10% of the Common Units. The performance criteria for the performance
based award vests in segments as the Company achieves specified performance
targets while there is only one target for the super performance based award.
Any performance or super performance based award which is not fully vested by
December 31, 2002 is automatically terminated.
F-13
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.
9. Restructure and Reorganization Charge
In the second quarter of 1998, the Company announced a plan to restructure
its Connecticut shaver assembly and warehousing operations ("the Plan"). The
Plan consisted of relocating the shaver assembly operations to an existing
Remington partner-vendor located in Asia and relocating the warehousing function
to a third party provider in California. The Plan resulted in affecting the
employment of approximately 235 employees located at the Company's two
Connecticut facilities, the majority of which were factory employees. During
1998, the Company recorded total non-recurring charges of $9.6 million related
to the Plan, of which $6.8 million was charged to restructuring and
reorganization and $2.8 million was charged to cost of sales related to
inventory write-downs associated with the Plan.
The Company substantially completed the relocation of the Connecticut shaver
assembly to Asia, and the relocation of the Connecticut warehousing facility to
a third party in California in the fourth quarter of 1998. In December 1998, the
Company terminated substantially all of the affected employees, and
approximately $0.5 million of severance and other benefit costs were charged
against the restructuring reserve. The remaining amounts are expected to be paid
out in the first half of 1999. As of December 31, 1998, the company terminated
its lease obligations with respect to certain equipment and machinery utilized
in the factory and warehouse, however, the Company must continue to pay
non-cancelable lease obligations for its Connecticut warehouse facility through
the end of 1999. Total cash outlays for 1998 restructuring activities were $1.1
million.
The following table summarizes the major components and activity related to the
restructuring and reorganization through December 31, 1998 (in thousands):
Balance
1998 1998 Activity December 31,
Provision --------------------------- 1998
Cash Non Cash
-------- ---------- ----------- ------------
Severance and Benefit Costs $ 1,997 $ (501) - $ 1,496
Lease Obligations 871 (171) - 700
Equipment and Tooling Write-Down 3,534 - (3,534) -
Other Related Costs 404 (404) - -
------- --------- --------- ---------
Total Restructuring and Reorganization Charge 6,806 (1,076) (3,534) 2,196
Inventory Write-Downs 2,760 - (2,760) -
------- --------- --------- ---------
Total $ 9,566 $ (1,076) $(6,294) $ 2,196
======= ========= ========= =========
10. Income Taxes
Federal income taxes on net earnings of the Company are payable directly by
the partners 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 be paid on net earnings. Furthermore, earnings of certain
foreign operations are taxable under local statutes. Foreign pretax
earnings/(losses) were $(1,613), $6,023, $7,785 and $(2,433) thousand for the
years ended December 31, 1998, December 31, 1997, the 31 weeks ended December
31, 1996 and the 21 weeks ended May 23, 1996, respectively.
F-14
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
The provision (benefit) for income taxes consists of the following (in
thousands):
Year Year Year Ended December 31, 1996
Ended Ended ----------------------------
December 31, December 31, 31 Weeks 21 Weeks
1998 1997 Eended Ended
December 31 May 23
---------- ------------ ----------- -----------
(Predecessor)
Current:
State and local $ 79 $ 15 $ 5 $ -
Foreign 329 2,254 1,762 (312)
Deferred:
Foreign (26) (44) 1,251 (561)
---------- --------- ------- ---------
Total $ 382 $ 2,225 $ 3,018 $ (873)
========== ========= ======= =========
Reconciliation of income taxes computed at the U.S. Federal statutory income tax
rate to the income taxes as reported.
Income taxes computed at statutory U.S. Federal
income tax rate $ (5,234) $ (1,994) $ (54) $(6,672)
Partnership status for U.S. federal income tax
purposes 4,670 4,102 2,779 5,821
State and local income taxes 79 15 5 -
Adjustment for foreign income tax rates 867 102 288 (22)
---------- --------- ------- ---------
Income taxes as reported $ 382 $ 2,225 $ 3,018 $ (873)
========== ========= ======= =========
The components of the Company's deferred tax assets included on the balance
sheet at December 31 are as follows (in thousands):
1998 1997 1996
------- ------- -------
Depreciation and other $ 171 $ 145 $ 101
Foreign tax loss carryforwards 1,853 1,012 396
------ ------- ------
Total 2,024 1,157 497
Less valuation allowance (1,853) (1,012) (396)
------ ------- ------
Total deferred tax assets, net $ 171 $ 145 $ 101
====== ======= ======
The valuation allowance relates to foreign tax loss carryforwards, which
have been fully resinded due to the uncertain nature of their ultimate
realization based upon past performance. Approximately $0.4 million of the $4.1
million in foreign tax loss carryforwards expire betweeen 2003 through 2005,
while the remaining $3.7 million has no expiration date.
F-15
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
11. 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
--------- -------
1999 $ 7,985 $ 444
2000 6,987 374
2001 6,330 190
2002 1,335 148
2003 809 66
2004 and thereafter 575 -
--------- -------
Total minimum lease payments $ 24,021 1,222
=========
Less: Amount representing interest (252)
Present value of minimum lease payments $ 970
=======
Rent expense was $7,077, $6,014, $3,760 and $2,095 thousand for the years
ended December 31, 1998, December 31, 1997, the thirty-one weeks ended December
31, 1996 and the twenty-one weeks ended May 23, 1996, respectively.
The majority of the leases contain escalation clauses which provide for
increases in base rentals to recover future increases in certain operating
costs. The future minimum rental payments shown above include base rentals with
known escalations. Lease agreements may include renewal options and usually
require that the Company pay for utilities, taxes, insurance and maintenance
expenses.
The Company is involved in legal and administrative proceedings and claims
of various types. While any litigation contains an element of uncertainty,
management believes that the outcome of each such proceeding or claim which is
pending or known to be threatened, or all of them combined, will not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
12. Employee Savings Plan
UK Pension Plan. The Company's UK subsidiary has a contributory defined
benefit pension plan which covers substantially all of the UK subsidiary's
employees. Pension benefits are based upon length of service and compensation
under a final compensation averaging formula. The Company's funding policy is to
make contributions consistent with statutory requirements. The plan's assets are
primarily invested in equity instruments.
F-16
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Information regarding the Company's pension plan as of December 31, 1998 and
1997 are as follows (in thousands):
Year Ended December 31,
------------------------
Change in Benefit Obligation: 1998 1997
------ ------
Benefit obligation at beginning of year $6,222 $4,788
Service cost 513 464
Interest cost 461 410
Amendments 259 1,444
Actuarial loss (gain) (387) (585)
Benefits paid (204) (195)
Currency exchange rate effects 38 (104)
------- -------
Benefit obligations at end of year 6,902 6,222
------- -------
Change in Plan Assets:
Fair value of plan assets at beginning of year $5,996 $5,369
Actual return on plan assets 697 580
Employer contributions 287 272
Participant contributions 96 92
Benefits paid (204) (195)
Currency exchange rate effects 37 (122)
-------- -------
Fair value of plan assets at end of year 6,909 5,996
-------- -------
Funded Status 7 (226)
Unrecognized net actuarial (gain) loss 75 (323)
Prepaid (accrued) benefit cost $ 82 $ 97
======== =======
Amounts recognized in the balance sheet are comprised of:
the prepaid benefit costs as noted above.
Weighted average assumptions:
Discounted rate 6.0% 7.5%
Expected return on plan assets 7.0% 8.0%
Rate of compensation increase 3.5% 6.0%
Health care cost trend rate, current year - -
Year Ended December 31,
-----------------------------
1998 1997 1996
------- ------ -------
Components of Net Periodic Benefit Cost:
Service cost $ 359 $ 387 $ 477
Interest cost 461 410 543
Expected return on plan assets (529) (526) (632)
------- ------- ------
Net periodic benefit cost $ 291 $ 271 $ 388
======= ======= ======
F-17
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Employee Savings Plan. The Company has a savings accumulation plan (the
"Plan") under Section 401(k) of the Internal Revenue Code covering substantially
all regular employees. The Plan is subject to the provisions of ERISA and has
been updated for subsequent amendments. The Plan allows for employees to defer
up to the lesser of 15% of their annual earnings or within limitations on a
pre-tax basis through voluntary contributions to the plan. The Plan provides for
contributions in an amount equal to 40% of their employees' contributions up to
a maximum of 5% of their total salary. The Company's matching contributions were
$267, $237, $94 and $52 thousand for the years ended December 31, 1998, December
31, 1997, the thirty-one weeks ended December 31, 1996 and the twenty-one weeks
ended May 23, 1996, respectively.
13. 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, 1998 of long-term fixed rate debt was approximately $97.5
million and $130.0 million, respectively. The fair value and book value at
December 31, 1997 of long-term fixed rate debt was approximately $109.0 million
and $130.0, 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, 1998, the Company had an uncollateralized receivable with one
mass-merchant retailer which represented approximately 18 % of the Company's
accounts receivable balance. During calendar 1998, sales to this customer
represented approximately 19% of the Company's net sales. The Company performs
ongoing credit evaluations of its customers' financial condition but does not
require collateral to support customer receivables. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
Foreign Currency Exposure Management:
The Company is exposed to foreign currency risk primarily to the extent that
its foreign subsidiaries purchase inventory in U.S. dollars. The Company has
entered into foreign currency forward contracts to mitigate the effect of
fluctuating foreign currencies. The Company uses derivative financial
instruments only for risk management purposes and does not use them for
speculation or trading.
At December 31, 1998, forward contracts to sell approximately 4.4 million
UK Pounds Sterling, 6.3 million Australian dollars and 0.6 million German marks
were outstanding, all of which mature in 1999. At December 31, 1997, forward
contracts to sell 15.3 million UK Pounds Sterling were outstanding and matured
at various dates through 1998. The accounting for hedges is discussed separately
under Hedging Activity within Footnote 1.
Other:
The Company's finished goods are manufactured for the Company by certain
third-party suppliers located in China, Japan and Austria. Although the Company
considers its present relationships with these suppliers to be good, any adverse
change in the relationships with these suppliers, the financial condition of
such suppliers, the Company's ability to import outsourced products or the
suppliers' ability to manufacture and deliver outsourced products on a timely
basis would have a material adverse effect on the Company.
F-18
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
14. Related Party Transactions
Pursuant to a management agreement (the "Management Agreement") entered
into by the Company as of the Closing Date, Vestar Capital Partners ("Vestar
Capital"), an affiliate of the Vestar Members, will receive an annual advisory
fee equal to the greater of $500 thousand and 1.5% of EBITDA (as defined in such
agreement) of the Company on a consolidated basis for rendering advisory and
consulting services in relation to strategic financial planning and other
affairs of the Company. Vestar Capital will also be paid reasonable and
customary investment banking fees in connection with an initial public offering,
sale of the Company and other financing. In addition, Vestar Capital received a
fee in the amount of $2.0 million from the Company on the Closing Date. The
Management Agreement will be in effect until the tenth anniversary of the
Closing Date, provided that the Management Agreement will terminate on the
earlier to occur of: (i) a qualified public offering or (ii) the first date that
an affiliate of Vestar Capital owns less than 25% of the number of the Company's
Common Units owned by Vestar Capital on the Closing Date, 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 by the Company as of the closing Date, RPI
will receive an aggregate annual fee equal to the sum of (i) the greater of $500
thousand or 1.5% of EBITDA (as defined in such agreement) of the Company on a
consolidated basis and (ii) $250 thousand in 1996, 1997 and 1998 if the
Company's net revenues or EBITDA (as defined in such agreement) exceed certain
targets in such years, for rendering advisory and consulting services in
relation to strategic financial panning, product development and evaluation of
mergers, acquisitions and divestitures. The Consulting Agreement will be in
effect until the tenth anniversary of the Closing Date, provided that the
Consulting Agreement will terminate on the earlier to occur of: (i) a qualified
public offering or (ii) the first date that RPI owns less than 25% of the number
of the Company's Common Units owned by RPI on the Closing Date, 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).
The Company utilized consultants from an entity controlled by a director
of the Company for a limited duration project during 1996. The Company recorded
fees to the consultants of $323 thousand for this project which has been
completed.
RPC utilized various consultants (principally in its computer and service
store operations) from an entity controlled by one of RPC's partners. RPC was
billed based upon a prearranged hourly amount and was charged $37 thousand for
related services during the twenty-one weeks ended May 23, 1996.
RPC acquired certain products for resale in its service stores from companies
owned by each of RPC's partners. Such purchases aggregated approximately $80
thousand during the twenty-one weeks ended May 23, 1996.
15. Business Segment and Geographical Information
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information", during
the fourth quarter of 1998. The Statement established standards for reporting
information about operating segments in annual financial statements and in
interim financial reports. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated on a regular basis by the Company's chief operating decision maker in
deciding how to allocate resources to an individual segment and in assessing
performance of the segment.
The Company's three operating segments, all of which distribute men's and
women's personal care appliances, are comprised of 1) the United States segment,
which sells product through mass-merchant retailers, department stores and drug
store chains, 2) the U.S. Service Store segment, comprised of more than 100
Company-owned and operated service stores and 3) the International segment which
sells product through an international network of subsidiaries and distributors.
The segment's performance is evaluated based on segment operating profit, which
is defined as income before interest, taxes, depreciation and amortization and
any unusual charges. All corporate related costs and assets, such as intangible
and deferred financing fees, are included in the United States segment and are
not allocated to the other segments' operating profit or assets, respectively.
Segment net sales are evaluated excluding intersegment sales which are not
material.
F-19
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Information by segment and geographical location is as follows (in thousands):
Year Ended December 31, 1996
----------------------------------
Year Year For The For The
Ended Ended 31 Weeks 21 Weeks
December 31, December 31, Ending Ending
1998 1997 December 31. 1996 May 23,1996
------------ -------------- ----------------- ------------
Net Sales:
United States $ 122,469 $ 99,612 $ 87,641 $ 25,513
U.S. Service Stores 42,430 38,590 24,512 9,234
International 103,458 103,370 73,133 21,966
--------- ---------- ----------- -----------
Total $ 268,357 $ 241,572 $ 185,286 $ 56,713
========= ========== =========== ===========
Operating Profit:
United States $ 10,200 $ 6,269 $ 732 $ (13,340)
U.S. Service Stores 3,613 3,441 2,611 (203)
International 6,938 9,203 11,544 (1,403)
Depreciation and amortization (5,169) (4,767) (2,379) ( 2,005)
Restructuring and reorganization charge (6,806) - - -
Inventory write-down (2,760) - - -
--------- ---------- ----------- ----------
Total $ 6,016 $ 14,146 $ 12,508 $ (16,951)
========= ========== ============ ===========
Segment Assets:
United States $ 116,985 $ 118,164 $ 133,008
U.S. Service Stores 11,390 11,165 9,787
International 67,352 75,916 72,028
---------- ----------- -----------
Total $ 195,727 $ 205,245 $ 214,823
========= =========== ===========
Capital Expenditures:
United States $ 1,734 $ 2,856 $ 1,170 $ 1,070
U.S. Service Stores 1,167 1,251 867 85
International 978 971 362 155
------------ ------------- ------------- ----------
Total $ 3,879 $ 5,078 $ 2,399 $ 1,310
========== =========== ============= ==========
Net sales in the United Kingdom represented approximately 19%, 20% and
17% of the Company's consolidated net sales during the years ended December 31,
1998, 1997 and 1996, respectively. No other country contributed more than 10% of
consolidated net sales.
The Company's largest customer, Wal-Mart, accounted for approximately
19%, 15% and 16% of the Company's consolidated net sales during the years ended
December 31, 1998, 1997 and 1996 and is serviced by both the United States and
International segments. No other customer accounted for more than 10% of the
Company's net sales during the years ended December 31, 1998, 1997 and 1996.
F-20
REMINGTON PRODUCTS COMPANY
Schedule II--Valuation & Qualifying Accounts
(in thousands)
Additions
Balance of Charged to Balance at
Beginning Costs and End
of Period Expenses Deductions of Period
---------- ---------- ---------- ----------
Successor
Year Ended December 31, 1998
Allowance for doubtful accounts $ 734 $ 2,242 $ 227 $ 2,749
Allowance for cash discounts and returns 8,925 15,299 16,569 7,655
Year Ended December 31, 1997
Allowance for doubtful accounts 1,340 188 794 734
Allowance for cash discounts and returns 9,419 16,007 16,501 8,925
31 Weeks Ended December 31, 1996
Allowance for doubtful accounts 2,487 341 1,488 1,340
Allowance for cash discounts and returns 3,937 14,123 8,641 9,419
Predecessor
21 Weeks Ended May 23, 1996
Allowance for doubtful accounts 1,366 1,441 320 2,487
Allowance for cash discounts and returns 7,852 4,331 8,246 3,937
S-1